<SUBMISSION>
<ACCESSION-NUMBER>0000891618-01-000234
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>25
<PERIOD>20001231
<FILING-DATE>20010315
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>CALPINE CORP
<CIK>0000916457
<ASSIGNED-SIC>4911
<IRS-NUMBER>770212977
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>001-12079
<FILM-NUMBER>1569511
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>50 WEST SAN FERNANDO ST
<CITY>SAN JOSE
<STATE>CA
<ZIP>95113
<PHONE>4089955115
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>50 W SAN FERNANDO
<STREET2>SUITE 500
<CITY>SAN JOSE
<STATE>CA
<ZIP>95113
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>f70293e10-k.txt
<DESCRIPTION>FORM 10-K PERIOD ENDED DECEMBER 31, 2000
<TEXT>

<PAGE>   1

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

                                   FORM 10-K
                            ------------------------

(MARK ONE)

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 1-12079

                              CALPINE CORPORATION
                            (A DELAWARE CORPORATION)

                 I.R.S. EMPLOYER IDENTIFICATION NO. 77-0212977

                          50 WEST SAN FERNANDO STREET
                           SAN JOSE, CALIFORNIA 95113
                           TELEPHONE: (408) 995-5115

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
  CALPINE CORPORATION COMMON STOCK, $.001 PAR VALUE REGISTERED ON THE NEW YORK
                                 STOCK EXCHANGE

       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.

     Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K.  [ ]

     Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 13, 2001: $13.1 billion. Common stock outstanding as of
March 13, 2001: 284,794,073.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the documents listed below have been incorporated by reference
into the indicated parts of this report, as specified in the responses to the
item numbers involved.

<TABLE>
<S>                                                 <C>
(1) Designated portions of the Proxy Statement
    relating to the 2001 Annual Meeting of
    Shareholders..................................  Part III (Items 10, 11, 12 and 13)
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                                   FORM 10-K
                                 ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
                                   PART I
Item 1.    Business....................................................    1
Item 2.    Properties..................................................   22
Item 3.    Legal Proceedings...........................................   24
Item 4.    Submission of Matters To A Vote of Security Holders.........   24

                                   PART II
Item 5.    Market for Registrant's Common Equity and Related              24
           Stockholder Matters.........................................
Item 6.    Selected Financial Data.....................................   25
Item 7.    Management's Discussion and Analysis of Financial Condition    25
           and Results of Operations...................................
Item 7a.   Quantitative and Qualitative Disclosure about Market Risk...   25
Item 8.    Financial Statements and Supplementary Data.................   25
Item 9.    Changes in and Disagreements with Accountants on Accounting    25
           and Financial Disclosure....................................

                                  PART III
Item 10.   Executive Officers, Directors and Key Employees.............   25
Item 11.   Executive Compensation......................................   25
Item 12.   Security Ownership of Certain Beneficial Owners and            26
           Management..................................................
Item 13.   Certain Relationships and Related Transactions..............   26

                                   PART IV
Item 14.   Exhibits, Financial Statement Schedules and Reports on Form    26
           8-K.........................................................
           Signatures..................................................   32
Index to Consolidated Financial Statements and Other Information.......  F-1
</TABLE>

                                        i
<PAGE>   3

ITEM 1. BUSINESS

     Except for historical financial information contained herein, the matters
discussed in this annual report may be considered "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the intent, belief or current expectations of Calpine
Corporation ("the Company") and its management. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that could
materially affect actual results such as, but not limited to, (i) changes in
government regulations, including pending changes in California, and anticipated
deregulation of the electric energy industry, (ii) commercial operations of new
plants that may be delayed or prevented because of various development and
construction risks, such as a failure to obtain financing and the necessary
permits to operate or the failure of third-party contractors to perform their
contractual obligations, (iii) cost estimates are preliminary and actual costs
may be higher than estimated, (iv) the assurance that the Company will develop
additional plants, (v) a competitor's development of a lower-cost generating
gas-fired power plant, (vi) the risks associated with marketing and selling
power from power plants in the newly competitive energy market, (vii) the risks
associated with marketing and selling combustion turbine parts and components in
the competitive combustion turbine parts market, (viii) the risks associated
with engineering, designing and manufacturing combustion turbine parts and
components, (ix) delivery and performance risks associated with combustion
turbine parts and components attributable to production, quality control,
suppliers and transportation, (x) the successful exploitation of an oil or gas
resource that ultimately depends upon the geology of the resource, the total
amount and cost to develop recoverable reserves, and operational factors
relating to the extraction of natural gas, or (xi) those risks and uncertainties
identified in Management's Discussion and Analysis -- Risk Factors included with
the Consolidated Financial Statements in this report and incorporated into this
Item 1 -- Business section. Prospective investors are also cautioned that the
California energy market remains uncertain. The Company's management is working
closely with a number of parties to resolve the current uncertainty. This is an
ongoing process and, therefore, the outcome cannot be predicted. It is possible
that any such outcome will include changes in government regulations, business
and contractual relationships or other factors that could materially affect the
Company. However, management believes that a final resolution will not have a
material adverse impact on the Company. Prospective investors are also referred
to the other risks identified from time to time in the Company's reports and
registration statements filed with the Securities and Exchange Commission.

                                    OVERVIEW

     Calpine is a leading independent power company engaged in the development,
acquisition, ownership and operation of power generation facilities and the sale
of electricity predominantly in the United States. We have experienced
significant growth in all aspects of our business over the last five years.
Currently, we own interests in 50 power plants having a net capacity of 5,849
megawatts. We also have 25 gas-fired projects under construction having a net
capacity of 14,028 megawatts and have announced plans to develop 28 gas-fired
projects (power plants and expansions of current facilities) with a net capacity
of 15,142 megawatts. Upon completion of the projects under construction, we will
have interests in 74 power plants located in 21 states having a net capacity of
19,877 megawatts. Of this total generating capacity, 96% will be attributable to
gas-fired facilities and 4% will be attributable to geothermal facilities. As a
result of our expansion program, our revenues, cash flow, earnings and assets
have grown significantly over the last five years, as shown in the table below.

<TABLE>
<CAPTION>
                                                                           COMPOUND ANNUAL
                                                   1996         2000         GROWTH RATE
                                                 ---------    ---------    ---------------
                                                 (DOLLARS IN MILLIONS)
<S>                                              <C>          <C>          <C>
Total Revenue..................................  $  214.6     $2,282.8            81%
EBITDA.........................................     110.7        825.9            65%
Net Income.....................................      18.7        323.5           104%
Total Assets...................................   1,031.4      9,737.3            75%
</TABLE>

                                        1
<PAGE>   4

     Since our inception in 1984, we have developed substantial expertise in all
aspects of the development, acquisition and operation of power generation
facilities. We believe that the vertical integration of our extensive
engineering, construction management, operations, fuel management, power
marketing and financing capabilities provides us with a competitive advantage to
successfully implement our acquisition and development program and has
contributed to our significant growth over the past five years.

                                   THE MARKET

     The power industry represents the third largest industry in the United
States, with an estimated end-user market of over $215 billion of electricity
sales in 2000 produced by an aggregate base of power generation facilities with
a capacity of approximately 860,000 megawatts. In response to increasing
customer demand for access to low-cost electricity and enhanced services, new
regulatory initiatives have been and are continuing to be adopted at both the
state and federal level to increase competition in the domestic power generation
industry. The power generation industry historically has been largely
characterized by electric utility monopolies producing electricity from old,
inefficient, high-cost generating facilities selling to a captive customer base.
Industry trends and regulatory initiatives have transformed the existing market
into a more competitive market where end-users purchase electricity from a
variety of suppliers, including non-utility generators, power marketers, public
utilities and others.

     There is a significant need for additional power generating capacity
throughout the United States, both to satisfy increasing demand, as well as to
replace old and inefficient generating facilities. Due to environmental and
economic considerations, we believe this new capacity will be provided
predominantly by gas-fired facilities. We believe that these market trends will
create substantial opportunities for efficient, low-cost power producers that
can produce and sell energy to customers at competitive rates.

     In addition, as a result of a variety of factors, including deregulation of
the power generation market, utilities, independent power producers and
industrial companies are disposing of power generation facilities. To date,
numerous utilities have sold or announced their intentions to sell their power
generation facilities and have focused their resources on the transmission and
distribution business segments. Many independent producers operating a limited
number of power plants are also seeking to dispose of their plants in response
to competitive pressures, and industrial companies are selling their power
plants to redeploy capital in their core businesses.

                                    STRATEGY

     Our strategy is to continue our rapid growth by capitalizing on the
significant opportunities in the power market, primarily through our active
development and acquisition programs. In pursuing our growth strategy, we
utilize our management and technical knowledge to implement a fully integrated
approach to the acquisition, development and operation of power generation
facilities. This approach uses our expertise in design, engineering,
procurement, finance, construction management, fuel and resource production,
acquisition, operations and power marketing, which we believe provides us with a
competitive advantage. The key elements of our strategy are as follows:

     - Development of new and expansion of existing power plants. We are
       actively pursuing the development of new, and expansion of both baseload
       and peaking capacity at our existing, highly efficient, low-cost,
       gas-fired power plants to replace old and inefficient generating
       facilities and meet the demand for new generation.

     - Acquisition of power plants. Our strategy is to acquire power generating
       facilities that meet our stringent criteria, provide significant
       potential for revenue, cash flow and earnings growth and provide the
       opportunity to enhance the operating efficiencies of the plants.

     - Enhancement of existing power plants. We continually seek to maximize the
       power generation and revenue potential of our operating assets and
       minimize our operating and maintenance expenses and fuel costs.

                                        2
<PAGE>   5

                              RECENT DEVELOPMENTS

     Project Development and Construction. On February 12, 2001, we announced
that the Florida Public Service Commission approved a joint application filed by
Calpine and Seminole Electric Cooperative, Inc. ("Seminole"), under which we
will build the Osprey Energy Center to supply electric power to help meet
Seminole's members' power needs.

     Issuance of Securities. On February 15, 2001, we completed a public
offering of $1.15 billion of our 8 1/2% Senior Notes due 2011. The Senior Notes
due 2011 bear interest at 8 1/2% per year, payable semi-annually, and mature on
February 15, 2011.

     California Power Market. The deregulation of the California power market
has produced significant unanticipated results in the past year. The
deregulation froze the rates that utilities can charge their retail and business
customers in California and prohibited the utilities from buying power on a
forward basis, while wholesale power prices were not subjected to limits.

     In the past year, a series of factors have reduced the supply of power to
California, which has resulted in wholesale power prices that have been
significantly higher than historical levels. Several factors contributed to this
increase. These included:

     - significantly increased volatility in prices and supplies of natural gas;

     - an unusually dry fall and winter in the Pacific Northwest, which reduced
       the amount of available hydroelectric power from that region (typically,
       California imports a portion of its power from this source);

     - the large number of power generating facilities in California nearing the
       end of their useful lives, resulting in increased downtime (either for
       repairs or because they have exhausted their air pollution credits and
       replacement credits have become too costly to acquire on the secondary
       market); and

     - continued obstacles to new power plant construction in California, which
       deprived the market of new power sources that could have, in part,
       ameliorated the adverse effects of the foregoing factors.

     As a result of this situation, two major California utilities that are
subject to the retail rate freeze, including Pacific Gas & Electric Company
("PG&E"), have faced wholesale prices that far exceed the retail prices they are
permitted to charge. This has led to significant underrecovery of costs by these
utilities; and they have been widely reported to be facing the prospect of
insolvency. As a consequence, these utilities have defaulted under a variety of
contractual obligations, including payment obligations to power generators. PG&E
has defaulted on payment obligations to us. (For additional information,
including information on certain receivables, see Notes 15 and 19 of the Notes
to Consolidated Financial Statements.)

     We have historically sold power to PG&E, which is one of the California
utilities that is subject to the rate freeze. We are currently selling power to
PG&E pursuant to long-term qualifying facility ("QF") contracts, which are
subject to federal regulation under the Public Utility Regulatory Policies Act
of 1978, as amended ("PURPA") (16 U.S.C. sec. 796 et seq.). The QF contracts
provide that the California Public Utilities Commission ("CPUC") has the
authority to determine the appropriate utility "avoided cost" to be used to set
energy payments for certain QF contracts, including those for all of our QF
plants in California which sell power to PG&E. Section 390 of the California
Public Utility Code provided QFs the option to elect to receive energy payments
based on the California Power Exchange ("PX") market clearing price. In mid-
2000, our QF facilities elected this option and were paid based upon the PX
zonal day ahead clearing price ("PX Price") from summer 2000 until January 19,
2001, when the PX ceased operating a day ahead market. Since that time, the CPUC
has ordered that the price to be paid for energy deliveries by QFs electing the
PX Price shall be based on a natural gas cost-based "transition formula." The
CPUC has conducted proceedings (R. 99-11-022) to determine whether the PX Price
was the appropriate price for the energy component upon which to base payments
to QFs which had elected the PX based pricing option. It is possible that the
CPUC could order a payment adjustment based on a different energy price
determination. We believe that the PX Price was the appropriate price for energy
payments but there can be no assurance that this will be the outcome of the CPUC
proceedings. Legislation has recently been introduced in the California
legislature
                                        3
<PAGE>   6

(SB 47X) that would establish a fixed price for the QF contracts for a 5 year
period and would eliminate any PX Price adjustment prior to December 31, 2000.
There can be no assurances that this legislation will be enacted.

     We have continued to honor our contractual obligations to PG&E under our QF
contracts. To date, we have refrained from pursuing our collection remedies with
respect to PG&E's default, however, we have been actively involved with the
California utilities, the California legislature, and other interested parties
to develop legislation designed to stabilize energy prices through the
application of a long-term energy pricing methodology (for a five-year period)
in place of the short-term pricing methodology currently utilized under the QF
contracts, as discussed above. We also expect further legislation to enable the
California utilities to finance over a longer term the difference between the
wholesale prices that have been paid and the retail prices they received during
last fall and into this winter. We believe that this should enhance PG&E's
ability to make payment of all past due amounts. However, management cannot
predict the timing or ultimate outcome of the legislative process or the payment
of amounts due under our contracts.

     As this situation has deteriorated, California has taken steps to restore a
predictable and reliable power market to the State. Recently, California adopted
legislation permitting it to issue long-term revenue bonds to provide funding
for wholesale purchases of power. The bonds will be repaid with the proceeds of
payments by retail customers over time. The California Department of Water
Resources ("DWR") sought bids for long-term power supply contracts. We
successfully bid in that auction, and announced, as indicated below, that we
have signed three significant long-term power supply contracts with DWR.

     On February 7, 2001, we announced the signing of a 10-year, $4.6 billion
fixed-price contract with DWR to provide electricity to the State of California.
We committed to sell up to 1,000 megawatts of electricity, with initial
deliveries of 200 megawatts starting October 1, 2001, and increasing to 1,000
megawatts by January 1, 2004. This contract will continue through 2011. The
electricity will be sold directly to DWR on a 24-hour, 7-day-a-week basis.

     On February 28, 2001, we announced the signing of two long-term power sales
contracts with DWR. Under the terms of the first contract, a $5.2 billion,
10-year, fixed-price contract, we commit to sell up to 1,000 megawatts of
generation. Initial deliveries are scheduled to begin July 1, 2001 with 200
megawatts and increase to 1,000 megawatts by as early as July 2002. Under the
terms of the second contract, a 20-year contract totaling up to $3.1 billion, we
will supply DWR with up to 495 megawatts of peaking generation, beginning with
90 megawatts as early as August 2001, and increasing up to 495 megawatts as
early as August 2002.

     On March 13, 2001, we announced the signing of a two-month deal to provide
555 megawatts of electricity to DWR from our new South Point Energy Center
during plant testing, effective immediately through May 15, 2001.

  FERC Investigation into California Wholesale Markets. Beginning in May 2000,
wholesale energy prices in the California markets increased to levels well above
1999 levels. In response, on June 28, 2000, the ISO Board of Governors reduced
the price cap applicable to the ISO's wholesale energy and ancillary services
markets from $750/MWh to $500/MWh. The ISO subsequently reduced the price cap to
$250/MWh on August 1, 2000. During this period, however, the California Power
Exchange Corporation ("PX") maintained a separate price cap set at a much higher
level applicable to the "day-ahead" and "day-of" markets administered by the PX.
On August 23, 2000, the FERC denied a complaint filed August 2, 2000 by San
Diego Gas & Electric Company ("SDG&E") that sought to extend the ISO's $250
price cap to all California energy and ancillary service markets, not just the
markets administered by the ISO. However, in its order denying the relief sought
by SDG&E, the FERC instructed its staff to initiate an investigation of the
California power markets and to report its findings to the FERC and held further
hearing procedures in abeyance pending the outcome of this investigation.

     On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff investigation, together with an "Order Proposing Remedies for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order, the
FERC found that the California power market structure and market rules were
                                        4
<PAGE>   7

seriously flawed, and that these flaws, together with short supply relative to
demand, resulted in unusually high energy prices. The November 1 Order proposed
specific remedies to the identified market flaws, including: (a) imposition of a
so-called "soft" price cap at $150/MWh to be applied to both the PX and ISO
markets, which would allow bids above $150/MWh to be accepted, but will subject
such bids to certain reporting obligations requiring sellers to provide cost
data and/or identify applicable opportunity costs and specifying that such bids
may not set the overall market clearing price, (b) elimination of the
requirement that the California utilities sell into and buy from the PX, (c)
establishment of independent non-stakeholder governing boards for the ISO and
the PX, and (d) establishment of penalty charges for scheduling deviations
outside of a prescribed range. In the November 1 Order the FERC established
October 2, 2000, the date 60 days after the filing of the SDG&E complaint, as
the "refund effective date." Under the November 1 Order, rates charged for
service after that date through December 31, 2002 will remain subject to refund
if determined by the FERC not to be just and reasonable. While the FERC
concluded that the Federal Power Act and prior court decisions interpreting that
act strongly suggested that refunds would not be permissible for charges in the
period prior to October 2, 2000, it noted that it was willing to explore
proposals for equitable relief with respect to charges made in that period. All
of the Company's receivables from PG&E relate to energy generated by QF
facilities. Under FERC regulations, QF contracts are exempt from regulation
under the Federal Power Act, which is the legislation that provides the
authority for the FERC to compel refunds or frame other equitable relief with
respect to the California wholesale markets. See "Government
Regulation -- Federal Energy Regulation -- Federal Power Act Regulation."
Therefore, the Company believes that any refund or other equitable remedy that
the FERC may impose with respect to the California wholesale markets will not
affect the Company's ability to pursue payment by PG&E of all past due amounts
as described above.

     On December 15, 2000, the FERC issued a subsequent order that affirmed in
large measure the November 1 Order (the "December 15 Order"). Various parties
have filed requests for administrative rehearing and for judicial review of
aspects of the FERC's December 15 Order. The outcome of these proceedings, and
the extent to which the FERC or a reviewing court may revise aspects of the
December 15 Order or the extent to which these proceedings may result in a
refund of or reduction in the amounts charged by the Company's subsidiaries for
power sold in the ISO and PX markets, cannot be determined at this time.

                           DESCRIPTION OF FACILITIES

     At March 8, 2001, Calpine had interests in 50 power generation facilities
representing 5,849 megawatts of net capacity. Of these 50 projects, 31 are
gas-fired power plants with a net capacity of 4,999 megawatts, and 19 are
geothermal power generation facilities with a net capacity of 850 megawatts. We
also have 24 gas-fired projects and one project expansion currently under
construction with a net capacity of 14,028 megawatts, and have announced the
development of 21 additional power plants and seven project expansions with a
net capacity of 15,142 megawatts. Each of the power generation facilities
currently in operation produces electricity for sale to a utility or other
third-party end user. Thermal energy produced by the gas-fired cogeneration
facilities is sold to governmental and industrial users.

     The gas-fired and geothermal power generation projects in which we have an
interest produce electricity and thermal energy that are typically sold pursuant
to long-term power sales agreements. Revenue from a power sales agreement
usually consists of two components: energy payments and capacity payments.
Energy payments are based on a power plant's net electrical output where payment
rates may be determined by a schedule of prices covering a fixed number of years
under the power sales agreement, after which payment rates are usually indexed
to the fuel costs of the contracting utility or to general inflation indices.
Capacity payments are based on a power plant's net electrical output and/or its
available capacity. Energy payments are made for each kilowatt hour of energy
delivered, while capacity payments, under certain circumstances, are made
whether or not any electricity is delivered.

     Upon completion of our projects under construction, we will provide
operating and maintenance services for 69 of the 74 power plants in which we
have an interest. Such services include the operation of power plants,
geothermal steam fields, wells and well pumps, gas fields, gathering systems and
gas pipelines. We also supervise maintenance, materials purchasing and inventory
control, manage cash flow, train staff and prepare

                                        5
<PAGE>   8

operating and maintenance manuals for each power generation facility that we
operate. As a facility develops an operating history, we analyze its operation
and may modify or upgrade equipment or adjust operating procedures or
maintenance measures to enhance the facility's reliability or profitability.
These services are sometimes performed under the terms of an operating and
maintenance agreement pursuant to which we are generally reimbursed for certain
costs, paid an annual operating fee and may also be paid an incentive fee based
on the performance of the facility. The fees payable to us are generally
subordinated to any lease payments or debt service obligations of financing for
the project.

     In order to provide fuel for the gas-fired power generation facilities in
which we have an interest, natural gas reserves are acquired or natural gas is
purchased from third parties under supply agreements. We attempt to structure a
gas-fired power facility's fuel supply agreement so that gas costs have a direct
relationship to the fuel component of revenue energy payments. See "Properties"
for further discussion of our gas reserves.

     We currently hold interests in geothermal leaseholds in The Geysers that
produce steam that is supplied to the power generation facilities owned by us
for use in producing electricity.

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

     Substantially all of the power generation facilities in which we have an
interest are located on sites which we own or are leased on a long-term basis.
See "Properties."

     Set forth below is certain information regarding our operating power
plants, plants under construction, and announced development projects.

<TABLE>
<CAPTION>
                                                                          MEGAWATTS
                                                      --------------------------------------------------
                                                                              CALPINE NET    CALPINE NET
                                          NUMBER      BASELOAD    PEAKING      INTEREST       INTEREST
                                         OF PLANTS    CAPACITY    CAPACITY     BASELOAD        PEAKING
                                         ---------    --------    --------    -----------    -----------
<S>                                      <C>          <C>         <C>         <C>            <C>
In operation
  Geothermal power plants..............     19            850         850          850            850
  Gas-fired power plants...............     31          4,866       5,916        4,007          4,999
Under construction
  New facilities.......................     24         13,418      15,446       11,807         13,668
  Expansion projects (one).............     --             --         360           --            360
Announced development
  New facilities.......................     21         12,253      14,514       11,987         14,225
  Expansion projects (seven)...........     --            322         917          322            917
                                            --         ------      ------       ------         ------
                                            95         31,709      38,003       28,973         35,019
                                            ==         ======      ======       ======         ======
</TABLE>

                                        6
<PAGE>   9

                             OPERATING POWER PLANTS

<TABLE>
<CAPTION>
                                                                               CALPINE NET   CALPINE NET
                                            BASELOAD   PEAKING     CALPINE      INTEREST      INTEREST        2000
                                 STATE OR   CAPACITY   CAPACITY    INTEREST     BASELOAD       PEAKING     GENERATION
          POWER PLANT            PROVINCE     (MW)       (MW)     PERCENTAGE      (MW)          (MW)          MWH
          -----------            --------   --------   --------   ----------   -----------   -----------   ----------
<S>                              <C>        <C>        <C>        <C>          <C>           <C>           <C>
GEOTHERMAL POWER PLANTS
Sonoma County (12 plants)......     CA        512.0      512.0      100.0%         512.0         512.0      3,488,792
Lake County (2 plants).........     CA        145.0      145.0      100.0%         145.0         145.0        944,441
Calistoga......................     CA         73.0       73.0      100.0%          73.0          73.0        533,531
Sonoma.........................     CA         53.0       53.0      100.0%          53.0          53.0        380,478
West Ford Flat.................     CA         27.0       27.0      100.0%          27.0          27.0        217,231
Bear Canyon....................     CA         20.0       20.0      100.0%          20.0          20.0        146,193
Aidlin.........................     CA         20.0       20.0      100.0%          20.0          20.0        149,074
                                            -------    -------                   -------       -------     ----------
          Total Geothermal
            Power Plants.......               850.0      850.0                     850.0         850.0      5,859,740
                                            =======    =======                   =======       =======     ==========
GAS-FIRED POWER PLANTS
Pasadena Power Plant...........     TX        751.0      787.0      100.0%         751.0         787.0      3,150,018
Broad River Energy Center......     SC           --      541.0      100.0%            --         541.0         21,451
Hidalgo Energy Center..........     TX        502.0      502.0       78.5%         394.1         394.1        981,498
Texas City Power Plant.........     TX        465.0      471.0      100.0%         465.0         471.0      3,413,022
Clear Lake Power Plant.........     TX        335.0      412.0      100.0%         335.0         412.0      2,937,853
Rumford Power Plant............     ME        237.0      251.0      100.0%         237.0         251.0        105,256
Tiverton Power Plant...........     RI        240.0      240.0      100.0%         240.0         240.0        292,798
Gordonsville Power Plant.......     VA        233.0      238.0       50.0%         116.5         119.0        119,287
Lockport Power Plant...........     NY        177.0      198.0       11.4%          20.1          22.5        186,826
DePere Energy Center...........     WI           --      180.0      100.0%            --         180.0         53,631
Morris Power Plant.............     IL        155.0      177.5       86.0%         134.0         146.4        535,323
Bayonne Power Plant............     NJ        158.0      170.0        7.5%          11.9          12.8        105,277
Dighton Power Plant............     MA        162.0      168.0      100.0%         162.0         168.0        839,746
Androscoggin Energy Center.....     ME        160.0      160.0       32.3%          51.7          51.7         53,979
Auburndale Power Plant.........     FL        143.0      153.0      100.0%         143.0         153.0        512,118
Grays Ferry Power Plant........     PA        143.0      148.0       40.0%          57.2          59.2        417,485
Gilroy Power Plant.............     CA        112.0      131.0      100.0%         112.0         131.0        917,348
Pryor Power Plant..............     OK        109.0      124.0       80.0%          87.2          99.2        321,146
Sumas Power Plant..............     WA        120.0      122.0       50.0%          60.0          61.0      1,087,658
Parlin Power Plant.............     NJ         89.0      118.0       80.0%          71.2          94.4        347,002
King City Power Plant..........     CA        103.0      115.0      100.0%         103.0         115.0        914,807
Kennedy International Airport
  Power Plant("KIAC")..........     NY         95.0      105.0      100.0%          95.0         105.0        231,404
Pittsburg Power Plant..........     CA         64.0       71.0      100.0%          64.0          71.0        438,444
Newark Power Plant.............     NJ         47.0       58.0       80.0%          37.6          46.4        271,164
Bethpage Power Plant...........     NY         52.0       53.7      100.0%          52.0          53.7        384,448
Greenleaf 1 Power Plant........     CA         50.0       50.0      100.0%          50.0          50.0        379,205
Greenleaf 2 Power Plant........     CA         50.0       50.0      100.0%          50.0          50.0        358,961
Stony Brook Power Plant........     NY         36.0       40.0      100.0%          36.0          40.0        125,455
Watsonville Power Plant........     CA         29.0       30.0      100.0%          29.0          30.0        219,516
Agnews Power Plant.............     CA         26.5       28.6      100.0%          26.5          28.6        113,798
Philadelphia Water Project.....     PA         22.0       23.0       66.4%          14.6          15.3            890
                                            -------    -------                   -------       -------     ----------
          Total Gas-Fired Power
            Plants.............             4,865.5    5,915.8                   4,006.6       4,999.3     19,836,814
                                            =======    =======                   =======       =======     ==========
          Total Operating Power
            Plants.............             5,715.5    6,765.8                   4,856.6       5,849.3     25,696,554
                                            =======    =======                   =======       =======     ==========
</TABLE>

                                        7
<PAGE>   10

             PROJECTS UNDER CONSTRUCTION AND ANNOUNCED DEVELOPMENT

<TABLE>
<CAPTION>
                                                                                               CALPINE NET   CALPINE NET
                                      POWER                 BASELOAD   PEAKING     CALPINE      INTEREST      INTEREST
                                    GENERATION   STATE OR   CAPACITY   CAPACITY    INTEREST     BASELOAD       PEAKING
           POWER PLANT              TECHNOLOGY   PROVINCE     (MW)       (MW)     PERCENTAGE      (MW)          (MW)
           -----------              ----------   --------   --------   --------   ----------   -----------   -----------
<S>                                 <C>          <C>        <C>        <C>        <C>          <C>           <C>
PROJECTS UNDER CONSTRUCTION
Acadia Energy Center..............     Gas          LA       1,080.0    1,239.0      50.0%         540.0         619.5
Oneta Energy Center...............     Gas          OK         960.3    1,137.8     100.0%         960.3       1,137.8
Freestone Energy Center...........     Gas          TX       1,002.8    1,051.6     100.0%       1,002.8       1,051.6
Delta Energy Center...............     Gas          CA         798.0      874.0      50.0%         399.0         437.0
Baytown Power Plant...............     Gas          TX         704.0      834.0     100.0%         704.0         834.0
Decatur Energy Center.............     Gas          AL         659.0      794.0     100.0%         659.0         794.0
Morgan Energy Center..............     Gas          AL         660.0      790.0     100.0%         660.0         790.0
Magic Valley Generating Station...     Gas          TX         687.0      750.0     100.0%         687.0         750.0
Hermiston Power Project...........     Gas          OR         530.0      630.0     100.0%         530.0         630.0
Channel Energy Center.............     Gas          TX         519.0      628.0     100.0%         519.0         628.0
Aries Power Plant.................     Gas          MO         516.0      591.0      50.0%         258.0         295.5
Washington Parish Energy Center...     Gas          LA         490.0      577.0     100.0%         490.0         577.0
South Point Energy Center.........     Gas          AZ         526.0      555.0     100.0%         526.0         555.0
Los Medanos Energy Center.........     Gas          CA         493.0      555.0     100.0%         493.0         555.0
Sutter Power Plant................     Gas          CA         516.0      547.0     100.0%         516.0         547.0
Lost Pines 1 Power Plant..........     Gas          TX         522.0      545.0      50.0%         261.0         272.5
Ontelaunee Energy Center..........     Gas          PA         511.0      541.0     100.0%         511.0         541.0
Westbrook Energy Center...........     Gas          ME         487.0      525.0     100.0%         487.0         525.0
RockGen Energy Center.............     Gas          WI            --      523.8     100.0%            --         523.8
Corpus Christi Energy Center......     Gas          TX         522.7      522.7     100.0%         522.7         522.7
Carville Energy Center............     Gas          LA         522.7      522.7     100.0%         522.7         522.7
Broad River Energy Center
  Expansion.......................     Gas          SC            --      360.0     100.0%            --         360.0
Santa Rosa Energy Center..........     Gas          FL         252.0      252.0     100.0%         252.0         252.0
Hog Bayou Energy Center...........     Gas          AL         246.6      246.6      66.7%         164.5         164.5
Pine Bluff Energy Center..........     Gas          AR         213.3      213.3      66.7%         142.3         142.3
                                                            --------   --------                 --------      --------
          Total Projects Under
            Construction..........                          13,418.4   15,805.5                 11,807.3      14,027.9
                                                            ========   ========                 ========      ========
</TABLE>

                                        8
<PAGE>   11

<TABLE>
<CAPTION>
                                                                                               CALPINE NET   CALPINE NET
                                      POWER                 BASELOAD   PEAKING     CALPINE      INTEREST      INTEREST
                                    GENERATION   STATE OR   CAPACITY   CAPACITY    INTEREST     BASELOAD       PEAKING
           POWER PLANT              TECHNOLOGY   PROVINCE     (MW)       (MW)     PERCENTAGE      (MW)          (MW)
           -----------              ----------   --------   --------   --------   ----------   -----------   -----------
<S>                                 <C>          <C>        <C>        <C>        <C>          <C>           <C>
ANNOUNCED DEVELOPMENT
Blue Heron Energy Center..........     Gas          FL       1,080.0    1,239.0     100.0%       1,080.0       1,239.0
Lawrence Energy Center............     Gas          OH         850.0    1,100.0     100.0%         850.0       1,100.0
East Altamont Energy Center.......     Gas          CA         820.0    1,065.0     100.0%         820.0       1,065.0
Haywood Energy Center.............     Gas          TN         800.0      915.0     100.0%         800.0         915.0
Lone Oak Energy Center............     Gas          MS         800.0      915.0     100.0%         800.0         915.0
Augusta Energy Center.............     Gas          GA         750.0      850.0     100.0%         750.0         850.0
Hillabee Energy Center............     Gas          AL         710.0      770.0     100.0%         710.0         770.0
Fremont Energy Center.............     Gas          OH         550.0      700.0     100.0%         550.0         700.0
Wawayanda Energy Center...........     Gas          NY         530.0      630.0     100.0%         530.0         630.0
Otay Mesa Generating Project......     Gas          CA         540.0      618.0     100.0%         540.0         618.0
Teayawa Energy Center.............     Gas          CA         530.0      608.0     100.0%         530.0         608.0
RiverGen Energy Center............     Gas          WI         450.0      600.0     100.0%         450.0         600.0
Osprey Energy Center..............     Gas          FL         530.0      590.0     100.0%         530.0         590.0
Metcalf Energy Center.............     Gas          CA         532.5      578.7      50.0%         266.3         289.4
Thompson Creek Energy Center......     Gas          LA         500.0      575.0     100.0%         500.0         575.0
Columbia Energy Center............     Gas          SC         500.0      550.0     100.0%         500.0         550.0
Hammond Energy Center.............     Gas          IN         500.0      550.0     100.0%         500.0         550.0
Mt. Vernon Energy Center..........     Gas          IN         522.7      522.7     100.0%         522.7         522.7
Towantic Energy Center............     Gas          CT         508.0      508.0     100.0%         508.0         508.0
California Peakers (4 projects)...     Gas          CA            --      495.0     100.0%            --         495.0
Zion Energy Center................     Gas          IL            --      330.0     100.0%            --         330.0
Calgary Energy Centre.............     Gas          AB         250.0      300.0     100.0%         250.0         300.0
Pine Bluff Energy Center
  Expansion.......................     Gas          AR         246.6      246.6     100.0%         246.6         246.6
Auburndale Expansion..............     Gas          FL            --      100.0     100.0%            --         100.0
DePere Energy Center Expansion....     Gas          WI          75.0       75.0     100.0%          75.0          75.0
                                                            --------   --------                 --------      --------
          Total Announced
            Development...........                          12,574.8   15,431.0                 12,308.6      15,141.7
                                                            ========   ========                 ========      ========
</TABLE>

                      PROJECT DEVELOPMENT AND ACQUISITIONS

     We are actively engaged in the development and acquisition of power
generation projects. We have historically focused principally on the development
and acquisition of interests in gas-fired and geothermal power projects,
although we also consider projects that utilize other power generation
technologies. We have significant expertise in a variety of power generation
technologies and have substantial capabilities in each aspect of the development
and acquisition process, including design, engineering, procurement,
construction management, fuel and resource acquisition and management, power
marketing, financing and operations.

ACQUISITIONS

     We will consider the acquisition of an interest in operating projects as
well as projects under development where we would assume responsibility for
completing the development of the project. In the acquisition of power
generation facilities, we generally seek to acquire an ownership interest in
facilities that offer us attractive opportunities for revenue and earnings
growth, and that permit us to assume sole responsibility for the operation and
maintenance of the facility. In evaluating and selecting a project for
acquisition, we consider a variety of factors, including the type of power
generation technology utilized, the location of the project, the terms of any
existing power or thermal energy sales agreements, gas supply and transportation
agreements and wheeling agreements, the quantity and quality of any geothermal
or other natural resource involved, and the

                                        9
<PAGE>   12

actual condition of the physical plant. In addition, we assess the past
performance of an operating project and prepare financial projections to
determine the profitability of the project. We generally seek to obtain a
significant equity interest in a project and to obtain the operation and
maintenance contract for that project.

PROJECT DEVELOPMENT

     The development of power generation projects involves numerous elements,
including evaluating and selecting development opportunities, designing and
engineering the project, obtaining power sales agreements, acquiring necessary
land rights, permits and fuel resources, obtaining financing and managing
construction. We intend to focus primarily on development opportunities where we
are able to capitalize on our expertise in implementing an innovative and fully
integrated approach to project development in which we control the entire
development process. Utilizing this approach, we believe that we are able to
enhance the value of our projects throughout each stage of development in an
effort to maximize our return on investment.

     We are pursuing the development of highly efficient, low-cost power plants
to provide competitively priced and environmentally friendly power to
electricity markets. We intend to sell all or a portion of the power generated
by such plants into the competitive market through a portfolio of short, medium
and long-term power sales agreements.

  Projects Under Construction

     Acadia Energy Center. On March 6, 2000, we announced that we entered into a
partnership agreement with Cleco Midstream Resources, an affiliate of Pineville,
Louisiana-based Cleco Corporation, to participate in the Acadia Energy Center.
The partners plan to build, own and operate the 1,239 megawatt natural gas-
fired energy center near Eunice, Louisiana. We have a 620 megawatt net interest
in this facility. Construction began in mid 2000 and commercial operation for
the energy center is expected in May 2002. On October 20, 2000, we jointly
announced with Cleco Corporation the signing of a 20-year contract with Aquila
Energy, a wholly owned subsidiary of UtiliCorp United, for 580 megawatts of the
output of the jointly owned Acadia Energy Center. Under terms of a tolling
agreement, starting July 1, 2002, Aquila Energy will supply the natural gas
needed to generate 580 megawatts of electricity and will own and market the
produced power.

     Oneta Energy Center. On July 20, 2000, we completed the acquisition of the
development rights to construct, own and operate the Oneta Energy Center from
Panda Energy, International, Inc. Oneta is a 1,138 megawatt natural gas-fired
energy center under construction in Coweta, Oklahoma, southeast of Tulsa. We
anticipate that the Oneta Energy Center will commence commercial operation in
July 2002.

     Freestone Energy Center. On June 15, 2000, we announced that we acquired
the rights to develop, build, own and operate the Freestone Energy Center from
New Orleans, Louisiana-based Entergy Corp. Freestone is a 1,052 megawatt natural
gas-fired energy center located in Freestone County, Texas, near Fairfield,
about 80 miles southeast of Dallas. Construction commenced in August 2000 and
commercial operation is expected to begin in the summer of 2002.

     Delta Energy Center. In February 1999, we, together with Bechtel
Enterprises, announced plans to develop an 874 megawatt gas-fired cogeneration
energy center in Pittsburg, California in which we have a 437 megawatt net
interest. The Delta Energy Center will provide steam and electricity to the
nearby Dow Chemical Company facility and market the excess electricity into the
California power market. Construction began in April 2000 and we expect
commercial operation to commence in May 2002.

     Baytown Power Plant. In October 1999, we announced plans to build, own and
operate an 834 megawatt gas-fired cogeneration power plant at Bayer
Corporation's chemical facility in Baytown, Texas. The Baytown Power Plant will
supply Bayer with all of its electric and steam requirements for 20 years and
market excess electricity into the Texas wholesale power market. Construction
commenced in early 2000 and commercial operation is expected to commence in late
2001.

     Decatur Energy Center. On February 2, 2000, we announced plans to build,
own and operate a 794 megawatt gas-fired cogeneration energy center at Solutia
Inc.'s Decatur, Alabama chemical facility. Under a 20-year agreement, Solutia
will lease a portion of the facility to meet its electricity needs and
                                        10
<PAGE>   13

purchase its steam requirements from us. Excess power from the facility will be
sold into the Southeastern Wholesale Power Market under a variety of short,
medium and long-term contracts. We will also build a new intrastate natural gas
pipeline to fuel the energy center. Construction began in September 2000 and
commercial operation is expected to commence in mid 2002.

     Morgan Energy Center. On June 27, 2000, we announced plans to build, own
and operate a natural gas-fired cogeneration energy center at the BP Amoco
chemical facility in Decatur, Alabama. The proposed Morgan Energy Center will
generate approximately 790 megawatts of electricity in addition to supplying
steam for BP Amoco's facility. Construction began in September 2000 and we
expect commercial operation to commence in December 2002.

     Magic Valley Generating Station. In May 1998, we announced that we signed a
20-year power sales agreement to provide electricity to the Magic Valley
Electric Cooperative, Inc. of Mercedes, Texas beginning in 2001. The power will
be supplied by our Magic Valley Generating Station, a 750 megawatt natural
gas-fired generating station under construction in Edinburg, Texas. Magic Valley
Electric Cooperative Inc., a 51,000 member non-profit electric cooperative,
initially will purchase from 250 to 400 megawatts of capacity, with an option to
purchase additional capacity. We are marketing additional capacity to other
wholesale customers, initially targeting south Texas. Construction commenced in
the spring of 1999 with commercial operation scheduled to begin in the second
quarter of 2001.

     Hermiston Power Project. On January 28, 2000, we acquired the development
rights for the Hermiston Power Project, a 630 megawatt gas-fired cogeneration
power facility located near Hermiston, Oregon. Construction commenced in the
summer of 2000 and we anticipate that commercial operation of the facility will
commence in mid 2002.

     Channel Energy Center. In October 1999, we announced we had executed a
letter of intent that gave us the exclusive right to negotiate with
LYONDELL-CITGO Refining LP to build, own and operate a 628 megawatt gas-fired
cogeneration energy center at the LYONDELL-CITGO refinery in Houston, Texas. The
Channel Energy Center will supply all of the electricity and steam requirements
for 20 years to the refinery. Construction began in early 2000 and commercial
operation is expected to begin in the summer of 2001.

     Aries Power Plant. On January 14, 2000, we acquired a 296 megawatt net
interest in the Aries Power Plant, a 591 megawatt natural gas-fired plant
currently under construction near Pleasant Hill, Missouri, from a subsidiary of
Aquila Energy Corporation. Construction started in the fall of 1999 and
commercial operation is scheduled to begin in late 2001. The majority of the
facility's output will be sold to Missouri Public Service through May 2005.
Thereafter, power will be sold into the Southwest Power Pool and the Southeast
Electric Reliability Counsel regional power markets.

     Washington Parish Energy Center. On January 26, 2001, we announced the
acquisition of the development rights from Cogentrix, an independent power
company based in North Carolina, for the 577 megawatt Washington Parish Energy
Center, located near Bogalusa, Louisiana. We are managing construction of the
facility, which began in January 2001, and will operate the facility when it
enters commercial operation in 2002.

     South Point Power Plant. In May 1998, we announced that we had entered into
a long-term lease agreement with the Fort Mojave Indian Tribe to develop a 555
megawatt gas-fired power plant on the tribe's reservation in Mojave County,
Arizona. Construction commenced in August 1999 and we anticipate that the South
Point Power Plant will begin operation in May 2001. In accordance with a
five-year power sales agreement with the Imperial Irrigation District ("IID"),
we will deliver 150 megawatts of electricity from the South Point Power Plant to
IID's southern California electric customers beginning in May 2002. Thereafter,
the electricity generated will be sold to the Arizona, Nevada and California
power markets.

     Los Medanos Energy Center. In September 1999, we finalized an agreement
with Enron North America for the development rights of a 555 megawatt gas-fired
energy center in Pittsburg, California. We expect that the Los Medanos Energy
Center will be California's second newly constructed power facility since
deregulation of the California power market in 1998. Construction commenced in
September 1999 and
                                        11
<PAGE>   14

commercial operation is expected to begin in the summer of 2001. The facility
will provide electricity and industrial steam totaling approximately 65
megawatts to USS-POSCO Industries under a long-term agreement. The remaining
output will be sold into the California power market.

     Sutter Power Plant. In February 1997, we announced plans to develop a 547
megawatt gas-fired combined cycle power plant in Sutter County, in northern
California. The Sutter Power Plant is expected to be California's first newly
constructed power plant since deregulation of the California power market in
1998. Construction commenced in the third quarter of 1999 and the Sutter Power
Plant is expected to begin commercial operation in the summer of 2001. In
accordance with an agreement we entered into with the Sacramento Municipal
Utility District ("SMUD") on January 18, 2000, the Sutter Power Plant will
provide 150 megawatts of electricity to SMUD's customer base for a five-year
period beginning with the plant's startup.

     Lost Pines 1 Power Plant. In September 1999, we entered into definitive
agreements with Austin, Texas-based GenTex Power Corporation, the power
generation affiliate of the Lower Colorado River Authority, to build a 545
megawatt gas-fired power plant in Bastrop County, Texas. We have a 273 megawatt
net interest in this facility. Construction began in October 1999 and commercial
operation is expected to begin in mid 2001. Upon commercial operation, GenTex
will take half of the electrical output for sale to its customers, and we will
market the remaining energy to the Texas power market.

     Ontelaunee Energy Center. In June 1999, we announced that we had acquired
the rights to develop a 541 megawatt gas-fired energy center in Ontelaunee
Township in eastern Pennsylvania. Construction began in July 2000 and commercial
operation is estimated to commence in the spring of 2002. Output from the
Ontelaunee Energy Center will be sold into the Pennsylvania/New Jersey/Maryland
("PJM") power pool and pursuant to bilateral contracts.

     Westbrook Energy Center. In February 1999, we acquired from Genesis Power
Corporation, a New England based power developer, the development rights to a
525 megawatt gas-fired combined cycle energy center located in Westbrook, Maine.
Construction commenced in early 1999 and commercial operation is scheduled for
the spring of 2001. It is anticipated that the output generated by the Westbrook
Energy Center will be sold into the New England power market and to wholesale
and retail customers in the northeastern United States.

     RockGen Energy Center. The 524 megawatt RockGen Energy Center is located in
the town of Christiana in Dane County, Wisconsin. Construction began in April
2000 and we expect commercial operation to commence in July 2001. On August 10,
1998, IES Utilities, Wisconsin Power and Light Company and Interstate Power
Company (collectively the "Alliant Utilities") entered into a long-term power
purchase agreement with the RockGen Energy Center. In January 1999, the RockGen
Energy Center also entered into a long-term tolling arrangement with Duke Energy
Trading and Marketing, L.L.C.

     Corpus Christi Energy Center. The Corpus Christi Energy Center is a 523
megawatt combined cycle, cogeneration energy center located in Corpus Christi,
Texas. Construction began in June 2000 and we expect commercial operation to
begin in June 2002. In March 1999, a long-term energy services agreement was
executed with CITGO Refining and Chemicals Company, L.P. ("CITGO") under which
CITGO will purchase from the Corpus Christi Energy Center all of the steam and
electricity that it requires but does not internally generate at its Corpus
Christi refinery.

     Carville Energy Center. The Carville Energy Center is a 523 megawatt
combined cycle, cogeneration energy center located in St. Gabriel, Louisiana.
Construction of the facility began in October 2000 and commercial operation is
expected to commence in May 2002. On December 28, 1999, a long-term energy
services agreement was executed with Cos-Mar Inc. ("Cos-Mar") under which
Cos-Mar will purchase from the Carville Energy Center all of the steam and
electric power (if allowed under applicable regulations) that it requires but
does not internally generate at its St. Gabriel chemical plant.

     Broad River Energy Center Expansion. This expansion, the second phase of
construction of the Broad River Energy Center, involves the installation of two
additional combustion turbines capable of producing an additional 360 megawatts
of peaking power. Construction is expected to be completed in the spring of
2001.
                                        12
<PAGE>   15

On November 15, 2000, we announced that our wholly owned subsidiary, SkyGen
Energy LLC ("SkyGen"), entered into an agreement to supply CP&L Energy ("CP&L")
additional power produced from the Broad River Energy Center Expansion project.

     Santa Rosa Energy Center. The Santa Rosa Energy Center is a 252 megawatt
combined cycle, energy center located near Pensacola, Florida. Construction
began in September 2000 and commercial operation is expected to commence in
September 2002.

     Hog Bayou Energy Center. We have a 165 megawatt net interest in this 247
megawatt gas-fired combined cycle facility located in Mobile, Alabama.
Construction of the facility began in July 1999 and commercial operation is
expected to commence in June 2001.

     Pine Bluff Energy Center. We have a 142 megawatt interest in this 213
megawatt steam and electric power cogeneration energy center near Pine Bluff,
Arkansas. Construction began in September 1999 and we anticipate the facility
will commence commercial operation in May 2001. On November 25, 1998,
International Paper entered into a long-term energy services agreement under
which International Paper will purchase from the Pine Bluff Energy Center all of
the steam and electric power (if allowed under applicable regulations) that it
requires but does not internally generate at its Pine Bluff mill.

  Announced Development Projects

     Blue Heron Energy Center. On January 11, 2000 we announced plans to build,
own and operate a 1,239 megawatt gas-fired cogeneration energy center in Indian
River County, Florida outside of Vero Beach. We anticipate that construction
will commence in early 2002 and that commercial operation of the facility will
commence in mid 2004.

     Lawrence Energy Center. On October 23, 2000, we announced that we entered
into a project development agreement to build, own and operate a 1,100 megawatt
natural gas-fired energy center to be located on the Ohio River in Hamilton
Township in Lawrence County, Ohio. The proposed Lawrence Energy Center will
represent a $510 million investment, with a target commercial operation date of
December 2004.

     East Altamont Energy Center. On December 12, 2000, we announced that we are
considering plans to develop and operate a new energy-efficient electric
generating facility, the proposed $550 million East Altamont Energy Center,
located in the northeastern corner of Alameda County in northern California. We
are preparing technical studies for the proposed 1,065 megawatt facility. Upon
completion of licensing through the California Energy Commission ("CEC"),
construction would begin in June 2002, with commercial operation beginning in
June 2004.

     Haywood Energy Center. On July 19, 2000, we announced we will develop,
construct and own a natural gas-fired, combined cycle power generation facility
in Haywood County, Tennessee. The 915 megawatt facility is scheduled to begin
commercial operation in late 2004.

     Lone Oak Energy Center. On February 22, 2000, we announced plans to build,
own and operate the Lone Oak Energy Center, a 915 megawatt gas-fired
cogeneration facility in Lowndes County, Mississippi. We anticipate that
construction will commence in mid 2001 and that commercial operation of the
facility will commence in the spring of 2003.

     Augusta Energy Center. On January 17, 2001, our wholly owned subsidiary,
SkyGen, announced plans to build, own and operate an 850 megawatt natural
gas-fired cogeneration energy center in Augusta, Georgia. The proposed Augusta
Energy Center will supply energy to DSM Chemicals North America, Inc. for use in
its production processes. Construction is expected to begin in the third quarter
of 2001, with an estimated commercial operation date of May 2003.

     Hillabee Energy Center. On February 24, 2000, we announced plans to build,
own and operate the Hillabee Energy Center, a 770 megawatt gas-fired
cogeneration facility in Tallapoosa County, Alabama. We anticipate that
construction will commence in mid 2001 and that commercial operation of the
facility will commence in mid 2003.

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     Fremont Energy Center. On May 23, 2000, we announced the acquisition of
development rights to build, own and operate a 700 megawatt gas-fired facility
to be located near Fremont, Ohio. Construction is scheduled to begin in mid 2001
and we expect commercial operation to commence in mid 2003.

     Wawayanda Energy Center. On March 23, 2000, we announced plans to build,
own and operate the Wawayanda Energy Center, a 630 megawatt gas-fired facility
to be located near Middletown, New York. We anticipate that construction will
begin in early 2002 and commercial operation will begin in early 2004.

     Otay Mesa Generating Project. On December 18, 2000, we announced with PG&E
Corporation an agreement under which we will acquire the rights to construct the
Otay Mesa Generating Project in San Diego County. In accordance with the terms
of the agreement, we will build, own and operate the 618 megawatt generating
facility, and PG&E Corporation's National Energy Group will contract for up to
250 megawatts of the project's output. Construction is expected to begin in the
fall of 2001 and commercial operation is scheduled for the fall of 2003.

     Teayawa Energy Center. On June 29, 2000, we announced that we secured the
rights to develop, build, own and operate the Teayawa Energy Center, a 608
megawatt natural gas-fired power generating facility near the town of Thermal in
Riverside County, California through a development agreement with Adair
International Oil and Gas, Inc. The Teayawa Energy Center will be sited on the
Torres Martinez Desert Cahuilla Indians' land through a long-term lease
agreement with the Torres Martinez. Construction is scheduled to begin in early
2002 and commercial operation is expected in early 2004.

     RiverGen Energy Center. Our proposed 600 megawatt RiverGen Energy Center
will be located near Beloit, Wisconsin. Construction of the RiverGen Energy
Center is expected to begin during the fourth quarter of 2001, with commercial
operation starting in late 2003. On February 13, 2001, we announced that our
wholly owned subsidiary, SkyGen Energy LLC, entered into a ten-year agreement to
supply Wisconsin Power & Light Company 453 megawatts of electric capacity and
energy from the proposed RiverGen Energy Center.

     Osprey Energy Center. On January 11, 2000, we announced plans to build, own
and operate the Osprey Energy Center, a 590 megawatt gas-fired cogeneration
energy center near the city of Auburndale, Florida. On February 12, 2001, the
Florida Public Service Commission approved the application for the facility,
which will be built adjacent to our existing power facility, the Auburndale
Power Plant. We anticipate that construction will commence in the fall of 2001
and commercial operation of the facility will commence in the fall of 2003. In
accordance with an agreement we entered into with Tampa, Florida-based Seminole,
the Osprey Energy Center will supply electric power to help meet Seminole's
member systems' power needs for a period of 17 years beginning in June 2003.

     Metcalf Energy Center. In February 1999, we, together with Bechtel
Enterprises, announced plans to develop, own and operate a 579 megawatt
gas-fired cogeneration energy center in San Jose, California. We have a 289
megawatt net interest in this facility. The CEC is currently considering whether
to override a November 2000 vote by the San Jose City Council denying a request
to change the zoning designation of the land at the proposed site. We cannot
predict at this time whether the CEC will in fact override this vote. If the CEC
does elect to override this vote, we expect the CEC review, licensing and public
hearing process would be completed in mid 2001. We would then anticipate that
construction would commence, subject to any further delays, and that commercial
operation of the facility would commence in late 2003. We plan to sell the
electricity generated by the Metcalf Energy Center into the California power
market.

     Thompson Creek Energy Center. The Thompson Creek Energy Center is a 575
megawatt combined cycle, cogeneration project located in Louisiana. We expect
construction to begin in late 2001 and anticipate that the facility will
commence commercial operation in late 2003.

     Columbia Energy Center. The Columbia Energy Center is a 550 megawatt
combined cycle cogeneration project located in Columbia, South Carolina. We
expect construction will commence in June 2001 and commercial operation will
begin in May 2003. On August 15, 2000, a long-term energy services agreement was
executed with Eastman Chemical Company ("Eastman") under which Eastman will
purchase from the Columbia Energy Center all of the steam and electric power (if
allowed under applicable regulations) that it requires but does not internally
generate at its Columbia chemical plant.
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     Hammond Energy Center. The Hammond Energy Center is a 550 megawatt facility
to be located in Indiana. Construction is scheduled to begin in late 2001 and
commercial operation is expected in late 2003.

     Mt. Vernon Energy Center. The Mt. Vernon Energy Center is a 523 megawatt
facility to be located in Indiana. Construction is scheduled to begin in late
2001 and commercial operation is expected to commence in late 2003.

     Towantic Energy Center. In November 1999, we completed the acquisition of
development rights to build, own and operate the Towantic Energy Center. The
Towantic Energy Center is a 508 megawatt gas-fired cogeneration plant located in
Oxford, Connecticut. This power plant will market its electricity via bilateral
contracts into the New England region. In February 2000, a town-wide referendum
in the Town of Oxford, Connecticut approved the sale of the town-owned land for
the Towantic Energy Center. Construction is estimated to commence in mid 2002
and commercial operation is expected in March 2004.

     California Peakers (4 projects). Eleven GE LM6000 turbines will be
installed at four of our operating gas-fired power plants in California to
increase peaking capacity by a total of 495 megawatts. Six turbines will be
installed at the Gilroy Power Plant, three at the Watsonville Power Plant, one
at the Greenleaf 2 Power Plant and one at the King City Power Plant.

     Zion Energy Center. The Zion Energy Center is a 330 megawatt simple cycle
facility located in Zion, Illinois. Construction is scheduled to begin in July
2001 with commercial operation expected to commence in April 2002. In December
2000, a contract was executed for the long-term sale of capacity from the Zion
Energy Center.

     Calgary Energy Centre. On April 20, 2000, we announced plans to construct
the Calgary Energy Centre. Scheduled to begin commercial operation in early
2003, the 300 megawatt combined cycle, natural gas-fired facility was the first
independent power project announced in the Calgary area, and represents our
first investment in the Canadian power industry.

     Pine Bluff Energy Center Expansion. Construction on this 247 megawatt
expansion of the Pine Bluff Energy Center is expected to commence in September
2001 and operation is anticipated to begin in September 2003.

     Auburndale Expansion. On July 6, 2000, we announced the addition of 100
megawatts of peaking capacity to the natural gas-fired, cogeneration facility
located in Auburndale, Florida. Construction is scheduled to begin in October
2001 with commercial operation expected to commence in early 2002.

     DePere Energy Center Expansion. This second phase of construction of the
DePere Energy Center will convert the DePere, Wisconsin facility from a 180
megawatt simple cycle gas-fired combustion turbine to a 255 megawatt combined
cycle cogeneration system. The expansion is expected to be complete by January
2004. All electric capacity and energy will be sold to the Wisconsin Public
Service Corporation under a 25-year power purchase agreement. Nicolet Paper
Company, an affiliate of International Paper Company, will purchase the
cogenerated steam.

                             OIL AND GAS PROPERTIES

     Montis Niger. In January 1997, we purchased Montis Niger, Inc., a gas
production and pipeline company operating primarily in the Sacramento Basin in
northern California, which we subsequently renamed Calpine Gas Company. As of
December 31, 2000, Calpine Gas Company owned proven natural gas reserves,
leasehold acreage and operated an 80-mile pipeline delivering gas to our
Greenleaf 1 and 2 Power Plants. We currently supply the majority of the fuel
requirements for the Greenleaf 1 and 2 Power Plants.

     Calpine Natural Gas Company. In October 1999, we purchased Sheridan Energy,
Inc., a natural gas exploration and production company operating in northern
California and the Gulf Coast region, which we subsequently renamed Calpine
Natural Gas Company ("CNGC"). CNGC's oil and gas properties are primarily
natural gas and are located in strategic markets where we are developing
low-cost natural gas supplies and proprietary pipeline systems in support of our
natural gas-fired power plants.

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     Vintage. In December 1999, we completed the acquisition of Vintage
Petroleum, Inc.'s ("Vintage") interest in the Rio Vista Gas Unit and related
areas, representing primarily natural gas reserves located in the Sacramento
Basin in northern California. As a result of this acquisition and the Sheridan
Energy, Inc. ("Sheridan") acquisition, we own a 99.5% working interest in the
Rio Vista Gas Unit and certain development acreage in northern California.

     Western. On February 4, 2000, we acquired 100% of the stock of Western Gas
Resources California ("Western") from Western Gas Resources, Inc. Western's
assets include the 130-mile Steelhead natural gas pipeline and the remaining
interest in the Sacramento River Gas System natural gas pipeline, now 100% owned
by us.

     Gulf of Mexico. In June 2000, we acquired an interest in the East Cameron,
High Island and South Pelto fields in the Gulf of Mexico which includes 10
producing wells and 5 drilling locations enhanced with 3-D seismic, one of which
has already been successfully drilled.

     Calpine Canada Natural Gas, Ltd. On July 5, 2000, we purchased
Calgary-based Quintana Minerals Canada Corp. ("QMCC"), a natural gas exploration
and production company, whose reserves are located in British Columbia, Alberta
and Saskatchewan provinces in Canada. We subsequently changed its name to
Calpine Canada Natural Gas, Ltd. ("CCNG"). The assets include interests in 1,300
wells.

     Additionally, in November 2000, we acquired TriGas Exploration Inc.
("TriGas"), of Calgary, Alberta, an exploration company focused on developing
and producing gas reserves in south-central Alberta. We subsequently merged the
company into CCNG. The assets include an interest in 74 producing wells located
in the Acme, Lone Pine, Lone Pine South and Irricana fields, 48,000 net acres of
undeveloped lands, two compression facilities, a 26.6% working interest in the
Crossfield gas processing plant located near the fields, and a majority interest
in 63 miles of pipeline that conduct the gas to two nearby gas-fired power
generation facilities.

     Colorado and Gulf Coast. In July 2000, we acquired natural gas assets in
the Piceance Basin, Colorado and onshore Gulf Coast from a privately-held
Houston, Texas-based company. The assets include 126 producing wells, 79,000
acres of undeveloped lands, and 195 potential drilling locations with historical
success rates of over 90 percent.

     Encal Energy Ltd. ("Encal"). On February 8, 2001, we announced our plans to
acquire all of the common shares of Encal, a Calgary, Alberta-based natural gas
and petroleum exploration and development company, through a stock-for-stock
exchange in which Encal shareholders will receive Cdn. $12.00 per share in
Calpine common equivalent shares based on an exchange ratio to be determined
prior to closing. The aggregate value of the transaction, for which we expect to
use pooling of interests accounting, is approximately $1.2 billion, including
the assumed indebtedness of Encal. Upon completion of the acquisition, we will
gain approximately 1.0 trillion cubic feet equivalent of proved and provable
natural gas resources, net of royalties. This transaction also provides access
to firm gas transportation capacity from western Canada to California and the
eastern U.S., and an accomplished management team capable of leading our
business expansion in Canada. With the addition of Encal's assets, which
currently produce approximately 230 million cubic feet of gas equivalent
("mmcfe") per day, net of royalties, our net production is expected to increase
to 390 mmcfe per day in North America, enough to fuel approximately 2,300
megawatts of our power fleet. We expect to close this transaction during the
second quarter of 2001.

                             GOVERNMENT REGULATION

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

FEDERAL ENERGY REGULATION

  PURPA

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

     A domestic electricity generating project must be a QF under FERC
regulations in order to take advantage of certain rate and regulatory incentives
provided by PURPA. PURPA exempts owners of QFs from the Public Utility Holding
Company Act of 1935, as amended ("PUHCA"), and exempts QFs from most provisions
of the Federal Power Act (the "FPA") and, except under certain limited
circumstances, state laws concerning rate or financial regulation. These
exemptions are important to us and our competitors. We believe that each of the
electricity generating projects in which we own an interest and which operates
as a QF power producer currently meets the requirements under PURPA necessary
for QF status.

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

     In order to be a QF, a cogeneration facility must produce not only
electricity, but also useful thermal energy for use in an industrial or
commercial process for heating or cooling applications in certain proportions to
the facility's total energy output and must meet certain energy efficiency
standards. A geothermal facility may qualify as a QF if it produces less than 80
megawatts of electricity. Finally, a QF (including a geothermal QF or other
qualifying small power producer) must not be controlled or more than 50% owned
by one or more electric utilities or by most electric utility holding companies,
or one or more subsidiaries of such a utility or holding company or any
combination thereof.

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

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

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

     Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at avoided costs. We do not know whether such legislation will be passed or
what form it may take. We believe that if any such legislation is passed, it
would apply only to new projects, and we believe it would not affect our
existing QFs. There can be no assurance, however, that any legislation passed
would not adversely impact our existing projects.

  Public Utility Holding Company Regulation

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

     The Energy Policy Act of 1992, among other things, amends PUHCA to allow
EWGs, under certain circumstances, to own and operate non-QF electric generating
facilities without subjecting those producers to registration or regulation
under PUHCA. The effect of such amendments has been to enhance the development
of non-QFs which do not have to meet the fuel, production and ownership
requirements of PURPA. We believe that these amendments benefit us by expanding
our ability to own and operate facilities that do not qualify for QF status.
However, they have also resulted in increased competition by allowing utilities
and their affiliates to develop such facilities which are not subject to the
constraints of PUHCA.

  Federal Natural Gas Transportation Regulation

     We have an ownership interest in 55 gas-fired cogeneration plants in
operation or under construction. The cost of natural gas is ordinarily the
largest expense of a gas-fired project and is critical to the project's
economics. The risks associated with using natural gas can include the need to
arrange transportation of the gas from great distances, including obtaining
removal, export and import authority if the gas is transported from Canada; the
possibility of interruption of the gas supply or transportation (depending on
the quality of the gas reserves purchased or dedicated to the project, the
financial and operating strength of the gas supplier, whether firm or non-firm
transportation is purchased and the operations of the gas pipeline); and
obligations to take a minimum quantity of gas and pay for it (i.e., take-and-pay
obligations).

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     Pursuant to the Natural Gas Act, FERC has jurisdiction over the
transportation and storage of natural gas in interstate commerce. With respect
to most transactions that do not involve the construction of pipeline
facilities, regulatory authorization can be obtained on a self-implementing
basis. However, interstate pipeline rates and terms and conditions for such
services are subject to continuing FERC oversight.

  Federal Power Act Regulation

     Under the FPA, FERC is authorized to regulate the transmission of electric
energy and the sale of electric energy at wholesale in interstate commerce.
Unless otherwise exempt, any person that owns or operates facilities used for
such purposes is considered a "public utility" subject to FERC jurisdiction.
FERC regulation under the FPA includes approval of the disposition of utility
property, authorization of the issuance of securities by public utilities,
regulation of the rates, terms and conditions for the transmission or sale of
electric energy at wholesale in interstate commerce, the regulation of
interlocking directorates, a uniform system of accounts and reporting
requirements for public utilities.

     FERC regulations implementing PURPA provide that a QF is exempt from
regulation under the foregoing provisions of the FPA. An EWG is not exempt from
the FPA and therefore an EWG that makes sales of electric energy at wholesale in
interstate commerce is subject to FERC regulation as a "public utility."
However, many of the regulations which customarily apply to traditional public
utilities have been waived or relaxed for power marketers, EWGs and other
non-traditional public utilities that lack market power. EWGs are regularly
granted authorization to charge market based rates, blanket authority to issue
securities, and waivers of certain FERC requirements pertaining to accounts,
reports and interlocking directorates. Such action is intended to implement
FERC's policy to foster a more competitive wholesale power market.

     Many of the generating projects in which we own an interest are operated as
QFs and are therefore exempt from FERC regulation under the FPA. However,
several of our generating projects are or will be EWGs subject to FERC
jurisdiction under the FPA. Several of our affiliates have been granted
authority to engage in sales at market based rates and to issue securities and
have also been granted the customary waivers of FERC regulations available to
non-traditional public utilities; however we cannot assure that such authorities
or waivers will be granted in the future to other affiliates.

STATE REGULATION

     State public utility commissions ("PUCs") have historically had broad
authority to regulate both the rates charged by, and the financial activities
of, electric utilities operating in their states and to promulgate regulation
for implementation of PURPA. Since a power sales agreement becomes a part of a
utility's cost structure (generally reflected in its retail rates), power sales
agreements with independent electricity producers, such as EWGs, are potentially
under the regulatory purview of PUCs and in particular the process by which the
utility has entered into the power sales agreements. If a PUC has approved the
process by which a utility secures its power supply, a PUC is generally inclined
to "pass through" the expense associated with a power purchase agreement with an
independent power producer to the utility's retail customers. However, a
regulatory commission under certain circumstances may disallow the full
reimbursement to a utility for the cost to purchase power from a QF or an EWG.
In addition, retail sales of electricity or thermal energy by an independent
power producer may be subject to PUC regulation depending on state law.
Independent power producers which are not QFs under PURPA, or EWGs pursuant to
the Energy Policy Act of 1992, are considered to be public utilities in many
states and are subject to broad regulation by a PUC, ranging from requirement of
certificate of public convenience and necessity to regulation of organizational,
accounting, financial and other corporate matters. States may assert
jurisdiction over the siting and construction of electric generating facilities
including QFs and EWGs and, with the exception of QFs, over the issuance of
securities and the sale or other transfer of assets by these facilities.

     State PUCs also have jurisdiction over the transportation of natural gas by
local distribution companies ("LDCs"). Each state's regulatory laws are somewhat
different; however, all generally require the LDC to obtain approval from the
PUC for the construction of facilities and transportation services if the LDC's

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generally applicable tariffs do not cover the proposed transaction. LDC rates
are usually subject to continuing PUC oversight.

REGULATION OF CANADIAN GAS

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

ENVIRONMENTAL REGULATIONS

     The exploration for and development of geothermal resources and natural gas
and the construction and operation of wellfields, pipelines and power projects
are subject to extensive federal, state and local laws and regulations adopted
for the protection of the environment and to regulate land use. The laws and
regulations applicable to us primarily involve the discharge of emissions into
the water and air and the use of water, but can also include wetlands
preservation, endangered species, waste disposal and noise regulations. These
laws and regulations in many cases require a lengthy and complex process of
obtaining licenses, permits and approvals from federal, state and local
agencies.

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

  Clean Air Act

     The Federal Clean Air Act of 1970 (the "Clean Air Act") provides for the
regulation, largely through state implementation of federal requirements, of
emissions of air pollutants from certain facilities and operations. As
originally enacted, the Clean Air Act sets guidelines for emissions standards
for major pollutants (i.e., sulfur dioxide and nitrogen oxide) from newly built
sources. In late 1990, Congress passed the Clean Air Act Amendments (the "1990
Amendments"). The 1990 Amendments attempt to reduce emissions from existing
sources, particularly previously exempted older power plants. We believe that
all of our operating plants are in compliance with federal performance standards
mandated for such plants under the Clean Air Act and the 1990 Amendments.

  Clean Water Act

     The Federal Clean Water Act (the "Clean Water Act") establishes rules
regulating the discharge of pollutants into waters of the United States. We are
required to obtain a wastewater and storm water discharge permit for wastewater
and runoff, respectively, from certain of our facilities. We believe that, with
respect to our geothermal operations, we are exempt from newly promulgated
federal storm water requirements. We believe that we are in material compliance
with applicable discharge requirements of the Clean Water Act.

  Resource Conservation and Recovery Act

     The Resource Conservation and Recovery Act ("RCRA") regulates the
generation, treatment, storage, handling, transportation and disposal of solid
and hazardous waste. We believe that we are exempt from solid waste requirements
under RCRA. However, particularly with respect to its solid waste disposal
practices at the power generation facilities and steam fields located at The
Geysers, we are subject to certain solid waste

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requirements under applicable California laws. We believe that our operations
are in material compliance with such laws.

  Comprehensive Environmental Response, Compensation, and Liability Act

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

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                                  RISK FACTORS

     SEE "RISK FACTORS" SECTION STARTING ON PAGE F-23 UNDER "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
INCLUDED IN APPENDIX F TO THIS REPORT.

                                   EMPLOYEES

     As of December 31, 2000, we employed 1,883 people, of whom 33 were
represented by collective bargaining agreements. We have never experienced a
work stoppage or strike, and we consider relations with our employees to be
good.

ITEM 2. PROPERTIES

     Our principal executive office located in San Jose, California is held
under leases that expire through 2011, and we also lease regional offices in
Pleasanton, California; Houston, Texas; Boston, Massachusetts and Northbrook,
Illinois. We hold additional leases for our Construction Management office in
Folsom, California, our Turbine Maintenance Group office in LaPorte, Texas, our
Plant Optimization Group office in Fort Collins, Colorado, our c*Power office in
Pleasanton, California, our Project Development office in Tampa, Florida, our
Government Affairs office in Washington, D.C. and our Natural Gas Operations
offices in Houston, TX, Denver, Colorado and Calgary, Alberta.

     We have leasehold interests in 105 leases comprising 21,217 acres of
federal, state and private geothermal resource lands in The Geysers area in
northern California. In the Glass Mountain and Medicine Lake areas in northern
California, we hold leasehold interests in 18 leases comprising approximately
25,028 acres of federal geothermal resource lands.

     In general, under these leases, we have the exclusive right to drill for,
produce and sell geothermal resources from these properties and the right to use
the surface for all related purposes. Each lease requires the payment of annual
rent until commercial quantities of geothermal resources are established. After
such time, the leases require the payment of minimum advance royalties or other
payments until production commences, at which time production royalties are
payable. Such royalties and other payments are payable to landowners, state and
federal agencies and others, and vary widely as to the particular lease. The
leases are generally for initial terms varying from 10 to 20 years or for so
long as geothermal resources are produced and sold. Certain of the leases
contain drilling or other exploratory work requirements. In certain cases, if a
requirement is not fulfilled, the lease may be terminated and in other cases
additional payments may be required. We believe that our leases are valid and
that we have complied with all the requirements and conditions material to the
continued effectiveness of the leases. A number of our leases for undeveloped
properties may expire in any given year. Before leases expire, we perform
geological evaluations in an effort to determine the resource potential of the
underlying properties. We cannot assure that we will decide to renew any
expiring leases.

                                        22
<PAGE>   25

     Based on independent petroleum engineering reports of Netherland, Sewell &
Associates, Inc., McDaniel & Associates Consultants, Ltd. and Gilbert Laustsen
Jung Associates, Ltd., as of December 31, 2000, utilizing year end product
prices and costs held constant, our proved oil and natural gas reserve volumes,
in thousands of barrels ("MBbls") and billion cubic feet ("Bcf") and associated
future net reserves, undiscounted and discounted at 10% ("PV 10") before future
income taxes, are as follows:

<TABLE>
<CAPTION>
                                                          AS OF DECEMBER 31, 2000
                                         ---------------------------------------------------------
                                         OIL (MBBLS)   GAS (BCF)    UNDISCOUNTED        PV 10
                                         -----------   ---------   --------------   --------------
                                                                   (IN THOUSANDS)   (IN THOUSANDS)
<S>                                      <C>           <C>         <C>              <C>
UNITED STATES
Proved developed.......................     2,568         268        $2,760,126       $1,387,418
Proved undeveloped.....................       971          65           580,099          303,961
                                            -----         ---        ----------       ----------
          Total........................     3,539         333        $3,340,225       $1,691,379
                                            =====         ===        ==========       ==========
CANADA
Proved developed.......................     3,612         102        $1,070,526       $  665,951
Proved undeveloped.....................       311          16           178,096           95,059
                                            -----         ---        ----------       ----------
          Total........................     3,923         118        $1,248,622       $  761,010
                                            =====         ===        ==========       ==========
</TABLE>

     Proved oil and natural gas reserves are the estimated quantities of crude
oil, natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Estimated
future development costs associated with proved non-producing and proved
undeveloped reserves for 2000 total approximately $69.2 million.

     The following table sets forth our interest in undeveloped acreage,
developed acreage and productive wells in which we own a working interest as of
December 31, 2000. Productive wells are wells in which we have a working
interest and are capable of producing oil or natural gas. Gross represents the
total number of acres or wells in which we own a working interest. Net
represents our proportionate working interest resulting from our ownership in
the gross acres or wells.

<TABLE>
<CAPTION>
                                     UNDEVELOPED ACRES      DEVELOPED ACRES      PRODUCTIVE WELLS
                                     ------------------    ------------------    -----------------
                                      GROSS       NET       GROSS       NET       GROSS       NET
                                     -------    -------    -------    -------    -------     -----
<S>                                  <C>        <C>        <C>        <C>        <C>         <C>
UNITED STATES
Arkansas...........................       --         --      8,823      3,967        35        15
California.........................   30,143     23,755     77,308     73,261       155       130
Colorado...........................   24,078     18,813     28,721     16,803        39        39
Louisiana..........................   42,558     41,542     28,323     27,860        37        13
Mississippi........................      350        277     10,125      4,584        16         4
Montana............................    9,890      7,458      1,280        640         2         1
Oklahoma...........................    4,765        953     29,878     13,938        88        20
Texas..............................   17,481      7,123     21,587      9,815       134        49
Wyoming............................   47,936     35,584         --         --        --        --
Offshore Louisiana.................    6,250      6,250      8,750      8,750         5         5
Offshore Texas.....................       --         --      5,760      3,142        10         5
                                     -------    -------    -------    -------     -----       ---
          Total....................  183,451    141,755    220,555    162,760       521       281
                                     =======    =======    =======    =======     =====       ===
CANADA.............................  385,725    225,577    492,055    205,768     2,268       311
</TABLE>

     We own the Texas City, Clear Lake and Pasadena Power Plants, which lease an
aggregate of 48 acres. We own 40 gross acres and 38 net acres in Edinburg, Texas
where we are constructing the Magic Valley Power Plant. We own 77 acres in
Sutter County, California, on which the Greenleaf 1 Power Plant is located. We
own 78 acres in Dane County, Wisconsin, on which the RockGen Energy Center is
being constructed. We own 49 acres in Zion, Illinois, on which the Zion Energy
Center will be constructed. We own 40 acres in

                                        23
<PAGE>   26

Iberville Parish, Louisiana, on which the Carville Energy Center is being
constructed. See "Description of Facilities" for a description of the other
leased or owned properties in which we have an interest. We believe that our
properties are adequate for our current operations.

ITEM 3. LEGAL PROCEEDINGS

     An action was filed against Lockport Energy Associates, L.P. and the New
York Public Service Commission ("NYPSC") in August 1997 by New York State
Electricity and Gas Company ("NYSEG") in the Federal District Court for the
Northern District of New York. NYSEG requested the Court to direct NYPSC and the
Federal Energy Regulatory Commission (the "FERC") to modify contract rates to be
paid to the Lockport Power Plant. In October 1997, NYPSC filed a cross-claim
alleging that the FERC violated the Public Utility Regulatory Policies Act of
1978, as amended ("PURPA"), and the Federal Power Act by failing to reform the
NYSEG contract that was previously approved by the NYPSC. On September 29, 2000,
the New York Federal District Court dismissed NYSEG's complaint and NYPSC's
cross-claim. The Court stated that FERC has no authority to alter or waive its
regulations or exemptions to alter the terms of the applicable power purchase
agreements and that Qualifying Facilities are entitled to the benefit of their
bargain, even if at the expense of NYSEG and its ratepayers. NYSEG has filed an
appeal with respect to this decision. In any event, the Company retains the
right to require The Brooklyn Union Gas Company to purchase its interest in the
Lockport Power Plant for $18.9 million, less equity distributions received by
us, at any time before December 19, 2001.

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

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

     None.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Retirement Savings Plan. Effective September 1999, Calpine Corporation
amended its Retirement Savings Plan to add a Calpine Common Stock Fund as one of
the investment options for employee contributions to the Plan. As the result of
this amendment, the exemption from registration under the Securities Act of 1933
for both the plan participation interests and the shares of Common Stock
previously afforded by Section 3(a)(2) of the Securities Act ceased to be
available. In April 2000, Calpine filed with the Securities and Exchange
Commission a registration statement on Form S-8 registering both the plan
participation interest and shares of Common Stock for future issuance under the
Plan. While Calpine believes that many of the sales made prior to such
registration would qualify as exempt transactions under Section 4(2) of the
Securities Act, it has not undertaken an evaluation of the eligibility of each
Plan participant to purchase securities in a private placement, and expects that
such an evaluation would show that not all of the Plan participants who
purchased unregistered securities would qualify.

     Since the plan amendment, through December 2000, Calpine estimates that (i)
as of December 31, 2000, the market value of the plan participation interests
sold was $53,550,819 and (ii) Calpine has sold to participants 1,402,221 shares
of Common Stock, in each case without the registration of the securities under
the Securities Act. Because employee contributions that are directed to the
Calpine Common Stock Fund are used by the Plan's trustee to purchase shares of
Common Stock in the open market, Calpine does not receive any proceeds from the
sale of the shares. Calpine is prepared to rescind any sale of plan
participation interests or common stock made prior to the registration of such
plan participation interests and common stock if requested by a participant who
did not qualify for a private placement.

     SkyGen Acquisition. On October 12, 2000, in connection with the acquisition
of SkyGen, the Company privately placed 2,117,742 shares of its Common Stock
with the stockholders of SkyGen as part of the purchase price paid by the
Company for SkyGen. The private placement was made in reliance on

                                        24
<PAGE>   27

Regulation D under the Securities Act of 1933 on the basis that each of such
stockholders was an "accredited investor" within the meaning of Rule 501(a)
under the Securities Act of 1933.

     PSM Acquisition. On December 13, 2000, in connection with the acquisition
of PSM, the Company privately placed 281,189 shares of its Common Stock with the
members of PSM as part of the purchase price paid by the Company for PSM,
including such member's membership interests in PSM. The private placement was
made in reliance on Regulation D under the Securities Act of 1933 on the basis
that each of such members was an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act of 1933, with the exception of one such
member who was otherwise qualified under Regulation D.

     EMI Acquisition. On December 15, 2000, in connection with the acquisition
of EMI, the Company privately placed 1,102,601 shares of its Common Stock with
the limited partners of EMI as part of the purchase price paid by the Company
for EMI, including such limited partners' interests in the Tiverton, Rumford or
Dighton subsidiaries of EMI. The private placement was made in reliance on
Regulation D under the Securities Act of 1933 on the basis that each of such
limited partners was an "accredited investor" within the meaning of Rule 501(a)
under the Securities Act of 1933.

ITEM 6. SELECTED FINANCIAL DATA

     The information required hereunder is set forth under "Selected
Consolidated Financial Data" included in the Consolidated Financial Statements
that are a part of this report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The information required hereunder is set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Consolidated Financial Statements that are a part of this
report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The information required hereunder is set forth under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Market Risks" included in the Consolidated Financial
Statements that are a part of this report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required hereunder is set forth under "Report of
Independent Public Accountants," "Consolidated Balance Sheets," "Consolidated
Statements of Operations," "Consolidated Statements of Stockholders' Equity,"
"Consolidated Statements of Cash Flows," and "Notes to Consolidated Financial
Statements" included in the Consolidated Financial Statements that are a part of
this report. Other financial information and schedules are included in the
Consolidated Financial Statements that are a part of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

ITEM 10. EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

     Incorporated by reference to Proxy Statement relating to the 2001 Annual
Meeting of Shareholders to be filed.

ITEM 11. EXECUTIVE COMPENSATION

     Incorporated by reference to Proxy Statement relating to the 2001 Annual
Meeting of Shareholders to be filed.

                                        25
<PAGE>   28

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated by reference to Proxy Statement relating to the 2001 Annual
Meeting of Shareholders to be filed.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated by reference to Proxy Statement relating to the 2001 Annual
Meeting of Shareholders to be filed.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)-1. FINANCIAL STATEMENTS AND OTHER INFORMATION

     The following items appear in Appendix F of this report:

        Selected Consolidated Financial Data
        Management's Discussion and Analysis of Financial Condition and Results
         of Operations
        Report of Independent Public Accountants
        Consolidated Balance Sheets, December 31, 2000 and 1999
        Consolidated Statements of Operations for the Years Ended December 31,
         2000, 1999 and 1998
        Consolidated Statements of Stockholders' Equity for the Years Ended
         December 31, 2000, 1999 and 1998
        Consolidated Statements of Cash Flows for the Years Ended December 31,
         2000, 1999 and 1998
        Notes to Consolidated Financial Statements for the Years Ended December
         31, 2000, 1999 and 1998

(a)-2. FINANCIAL STATEMENT SCHEDULES

     Schedule II -- Valuation and Qualifying Accounts

(b)   REPORTS ON FORM 8-K

     The registrant filed the following report on Form 8-K during the quarter
     ended December 31, 2000:

<TABLE>
<CAPTION>
   DATE OF REPORT          DATE FILED          ITEM REPORTED
   --------------          ----------          -------------
<S>                    <C>                  <C>
  October 26, 2000      October 27, 2000           5, 7
</TABLE>

(c)   EXHIBITS

     The following exhibits are filed herewith unless otherwise indicated:

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
      3.1.1   Amended and Restated Certificate of Incorporation of Calpine
              Corporation, a Delaware corporation.(*)
      3.1.2   Certificate of Correction of Calpine Corporation.(*)
      3.1.3   Certificate of Designation of Series A Participating
              Preferred Stock of Calpine Corporation.(*)
      3.1.4   Amended Certificate of Designation of Series A Participating
              Preferred Stock of Calpine Corporation.(*)
      3.2     Amended and Restated Bylaws of Calpine Corporation, a
              Delaware corporation.(d)
      4.1.1   Indenture dated as of February 17, 1994 between the Company
              and State Street Bank and Trust Company (successor trustee
              to Shawmut Bank of Connecticut, National Association), as
              Trustee, including form of Notes.(a)
      4.1.2   First Supplemental Indenture dated as of July 31, 2000
              between the Company and State Street Bank and Trust Company
              (successor trustee to Shawmut Bank Connecticut, National
              Association), as Trustee.(*)
</TABLE>

                                        26
<PAGE>   29

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
      4.2.1   Indenture dated as of May 16, 1996 between the Company and
              Fleet National Bank, as Trustee, including form of Notes.(c)
      4.2.2   First Supplemental Indenture dated as of August 1, 2000
              between the Company and State Street Bank and Trust Company
              (successor trustee to Fleet National Bank), as Trustee.(*)
      4.3.1   Indenture dated as of July 8, 1997 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(e)
      4.3.2   Supplemental Indenture dated as of September 10, 1997
              between the Company and The Bank of New York, as Trustee.(q)
      4.3.3   Second Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.4.1   Indenture dated as of March 31, 1998 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(g)
      4.4.2   Supplemental Indenture dated as of July 24, 1998 between the
              Company and The Bank of New York, as Trustee.(g)
      4.4.3   Second Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.5.1   Indenture dated as of March 29, 1999 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(h)
      4.5.2   First Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.6.1   Indenture dated as of March 29, 1999 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(h)
      4.6.2   First Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.7.1   Indenture dated as of August 10, 2000 between the Company
              and Wilmington Trust Company, as Trustee.(m)
      4.7.2   First Supplemental Indenture dated as of September 28, 2000
              between the Company and Wilmington Trust Company, as
              Trustee.(*)
      4.8     Rights Agreement, dated as of June 5, 1997, between Calpine
              Corporation and First Chicago Trust Company of New York, as
              Rights Agent.(l)
      4.9     HIGH TIDES I.
      4.9.1   Certificate of Trust of Calpine Capital Trust, a Delaware
              statutory trust, filed October 4, 1999.(i)
      4.9.2   Corrected Certificate of Certificate of Trust of Calpine
              Capital Trust, a Delaware statutory trust, dated September
              29, 1999.(i)
      4.9.3   Declaration of Trust of Calpine Capital Trust, dated as of
              October 4, 1999, among Calpine Corporation, as Depositor,
              The Bank of New York (Delaware), as Delaware Trustee, The
              Bank of New York, as Property Trustee, and the
              Administrative Trustees named therein.(i)
      4.9.4   Indenture, dated as of November 2, 1999, between Calpine
              Corporation and The Bank of New York, as Trustee, including
              form of Debenture.(i)
      4.9.5   Remarketing Agreement, dated November 2, 1999, among Calpine
              Corporation, Calpine Capital Trust, The Bank of New York, as
              Tender Agent, and Credit Suisse First Boston Corporation, as
              Remarketing Agent.(i)
</TABLE>

                                        27
<PAGE>   30

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
      4.9.6   Amended and Restated Declaration of Trust of Calpine Capital
              Trust, dated as of November 2, 1999, among Calpine
              Corporation, as Depositor and Debenture Issuer, The Bank of
              New York (Delaware), as Delaware Trustee, and The Bank of
              New York, as Property Trustee, and the Administrative
              Trustees named therein, including form of Preferred Security
              and form of Common Security.(i)
      4.9.7   Preferred Securities Guarantee Agreement, dated as of
              November 2, 1999, between Calpine Corporation and The Bank
              of New York, as Guarantee Trustee.(i)
      4.10    HIGH TIDES II.
     4.10.1   Certificate of Trust of Calpine Capital Trust II, a Delaware
              statutory trust, filed January 25, 2000.(n)
     4.10.2   Declaration of Trust of Calpine Capital Trust II, dated as
              of January 24, 2000, among Calpine Corporation, as Depositor
              and Debenture Issuer, The Bank of New York (Delaware), as
              Delaware Trustee, The Bank of New York, as Property Trustee,
              and the Administrative Trustees named therein.(n)
     4.10.3   Indenture, dated as of January 31, 2000, between Calpine
              Corporation and The Bank of New York, as Trustee, including
              form of Debenture.(n)
     4.10.4   Remarketing Agreement, dated as of January 31, 2000, among
              Calpine Corporation, Calpine Capital Trust II, The Bank of
              New York, as Tender Agent, and Credit Suisse First Boston
              Corporation, as Remarketing Agent.(n)
     4.10.5   Registration Rights Agreement, dated January 31, 2000, among
              Calpine Corporation, Calpine Capital Trust II, Credit Suisse
              First Boston Corporation and ING Barings LLC.(n)
     4.10.6   Amended and Restated Declaration of Trust of Calpine Capital
              Trust II, dated as of January 31, 2000, among Calpine
              Corporation, as Depositor and Debenture Issuer, The Bank of
              New York (Delaware), as Delaware Trustee, The Bank of New
              York, as Property Trustee, and the Administrative Trustees
              named therein, including form of Preferred Security and form
              of Common Security.(n)
     4.10.7   Preferred Securities Guarantee Agreement, dated as of
              January 31, 2000, between Calpine Corporation and The Bank
              of New York, as Guarantee Trustee.(n)
      4.11    HIGH TIDES III.
     4.11.1   Amended and Restated Certificate of Trust of Calpine Capital
              Trust III, a Delaware statutory trust, filed July 19,
              2000.(o)
     4.11.2   Declaration of Trust of Calpine Capital Trust III dated June
              28, 2000, among the Company, as Depositor and Debenture
              Issuer, The Bank of New York (Delaware), as Delaware
              Trustee, The Bank of New York, as Property Trustee and the
              Administrative Trustees named therein.(o)
     4.11.3   Amendment No. 1 to the Declaration of Trust of Calpine
              Capital Trust III dated July 19, 2000, among the Company, as
              Depositor and Debenture Issuer, Wilmington Trust Company, as
              Delaware Trustee, Wilmington Trust Company, as Property
              Trustee, and the Administrative Trustees named therein.(o)
     4.11.4   Indenture dated as of August 9, 2000, between the Company
              and Wilmington Trust Company, as Trustee.(o)
     4.11.5   Remarketing Agreement dated as of August 9, 2000, among the
              Company, Calpine Capital Trust III, Wilmington Trust
              Company, as Tender Agent, and Credit Suisse First Boston
              Corporation, as Remarketing Agent.(o)
     4.11.6   Registration Rights Agreement dated as August 9, 2000,
              between the Company, Calpine Capital Trust III, Credit
              Suisse First Boston Corporation, ING Barings LLC and CIBC
              World Markets Corp.(o)
</TABLE>

                                        28
<PAGE>   31

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
     4.11.7   Amended and Restated Declaration of Trust of Calpine Capital
              Trust III dated as of August 9, 2000, the Company, as
              Depositor and Debenture Issuer, Wilmington Trust Company, as
              Delaware Trustee, Wilmington Trust Company, as Property
              Trustee, and the Administrative Trustees named therein,
              including the form of Preferred Security and form of Common
              Security.(o)
     4.11.8   Preferred Securities Guarantee Agreement dated as of August
              9, 2000, between the Company, as Guarantor, and Wilmington
              Trust Company, as Guarantee Trustee.(o)
      4.12    PASS THROUGH CERTIFICATES.
     4.12.1   Pass Through Trust Agreement dated as of December 19, 2000,
              among Tiverton Power Associates Limited Partnership, Rumford
              Power Associates Limited Partnership and State Street Bank
              and Trust Company of Connecticut, National Association, as
              Pass Through Trustee, including the form of Certificate.(*)
     4.12.2   Participation Agreement dated as of December 19, 2000, among
              the Company, Tiverton Power Associates Limited Partnership,
              Rumford Power Associates Limited Partnership, PMCC Calpine
              New England Investment LLC, PMCC Calpine NEIM LLC, State
              Street Bank and Trust Company of Connecticut, National
              Association, as Indenture Trustee, and State Street Bank and
              Trust Company of Connecticut, National Association, as Pass
              Through Trustee.(*)
     4.12.3   Appendix A -- Definitions and Rules of Interpretation.(*)
     4.12.4   Indenture of Trust, Mortgage and Security Agreement, dated
              as of December 19, 2000, between PMCC Calpine New England
              Investment LLC and State Street Bank and Trust Company of
              Connecticut, National Association, as Indenture Trustee,
              including the forms of Lessor Notes.(*)
     4.12.5   Calpine Guaranty and Payment Agreement (Tiverton) dated as
              of December 19, 2000, by Calpine, as Guarantor, to PMCC
              Calpine New England Investment LLC, PMCC Calpine NEIM LLC,
              State Street Bank and Trust Company of Connecticut, as
              Indenture Trustee, and State Street Bank and Trust Company
              of Connecticut, as Pass Through Trustee.(*)
     4.12.6   Calpine Guaranty and Payment Agreement (Rumford) dated as of
              December 19, 2000, by Calpine, as Guarantor, to PMCC Calpine
              New England Investment LLC, PMCC Calpine NEIM LLC, State
              Street Bank and Trust Company of Connecticut, as Indenture
              Trustee, and State Street Bank and Trust Company of
              Connecticut, as Pass Through Trustee.(*)
     10.1     Purchase Agreements.
     10.1.1   Purchase and Sale Agreement dated March 27, 1997 for the
              purchase and sale of shares of Enron/Dominion Cogen Corp.
              Common Stock among Enron Power Corporation and Calpine
              Corporation.(f)
     10.1.2   Stock Purchase and Redemption Agreement dated March 31,
              1998, among Dominion Cogen, Inc., Dominion Energy, Inc. and
              Calpine Finance.(f)
     10.2     Financing Agreements.
     10.2.1   Calpine Construction Finance Company Financing Agreement
              ("CCFC I"), dated as of October 20, 1999.(j)
     10.2.2   Calpine Construction Finance Company Financing Agreement
              ("CCFC II"), dated as of October 16, 2000.(p)(*)
     10.2.3   Second Amended and Restated Credit Agreement dated as of May
              23, 2000, among the Company, Bayerische Landesbank, as
              Co-Arranger and Syndication Agent, The Bank of Nova Scotia,
              as Lead Arranger and Administrative Agent, and the Lenders
              named therein.(m)
     10.3     Other Agreements.
     10.3.1   Calpine Corporation Stock Option Program and forms of
              agreements there under.(a)
</TABLE>

                                        29
<PAGE>   32

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
     10.3.2   Calpine Corporation 1996 Stock Incentive Plan and forms of
              agreements there under.(b)
     10.3.3   Calpine Corporation Employee Stock Purchase Plan and forms
              of agreements there under.(b)
     10.3.4   Amended and Restated Employment Agreement between Calpine
              Corporation and Mr. Peter Cartwright.(b)
     10.3.5   Executive Vice President Employment Agreement between
              Calpine Corporation and Ms. Ann B. Curtis.(k)
     10.3.6   Senior Vice President Employment Agreement between Calpine
              Corporation and Mr. Ron A. Walter.(k)
     10.3.7   Senior Vice President Employment Agreement between Calpine
              Corporation and Mr. Robert D. Kelly.(k)
     10.3.8   Executive Vice President Employment Agreement between
              Calpine Corporation and Mr. Thomas R. Mason.(k)
     10.4     Form of Indemnification Agreement for directors and
              officers.(b)
     12.1     Statement on Computation of Ratio of Earnings to Fixed
              Charges.(*)
     21       Subsidiaries of the Company.(*)
     23.1     Consent of Arthur Andersen LLP, Independent Public
              Accountants.(*)
     23.2     Consent of Netherland, Sewell & Associates, Inc.,
              independent engineer.(*)
     23.3     Consent of McDaniel & Associates Consultants, Ltd.,
              independent engineer.(*)
     23.4     Consent of Gilbert Laustsen Jung Associates, Ltd.,
              independent engineer.(*)
     24       Power of Attorney of Officers and Directors of Calpine
              Corporation (set forth on the signature pages of this
              report).(*)
</TABLE>

---------------
(a) Incorporated by reference to Registrant's Registration Statement on Form S-1
    (Registration Statement No. 33-73160).

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

(c) Incorporated by reference to Registrant's Registration Statement on Form S-4
    (Registration Statement No. 333-06259).

(d) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
    dated March 31, 1996 and filed on May 14, 1996.

(e) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
    dated June 30, 1997 and filed on August 14, 1997.

(f) Incorporated by reference to Registrant's Current Report on Form 8-K dated
    March 31, 1998 and filed on April 14, 1998.

(g) Incorporated by reference to Registrant's Registration Statement on Form S-4
    (Registration Statement No. 333-61047).

(h) Incorporated by reference to Registrant's Registration Statement on Form
    S-3/A (Registration Statement No. 333-72583).

(i) Incorporated by reference to Registrant's Registration Statement on Form
    S-3/A (Registration Statement No. 333-87427).

(j) Incorporated by reference to Registrant's Annual Report on Form 10-K dated
    December 31, 1999 and filed on February 29, 2000. Approximately 200 pages of
    this exhibit have been omitted pursuant to a request for confidential
    treatment. The omitted language has been filed separately with the
    Securities and Exchange Commission.

(k) Incorporated by reference to Registrant's Form 10-Q/A dated September 30,
    1999 and filed on November 17, 1999.

                                        30
<PAGE>   33

(l) Incorporated by reference to Registrant's Registration Statement on Form
    8-A, amended by Calpine's Registration Statement on Form 8-A/A (Registration
    Statement No. 001-12079).

(m) Incorporated by reference to Registrant's Current Report on Form 8-K dated
    July 25, 2000 and filed on August 9, 2000.

(n) Incorporated by reference to Registrant's Registration Statement on Form S-3
    (Registration Statement No. 333-33736).

(o) Incorporated by reference to Registrant's Registration Statement on Form S-3
    (Registration Statement No. 333-47068).

(p) Approximately 71 pages of this exhibit have been omitted pursuant to a
    request for confidential treatment. The omitted language has been filed
    separately with the Securities and Exchange Commission.

(q) Incorporated by reference to Registrant's Registration Statement on Form S-4
    (Registration Statement No. 333-41261).

(*) Filed herewith.

                                        31
<PAGE>   34

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                          CALPINE CORPORATION

Date: March 14, 2001                      By:       /s/ ANN B. CURTIS
                                            ------------------------------------
                                                       Ann B. Curtis
                                                Executive Vice President and
                                                           Director
                                               (Principal Financial Officer)

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned officers and
directors of Calpine Corporation do hereby constitute and appoint Peter
Cartwright and Ann B. Curtis, and each of them, the lawful attorney and agent or
attorneys and agents with power and authority to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, or
either of them, determine may be necessary or advisable or required to enable
Calpine Corporation to comply with the Securities and Exchange Act of 1934, as
amended, and any rules or regulations or requirements of the Securities and
Exchange Commission in connection with this Form 10-K Annual Report. Without
limiting the generality of the foregoing power and authority, the powers granted
include the power and authority to sign the names of the undersigned officers
and directors in the capacities indicated below to this Form 10-K Annual Report
or amendments or supplements thereto, and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof. This Power of Attorney may be
signed in several counterparts.

     IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite the name.

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                  <C>                                <S>
               /s/ PETER CARTWRIGHT                     Chairman, President, Chief      March 14, 2001
---------------------------------------------------       Executive and Director
                 Peter Cartwright                      (Principal Executive Officer)

                 /s/ ANN B. CURTIS                     Executive Vice President and     March 14, 2001
---------------------------------------------------              Director
                   Ann B. Curtis                       (Principal Financial Officer)

             /s/ CHARLES B. CLARK, JR.                 Vice President and Corporate     March 14, 2001
---------------------------------------------------             Controller
               Charles B. Clark, Jr.                  (Principal Accounting Officer)

               /s/ JEFFREY E. GARTEN                             Director               March 14, 2001
---------------------------------------------------
                 Jeffrey E. Garten

                /s/ SUSAN C. SCHWAB                              Director               March 14, 2001
---------------------------------------------------
                  Susan C. Schwab
</TABLE>

                                        32
<PAGE>   35

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----

<C>                                                  <C>                                <S>
              /s/ GEORGE J. STATHAKIS                            Director               March 14, 2001
---------------------------------------------------
                George J. Stathakis

                /s/ JOHN O. WILSON                               Director               March 14, 2001
---------------------------------------------------
                  John O. Wilson

               /s/ V. ORVILLE WRIGHT                             Director               March 14, 2001
---------------------------------------------------
                 V. Orville Wright

                                                                 Director
---------------------------------------------------
                  Michael Polsky
</TABLE>

                                        33
<PAGE>   36

                      CALPINE CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                             AND OTHER INFORMATION
                               DECEMBER 31, 2000

<TABLE>
<S>                                                           <C>
Selected Consolidated Financial Data........................   F-2
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   F-4
Report of Independent Public Accountants....................  F-33
Consolidated Balance Sheets December 31, 2000 and 1999......  F-34
Consolidated Statements of Operations for the Years Ended
  December 31, 2000, 1999 and 1998..........................  F-35
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 2000, 1999 and 1998..............  F-36
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2000, 1999 and 1998..........................  F-37
Notes to Consolidated Financial Statements for the Years
  Ended December 31, 2000, 1999 and 1998....................  F-38
</TABLE>

                                       F-1
<PAGE>   37

                      CALPINE CORPORATION AND SUBSIDIARIES

                      SELECTED CONSOLIDATED FINANCIAL DATA
            (IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND RATIO DATA)

<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                             --------------------------------------------------------------
                                                                1996         1997         1998         1999         2000
                                                             ----------   ----------   ----------   ----------   ----------
<S>                                                          <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
REVENUE:
  Electricity and steam sales..............................  $  199,464   $  237,277   $  507,897   $  760,325   $1,702,320
  Service contract revenue.................................       6,455       10,177       20,249       43,773      480,234
  Income from unconsolidated investments in power
    projects...............................................       6,537       15,819       25,240       36,593       24,639
  Interest income on loans to power projects...............       2,098       13,048        2,562        1,226        4,827
  Other revenue............................................          --           --           --        5,818       70,773
                                                             ----------   ----------   ----------   ----------   ----------
        Total revenue......................................     214,554      276,321      555,948      847,735    2,282,793
  Cost of revenue(1).......................................     132,762      156,343      378,926      561,850    1,558,676
                                                             ----------   ----------   ----------   ----------   ----------
    Gross profit...........................................      81,792      119,978      177,022      285,885      724,117
  Project development expenses.............................       3,867        7,537        7,165       10,712       27,556
  General and administrative expenses(1)...................      11,134       15,254       23,181       48,671       94,113
                                                             ----------   ----------   ----------   ----------   ----------
    Income from operations.................................      66,791       97,187      146,676      226,502      602,448
  Interest expense.........................................      45,294       61,466       86,726       91,162       56,700
  Distributions on trust preferred securities..............          --           --           --        2,565       44,210
  Other income.............................................      (6,259)     (17,438)     (13,423)     (25,441)     (42,100)
                                                             ----------   ----------   ----------   ----------   ----------
    Income before provision for income taxes...............      27,756       53,159       73,373      158,216      543,638
  Provision for income taxes...............................       9,064       18,460       27,054       61,973      218,951
                                                             ----------   ----------   ----------   ----------   ----------
    Income before extraordinary charge.....................      18,692       34,699       46,319       96,243      324,687
  Extraordinary charge, net of tax benefit of $ --, $ --,
    $441, $793 and $796....................................          --           --          641        1,150        1,235
                                                             ----------   ----------   ----------   ----------   ----------
    Net income.............................................  $   18,692   $   34,699   $   45,678   $   95,093   $  323,452
                                                             ==========   ==========   ==========   ==========   ==========
  Basic earnings per common share:
    Weighted average shares of common stock outstanding....     103,221      159,569      160,969      209,314      264,799
    Income before extraordinary charge.....................  $     0.18   $     0.22   $     0.29   $     0.46   $     1.23
    Extraordinary charge...................................  $       --   $       --   $    (0.01)  $    (0.01)  $    (0.01)
    Net income.............................................  $     0.18   $     0.22   $     0.28   $     0.45   $     1.22
  Diluted earnings per common share:
    Weighted average shares of common stock outstanding
      before dilutive effect of certain trust preferred
      securities...........................................     119,030      168,128      169,311      222,644      280,776
    Income before extraordinary charge and dilutive effect
      of certain trust preferred securities................  $     0.16   $     0.21   $     0.27   $     0.43   $     1.16
    Dilutive effect of certain trust preferred
      securities(2)........................................  $       --   $       --   $       --   $       --   $    (0.05)
    Income before extraordinary charge.....................  $     0.16   $     0.21   $     0.27   $     0.43   $     1.11
    Extraordinary charge...................................  $       --   $       --   $       --   $       --   $    (0.01)
    Net income.............................................  $     0.16   $     0.21   $     0.27   $     0.43   $     1.10
OTHER FINANCIAL DATA AND RATIOS:
  EBITDA(3)................................................  $  110,703   $  172,026   $  241,633   $  351,528   $  825,925
  EBITDA to Consolidated Interest Expense(4)...............       2.29x        2.60x        2.61x        3.35x        6.66x
  Total debt to EBITDA.....................................       5.43x        4.98x        4.43x        5.84x        5.44x
  Ratio of earnings to fixed charges(5)....................       1.46x        1.72x        1.69x        1.77x        2.04x
BALANCE SHEET DATA:
  Cash and cash equivalents................................  $   95,970   $   48,513   $   96,532   $  349,371   $  588,698
  Property, plant and equipment, net.......................     648,208      736,339    1,094,303    2,908,056    7,459,055
  Investment in power projects.............................      13,936      222,542      221,509      243,225      205,621
        Total assets.......................................   1,031,397    1,380,915    1,728,946    3,991,606    9,737,257
  Short-term debt..........................................      37,492      112,966        5,450       47,470       61,558
  Long-term debt...........................................     563,640      742,893    1,065,940    2,006,190    4,430,357
        Total debt.........................................     601,132      855,859    1,071,390    2,053,660    4,491,915
  Company-obligated mandatorily redeemable convertible
    preferred securities of subsidiary trusts..............          --           --           --      270,713    1,122,490
  Minority interests.......................................          --           --           --       61,705       37,576
  Stockholders' equity.....................................     203,127      239,956      286,966      964,632    2,236,774
</TABLE>

   (The information contained in the Selected Consolidated Financial Data is
                            derived from the audited
  Consolidated Financial Statements of Calpine Corporation and Subsidiaries.)

                                       F-2
<PAGE>   38

---------------
(1) Certain expenses for the years 1996 through 1999 have been reclassed from
    general and administrative expenses to plant operating expenses to conform
    with the 2000 presentation.

(2) Includes the effect of the assumed conversion of certain trust preferred
    securities. For the year 2000, the assumed conversion calculation adds
    31,746 shares of common stock and $20,841 to the net income results,
    representing the after tax distribution expense on certain trust preferred
    securities avoided upon conversion.

(3) EBITDA is defined as net income less income from unconsolidated investments,
    plus cash received from unconsolidated investments, plus provision for tax,
    plus interest expense, plus one-third of operating lease expenses, plus
    depreciation and amortization, plus distributions on trust preferred
    securities. EBITDA is presented not as a measure of operating results, but
    rather as a measure of our ability to service debt. EBITDA should not be
    construed as an alternative to either (i) income from operations (determined
    in accordance with generally accepted accounting principles) or (ii) cash
    flows from operating activities (determined in accordance with generally
    accepted accounting principles). Prior to 2000, EBITDA had been calculated
    according to an indenture definition. EBITDA for 1996 - 1999 has been
    restated to conform to the definition set forth above.

(4) Consolidated Interest Expense is defined as total interest expense plus
    one-third of all operating lease obligations and distributions on trust
    preferred securities.

(5) For purposes of computing our consolidated ratio of earnings to fixed
    charges, earnings consist of pretax income before adjustment for minority
    interests in our consolidated subsidiaries or income or loss from equity
    investees, plus fixed charges, amortization of capitalized interest, and
    distributed income of equity investees, reduced by interest capitalized,
    distributions on our company-obligated mandatorily redeemable convertible
    preferred securities of subsidiary trusts ("HIGH TIDES") and the minority
    interest in pretax income of subsidiaries that have not incurred fixed
    charges. Fixed charges consist of interest expensed and capitalized
    (including amortized premiums, discounts and capitalized expenses related to
    indebtedness), an estimate of the interest within rental expense and the
    distributions on our HIGH TIDES.

                                       F-3
<PAGE>   39

                      CALPINE CORPORATION AND SUBSIDIARIES

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

     Except for historical financial information contained herein, the matters
discussed in this annual report may be considered "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the intent, belief or current expectations of Calpine
Corporation ("the Company") and its management. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that could
materially affect actual results such as, but not limited to, (i)changes in
government regulations, including pending changes in California, and anticipated
deregulation of the electric energy industry, (ii) commercial operations of new
plants that may be delayed or prevented because of various development and
construction risks, such as a failure to obtain financing and the necessary
permits to operate or the failure of third-party contractors to perform their
contractual obligations, (iii) cost estimates are preliminary and actual costs
may be higher than estimated, (iv) the assurance that the Company will develop
additional plants, (v) a competitor's development of a lower-cost generating
gas-fired power plant, (vi) the risks associated with marketing and selling
power from power plants in the newly competitive energy market, (vii) the risks
associated with marketing and selling combustion turbine parts and components in
the competitive combustion turbine parts market, (viii) the risks associated
with engineering, designing and manufacturing combustion turbine parts and
components, (ix) delivery and performance risks associated with combustion
turbine parts and components attributable to production, quality control,
suppliers and transportation, or (x) the successful exploitation of an oil or
gas resource that ultimately depends upon the geology of the resource, the total
amount and cost to develop recoverable reserves, and operational factors
relating to the extraction of natural gas. Prospective investors are also
cautioned that the California energy market remains uncertain. The Company's
management is working closely with a number of parties to resolve the current
uncertainty. This is an ongoing process and, therefore, the outcome cannot be
predicted. It is possible that any such outcome will include changes in
government regulations, business and contractual relationships or other factors
that could materially affect the Company. However, management believes that a
final resolution will not have a material adverse impact on the Company.
Prospective investors are also referred to the other risks identified from time
to time in the Company's reports and registration statements filed with the
Securities and Exchange Commission.

OVERVIEW

     Calpine is engaged in the development, acquisition, ownership, and
operation of power generation facilities and the sale of electricity and steam
principally in the United States. At March 8, 2001, we had interests in 50
operating power plants predominantly in the United States, representing 5,849
megawatts of net capacity.

     On January 11, 2000, we announced our plans to expand our presence into the
Florida wholesale power market. Our plans are to invest approximately $850
million in power generation facilities and manage these development activities
in the Southeast from a new office in Tampa, Florida. We will develop two
natural gas-fired energy centers, the 590 megawatt Osprey Energy Center, to be
located in the City of Auburndale adjacent to an existing Calpine power
facility, and the 1,239 megawatt Blue Heron Energy Center, to be located outside
of Vero Beach. Construction for the proposed facilities is planned for 2001 and
2002, respectively, with the Osprey Energy Center to commence commercial
operation in the fall of 2003, followed by the Blue Heron Energy Center in mid
2004.

     On January 14, 2000, we acquired a 296 megawatt net interest in the Aries
Power Plant, a 591 megawatt natural gas-fired plant currently under construction
near Pleasant Hill, Missouri, from a subsidiary of Aquila Energy Corporation.
Construction started in the fall of 1999 and commercial operation is scheduled
to begin in late 2001. The majority of the plant's output will be sold to
Missouri Public Service through May 2005. Thereafter, power will be sold into
the Southwest Power Pool.

                                       F-4
<PAGE>   40

     On January 18, 2000, we entered into an agreement to provide the Sacramento
Municipal Utility District ("SMUD") with a five-year supply of electricity from
our 547 megawatt Sutter Power Plant. The plant is currently under construction
near Yuba City, California. We will provide 150 megawatts of electricity to
SMUD's customer base beginning with the plant's startup in mid 2001.

     On January 26, 2000, we completed a private offering under Rule 144A of the
Securities Act of 1933 of 6,000,000 5 1/2% Remarkable Term Income Deferrable
Equity Securities ("trust preferred securities" or "HIGH TIDES") issued by a
subsidiary trust at $50.00 each, raising $300.0 million of aggregate gross
proceeds. On February 10, 2000, we privately placed an additional 1,200,000
5 1/2% HIGH TIDES pursuant to the exercise of the purchasers' option generating
additional gross proceeds of $60.0 million.

     On January 28, 2000, we acquired the development rights for the Hermiston
Power Project, a 630 megawatt gas-fired cogeneration power facility located near
Hermiston, Oregon, from Ida-West Energy Company and TransCanada Pipelines.
Construction of the facility commenced in the summer of 2000 and we expect that
commercial operation will commence in mid 2002.

     On February 2, 2000, we announced plans to build, own and operate the
Decatur Energy Center, a 794 megawatt gas-fired cogeneration energy center at
Solutia Inc.'s Decatur, Alabama chemical facility. Under a 20-year contract,
Solutia will lease a portion of the facility to meet its electricity needs and
purchase its steam requirements from us. Excess power from the facility will be
sold into the Southeastern Wholesale Power Market under a variety of short,
medium, and long-term contracts. We will also build a new intrastate natural gas
pipeline to fuel the energy center. Construction began in September 2000 and
commercial operation is expected to commence in mid 2002.

     On February 4, 2000, we acquired 100% of the stock of Western Gas Resources
California ("Western") from Western Gas Resources, Inc. for $14.9 million.
Western's assets include the 130-mile Steelhead natural gas pipeline and the
remaining interest in the Sacramento River Gas System natural gas pipeline, now
100% owned by us.

     On February 8, 2000, we announced that the Towantic Energy Center received
approval through a town-wide referendum to purchase the town-owned land on which
the facility will be built. The referendum also approved a Tax Stabilization
Agreement that will even out the property taxes paid to the town of Oxford,
Connecticut over a 22-year period.

     On February 9, 2000, we announced that the California Energy Commission
approved plans to construct the Delta Energy Center in Pittsburg, California.
The Delta Energy Center, an 874 megawatt gas-fired energy center located at the
Dow Chemical facility, is the first facility that will be developed, owned and
operated under a joint venture with Bechtel Enterprises, and will provide power
to Pittsburg, California and to the greater San Francisco Bay Area. We have a
437 megawatt net interest in this facility.

     On February 22, 2000, we announced plans to build, own and operate the Lone
Oak Energy Center, a 915 megawatt gas-fired cogeneration facility located in
Lowndes County, Mississippi. We anticipate that construction will commence in
mid 2001 and that commercial operation of the facility will commence in the
spring of 2003.

     On February 24, 2000, we announced plans to build, own and operate the
Hillabee Energy Center, a 770 megawatt gas-fired cogeneration facility located
in Tallapoosa County, Alabama. We anticipate that construction will commence in
mid 2001 and that commercial operation of the facility will commence in mid
2003.

     On March 6, 2000, we announced that we entered into a partnership agreement
with Cleco Midstream Resources, an affiliate of Pineville, Louisiana-based Cleco
Corporation, to participate in the Acadia Energy Center. The partners plan to
build, own and operate the 1,239 megawatt natural gas-fired energy center near
Eunice, Louisiana. We have a 620 megawatt net interest in this facility.
Construction commenced in mid 2000 and commercial operation for the energy
center is expected in May 2002.

                                       F-5
<PAGE>   41

     On March 23, 2000, we announced plans to build, own and operate the
Wawayanda Energy Center, a 630 megawatt natural gas-fired facility to be located
near Middletown, New York. We anticipate that construction will begin in early
2002 and commercial operation will begin in early 2004.

     On March 30, 2000, we purchased a 78.5%, or 394 megawatt, interest in the
502 megawatt Hidalgo Energy Center, located in Edinburg, Texas, from Duke Energy
North America for $235 million. The purchase included a cash payment of $134
million and the assumption of a $101 million capital lease obligation. The
facility began commercial operation on June 14, 2000. The Hidalgo Energy Center
sells power under our system approach into the Electric Reliability Council of
Texas' wholesale market and potentially may sell into northern Mexico in the
future.

     On March 30, 2000, we announced a 50 megawatt expansion of the natural
gas-fired, cogeneration power plant located in Morris, Illinois. We also
announced the signing of a power sales agreement to deliver approximately 100
megawatts of capacity from the Morris Power Plant to Commonwealth Edison Company
through the end of 2000. The majority of the electricity and all of the steam
produced by the plant are sold to Equistar Chemicals, L.P. under a long-term
agreement that expires in 2023.

     On April 20, 2000, we announced plans to construct the Calgary Energy
Centre. Scheduled to begin commercial operation in early 2003, the 300 megawatt
combined cycle, natural gas-fired facility was the first independent power
project announced in the Calgary area, and represents our first investment in
the Canadian power industry.

     On May 16, 2000, we announced the establishment of a new business unit,
Calpine c*Power, to serve the rapidly growing worldwide demand for highly
reliable critical power. Highly reliable power adds to our growing line of
high-value energy products, which includes green power, ancillary services and
peaking power.

     On May 22, 2000, we announced plans to purchase 36 F-class turbines from
Orlando, Florida-based Siemens Westinghouse Power Corporation. The agreement
includes long-term service programs and performance enhancements on existing
equipment. In 2003 and 2004, Siemens Westinghouse will be obligated to deliver a
total of 36 turbines to us. When operated in a combined cycle configuration, the
36 new turbines equate to approximately 9,800 additional megawatts of
electricity generation potential.

     On May 23, 2000, we announced the acquisition of development rights to
build, own and operate the 700 megawatt natural gas-fired Fremont Energy Center
near Fremont, Ohio. Construction is scheduled to begin in mid 2001 and we expect
commercial operation to commence in mid 2003.

     On May 23, 2000, we entered into an amended and restated $400 million,
three-year revolving line of credit led by The Bank of Nova Scotia, replacing an
expiring $100 million credit facility. The amended and restated facility will be
used for working capital and other general corporate purposes.

     On May 31, 2000, we completed the acquisition of the remaining 50% interest
in the 105 megawatt Kennedy International Airport Power Plant ("KIAC") in
Queens, New York, and the 40 megawatt Stony Brook Power Plant located at the
State University of New York at Stony Brook on Long Island from Statoil Energy,
Inc. We paid approximately $71 million in cash and assumed a capital lease
obligation relating to the Stony Brook Power Plant. We initially acquired a 50%
interest in both facilities in December 1997.

     On June 8, 2000, we effected a two-for-one split of our common stock for
stockholders of record as of May 29, 2000.

     On June 15, 2000, we announced that we acquired the Freestone Energy Center
from New Orleans, Louisiana-based Entergy Corp. Freestone is a 1,052 megawatt
natural gas-fired energy center located in Freestone County, Texas, near
Fairfield, about 80 miles southeast of Dallas. The technologically advanced
energy center is currently under construction, with a two-phased commercial
start-up beginning in June 2002. We paid approximately $61.0 million in cash and
assumed certain liabilities. This represented payment for the land and
development rights for the Freestone Energy Center, previous progress payments
made for four General Electric gas turbines, two steam turbines and related
equipment, and development expenditures incurred to date.

                                       F-6
<PAGE>   42

     On June 27, 2000, we announced plans to build, own and operate a natural
gas-fired cogeneration energy center at the BP Amoco chemical facility in
Decatur, Alabama. The proposed Morgan Energy Center will generate approximately
790 megawatts of electricity in addition to supplying steam for BP Amoco's
facility. Construction began in September 2000 and we expect commercial
operation to commence in December 2002.

     On June 29, 2000, we announced that we secured the rights to develop,
build, own and operate the Teayawa Energy Center, a 608 megawatt natural
gas-fired power generating facility near the town of Thermal in Riverside
County, California through a development agreement with Adair International Oil
and Gas, Inc. The Teayawa Energy Center will be sited on the Torres Martinez
Desert Cahuilla Indians' land through a long-term lease agreement with the
Torres Martinez. Commercial operation is expected in early 2004.

     On June 30, 2000, we completed the acquisition from Edison Mission Energy
of the remaining 50% ownership interest in a 153 megawatt natural gas-fired,
combined cycle cogeneration facility located in Auburndale, Fla. We paid
approximately $22.0 million in cash and assumed certain liabilities, including
project level debt. Related to the project level debt was the assumption of an
interest rate swap agreement with a notional amount of $121.5 million at
December 31, 2000, which effectively converts the project level debt's floating
rate to a fixed rate of 6.52% per annum. We acquired an initial 50% ownership
interest in the Auburndale Power Plant in October 1997.

     On July 5, 2000, we completed three acquisitions of natural gas reserves
for $206.5 million, including the acquisition of Calgary-based Quintana Minerals
Canada Corp. ("QMCC"), three fields in the Gulf of Mexico and natural gas assets
in the Piceance Basin, Colorado and onshore Gulf Coast. These acquisitions
increased our proven reserves to 430 bcfe, which at full production, can fuel
800 to 900 megawatts of combined cycle gas-fired power generation.

     On July 6, 2000, we announced the addition of 100 megawatts of peaking
capacity to the natural gas-fired, cogeneration facility located in Auburndale,
Florida.

     On July 18, 2000, we announced plans to purchase from GE Power Systems 21
model 7FB turbines which will produce an additional 5,250 megawatts of
electricity when operated in combined cycle mode. We will take delivery of 12
turbines in 2003, with the remainder of the contract to be filled in 2004.

     On July 19, 2000, we announced we will develop, construct and own a natural
gas-fired, combined cycle power generation facility in Haywood County,
Tennessee. The proposed Haywood Energy Center represents our fourth project that
will interconnect with the Tennessee Valley Authority. The 915 megawatt facility
is scheduled to begin commercial operation in late 2004.

     On July 20, 2000, we completed the acquisition of the Oneta Energy Center
from Panda Energy, International, Inc. Oneta is a 1,138 megawatt natural
gas-fired energy center under construction in Coweta, Oklahoma, southeast of
Tulsa. Under our agreement with Panda, we may be obligated to make certain
contingent payments during the operation of the Oneta facility. We also acquired
from Panda 24 General Electric 7 FA gas turbines and 12 steam turbines, of which
16 gas turbines and 8 steam turbines were subsequently repurchased by another
party in partnership with Panda.

     On July 21, 2000, we signed a memorandum of understanding to purchase 85
heat recovery steam generators ("HRSG's") from St. Louis, Missouri-based
Nooter/Eriksen. We will begin taking delivery of the HRSG's in 2001, with the
bulk of the contract to be filled through 2004.

     On July 24, 2000, we announced plans to enter into a $2.5 billion revolving
construction credit facility, through our wholly owned subsidiary Calpine
Construction Finance Company II, LLC ("CCFC II"), with a consortium of banks,
including The Bank of Nova Scotia and Credit Suisse First Boston as lead
arrangers. We signed this agreement during the fourth quarter of 2000.

     On August 1 and 2, 2000, we announced the completion of consent
solicitations to effect certain amendments to six Indentures governing certain
outstanding Calpine public debt securities which are due in the years
2004 - 2009. Supplemental Indentures effecting such amendments were executed by
Calpine and the respective Trustees.

                                       F-7
<PAGE>   43

     On August 9, 2000, we completed a public offering of 23,000,000 shares of
our common stock at $34.75 per share. The gross proceeds were $799.3 million.

     On August 9, 2000, we, through our wholly-owned subsidiary, Calpine Capital
Trust III, completed a private offering, under Rule 144A of the Securities Act
of 1933, of 10,350,000 5% HIGH TIDES at a price of $50.00 per share. The gross
proceeds from the offering were $517.5 million.

     On August 10, 2000, we completed a public offering of $250.0 million of our
8 1/4% Senior Notes due 2005 and $750.0 million of our 8 5/8% Senior Notes due
2010. The 8 1/4% Senior Notes mature on August 15, 2005 and interest is payable
semi-annually. The 8 5/8% Senior Notes mature on August 15, 2010 and interest is
payable semi-annually.

     On August 16, 2000, we acquired the remaining 80% interest in the Agnews
Power Plant, a 29 megawatt natural gas-fired, combined cycle facility located in
San Jose, California from GATX Capital Corporation for a total purchase price of
$4.9 million. We first acquired a 20% equity interest in the Agnews Power Plant
in 1990.

     On August 31, 2000, we announced that we acquired the remaining 45% equity
interest in the Aidlin Power Plant from an affiliate of Sumitomo Corporation for
a total purchase price of $6.4 million. We initially acquired a 5% equity
interest in the Aidlin Power Plant in 1989, representing our first megawatt of
generation. That interest was increased to 55% with the acquisition of two other
partners' interests in 1999. Located in The Geysers region of northern
California, Aidlin is a 20 megawatt power plant.

     On September 1, 2000, we completed a leveraged lease financing transaction
to provide the term financing for both Phase I and Phase II of the Pasadena,
Texas cogeneration project. Under the terms of the lease, we received $400.0
million in gross proceeds and recorded a deferred gain of approximately $65.0
million.

     On September 21, 2000, we announced a five year power sales agreement with
Imperial Irrigation District ("IID"). Beginning May 2002, we will deliver 150
megawatts of electricity from our new 555 megawatt South Point Power Plant to
IID's southern California electric customers.

     On October 12, 2000, we completed the acquisition of Northbrook,
Illinois-based SkyGen Energy LLC ("SkyGen") from Michael Polsky and Wisvest
Corporation ("Wisvest"), an affiliate of Wisconsin Energy Corp. The total
purchase price of $359.1 million included $294.2 million in cash and 2,117,742
shares of our common stock (which were valued in the aggregate at $64.9 million
at the signing of the Letter of Intent). Additionally, we agreed to the
assumption of certain recourse and non-recourse obligations of SkyGen, the
assumption of certain contingent obligations of Wisvest and Wisconsin Energy
Crop. on behalf of SkyGen, and the obligation to make certain additional
contingent payments for completion of certain project development milestones.
Under the terms of the agreement, we acquired three operating facilities, five
facilities under construction, 12 late-stage development projects and 16 project
stage development projects. In addition, we assumed purchase rights and progress
payments for 34 General Electric 7 FA gas turbines to power these projects.

     On October 16, 2000, we jointly announced with EOG Resources, Inc. ("EOG")
the signing of a one year marketing agreement that links the daily price of
natural gas to the price of electricity. EOG agreed to sell 10 million cubic
feet of natural gas per day directly to us. The transaction became effective
January 1, 2001 and will terminate December 31, 2001.

     On October 17, 2000, we announced plans to enter into a 400 megawatt
long-term power supply agreement with Pacific Gas & Electric Company ("PG&E")
that will provide competitively priced electricity for PG&E's northern
California customers. Electricity deliveries will begin July 1, 2001 and end
December 31, 2003.

     On October 17, 2000, we announced that we presented plans, with Tampa,
Florida-based Seminole Electric Cooperative, Inc. ("Seminole"), to the Florida
Public Service Commission under which our proposed Osprey Energy Center will
supply electric power under contract to help meet Seminole's member systems'
power needs.

                                       F-8
<PAGE>   44

     On October 20, 2000, we jointly announced with Cleco Corporation, a
regional energy services company headquartered in Pineville, Louisiana, the
signing of a 20-year contract with Aquila Energy, a wholly owned subsidiary of
UtiliCorp United, for 580 megawatts of the output of the jointly owned Acadia
Energy Center currently under construction in Acadia Parish, Louisiana. We have
a 50% interest in Acadia Power Partners LLC, which owns the 1,239 megawatt
combined cycle plant currently under construction. The remaining 50% interest is
held by Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco. Under
terms of a tolling agreement, starting July 1, 2002, Aquila Energy will supply
the natural gas needed to generate 580 megawatts of electricity and will own and
market the produced power.

     On October 23, 2000, we announced that we entered into a project
development agreement to build, own and operate a 1,100 megawatt natural
gas-fired energy center to be located on the Ohio River in Hamilton Township,
Lawrence County, Ohio. The proposed Lawrence Energy Center will represent a $510
million investment, with a target commercial operation date of December 2004.

     On October 31, 2000, we announced that we entered into a long-term, natural
gas transportation and storage agreement with Kinder Morgan Texas Pipeline, Inc.
("KMTP"), a subsidiary of Kinder Morgan, Inc. We will have access to up to
375,000 MMBtu of firm natural gas transportation service per day from KMTP for a
period of 10 years. The agreement began on January 1, 2001.

     On October 31, 2000, we announced with Aquila Energy, a wholly-owned
subsidiary of UtiliCorp United, the completion of a $270 million construction
and leverage lease financing of the Aries Power Plant, a 591 megawatt gas-fired
power plant under construction in Pleasant Hill, Missouri. The majority of the
plant's capacity and electrical output has already been sold under a four year
contract (June 2001 - May 2005) to Missouri Public Service, a division of
UtiliCorp. Under the terms of separate tolling contracts, we, together with
Aquila, will purchase the balance of the plant's capacity and output,
remarketing it into the Southwest Power Pool and Southeast Electric Reliability
Counsel regional power markets. The marketing and fuel supply responsibilities
will be handled by Aquila.

     On November 14, 2000, we effected a two-for-one split of our common stock
for stockholders of record as of November 6, 2000.

     On November 15, 2000, we announced that our wholly owned subsidiary,
SkyGen, entered into an agreement to supply CP&L Energy ("CP&L") additional
power produced from the Broad River Energy Center expansion project. This
expansion, the second phase of construction of the Broad River Energy Center,
involves the installation of two additional combustion turbines capable of
producing an additional 360 megawatts of peaking power. Construction is expected
to be completed in the spring of 2001. The output will be sold to CP&L under
long-term power purchase agreements.

     On November 15, 2000, we acquired TriGas Exploration, Inc. ("TriGas"), a
Calgary-based oil and gas company, for a total purchase price of $101.1 million.
The purchase price included cash payments of $79.6 million, as well as assumed
net indebtedness of $21.5 million. The acquisition provides us with natural gas
reserves to fuel our proposed Calgary Energy Centre, and a 26.6% working
interest in the East Crossfield Gas Plant, extensive pipelines and gathering
systems and a significant undeveloped land base with development potential.

     On December 12, 2000, we announced that we are considering plans to develop
and operate a new energy-efficient electric generating facility in an effort to
meet a portion of the fast-growing local and regional electricity needs in
northern California. We are preparing technical studies for the proposed 1,065
megawatt facility. The proposed East Altamont Energy Center will be located in
the northeastern corner of Alameda County, and situated in an area dominated by
major regional high voltage transmission lines, a natural gas compressor
station, wind power generators, and the substantial pumping stations associated
with the California Aqueduct and the Delta-Mendota Canal. Upon completion of
licensing through the California Energy Commission, construction would begin in
June 2002, with commercial operation beginning in June 2004.

     On December 13, 2000, we completed the acquisition of Boca Raton,
Florida-based Power Systems Mfg. LLC ("PSM"), an industry leader in combustion
turbine component engineering, design and manufacturing, for a total purchase
price of $16.3 million. The purchase price included cash payments of $5.6
million and

                                       F-9
<PAGE>   45

281,189 shares of Calpine common stock (which were valued at $10.7 million at
the closing of the agreement). Additionally, the agreement provides for five
equal installments of cash payments totaling $26.7 million, beginning in January
2002, contingent upon future PSM performance. PSM will operate as a subsidiary
of Calpine and will continue to sell its products to the combustion turbine
market.

     On December 15, 2000, we completed the acquisition of strategic power
assets from Dartmouth, Massachusetts-based Energy Management, Inc. ("EMI") for a
total purchase price of $145.0 million and the assumption of project financings.
The purchase price included cash payments of $100.0 million and 1,102,601 shares
of Calpine common stock (which were valued in the aggregate at $45.0 million at
the closing of the agreement). Under the terms of the agreement, we acquired the
remaining interest in three recently constructed combined cycle power generating
facilities located in Dighton, Massachusetts, Tiverton, Rhode Island, and
Rumford, Maine, as well as Calpine-EMI Marketing LLC, a joint marketing venture
between Calpine and EMI.

     On December 18, 2000, we announced with PG&E Corporation an agreement under
which we will acquire the Otay Mesa Generating Project in San Diego County. In
accordance with the terms of the agreement, we will build, own and operate the
618 megawatt generating facility, and PG&E Corporation's National Energy Group
will contract for up to 250 megawatts of the project's output. Construction is
expected to begin in the fall of 2001.

     On December 19, 2000, we completed leveraged lease transactions in which we
sold the Tiverton, Rhode Island and Rumford, Maine facilities (purchased from
EMI) to a single owner lessor for $466.7 million, which then leased the
facilities back to our Tiverton and Rumford subsidiaries. We have fully and
unconditionally guaranteed all of the obligations of the Tiverton and Rumford
subsidiaries under the leases and other lease documents related to their lease
of the facilities from the owner lessor. The owner lessor paid the purchase
price for the facilities through an equity investment and by issuing notes. The
notes were purchased by a pass through trust created by the Tiverton and Rumford
subsidiaries. The purchase of the notes was financed by the private placement
under Rule 144A of the Securities Act of 1933 by the pass through trust of
$366.0 million in 9.0% pass through certificates due July 15, 2018.

     On December 22, 2000, we completed a leveraged lease financing transaction
of our West Ford Flat and Bear Canyon projects. Under the terms of the
agreement, the facilities were incorporated into Calpine's Geothermal lease
facility, which we originally entered into on May 7, 1999. We received $81.0
million in gross proceeds and recorded a deferred loss of approximately $8.1
million, which is being amortized as an increase of operating lease expense over
the remaining life of the lease.

TRANSACTIONS ANNOUNCED OR CONSUMMATED SUBSEQUENT TO DECEMBER 31, 2000, AND
RECENT DEVELOPMENTS

     On January 11, 2001, we jointly announced with Western Hub Properties LLC
("WHP") that WHP's wholly owned subsidiary, Lodi Gas Storage, LLC, entered into
a long-term firm agreement to supply Calpine with storage services at WHP's Lodi
Gas Storage facility near Lodi, California. The storage arrangement can provide
up to 4 billion cubic feet (bcf) of working gas inventory and daily
deliverability equal to approximately 20 percent of our western region peak day
gas requirements in 2002. The Lodi Gas Storage Project, located approximately 50
miles east of San Francisco, is slated to begin construction in February of
2001, and to begin operation early in the fourth quarter of 2001.

     On January 17, 2001, our wholly owned subsidiary, SkyGen, announced plans
to build, own and operate an 850 megawatt natural gas-fired cogeneration
facility in Augusta, Georgia. The proposed Augusta Energy Center will be fueled
by clean natural gas and will supply energy to DSM Chemicals North America, Inc.
for use in its production processes. Construction is expected to begin in the
third quarter of 2001.

     On January 26, 2001, we announced the acquisition of the development rights
from Cogentrix, an independent power company based in North Carolina, for the
577 megawatt Washington Parish Energy Center, located near Bogalusa, Louisiana.
We are managing construction of the facility, which began in January 2001.

                                       F-10
<PAGE>   46

     On February 8, 2001 we announced plans to acquire all of the common shares
of Encal Energy Ltd. ("Encal"), a Calgary, Alberta-based natural gas and
petroleum exploration and development company, through a stock-for-stock
exchange in which Encal shareholders will receive Cdn. $12.00 per share in
Calpine common equivalent shares based on an exchange ratio to be determined
prior to closing. The aggregate value of the transaction, for which we expect to
use pooling of interests accounting, is approximately $1.2 billion, including
the assumed net indebtedness of Encal. Upon completion of the acquisition, we
will gain approximately 1.0 trillion cubic feet equivalent of proved and
probable natural gas reserves, net of royalties. This transaction also provides
access to firm gas transportation capacity from western Canada to California and
the eastern U.S., and an accomplished management team capable of leading our
business expansion in Canada. With the addition of Encal's assets, which
currently produce approximately 230 million cubic feet of gas equivalent
("mmcfe") per day, net of royalties, our net production is expected to increase
to 390 mmcfe per day in North America, enough to fuel approximately 2,300
megawatts of our power fleet. We expect to close this transaction during the
second quarter of 2001.

     On February 12, 2001, we announced that the Florida Public Service
Commission approved a joint application filed by Calpine and Seminole Electric
Cooperative, Inc., under which we will build a 590 megawatt combined cycle power
generating facility, the Osprey Energy Center, to supply electric power to help
meet Seminole's members' power needs.

     On February 13, 2001, we announced that our wholly owned subsidiary,
SkyGen, entered into an agreement to supply Alliant Energy's Wisconsin Power &
Light Co. ("WP&L") 453 megawatts of electric capacity and energy from the
proposed 600 megawatt RiverGen Energy Center, which will be located next to
WP&L's existing power plant near Beloit, Wisconsin. The power sales agreement is
for a term of ten years. Construction of the RiverGen Energy Center is expected
to begin during the fourth quarter of 2001, with commercial operation scheduled
for late 2003.

     On February 15, 2001, we completed a public offering of $1.15 billion of
our 8 1/2% Senior Notes due 2011. The Senior Notes due 2011 bear interest at
8 1/2% per year, payable semi-annually and mature on February 15, 2011.

     Recent Developments in the California Power Market. The deregulation of the
California power market has produced significant unanticipated results in the
past year. The deregulation froze the rates that utilities can charge their
retail and business customers in California and prohibited the utilities from
buying power on a forward basis, while wholesale power prices were not subjected
to limits.

     In the past year, a series of factors have reduced the supply of power to
California, which has resulted in wholesale power prices that have been
significantly higher than historical levels. Several factors contributed to this
increase. These included:

     - significantly increased volatility in prices and supplies of natural gas;

     - an unusually dry fall and winter in the Pacific Northwest, which reduced
       the amount of available hydroelectric power from that region (typically,
       California imports a portion of its power from this source);

     - the large number of power generating facilities in California nearing the
       end of their useful lives, resulting in increased downtime (either for
       repairs or because they have exhausted their air pollution credits and
       replacement credits have become too costly to acquire on the secondary
       market); and

     - continued obstacles to new power plant construction in California, which
       deprived the market of new power sources that could have, in part,
       ameliorated the adverse effects of the foregoing factors.

     As a result of this situation, two major California utilities that are
subject to the retail rate freeze, including Pacific Gas & Electric Company
("PG&E"), have faced wholesale prices that far exceed the retail prices they are
permitted to charge. This has led to significant underrecovery of costs by these
utilities; and they have been widely reported to be facing the prospect of
insolvency. As a consequence, these utilities have defaulted under a variety of
contractual obligations, including payment obligations to power generators. PG&E

                                       F-11
<PAGE>   47

has defaulted on payment obligations to us (See Notes 15 and 19 of the Notes to
Consolidated Financial Statements).

     We have historically sold power to PG&E, which is one of the California
utilities that is subject to the rate freeze. We are currently selling power to
PG&E pursuant to long-term qualifying facility ("QF") contracts, which are
subject to federal regulation under the Public Utility Regulatory Policies Act
of 1978, as amended ("PURPA") (16 U.S.C. sec. 796 et seq.). The QF contracts
provide that the California Public Utilities Commission ("CPUC") determines the
appropriate utility "avoided cost" to be used to set energy payments for certain
QF contracts, including those for all of our QF plants in California which sell
power to PG&E. Section 390 of the California Public Utility Code provided QFs
the option to elect to receive energy payments based on the California Power
Exchange ("PX") market clearing price. In mid-2000, our QF facilities elected
this option and were paid based upon the PX zonal day ahead clearing price ("PX
Price") from summer 2000 until January 19, 2001, when the PX ceased operating a
day ahead market. Since that time, the CPUC has ordered that the price to be
paid for energy deliveries by QFs electing the PX Price shall be based on a
natural gas cost-based "transition formula." The CPUC has conducted proceedings
(R. 99-11-022) to determine whether the PX Price was the appropriate price for
the energy component upon which to base payments to QFs which had elected the PX
based pricing option. It is possible that the CPUC could order a payment
adjustment based on a different energy price determination. We believe that the
PX Price was the appropriate price for energy payments but there can be no
assurance that this will be the outcome of the CPUC proceedings. Legislation has
recently been introduced in the California legislature (SB 47X) that would
establish a fixed price for the QF contracts for a 5 year period and would
eliminate any PX Price adjustment prior to December 31, 2000. There can be no
assurances that this legislation will be enacted.

     We have continued to honor our contractual obligations to PG&E under our QF
contracts. To date, we have refrained from pursuing our collection remedies with
respect to PG&E's default, however, we have been actively involved with the
California utilities, the California legislature, and other interested parties
to develop legislation designed to stabilize energy prices through the
application of a long-term energy pricing methodology (for a five-year period)
in place of the short-term pricing methodology currently utilized under the QF
contracts, as discussed above. We also expect further legislation to enable the
California utilities to finance over a longer term the difference between the
wholesale prices that have been paid and the retail prices they received during
last fall and into this winter. We believe that this should further enhance
PG&E's ability to make payment of all past due amounts. However, management
cannot predict the timing or ultimate outcome of the legislative process or the
payment of amounts due under our contracts.

     As this situation has deteriorated, California has taken steps to restore a
predictable and reliable power market to the State. Recently, California adopted
legislation permitting it to issue long-term revenue bonds to provide funding
for wholesale purchases of power. The bonds will be repaid with the proceeds of
payments by retail customers over time. The California Department of Water
Resources ("DWR") sought bids for long-term power supply contracts. We
successfully bid in that auction, and announced, as indicated below, that we
have signed three significant long-term power supply contracts with DWR.

     On February 7, 2001, we announced the signing of a 10-year, $4.6 billion
fixed-price contract with DWR to provide electricity to the State of California.
We committed to sell up to 1,000 megawatts of electricity, with initial
deliveries of 200 megawatts starting October 1, 2001, and increasing to 1,000
megawatts by January 1, 2004. This contract will continue through 2011. The
electricity will be sold directly to DWR on a 24-hour, 7-day-a-week basis.

     On February 28, 2001, we announced the signing of two long-term power sales
contracts with DWR. Under the terms of the first contract, a $5.2 billion,
10-year, fixed-price contract, we commit to sell up to 1,000 megawatts of
generation. Initial deliveries are scheduled to begin July 1, 2001 with 200
megawatts and increase to 1,000 megawatts by as early as July 2002. Under the
terms of the second contract, a 20-year contract totaling up to $3.1 billion, we
will supply DWR with up to 495 megawatts of peaking generation, beginning with
90 megawatts as early as August 2001, and increasing up to 495 megawatts as
early as August 2002.

                                       F-12
<PAGE>   48

     On March 13, 2001, we announced the signing of a two-month deal to provide
555 megawatts of electricity to DWR effective immediately through May 15, 2001.

  FERC Investigation into California Wholesale Markets. Beginning in May 2000,
wholesale energy prices in the California markets increased to levels well above
1999 levels. In response, on June 28, 2000, the ISO Board of Governors reduced
the price cap applicable to the ISO's wholesale energy and ancillary services
markets from $750/MWh to $500/MWh. The ISO subsequently reduced the price cap to
$250/MWh on August 1, 2000. During this period, however, the California Power
Exchange Corporation ("PX") maintained a separate price cap set at a much higher
level applicable to the "day-ahead" and "day-of" markets administered by the PX.
On August 23, 2000, the FERC denied a complaint filed August 2, 2000 by San
Diego Gas & Electric Company ("SDG&E") that sought to extend the ISO's $250
price cap to all California energy and ancillary service markets, not just the
markets administered by the ISO. However, in its order denying the relief sought
by SDG&E, the FERC instructed its staff to initiate an investigation of the
California power markets and to report its findings to the FERC and held further
hearing procedures in abeyance pending the outcome of this investigation.

     On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff investigation, together with an "Order Proposing Remedies for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order, the
FERC found that the California power market structure and market rules were
seriously flawed, and that these flaws, together with short supply relative to
demand, resulted in unusually high energy prices. The November 1 Order proposed
specific remedies to the identified market flaws, including: (a) imposition of a
so-called "soft" price cap at $150/MWh to be applied to both the PX and ISO
markets, which would allow bids above $150/MWh to be accepted, but will subject
such bids to certain reporting obligations requiring sellers to provide cost
data and/or identify applicable opportunity costs and specifying that such bids
may not set the overall market clearing price, (b) elimination of the
requirement that the California utilities sell into and buy from the PX, (c)
establishment of independent non-stakeholder governing boards for the ISO and
the PX, and (d) establishment of penalty charges for scheduling deviations
outside of a prescribed range. In the November 1 Order the FERC established
October 2, 2000, the date 60 days after the filing of the SDG&E complaint, as
the "refund effective date." Under the November 1 Order, rates charged for
service after that date through December 31, 2002 will remain subject to refund
if determined by the FERC not to be just and reasonable. While the FERC
concluded that the Federal Power Act and prior court decisions interpreting that
act strongly suggested that refunds would not be permissible for charges in the
period prior to October 2, 2000, it noted that it was willing to explore
proposals for equitable relief with respect to charges made in that period. All
of the Company's receivables from PG&E relate to energy generated by QF
facilities. Under FERC regulations, QF contracts are exempt from regulation
under the Federal Power Act, which is the legislation that provides the
authority for the FERC to compel refunds or frame other equitable relief with
respect to the California wholesale markets. See "Government
Regulation -- Federal Energy Regulation -- Federal Power Act Regulation."
Therefore, the Company believes that any refund or other equitable remedy that
the FERC may impose with respect to the California wholesale markets will not
affect the Company's ability to pursue payment by PG&E of all past due amounts
as described above.

     On December 15, 2000, the FERC issued a subsequent order that affirmed in
large measure the November 1 Order (the "December 15 Order"). Various parties
have filed requests for administrative rehearing and for judicial review of
aspects of the FERC's December 15 Order. The outcome of these proceedings, and
the extent to which the FERC or a reviewing court may revise aspects of the
December 15 Order or the extent to which these proceedings may result in a
refund of or reduction in the amounts charged by the Company's subsidiaries for
power sold in the ISO and PX markets, cannot be determined at this time.

                                       F-13
<PAGE>   49

SELECTED OPERATING INFORMATION

     Set forth below is certain selected operating information for our power
plants and steam fields, for which results are consolidated in our statements of
operations. Results vary for the twelve months ended December 31, 2000, as
compared to the same period in 1999 and 1998, primarily due to the consolidation
of acquisitions, favorable energy pricing, and increased production. Electricity
revenue is composed of fixed capacity payments, which are not related to
production, and variable energy payments, which are related to production.
Capacity revenues include, besides traditional capacity payments, other revenues
such as Reliability Must Run and Ancillary Service revenues. The information set
forth under thermal and other revenue consists of the results for the Thermal
Power Company Steam Fields prior to the acquisition of the PG&E power plants on
May 7, 1999, in addition to host thermal sales and other revenue. As a result of
this acquisition, steam output was used to produce electricity, whereas this
output was previously sold to third parties.

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                     ----------------------------------------------------------------
                                        1996         1997         1998         1999          2000
                                     ----------   ----------   ----------   -----------   -----------
                                        (DOLLARS IN THOUSANDS, EXCEPT PRODUCTION AND PRICING DATA)
<S>                                  <C>          <C>          <C>          <C>           <C>
POWER PLANTS:
Electricity and steam revenues:
  Energy...........................  $   97,997   $  116,577   $  334,549   $   458,593   $ 1,219,495
  Capacity.........................  $   63,549   $   75,588   $  123,380   $   247,620   $   383,528
  Thermal and Other................  $   37,918   $   45,112   $   49,968   $    54,112   $    99,297
  Megawatt hours produced..........   1,985,404    2,158,008    9,864,080    14,802,709    22,749,588
  Average energy price per megawatt
     hour..........................  $    49.36   $    54.02   $    33.92   $     30.98   $     53.61
</TABLE>

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Revenue -- Total revenue increased 169% to $2,282.8 million in 2000
compared to $847.7 million in 1999, primarily due to the impact of recognition
of a full year's income from various assets that were acquired in 1999,
recognition of a partial year's income from various assets that were acquired in
2000, increased production, and favorable energy pricing.

          Electricity and steam sales increased 124% to $1,702.3 million in 2000
     compared to $760.3 million in 1999. Approximately $269.4 million of the
     increase was generated by a full year's activity of our geothermal
     facilities, which we initially acquired in May 1999. The facilities that we
     acquired as part of the Cogeneration Corporation of America, Inc. ("CGCA")
     acquisition in December 1999 contributed $107.2 million in 2000.
     Additionally, commencement of commercial operations at our Hidalgo facility
     and of our Pasadena expansion generated approximately $147.1 million. Our
     acquisitions of KIAC, Stony Brook, Auburndale, and Agnews during 2000,
     contributed an additional $113.5 million to the overall increase in
     revenues. The balance was primarily due to increased production and
     favorable energy pricing in various markets, particularly California.

          Service contract revenue increased 996% to $480.2 million in 2000
     compared to $43.8 million in 1999. The $436.4 million increase was
     primarily due to increased electric energy and gas hedging and related
     activity associated with purchased power and gas sold to third parties.

          Income from unconsolidated investments in power projects decreased 33%
     to $24.6 million in 2000 compared to $36.6 million in 1999. Approximately
     $5.2 million of the decrease is primarily attributable to the consolidation
     of KIAC, Stony Brook, Auburndale, and Agnews' results in electricity and
     steam sales as a result of our purchase of these facilities during 2000. We
     also recorded $8.8 million less equity income from Sumas, and $1.2 million
     less from our investment in Bayonne. These amounts were partially offset by
     $4.7 million of revenue that we recorded in connection with our investment
     in the Grays Ferry facility that we acquired in December 1999.

                                       F-14
<PAGE>   50

          Interest income on loans to power projects increased 300% to $4.8
     million in 2000 compared to $1.2 million in 1999. Revenue recognized during
     2000 related substantially to interest on loans to the Dighton, Tiverton,
     and Rumford projects before we purchased the remaining interests in the
     projects in December 2000. In 1999, we recorded $1.2 million of income from
     our 20% investment in Sheridan California Energy, Inc. We no longer
     recognize this revenue following our purchase of the remaining 80% interest
     through the acquisition of Sheridan Energy, Inc., the parent of Sheridan
     California Energy, Inc., in October 1999.

          Other revenue was $70.8 million in 2000 compared to $5.8 million in
     1999. This primarily represents revenues derived from the sale of natural
     gas to third parties. The increase is attributable to the acquisition of
     Sheridan Energy, Inc. in October 1999, in addition to several strategic gas
     acquisitions during 2000, including Quintana and TriGas.

     Cost of revenue -- Cost of revenue increased to $1,558.7 million in 2000
compared to $561.9 million in 1999, an increase of $996.8 million, or 177%.

          Fuel expenses increased by $344.2 million to $612.9 million in 2000
     compared to $268.7 million in 1999 due primarily to the incremental effect
     of acquisitions made in 1999 such as the CogenAmerica facilities which
     reflect a full year of activity in 2000, and due to acquisitions made in
     2000. Additionally, we incurred significantly higher gas prices during
     2000.

          Plant operating expenses increased by $97.5 million to $220.2 million
     in 2000 compared to $122.7 million in 1999 due primarily to the incremental
     effect of acquisitions made in 1999 such as the CogenAmerica facilities and
     the geothermal facilities which reflect a full year of activity in 2000,
     and due to acquisitions made in 2000.

          Depreciation expense increased by $71.5 million to $154.3 million in
     2000 compared to $82.8 million in 1999 primarily due to an approximate
     $39.2 million increase in depreciation expense relating to our natural gas
     production. The remainder is substantially the result of the incremental
     effect of acquisitions that we made during 1999 and 2000.

          Production royalties increased by $18.5 million to $32.3 million in
     2000 compared to $13.8 million in 1999 primarily due to royalties paid to
     third parties in connection with geothermal energy generation.

          Operating lease expenses increased by $35.8 million to $69.4 million
     in 2000 compared to $33.6 million in 1999. Approximately $15.0 million was
     due to the lease associated with our acquisition of the remaining 50%
     interest in KIAC in May 2000. Another $8.7 million was due to the inclusion
     of a full year's operations of our geothermal facilities, $5.0 million was
     attributable to the Pasadena sales-leaseback that we entered into in
     September 2000, and $6.4 million was due to the higher contingent lease
     payments at our Watsonville facility.

          Service contract expenses increased by $429.3 million to $469.5
     million in 2000 compared to $40.2 million in 1999 due to costs associated
     with increased electric energy and gas hedging and related activity
     associated with power and gas purchased from third parties.

     Project development expense increased by $16.9 million, or 158%, in 2000 to
$27.6 million compared to $10.7 million in 1999 due to heavier activities in
identifying and obtaining acquisition and project development opportunities
resulting from a larger number of development projects. For additional
information, see "Item 1 -- Business -- Project Development and Acquisitions."

     General and administrative expenses -- In 2000, general and administrative
expenses were $94.1 million compared to $48.7 million in 1999. The increase of
93% or $45.4 million is largely attributable to our acquisitions and continued
organic growth in personnel and associated overhead costs necessary to support
the overall growth of our operations and construction programs.

     Interest expense -- Interest expense before capitalization of interest was
$263.7 million in 2000 compared to $138.5 million in 1999, an increase of $125.2
million due to higher debt balances in 2000. Total debt increased by
approximately $2.4 billion due primarily to our public offering of $1 billion of
senior notes in

                                       F-15
<PAGE>   51

August 2000 and due to debt acquired in connection with various acquisitions
such as capital leases associated with our Hidalgo, Agnews, and Stony Brook
acquisitions. After capitalization of interest on our significant construction
program (see "Item 1 -- Business -- Project Development and Acquisitions"), our
interest expense decreased by approximately $34.5 million in 2000 to $56.7
million from $91.2 million in 1999.

     Distributions on Trust Preferred Securities -- Distributions on trust
preferred securities increased to $44.2 million in 2000 from $2.6 million in
1999, due to a full year of distributions on our HIGH TIDES issuance of November
1999, in addition to HIGH TIDES II and III issuances in January and August 2000,
respectively.

     Interest income -- In 2000, interest income was $39.9 million compared to
$24.1 million in 1999. The increase of 66% or $15.8 million is attributable to
higher average cash balances in 2000 owing to the public offerings of senior
notes and common stock in August 2000, and due to the public offerings of HIGH
TIDES in January and August of 2000.

     Other income, net -- In 2000, other income was $4.9 million compared to
$1.3 million in 1999. Approximately $2.0 million relates to the income recorded
from interest rate swaps that were extinguished in connection with the repayment
of Pasadena project level debt in September 2000, and $1.3 million pertains to a
business interruption insurance recovery at our Texas City project.

     Provision for income taxes -- The effective income tax rate was
approximately 40% in 2000 compared to approximately 39% in 1999. In 2000 our
provision for federal and state income taxes totaled $219.0 million versus $62.0
million in 1999, an increase of $157.0 million, which is due primarily to higher
taxable income in 2000.

     YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Revenue -- Total revenue increased 52% to $847.7 million in 1999 compared
to $555.9 million in 1998, primarily due to the impact of recognizing a full
year's income from various assets that were acquired in 1998 and of recognizing
a partial year's income from various assets that were acquired in 1999, as
described below.

          Electricity and steam sales increased 50% to $760.3 million in 1999
     compared to $507.9 million in 1998. Geothermal revenues at the Geysers
     accounted for $123.2 million, or roughly half, of the total increase of
     $252.4 million. This was primarily due to the purchase of 14 geothermal
     power plants from PG&E on May 7, 1999 and, to a much lesser extent, due to
     the purchases of: (1) an additional 50% stake in the Aidlin Power Plant in
     August, 1999 after which we consolidated the plant into our financial
     results; and (2) the Calistoga Power Plant on October 19, 1999. In 1999 our
     geothermal steamfield sales of steam declined by $3.0 million compared to
     1998, due to consolidation of steamfield and power plant operations at the
     Geysers under Calpine ownership in May 1999, after which we stopped
     recording revenues from geothermal steamfield sales to third parties.

          The remainder of the increase in electricity and steam sales is
     attributable to our gas fired power plants. In California, the Gilroy Power
     Plant increased its revenue in 1999 by $27.9 million over 1998 by both (1)
     doubling its production, mostly as a result of the expiration of PG&E's
     curtailment rights on December 31, 1998 and (2) restructuring its power
     purchase agreement with PG&E, effective as of September 1, 1999. Also, the
     Pittsburg Power Plant in California increased its revenue by $12.6 million
     in 1999 versus 1998. We acquired the project on July 21, 1998 and did not
     have a full year of operations in 1998. In Texas, the Texas City and Clear
     Lake Power Plants, which were consolidated into our financial statements
     following the acquisition of the remaining 50% interest of Texas
     Cogeneration Company ("TCC") on March 31, 1998, benefited by a full year of
     operations in 1999 versus only nine months on a consolidated basis in 1998,
     and together they recorded an additional $39.0 million of revenue in 1999
     versus in 1998. And finally the Pasadena Power Plant, which commenced
     operation in July 1998, had $43.6 million of additional revenue in 1999
     compared to 1998 due to a full year of operations in 1999.

          Service contract revenue increased 117% to $43.8 million in 1999
     compared to $20.2 million in 1998. The $23.6 million increase was primarily
     due to an increase in recorded sales of purchased power to third parties
     and to an increase in sales of purchased gas to third parties.
                                       F-16
<PAGE>   52

          Income from unconsolidated investments in power projects increased 45%
     to $36.6 million in 1999 compared to $25.2 million in 1998. The increase of
     $11.4 million is primarily attributable to an increase of equity income
     from the Sumas Power Plant. In 1999 we recorded $21.8 million versus $11.7
     million in 1998, an increase of $10.1 million. Additionally, as a group,
     our equity income projects on the East Coast, Lockport Power Plant, Stony
     Brook Power Plant, Kennedy International Airport Power Plant, Gordonsville
     Power Plant, Auburndale Power Plant, and Bayonne Power Plant, increased by
     $4.2 million. This was offset by a $2.9 million reduction in equity income
     attributable to our Clear Lake and Texas City Power Plants, which were
     unconsolidated investments for part of 1998 until our purchase of the
     remaining 50% interest in TCC on March 31, 1998.

          Interest income on loans to power projects decreased 54% to $1.2
     million in 1999 compared to $2.6 million in 1998. In 1999 we no longer
     received interest income associated with the TCC investment following our
     purchase of the remaining 50% interest in TCC on March 31, 1998. In 1999,
     we recorded $1.2 million of income from our 20% investment in Sheridan
     California Energy, Inc. We no longer recognize this revenue following our
     purchase of the remaining 80% interest through the acquisition of Sheridan
     Energy, the parent of Sheridan California Energy, Inc., on October 1, 1999.

          Other revenue was $5.8 million in 1999 compared to none in 1998. In
     1999 we recorded $5.3 million of oil and gas revenue following our
     acquisition of Sheridan Energy on October 1, 1999.

     Cost of revenue -- Cost of revenue increased to $561.9 million in 1999
compared to $378.9 million in 1998, an increase of $183.0 million, or 48%.

          Fuel expenses increased by $87.1 million to $268.7 million in 1999
     compared to $181.6 million in 1998 due primarily to: (1) a full year of
     consolidated operations in 1999 for the Clear Lake and Texas City Power
     Plants versus only nine months in 1998; (2) a full year of operations in
     1999 versus a partial year in 1998 for the Pasadena Power Plant, which
     commenced commercial operations in July, 1998; (3) a full year of
     operations in 1999 versus a partial year in 1998 for the Pittsburg Power
     Plant, which we acquired on July 21, 1998; and (4) higher production in
     1999 compared to 1998, and therefore higher fuel expense, at our Gilroy and
     King City Power Plants due to the expiration of PG&E's curtailment rights
     on December 31, 1998 and April 28, 1999 respectively.

          Plant operating expenses increased by $44.6 million to $122.7 million
     in 1999 compared to $78.1 million in 1998 due primarily to higher
     geothermal plant operating expense in 1999 following our purchase of 14
     geothermal power plants from PG&E on May 7, 1999 and our purchase of
     geothermal steam field assets from Unocal Corporation on March 19, 1999.

          Depreciation expense increased by $8.8 million to $82.8 million in
     1999 compared to $74.0 million in 1998 primarily due to a full year of
     operations in 1999 versus partial years in 1998 for the Texas City, Clear
     Lake and Pasadena Power Plants, as noted above, and also due to our
     purchase of Sheridan Energy on October 1, 1999.

          Production royalties increased by $3.1 million to $13.8 million in
     1999 compared to $10.7 million in 1998 due to our purchase of geothermal
     steam field assets from Unocal Corporation on March 19, 1999.

          Operating lease expenses increased by $16.5 million to $33.6 million
     in 1999 compared to $17.1 million in 1998. Of the increase, $10.8 million
     is due to the sale-leaseback in May 1999 of the 14 geothermal power plants
     acquired from PG&E in May 1999 and the Sonoma Power Plant, which we
     acquired in July 1998. We later added the Calistoga Power Plant, which we
     acquired in October 1999, to that lease. The remainder of the increase is
     primarily due to recording a full year of expense in 1999 versus a partial
     year in 1998 for the Greenleaf 1 and 2 Power Plants, which were leased
     commencing in August 1998.

          Service contract expenses increased by $22.8 million to $40.2 million
     in 1999 compared to $17.4 million in 1998 due to higher recorded purchases
     of electricity and gas that were sold to third parties.

                                       F-17
<PAGE>   53

     Gross profit -- Gross profit increased by $108.9 million, or 62%, to $285.9
million in 1999 compared to $177.0 million in 1998 due primarily to the purchase
of geothermal steam field assets from Unocal Corporation on March 19, 1999 and
14 geothermal power plants from PG&E on May 7, 1999. Overall, the consolidated
geothermal operations at the Geysers increased gross profit in 1999 by $62.7
million compared to 1998. Also, contributing $12.4 million to the increase is
the Gilroy Power Plant, which benefited from the contract restructuring with
PG&E. The Pasadena Power Plant, which benefited from a full year of operations
in 1999, contributed an increase of $17.0 million, and we also realized $11.4
million in additional equity income from unconsolidated projects in 1999
compared to 1998 owing mostly to increased distributions from the Sumas Power
Plant.

     Project development expenses -- Project development expenses increased by
$3.5 million, or 49%, in 1999 to $10.7 million compared to $7.2 million in 1998
due to the overall heavier pace in development activities as described in
"Business -- Project Development and Acquisitions."

     General and administrative expenses -- In 1999 general and administrative
expenses were $48.7 million compared to $23.2 million in 1998. The increase of
110% or $25.5 million is largely attributable to the establishment of regional
offices in Pleasanton, CA, and Boston, MA, the build-up of our Houston, TX
regional office and the establishment of our construction management office in
Sacramento, CA. In addition to higher headcount and salaries associated with our
substantial growth, we incurred larger employee bonus expense owing to the
record year we experienced in 1999. The increased general and administrative
investment in 1999 reflects, in part, increased expenses designed to support our
growth in 2000 and beyond.

     Interest expense -- Interest expense before capitalization of interest was
$138.5 million in 1999 compared to $93.7 million in 1998, an increase of $44.8
million due to higher debt balances in 1999 (total debt increased by $982.3
million due primarily to our public offering of $600.0 million of senior notes
on March 29, 1999). However, actual reported interest expense increased by a
much smaller $4.4 million, or 5%, in 1999 compared to 1998 because we
capitalized substantially more interest in 1999 compared to 1998 due to our
heavy power plant construction program. By the fourth quarter of 1999, we had
nine construction projects underway. We capitalized $47.3 million of interest
expense in 1999 compared to $7.0 million in 1998, which is an increase of $40.3
million in capitalized interest expense.

     Total interest expense on senior notes increased by $46.1 million to $121.8
million in 1999 compared to $75.7 million in 1998. Although the average interest
rate on the senior notes decreased by 0.4% in 1999 compared to 1998, interest
expense increased because of the additional $600.0 million of senior notes
issued in March 1999. The proceeds of the senior notes issued in March of 1999
were used partially to retire $120.6 million of debt related to the Gilroy Power
Plant, and interest expense on the Gilroy debt decreased by $6.7 million in 1999
compared to 1998. Additionally, we increased debt by $97.8 million with the
acquisition of Sheridan Energy on October 1, 1999 and due to Sheridan's purchase
of certain gas reserves from Vintage Petroleum, Inc. on December 31, 1999.
Interest on Sheridan debt was $1.3 million in 1999. We also increased debt by
$239.4 million by acquiring CGCA on December 17, 1999. Interest expense from
CGCA debt in 1999 following the acquisition was $491,000.

     Distributions on Trust Preferred Securities -- In October 1999 we completed
a public offering by a subsidiary trust of 5,520,000 HIGH TIDES. The accrued
distributions through December 31, 1999 were $2.6 million.

     Interest income -- In 1999, interest income was $24.1 million compared to
$12.3 million in 1998. The increase of 96% or $11.8 million is attributable to
higher average cash balances in 1999 owing to the public offerings of senior
notes and common stock in March, 1999, and due to the public offerings of common
stock and HIGH TIDES in October 1999.

     Other income, net -- In 1999, other income was $1.3 million compared to
$1.1 million in 1998. In 1999 we recorded $655,000 of income associated with an
investment in Cheng Power Systems, Inc. and $324,000 from the sale of excess
nitrous oxide ("NOX") credits by the Bethpage Power Plant.

     Provision for income taxes -- The effective income tax rate was
approximately 39% in 1999 compared to approximately 37% in 1998. The rate
increase in 1999 is primarily attributable to a higher average state tax
                                       F-18
<PAGE>   54

rate based on the mix of states in which we worked. In 1999 our provision for
federal and state income taxes totaled $62.0 million versus $27.1 million in
1998, an increase of $34.9 million, which is due primarily to higher taxable
income in 1999.

LIQUIDITY AND CAPITAL RESOURCES

     To date, we have obtained cash from our operations, borrowings under our
credit facilities and other working capital lines, sale of debt, trust preferred
securities and equity, and proceeds from project financing. We utilized this
cash to fund our operations, service debt obligations, fund the acquisition,
development and construction of power generation facilities, finance capital
expenditures and meet our other cash and liquidity needs. The following table
summarizes our cash flow activities for the periods indicated:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                   -------------------------------------
                                                      2000          1999         1998
                                                   -----------   -----------   ---------
                                                              (IN THOUSANDS)
<S>                                                <C>           <C>           <C>
Beginning cash and cash equivalents..............  $   349,371   $    96,532   $  48,513
Cash flows from:
  Operating activities...........................      650,330       264,083     164,579
  Investing activities...........................   (3,554,159)   (1,490,417)   (400,003)
  Financing activities...........................    3,143,156     1,479,173     283,443
                                                   -----------   -----------   ---------
          Net increase in cash and cash
            equivalents..........................      239,327       252,839      48,019
                                                   -----------   -----------   ---------
Ending cash and cash equivalents.................  $   588,698   $   349,371   $  96,532
                                                   ===========   ===========   =========
</TABLE>

     Operating activities for 2000 provided $650.3 million, a 146% increase from
2000, consisting of approximately $141.6 million of depreciation and
amortization, $323.5 million of net income, $30.0 million of distributions from
unconsolidated investments in power projects, $62.6 million of deferred income
taxes and a $709.5 million net increase in operating liabilities. This was
partially offset by a $592.2 million net increase in operating assets and $24.6
million of income from unconsolidated investments. The increase in cash provided
from operating activities in 2000 is primarily due to higher net income derived
from our acquisition activity, favorable pricing, and increased production in
1999 and 2000.

     Investing activities for 2000 used $3.6 billion, primarily due to $3.0
billion for construction costs and capital expenditures including gas
turbine-generator costs and associated capitalized interest, $840.9 million for
acquisitions (see Note 4 of the Notes to Consolidated Financial Statements for
further discussion), $141.1 million of advances to joint ventures, $53.1 million
of capitalized project development costs, including associated capitalized
interest, $184.5 million increase in notes receivables primarily due to our
Delta Energy Center development partner and our long-term Gilroy restructuring
receivables and $15.6 million increase in restricted cash related to certain
project financings. The increase in cash used in investing activities in 2000 is
primarily due to increased construction and acquisition activity compared to
1999.

     Financing activities for 2000 provided $3.1 billion of cash consisting of
$1.0 billion proceeds from the issuance of our Senior Notes due 2005 and Senior
Notes due 2010, $2.2 billion in borrowings under various credit facilities and
$1.7 billion of proceeds from offerings of our common stock and HIGH TIDES. This
was offset by $1.7 billion of repayments on various credit facilities and $52.7
million of financing costs. The increase in cash provided from financing
activities in 2000 is primarily due to the debt and equity offerings issued
during 2000, as well as the HIGH TIDES offerings.

     As discussed in Note 19 of the Notes to Consolidated Financial Statements
and under the caption "Item 1 -- Business -- Recent Developments", there is
considerable uncertainty surrounding the California power market. Regardless of
the resolution of the current situation, we do not believe that a possible
uncollectibility of remaining receivables from PG&E would have a material
adverse effect on our liquidity or cash flows. However, failure to collect a
significant portion of the receivables could have a materially adverse effect on
our Statement of Operations.

     We continue to evaluate current and forecasted cash flow as a basis for
financing operating requirements and capital expenditures. We believe that we
will have sufficient liquidity from cash flow from operations,
                                       F-19
<PAGE>   55

borrowings available under the lines of credit, access to the capital markets
and working capital to satisfy all obligations under outstanding indebtedness,
to finance anticipated capital expenditures and to fund working capital
requirements for the next twelve months.

  Credit Facilities (see Note 7 of the Notes to Consolidated Financial
Statements)

     At December 31, 2000, we maintained a borrowing base in Canada of Cdn
$304.0 million (approximately US $202.7 million at December 31, 2000) under
three facilities. At December 31, 2000, we had US $144.5 million outstanding
under these facilities. The facilities bear interest at variable rates. The
weighted average rate for each of the facilities in 2000 was 8.52%.
Additionally, commitment fees of 0.25% accrue on any unused portion of these
facilities.

     At December 31, 2000, we through our wholly owned subsidiary CNGC,
maintained a borrowing base of $99.1 million with Bank One, Texas N.A. under two
facilities. In August 2000, we repaid the outstanding balance of $93.3 million
and terminated the agreement. As of December 31, 1999, CNGC had total borrowings
of $97.8 million outstanding under this facility. The facility bore interest at
variable rates. At December 31, 1999, the interest rate was 8.6%. The lines of
credit were secured by CNGC's oil and gas properties.

     At December 31, 2000, we had an amended and restated $400.0 million,
three-year revolving line of credit with a consortium of commercial lending
institutions with the Bank of Nova Scotia as agent, which replaced an existing
$100.0 million credit facility. A maximum of $200.0 million of the credit
facility may be allocated to letters of credit. At December 31, 2000, we had
$40.0 million in borrowings and $157.9 million of letters of credit outstanding
under the amended and restated credit facility. At December 31, 1999, we had no
borrowings and $28,800 in letters of credit outstanding under this credit
facility. The interest rate ranged from 7.88% to 9.75% during 2000.

  Project Financing (see Note 8 of the Notes to Consolidated Financial
Statements)

     In November 1999, we entered into a credit agreement for $1.0 billion
through our wholly owned subsidiary Calpine Construction Finance Company L.P.
with a consortium of banks with the lead arranger being The Bank of Nova Scotia
and the lead arranger syndication agent being Credit Suisse First Boston. The
non-recourse credit facility is utilized to finance the construction of the our
diversified portfolio of gas-fired power plants currently under development. We
currently intend to refinance this construction facility in the long-term
capital markets prior to its four-year maturity. As of December 31, 2000, we had
$544.8 million in borrowings outstanding under the facility. Borrowings under
this facility bear variable interest.

     In October 2000, we entered into a credit agreement for $2.5 billion
through our wholly owned subsidiary Calpine Construction Finance Company II, LLC
with a consortium of banks with the lead arrangers being The Bank of Nova Scotia
and Credit Suisse First Boston. The non-recourse credit facility is utilized to
finance the construction of our diversified portfolio of gas-fired power plants
currently under development. We currently intend to refinance this construction
facility in the long-term capital markets prior to its four-year maturity. As of
December 31, 2000, we had $156.8 million in borrowings outstanding under the
facility. Borrowings under this facility bear variable interest.

     As part of our acquisition of the Auburndale Power Plant, we assumed a
facility that provides for project financing loans aggregating $126.0 million.
Amounts outstanding under the facility bear variable interest. The weighted
average interest rate for this facility was 7.51% during 2000 and $121.5 million
was outstanding under the facility at December 31, 2000.

     On December 17, 1999, we acquired 80% of the common stock of CGCA which
owns 100% of the Newark and Parlin Power Plants ("Newark & Parlin"). At December
31, 2000 there was $116.7 million outstanding on a fifteen year non-recourse
term loan which is a joint and severable liability of Newark & Parlin. The
interest rate on the outstanding principal is variable. As of December 31, 2000,
$116.7 million was outstanding under the facility. The weighted average interest
rate during 2000 was 7.68%.

                                       F-20
<PAGE>   56

     As part of our acquisition of SkyGen, we assumed a term loan for the Broad
River Energy Center and a steam injection addition loan, with the latter
expected to be converted to a term loan in 2001. Both the project loan and the
steam injection addition loan mature on March 1, 2007. The construction loans
require only variable interest payments through the conversion date, and blended
payments of principal and interest following conversion to a term loan. As of
December 31, 2000, $115.9 million was outstanding under the facilities. The
weighted average interest rate during 2000 was 8.02%.

     As part of our acquisition of SkyGen, we entered into financing to
construct the Pine Bluff Energy Center. As part of the related credit agreement,
the lenders will provide a facility whereby the Company can borrow up to $142.0
million to fund construction. Of this amount, $32.0 million is secured by
guarantees or letters of credit from the members or their affiliates. Upon
completion of construction (the "Conversion Date"), equity contributions of
$32.0 million will be made to repay a portion of the construction loan and the
balance of the construction loan will be converted to a term loan. The term loan
will consist of three tranches: Tranche A in the amount of $30.0 million with a
maturity date of 8 1/2 years from the Conversion Date, Tranche B in the amount
of $45.0 million with a maturity date of 13 1/2 years from the Conversion Date,
and Tranche C in the amount of $35.0 million with a maturity date of 17 1/2
years from the Conversion Date. Interest on the construction loan is variable.
For 2000, the interest rate averaged 8.22%. As of December 31, 2000, we had
$113.2 million in outstanding borrowings.

     As part of our acquisition of SkyGen, we have entered into an arrangement
with a syndicate of commercial banks to obtain financing to construct the Hog
Bayou Energy Center. As part of the related credit agreement, the lenders will
provide a facility to fund construction whereby we can borrow up to $38.0
million under an equity bridge loan and $104.6 million under a construction
loan. The equity bridge loan matures on December 31, 2001 and the construction
loan matures on December 31, 2002. As of December 31, 2000, we had borrowed
$38.0 million under the equity bridge loan and $70.0 million under the
construction loan. The facilities had a weighted average interest rate of 8.24%
during 2000.

     As part of our acquisition of SkyGen, we entered into financing for the
construction of the RockGen Energy Center. As part of the related credit
agreement, the lender provided a facility whereby we can borrow up to $152.6
million to fund construction. Construction loans consist of a project loan of
$143.7 million and a steam injection addition loan of $8.9 million. Upon
completion of construction, the balance of the construction loans will be
converted to a term loan. The term loan consists of two tranches: Tranche A in
the amount of $143.7 million, and Tranche B in the amount of $8.9 million. Both
the project loan and the steam injection addition loan mature on March 1, 2007.
Interest on the construction loans is variable. As of December 31, 2000, we had
borrowings of $89.8 million. The weighted average interest rate during 2000 was
7.97%.

     On December 17, 1999, we acquired 80% of the common stock of CGCA which
owns 100% of Morris LLC ("Morris"). In 1997, Morris entered into a construction
and term loan agreement to provide non-recourse project financing for a major
portion of the Morris Project. The agreement provides $85.6 million of 5 year
term loan commitments and $5.4 million in letter of credit commitments. As of
December 31, 2000, $85.6 million was outstanding as a term loan under the
agreement and no amounts were pledged under the letter of credit. Interest on
the term loan is variable. The weighted average interest rate during 2000 was
7.39%.

     As part of our acquisition of SkyGen, we assumed a term loan for the DePere
Energy Center, which had a weighted average interest rate of 7.68% during 2000.
As of December 31, 2000, we had $47.2 million of outstanding borrowings.

     In December 2000, we acquired the remaining interest in the Dighton Power
Plant. We assumed project financing for the plant. The weighted average interest
rate during 2000 was 7.79%. At December 31, 2000 we had $32.8 million of
outstanding borrowings.

     In August 1996, we entered into an agreement with Banque Nationale de Paris
("BNP") to finance the acquisition of the Gilroy Power Plant. In April 1999, we
repaid the entire loan of $120.6 million to BNP with a portion of the net
proceeds from the offering of Senior Notes due 2006. We recorded an
extraordinary loss of

                                       F-21
<PAGE>   57

$1.2 million after taxes as a result of the repayment for the write-off of
unamortized deferred financing cost associated with the BNP financing.

     On January 4, 1999, we entered into a credit agreement with ING (U.S.)
Capital LLC ("ING") to provide up to $265.0 million of non-recourse project
financing for the construction of the Pasadena facility expansion. On August 31,
2000, we repaid the outstanding balance of $224.2 million under the credit
agreement.

 Capital Markets Offerings (see Notes 9, 11 and 14 of the Notes to Consolidated
 Financial Statements)

     On February 10, 2000, we through our wholly-owned subsidiary, Calpine
Capital Trust II, a statutory business trust created under Delaware law,
completed a private offering of 7,200,000 HIGH TIDES at a value of $50.00 per
share. The gross proceeds from the offering were $360.0 million.

     On August 9, 2000, we completed a public offering of 23,000,000 shares of
our common stock at $34.75 per share. The gross proceeds from the offering were
$799.3 million.

     On August 10, 2000, we completed a public offering of $250.0 million of our
8 1/4% Senior Notes due 2005 and $750.0 million of our 8 5/8% Senior Notes due
2010. The 8 1/4% Senior Notes mature on August 15, 2005 and interest is payable
semi-annually. The 8 5/8% Senior Notes mature on August 15, 2010 and interest is
payable semi-annually. Both issuances of the Senior Notes may be redeemed at any
time prior to their respective stated maturity at a redemption price equal to
100% of the principal amount of the Senior Notes being redeemed plus accrued and
unpaid interest plus a make-whole premium.

     On August 9, 2000, we through our wholly-owned subsidiary, Calpine Capital
Trust III, a statutory business trust created under Delaware law, completed a
private offering of 10,350,000 HIGH TIDES at a price of $50.00 per share. The
gross proceeds from the offering were $517.5 million. The net proceeds from the
private offering were used by our subsidiary to invest in our convertible
subordinated debentures, which represent substantially all of the subsidiary's
assets.

  Debt Maturities

     At December 31, 2000, we also had $105.0 million of outstanding 9 1/4%
Senior Notes Due 2004, which mature on February 1, 2004, with interest payable
semi-annually on February 1 and August 1 of each year. In addition, we had
$171.8 million of outstanding 10 1/2% Senior Notes Due 2006, which mature on May
15, 2006, with interest payable semi-annually on May 15 and November 15 of each
year. During 1997, we issued $275.0 million of 8 3/4% Senior Notes Due 2007,
which mature on July 15, 2007, with interest payable semi-annually on January 15
and July 15 of each year. During 1998, we issued $400.0 million of 7 7/8% Senior
Notes Due 2008, which mature on April 1, 2008, with interest payable
semi-annually on April 1 and October 1 of each year. During 1999, we issued
$350.0 million of 7 3/4% Senior Notes Due 2009, which mature on April 15, 2009,
with interest payable semi-annually on April 15 and October 15 of each year.
Also during 1999, we issued $250.0 million of our 7 5/8% Senior Notes Due 2006,
which mature on April 15, 2006, with interest payable semi-annually on April 15
and October 15.

     The annual principal maturities of the borrowings under lines of credit,
project financings, notes payable, senior notes and capital lease obligations as
of December 31, 2000, are as follows (in thousands):

<TABLE>
<S>                                                        <C>
2001.....................................................  $   61,558
2002.....................................................      98,151
2003.....................................................     615,616
2004.....................................................     371,115
2005.....................................................     283,938
Thereafter...............................................   3,061,538
                                                           ----------
          Total..........................................  $4,491,916
                                                           ==========
</TABLE>

                                       F-22
<PAGE>   58

OUTLOOK

     Our strategy is to continue our rapid growth by capitalizing on the
significant opportunities in the power industry, primarily through our active
development and acquisition programs. In pursuing our proven growth strategy, we
utilize our extensive management and technical expertise to implement a fully
integrated approach to the acquisition, development and operation of power
generation facilities. This approach uses our expertise in design, engineering,
procurement, finance, construction management, fuel and resource acquisition,
operations and power marketing, which we believe provide us with a competitive
advantage. The key elements of our strategy are as follows:

     - Development of new and expansion of existing power plants. We are
       actively pursuing the development of new and expansion of both baseload
       and peaking capacity at our existing highly efficient, low-cost,
       gas-fired power plants that replace old and inefficient generating
       facilities and meet the demand for new generation. Our strategy is to
       develop power plants in strategic geographic locations that enable us to
       leverage existing power generation assets and operate the power plants as
       integrated electric generation systems. This allows us to achieve
       significant operating synergies and efficiencies in fuel procurement,
       power marketing and operations and maintenance.

       We currently have twenty-five projects under construction, representing
       an additional 14,028 megawatts of net capacity. Included in these
       twenty-five projects is an expansion of our Broad River Energy Center,
       which represents 360 megawatts. We have also announced plans to develop
       twenty-eight additional power generation projects, representing a net
       capacity of 15,142 megawatts. Included in these twenty-eight development
       projects are seven expansion projects: Pine Bluff Energy Center, DePere
       Energy Center, Auburndale and the California Peakers (which encompasses
       expansions of the Gilroy Power Plant, the Watsonville Power Plant, the
       Greenleaf 2 Power Plant and the King City Power Plant.) These expansion
       projects represent 917 megawatts.

     - Acquisition of power plants. Our strategy is to acquire power generating
       facilities that meet our stringent acquisition criteria and provide
       significant potential for revenue, cash flow and earnings growth, and
       that provide the opportunity to enhance the operating efficiencies of the
       plants. We have significantly expanded and diversified our project
       portfolio through the acquisition of power generation facilities through
       the completion of numerous acquisitions to date.

     - Enhance the performance and efficiency of existing power projects. We
       continually seek to maximize the power generation potential of our
       operating assets and minimize our operating and maintenance expenses and
       fuel costs. This will become even more significant as our portfolio of
       power generation facilities expands to 74 power plants with a net
       capacity of 19,877 megawatts, after completion of our projects currently
       under construction. We focus on operating our plants as an integrated
       system of power generation, which enables us to minimize costs and
       maximize operating efficiencies. We believe that achieving and
       maintaining a low-cost of production will be increasingly important to
       compete effectively in the power generation industry.

RISK FACTORS

     We have substantial indebtedness that we may be unable to service and that
restricts our activities. We have substantial debt that we incurred to finance
the acquisition and development of power generation facilities. As of December
31, 2000, our total consolidated indebtedness was $4.5 billion, our total
consolidated assets were $9.7 billion and our stockholders' equity was $2.2
billion. Whether we will be able to meet our debt service obligations and to
repay our outstanding indebtedness will be dependent primarily upon the
performance of our power generation facilities.

     This high level of indebtedness has important consequences, including:

     - limiting our ability to borrow additional amounts for working capital,
       capital expenditures, debt service requirements, execution of our growth
       strategy, or other purposes,

                                       F-23
<PAGE>   59

     - limiting our ability to use operating cash flow in other areas of our
       business because we must dedicate a substantial portion of these funds to
       service the debt,

     - increasing our vulnerability to general adverse economic and industry
       conditions, and

     - limiting our ability to capitalize on business opportunities and to react
       to competitive pressures and adverse changes in government regulation.

     The operating and financial restrictions and covenants in certain of our
existing debt agreements limit or prohibit our ability to:

     - incur indebtedness,

     - make prepayments of indebtedness in whole or in part,

     - pay dividends,

     - make investments,

     - engage in transactions with affiliates,

     - create liens,

     - sell assets, and

     - acquire facilities or other businesses.

     Also, if our management or ownership changes, the indentures governing our
senior notes may require us to make an offer to purchase our senior notes. We
cannot assure you that we will have the financial resources necessary to
purchase our senior notes in this event.

     We believe that our cash flow from operations, together with other
available sources of funds, including borrowings under our existing borrowing
arrangements, will be adequate to pay principal and interest on our senior notes
and other debt and to enable us to comply with the terms of our indentures and
other debt agreements. If we are unable to comply with the terms of our
indentures and other debt agreements and fail to generate sufficient cash flow
from operations in the future, we may be required to refinance all or a portion
of our senior notes and other debt or to obtain additional financing. However,
we may be unable to refinance or obtain additional financing because of our high
levels of debt and the debt incurrence restrictions under our indentures and
other debt agreements. If cash flow is insufficient and refinancing or
additional financing is unavailable, we may be forced to default on our senior
notes and other debt obligations. In the event of a default under the terms of
any of our indebtedness, the debt holders may accelerate the maturity of our
obligations, which could cause defaults under our other obligations.

     Our ability to repay our debt depends upon the performance of our
subsidiaries. Almost all of our operations are conducted through our
subsidiaries and other affiliates. As a result, we depend almost entirely upon
their earnings and cash flow to service our indebtedness, including our ability
to pay the interest on and principal of our senior notes. The project financing
agreements of certain of our subsidiaries and other affiliates generally
restrict their ability to pay dividends, make distributions or otherwise
transfer funds to us prior to the payment of other obligations, including
operating expenses, debt service and reserves.

     Our subsidiaries and other affiliates are separate and distinct legal
entities and have no obligation to pay any amounts due on our senior notes, and
do not guarantee the payment of interest on or principal of these notes. The
right of our senior note holders to receive any assets of any of our
subsidiaries or other affiliates upon our liquidation or reorganization will be
subordinated to the claims of any subsidiaries' or other affiliates' creditors
(including trade creditors and holders of debt issued by our subsidiaries or
affiliates). As of December 31, 2000, our subsidiaries had $1.5 billion of
project financing. We intend to utilize project financing, when appropriate in
the future, and this financing will be effectively senior to our senior notes.

     While the indentures impose limitations on our ability and the ability of
our subsidiaries to incur additional indebtedness, the indentures do not limit
the amount of project financing that our subsidiaries may incur to finance the
acquisition and development of new power generation facilities.
                                       F-24
<PAGE>   60

     We may be unable to secure additional financing in the future. Each power
generation facility that we acquire or develop will require substantial capital
investment. Our ability to arrange financing and the cost of the financing are
dependent upon numerous factors. These factors include:

     - general economic and capital market conditions,

     - conditions in energy markets,

     - regulatory developments,

     - credit availability from banks or other lenders,

     - investor confidence in the industry and in us,

     - the continued success of our current power generation facilities, and

     - provisions of tax and securities laws that are conducive to raising
       capital.

     Financing for new facilities may not be available to us on acceptable terms
in the future. We have financed our existing power generation facilities using a
variety of leveraged financing structures, consisting of senior unsecured
indebtedness, project financing and lease obligations. Most of our current
construction costs are financed through one of our two Calpine Construction
Finance Company ("CCFC") non-recourse debt facilities (see Note 8 of the Notes
to Consolidated Financial Statements). As construction projects attain
commercial operation, we intend to refinance construction debt borrowings under
the CCFC facilities with corporate level long-term capital market financings. As
of December 31, 2000, we had approximately $4.5 billion of total consolidated
indebtedness, $1.5 billion of project financing, $210.9 million of capital lease
obligations, $2.6 billion in senior notes and $197.0 million of notes payable
and borrowings under lines of credit. Each project financing and lease
obligation is structured to be fully paid out of cash flow provided by the
facility or facilities. In the event of a default under a financing agreement
which we do not cure, the lenders or lessors would generally have rights to the
facility and any related assets. In the event of foreclosure after a default, we
might not retain any interest in the facility. While we intend to utilize
non-recourse or lease financing when appropriate, market conditions and other
factors may prevent similar financing for future facilities. We do not believe
the existence of non-recourse or lease financing will significantly affect our
ability to continue to borrow funds in the future in order to finance new
facilities. However, it is possible that we may be unable to obtain the
financing required to develop our power generation facilities on terms
satisfactory to us.

     We have from time to time guaranteed certain obligations of our
subsidiaries and other affiliates. Our lenders or lessors may also require us to
guarantee the indebtedness for future facilities. This would render our general
corporate funds vulnerable in the event of a default by the facility or related
subsidiary. Additionally, our indentures may restrict our ability to guarantee
future debt, which could adversely affect our ability to fund new facilities.
Our indentures do not limit the ability of our subsidiaries to incur
non-recourse or lease financing for investment in new facilities.

     Revenue under some of our power sales agreements may be reduced
significantly upon their expiration or termination. Most of the electricity we
generate from our existing portfolio is sold under long-term power sales
agreements that expire at various times. When the terms of each of these power
sales agreements expire, it is possible that the price paid to us for the
generation of electricity may be reduced significantly, which would
substantially reduce our revenue under such agreements.

     Our power project development and acquisition activities may not be
successful. The development of power generation facilities is subject to
substantial risks. In connection with the development of a power generation
facility, we must generally obtain:

     - necessary power generation equipment,

     - governmental permits and approvals,

     - fuel supply and transportation agreements,

                                       F-25
<PAGE>   61

     - sufficient equity capital and debt financing,

     - electrical transmission agreements, and

     - site agreements and construction contracts.

     We may be unsuccessful in accomplishing any of these matters or in doing so
on a timely basis. In addition, project development is subject to various
environmental, engineering and construction risks relating to cost-overruns,
delays and performance. Although we may attempt to minimize the financial risks
in the development of a project by securing a favorable power sales agreement,
obtaining all required governmental permits and approvals and arranging adequate
financing prior to the commencement of construction, the development of a power
project may require us to expend significant sums for preliminary engineering,
permitting and legal and other expenses before we can determine whether a
project is feasible, economically attractive or financeable. If we were unable
to complete the development of a facility, we would generally not be able to
recover our investment in the project. The process for obtaining initial
environmental, siting and other governmental permits and approvals is
complicated and lengthy, often taking more than one year, and is subject to
significant uncertainties. We cannot assure you that we will be successful in
the development of power generation facilities in the future.

     We have grown substantially in recent years as a result of acquisitions of
interests in power generation facilities and steam fields. We believe that
although the domestic power industry is undergoing consolidation and that
significant acquisition opportunities are available, we are likely to confront
significant competition for acquisition opportunities. In addition, we may be
unable to continue to identify attractive acquisition opportunities at favorable
prices or, to the extent that any opportunities are identified, we may be unable
to complete the acquisitions.

     Our projects under construction may not commence operation as
scheduled. The commencement of operation of a newly constructed power generation
facility involves many risks, including:

     - start-up problems,

     - the breakdown or failure of equipment or processes, and

     - performance below expected levels of output or efficiency.

     New plants have no operating history and may employ recently developed and
technologically complex equipment. Insurance is maintained to protect against
certain risks, warranties are generally obtained for limited periods relating to
the construction of each project and its equipment in varying degrees, and
contractors and equipment suppliers are obligated to meet certain performance
levels. The insurance, warranties or performance guarantees, however, may not be
adequate to cover lost revenues or increased expenses. As a result, a project
may be unable to fund principal and interest payments under its financing
obligations and may operate at a loss. A default under such a financing
obligation could result in losing our interest in a power generation facility.

     In addition, power sales agreements entered into with a utility early in
the development phase of a project may enable the utility to terminate the
agreement, or to retain security posted as liquidated damages, if a project
fails to achieve commercial operation or certain operating levels by specified
dates or fails to make specified payments. In the event a termination right is
exercised, the default provisions in a financing agreement may be triggered
(rendering such debt immediately due and payable). As a result, the project may
be rendered insolvent and we may lose our interest in the project.

     Our power generation facilities may not operate as planned. Upon completion
of our projects currently under construction, we will operate 69 of the 74 power
plants in which we will have an interest. The continued operation of power
generation facilities involves many risks, including the breakdown or failure of
power generation equipment, transmission lines, pipelines or other equipment or
processes and performance below expected levels of output or efficiency.
Although from time to time our power generation facilities have experienced
equipment breakdowns or failures, these breakdowns or failures have not had a
significant effect on the operation of the facilities or on our results of
operations. For calendar year 2000, our gas-fired and

                                       F-26
<PAGE>   62

geothermal power generation facilities have operated at an average availability
of approximately 90% and 97%, respectively. Although our facilities contain
various redundancies and back-up mechanisms, a breakdown or failure may prevent
the affected facility from performing under applicable power sales agreements.
In addition, although insurance is maintained to protect against operating
risks, the proceeds of insurance may not be adequate to cover lost revenues or
increased expenses. As a result, we could be unable to service principal and
interest payments under our financing obligations which could result in losing
our interest in the power generation facility.

     Our geothermal energy reserves may be inadequate for our operations. The
development and operation of geothermal energy resources are subject to
substantial risks and uncertainties similar to those experienced in the
development of oil and gas resources. The successful exploitation of a
geothermal energy resource ultimately depends upon:

     - the heat content of the extractable fluids,

     - the geology of the reservoir,

     - the total amount of recoverable reserves,

     - operating expenses relating to the extraction of fluids,

     - price levels relating to the extraction of fluids or power generated, and

     - capital expenditure requirements relating primarily to the drilling of
       new wells.

     In connection with each geothermal power plant, we estimate the
productivity of the geothermal resource and the expected decline in
productivity. The productivity of a geothermal resource may decline more than
anticipated, resulting in insufficient reserves being available for sustained
generation of the electrical power capacity desired. An incorrect estimate by us
or an unexpected decline in productivity could lower our results of operations.

     Geothermal reservoirs are highly complex. As a result, there exist numerous
uncertainties in determining the extent of the reservoirs and the quantity and
productivity of the steam reserves. Reservoir engineering is an inexact process
of estimating underground accumulations of steam or fluids that cannot be
measured in any precise way, and depends significantly on the quantity and
accuracy of available data. As a result, the estimates of other reservoir
specialists may differ materially from ours. Estimates of reserves are generally
revised over time on the basis of the results of drilling, testing and
production that occur after the original estimate was prepared. While we have
extensive experience in the operation and development of geothermal energy
resources and in preparing such estimates, we cannot assure you that we will be
able to successfully manage the development and operation of our geothermal
reservoirs or that we will accurately estimate the quantity or productivity of
our steam reserves.

     The current issues in the California power market could adversely affect
our performance. As described within, the California power market is currently
in a state of disarray. Two of the three major utilities in California have been
widely reported to be facing the prospect of insolvency, including PG&E which is
one of our customers and which has defaulted on payments to us. State and
federal regulators and legislators, along with the major participants in the
market and consumer groups, are attempting to resolve this situation, but the
ultimate result of this effort is not yet known. We are actively involved in all
aspects of this regulatory, legislative and contractual effort. While we cannot
predict the outcome of this very fluid process, or the ultimate impact any such
outcome will have upon us, management believes that the resolution of this
problem will not have a material adverse effect on our results of operations or
financial condition.

     We depend on our electricity and thermal energy customers. A majority of
our power generation facilities currently rely on one or more power sales
agreements with one or more utilities or other customers for all or
substantially all of such facility's revenue. In addition, sales of electricity
to two utility customers during 2000, PG&E and Texas Utilities Electric Company,
comprised approximately 27.4% and 8.1%, respectively, of our total revenue that
year. The loss of any one power sales agreement with any of these customers
could have a negative effect on our results of operations. In addition, any
material failure by any customer to fulfill its

                                       F-27
<PAGE>   63

obligations under a power sales agreement could have a negative effect on the
cash flow available to us and on our results of operations.

     We are subject to complex government regulation which could adversely
affect our operations. Our activities are subject to complex and stringent
energy, environmental and other governmental laws and regulations. The
construction and operation of power generation facilities require numerous
permits, approvals and certificates from appropriate federal, state and local
governmental agencies, as well as compliance with environmental protection
legislation and other regulations. While we believe that we have obtained the
requisite approvals for our existing operations and that our business is
operated in accordance with applicable laws, we remain subject to a varied and
complex body of laws and regulations that both public officials and private
individuals may seek to enforce. Existing laws and regulations may be revised or
reinterpreted, or new laws and regulations may become applicable to us that may
have a negative effect on our business and results of operations. We may be
unable to obtain all necessary licenses, permits, approvals and certificates for
proposed projects, and completed facilities may not comply with all applicable
permit conditions, statutes or regulations. In addition, regulatory compliance
for the construction of new facilities is a costly and time-consuming process.
Intricate and changing environmental and other regulatory requirements may
necessitate substantial expenditures to obtain permits. If a project is unable
to function as planned due to changing requirements or local opposition, it may
create expensive delays or significant loss of value in a project.

     Our operations are potentially subject to the provisions of various energy
laws and regulations, including PURPA, the Public Utility Holding Company Act of
1935, as amended, ("PUHCA"), and state and local regulations. PUHCA provides for
the extensive regulation of public utility holding companies and their
subsidiaries. PURPA provides QFs (as defined under PURPA) and owners of QFs
certain exemptions from certain federal and state regulations, including rate
and financial regulations.

     Under present federal law, we are not subject to regulation as a holding
company under PUHCA, and will not be subject to such regulation as long as the
plants in which we have an interest (1) qualify as QFs, (2) are subject to
another exemption or waiver or (3) qualify as an Exempt Wholesale Generator
("EWG") under the Energy Policy Act of 1992. In order to be a QF, a facility
must be not more than 50% owned by one or more electric utility companies or
electric utility holding companies. In addition, a QF that is a cogeneration
facility, such as the plants in which we currently have interests, must produce
electricity as well as thermal energy for use in an industrial or commercial
process in specified minimum proportions. The QF also must meet certain minimum
energy efficiency standards. Generally, any geothermal power facility which
produces up to 80 megawatts of electricity and meets PURPA ownership
requirements is considered a QF.

     If any of the plants in which we have an interest lose their QF status or
if amendments to PURPA are enacted that substantially reduce the benefits
currently afforded QFs, we could become a public utility holding company, which
could subject us to significant federal, state and local regulation, including
rate regulation. If we become a holding company, which could be deemed to occur
prospectively or retroactively to the date that any of our plants loses its QF
status, all our other power plants could lose QF status because, under FERC
regulations, a QF cannot be owned by an electric utility or electric utility
holding company. In addition, a loss of QF status could, depending on the
particular power purchase agreement, allow the power purchaser to cease taking
and paying for electricity or to seek refunds of past amounts paid and thus
could cause the loss of some or all contract revenues or otherwise impair the
value of a project. If a power purchaser were to cease taking and paying for
electricity or seek to obtain refunds of past amounts paid, there can be no
assurance that the costs incurred in connection with the project could be
recovered through sales to other purchasers. Such events could adversely affect
our ability to service our indebtedness, including our senior notes. See "Item
1. -- Business -- Government Regulation -- Federal Energy Regulation -- Federal
Power Act Regulation."

     Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at prices based on avoided costs of energy. We do not know whether this
legislation will be passed or, if passed, what form it may take. We cannot
provide assurance that any legislation passed would not adversely affect our
existing domestic projects.

                                       F-28
<PAGE>   64

     In addition, many states are implementing or considering regulatory
initiatives designed to increase competition in the domestic power generation
industry and increase access to electric utilities' transmission and
distribution systems for independent power producers and electricity consumers.
In particular, the state of California has restructured its electric industry by
providing for a phased-in competitive power generation industry, with a power
pool (which had discontinued the bulk of its operation as of February 1, 2001)
and an independent system operator, and for direct access to generation for all
power purchasers outside the power exchange under certain circumstances. See
"Item 1. -- Business -- Recent Developments -- California Power Market."

     We may be unable to obtain an adequate supply of natural gas in the
future. To date, our fuel acquisition strategy has included various combinations
of our own gas reserves, gas prepayment contracts and short-, medium- and
long-term supply contracts. In our gas supply arrangements, we attempt to match
the fuel cost with the fuel component included in the facility's power sales
agreements in order to minimize a project's exposure to fuel price risk. We
believe that there will be adequate supplies of natural gas available at
reasonable prices for each of our facilities when current gas supply agreements
expire. However, gas supplies may not be available for the full term of the
facilities' power sales agreements, and gas prices may increase significantly.
If gas is not available, or if gas prices increase above the fuel component of
the facilities' power sales agreements, there could be a negative impact on our
results of operations.

     Competition could adversely affect our performance. The power generation
industry is characterized by intense competition, and we encounter competition
from utilities, industrial companies and other independent power producers. In
recent years, there has been increasing competition in an effort to obtain power
sales agreements, and this competition has contributed to a reduction in
electricity prices. In addition, many states are implementing or considering
regulatory initiatives designed to increase competition in the domestic power
industry. In California, the CPUC issued decisions that provide for direct
access for all customers as of April 1, 1998. In Texas, recently enacted
legislation phases-in a deregulated power market commencing January 1, 2001.
Regulatory initiatives are also being considered in other states, including New
York and states in New England. This competition has put pressure on electric
utilities to lower their costs, including the cost of purchased electricity, and
increasing competition in the supply of electricity in the future will increase
this pressure. See "Item 1. -- Business -- Recent Developments -- California
Power Market."

     Our international investments may face uncertainties. We have an investment
in geothermal steam fields located in Mexico and investments in oil and natural
gas resources and power development projects in Canada and we may pursue
additional international investments. International investments are subject to
unique risks and uncertainties relating to the political, social and economic
structures of the countries in which we invest. Risks specifically related to
investments in non-United States projects may include:

     - risks of fluctuations in currency valuation,

     - currency inconvertibility,

     - expropriation and confiscatory taxation,

     - increased regulation, and

     - approval requirements and governmental policies limiting returns to
       foreign investors.

     We depend on our senior management. Our success is largely dependent on the
skills, experience and efforts of our senior management. The loss of the
services of one or more members of our senior management could have a negative
effect on our business, financial results and future growth.

     Seismic disturbances could damage our projects. Areas where we operate and
are developing many of our geothermal and gas-fired projects are subject to
frequent low-level seismic disturbances. More significant seismic disturbances
are possible. Our existing power generation facilities are built to withstand
relatively significant levels of seismic disturbances, and we believe we
maintain adequate insurance protection. However, earthquake, property damage or
business interruption insurance may be inadequate to cover all potential losses
sustained in the event of serious seismic disturbances. Additionally, insurance
may not continue to be available to us on commercially reasonable terms.
                                       F-29
<PAGE>   65

     Our results are subject to quarterly and seasonal fluctuations. Our
quarterly operating results have fluctuated in the past and may continue to do
so in the future as a result of a number of factors, including:

     - the timing and size of acquisitions,

     - the completion of development projects,

     - variations in levels of production, and

     - seasonal variations in energy prices.

     Additionally, because we receive the majority of capacity payments under
some of our power sales agreements during the months of May through October, our
revenues and results of operations are, to some extent, seasonal.

     The price of our common stock is volatile. The market price for our common
stock has been volatile in the past, and several factors could cause the price
to fluctuate substantially in the future. These factors include:

     - announcements of developments related to our business,

     - fluctuations in our results of operations,

     - sales of substantial amounts of our securities into the marketplace,

     - general conditions in our industry, the power markets in which we
       participate, or the worldwide economy,

     - an outbreak of war or hostilities,

     - a shortfall in revenues or earnings compared to securities analysts'
       expectations,

     - changes in analysts' recommendations or projections, and

     - announcements of new acquisitions or development projects by us.

     The market price of our common stock may fluctuate significantly in the
future, and these fluctuations may be unrelated to our performance. General
market price declines or market volatility in the future could adversely affect
the price of our common stock, and the current market price may not be
indicative of future market prices.

FINANCIAL MARKET RISKS

     From time to time, we use interest rate swap agreements to mitigate our
exposure to interest rate fluctuations. We do not use derivative financial
instruments for speculative or trading purposes. The following

                                       F-30
<PAGE>   66

table summarizes the fair market value of our existing interest rate swap
agreements as of December 31, 2000 (dollars in thousands):

<TABLE>
<CAPTION>
                                                  NOTIONAL       WEIGHTED
                                                  PRINCIPAL       AVERAGE           FAIR
                 MATURITY DATE                     AMOUNT      INTEREST RATE    MARKET VALUE
                 -------------                    ---------    -------------    ------------
<S>                                               <C>          <C>              <C>
2001............................................  $ 59,934          7.4%          $   (501)
2007............................................    38,150          8.0%            (3,431)
2007............................................    38,150          8.0%            (3,414)
2007............................................    30,708          7.9%            (3,178)
2007............................................    30,708          7.9%            (3,161)
2009............................................    15,000          6.9%              (601)
2011............................................    59,433          6.9%            (2,491)
2012............................................   121,464          6.5%            (3,677)
2014............................................    72,277          6.7%            (2,608)
2015............................................    22,500          7.0%            (1,523)
2017............................................    50,425          5.9%               868
2018............................................    17,500          7.0%            (1,427)
                                                  --------          ---           --------
          Total                                   $556,249          7.0%          $(25,144)
                                                  ========          ===           ========
</TABLE>

     Short-term investments. As of December 31, 2000, we have short-term
investments of $149.2 million. These short-term investments consist of highly
liquid investments with maturities less than three months. We have the ability
to hold these investments to maturity, and as a result, we would not expect the
value of these investments to be affected to any significant degree by the
effect of a sudden change in market interest rates.

     Energy price fluctuations. We enter into derivative commodity instruments
to reduce our exposure to the impact of price fluctuations, primarily
electricity and natural gas prices. Such instruments include over-the-counter
financial swaps and physical options with major energy derivative product
specialists. All transactions are subject to our risk management policy which
does not permit speculative positions. Financial swaps are accounted for under
the hedge method of accounting. Current revenues and costs reflect the full
effect of price movement on physical options. Cash flows from derivative
instruments are recognized as incurred through changes in working capital.

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

<TABLE>
<CAPTION>
                                                                            CHANGE IN FAIR
                                                                              VALUE FROM
                                                                             10% ADVERSE
                                                              FAIR VALUE     PRICE CHANGE
                                                              ----------    --------------
<S>                                                           <C>           <C>
At December 31, 2000
  Refined Products..........................................   $    (50)       $    (35)
  Electricity...............................................     (2,937)           (429)
  Natural Gas...............................................    105,825         (71,964)
                                                               --------        --------
          Total(1)..........................................   $102,838        $(72,428)
                                                               ========        ========
</TABLE>

---------------
(1) Total includes the fair market value of the physical options of $1.2
    million, excluded in Note 2 to the Consolidated Financial Statements.

     All hedge positions offset physical positions exposed to the cash market.
None of the offsetting physical positions are included in the above table.

     The fair value of over-the-counter instruments is estimated based on quoted
market prices of comparable contracts.

                                       F-31
<PAGE>   67

     Price changes were calculated by assuming an across-the-board ten percent
adverse price change regardless of term or historical relationship between the
contract price of an instrument and the underlying commodity price. In the event
of an actual ten percent change in prompt month prices, the fair value of
Calpine's derivative portfolio would typically change less than that shown in
the table due to lower volatility in out-month prices.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 -- an Amendment of FASB Statement No. 133." The
Statement amends SFAS No. 133 to defer its effective date to all fiscal quarters
of all fiscal years beginning after June 15, 2000. In June 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- An Amendment of FASB Statement No. 133." Calpine formally adopted
these accounting requirements on January 1, 2001. Calpine currently holds four
classes of derivative instruments that will be impacted by the new
pronouncements -- interest rate swaps, foreign currency swaps, commodity
financial instruments, and commodity contracts.

     Upon adoption of SFAS No. 133, the fair values of derivative instruments
designated as hedges will be recorded on the balance sheet as an asset or
liability at their fair value. The difference between the carrying value of the
derivative and its fair value at the date of adoption shall be recorded as a
transition adjustment. In the case of the effective portion of a hedge, which
previously addressed the variable cash flow exposure of a transaction, a
transition adjustment will be recorded as a cumulative-effect-type adjustment to
accumulated Other Comprehensive Income ("OCI"). In the case of the ineffective
portion of a hedge, an adjustment will be calculated using the dollar offset
method and charged to income or expense on the Income Statement as the effect of
a change in accounting principle. The fair values of derivative instruments that
are not designated as effective hedges and that do not meet the normal purchase
or sale exception of SFAS No. 138 will be recorded on the balance sheet as an
asset or liability at fair value and an adjustment will be charged to income or
expense on the Income Statement as the effect of a change in accounting
principle.

     At the end of each quarter, the changes in fair values of derivative
instruments designated as cash flow hedges will be recorded on the balance sheet
as an asset or liability. In the case of the effective portion of a hedge, an
adjustment will be recorded to OCI. In the case of the ineffective portion of a
hedge, an adjustment will be calculated using the dollar offset method and
charged to income or expense on the Income Statement. The changes in fair values
of derivative instruments that are not designated as effective hedges and that
do not meet the normal purchase or sale exception of SFAS No. 138 will be
recorded on the balance sheet as an asset or liability and an offset will be
charged to income or expense on the Income Statement.

     At January 1, 2001, the FASB had not resolved Derivatives Implementation
Group ("DIG") Issue 14-3, dealing with a proposed electric industry normal
purchases and sales exception for capacity sales transactions. Calpine has
assumed that the FASB will permit the use of this exception for capacity sales
contracts that include all of the following characteristics:

     - It is probable at inception and throughout the term of the individual
       contract that the contract -- if exercised by the holder -- will not
       settle net, as defined in SFAS No. 133, and will result in physical
       delivery.

     - The electricity contract would not otherwise be considered an energy
       trading contract under the Emerging Issues Task Force Issue No. 98-10.

     - The contract meets all other applicable criteria outlined in paragraph
       10(b) of SFAS No. 133.

     All capacity sales contracts and other commodity contracts currently held
by Calpine meet the above criteria and are therefore subject to the FASB's final
decision which is expected in early 2001. Pending the FASB's final decision,
Calpine assumes that these contracts will be exempt from derivative accounting
treatment under the normal purchases and sales exemption. See Note 2 of the
Notes to Consolidated Financial Statements for the financial statement effects
if Calpine had adopted SFAS No. 133 on December 31, 2000.
                                       F-32
<PAGE>   68

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors
and Stockholders of Calpine Corporation:

     We have audited the accompanying consolidated balance sheets of Calpine
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Calpine Corporation and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

                                          ARTHUR ANDERSEN LLP

San Jose, California
March 14, 2001

                                       F-33
<PAGE>   69

                      CALPINE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Current assets:
  Cash and cash equivalents.................................  $  588,698    $  349,371
  Accounts receivable, net of allowance of $11,078 and
    $3,343..................................................     649,422       127,485
  Inventories...............................................      36,883        16,417
  Prepaid expenses..........................................      27,515        24,848
  Other current assets......................................      41,165         8,287
                                                              ----------    ----------
         Total current assets...............................   1,343,683       526,408
                                                              ----------    ----------
Property, plant and equipment, net..........................   7,459,055     2,908,056
Investments in power projects...............................     205,621       243,225
Project development costs...................................      38,597        24,018
Notes receivable............................................     217,927        23,548
Restricted cash.............................................      88,618        43,615
Deferred financing costs....................................     139,631        54,215
Other assets................................................     244,125       168,521
                                                              ----------    ----------
         Total assets.......................................  $9,737,257    $3,991,606
                                                              ==========    ==========
                          LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable and borrowings under lines of credit,
    current portion.........................................  $    1,087    $   38,867
  Accounts payable..........................................     765,613        84,353
  Project financing, current portion........................      58,486         8,603
  Capital lease obligation, current portion.................       1,985            --
  Income taxes payable......................................      63,409         8,835
  Accrued payroll and related expenses......................      53,667        24,345
  Accrued interest payable..................................      75,865        37,058
  Other current liabilities.................................     149,080        73,250
                                                              ----------    ----------
         Total current liabilities..........................   1,169,192       275,311
                                                              ----------    ----------
Notes payable and borrowings under lines of credit, net of
  current portion...........................................     195,862        97,303
Project financing, net of current portion...................   1,473,869       357,137
Senior notes................................................   2,551,750     1,551,750
Capital lease obligation, net of current portion............     208,876            --
Deferred income taxes, net..................................     567,292       291,458
Deferred lease incentive....................................      60,676        64,245
Deferred revenue............................................      92,511        33,876
Other liabilities...........................................      20,389        23,476
                                                              ----------    ----------
         Total liabilities..................................   6,340,417     2,694,556
                                                              ----------    ----------
Commitments and contingencies (see Note 18)
Company-obligated mandatorily redeemable convertible
  preferred securities of subsidiary trusts.................   1,122,490       270,713
Minority interests..........................................      37,576        61,705
                                                              ----------    ----------
Stockholders' equity:
  Preferred stock, $.001 par value per share; authorized
    10,000,000 shares; none issued and outstanding in 2000
    and 1999................................................          --            --
  Common stock, $.001 par value per share; authorized
    500,000,000 shares in 2000 and 400,000,000 in 1999;
    issued and outstanding 283,715,058 shares in 2000 and
    252,215,680 shares in 1999..............................         284           252
  Additional paid-in capital................................   1,700,505       751,215
  Retained earnings.........................................     536,617       213,165
  Accumulated other comprehensive loss......................        (632)           --
                                                              ----------    ----------
         Total stockholders' equity.........................   2,236,774       964,632
                                                              ----------    ----------
         Total liabilities and stockholders' equity.........  $9,737,257    $3,991,606
                                                              ==========    ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-34
<PAGE>   70

                      CALPINE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               2000         1999        1998
                                                            ----------    --------    --------
<S>                                                         <C>           <C>         <C>
Revenue:
  Electricity and steam sales.............................  $1,702,320    $760,325    $507,897
  Service contract revenue................................     480,234      43,773      20,249
  Income from unconsolidated investments in power
     projects.............................................      24,639      36,593      25,240
  Interest income on loans to power projects..............       4,827       1,226       2,562
  Other revenue...........................................      70,773       5,818          --
                                                            ----------    --------    --------
          Total revenue...................................   2,282,793     847,735     555,948
                                                            ----------    --------    --------
Cost of revenue:
  Fuel expenses...........................................     612,947     268,734     181,593
  Plant operating expenses................................     220,222     122,707      78,085
  Depreciation expense....................................     154,263      82,812      73,988
  Production royalties....................................      32,325      13,767      10,714
  Operating lease expenses................................      69,419      33,594      17,129
  Service contract expenses...............................     469,500      40,236      17,417
                                                            ----------    --------    --------
          Total cost of revenue...........................   1,558,676     561,850     378,926
                                                            ----------    --------    --------
     Gross profit.........................................     724,117     285,885     177,022
Project development expenses..............................      27,556      10,712       7,165
General and administrative expenses.......................      94,113      48,671      23,181
                                                            ----------    --------    --------
     Income from operations...............................     602,448     226,502     146,676
Interest expense..........................................      56,700      91,162      86,726
Distributions on trust preferred securities...............      44,210       2,565          --
Interest income...........................................     (39,901)    (24,106)    (12,348)
Minority interest, net....................................       2,684          --          --
Other income..............................................      (4,883)     (1,335)     (1,075)
                                                            ----------    --------    --------
     Income before provision for income taxes.............     543,638     158,216      73,373
Provision for income taxes................................     218,951      61,973      27,054
                                                            ----------    --------    --------
     Income before extraordinary charge...................     324,687      96,243      46,319
Extraordinary charge net of tax benefit of $796, $793 and
  $441....................................................       1,235       1,150         641
                                                            ----------    --------    --------
     Net income...........................................  $  323,452    $ 95,093    $ 45,678
                                                            ==========    ========    ========
Basic earnings per common share:
  Weighted average shares of common stock outstanding.....     264,799     209,314     160,969
  Income before extraordinary charge......................  $     1.23    $   0.46    $   0.29
  Extraordinary charge....................................  $    (0.01)   $  (0.01)   $  (0.01)
  Net income..............................................  $     1.22    $   0.45    $   0.28
Diluted earnings per common share:
  Weighted average shares of common stock outstanding
     before dilutive effect of certain trust preferred
     securities...........................................     280,776     222,644     169,311
  Income before extraordinary charge and dilutive effect
     of certain trust preferred securities................  $     1.16    $   0.43    $   0.27
  Dilutive effect of certain trust preferred
     securities(1)........................................  $    (0.05)   $     --    $     --
  Income before extraordinary charge......................  $     1.11    $   0.43    $   0.27
  Extraordinary charge....................................  $    (0.01)   $     --    $     --
  Net income..............................................  $     1.10    $   0.43    $   0.27
</TABLE>

---------------
(1) Includes the effect of the assumed conversion of certain trust preferred
    securities. For the twelve months ended December 31, 2000, the assumed
    conversion calculation adds 31,746 shares of common stock and $20,841 to the
    net income results, representing the after tax distribution expense on
    certain trust preferred securities avoided upon conversion.

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-35
<PAGE>   71

                      CALPINE CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                ACCUMULATED
                                       ADDITIONAL                  OTHER           TOTAL
                              COMMON    PAID-IN     RETAINED   COMPREHENSIVE   STOCKHOLDERS'   COMPREHENSIVE
                              STOCK     CAPITAL     EARNINGS       LOSS           EQUITY       INCOME (LOSS)
                              ------   ----------   --------   -------------   -------------   -------------
<S>                           <C>      <C>          <C>        <C>             <C>             <C>
Balance, December 31,
  1997......................   $160    $  167,402   $ 72,394       $  --        $  239,956
  Issuance of 807,008 shares
     of common stock, net of
     issuance costs.........      1         1,109         --          --             1,110
  Tax benefit from stock
     options exercised and
     other..................     --           222         --          --               222
Comprehensive Income:
  Net income................     --            --     45,678          --            45,678       $ 45,678
  Other comprehensive
     income.................     --            --         --          --                --             --
                                                                                                 --------
  Total comprehensive
     income.................     --            --         --          --                --       $ 45,678
                               ----    ----------   --------       -----        ----------       ========
Balance, December 31,
  1998......................    161       168,733    118,072          --           286,966
                               ----    ----------   --------       -----        ----------
  Issuance of 90,923,032
     shares of common stock,
     net of issuance
     costs..................     91       576,505         --          --           576,596
  Tax benefit from stock
     options exercised and
     other..................     --         5,977         --          --             5,977
Comprehensive Income:
  Net income................     --            --     95,093          --            95,093       $ 95,093
  Other comprehensive
     income.................     --            --         --          --                --             --
                                                                                                 --------
  Total comprehensive
     income.................     --            --         --          --                --       $ 95,093
                               ----    ----------   --------       -----        ----------       ========
Balance, December 31,
  1999......................    252       751,215    213,165          --           964,632
                               ----    ----------   --------       -----        ----------
  Issuance of 27,997,846
     shares of common stock,
     net of issuance
     costs..................     28       782,068         --          --           782,096
  Issuance of 3,501,532
     shares of common stock
     for acquisitions.......      4       120,591         --          --           120,595
  Tax benefit from stock
     options exercised and
     other..................     --        46,631         --          --            46,631
Comprehensive Income:
  Net income................     --            --    323,452          --           323,452       $323,452
  Currency translation
     adjustment.............     --            --         --        (632)             (632)          (632)
                                                                                                 --------
  Total comprehensive
     income.................     --            --         --          --                --       $322,820
                               ----    ----------   --------       -----        ----------       ========
Balance, December 31,
  2000......................   $284    $1,700,505   $536,617       $(632)       $2,236,774
                               ====    ==========   ========       =====        ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-36
<PAGE>   72

                      CALPINE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 2000          1999         1998
                                                              -----------   -----------   ---------
<S>                                                           <C>           <C>           <C>
Cash flows from operating activities:
  Net income................................................  $   323,452   $    95,093   $  45,678
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization...........................      141,594        87,210      74,285
    Deferred income taxes, net..............................       62,623        47,944      13,554
    Income from unconsolidated investments in power
      projects..............................................      (24,639)      (36,593)    (25,240)
    Distributions from unconsolidated power projects........       29,979        43,318      27,717
    Loss on sale of assets..................................           --         1,058          --
    Change in operating assets and liabilities, net of
      effects of acquisitions:
      Accounts receivable...................................     (477,126)      (17,258)     10,172
      Notes receivable......................................      (46,066)      (13,919)         --
      Other current assets..................................      (25,324)       (8,555)     24,012
      Other assets..........................................      (43,654)       (9,153)    (28,968)
      Accounts payable and accrued expenses.................      662,635        74,867      17,484
      Other liabilities.....................................       46,856            71       5,885
                                                              -----------   -----------   ---------
         Net cash provided by operating activities..........      650,330       264,083     164,579
                                                              -----------   -----------   ---------
Cash flows from investing activities:
  Purchases of property, plant and equipment................   (2,967,495)     (946,701)   (101,039)
  Proceeds from sale and leaseback of plant.................      642,205        71,236         559
  Acquisitions, net of cash acquired........................     (840,928)     (540,587)   (305,263)
  Advances to joint ventures................................     (141,106)      (48,066)     (2,952)
  Decrease (increase) in notes receivable...................     (184,535)        1,270      18,967
  Maturities of collateral securities.......................        6,445         1,850       6,030
  Project development costs.................................      (53,129)      (30,635)    (17,435)
  Decrease (increase) in restricted cash....................      (15,616)        1,216       1,130
                                                              -----------   -----------   ---------
         Net cash used in investing activities..............   (3,554,159)   (1,490,417)   (400,003)
                                                              -----------   -----------   ---------
Cash flows from financing activities:
  Borrowings from project financing.........................    1,183,603       155,760      57,874
  Repayments of project financing...........................     (580,111)     (123,386)   (162,145)
  Proceeds from notes payable and borrowings under lines of
    credit..................................................    1,051,225       163,675          --
  Repayments of notes payable and borrowings under lines of
    credit..................................................   (1,117,946)     (129,721)         --
  Proceeds from issuance of Senior Notes....................    1,000,000       600,000     400,000
  Repurchase of Senior Notes................................           --            --      (8,250)
  Proceeds from Company-obligated mandatorily convertible
    preferred securities of a subsidiary trust..............      877,500       276,000          --
  Proceeds from equity offerings, net of issuance costs.....      773,249       597,368          --
  Proceeds from issuance of common stock....................       10,935         2,939       1,110
  Write-off of deferred financing costs.....................        2,031         1,943          --
  Financing costs...........................................      (52,725)      (65,405)     (5,146)
  Other.....................................................       (4,605)           --          --
                                                              -----------   -----------   ---------
         Net cash provided by financing activities..........    3,143,156     1,479,173     283,443
                                                              -----------   -----------   ---------
Net increase in cash and cash equivalents...................      239,327       252,839      48,019
Cash and cash equivalents, beginning of year................      349,371        96,532      48,513
                                                              -----------   -----------   ---------
Cash and cash equivalents, end of year......................  $   588,698   $   349,371   $  96,532
                                                              ===========   ===========   =========
Cash paid during the year for:
  Interest..................................................  $   224,866   $   117,376   $  71,971
  Income taxes..............................................  $   142,659   $    16,116   $   2,167
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-37
<PAGE>   73

                      CALPINE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

 1. ORGANIZATION AND OPERATIONS OF THE COMPANY

     Calpine Corporation ("Calpine"), a Delaware corporation, and subsidiaries
(collectively, the "Company") is engaged in the generation of electricity in the
United States and Canada. In pursuing this single business strategy, the Company
is involved in the development, acquisition, ownership and operation of power
generation facilities and the sale of electricity and its by-product, thermal
energy, primarily in the form of steam. The Company has ownership interests in
and operates gas-fired cogeneration facilities, gas fields, gathering systems
and gas pipelines, geothermal steam fields and geothermal power generation
facilities in the United States and Canada. Each of the generation facilities
produces and markets electricity for sale to utilities and other third party
purchasers. Thermal energy produced by the gas-fired cogeneration facilities is
primarily sold to governmental and industrial users.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation -- The accompanying consolidated financial
statements include accounts of the Company. Wholly-owned and majority-owned
subsidiaries are consolidated. Less-than-majority-owned subsidiaries and
subsidiaries for which control is deemed to be temporary, are accounted for
using the equity method. In the case of the Company's interest in the Lost Pines
I project, the proportionate consolidation method is used. For equity method
investments, the Company's share of income is calculated according to the
Company's equity ownership or according to the terms of the appropriate
partnership agreement (see Note 6). All significant intercompany accounts and
transactions are eliminated in consolidation. Prior to the Company's acquisition
of Unocal's interest in its Geysers geothermal properties on March 19, 1999, the
Company used the proportionate consolidation method to account for Thermal Power
Company's ("TPC's") 25% ownership in jointly owned geothermal properties.

     Use of Estimates in Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates with regard to these financial statements relate to future
development costs and useful lives of the generation facilities (see Note 3).

     Fair Value of Financial Instruments -- The carrying value of accounts
receivable, marketable securities, accounts and other payables approximate their
respective fair values due to their short maturities. See Note 9 for disclosures
regarding the fair value of the Senior Notes.

     Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The carrying amount of these instruments approximates fair value
because of their short maturity.

     Inventories -- Operating supplies are valued at the lower of cost or
market. Cost for large replacement parts estimated to be used within one year is
determined using the specific identification method. For the remaining supplies
and spare parts, cost is generally determined using the weighted average cost
method.

     Project Development Costs -- The Company capitalizes project development
costs once it is determined that it is probable that such costs will be realized
through the ultimate construction of a power plant. These costs include
professional services, salaries, permits and other costs directly related to the
development of a new project. Outside services and other third party costs are
capitalized for acquisition projects. Upon commencement of construction, these
costs are transferred to construction in progress in property, plant and
equipment, net. Upon the start-up of plant operations, these costs are generally
transferred to property, plant

                                       F-38
<PAGE>   74
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

and equipment and amortized over the estimated useful life of the project.
Capitalized project costs are charged to expense if the Company determines that
the project is impaired.

     Restricted Cash -- The Company is required to maintain cash balances that
are restricted by provisions of certain of its debt agreements, lease agreements
and by regulatory agencies. The Company's debt agreements specify restrictions
based on debt service payments and drilling costs. Regulatory agencies require
cash to be restricted to ensure that funds will be available to restore property
to its original condition. Restricted cash is invested in accounts earning
market rates; therefore, the carrying value approximates fair value. Such cash
is excluded from cash and cash equivalents for the purposes of the consolidated
statements of cash flows.

     Deferred Financing Costs -- The deferred financing costs related to the
Company's Senior Notes are amortized over the life of the related debt, ranging
from 5 to 10 years using the effective interest rate method (See Note 9). The
deferred financing costs associated with the two Calpine Construction Finance
Company facilities are amortized over the 4-year facility lives using the
straight-line method (See Note 8). Costs incurred in connection with obtaining
other financing are deferred and amortized over the remaining life of the
related debt, generally ranging from 1 to 20 years.

     Long-Lived Assets -- In accordance with Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company evaluates the impairment of long-lived assets,
including goodwill, based on the projection of undiscounted cash flows whenever
events or changes in circumstances indicate that the carrying amounts of such
assets may not be recoverable. In the event such cash flows are not expected to
be sufficient to recover the recorded value of the assets, the assets are
written down to their estimated fair values.

     Major Maintenance -- For major gas turbine generator refurbishments, the
Company defers the costs and amortizes them over 3 to 6 years. Geothermal steam
turbine refurbishments are expensed as incurred. These two methods are the
Company's primary accounting methods for major maintenance. Additionally, the
Company accrues in advance for certain non-annual planned maintenance.

     Trust Preferred Securities -- During 1999 and 2000, the Company issued
trust preferred securities, which are treated as a minority interest in the
balance sheet and reflected as "Company-obligated mandatorily redeemable
convertible preferred securities of subsidiary trusts." The distributions are
reflected on the income statement as "distributions on trust preferred
securities." Financing costs related to these issuances are netted with the
principal amounts and are accreted over the securities' 30-year maturity by the
straight-line method (See Note 11).

     Revenue Recognition -- The Company is first and foremost an electric
generation company, operating a portfolio of mostly wholly-owned plants but also
some plants in which its ownership interest is 50% or less and which are
accounted for under the equity method. In conjunction with its electric
generation business, the Company also produces, as a by-product, thermal energy
for sale to customers, principally steam hosts at its cogeneration sites. In
addition the Company acquires and produces natural gas for its own consumption
and sells the balance and small amounts of oil to third parties. To protect and
enhance the profit potential of its electric generation plants, the Company's
Calpine Energy Services, LP ("CES") subsidiary enters into electric and gas
hedging, balancing and related transactions in which purchased electricity and
gas is resold to third parties. CES acts as a principal, takes title to the
commodities purchased for resale and assumes the risks and rewards of ownership,
and therefore, in accordance with Staff Accounting Bulletin No. 101 and the
Emerging Issues Task Force ("EITF") Issue No. 99-19, CES recognizes revenue on a
gross basis, except in the case of qualifying hedge transactions, in which case
the net gain or loss from the hedging instrument is recorded in income against
the underlying hedged item when the effects of the hedged item are recognized.

                                       F-39
<PAGE>   75
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

Hedged items typically included sales to third parties of natural gas produced,
purchases of natural gas to fuel power plants, and sales of generated
electricity. Finally, the Company, through Power Systems Mfg., LLC ("PSM"),
designs and manufactures spare parts for gas turbines and also generates small
amounts of revenue from occasional loans to power projects and by providing
operation and maintenance services to unconsolidated power plants. Further
details of the Company's revenue recognition policy for each type of revenue
transaction is provided below:

        Electricity and Steam Sales -- Electrical energy revenue is recognized
upon transmission to the customer, and capacity and ancillary revenue is
recognized when contractually earned. In accordance with EITF Issue No. 91-6,
revenues from contracts entered into or acquired since May 1992 are recognized
at the lesser of amounts billable under the contract or amounts recognizable at
an average rate over the term of the contract. The Company's power sales
agreements related to Calpine Geysers Company ("CGC") were entered into prior to
May 1992. Had the Company applied the methodology described above to the CGC
power sales agreements, the revenues recorded for the years ended December 31,
2000, 1999 and 1998 would have been approximately $8.1 million lower, $24.2
million higher and $4.7 million lower, respectively. Net gains or losses from
qualified hedges of electricity positions are included in electricity and steam
sales.

        Calpine Gilroy Cogen, LP ("Gilroy") had a long-term power purchase
agreement ("PPA") with Pacific Gas and Electric Company ("PG&E") for the sale of
energy through 2018. The terms of the PPA provided for 120 megawatts of firm
capacity and up to 10 megawatts of as-delivered capacity. On December 2, 1999,
the California Public Utilities Commission approved the restructuring of the PPA
between Gilroy and PG&E. Under the terms of the restructuring, PG&E and Gilroy
are each released from performance under the PPA effective November 1, 2002.
Under the restructured contract, in addition to the normal capacity revenue for
the period, Gilroy will earn from September 1999 to October 2002 restructured
capacity revenue it would have earned over the November 2002 through March 2018
time period, for which PG&E issues notes to the Company. At December 31, 2000,
Gilroy had $62.3 million of such notes receivable from PG&E. These notes will be
paid by PG&E during February 2003 to September 2014 (See Notes 15 and 19 for
further discussion).

        Service Contract Revenue -- The Company recognizes revenue from power
and gas hedging, balancing and related activities through its wholly owned
subsidiary, CES. Revenue generated from CES through sales of purchased power and
purchased gas to third parties is recorded as service contract revenue when
delivery occurs or a position is settled.

        The Company also performs operations and maintenance services for some
of the projects in which it has an interest. Revenue from investees is
recognized as service contract revenue on these contracts when the services are
performed.

        Income from Unconsolidated Investments in Power Projects -- The Company
uses the equity method to recognize as revenue its pro rata share of the net
income or loss of the unconsolidated investment until such time, if applicable,
as the Company's investment is reduced to zero, at which time equity income is
generally recognized only upon receipt of cash distributions from the investee.

        Interest Income on Loans to Power Projects -- The Company recognizes as
revenue interest income on loans to power projects in which it invests as the
interest is earned and realizable.

        Other Revenues -- Revenue from the sale of crude oil is recognized upon
the passage of title, net of royalties and net of gains or losses from qualified
hedges. Revenue from natural gas production is recognized using the sales
method, net of royalties and net of gains or losses from qualified hedges.

        The Company recognizes revenue from its PSM subsidiary as products are
delivered to the customer for smaller orders and on the Percentage of Completion
method for certain special large orders under which work is performed over an
extended time period.

                                       F-40
<PAGE>   76
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

     Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash,
accounts receivable and notes receivable. The Company's cash accounts are
generally held in FDIC insured banks. The Company's accounts and notes
receivable are concentrated within entities engaged in the energy industry,
mainly within the United States (see Note 15). The Company generally does not
require collateral for accounts receivable.

     Derivative Financial Instruments -- The Company engages in activities to
manage risks associated with changes in interest rates. The Company has entered
into swap agreements to reduce exposure to interest rate fluctuations. The
instruments' cash flows mirror those of the underlying exposure. Unrealized
gains and losses relating to the instruments are being deferred over the lives
of the contracts. The premiums paid on the instruments, as measured at
inception, are being amortized over their respective lives as components of
interest expense. Any gains or losses realized upon the early termination of
these instruments are being amortized over the respective lives of the
underlying transaction or recognized immediately if the transaction is
terminated earlier than initially anticipated. Gains and losses on any
instruments not meeting the above criteria would be recognized in income in the
current period. Subsequent gains or losses on the related financial instrument
are recognized in income in each period until the instrument matures, is
terminated or is sold. Cash flows from swap contracts accounted for as hedges
are classified in the same category as the item being hedged.

     Energy Marketing Operations -- The Company, through its wholly owned
subsidiary CES, markets energy services to utilities, wholesalers, and end
users. CES provides these services by entering into contracts to purchase or
supply electricity and natural gas, primarily, at specified delivery points and
specified future dates. In some cases, CES utilizes financial instruments to
manage its exposure to electricity and natural gas price fluctuations, and to a
lesser degree, price fluctuations of oil and refined products. On December 31,
2000, CES held swap contracts with several entities in order to hedge these
price fluctuations.

     At December 31, 2000, the Company had positions with a net fair value of
$104.0 million to protect the Company against the risks of fluctuating market
prices. The Company actively manages its positions, and it is the Company's
policy to not have any speculative positions. Net gains and losses related to
commodity swap contracts are recognized when realized. The Company's credit risk
associated with power and fuel contracts results from the risk-of-loss on
non-performance by counter parties. The Company reviews and assesses counter
party risk to limit any material impact to its financial position and results of
operations. The Company does not anticipate non-performance by the
counterparties.

     New Accounting Pronouncements -- In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133 -- an Amendment of FASB
Statement No. 133." The Statement amends SFAS No. 133 to defer its effective
date to all fiscal quarters of all fiscal years beginning after June 15, 2000.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- An Amendment of FASB Statement No.
133." The Company formally adopted these accounting requirements on January 1,
2001. The Company currently holds four classes of derivative instruments that
will be impacted by the new pronouncements -- interest rate swaps, foreign
currency swaps, commodity financial instruments, and commodity contracts.

     Upon adoption of SFAS No. 133, the fair values of derivative instruments
designated as hedges will be recorded on the balance sheet as an asset or
liability at their fair value. The difference between the carrying value of the
derivative and its fair value at the date of adoption shall be recorded as a
transition adjustment. In the case of the effective portion of a hedge, which
previously addressed the variable cash flow exposure of a transaction, a
transition adjustment will be recorded as a cumulative-effect-type adjustment to
accumulated Other Comprehensive Income ("OCI"). In the case of the ineffective
portion of a hedge, an adjustment will be calculated using the dollar offset
method and charged to income or expense on the Income Statement as
                                       F-41
<PAGE>   77
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

the effect of a change in accounting principle. The fair values of derivative
instruments that are not designated as effective hedges and that do not meet the
normal purchase or sale exception of SFAS No. 138 will be recorded on the
balance sheet as an asset or liability at fair value and an adjustment will be
charged to income or expense on the Income Statement as the effect of a change
in accounting principle.

     At the end of each quarter, the changes in fair values of derivative
instruments designated as cash flow hedges will be recorded on the balance sheet
as an asset or liability. In the case of the effective portion of a hedge, an
adjustment will be recorded to OCI. In the case of the ineffective portion of a
hedge, an adjustment will be calculated using the dollar offset method and
charged to income or expense on the Income Statement. The changes in fair values
of derivative instruments that are not designated as effective hedges and that
do not meet the normal purchase or sale exception of SFAS No. 138 will be
recorded on the balance sheet as an asset or liability and an offset will be
charged to income or expense on the Income Statement."

     At January 1, 2001, the FASB had not resolved Derivatives Implementation
Group ("DIG") Issue 14-3, dealing with a proposed electric industry normal
purchases and sales exception for capacity sales transactions. The Company has
assumed that the FASB will permit the use of this exception for capacity sales
contracts that include all of the following characteristics:

     - It is probable at inception and throughout the term of the individual
       contract that the contract -- if exercised by the holder -- will not
       settle net, as defined in SFAS No. 133, and will result in physical
       delivery.

     - The electricity contract would not otherwise be considered an energy
       trading contract under the EITF Issue No. 98-10.

     - The contract meets all other applicable criteria outlined in paragraph
       10(b) of SFAS No. 133.

     All capacity sales contracts and other commodity contracts currently held
by the Company meet the above criteria and are therefore subject to the FASB's
final decision which is expected in early 2001. Pending the FASB's final
decision, the Company assumes that these contracts will be exempt from
derivative accounting treatment under the normal purchases and sales exemption.
Had the Company not made this assumption, total assets would have increased by
$9.6 million, total liabilities would have increased by $8.5 million and net
income would have increased by $1.1 million. The effect on the income statement
would be reported as a cumulative effect of change in accounting principle. The
table below reflects the amounts (in thousands), by derivative instrument that
would be recorded as assets, liabilities, expense, and OCI if the Company
adopted SFAS No. 133 on December 31, 2000.

<TABLE>
<CAPTION>
                                                              INTEREST     COMMODITY
                                                                RATE       FINANCIAL
                                                               SWAPS      INSTRUMENTS
                                                              --------    -----------
<S>                                                           <C>         <C>
Current Derivative Asset....................................  $     --     $704,218
Long-Term Derivative Asset..................................       868      120,206
                                                              --------     --------
Total Assets................................................  $    868     $824,424
                                                              ========     ========
Current Derivative Liability................................       501      669,428
Long-Term Derivative Liability..............................    25,510       68,420
Deferred Tax Liability......................................    (9,856)      33,938
                                                              --------     --------
Total Liabilities...........................................  $ 16,155     $771,786
                                                              ========     ========
Other Comprehensive Income..................................  $(15,287)    $ 52,638
</TABLE>

     Reclassifications -- Certain prior years' amounts in the Consolidated
Financial Statements have been reclassified to conform to the 2000 presentation.

                                       F-42
<PAGE>   78
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

 3. PROPERTY, PLANT AND EQUIPMENT, NET, AND CAPITALIZED INTEREST

     Property, plant and equipment, net, are stated at cost less accumulated
depreciation and amortization.

     The Company capitalizes costs incurred in connection with the development
of geothermal properties, including costs of drilling wells and overhead
directly related to development activities, together with the costs of
production equipment, the related facilities and the operating power plants.
Proceeds from the sale of geothermal properties are applied against capitalized
costs, with no gain or loss recognized.

     Geothermal costs, including an estimate of future costs to be incurred,
costs to optimize the productivity of the assets, and the estimated costs to
dismantle, are amortized by the units of production method based on the
estimated total productive output over the estimated useful lives of the related
steam fields. Depreciation of the buildings and roads is computed using the
straight-line method over their estimated useful lives. It is reasonably
possible that the estimate of useful lives, total units of production or total
capital costs to be amortized using the units of production method could differ
materially in the near term from the amounts assumed in arriving at current
depreciation expense. These estimates are affected by such factors as the
ability of the Company to continue selling electricity to customers at estimated
prices, changes in prices of alternative sources of energy such as
hydro-generation and gas, and changes in the regulatory environment.

     Gas-fired power production facilities include cogeneration plants and
related equipment and are stated at cost. Depreciation is recorded utilizing the
straight-line method over the estimated original useful life of up to 38 years,
exclusive of the estimated salvage value, typically 10%. The value of the
above-market or below-market pricing provided in power sales agreements and fuel
supply contracts acquired is recorded in property, plant and equipment, net and
is amortized over the above-market or below-market pricing period in the power
sales agreement or fuel supply contract with lives ranging from month-to-month
to 28 years. When assets are disposed of, the cost and related accumulated
depreciation are removed from the accounts, and the resulting gains or losses
are included in results of operations.

     The Company follows the successful efforts method of accounting for oil and
natural gas operations. Under the successful efforts method, capitalized costs
relating to proved properties are amortized using the units-of-production method
based on estimated proven reserves. The cost of unsuccessful exploration wells
is charged to operations.

     As of December 31, 2000 and 1999, the components of property, plant and
equipment, net are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Geothermal properties.......................................  $  334,585    $  366,059
Oil and gas properties......................................     625,178       214,794
Buildings, machinery and equipment..........................   1,927,803     1,215,063
Power sales agreements......................................     159,337       145,957
Gas contracts...............................................     132,748       122,593
Other.......................................................     178,861        78,735
                                                              ----------    ----------
                                                               3,358,512     2,143,201
Less: accumulated depreciation and amortization.............    (328,461)     (227,059)
                                                              ----------    ----------
                                                               3,030,051     1,916,142
Land........................................................      12,578         3,419
Construction in progress....................................   4,416,426       988,495
                                                              ----------    ----------
Property, plant and equipment, net..........................  $7,459,055    $2,908,056
                                                              ==========    ==========
</TABLE>

                                       F-43
<PAGE>   79
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

     Construction in progress is primarily attributable to gas-fired projects
under construction. Upon commencement of plant operations, these costs are
transferred to Buildings, Machinery and Equipment.

     Capitalized Interest -- The Company capitalizes interest on capital
invested in projects during the advanced stages of development and the
construction period. For the years ended December 31, 2000 and 1999, the Company
recorded net interest expense of $56.7 million and $91.2 million, respectively,
after capitalizing $171.0 million and $39.7 million of interest on general
corporate funds used for construction in 2000 and 1999, respectively, and after
$36.0 million and $7.6 million of interest capitalized on funds borrowed for
specific construction projects in 2000 and 1999, respectively. Upon commencement
of plant operations, capitalized interest is amortized over the estimated useful
life of the plant. The increase in the amount of interest capitalized during the
year ended December 31, 2000 reflects the significant increase in the Company's
power plant construction program.

 4. ACQUISITIONS

     The following acquisitions were consummated during the year ended December
31, 1999. All business combinations made during 1999 were accounted for as
purchases.

  Unocal Transaction

     On March 19, 1999, the Company acquired Unocal Corporation's Geysers
geothermal steam fields in northern California for approximately $102.2 million.
The steam fields fuel the Company's power plants located at the Geysers,
California. See below.

  PG&E Transactions

     On May 7, 1999, the Company completed the acquisition of 12 Sonoma County
and 2 Lake County power plants, located at the Geysers, California from PG&E for
approximately $212.8 million. These plants have a combined capacity of
approximately 657 megawatts of electricity.

  Aidlin Transaction

     On August 31, 1999, the Company completed the acquisition of an additional
50% interest in the Aidlin Power Plant from Edison Mission Energy and General
Electric Capital Corporation for a total purchase price of $7.2 million. The
Company previously owned a 5% interest in the project.

  Calistoga and Silverado Transactions

     On October 19, 1999, the Company purchased the Calistoga Power Plant, the
Silverado steam fields and related assets from FPL Energy and Caithness
Corporation for $77.9 million.

  Calpine Natural Gas Company Transaction

     On October 1, 1999, the Company completed the acquisition of Sheridan
Energy Inc. ("Sheridan"), a natural gas exploration and production company,
through a $38.8 million cash tender offer. The Company purchased the outstanding
shares of Sheridan's common stock for $5.50 per share. In addition, the Company
redeemed $11.9 million of outstanding preferred stock of Sheridan. Sheridan's
oil and gas properties are primarily located in Northern California and the Gulf
Coast region. Previously, the Company had acquired a 20% interest in Sheridan
California Energy, Inc. from Sheridan for $14.9 million. As a result of the two
aforementioned acquisitions, the Company now owns all of the assets of Sheridan
and included the results in its Consolidated Financial Statements at December
31, 1999. The Company subsequently renamed Sheridan as Calpine Natural Gas
Company ("CNGC"). The Company accounted for its investment in Sheridan under
                                       F-44
<PAGE>   80
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

the equity method until October 1, 1999. From October 1, 1999 through December
31, 1999, the results of CNGC's operations are consolidated.

  Cogeneration Corporation of America Transaction

     On December 17, 1999, the Company completed the acquisition of 80% of the
common stock of Cogeneration Corporation of America, Inc. ("CGCA") for
approximately $137.3 million with the remaining 20% being owned by NRG Energy
Inc., a subsidiary of Xcel Energy, Inc. As a result of this acquisition the
Company received an ownership interest in six natural gas-fired facilities
totaling approximately 461 megawatts of capacity and has assumed operations of
five of the plants.

  Vintage Transaction

     On December 31, 1999, but effective as of November 1, 1999, the Company
acquired proven natural gas reserves and certain leasehold acreage from Vintage
Petroleum, Inc. ("Vintage") of Tulsa, Oklahoma for approximately $71.5 million.
The Company added the remaining 58.8% working interest in the Rio Vista Gas Unit
and certain development acreage to its northern California gas portfolio. This
new production utilizes the Company's Sacramento Basin gas pipeline system. The
Company initially acquired a 40.7% working interest in the Rio Vista Gas Unit in
October 1999 through its Sheridan acquisition.

     The following acquisitions were consummated during the year ended December
31, 2000. All business combinations made during 2000 were accounted for as
purchases.

  Western Transaction

     On February 4, 2000, the Company acquired 100% of the stock of Western Gas
Resources California ("Western") from Western Gas Resources, Inc. for $14.9
million. Western's assets include the 130-mile Steelhead natural gas pipeline
and the remaining interest in the Sacramento River Gas System natural gas
pipeline, now 100% owned by Calpine.

  Hidalgo Transaction

     On March 30, 2000, the Company purchased a 78.5% interest in the 502
megawatt Hidalgo Energy Center which was under construction in Edinburg, Texas,
from Duke Energy North America for $235 million. The purchase included a cash
payment of $134 million and the assumption of a $101 million capital lease
obligation. The Hidalgo Energy Center sells power into the Electric Reliability
Council of Texas' ("ERCOT") wholesale market. Construction of the facility began
in February 1999, and commercial operation was achieved in June 2000.

  KIAC and Stony Brook Transaction

     On May 31, 2000, Calpine acquired the remaining 50% interests in the 105
megawatt Kennedy International Airport Power Plant ("KIAC") in Queens, N.Y. and
the 40 megawatt Stony Brook Power Plant located at the State University of New
York at Stony Brook on Long Island from Statoil Energy, Inc. The Company paid
approximately $71 million in cash and assumed a capital lease obligation
relating to the Stony Brook Power Plant. The Company initially acquired a 50%
interest in both facilities in December 1997.

  Freestone Transaction

     On June 15, 2000, the Company announced that it had acquired the Freestone
Energy Center from Energy Corporation. Freestone is a 1,052 megawatt natural
gas-fired energy center under development in Freestone County, Texas. The
technologically advanced energy center is currently under construction, with a
                                       F-45
<PAGE>   81
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

two-phased commercial start-up beginning in June 2002. The Company paid
approximately $61.0 million in cash and assumed certain liabilities. This
represented payment for the land and development rights for the Freestone Energy
Center, previous progress payments made for four General Electric gas turbines,
two steam turbines and related equipment, and development expenditures incurred
to date.

  Auburndale Transaction

     On June 30, 2000, the Company acquired from Edison Mission Energy the
remaining 50% ownership interest in a 153 megawatt natural gas-fired, combined
cycle cogeneration facility located in Auburndale, Fla. The Company paid
approximately $22.0 million in cash and assumed certain liabilities, including
project level debt. Related to the project level debt was the assumption of an
interest rate swap agreement with a notional amount of $121.5 million at
December 31, 2000, which effectively converts the project level debt's floating
rate to a fixed rate of 6.52% per annum. The Company acquired an initial 50%
ownership interest in the Auburndale Power Plant in October 1997.

  Canadian Natural Gas Reserves Transaction

     On July 5, 2000, the Company completed three acquisitions of natural gas
reserves for $206.5 million, including the acquisition of Calgary-based Quintana
Minerals Canada Corp. ("QMCC"), three fields in the Gulf of Mexico and natural
gas assets in the Piceance Basin, Colorado and onshore Gulf Coast.

  Oneta Transaction

     On July 20, 2000, the Company completed the acquisition of the 1,138
megawatt natural gas-fired Oneta Energy Center, under development in Coseta,
Oklahoma, from Panda Energy International, Inc.

  Agnews Transaction

     On August 16, 2000, the Company acquired the remaining 80% interest in the
Agnews Power Plant, a 29 megawatt natural gas-fired, combined cycle facility
located in San Jose, California from GATX Capital Corporation for a total
purchase price of $4.9 million. The Company first acquired a 20% equity interest
in the Agnews Power Plant in 1990.

  Aidlin Transaction

     On August 31, 2000, the Company acquired the remaining 45% equity interest
in the Aidlin Power Plant from an affiliate of Sumitomo Corporation for a total
purchase price of $6.4 million. The Company initially acquired a 5% equity
interest in the Aidlin Power Plant in 1989, representing Calpine's first
megawatt of generation. That interest was increased to 55% with the acquisition
of two other partners' interests in 1999. Located in The Geysers region of
northern California, Aidlin is a 20 megawatt power plant.

  SkyGen Energy Transaction

     On October 12, 2000, the Company completed the acquisition of Northbrook,
Illinois-based SkyGen Energy LLC ("SkyGen") from Michael Polsky and Wisvest
Corporation ("Wisvest"), an affiliate of Wisconsin Energy Corp for a total
purchase price of $359.1 million. The purchase price included cash payments of
$294.2 million and 2,117,742 shares of Calpine common stock (which were valued
in the aggregate at $64.9 million at signing of the letter of intent).

                                       F-46
<PAGE>   82
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

  TriGas Transaction

     On November 15, 2000, the Company acquired TriGas Exploration Inc.
("TriGas"), the Calgary-based oil and gas company, for a total purchase price of
$101.1 million. The purchase price included cash payments of $79.6 million, as
well as assumed net indebtedness of $21.5 million. The acquisition provided
Calpine with natural gas reserves to fuel its proposed Calgary Energy Centre,
and a 26.6% working interest in the East Crossfield Gas Plant, extensive
pipelines and gathering systems and a significant undeveloped land base with
development potential.

  PSM Transaction

     On December 13, 2000, the Company completed the acquisition of Boca Raton,
Florida-based PSM for a total purchase price of $16.3 million. The purchase
price included cash payments of $5.6 million and 281,189 shares of Calpine
common stock (which were valued in the aggregate at $10.7 million at the closing
of the agreement). Additionally, the agreement provides for five equal
installments of cash payments, totaling $26.7 million, beginning in January
2002, contingent upon future PSM performance. PSM specializes in the design and
manufacturing of turbine hot section blades, vanes, combustors and low emissions
combustion components.

  EMI Transaction

     On December 15, 2000, the Company completed the acquisition of strategic
power assets from Dartmouth, Massachusetts-based Energy Management, Inc. ("EMI")
for a total purchase price of $145.0 million. The purchase price included cash
payments of $100.0 million and 1,102,601 shares of Calpine common stock (which
were valued in the aggregate at $45.0 million at the closing of the agreement).
Under the terms of the agreement, the Company acquired the remaining interest in
three recently constructed combined-cycle power generating facilities located in
Dighton, Massachusetts, Tiverton, Rhode Island, and Rumford, Maine, as well as
Calpine-EMI Marketing LLC, a joint marketing venture between Calpine and EMI.

  Pro Forma Effects of Acquisitions

     The table below reflects unaudited pro forma combined results of the
Company, Unocal, the power plants acquired from PG&E, Sheridan, Calistoga,
CogenAmerica, Vintage, KIAC, Stony Brook, Auburndale, QMCC, Agnews, Aidlin,
SkyGen, TriGas, PSM, and EMI as if the acquisitions had taken place at the
beginning of fiscal year 2000 and 1999 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Total revenue...............................................  $2,497,559    $1,241,805
Income before extraordinary charge..........................  $  340,354    $  131,919
Net income..................................................  $  339,119    $  130,769
Net income per basic share..................................  $     1.28    $     0.62
Net income per diluted share................................  $     1.15    $     0.59
</TABLE>

     In management's opinion, these unaudited pro forma amounts are not
necessarily indicative of what the actual combined results of operations might
have been if the acquisitions had been effective at the beginning of fiscal year
2000 and 1999. In addition, they are not intended to be a projection of future
results and do not reflect all the synergies that might be achieved from
combined operations.

                                       F-47
<PAGE>   83
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

 5. SALE AND LEASEBACK TRANSACTIONS

     On May 7, 1999, the Company entered into a sale and leaseback transaction
of its 12 Sonoma County and 2 Lake County power plants, located at the Geysers,
California, as well as the Sonoma power plant acquired from the Sacramento
Municipal Utility District in 1998. Under the terms of the lease, the Company
received $18.5 million in net proceeds and recorded a deferred gain of $15.2
million, which is being amortized as a reduction of operating lease expense over
the remaining life of the lease.

     On November 5, 1999, the Company entered into a sale and leaseback
transaction of its Calistoga plant. Under the terms of the lease, the Company
received $52.8 million in net proceeds and did not record a deferred gain or
loss.

     On September 1, 2000, the Company completed a leveraged lease financing
transaction to provide the term financing for both Phase I and Phase II of the
Pasadena, Texas Cogeneration project. Under the terms of the lease, the Company
received $400.0 million in gross proceeds and recorded a deferred gain of
approximately $65.0 million, which is being amortized as a reduction of
operating lease expense over the remaining life of the lease.

     On December 19, 2000, the Company completed leveraged lease transactions in
which the Company sold the Tiverton and Rumford facilities (purchased from EMI)
to a single owner lessor for $466.7 million, which then leased the facilities
back to the Tiverton and Rumford subsidiaries. The Company guaranteed the
obligations of the Tiverton and Rumford subsidiaries under the leases. To
finance the transaction, a trust was established to issue $366.0 million of 9.0%
pass through certificates due July 15, 2018, which was effected by a private
placement by the trust under Rule 144A of the Securities Act of 1933. The
Company recorded a deferred gain of approximately $1.7 million, which is being
amortized as a reduction of operating lease expense over the remaining life of
the lease. In connection with this transaction, the Company issued letters of
credit. At December 31, 2000, $52.1 million in letters of credit were
outstanding.

     On December 22, 2000, the Company completed a leveraged lease financing
transaction of its West Ford Flat and Bear Canyon projects. Under the terms of
the agreement, the facilities were incorporated into the Company's Geothermal
lease facility, which the Company originally entered into on May 7, 1999. The
Company received $81.0 million in gross proceeds and recorded a deferred loss of
approximately $8.1 million, which is being amortized as an increase of operating
lease expense over the remaining life of the lease.

                                       F-48
<PAGE>   84
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

 6. INVESTMENTS IN POWER PROJECTS

     Investments, which are accounted for under the equity method, are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                    OWNERSHIP            DECEMBER 31,
                                                 INTEREST AS OF      --------------------
                                                DECEMBER 31, 2000      2000        1999
                                                -----------------    --------    --------
<S>                                             <C>                  <C>         <C>
Sumas Power Plant.............................           (1)         $     --    $     --
Acadia Power Plant............................         50.0%          108,529          --
Grays Ferry Power Plant.......................         40.0%           30,257      21,875
Aries Power Plant.............................         50.0%           22,350          --
Gordonsville Power Plant......................         50.0%           18,060      16,496
Lockport Power Plant..........................         11.4%           14,722      12,406
Bayonne Power Plant...........................          7.5%            8,385       8,490
Tiverton Power Plant(2).......................        100.0%               --      44,853
Rumford Power Plant(2)........................        100.0%               --      44,316
Kennedy International Airport Power
  Plant(2)....................................        100.0%               --      37,880
Stony Brook Power Plant(2)....................        100.0%               --      21,477
Auburndale Power Plant(2).....................        100.0%               --      19,565
Dighton Power Plant(2)........................        100.0%               --      14,875
Other.........................................           --             3,318         992
                                                                     --------    --------
  Total Investments in Power Projects.........                       $205,621    $243,225
                                                                     ========    ========
</TABLE>

---------------
(1) See Footnote (1) below detailing the Company's income and distributions from
    investments in unconsolidated power projects.

(2) The Company acquired the remaining interests in these facilities in 2000 and
    thereafter consolidated the operations.

     The combined unaudited results of operations and financial position of the
Company's equity method affiliates are summarized below (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                ----------------------------------------
                                                   2000           1999           1998
                                                ----------    ------------    ----------
<S>                                             <C>           <C>             <C>
Condensed Statement of Operations:
  Revenue.....................................  $  617,914     $  562,401     $  495,123
  Gross profit................................     217,777        245,314        214,382
  Income from continuing operations...........     161,852        214,520        199,601
  Net income..................................      80,812        113,837        108,563
  Company's share of net income...............      24,639         36,593         25,240
Condensed Balance Sheet:
  Current assets..............................     130,316        167,107        134,794
  Non-current assets..........................   1,424,672      1,306,325      1,240,172
  Total assets................................   1,554,988      1,473,432      1,374,966
  Current liabilities.........................     175,764        121,214        110,957
  Non-current liabilities.....................     951,013      1,087,329        994,570
  Total liabilities...........................   1,126,777      1,208,543      1,105,527
</TABLE>

                                       F-49
<PAGE>   85
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

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

<TABLE>
<CAPTION>
                                  INCOME FROM UNCONSOLIDATED
                                 INVESTMENTS IN POWER PROJECTS            DISTRIBUTIONS
                                 -----------------------------    -----------------------------
                                                FOR THE YEARS ENDED DECEMBER 31,
                                 --------------------------------------------------------------
                                  2000       1999       1998       2000       1999       1998
                                 -------    -------    -------    -------    -------    -------
<S>                              <C>        <C>        <C>        <C>        <C>        <C>
Sumas Power Plant(1)...........  $12,951    $21,779    $11,699    $12,951    $21,779    $11,699
Grays Ferry....................    4,737         (3)        --      4,500         --         --
Lockport Power Plant...........    4,391      4,255      3,628      3,752      3,741      3,297
Gordonsville Power Plant.......    4,514      4,299      3,807      2,950      4,000      3,125
Bayonne Power Plant............    2,196      3,426      2,446      2,301      2,808      2,701
Stony Brook Power Plant........     (994)       857        252      1,820        370         --
Auburndale Power Plant.........      599       (712)    (1,377)     1,350      3,250      2,475
Kennedy International Airport
  Power Plant..................   (2,769)     1,968      1,159         --      3,350      4,100
Other..........................     (986)       724      3,626        355      4,020        320
                                 -------    -------    -------    -------    -------    -------
          Total................  $24,639    $36,593    $25,240    $29,979    $43,318    $27,717
                                 =======    =======    =======    =======    =======    =======
</TABLE>

---------------
(1) On December 31, 1998, the Partnership agreement governing Sumas Cogeneration
    Company, L.P. ("Sumas") was amended changing the distributions schedule for
    the Company from the previously amended agreement dated September 30, 1997.
    From January 1, 1998 through December, 2000, the Company recorded income
    equal to the amount of cash received from partnership distributions. The
    Company received distributions at a rate of 70% of project cashflow until
    December, 2000 when a cumulative 24.5% pre-tax rate of return was earned on
    its original investment. As a result, the Company's equity interest in the
    partnership has been reduced to 0.1%.

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

 7. NOTES PAYABLE AND BORROWINGS UNDER LINES OF CREDIT

     The components of notes payable and borrowings under lines of credit are
(in thousands):

<TABLE>
<CAPTION>
                                                                    BORROWINGS        LETTERS OF CREDIT
                                                                    OUTSTANDING          OUTSTANDING
                                                                   DECEMBER 31,          DECEMBER 31,
                                                                -------------------   ------------------
                                                                  2000       1999       2000      1999
                                                                --------   --------   --------   -------
<S>                                                             <C>        <C>        <C>        <C>
Corporate Revolving Line of Credit..........................    $ 40,000   $     --   $157,900   $28,800
Calpine Canada Note Payable and Borrowings under Line of
  Credit....................................................     144,500         --         48        --
Calpine Natural Gas Company Line of Credit..................          --     97,750         --        --
Other.......................................................      12,449     38,420     10,810    10,810
                                                                --------   --------   --------   -------
         Total Notes Payable and borrowings under lines of
           credit...........................................    $196,949   $136,170   $168,758   $39,610
                                                                --------   --------   --------   -------
Less: Notes Payable and borrowings under lines of credit,
  current portion...........................................       1,087     38,867
                                                                --------   --------
Notes Payable and borrowings under lines of credit, net of
  current portion...........................................    $195,862   $ 97,303
                                                                ========   ========
</TABLE>

     In May 2000, Calpine entered into an amended and restated $400.0 million,
three-year revolving line of credit with a consortium of commercial lending
institutions with the Bank of Nova Scotia as agent, which replaced an existing
$100.0 million credit facility. A maximum of $200.0 million of the credit
facility may be allocated to letters of credit. At December 31, 2000, the
Company had $40.0 million in borrowings and

                                       F-50
<PAGE>   86
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

$157.9 million of letters of credit outstanding under the amended and restated
credit facility. At December 31, 1999, the Company had no borrowings and $28,800
in letters of credit outstanding under this credit facility. Borrowings bear
variable interest and interest is paid on the last day of each interest period
for such loans, at least quarterly. The credit facility specifies that the
Company maintain certain covenants, with which the Company was in compliance as
of December 31, 2000 and 1999. Commitment fees related to this line of credit
are charged based on the unused credit. The interest rate ranged from 7.88% to
9.75% during 2000.

     The Company, through its wholly owned Canadian subsidiaries, maintains a
borrowing base in Canada of Cdn. $304.0 million (approximately US $202.7 million
at December 31, 2000) under three facilities. At December 31, 2000, the Company
had US $144.5 million outstanding under these facilities. The facilities bear
interest at variable rates. The weighted average rate for each of the facilities
in 2000 was 8.52%. Additionally, commitment fees of 0.25% accrue on any unused
portion of these facilities. The lines of credit are secured by the Company's
oil and gas reserves in Canada. As of December 31, 2000, the Company was in
compliance with all covenants required under these facilities.

     In 1999, the Company, through its wholly owned subsidiary CNGC, maintained
a borrowing base of $99.1 million with Bank One, Texas N.A. under two
facilities. In August 2000, the Company repaid the outstanding balance of $93.3
million and terminated the agreement. As of December 31, 1999, CNGC had total
borrowings of $97.8 million outstanding under this facility. The facility bore
interest at variable rates. At December 31, 1999, the interest rate was 8.6%.
The lines of credit were secured by CNGC's oil and gas properties. The Company
was in compliance with the financial covenants required by the facility as of
December 31, 1999.

     Additionally, in connection with repayment of outstanding borrowings in
August 2000, the termination of certain credit agreements and the related
write-off of unamortized deferred financing costs, the Company recorded an
extraordinary loss of $1.2 million after taxes.

                                       F-51
<PAGE>   87
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

 8. PROJECT FINANCING AND INTEREST RATE SWAP AGREEMENTS

     The components of project financing as of December 31, 2000 and 1999 are
(in thousands):

<TABLE>
<CAPTION>
                                                                                         LETTERS OF
                                 INTEREST                         OUTSTANDING AT           CREDIT
                                  RATE(1)                          DECEMBER 31,        OUTSTANDING(3)
                                -----------                    ---------------------   --------------
           PROJECTS             2000   1999   FINAL MATURITY      2000        1999          2000
           --------             ----   ----   --------------   ----------   --------   --------------
<S>                             <C>    <C>    <C>              <C>          <C>        <C>
Calpine Construction Finance
  Company(2)..................  8.39%    --        2004        $  701,644   $     --      $     --
Auburndale Power Plant........  7.51%    --        2012           121,464         --            --
Newark & Parlin Power
  Plants......................  7.68%  6.51%       2011           116,715    125,318            --
Broad River Energy Center.....  8.02%    --        2007           115,880         --        34,831
Pine Bluff Energy Center......  8.22%    --        2018           113,197         --        21,333
Hog Bayou Energy Center.......  8.24%    --        2002           107,974         --        29,003
RockGen Energy Center.........  7.97%    --        2007            89,840         --        16,095
Morris Power Plant............  7.39%  7.50%       2004            85,600     85,622            --
DePere Energy Center..........  7.68%    --        2017            47,243         --         4,444
Dighton Power Plant...........  7.79%    --        2019            32,798         --            --
Pasadena Power Plant..........    --   5.58%       2005                --    154,800            --
                                                               ----------   --------      --------
          Total...............                                  1,532,355    365,740      $105,706
                                                                                          ========
Less: current portion.........                                     58,486      8,603
                                                               ----------   --------
Long-term project financing...                                 $1,473,869   $357,137
                                                               ==========   ========
</TABLE>

---------------
(1) Weighted average rate before giving effect to amortization of financing cost
    or interest rate swaps. The fair value of each of the project financings
    approximates the carrying value.

(2) Represents rate at December 31, 2000.

(3) No letters of credit associated with project financings in 1999.

  Calpine Construction Finance Company Debt

     In November 1999, the Company entered into a credit agreement for $1.0
billion through its wholly owned subsidiary Calpine Construction Finance Company
L.P. with a consortium of banks with the lead arranger being The Bank of Nova
Scotia and the lead arranger syndication agent being Credit Suisse First Boston.
The non-recourse credit facility is utilized to finance the construction of the
Company's diversified portfolio of gas-fired power plants currently under
development. The Company currently intends to refinance this construction
facility in the long-term capital markets prior to its four-year maturity. As of
December 31, 2000, the Company had $544.8 million in borrowings outstanding
under the facility. Borrowings under this facility bear variable interest. The
credit facility specifies that the Company maintain certain covenants, with
which the Company was in compliance as of December 31, 2000. The interest rate
at December 31, 2000 was 8.44%. The interest rate ranged from 7.38% to 9.50%
during 2000.

     In October 2000, the Company entered into a credit agreement for $2.5
billion through its wholly owned subsidiary Calpine Construction Finance Company
II, LLC with a consortium of banks with the lead arrangers being The Bank of
Nova Scotia and Credit Suisse First Boston. The non-recourse credit facility is
utilized to finance the construction of the Company's diversified portfolio of
gas-fired power plants currently under development. The Company currently
intends to refinance this construction facility in the long-term capital markets
prior to its four-year maturity. As of December 31, 2000, the Company had $156.8
million in borrowings outstanding under the facility. Borrowings under this
facility bear variable interest. The credit

                                       F-52
<PAGE>   88
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

facility specifies that the Company maintain certain covenants, with which the
Company was in compliance as of December 31, 2000. The interest rate at December
31, 2000 was 8.20%. The interest rate ranged from 8.20% to 10.25% during 2000.

  Auburndale Power Plant Debt

     As part of the Company's acquisition of the Auburndale Power Plant, the
Company assumed a project loan. This facility provides for project financing
loans aggregating $126.0 million. Amounts outstanding under the facility bear
interest at variable rates. The weighted average interest rate for 2000 was
7.51%. The effective interest rate for 2000, after giving effect to an interest
rate swap, was 7.82%.

  Newark & Parlin Power Plant Debt

     On December 17, 1999, the Company acquired 80% of the common stock of CGCA
which owns 100% of the Newark and Parlin Power Plants ("Newark & Parlin"). At
December 31, 2000 there was $116.7 million outstanding on a fifteen year
non-recourse term loan which is a joint and severable liability of Newark &
Parlin. The term loan is secured by all Newark & Parlin assets and a pledge of
their capital stock. CGCA has guaranteed repayment of up to $25.0 million of the
term loan based on the principal balance of the loan, and also guaranteed
payment by Newark & Parlin of all income and franchise taxes when due. CGCA's
guarantee is reduced proportionately to the outstanding principal as payments
are made on the debt. The balance of the guarantee was $18.8 million as of
December 31, 2000. The interest rate on the outstanding principal is variable
and averaged 7.68% in 2000. The effective interest rate for 2000, after giving
effect to the interest rate swap, was 8.07%. Interest on the loan is payable at
least quarterly.

  Broad River Energy Center Debt

     As part of the Company's acquisition of SkyGen, the Company assumed a term
loan and a steam injection addition loan for the Broad River Energy Center. The
steam injection loan is expected to be converted to a term loan in 2001. The
construction loans require only interest payments through the conversion date,
and blended payments of principal and interest following conversion to a term
loan. Interest on the construction loan is variable and averaged 8.02% for 2000.
The effective interest rate for 2000, after giving effect to interest rate
swaps, was 7.34%.

  Pine Bluff Energy Center Debt

     As part of the Company's acquisition of SkyGen, the Company entered into
construction financing for the Pine Bluff Energy Center. Under the terms of the
credit facility, the Company can borrow up to $142.0 million to fund
construction. Of this amount, $32.0 million is secured by guarantees or letters
of credit from the members or their affiliates. Upon completion of construction,
equity contributions of $32.0 million will be made to repay a portion of the
construction loan and the balance of the construction loan will be converted to
a term loan. The term loan will consist of three tranches: Tranche A in the
amount of $30.0 million with a maturity date of 8 1/2 years from the conversion
date, Tranche B in the amount of $45.0 million with a maturity date of 13 1/2
years from the conversion date, and Tranche C in the amount of $35.0 million
with a maturity date of 17 1/2 years from the conversion date. The construction
loan requires only interest payments through the conversion date, and blended
payments of principal and interest following conversion to a term loan. Interest
on the construction loan is variable and averaged 8.22% during 2000. The
effective interest rate for 2000, after giving effect to interest rate swaps,
was 7.34%.

                                       F-53
<PAGE>   89
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

  Hog Bayou Energy Center Debt

     As part of the Company's acquisition of SkyGen, the Company has entered
into an arrangement with a syndicate of commercial banks to obtain financing to
construct the Hog Bayou Energy Center. As part of the related credit agreement,
the lenders will provide a facility to fund construction whereby the Company can
borrow up to $38.0 million under an equity bridge loan and $104.6 million under
a construction loan. The equity bridge loan matures on December 31, 2001 and the
construction loan matures on December 31, 2002. As of December 31, 2000, the
Company has borrowed $38.0 million under the equity bridge loan and $70.0
million under the construction loan. The weighted average interest rate for the
facilities was 8.24% in 2000.

  RockGen Energy Center Debt

     As part of the Company's acquisition of SkyGen, the Company entered into
financing for the RockGen Energy Center. As part of the related credit
agreement, the lender provided a facility whereby the Company can borrow up to
$152.6 million in construction loans. Upon completion of construction, the
balance of the construction loans will be converted to a term loan which matures
on March 1, 2007. The construction loans require only interest payments through
the conversion date, and blended payments of principal and interest following
the conversion date. The weighted average interest rate during 2000 was 7.97%.

  Morris Power Plant Debt

     On December 17, 1999, the Company acquired 80% of the common stock of CGCA
which owns 100% of Morris LLC ("Morris"). In 1997, Morris entered into a
construction and term loan agreement to provide non-recourse project financing
for a major portion of the Morris Project. The agreement provides $85.6 million
of 5-year term loan commitments and $5.4 million in letter of credit
commitments. As of December 31, 2000, $85.6 million was outstanding as a term
loan under the agreement and no amounts were pledged under the letter of credit.
Interest on the term loan is variable and averaged 7.39% in 2000. Borrowings are
secured by CGCA's ownership interest in Morris, its cash flows, dividends and
any other property of Morris.

  DePere Energy Center Debt

     As part of the Company's acquisition of SkyGen, the Company assumed a term
loan. Interest is payable based on the rate of the interest rate swap plus an
applicable margin. The weighted average interest rate, before and after swap
effects, was 7.68% and 6.43%, respectively.

  Dighton Power Plant Debt

     In December 2000, the Company acquired the remaining interest in the
Dighton Power Plant. The Company assumed project financing for the plant. The
weighted average interest rate as of December 31, 2000 was 7.79%.

  Pasadena Power Plant Debt

     On January 4, 1999, the Company entered into a credit agreement with ING
(U.S.) Capital LLC ("ING") to provide up to $265.0 million of non-recourse
project financing for the construction of the Pasadena facility expansion. On
August 31, 2000, the Company repaid the outstanding balance of $224.2 million
under the credit agreement.

  Additional Interest Rate Swap Agreements

     The Company acquired an interest rate swap agreement with the purchase of
the Auburndale Power Plant on June 30, 2000. The agreement was entered into to
fix the project's floating rate debt. The swap fixes
                                       F-54
<PAGE>   90
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

the interest rate on a notional amount of $121.5 million at a weighted average
rate of 6.5%. At December 31, 2000, the fair market value of this hedge was
approximately $(3.7) million.

     The Company acquired ten interest rate swap agreements with the purchase of
SkyGen on October 12, 2000. The agreements were entered into by SkyGen to fix
the floating rate debt for its RockGen, Broad River, DePere, and Pine Bluff
projects. The swaps fix the interest rates on an aggregate notional amount of
$303.1 million at a weighted average rate of 7.3%. At December 31, 2000, the
fair market value of these hedges was approximately $(16.4) million.

     Upon adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," the hedges will be accounted for using the methodology
described in Note 2.

 9. SENIOR NOTES

     Senior Notes payable consist of the following as of December 31, 2000 and
1999 (in thousands):

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,            FAIR VALUE AS OF
                                                                -----------------------   -----------------------
                             INTEREST RATES   FIRST CALL DATE      2000         1999         2000         1999
                             --------------   ---------------   ----------   ----------   ----------   ----------
    <S>                      <C>              <C>               <C>          <C>          <C>          <C>
    Senior Notes due
      2004.................      9 1/4%            1999         $  105,000   $  105,000   $  105,000   $  106,050
    Senior Notes due
      2005.................      8 1/4%              (2)           250,000           --      246,700           --
    Senior Notes due
      2006.................     10 1/2%            2001            171,750      171,750      178,620      180,939
    Senior Notes due
      2006.................      7 5/8%              (1)           250,000      250,000      239,700      238,050
    Senior Notes due
      2007.................      8 3/4%            2002            275,000      275,000      266,750      275,963
    Senior Notes due
      2008.................      7 7/8%              (1)           400,000      400,000      380,320      384,600
    Senior Notes due
      2009.................      7 3/4%              (1)           350,000      350,000      332,535      320,950
    Senior Notes due
      2010.................      8 5/8%              (2)           750,000           --      726,600           --
                                                                ----------   ----------   ----------   ----------
              Total........                                     $2,551,750   $1,551,750   $2,476,225   $1,506,552
                                                                ==========   ==========   ==========   ==========
</TABLE>

---------------
(1) Not redeemable prior to maturity.

(2) Redeemable at any time prior to maturity.

     The Company has completed a series of public debt offerings since 1994.
Interest is payable semiannually at specified rates. There are no sinking fund
or mandatory redemptions of principal before the maturity dates of each
offering. Certain of the Senior Note indentures limit the Company's ability to
incur additional debt, pay dividends, sell assets and enter into certain
transactions. As of December 31, 2000 the Company is in compliance with all debt
covenants relating to the Senior Notes.

  Senior Notes Due 2004

     The Senior Notes due 2004 bear interest at 9 1/4% per year, payable
semi-annually on February 1 and August 1 each year and mature on February 1,
2004. The Senior Notes due 2004 are redeemable, at the option of the Company, at
any time on or after February 1, 1999 at various redemption prices. In addition,
the Company may redeem up to $36.8 million of the Senior Notes due 2004 from the
proceeds of any public equity offering. The effective interest rate on the
$105.0 million, after amortization of deferred financing costs, was 9.6%.

  Senior Notes Due 2005

     On August 10, 2000, the Company completed a public offering of $250.0
million of its 8 1/4% Senior Notes due 2005 ("Senior Notes due 2005"). The
Senior Notes due 2005 bear interest at 8 1/4% per year, payable semi-annually on
August 15 and February 15 and mature on August 15, 2005. The Senior Notes due
2005
                                       F-55
<PAGE>   91
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

may be redeemed at any time prior to maturity at a redemption price equal to
100% of their principal amount plus accrued and unpaid interest plus a
make-whole premium. The effective interest rate on the $250.0 million, after
amortization of deferred financing costs, was 8.6%.

  Senior Notes Due 2006

     The Senior Notes due 2006 bear interest at 10 1/2% per year, payable
semi-annually on May 15 and November 15 each year and mature on May 15, 2006.
The Senior Notes due 2006 are redeemable, at the option of the Company, at any
time on or after May 15, 2001 at various redemption prices. In addition, the
Company may redeem up to $63.0 million of the Senior Notes due 2006 from the
proceeds of any public equity offering. The effective interest rate on the
$171.8 million, after amortization of deferred financing costs, was 10.8%.

     Additionally, during 1999 the Company completed a public offering of $250.0
million of its 7 5/8% Senior Notes due 2006 ("1999 Senior Notes due 2006"). The
1999 Senior Notes due 2006 bear interest at 7 5/8% per year, payable
semi-annually on April 15 and October 15 and mature on April 15, 2006. The 1999
Senior Notes due 2006 are not redeemable prior to maturity. The effective
interest rate on the $250.0 million, after amortization of deferred financing
costs, was 7.9%.

  Senior Notes Due 2007

     The Senior Notes due 2007 bear interest at 8 3/4% per year, payable
semi-annually on January 15 and July 15 each year and mature on July 15, 2007.
The Senior Notes due 2007 are redeemable, at the option of the Company, at any
time on or after July 15, 2002 at various redemption prices. In addition, the
Company may redeem up to $96.3 million of the Senior Notes due 2007 from the
proceeds of any public equity offering. The effective interest rate on the
$275.0 million, after amortization of deferred financing costs, was 9.1%.

  Senior Notes Due 2008

     The Senior Notes due 2008 bear interest at 7 7/8% per year, payable
semi-annually on April 1 and October 1 each year and mature on April 1, 2008.
The Senior Notes due 2008 are not redeemable prior to maturity. The effective
interest rate on the $400.0 million, after amortization of deferred financing
costs, was 8.0%.

  Senior Notes Due 2009

     The Senior Notes due 2009 bear interest at 7 3/4% per year, payable
semi-annually on April 15 and October 15 and mature on April 15, 2009. The
Senior Notes due 2009 are not redeemable prior to maturity. The effective
interest rate on the $350.0 million, after amortization of deferred financing
costs, was 7.9%.   Senior Notes Due 2010

     On August 10, 2000, the Company completed a public offering of $750.0
million of its 8 5/8% Senior Notes due 2010 ("Senior Notes due 2010"). The
Senior Notes due 2010 bear interest at 8 5/8% per year, payable semi-annually on
August 15 and February 15 and mature on August 15, 2010. The Senior Notes due
2010 may be redeemed at any time prior to maturity at a redemption price equal
to 100% of their principal amount plus accrued and unpaid interest plus a
make-whole premium. The effective interest rate on the $750.0 million, after
amortization of deferred financing costs, was 8.7%.

                                       F-56
<PAGE>   92
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

  Annual Debt Maturities

     The annual principal maturities of the borrowings under lines of credit,
project financings, notes payable and senior notes as of December 31, 2000 are
as follows (in thousands):

<TABLE>
<S>                                                        <C>
2001.....................................................  $   59,573
2002.....................................................      96,033
2003.....................................................     612,552
2004.....................................................     367,554
2005.....................................................     279,964
Thereafter...............................................   2,865,378
                                                           ----------
          Total..........................................  $4,281,054
                                                           ==========
</TABLE>

10. CAPITAL LEASE OBLIGATIONS

     During 2000, the Company assumed and began to consolidate capital leases in
conjunction with the acquisitions of the Hidalgo Energy Center, the Stony Brook
Power Plant and the Agnews Power Plant. The asset balances for the leased assets
totaled $181.7 million at December 31, 2000, with accumulated amortization of
$3.4 million.

     The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 2000 (in thousands):

<TABLE>
<S>                                                           <C>
Year Ending December 31:
2001........................................................  $  17,215
2002........................................................     17,174
2003........................................................     17,956
2004........................................................     18,223
2005........................................................     18,369
Thereafter..................................................    349,562
                                                              ---------
          Total minimum lease payments......................    438,499
                                                              ---------
Less: Amount representing interest(1).......................   (227,638)
                                                              ---------
  Present value of net minimum lease payments...............  $ 210,861
                                                              =========
Less: Capital lease obligation, current portion.............     (1,985)
                                                              ---------
  Capital lease obligation, net of current portion..........  $ 208,876
                                                              =========
</TABLE>

---------------
(1) Amount necessary to reduce net minimum lease payments to present value
    calculated at the implicit interest rates of the leases at their inception.

11. TRUST PREFERRED SECURITIES

     In 1999 and 2000, the Company, through its wholly-owned subsidiaries,
Calpine Capital Trust, Calpine Capital Trust II and Calpine Capital Trust III,
statutory business trusts created under Delaware law, (collectively, "the
Trusts") completed offerings of Remarketable Term Income Deferrable Equity
Securities ("trust preferred securities" or "HIGH TIDES") at a value of $50.00
per share. In 1999, the Company and Calpine Capital Trust had a private
placement of 5,520,000 shares, including the purchasers' option. In January and
February of 2000 the Company and Calpine Capital Trust II privately placed
7,200,000 shares, including the purchasers' option. In August 2000, the Company
and Calpine Capital Trust III privately placed

                                       F-57
<PAGE>   93
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

10,350,000 shares, including the underwriters' over-allotment option. At
December 31, 2000, the balance for each of these issuances was $268.2, $350.9
and $503.4, respectively.

     The net proceeds from each of the offerings were used by the Trusts to
invest in convertible subordinated debentures of the Company, which represent
substantially all of the respective trusts' assets. The Company has effectively
guaranteed all of the respective trusts' obligations under the trust preferred
securities. The trust preferred securities accrue distributions at rates of
5 3/4%, 5 1/2% and 5% per annum, respectively, and have liquidation values of
$50.00 per share. The Company has the right to defer the interest payments on
the debentures for up to twenty consecutive quarters, which would also cause a
deferral of distributions on the trust preferred securities. Currently, the
Company has no intention of deferring interest payments on the debentures. The
trust preferred securities are convertible into shares of the Company's common
stock at the holder's option on or prior to the tender notification date, at
rates of 3.4260, 1.9524 and 1.1510 shares, respectively, of common stock for
each trust preferred security.

     The 1999 issuance may be redeemed at any time on or after November 5, 2002
at a redemption price equal to 101.44% of the principal amount plus any accrued
and unpaid interest declining to 100% of the principal amount on or after
November 5, 2003. The second issuance of HIGH TIDES may be redeemed at any time
on or after February 5, 2003 at a redemption price equal to 101.375% of the
principal amount plus any accrued and unpaid distributions declining to 100% of
the principal amount on or after February 5, 2004. The August 2000 issuance may
be redeemed at any time on or after August 5, 2003 at a redemption price equal
to 101.25% of the principal amount plus any accrued and unpaid distributions
declining to 100% of the principal amount on or after August 5, 2004.

12. PROVISION FOR INCOME TAXES

     The components of the deferred income taxes, net as of December 31, 2000
and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                2000         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
Expenses deductible in a future period......................  $  27,896    $   7,949
Net operating loss and credit carryforwards.................     41,472       50,358
Other differences...........................................        290        1,545
                                                              ---------    ---------
  Deferred tax assets.......................................     69,658       59,852
                                                              ---------    ---------
Property differences........................................   (621,082)    (340,164)
Difference in taxable income and income from investments
  recorded on the equity method.............................         --       (2,305)
Other differences...........................................    (15,868)      (8,841)
                                                              ---------    ---------
  Deferred tax liabilities..................................   (636,950)    (351,310)
                                                              ---------    ---------
     Net deferred income taxes..............................  $(567,292)   $(291,458)
                                                              =========    =========
</TABLE>

     The net operating loss and credit carryforwards consist of federal and
state net operating loss carryforwards which expire 2005 through 2014 and
federal depletion deduction carryforwards which can be carried forward
indefinitely. The federal and state net operating loss carryforwards available
are subject to limitations on annual usage. It is expected that they will be
fully utilized before expiring. At December 31, 2000, federal and state
alternative minimum tax credit carryforwards were fully utilized. Realization of
the deferred tax assets and federal net operating loss carryforwards is
dependent, in part, on generating sufficient taxable income prior to expiration
of the loss carryforwards. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.

                                       F-58
<PAGE>   94
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

     The provision for income taxes for the years ended December 31, 2000, 1999
and 1998 consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                         2000       1999       1998
                                                       --------    -------    -------
<S>                                                    <C>         <C>        <C>
Current:
  Federal............................................  $214,169    $26,564    $ 1,582
  State..............................................    40,596      6,728        277
  Foreign............................................        --         --         --
Deferred:
  Federal............................................   (30,573)    23,142     26,830
  State..............................................    (7,852)     4,305      1,772
     Adjustment in state tax rate (net of federal
       benefit)......................................        --         --     (4,826)
     Revision in prior years' tax estimates..........        --      1,234      1,419
  Foreign............................................     2,611         --         --
                                                       --------    -------    -------
          Total provision............................  $218,951    $61,973    $27,054
                                                       ========    =======    =======
</TABLE>

     The Company's effective rate for income taxes for the years ended December
31, 2000, 1999 and 1998 differs from the United States statutory rate, as
reflected in the following reconciliation:

<TABLE>
<CAPTION>
                                                              2000    1999    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
United States statutory tax rate............................  35.0%   35.0%   35.0%
State income tax, net of federal benefit....................   3.9     3.6     3.8
Depletion allowance.........................................    --      --    (1.5)
Foreign tax at rates other than U.S. statutory..............   0.5      --      --
Other, net..................................................   0.9     0.6    (0.4)
                                                              ----    ----    ----
  Effective income tax rate.................................  40.3%   39.2%   36.9%
                                                              ====    ====    ====
</TABLE>

13. EMPLOYEE BENEFIT PLANS

  Retirement Savings Plan

     The Company has a defined contribution savings plan under Section 401(a)
and 501(a) of the Internal Revenue Code. The plan provides for tax deferred
salary deductions and after-tax employee contributions. Employees are
immediately eligible upon hire. Contributions include employee salary deferral
contributions and a 3% employer profit-sharing contribution. Employer
profit-sharing contributions in 2000, 1999 and 1998 totaled $3.1 million, $1.3
million and $829,000, respectively.

  1996 Employee Stock Purchase Plan

     The Company adopted the 1996 Employee Stock Purchase Plan in July 1996.
Eligible employees could purchase up to 2,200,000 shares of common stock at
semi-annual intervals through periodic payroll deductions. Purchases were
limited to 15 percent of an employee's eligible compensation, and to a maximum
value of $25,000 per calendar year based on the IRS code Section 423 limitation.
Shares were purchased on January 31, and the plan terminated on February 1,
2000. Under the 1996 plan, 408,300 shares were issued at a weighted average fair
value of $2.67 per share in 2000. The purchase price is 85% of the lower of (i)
the fair market value of the common stock on the participant's entry date into
the offering period, or (ii) the fair market value on the semi-annual purchase
date.

                                       F-59
<PAGE>   95
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

  2000 Employee Stock Purchase Plan

     The Company adopted the 2000 Employee Stock Purchase Plan ("ESPP") in May
2000. Eligible employees may purchase up to 4,000,000 shares of common stock at
semi-annual intervals through periodic payroll deductions. Purchases are limited
to a maximum value of $25,000 per calendar year based on the IRS code Section
423 limitation. Shares are purchased on May 31 and November 30 of each year
until termination of the plan on May 30, 2002. Under the ESPP, 221,853 shares
were issued at a weighted average fair value of $23.18 per share in 2000. The
purchase price is 85% of the lower of (i) the fair market value of the common
stock on the participant's entry date into the offering period, or (ii) the fair
market value on the semi-annual purchase date.

  1996 Stock Incentive Plan

     The Company adopted the 1996 Stock Incentive Plan ("SIP") in September
1996. The SIP succeeded the Company's previously adopted stock option program.
The Company accounts for the SIP under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" under which no compensation cost
has been recognized. Had compensation cost for the SIP been determined
consistent with the methodology of SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have been
reduced to the following pro forma amounts (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                          2000       1999       1998
                                                        --------    -------    -------
<S>                                      <C>            <C>         <C>        <C>
Net income.............................  As reported    $323,452    $95,093    $45,678
                                           Pro Forma     304,544     84,928     42,454
Earnings per share data:
  Basic earnings per share.............  As reported    $   1.22    $  0.45    $  0.28
                                           Pro Forma        1.15       0.41       0.26
  Diluted earnings per share...........  As reported    $   1.10    $  0.43    $  0.27
                                           Pro Forma        1.04       0.38       0.25
</TABLE>

     The fair value of options granted in 2000, 1999 and 1998 was $15.33, $5.60
and $2.77 on the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions: expected dividend yields of 0%,
expected volatility of 67% for 2000, 69% for 1999 and 35% for 1998, risk-free
interest rates of 6.69% for 2000, 5.74% for 1999, 5.25% for 1998, respectively,
and expected lives of 7 years for 2000, 1999 and 1998.

     As of December 31, 2000, the Company had granted options to purchase
36,849,010 shares of common stock, net of cancellations. Over the life of the
SIP, options exercised have equaled 7,337,624, leaving 29,511,386 granted and
not yet exercised. Under the SIP, the option exercise price generally equals the
stock's fair market value on date of grant. The SIP options generally vest
ratably over four years and expire after

                                       F-60
<PAGE>   96
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

10 years. Changes in options outstanding, granted, exercisable and cancelled by
the Company during the years 2000, 1999 and 1998, under the option plan were as
follows:

<TABLE>
<CAPTION>
                                                AVAILABLE FOR                     WEIGHTED
                                                  OPTION OR      NUMBER OF        AVERAGE
                                                    AWARD          SHARES      EXERCISE PRICE
                                                -------------    ----------    --------------
<S>                                             <C>              <C>           <C>
Outstanding January 1, 1998...................   12,418,657      20,158,424        $ 0.75
  Additional shares reserved..................    1,604,856              --            --
     Granted..................................   (3,365,800)      3,365,800          2.13
     Exercised................................           --        (270,320)         0.37
     Cancelled................................      178,384        (178,384)         1.96
                                                 ----------      ----------
Outstanding December 31, 1998.................   10,836,097      23,075,520          0.95
  Additional shares reserved..................    1,612,927              --            --
     Granted..................................   (8,247,848)      8,247,848          6.08
     Exercised................................           --      (1,380,944)         0.72
     Cancelled................................       29,600         (29,600)         4.06
                                                 ----------      ----------
Outstanding December 31, 1999.................    4,230,776      29,912,824          2.37
  Additional shares reserved..................    2,522,157              --
     Granted..................................   (4,061,142)      4,061,142         22.17
     Exercised................................           --      (4,341,112)         1.10
     Cancelled................................      121,468        (121,468)        13.60
                                                 ----------      ----------
Outstanding December 31, 2000.................    2,813,259      29,511,386        $ 5.24
                                                 ==========      ==========
Options exercisable:
  December 31, 1998...........................                   15,414,440        $ 0.55
  December 31, 1999...........................                   17,410,052          0.74
  December 31, 2000...........................                   18,557,646        $ 2.25
</TABLE>

     The following tables summarizes information concerning outstanding and
exercisable options at December 31, 2000:

<TABLE>
<CAPTION>
                                    OUTSTANDING OPTIONS
                           -------------------------------------    OPTIONS EXERCISABLE
                                          WEIGHTED                 ---------------------
                                           AVERAGE      WEIGHTED                WEIGHTED
                                          REMAINING     AVERAGE                 AVERAGE
                           NUMBER OF     CONTRACTUAL    EXERCISE   NUMBER OF    EXERCISE
RANGE OF EXERCISE PRICES     SHARES     LIFE IN YEARS    PRICE       SHARES      PRICE
------------------------   ----------   -------------   --------   ----------   --------
<S>                        <C>          <C>             <C>        <C>          <C>
 $  0.065 - $  0.065        5,156,560       2.00        $  0.065    5,156,560    $0.065
 $  0.570 - $  0.615        3,976,896       4.09           0.597    3,976,896     0.597
 $  0.645 - $  1.070        2,999,856       5.30           1.060    2,999,856     1.060
$  1.105 - $  2.250..       5,305,492       6.79           2.173    3,148,092     2.167
 $  2.345 - $  3.320          645,950       7.07           2.856      587,950     2.895
 $  3.750 - $  3.860        4,032,250       8.12           3.859      896,650     3.859
 $  4.240 - $  9.955        3,398,266       8.57           9.136      933,354     8.935
 $ 10.000 - $ 23.190        3,641,362       6.57          20.129      849,482    17.983
 $ 23.205 - $ 51.282          323,754       9.58          38.092        8,806    30.845
 $100.000 - $100.000           31,000       9.70         100.000           --        --
                           ----------                              ----------
        Total              29,511,386       5.84        $  5.239   18,557,646    $2.250
                           ==========                              ==========
</TABLE>

                                       F-61
<PAGE>   97
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

14. STOCKHOLDERS' EQUITY

  Common Stock

     Stock Splits -- On September 20, 1999, the Board of Directors authorized a
two-for-one stock split of the Company's common stock, in the form of a stock
dividend, effective October 7, 1999, payable to stockholders of record as of
September 28, 1999. The Company transferred $27,000 to common stock from
additional paid-in capital, representing the aggregate par value of the shares
issued under the stock split.

     On May 18, 2000, the Board of Directors authorized a two-for-one stock
split of the Company's common stock, in the form of a stock dividend, effective
June 8, 2000, payable to stockholders of record as of May 29, 2000. The Company
transferred $64,000 to common stock from additional paid-in capital,
representing the aggregate par value of the shares issued under the stock split.

     On October 23, 2000, the Board of Directors authorized a two-for-one stock
split of the Company's common stock, in the form of a stock dividend, effective
November 14, 2000, payable to stockholders of record as of November 6, 2000. The
Company transferred $140,000 to common stock from additional paid-in capital,
representing the aggregate par value of the shares issued under the stock split.

     All references to the number of common shares and the per common share
amounts have been restated to give retroactive effect to the above stock splits
for all periods presented.

     Equity Offering -- On August 9, 2000, Calpine completed a public offering
of 23,000,000 shares of common stock at $34.75 per share. The gross proceeds
from the offering were $799.3 million.

  Preferred Stock and Preferred Share Purchase Rights

     On June 5, 1997, the Board of Directors adopted a Stockholders Rights Plan
("Rights Plan") to strengthen the Board of Directors ability to protect the
Company's stockholders. The Rights Plan is designed to protect against abusive
or coercive takeover tactics that are not in the best interests of the Company
and its stockholders. To implement the Rights Plan, the Board of Directors
declared a dividend of one preferred share purchase right (a "Right") for each
outstanding share of common stock, par value $0.001 per share, held on record as
of June 18, 1997, and directed the issuance of one Right with respect to each
share of Common Stock that shall become outstanding between the Record Date and
the Distribution Date. On December 31, 2000, there were 283,715,058 Rights
outstanding. Each Right initially represents a contingent right to purchase,
under certain circumstances, one one-thousandth of a share (a "Unit") of Series
A Junior Participating Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), of the Company at a price of $80.00 per Unit, subject to
adjustment. The Rights become exercisable and trade independently from the
Company's common stock upon the public announcement of the acquisition by a
person or group of 15% or more of the Company's common stock, or ten days after
commencement of a tender or exchange offer that would result in the acquisition
of 15% or more of the Company's common stock. Each Unit of Preferred Stock
purchased upon exercise of the Rights will be entitled to a dividend equal to
any dividend declared per share of common stock and will have one vote, voting
together with the common stock. In the event of liquidation, each share of
Preferred Stock will be entitled to any payment made per share of common stock.

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

                                       F-62
<PAGE>   98
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

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

15. SIGNIFICANT CUSTOMERS

     The Company has two significant customers, Pacific Gas & Electric Company
("PG&E") and Texas Utilities Electric Company ("TUEC"), each of which has
accounted for 10% or more of the Company's annual consolidated revenues for
certain years between 1998 and 2000. PG&E is the regulated subsidiary of PG&E
Corporation. The information on PG&E, disclosed below, excludes PG&E
Corporation's non-regulated subsidiary activity. The Company has transactions
with certain of the non-regulated subsidiaries which have not been affected by
PG&E's solvency problems.

     Revenues earned from these sources for the years ended December 31, 2000,
1999 and 1998 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                             2000        1999        1998
                                                           --------    --------    --------
<S>                               <C>                      <C>         <C>         <C>
REVENUES:
PG&E(1).........................                           $624,458    $215,264    $222,593
TUEC............................                            184,017     144,016     128,724
</TABLE>

     Receivables at March 9, 2001, December 31, 2000, and 1999 were as follows
(in thousands):

<TABLE>
<CAPTION>
                                         MARCH 9,
                                           2001               2000        1999
                                   ---------------------    --------    --------
                                   (UNAUDITED ESTIMATES)
<S>                                <C>                      <C>         <C>         <C>
RECEIVABLES:
PG&E Accounts Receivable.........  231,88$8.......          $204,448    $ 33,251
PG&E Notes Receivable(2).........  65,561........             62,336      13,919
                                         --------           --------    --------
          PG&E Total.............  297,44$9.......          $266,784    $ 47,170
                                         ========           ========    ========
TUEC Accounts Receivable.........  15,542$........          $ 25,397    $  9,918
</TABLE>

---------------
(1) See Note 19 for further discussion of the California energy situation.

(2) Payments of the notes receivable are scheduled from February 2003 until
    September 2014 (See Note 2 for further discussion).

     As of March 9, 2001, the Company had received from PG&E subsequent accounts
receivable collections of $94.1 million relating to the balances outstanding at
December 31, 2000. These collections represent 100% of November 2000 billings
and approximately 15% of December billings. Additionally, the Company collected
approximately 15% of amounts billed to PG&E in January 2001. The Company
continues to sell power to PG&E pursuant to its long-term contracts and believes
that the accounts receivable will ultimately be collected. However, the
situation in California is highly uncertain and the Company cannot predict the
outcome or the timing of payments from PG&E for past due amounts.

     The Company also had combined accounts receivable balances of $45.2 million
as of December 31, 2000 due from the California Independent System Operator
Corporation ("CAISO") and Automated Power Exchange, Inc. ("APX"). As of March 9,
2001, subsequent collections and 2001 activity resulted in a receivable balance
of approximately $8.8 million due from these two entities. CAISO's ability to
pay the Company is directly impacted by PG&E's ability to pay CAISO. APX's
ability to pay the Company is impacted by PG&E's ability to pay the California
Power Exchange ("PX"), which in turn pays APX for
                                       F-63
<PAGE>   99
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

energy deliveries by the Company through APX. The Company has provided for a
reserve against collection uncertainties for these receivables, which we believe
to be adequate.

16. SERVICE CONTRACT REVENUE AND EXPENSE

     Service contract revenue and service contract expense consists primarily of
risk management, scheduling, balancing, hedging, and related transactions
entered into by CES for the purpose of maintaining operating margins of its
generating assets. The cost of purchased electricity and gas that is resold is
recorded as service contract expense, while the revenue from the resale is
recorded as service contract revenue. The table below shows the composition of
these accounts (in thousands):

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------    -------
<S>                                                           <C>         <C>
Service contract revenue
  Electric power sales......................................  $366,388    $23,157
  Natural gas sales.........................................   109,043     14,416
  Operations and maintenance (O&M) and other................     4,803      6,200
                                                              --------    -------
          Total.............................................  $480,234    $43,773
                                                              ========    =======
Service contract expense
  Electric power purchases..................................  $365,180    $20,681
  Natural gas purchases.....................................    97,336     12,646
  Operations and maintenance (O&M) and other................     6,984      6,909
                                                              --------    -------
          Total.............................................  $469,500    $40,236
                                                              ========    =======
</TABLE>

17. EARNINGS PER SHARE

     Basic earnings per common share were computed by dividing net income by the
weighted average number of common shares outstanding for the period. The
dilutive effect of the potential exercise of outstanding options to purchase
shares of common stock is calculated using the treasury stock method. The
dilutive effect of the assumed conversion of certain trust preferred securities
into the Company's common stock is based on the dilutive common share
equivalents and the after tax distribution expense avoided upon conversion. The
reconciliation of basic earnings per common share to diluted earnings per share
is shown in

                                       F-64
<PAGE>   100
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

the following table (in thousands except per share data). All share data has
been adjusted to reflect the two-for-one stock splits effective October 7, 1999,
June 8, 2000, and November 14, 2000.

<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED DECEMBER 31,
                                            -------------------------------------------------------------------------------------
                                                       2000                          1999                         1998
                                            ---------------------------   --------------------------   --------------------------
                                              NET                           NET                          NET
                                             INCOME    SHARES     EPS     INCOME    SHARES     EPS     INCOME    SHARES     EPS
                                            --------   -------   ------   -------   -------   ------   -------   -------   ------
<S>                                         <C>        <C>       <C>      <C>       <C>       <C>      <C>       <C>       <C>
BASIC EARNINGS PER COMMON SHARE:
  Income before extraordinary charge......  $324,687   264,799   $ 1.23   $96,243   209,314   $ 0.46   $46,319   160,969   $ 0.29
  Extraordinary charge net of tax benefit
    of $796, $793 and $441 for 2000, 1999
    and 1998 respectively.................     1,235              (0.01)    1,150              (0.01)      641              (0.01)
                                            --------   -------   ------   -------   -------   ------   -------   -------   ------
  Net income..............................  $323,452   264,799   $ 1.22   $95,093   209,314   $ 0.45   $45,678   160,969   $ 0.28
                                            ========   =======   ======   =======   =======   ======   =======   =======   ======
  Common shares issuable upon exercise of
    stock options using treasury stock
    method................................              15,977                       13,330                        8,342
                                                       -------                      -------                      -------
DILUTED EARNINGS PER COMMON SHARE:
  Income before extraordinary charge and
    dilutive effect of certain trust
    preferred securities..................  $324,687   280,776   $ 1.16   $96,243   222,644   $ 0.43   $46,319   169,311   $ 0.27
  Dilutive effect of certain trust
    preferred securities..................    20,841    31,746    (0.05)       --        --       --        --        --       --
  Income before extraordinary charge......   345,528   312,522     1.11    96,243   222,644     0.43    46,319   169,311     0.27
  Extraordinary charge net of tax benefit
    of $796, $793, and $441 for 2000, 1999
    and 1998 respectively.................     1,235              (0.01)    1,150                 --       641                 --
                                            --------   -------   ------   -------   -------   ------   -------   -------   ------
  Net income..............................  $344,293   312,522   $ 1.10   $95,093   222,644   $ 0.43   $45,678   169,311   $ 0.27
                                            ========   =======   ======   =======   =======   ======   =======   =======   ======
</TABLE>

     The Company recognized an extraordinary charge of $1.2 million, or $0.01
per share (net of tax benefit of $796,000) in 2000, representing the write-off
of deferred financing costs related to the termination of certain financing
arrangements described in Note 7.

     In 1999, the Company recognized an extraordinary charge of $1.2 million or
$0.01 per share (net of tax benefit of $793,000) in April of 1999, representing
the write-off of deferred financing costs related to non-recourse project
financing for the Gilroy Power Plant. The financing agreement was terminated and
the outstanding balance as of April 1999 of $120.6 million was repaid.

     In 1998, the Company recognized a $641,000 extraordinary charge (net of tax
benefit of $441,000), for the repurchase of $8.3 million of the 10 1/2% Senior
Notes Due 2006. The notes were redeemed at a premium plus accrued interest to
the date of repurchase.

     Unexercised employee stock options to purchase 256,370 shares and 240
shares of the Company's common stock during the year ended December 31, 2000 and
1999, respectively, were not included in the computation of diluted shares
outstanding because such inclusion would be anti-dilutive. There were no
anti-dilutive unexercised employee stock options during the year ended December
31, 1998.

18. COMMITMENTS AND CONTINGENCIES

     Production Royalties and Leases -- The Company is committed under numerous
geothermal leases and right-of-way, easement and surface agreements. The
geothermal leases generally provide for royalties based on production revenue
with reductions for property taxes paid. The right-of-way, easement and surface
agreements are based on flat rates and are not material. Under the terms of
certain geothermal leases prior to May, 1999 when the Company consolidated the
steam field and power plant operations at The Geysers, royalties accrued at
rates ranging from 3% to 14% of steam and effluent revenue. Following the
consolidation of operations, the royalties began to accrue as a percentage of
electrical revenues. Certain properties also have net profits and overriding
royalty interests ranging from approximately 1% to 28%, which are in addition to
the

                                       F-65
<PAGE>   101
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

land royalties. Most lease agreements contain clauses providing for minimum
lease payments to lessors if production temporarily ceases or if production
falls below a specified level.

     Production royalties and lease expense for the years ended December 31,
2000, 1999 and 1998 are $32.3 million, $13.8 million and $10.7 million,
respectively.

     Natural Gas Purchases -- The Company enters into gas purchase contracts of
various terms with third parties to supply gas to its gas-fired cogeneration
projects.

     Office and Equipment Leases -- The Company leases its corporate office and
regional offices under noncancellable operating leases expiring through 2011.
Future minimum lease payments under these leases are as follows (in thousands):

<TABLE>
<S>                                                         <C>
2001......................................................  $ 10,122
2002......................................................    15,822
2003......................................................    15,118
2004......................................................    12,275
2005......................................................    10,965
Thereafter................................................    50,279
                                                            --------
          Total...........................................  $114,581
                                                            ========
</TABLE>

     Lease payments are subject to adjustments for the Company's pro rata
portion of annual increases or decreases in building operating costs. In 2000,
1999 and 1998 rent expense for noncancellable operating leases amounted to $5.0
million, $3.1 million and $1.2 million, respectively.

     Cogeneration Facilities Operating Leases -- The Company has entered into
long-term operating leases for cogeneration facilities and combined-cycle power
generating facilities, expiring through 2048. Future minimum lease payments
under these leases are as follows (in thousands):

<TABLE>
<CAPTION>
                            INITIAL YEAR     2001       2002       2003       2004       2005     THEREAFTER     TOTAL
                            ------------   --------   --------   --------   --------   --------   ----------   ----------
<S>                         <C>            <C>        <C>        <C>        <C>        <C>        <C>          <C>
Watsonville...............      1995       $  2,905   $  2,905   $  2,905   $  2,905   $  2,905   $   12,779   $   27,304
King City.................      1996         21,015     21,848     22,781     13,975     10,585      119,426      209,630
Greenleaf.................      1998          9,070      8,990      8,994      8,858      8,723       62,928      107,563
Geysers...................      1999         50,102     69,408     61,135     48,902     50,300      257,690      537,537
KIAC......................      2000         22,126     25,227     25,467     24,251     24,077      336,812      457,960
Rumford/Tiverton..........      2000         21,746     32,940     32,940     35,365     44,942      755,292      923,225
Pasadena..................      2000         36,941     31,600    131,018     26,907     27,777      511,124      765,367
Aries.....................      2000             --     27,647     28,577     26,853     27,753      446,084      556,914
                                           --------   --------   --------   --------   --------   ----------   ----------
        Total.............                 $163,905   $220,565   $313,817   $188,016   $197,062   $2,502,135   $3,585,500
                                           ========   ========   ========   ========   ========   ==========   ==========
</TABLE>

     In 2000, 1999 and 1998, rent expense for cogeneration facilities operating
leases amounted to $69.4 million, $33.6 million and $15.7 million, respectively.
The Watsonville operating lease provides for additional contingent rents payable
during the period from July through December. Contingent rent expense for 2000,
1999 and 1998 amounted to $6.8 million, $393,000 and $1.5 million, respectively.

     The King City operating lease commitment is supported by $88.3 million of
collateral securities consisting of investment grade and U.S. Treasury
securities that mature serially in amounts equal to a portion of the semi-annual
lease payment.

     At December 31, 2000, the Company is under contract or letter of intent
with certain companies for 228 gas and steam turbines for a total purchase price
of $6.7 billion (of which $1.8 billion had been paid as of December 31, 2000).

                                       F-66
<PAGE>   102
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

     Approximate future payments relating to these turbines are as follows (in
thousands):

<TABLE>
<S>                                                           <C>
2001........................................................  $1,529,184
2002........................................................   1,374,271
2003........................................................   1,406,151
2004........................................................     531,832
2005........................................................      50,522
Thereafter..................................................       5,052
                                                              ----------
Total.......................................................  $4,897,012
                                                              ==========
</TABLE>

  Litigation

     An action was filed against Lockport Energy Associates, L.P. and the New
York Public Service Commission ("NYPSC") in August 1997 by New York State
Electricity and Gas Company ("NYSEG") in the Federal District Court for the
Northern District of New York. NYSEG requested the Court to direct NYPSC and the
Federal Energy Regulatory Commission (the "FERC") to modify contract rates to be
paid to the Lockport Power Plant. In October 1997, NYPSC filed a cross-claim
alleging that the FERC violated the Public Utility Regulatory Policies Act of
1978, as amended ("PURPA"), and the Federal Power Act by failing to reform the
NYSEG contract that was previously approved by the NYPSC. On September 29, 2000,
the New York Federal District Court dismissed NYSEG's complaint and NYPSC's
cross-claim. The Court stated that FERC has no authority to alter or waive its
regulations or exemptions to alter the terms of the applicable power purchase
agreements and that Qualifying Facilities are entitled to the benefit of their
bargain, even if at the expense of NYSEG and its ratepayers. NYSEG has filed an
appeal with respect to this decision. In any event, the Company retains the
right to require The Brooklyn Union Gas Company to purchase its interest in the
Lockport Power Plant for $18.9 million, less equity distributions received by
the Company, at any time before December 19, 2001.

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

19. SUBSEQUENT EVENTS

  California Power Market

     During 2000, a combination of factors including increased volatility of
natural gas prices, a significant number of facilities undergoing planned and
unplanned major maintenance, and the decreased availability of energy for
importation from neighboring states resulted in wholesale power prices
significantly higher than historical levels. At the same time, two major
California utilities that are subject to a retail rate freeze, including PG&E,
have faced wholesale prices that far exceed the retail prices they are permitted
to charge, resulting in a significant underrecovery of their costs. On January
16 and 17, 2001, PG&E's credit and debt ratings were lowered by Moody's and S&P
to "junk" or "near junk" status. On January 30, 2001, the PX suspended operation
of its "day ahead" and "day of" markets. On February 1, 2001, PG&E indicated
that it intended to default on payments of over $1 billion due to the PX and
qualifying facilities. PG&E has defaulted under its payment obligations to the
Company (See Note 15).

     On February 7, 2001, the Company announced the signing of a 10-year, $4.6
billion fixed-price contract with the California Department of Water Resources
("DWR") to provide electricity to the State of California. The Company committed
to sell up to 1,000 megawatts of electricity, with initial deliveries of

                                       F-67
<PAGE>   103
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

200 megawatts starting October 1, 2001 and increasing to 1,000 megawatts by
January 1, 2004. This contract will continue through 2011. The electricity will
be sold directly to DWR, on a 24-hour, 7-day-a-week basis.

     On February 28, 2001, the Company announced the signing of two long-term
power sales contracts with the DWR. Under the terms of the first contract, a
$5.2 billion, 10-year, fixed price contract, Calpine commits to sell up to 1,000
megawatts of generation. Initial deliveries are scheduled to begin July 1, 2001
with 200 megawatts and increase to 1,000 megawatts by as early as July 2002.
Under the terms of the second contract, a 20-year contract totaling up to $3.1
billion, Calpine will supply DWR with up to 495 megawatts of peaking generation,
beginning with 90 megawatts as early as August 2001, and increasing up to 495
megawatts as early as August 2002.

     On March 13, 2001, the Company announced the signing of a two-month deal to
provide 555 megawatts of electricity to DWR effective immediately through May
15, 2001.

Other Subsequent Events

     On February 8, 2001, the Company announced plans to acquire all of the
common shares of Encal Energy Ltd. ("Encal"), a Calgary, Alberta-based natural
gas and petroleum exploration and development company, through a stock-for-stock
exchange in which Encal shareholders will receive Cdn. $12.00 per share in
Calpine common equivalent shares based on an exchange ratio to be determined
prior to closing. The aggregate value of the transaction, for which the Company
expects to use pooling of interests accounting, is approximately $1.2 billion,
including the assumed indebtedness of Encal. Upon completion of the acquisition,
we will gain approximately 1.0 trillion cubic feet equivalent of proved and
provable natural gas reserves, net of royalties. This transaction also provides
access to firm gas transportation capacity from western Canada to California and
the eastern U.S., and an accomplished management team capable of leading our
business expansion in Canada. With the addition of Encal's assets, which
currently produce approximately 230 million cubic feet of gas equivalent
("mmcfe") per day, net of royalties, our net production is expected to increase
to 390 mmcfe per day in North America, enough to fuel approximately 2,300
megawatts of our power fleet. The Company expects to close this transaction
during the second quarter of 2001.

     On February 15, 2001, the Company completed a public offering of $1.15
billion of its 8 1/2% Senior Notes Due 2011 ("Senior Notes Due 2011"). The
Senior Notes Due 2011 bear interest at 8 1/2% per year, payable semi-annually on
August 15 and February 15 and mature on February 15, 2011. The Senior Notes Due
2011 may be redeemed at any time prior to maturity at a redemption price equal
to 100% of their principal amount plus accrued and unpaid interest plus a
make-whole premium.

20. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

     The Company's quarterly operating results have fluctuated in the past and
may continue to do so in the future as a result of a number of factors,
including, but not limited to, the timing and size of acquisitions, the
completion of development projects, the timing and amount of curtailment of
operations under the terms of certain power sales agreements, and variations in
levels of production. Furthermore, the majority of capacity payments under
certain of the Company's power sales agreements are received during the months
of May through October.

                                       F-68
<PAGE>   104
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

     The Company's common stock has been traded on the New York Stock Exchange
since September 19, 1996. There were 547 common stockholders of record at
December 31, 2000. No dividends were paid for the years ended December 31, 2000
and 1999. All share data has been adjusted to reflect the two-for-one stock
split effective October 7, 1999, the two-for-one stock split effective June 8,
2000, and the two-for-one stock split effective November 14, 2000.

<TABLE>
<CAPTION>
                                                               QUARTER ENDED
                                            ---------------------------------------------------
                                            DECEMBER 31,   SEPTEMBER 30,   JUNE 30,   MARCH 31,
                                            ------------   -------------   --------   ---------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>            <C>             <C>        <C>
2000
Total revenue.............................   $1,004,817      $678,891      $363,683   $235,402
Gross profit..............................      247,195       294,168       124,079     58,675
Income from operations....................      191,398       262,233       102,516     46,301
Income before extraordinary charge........      107,746       147,108        51,706     18,127
Extraordinary charge......................           --         1,235            --         --
Net income................................   $  107,746      $145,873      $ 51,706   $ 18,127
Basic earnings per common share:
  Income before extraordinary charge......   $     0.38      $   0.55      $   0.20   $   0.07
  Extraordinary charge....................           --         (0.01)           --         --
  Net income..............................         0.38          0.54          0.20       0.07
Diluted earnings per common share:
  Income before extraordinary charge and
     dilutive effect of certain trust
     preferred securities.................   $     0.36      $   0.52      $   0.19   $   0.07
  Dilutive effect of certain trust
     preferred securities.................        (0.02)        (0.04)           --         --
  Income before extraordinary charge......         0.34          0.48          0.19       0.07
  Extraordinary charge....................           --         (0.01)           --         --
  Net income..............................         0.34          0.47          0.19       0.07
Common stock price per share:
  High....................................   $    52.97      $  52.25      $  35.22   $  30.75
  Low.....................................        32.25         32.25         18.13      16.09
</TABLE>

                                       F-69
<PAGE>   105
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                       QUARTER ENDED
                                                    ---------------------------------------------------
                                                    DECEMBER 31,   SEPTEMBER 30,   JUNE 30,   MARCH 31,
                                                    ------------   -------------   --------   ---------
                                                         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>            <C>             <C>        <C>
1999
Total revenue.....................................    $247,446       $253,021      $196,625   $150,643
Gross profit......................................      86,642        102,951        60,805     35,487
Income from operations............................      66,189         87,105        48,789     24,419
Income before extraordinary charge................      30,766         42,917        18,710      3,850
Extraordinary charge..............................          --             --         1,150         --
Net income........................................    $ 30,766       $ 42,917      $ 17,560   $  3,850
Basic earnings per common share:
  Income before extraordinary charge..............    $   0.13       $   0.20      $   0.09   $   0.02
  Extraordinary charge............................          --             --         (0.01)        --
  Net income......................................        0.13           0.20          0.08       0.02
Diluted earnings per common share:
  Income before extraordinary charge..............    $   0.12       $   0.19      $   0.08   $   0.02
  Extraordinary charge............................          --             --         (0.01)        --
  Net income......................................        0.12           0.19          0.07       0.02
Common stock price per share:
  High............................................    $  16.38       $  11.97      $   7.38   $   4.67
  Low.............................................       10.63           6.85          4.39       3.16
</TABLE>

                                       F-70
<PAGE>   106
                      CALPINE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

                                                                     SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                            BALANCE AT        CHARGED TO                    BALANCE AT
              DESCRIPTION                BEGINNING OF YEAR     EXPENSE      DEDUCTIONS     END OF YEAR
              -----------                -----------------    ----------    ----------    --------------
<S>                                      <C>                  <C>           <C>           <C>
Year Ended December 31, 2000
  Allowance for Doubtful Accounts......       $3,343           $13,454       $(5,719)        $11,078
  Reserve for Notes Receivable.........           --             4,513            --           4,513
Year Ended December 31, 1999
  Allowance for Doubtful Accounts......       $  238           $ 3,105       $    --         $ 3,343
  Reserve for Notes Receivable.........           --                --            --              --
</TABLE>

                                       S-1
<PAGE>   107

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
      3.1.1   Amended and Restated Certificate of Incorporation of Calpine
              Corporation, a Delaware corporation.*
      3.1.2   Certificate of Correction of Calpine Corporation.(*)
      3.1.3   Certificate of Designation of Series A Participating
              Preferred Stock of Calpine Corporation.(*)
      3.1.4   Amended Certificate of Designation of Series A Participating
              Preferred Stock of Calpine Corporation.(*)
      3.2     Amended and Restated Bylaws of Calpine Corporation, a
              Delaware corporation.(d)
      4.1.1   Indenture dated as of February 17, 1994 between the Company
              and State Street Bank and Trust Company (successor trustee
              to Shawmut Bank of Connecticut, National Association), as
              Trustee, including form of Notes.(a)
      4.1.2   First Supplemental Indenture dated as of July 31, 2000
              between the Company and State Street Bank and Trust Company
              (successor trustee to Shawmut Bank Connecticut, National
              Association), as Trustee.(*)
      4.2.1   Indenture dated as of May 16, 1996 between the Company and
              Fleet National Bank, as Trustee, including form of Notes.(c)
      4.2.2   First Supplemental Indenture dated as of August 1, 2000
              between the Company and State Street Bank and Trust Company
              (successor trustee to Fleet National Bank), as Trustee.(*)
      4.3.1   Indenture dated as of July 8, 1997 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(e)
      4.3.2   Supplemental Indenture dated as of September 10, 1997
              between the Company and The Bank of New York, as Trustee.(q)
      4.3.3   Second Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.4.1   Indenture dated as of March 31, 1998 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(g)
      4.4.2   Supplemental Indenture dated as of July 24, 1998 between the
              Company and The Bank of New York, as Trustee.(g)
      4.4.3   Second Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.5.1   Indenture dated as of March 29, 1999 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(h)
      4.5.2   First Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.6.1   Indenture dated as of March 29, 1999 between the Company and
              The Bank of New York, as Trustee, including form of
              Notes.(h)
      4.6.2   First Supplemental Indenture dated as of July 31, 2000
              between the Company and The Bank of New York, as Trustee.(*)
      4.7.1   Indenture dated as of August 10, 2000 between the Company
              and Wilmington Trust Company, as Trustee.(m)
      4.7.2   First Supplemental Indenture dated as of September 28, 2000
              between the Company and Wilmington Trust Company, as
              Trustee.(*)
      4.8     Rights Agreement, dated as of June 5, 1997, between Calpine
              Corporation and First Chicago Trust Company of New York, as
              Rights Agent.(l)
      4.9     HIGH TIDES I.
</TABLE>
<PAGE>   108

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
      4.9.1   Certificate of Trust of Calpine Capital Trust, a Delaware
              statutory trust, filed October 4, 1999.(i)
      4.9.2   Corrected Certificate of Certificate of Trust of Calpine
              Capital Trust, a Delaware statutory trust, dated September
              29, 1999.(i)
      4.9.3   Declaration of Trust of Calpine Capital Trust, dated as of
              October 4, 1999, among Calpine Corporation, as Depositor,
              The Bank of New York (Delaware), as Delaware Trustee, The
              Bank of New York, as Property Trustee, and the
              Administrative Trustees named therein.(i)
      4.9.4   Indenture, dated as of November 2, 1999, between Calpine
              Corporation and The Bank of New York, as Trustee, including
              form of Debenture.(i)
      4.9.5   Remarketing Agreement, dated November 2, 1999, among Calpine
              Corporation, Calpine Capital Trust, The Bank of New York, as
              Tender Agent, and Credit Suisse First Boston Corporation, as
              Remarketing Agent.(i)
      4.9.6   Amended and Restated Declaration of Trust of Calpine Capital
              Trust, dated as of November 2, 1999, among Calpine
              Corporation, as Depositor and Debenture Issuer, The Bank of
              New York (Delaware), as Delaware Trustee, and The Bank of
              New York, as Property Trustee, and the Administrative
              Trustees named therein, including form of Preferred Security
              and form of Common Security.(i)
      4.9.7   Preferred Securities Guarantee Agreement, dated as of
              November 2, 1999, between Calpine Corporation and The Bank
              of New York, as Guarantee Trustee.(i)
      4.10    HIGH TIDES II.
     4.10.1   Certificate of Trust of Calpine Capital Trust II, a Delaware
              statutory trust, filed January 25, 2000.(n)
     4.10.2   Declaration of Trust of Calpine Capital Trust II, dated as
              of January 24, 2000, among Calpine Corporation, as Depositor
              and Debenture Issuer, The Bank of New York (Delaware), as
              Delaware Trustee, The Bank of New York, as Property Trustee,
              and the Administrative Trustees named therein.(n)
     4.10.3   Indenture, dated as of January 31, 2000, between Calpine
              Corporation and The Bank of New York, as Trustee, including
              form of Debenture.(n)
     4.10.4   Remarketing Agreement, dated as of January 31, 2000, among
              Calpine Corporation, Calpine Capital Trust II, The Bank of
              New York, as Tender Agent, and Credit Suisse First Boston
              Corporation, as Remarketing Agent.(n)
     4.10.5   Registration Rights Agreement, dated January 31, 2000, among
              Calpine Corporation, Calpine Capital Trust II, Credit Suisse
              First Boston Corporation and ING Barings LLC.(n)
     4.10.6   Amended and Restated Declaration of Trust of Calpine Capital
              Trust II, dated as of January 31, 2000, among Calpine
              Corporation, as Depositor and Debenture Issuer, The Bank of
              New York (Delaware), as Delaware Trustee, The Bank of New
              York, as Property Trustee, and the Administrative Trustees
              named therein, including form of Preferred Security and form
              of Common Security.(n)
     4.10.7   Preferred Securities Guarantee Agreement, dated as of
              January 31, 2000, between Calpine Corporation and The Bank
              of New York, as Guarantee Trustee.(n)
      4.11    HIGH TIDES III.
     4.11.1   Amended and Restated Certificate of Trust of Calpine Capital
              Trust III, a Delaware statutory trust, filed July 19,
              2000.(o)
     4.11.2   Declaration of Trust of Calpine Capital Trust III dated June
              28, 2000, among the Company, as Depositor and Debenture
              Issuer, The Bank of New York (Delaware), as Delaware
              Trustee, The Bank of New York, as Property Trustee and the
              Administrative Trustees named therein.(o)
</TABLE>
<PAGE>   109

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
     4.11.3   Amendment No. 1 to the Declaration of Trust of Calpine
              Capital Trust III dated July 19, 2000, among the Company, as
              Depositor and Debenture Issuer, Wilmington Trust Company, as
              Delaware Trustee, Wilmington Trust Company, as Property
              Trustee, and the Administrative Trustees named therein.(o)
     4.11.4   Indenture dated as of August 9, 2000, between the Company
              and Wilmington Trust Company, as Trustee.(o)
     4.11.5   Remarketing Agreement dated as of August 9, 2000, among the
              Company, Calpine Capital Trust III, Wilmington Trust
              Company, as Tender Agent, and Credit Suisse First Boston
              Corporation, as Remarketing Agent.(o)
     4.11.6   Registration Rights Agreement dated as August 9, 2000,
              between the Company, Calpine Capital Trust III, Credit
              Suisse First Boston Corporation, ING Barings LLC and CIBC
              World Markets Corp.(o)
     4.11.7   Amended and Restated Declaration of Trust of Calpine Capital
              Trust III dated as of August 9, 2000, the Company, as
              Depositor and Debenture Issuer, Wilmington Trust Company, as
              Delaware Trustee, Wilmington Trust Company, as Property
              Trustee, and the Administrative Trustees named therein,
              including the form of Preferred Security and form of Common
              Security.(o)
     4.11.8   Preferred Securities Guarantee Agreement dated as of August
              9, 2000, between the Company, as Guarantor, and Wilmington
              Trust Company, as Guarantee Trustee.(o)
      4.12    PASS THROUGH CERTIFICATES.
     4.12.1   Pass Through Trust Agreement dated as of December 19, 2000,
              among Tiverton Power Associates Limited Partnership, Rumford
              Power Associates Limited Partnership and State Street Bank
              and Trust Company of Connecticut, National Association, as
              Pass Through Trustee, including the form of Certificate.(*)
     4.12.2   Participation Agreement dated as of December 19, 2000, among
              the Company, Tiverton Power Associates Limited Partnership,
              Rumford Power Associates Limited Partnership, PMCC Calpine
              New England Investment LLC, PMCC Calpine NEIM LLC, State
              Street Bank and Trust Company of Connecticut, National
              Association, as Indenture Trustee, and State Street Bank and
              Trust Company of Connecticut, National Association, as Pass
              Through Trustee.(*)
     4.12.3   Appendix A -- Definitions and Rules of Interpretation.(*)
     4.12.4   Indenture of Trust, Mortgage and Security Agreement, dated
              as of December 19, 2000, between PMCC Calpine New England
              Investment LLC and State Street Bank and Trust Company of
              Connecticut, National Association, as Indenture Trustee,
              including the forms of Lessor Notes.(*)
     4.12.5   Calpine Guaranty and Payment Agreement (Tiverton) dated as
              of December 19, 2000, by Calpine, as Guarantor, to PMCC
              Calpine New England Investment LLC, PMCC Calpine NEIM LLC,
              State Street Bank and Trust Company of Connecticut, as
              Indenture Trustee, and State Street Bank and Trust Company
              of Connecticut, as Pass Through Trustee.(*)
     4.12.6   Calpine Guaranty and Payment Agreement (Rumford) dated as of
              December 19, 2000, by Calpine, as Guarantor, to PMCC Calpine
              New England Investment LLC, PMCC Calpine NEIM LLC, State
              Street Bank and Trust Company of Connecticut, as Indenture
              Trustee, and State Street Bank and Trust Company of
              Connecticut, as Pass Through Trustee.(*)
     10.1     Purchase Agreements.
     10.1.1   Purchase and Sale Agreement dated March 27, 1997 for the
              purchase and sale of shares of Enron/Dominion Cogen Corp.
              Common Stock among Enron Power Corporation and Calpine
              Corporation.(f)
</TABLE>
<PAGE>   110

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
     10.1.2   Stock Purchase and Redemption Agreement dated March 31,
              1998, among Dominion Cogen, Inc., Dominion Energy, Inc. and
              Calpine Finance.(f)
     10.2     Financing Agreements.
     10.2.1   Calpine Construction Finance Company Financing Agreement
              ("CCFC I"), dated as of October 20, 1999.(j)
     10.2.2   Calpine Construction Finance Company Financing Agreement
              ("CCFC II"), dated as of October 16, 2000.(p)(*)
     10.2.3   Second Amended and Restated Credit Agreement dated as of May
              23, 2000, among the Company, Bayerische Landesbank, as
              Co-Arranger and Syndication Agent, The Bank of Nova Scotia,
              as Lead Arranger and Administrative Agent, and the Lenders
              named therein.(m)
     10.3     Other Agreements.
     10.3.1   Calpine Corporation Stock Option Program and forms of
              agreements there under.(a)
     10.3.2   Calpine Corporation 1996 Stock Incentive Plan and forms of
              agreements there under.(b)
     10.3.3   Calpine Corporation Employee Stock Purchase Plan and forms
              of agreements there under.(b)
     10.3.4   Amended and Restated Employment Agreement between Calpine
              Corporation and Mr. Peter Cartwright.(b)
     10.3.5   Executive Vice President Employment Agreement between
              Calpine Corporation and Ms. Ann B. Curtis.(k)
     10.3.6   Senior Vice President Employment Agreement between Calpine
              Corporation and Mr. Ron A. Walter.(k)
     10.3.7   Senior Vice President Employment Agreement between Calpine
              Corporation and Mr. Robert D. Kelly.(k)
     10.3.8   Executive Vice President Employment Agreement between
              Calpine Corporation and Mr. Thomas R. Mason.(k)
     10.4     Form of Indemnification Agreement for directors and
              officers.(b)
     12.1     Statement on Computation of Ratio of Earnings to Fixed
              Charges.(*)
     21       Subsidiaries of the Company.(*)
     23.1     Consent of Arthur Andersen LLP, Independent Public
              Accountants.(*)
     23.2     Consent of Netherland, Sewell & Associates, Inc.,
              independent engineer.(*)
     23.3     Consent of McDaniel & Associates Consultants, Ltd.,
              independent engineer.(*)
     23.4     Consent of Gilbert Laustsen Jung Associates, Ltd.,
              independent engineer.(*)
     24       Power of Attorney of Officers and Directors of Calpine
              Corporation (set forth on the signature pages of this
              report).(*)
</TABLE>

---------------
(a) Incorporated by reference to Registrant's Registration Statement on Form S-1
    (Registration Statement No. 33-73160).

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

(c) Incorporated by reference to Registrant's Registration Statement on Form S-4
    (Registration Statement No. 333-06259.

(d) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
    dated March 31, 1996 and filed on May 14, 1996.

(e) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
    dated June 30, 1997 and filed on August 14, 1997.
<PAGE>   111

(f) Incorporated by reference to Registrant's Current Report on Form 8-K dated
    March 31, 1998 and filed on April 14, 1998.

(g) Incorporated by reference to Registrant's Registration Statement on Form S-4
    (Registration Statement No. 333-61047).

(h) Incorporated by reference to Registrant's Registration Statement on Form
    S-3/A (Registration Statement No. 333-72583).

(i) Incorporated by reference to Registrant's Registration Statement on Form
    S-3/A (Registration Statement No. 333-87427).

(j) Incorporated by reference to Registrant's Annual Report on Form 10-K dated
    December 31, 1999 and filed on February 29, 2000. Approximately 200 pages of
    this exhibit have been omitted pursuant to a request for confidential
    treatment. The omitted language has been filed separately with the
    Securities and Exchange Commission.

(k) Incorporated by reference to Registrant's Form 10-Q/A dated September 30,
    1999 and filed on November 17, 1999.

(l) Incorporated by reference to Registrant's Registration Statement on Form
    8-A, amended by Calpine's Registration Statement on Form 8-A/A (Registration
    Statement No. 001-12079).

(m) Incorporated by reference to Registrant's Current Report on Form 8-K dated
    July 25, 2000 and filed on August 9, 2000.

(n) Incorporated by reference to Registrant's Registration Statement on Form S-3
    (Registration Statement No. 333-33736).

(o) Incorporated by reference to Registrant's Registration Statement on Form S-3
    (Registration Statement No. 333-47068).

(p) Approximately 71 pages of tis exhibit have been omitted pursuant to a
    request for confidential treatment. The omitted language has been filed
    separately with the Securities and Exchange Commission.

(q) Incorporated by reference to Registrant's Registration Statement on Form S-4
    (Registration Statement No. 333-41261).

(*) Filed herewith.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1.1
<SEQUENCE>2
<FILENAME>f70293ex3-1_1.txt
<DESCRIPTION>EXHIBIT 3.1.1
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 3.1.1

                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                       OF
                               CALPINE CORPORATION

                             A Delaware corporation
                        (Pursuant to Sections 242 and 245
                    of the Delaware General Corporation Law)

     Calpine Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, hereby certifies
as follows:

     FIRST: That the name of the corporation is Calpine Corporation, and that
the corporation was originally incorporated on June 21, 1982 under the name
Electrowatt Services Inc., pursuant to the General Corporation Law.

     SECOND: The Certificate of Incorporation of this corporation shall be
amended and restated to read in full as is set forth on Exhibit A attached
hereto.

     THIRD: That said amendment and restatement was duly adopted in accordance
with the provisions of Section 242 and Section 245 of the General Corporation
Law by obtaining a majority vote of the Common Stock in favor of said amendment
and restatement in the manner set forth in Section 222 of the General
Corporation Law.

     IN WITNESS WHEREOF, Calpine Corporation has caused its corporate seal to be
hereunto affixed and this Amended and Restated Certificate of Incorporation to
be signed by its President and attested to by its Secretary this 13th day of
September, 1996.

                                        CALPINE CORPORATION

                                        /s/ PETER CARTWRIGHT
                                        ----------------------------------------
                                        Name:  Peter Cartwright
                                        Title: President


ATTEST:

/s/ ANN B. CURTIS
---------------------------------------
Name:  Ann B. Curtis
Title: Secretary


                                       1.

<PAGE>   2

                                                                       EXHIBIT A

                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                       OF
                               CALPINE CORPORATION

     FIRST. The name of the corporation is Calpine Corporation (the
"Corporation").

     SECOND. The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.

     THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

     FOURTH.   (a)  The Corporation is authorized to issue 110,000,000 shares of
capital stock, $.001 par value. The shares shall be divided into two classes,
designated as follows:

<TABLE>
<CAPTION>
          Designation of Class                Number of Shares
          --------------------                ----------------
<S>                                              <C>
          Common Stock                           100,000,000
          Preferred Stock                         10,000,000
                                                 -----------
               Total                             110,000,000
</TABLE>


               (b)  The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is expressly authorized, in the
resolution or resolutions providing for the issuance of any wholly unissued
series of Preferred Stock, to fix, state and express the powers, rights,
designations, preferences, qualifications, limitations and restrictions thereof,
including without limitation: the rate of dividends upon which and the times at
which dividends on shares of such series shall be payable and the preference, if
any, which such dividends shall have relative to dividends on shares of any
other class or classes or any other series of stock of the Corporation; whether
such dividends shall be cumulative or noncumulative, and if cumulative, the date
or dates from which dividends on shares of such series shall be cumulative; the
voting rights, if any, to be provided for shares of such series; the rights, if
any, which the holders of shares of such series shall have in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation; the rights, if any, which the holders of shares of such
series shall have to convert such shares into or exchange such shares for shares
of stock of the Corporation, and the terms and conditions, including price and
rate of exchange of such conversion or exchange; the redemption rights
(including sinking fund provisions), if any, for shares of such series; and such
other powers, rights, designations, preferences, qualifications, limitations and
restrictions as the Board of Directors may desire to so fix. The Board of
Directors is also expressly authorized to fix the number of shares constituting
such series and to increase or decrease the number of shares of any series prior
to the issuance of shares of that series and to increase or decrease the number
of shares of any series subsequent to the issuance of shares of that series, but
not to decrease such number below the number of shares of such series then
outstanding. In case the number of shares


                                       2.

<PAGE>   3

of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

     FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is authorized to make, alter or repeal any or
all of the Bylaws of the Corporation; provided, however, that any Bylaw
amendment adopted by the Board of Directors increasing or reducing the
authorized number of Directors shall require the affirmative vote of a majority
of the total number of Directors which the Corporation would have if there were
no vacancies. In addition, new Bylaws may be adopted or the Bylaws may be
amended or repealed by the affirmative vote of at least 66-2/3% of the combined
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 66-2/3% of the combined voting power
of all shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter,
change, amend, repeal or adopt any provision inconsistent with, this Article
FIFTH.

     SIXTH.    (a)  Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders.

               (b)  Special meetings of stockholders of the Corporation may be
called only (i) by the Chairman of the Board of Directors, or (ii) by the
Chairman or the Secretary at the written request of a majority of the total
number of Directors which the Corporation would have if there were no vacancies
upon not fewer than 10 nor more than 60 days' written notice. Any request for a
special meeting of stockholders shall be sent to the Chairman and the Secretary
and shall state the purposes of the proposed meeting. Special meetings of
holders of the outstanding Preferred Stock may be called in the manner and for
the purposes provided in the resolutions of the Board of Directors providing for
the issue of such stock. Business transacted at special meetings shall be
confined to the purpose or purposes stated in the notice of meeting.

               (c)  Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SIXTH.

     SEVENTH.  (a)  The number of Directors which shall constitute the whole
Board of Directors of this corporation shall be as specified in the Bylaws of
this corporation, subject to this Article SEVENTH.

               (b)  The Directors shall be classified with respect to the time
for which they severally hold office into three classes designated Class I,
Class II and Class III, as nearly


                                       3.

<PAGE>   4

equal in number as possible, as shall be provided in the manner specified in the
Bylaws of the Corporation. Each Director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which the Director was elected; provided, however, that each initial Director in
Class I shall hold office until the annual meeting of stockholders in 1997, each
initial Director in Class II shall hold office until the annual meeting of
stockholders in 1998 and each initial Director in Class III shall hold office
until the annual meeting of stockholders in 1999. Notwithstanding the foregoing
provisions of this Article SEVENTH, each Director shall serve until his
successor is duly elected and qualified or until such Director's death,
resignation or removal.

               (c)  In the event of any increase or decrease in the authorized
number of Directors, (i) each Director then serving as such shall nevertheless
continue as a Director of the class of which such Director is a member until the
expiration of his current term, or his early resignation, removal from office or
death and (ii) the newly created or eliminated directorship resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of Directors so as to maintain such classes as nearly equally as
possible.

               (d)  Any Director or the entire Board of Directors may be removed
by the affirmative vote of the holders of at least 66-2/3% of the combined
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.

               (e)  Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SEVENTH.

     EIGHTH.   (a)  1.   In addition to any affirmative vote required by law,
any Business Combination (as hereinafter defined) shall require the affirmative
vote of at least 66-2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class (for purposes of this Article EIGHTH, the "Voting
Shares"). Such affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that some lesser percentage may be specified by law
or in any agreement with any national securities exchange or otherwise.

                    2.   The term "Business Combination" as used in this Article
EIGHTH shall mean any transaction which is referred to in any one or more of the
following clauses (A) through (E):

                         (A)  any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with or into (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation (whether or
not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) or Associate (as


                                       4.

<PAGE>   5

hereinafter defined) of an Interested Stockholder; or

                         (B)  any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of related
transactions) to or with, or proposed by or on behalf of, any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder, of any
assets of the Corporation or any Subsidiary constituting not less than five
percent of the total assets of the Corporation, as reported in the consolidated
balance sheet of the Corporation as of the end of the most recent quarter with
respect to which such balance sheet has been prepared; or

                         (C)  the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related transactions) of any
securities of the Corporation or any Subsidiary to, or proposed by or on behalf
of, any Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder in exchange for cash, securities or other property (or a combination
thereof) constituting not less than five percent of the total assets of the
Corporation, as reported in the consolidated balance sheet of the Corporation as
of the end of the most recent quarter with respect to which such balance sheet
has been prepared; or

                         (D)  the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or any spin-off or split-up of
any kind of the Corporation or any Subsidiary, proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or

                         (E)  any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
percentage of the outstanding shares of (i) any class of equity securities of
the Corporation or any Subsidiary or (ii) any class of securities of the
Corporation or any Subsidiary convertible into equity securities of the
Corporation or any Subsidiary, represented by securities of such class which are
directly or indirectly owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder.

               (b)  The provisions of section (a) of this Article EIGHTH shall
not be applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law and
any other provision of this Certificate of Incorporation, if such Business
Combination has been approved by two-thirds of the whole Board of Directors.

               (c)  For the purposes of this Article EIGHTH:

                    1.   A "person" shall mean any individual, firm, corporation
or other entity.


                                       5.

<PAGE>   6

                    2.   "Interested Stockholder" shall mean, in respect of any
Business Combination, any person (other than the Corporation or any Subsidiary)
who or which, as of the record date for the determination of stockholders
entitled to notice of and to vote on such Business Combination, or immediately
prior to the consummation of any such transaction

                         (A)  is or was, at any time within two years prior
thereto, the beneficial owner, directly or indirectly, of 15% or more of the
then outstanding Voting Shares, or

                         (B)  is an Affiliate or Associate of the Corporation
and at any time within two years prior thereto was the beneficial owner,
directly or indirectly, of 15% or more of the then outstanding Voting Shares, or

                         (C)  is an assignee of or has otherwise succeeded to
any shares of capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of a transaction, or
series of transactions, not involving a public offering within the meaning of
the Securities Act of 1933, as amended.

                    3.   A "person" shall be the "beneficial owner" of any
Voting Shares

                         (A)  which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or indirectly, or

                         (B)  which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding, or

                         (C)  which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any of
its Affiliates or Associates has any agreement, arrangement or understanding for
the purposes of acquiring, holding, voting or disposing of any shares of capital
stock of the Corporation.

                    4.   The outstanding Voting Shares shall include shares
deemed owned through application of paragraph 3 above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise.

                    5.   "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on the date of adoption
of this Certificate


                                       6.

<PAGE>   7

of Incorporation (the "Exchange Act").

                    6.   "Subsidiary" shall mean any corporation of which a
majority of any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Exchange Act) is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph 2 of this section
(c) the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.

               (d)  A majority of the directors shall have the power and duty to
determine for the purposes of this Article EIGHTH on the basis of information
known to them, (1) whether a person is an Interested Stockholder, (2) the number
of Voting Shares beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in
paragraph 3 of section (c) or (5) whether the assets subject to any Business
Combination or the consideration received for the issuance or transfer of
securities by the Corporation or any Subsidiary constitutes not less than five
percent of the total assets of the Corporation.

               (e)  Nothing contained in this Article EIGHTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.

               (f)  Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3% of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article EIGHTH.

     NINTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.

     TENTH. A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware or (iv) for any transaction from which the Director derived any
improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to authorize, with the approval of a corporation's
stockholders, further reductions in the liability of a corporation's directors
for breach of fiduciary duty, then a Director of the Corporation shall not be
liable for any such breach to the fullest extent permitted by the General
Corporation Law of Delaware as so amended. Any repeal or modification of the
foregoing provisions of this Article NINTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification. This
corporation is authorized to indemnify the directors and officers of the
corporation to the fullest extent permissible under Delaware law.


                                       7.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1.2
<SEQUENCE>3
<FILENAME>f70293ex3-1_2.txt
<DESCRIPTION>EXHIBIT 3.1.2
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 3.1.2

                          CERTIFICATE OF CORRECTION OF
                               CALPINE CORPORATION

     Calpine Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),

     DOES HEREBY CERTIFY:

     1.   The name of the Corporation is Calpine Corporation.

     2.   An Amended and Restated Certificate of Incorporation (the
"Instrument") was filed with the Secretary of State of the State of Delaware on
May 19, 2000 which contains an inaccurate record of the corporate action taken
therein, and said Instrument requires correction as permitted by subsection (f)
of Section 103 of the General Corporation Law of the State of Delaware.

     3.   The inaccuracy in said Instrument is as follows:

          Since the Board of Directors and stockholders of the Corporation
          merely approved an amendment to the Amended and Restated Certificate
          of Incorporation of the Corporation, as opposed to an amendment and
          restatement thereof, the heading of the Instrument incorrectly
          identifies the Instrument as the "Amended and Restated Certificate of
          Incorporation of Calpine Corporation" and incorrectly restates the
          text of the Amended and Restated Certificate of Incorporation of
          Calpine Corporation as filed with the Secretary of State of the State
          of Delaware on September 13, 1996. The Instrument further incorrectly
          states in paragraph THIRD that the restatement was duly adopted in
          accordance with the provisions of Section 245 of the General
          Corporation Law of the State of Delaware.

     4.   The heading of the document filed on May 19, 2000 is corrected to read
as follows:

          "Certificate of Amendment of Amended and Restated Certificate of
          Incorporation of Calpine Corporation"

<PAGE>   2

     5.   The text of the Instrument filed on May 19, 2000 is corrected to read
in its entirety as follows:


                            CERTIFICATE OF AMENDMENT
                                       OF
                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                               CALPINE CORPORATION

     CALPINE CORPORATION, a corporation duly organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:

     1.   The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting paragraph (a) of Article FOURTH
thereof and inserting the following in lieu thereof:

          (a)  The Corporation is authorized to issue 510,000,000 shares of
capital stock, $.001 par value. The shares shall be divided into two classes,
designated as follows:

<TABLE>
<CAPTION>
Designation of Class              Number of Shares
--------------------              ----------------
<S>                                 <C>
Common Stock                        500,000,000
Preferred Stock                      10,000,000
                                    -----------
     Total                          510,000,000
</TABLE>

     2.   The foregoing amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

<PAGE>   3

     IN WITNESS WHEREOF, Calpine Corporation has caused this Certificate to be
executed by Lisa Bodensteiner, its duly authorized officer, this 28th day of
February, 2001.

                                       CALPINE CORPORATION

                                       By: /s/  LISA BODENSTEINER
                                          --------------------------------------
                                          Name:  Lisa Bodensteiner
                                          Title: Vice President, General Counsel
                                                 and Assistant Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1.3
<SEQUENCE>4
<FILENAME>f70293ex3-1_3.txt
<DESCRIPTION>EXHIBIT 3.1.3
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 3.1.3

                           CERTIFICATE OF DESIGNATION

                                       of

                     SERIES A PARTICIPATING PREFERRED STOCK

                                       of

                               CALPINE CORPORATION

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)

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


               Calpine Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on June 5, 1997:

               RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $0.001 per share (the "Preferred Stock"), of the Corporation
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:

               Series A Participating Preferred Stock:

               Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be One Hundred Thousand (100,000). Such number of shares may be
increased or decreased by resolution of the Board of Directors;


                                       1
<PAGE>   2

provided, however, that no decrease shall reduce the number of shares of Series
A Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.

               Section 2. Dividends and Distributions.

                (A) Subject to the rights of the holders of any shares of any
        series of Preferred Stock (or any similar stock) ranking prior and
        superior to the Series A Preferred Stock with respect to dividends, each
        holder of a share of Series A Preferred Stock, in preference to the
        holders of shares of Common Stock, par value $0.001 per share (the
        "Common Stock"), of the Corporation, and of any other junior stock,
        shall be entitled to receive, when, as and if declared by the Board of
        Directors out of funds legally available for the purpose, quarterly
        dividends payable in cash on the first day of March, June, September and
        December in each year (each such date being referred to herein as a
        "Quarterly Dividend Payment Date"), commencing on the first Quarterly
        Dividend Payment Date after the first issuance of a share or fraction of
        a share of Series A Preferred Stock, in an amount per share (rounded to
        the nearest cent) equal to, subject to the provision for adjustment
        hereinafter set forth, One Thousand (1,000) times the aggregate per
        share amount of all cash dividends, and One Thousand (1,000) times the
        aggregate per share amount (payable in kind) of all non-cash dividends
        or other distributions, other than a dividend payable in shares of
        Common Stock or a subdivision of the outstanding shares of Common Stock
        (by reclassification or otherwise), declared on the Common Stock since
        the immediately preceding Quarterly Dividend Payment Date or, with
        respect to the first Quarterly Dividend Payment Date, since the first
        issuance of a share or fraction of a share of Series A Preferred Stock.
        In the event the Corporation shall at any time declare or pay any
        dividend on the Common Stock payable in shares of Common Stock, or
        effect a subdivision or combination or consolidation of the outstanding
        shares of Common Stock (by reclassification or otherwise than by payment
        of a dividend in shares of Common Stock) into a greater or lesser number
        of shares of Common Stock, then in each such case the amount to which
        holders of shares of Series A Preferred Stock were entitled immediately
        prior to such event under clause (b) of the preceding sentence shall be
        adjusted by multiplying such amount by a fraction, the numerator of
        which is the number of shares of Common Stock outstanding immediately
        after such event and the denominator of which is the number of shares of
        Common Stock that were outstanding immediately prior to such event.

                (B) The Corporation shall declare a dividend or distribution on
        the shares of Series A Preferred Stock as provided in paragraph (A) of
        this Section 2 immediately after it declares a dividend or distribution
        on the Common Stock (other than a dividend payable in shares of Common
        Stock); provided, however, that, in the event no dividend or
        distribution shall have been declared on the Common Stock during the
        period between any Quarterly Distribution Date and the next subsequent
        Quarterly Dividend Payment Date,



                                       2

<PAGE>   3

        a dividend of $1.00 per share of Series A Preferred Stock shall
        nevertheless be payable on such subsequent Quarterly Dividend Payment
        Date.

                (C) Dividends shall begin to accrue and be cumulative on each
        outstanding share of Series A Participating Preferred Stock from the
        Quarterly Dividend Payment Date next preceding the date of issue of such
        share of Series A Participating Preferred Stock, unless the date of
        issue of such share is prior to the record date for the first Quarterly
        Dividend Payment Date, in which case dividends on such share shall begin
        to accrue from the date of issue of such share, or unless the date of
        issue is a Quarterly Dividend Payment Date or is a date after the record
        date for the determination of holders of shares of Series A Preferred
        Stock entitled to receive a quarterly dividend and before such Quarterly
        Dividend Payment Date, in either of which events such dividends shall
        begin to accrue and be cumulative from such Quarterly Dividend Payment
        Date. Accrued but unpaid dividends shall not bear interest. Dividends
        paid on the shares of Series A Preferred Stock in an amount less than
        the total amount of such dividends at the time accrued and payable on
        such shares shall be allocated pro rata on a share-by-share basis among
        all such shares at the time outstanding. The Board of Directors may fix
        a record date for the determination of holders of shares of Series A
        Preferred Stock entitled to receive payment of a dividend or
        distribution declared thereon, which record date shall be not more than
        60 days prior to the date fixed for the payment thereof.

               Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:

                (A) Subject to the provision for adjustment hereinafter set
        forth, each share of Series A Preferred Stock shall entitle the holder
        thereof to One Thousand (1,000) votes on all matters submitted to a vote
        of the stockholders of the Corporation. In the event the Corporation
        shall at any time declare or pay any dividend on the Common Stock
        payable in shares of Common Stock, or effect a subdivision or
        combination or consolidation of the outstanding shares of Common Stock
        (by reclassification or otherwise than by payment of a dividend in
        shares of Common Stock) into a greater or lesser number of shares of
        Common Stock, then in each such case the number of votes per share to
        which holders of shares of Series A Preferred Stock were entitled
        immediately prior to such event shall be adjusted by multiplying such
        number by a fraction, the numerator of which is the number of shares of
        Common Stock outstanding immediately after such event and the
        denominator of which is the number of shares of Common Stock that were
        outstanding immediately prior to such event.

                (B) Except as otherwise provided herein, in any other
        Certificate of Designations creating a series of Preferred Stock or any
        similar stock, or by law, the holders of shares of Series A Preferred
        Stock and the holders of shares of Common Stock and any other capital
        stock of the Corporation having general voting rights shall vote
        together as one class on all matters submitted to a vote of stockholders
        of the Corporation.


                                       3

<PAGE>   4

                (C) (i) If at any time dividends on any shares of Series A
                Preferred Stock shall be in arrears in an amount equal to six
                quarterly dividends thereon, then during the period (a "default
                period") from the occurrence of such event until such time as
                all accrued and unpaid dividends for all previous quarterly
                dividend periods and for the current quarterly dividend period
                on all shares of Series A Preferred Stock then outstanding shall
                have been declared and paid or set apart for payment, all
                holders of shares of Series A Preferred Stock, voting separately
                as a class, shall have the right to elect two (2) Directors.

                        (ii) During any default period, such voting rights of
                the holders of shares of Series A Preferred Stock may be
                exercised initially at a special meeting called pursuant to
                subparagraph (iii) of this Section 3(C) or at any annual meeting
                of stockholders, and thereafter at annual meetings of
                stockholders, provided that neither such voting rights nor any
                right of the holders of shares of Series A Preferred Stock to
                increase, in certain cases, the authorized number of Directors
                may be exercised at any meeting unless one-third of the
                outstanding shares of Preferred Stock shall be present at such
                meeting in person or by proxy. The absence of a quorum of the
                holders of Common Stock shall not affect the exercise by the
                holders of shares of Series A Preferred Stock of such rights. At
                any meeting at which the holders of shares of Series A Preferred
                Stock shall exercise such voting rights initially during an
                existing default period, they shall have the right, voting
                separately as a class, to elect Directors to fill up to two (2)
                vacancies in the Board of Directors, if any such vacancies may
                then exist, or, if such right is exercised at an annual meeting,
                to elect two (2) Directors. If the number which may be so
                elected at any special meeting does not amount to the required
                number, the holders of the Series A Preferred Stock shall have
                the right to make such increase in the number of Directors as
                shall be necessary to permit the election by them of the
                required number. After the holders of shares of Series A
                Preferred Stock shall have exercised their right to elect
                Directors during any default period, the number of Directors
                shall not be increased or decreased except as approved by a vote
                of the holders of shares of Series A Preferred Stock as herein
                provided or pursuant to the rights of any equity securities
                ranking senior to the Series A Preferred Stock.

                        (iii) Unless the holders of Series A Preferred Stock
                shall, during an existing default period, have previously
                exercised their right to elect Directors, the Board of Directors
                may order, or any stockholder or stockholders owning in the
                aggregate not less than 25% of the total number of the shares of
                Series A Preferred Stock outstanding may request, the calling of
                a special meeting of the holders of shares of Series A Preferred
                Stock, which meeting shall thereupon be called by the Secretary
                of the Corporation. Notice of such meeting and of any annual
                meeting at which holders of shares of Series A Preferred Stock
                are entitled to vote pursuant to this Section 3(C)(iii) shall be
                given to each holder of record of shares of Series A Preferred
                Stock by mailing a copy of such notice to such


                                       4

<PAGE>   5

                holder at such holder's last address as the same appears on the
                books of the Corporation. Such meeting shall be called for a
                time not earlier than 20 days and not later than 60 days after
                such order or request or in default of the calling of such
                meeting within 60 days after such order or request, such meeting
                may be called on similar notice by any stockholder or
                stockholders owning in the aggregate not less than 25% of the
                total number of outstanding shares of Series A Preferred Stock.
                Notwithstanding the provisions of this Section 3(C)(iii), no
                such special meeting shall be called during the 60 days
                immediately preceding the date fixed for the next annual meeting
                of the stockholders.

                        (iv) During any default period, the holders of shares of
                Common Stock and shares of Series A Preferred Stock, and other
                classes or series of stock of the Corporation, if applicable,
                shall continue to be entitled to elect all the Directors until
                holders of the shares of Series A Preferred Stock shall have
                exercised their right to elect two (2) Directors voting as a
                separate class, after the exercise of which right (x) the
                Directors so elected by the holders of shares of Series A
                Preferred Stock shall continue in office until their successors
                shall have been elected by such holders or until the expiration
                of the default period, and (y) any vacancy in the Board of
                Directors may (except as provided in Section 3(C)(ii)) be filled
                by vote of a majority of the remaining Directors theretofore
                elected by the holders of the class of capital stock which
                elected the Director whose office shall have become vacant.
                References in this Section 3(C) to Directors elected by the
                holders of a particular class of capital stock shall include
                Directors elected by such Directors to fill vacancies as
                provided in clause (y) of the foregoing sentence.

                        (v) Immediately upon the expiration of a default period,
                (x) the right of the holders of shares of Series A Preferred
                Stock as a separate class to elect Directors shall cease, (y)
                the term of any Directors elected by the holders of shares of
                Series A Preferred Stock as a separate class shall terminate,
                and (z) the number of Directors shall be such number as may be
                provided for in the Certificate of Incorporation or by-laws
                irrespective of any increase made pursuant to the provisions of
                Section 3(C)(ii) (such number being subject, however, to change
                thereafter in any manner provided by law or in the Certificate
                of Incorporation or by-laws). Any vacancies in the Board of
                Directors effected by the provisions of clauses (y) and (z) in
                the preceding sentence may be filled by a majority of the
                remaining Directors.

                        (vi) The provisions of this Section 3(C) shall govern
                the election of Directors by holders of shares of Preferred
                Stock during any default period notwithstanding any provisions
                of the Certificate of Incorporation to the contrary, including,
                without limitation, the provisions of Article Sixth of the
                Certificate of Incorporation.


                                       5

<PAGE>   6


                (D) Except as set forth herein, or as otherwise provided by law,
        holders of Series A Preferred Stock shall have no special voting rights
        and their consent shall not be required (except to the extent they are
        entitled to vote with holders of Common Stock as set forth herein) for
        taking any corporate action.

               Section 4. Certain Restrictions.

                (A) Whenever quarterly dividends or other dividends or
        distributions payable on the Series A Preferred Stock as provided in
        Section 2 are in arrears, thereafter and until all accrued and unpaid
        dividends and distributions, whether or not declared, on shares of
        Series A Preferred Stock outstanding shall have been paid in full, the
        Corporation shall not:

                        (i) declare or pay dividends, or make any other
                distributions, on any shares of stock ranking junior (either as
                to dividends or upon liquidation, dissolution or winding up) to
                the Series A Preferred Stock;

                        (ii) declare or pay dividends, or make any other
                distributions, on any shares of stock ranking on a parity
                (either as to dividends or upon liquidation, dissolution or
                winding up) with the Series A Preferred Stock, except dividends
                paid ratably on the shares of Series A Preferred Stock and all
                such parity stock on which dividends are payable or in arrears
                in proportion to the total amounts to which the holders of all
                such shares are then entitled;

                        (iii) redeem or purchase or otherwise acquire for
                consideration shares of any stock ranking junior (either as to
                dividends or upon liquidation, dissolution or winding up) to the
                Series A Preferred Stock, provided that the Corporation may at
                any time redeem, purchase or otherwise acquire shares of any
                such junior stock in exchange for shares of any stock of the
                Corporation ranking junior (either as to dividends or upon
                dissolution, liquidation or winding up) to the Series A
                Preferred Stock; or

                        (iv) redeem or purchase or otherwise acquire for
                consideration any shares of Series A Preferred Stock, or any
                shares of stock ranking on a parity with the Series A Preferred
                Stock, except in accordance with a purchase offer made in
                writing or by publication (as determined by the Board of
                Directors) to all holders of such shares upon such terms as the
                Board of Directors, after consideration of the respective annual
                dividend rates and other relative rights and preferences of the
                respective series and classes, shall determine in good faith
                will result in fair and equitable treatment among the respective
                series or classes.


                                       6

<PAGE>   7

                (B) The Corporation shall not permit any subsidiary of the
        Corporation to purchase or otherwise acquire for consideration any
        shares of stock of the Corporation unless the Corporation could, under
        paragraph (A) of this Section 4, purchase or otherwise acquire such
        shares at such time and in such manner.

               Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.

               Section 6. Liquidation, Dissolution or Winding Up.

               (A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received One Thousand Dollars
($1,000), per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment;
provided, however, that the holders of shares of Series A Preferred Stock shall
be entitled to receive an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to one thousand (1,000), times the
aggregate amount to be distributed per share to holders of shares of Common
Stock, or (2) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

               (B) In the event, however, that there are not sufficient assets
available to permit payment in full the Series A Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series A Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity shares in proportion
to their respective liquidation preferences.


                                       7
<PAGE>   8

               Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to One Thousand (1,000) times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

               Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.

               Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.

               Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least a majority of the outstanding shares of Series A Preferred Stock, voting
together as a single class.


                                       8
<PAGE>   9

               IN WITNESS WHEREOF, this Certificate of Designation is executed
on behalf of the Corporation by its President and its corporate seal attested by
its Secretary this 16th day of June, 1997.


                         /s/ PETER CARTWRIGHT
                         ------------------------------------------------------
                         Name:  Peter Cartwright
                         Title: Chairman, President and Chief Executive Officer



Attest:

/s/ ANN B. CURTIS
---------------------------------
Name:          Ann B. Curtis
Title:     Senior Vice President
          and Corporate Secretary


                                       9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1.4
<SEQUENCE>5
<FILENAME>f70293ex3-1_4.txt
<DESCRIPTION>EXHIBIT 3.1.4
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 3.1.4

                       AMENDED CERTIFICATE OF DESIGNATION
                                       OF
                     SERIES A PARTICIPATING PREFERRED STOCK
                                       OF
                               CALPINE CORPORATION

                         (PURSUANT TO SECTION 151 OF THE
                        DELAWARE GENERAL CORPORATION LAW)

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


     CALPINE CORPORATION, a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Company"), in accordance with the
provisions of Section 103 of the General Corporation Law of the State of
Delaware, certifies as follows:

     1.   That by resolution of the Board of Directors of the Company dated June
5, 1997, and by a Certificate of Designation filed in the office of the
Secretary of State of the State of Delaware on June 16, 1997, the Company
authorized a series of 100,000 shares of Series A Participating Preferred Stock,
par value $0.001 per share, of the Company (the "Series A Preferred Stock") and
established the powers, designations, preferences and relative, participating,
optional and other rights of the Series A Preferred Stock and the
qualifications, limitations or restrictions thereof.

     2.   As of the date hereof, no shares of Series A Preferred Stock are
outstanding and no shares of Series A Preferred Stock have been issued.

     3.   The pursuant to the authority conferred on the Board of Directors of
the Company by its Restated Certificate of Incorporation and the provisions of
Section 151(g) of the General Corporation Law of the State of Delaware, the
Board of Directors on February 6, 2001, adopted the following resolution
amending certain provision s of said Certificate of Designation:

          RESOLVED FURTHER, that the Board finds it advisable to amend the
     Certificate of Designation of Series A Participating Preferred Stock of
     Calpine Corporation (the "Series A Preferred Certificate of Designation"),
     and the Series A Preferred Stock Certificate of Designation is hereby
     amended, as follows: the phrase "One Hundred Thousand (100,000)" in the
     first sentence of Section 1 of the Series A Preferred Certificate of
     Designation is deleted and replaced with the phrase "Five Hundred Thousand
     (500,000)".

<PAGE>   2

     IN WITNESS WHEREOF, CALPINE CORPORATION has caused this certificate to be
executed by Lisa M. Bodensteiner, the Vice President, General Counsel and
Assistant Secretary of the Company, this 28th day of February, 2001.

                                        /s/ LISA M. BODENSTEINER
                                        ----------------------------------------
                                        Lisa M. Bodensteiner
                                        Vice President, General Counsel
                                        and Assistant Secretary



                                       2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1.2
<SEQUENCE>6
<FILENAME>f70293ex4-1_2.txt
<DESCRIPTION>EXHIBIT 4.1.2
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 4.1.2

                          FIRST SUPPLEMENTAL INDENTURE

                            Dated as of July 31, 2000

                                     Between

                              CALPINE CORPORATION,

                                    AS ISSUER

                                       and

                       STATE STREET BANK AND TRUST COMPANY
     (successor trustee to Shawmut Bank Connecticut, National Association),

                                   AS TRUSTEE

                           Supplementing the Indenture
                          Dated as of February 17, 1994

<PAGE>   2

     FIRST SUPPLEMENTAL INDENTURE, dated as of July 31, 2000 (the "First
Supplemental Indenture"), between Calpine Corporation, a Delaware corporation
(the "Company"), and State Street Bank and Trust Company, as successor trustee
to Shawmut Bank Connecticut, National Association (the "Trustee").

     WHEREAS, the Company executed and delivered the Indenture dated as of
February 17, 1994 (the "Indenture"), to the Trustee's predecessor to provide for
the issuance of $105,000,000 of the Company's 9 1/4% Senior Notes due 2004;

     WHEREAS, the Holders (as defined in the Indenture) of a majority in
principal amount of such Senior Notes have approved certain amendments proposed
by the Company to certain provisions of the Indenture, and the Company desires
to supplement and amend the Indenture accordingly as contemplated by Section 8.2
thereof;

     WHEREAS, all things necessary to make this First Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Indenture, have been done.

     NOW THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Terms

     Unless the context otherwise requires

     (a)  capitalized terms used herein that are not otherwise defined herein
shall have the meaning assigned to such terms in the Indenture;

     (b)  the singular includes the plural and vice versa;

     (c)  headings are for convenience of reference only and do not affect
interpretation.

                                   ARTICLE II
                           AMENDMENTS TO THE INDENTURE

     Section 2.1 Amendments

     (a)  The following definitions in Section 1.1 of the Indenture are amended
to read in their entirety as follows:

     "Non-Recourse Debt" means Indebtedness of the Company or any Restricted
     Subsidiary that is Incurred to finance the exploration, drilling,


                                       2

<PAGE>   3

     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or any Restricted
     Subsidiary, provided that such Indebtedness is without recourse to the
     Company or any Restricted Subsidiary or to any property or assets of the
     Company or any Restricted Subsidiary other than property or assets
     (including Capital Stock) subject to a Lien permitted pursuant to Section
     3.7 (f) or (p).

     "Subsidiary" means, as applied to any Person, any corporation, limited or
     general partnership, trust, association or other business entity of which
     an aggregate of at least 50% of the outstanding Voting Shares or an
     equivalent controlling interest therein, of such Person is, at the time,
     directly or indirectly, owned by such Person and/or one or more
     Subsidiaries of such Person.

     (b)  Clause (vii) of Section 3.4(b) is amended to read in its entirety:

     Non-Recourse Debt of a Restricted Subsidiary.

     (c)  Section 3.7(f) of the Indenture is amended to read in its entirety:

          (1)  Liens incurred by the Company or any Restricted Subsidiary
     securing Indebtedness Incurred by the Company or such Restricted
     Subsidiary, as the case may be, to finance the exploration, drilling,
     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or such Restricted
     Subsidiary, as the case may be, which Liens may include Liens on the
     Capital Stock of such Restricted Subsidiary or (2) Liens incurred by any
     Restricted Subsidiary that does not own, directly or indirectly, at the
     time of such original incurrence of such a Lien under this clause (2) any
     operating properties or assets, securing Indebtedness Incurred to finance
     the exploration, drilling, development, construction or purchase of or by,
     or repairs, improvements or additions to, property or assets of any
     Restricted Subsidiary that does not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, which Liens may include Liens on the Capital Stock of one or
     more Restricted Subsidiaries that do not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, provided, however, that the Indebtedness secured by any such
     Lien may not be issued more than 365 days after the later of the
     exploration, drilling, development, completion of construction, purchase,
     repair, improvement, addition or commencement of full commercial operation
     of the property or asset being so financed;

     (d)  Section 3.7(l) is deleted in its entirety and the term "[Deleted]" is
inserted in lieu thereof.


                                       3

<PAGE>   4

     (e)  Section 3.7(p) is amended to read in its entirety:

     Liens to secure any refinancing, refunding, extension, renewal or
     replacement (or successive refinancings, refundings, extensions, renewals
     or replacements) as a whole, or in part, of any Indebtedness secured by any
     Lien referred to in the foregoing clauses (f), (g), (h) and (i), provided,
     however, that (x) such new Lien shall be limited to all or part of the same
     property or assets that secured the original Lien (plus repairs,
     improvements or additions to such property or assets and Liens on the stock
     or other ownership interest in one or more Restricted Subsidiaries
     beneficially owning such property or assets) and (y) the amount of the
     Indebtedness secured by such Lien at such time (or, if the amount that may
     be realized in respect of such Lien is limited, by contract or otherwise,
     such limited lesser amount) is not increased (other than by an amount
     necessary to pay fees and expenses, including premiums, related to the
     refinancing, refunding, extension, renewal or replacement of such
     Indebtedness);

                                   ARTICLE III
                                  MISCELLANEOUS

     Section 3.1 Notification to Holders.

     The Company shall notify the Holders in accordance with Section 8.2 of the
Indenture of the execution of this First Supplemental Indenture.

     Section 3.2 Ratification of Indenture.

     The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture shall
be deemed part of the Indenture in the manner and to the extent herein and
therein provided.

     Section 3.3 Governing Law.

     This First Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.

     Section 3.4 Separability.

     In case any one or more of the provisions contained in this First
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this First Supplemental Indenture but
this First Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.


                                       4

<PAGE>   5

     Section 3.5 Counterparts.

     This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

     Section 3.6 Effectiveness.

     This First Supplemental Indenture shall be effective and binding when
executed by the Company and the Trustee.

     Section 3.7 Trustee Not Responsible for Recitals.

     The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.

     Section 3.8 Performance by Trustee.

     The Trustee, for itself and its successors accepts the Trust of the
Indenture as amended by this First Supplemental Indenture and agrees to perform
the same, but only upon the terms and conditions set forth in the Indenture,
including the terms and provisions defining and limiting the liability and
responsibility of the Trustee.

                                      * * *


                                       5

<PAGE>   6


     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.

                                        CALPINE CORPORATION


                                        By: /s/ ANN B. CURTIS
                                           -------------------------------------
                                           Ann B. Curtis
                                           Executive Vice President and
                                           Chief Financial Officer



                                        STATE STREET BANK AND TRUST COMPANY
                                        successor trustee to Shawmut Bank
                                        Connecticut, National Association


                                        By: /s/ SUSAN T. KELLER
                                           -------------------------------------
                                           Name: Susan T. Keller
                                           Title: Vice President



                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.2.2
<SEQUENCE>7
<FILENAME>f70293ex4-2_2.txt
<DESCRIPTION>EXHIBIT 4.2.2
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 4.2.2

                          FIRST SUPPLEMENTAL INDENTURE

                           Dated as of August 1, 2000

                                     Between

                              CALPINE CORPORATION,

                                    AS ISSUER

                                       and

                       STATE STREET BANK AND TRUST COMPANY
                   (successor trustee to Fleet National Bank),

                                   AS TRUSTEE

                           Supplementing the Indenture
                            Dated as of May 16, 1996

<PAGE>   2

     FIRST SUPPLEMENTAL INDENTURE, dated as of August 1, 2000 (the "First
Supplemental Indenture"), between Calpine Corporation, a Delaware corporation
(the "Company"), and State Street Bank and Trust Company, as successor trustee
to Fleet National Bank (the "Trustee").

     WHEREAS, the Company executed and delivered the Indenture dated as of May
16, 1996 (the "Indenture") to the Trustee's predecessor to provide for the
issuance of $180,000,000 of the Company's 10 1/2% Senior Notes due 2006;

     WHEREAS, the Holders (as defined in the Indenture) of a majority in
principal amount of such Senior Notes have approved certain amendments proposed
by the Company to certain provisions of the Indenture, and the Company desires
to supplement and amend the Indenture accordingly as contemplated by Section 8.2
thereof;

     WHEREAS, all things necessary to make this First Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Indenture, have been done.

     NOW THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Terms

     Unless the context otherwise requires

     (a)  capitalized terms used herein that are not otherwise defined herein
shall have the meaning assigned to such terms in the Indenture;

     (b)  the singular includes the plural and vice versa;

     (c)  headings are for convenience of reference only and do not affect
interpretation.

                                   ARTICLE II
                           AMENDMENTS TO THE INDENTURE

     Section 2.1 Amendments

     (a)  The following definitions in Section 1.1 of the Indenture are amended
to read in their entirety as follows:

     "Non-Recourse Debt" means Indebtedness of the Company or any Restricted
     Subsidiary that is Incurred to finance the exploration, drilling,


                                       2

<PAGE>   3

     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or any Restricted
     Subsidiary, provided that such Indebtedness is without recourse to the
     Company or any Restricted Subsidiary or to any property or assets of the
     Company or any Restricted Subsidiary other than property or assets
     (including Capital Stock) subject to a Lien permitted pursuant to Section
     3.7 (f) or (p).

     "Subsidiary" means, as applied to any Person, any corporation, limited or
     general partnership, trust, association or other business entity of which
     an aggregate of at least 50% of the outstanding Voting Shares or an
     equivalent controlling interest therein, of such Person is, at the time,
     directly or indirectly, owned by such Person and/or one or more
     Subsidiaries of such Person.

     (b)  Clause (vii) of Section 3.4(b) is amended to read in its entirety:

     Non-Recourse Debt of a Restricted Subsidiary.

     (c)  Section 3.7(f) of the Indenture is amended to read in its entirety:

          (1)  Liens incurred by the Company or any Restricted Subsidiary
     securing Indebtedness Incurred by the Company or such Restricted
     Subsidiary, as the case may be, to finance the exploration, drilling,
     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or such Restricted
     Subsidiary, as the case may be, which Liens may include Liens on the
     Capital Stock of such Restricted Subsidiary or (2) Liens incurred by any
     Restricted Subsidiary that does not own, directly or indirectly, at the
     time of such original incurrence of such a Lien under this clause (2) any
     operating properties or assets, securing Indebtedness Incurred to finance
     the exploration, drilling, development, construction or purchase of or by,
     or repairs, improvements or additions to, property or assets of any
     Restricted Subsidiary that does not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, which Liens may include Liens on the Capital Stock of one or
     more Restricted Subsidiaries that do not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, provided, however, that the Indebtedness secured by any such
     Lien may not be issued more than 365 days after the later of the
     exploration, drilling, development, completion of construction, purchase,
     repair, improvement, addition or commencement of full commercial operation
     of the property or asset being so financed;

     (d)  Section 3.7(l) is deleted in its entirety and the term "[Deleted]" is
inserted in lieu thereof.


                                       3

<PAGE>   4

     (e)  Section 3.7(p) is amended to read in its entirety:

     Liens to secure any refinancing, refunding, extension, renewal or
     replacement (or successive refinancings, refundings, extensions, renewals
     or replacements) as a whole, or in part, of any Indebtedness secured by any
     Lien referred to in the foregoing clauses (f), (g), (h) and (i), provided,
     however, that (x) such new Lien shall be limited to all or part of the same
     property or assets that secured the original Lien (plus repairs,
     improvements or additions to such property or assets and Liens on the stock
     or other ownership interest in one or more Restricted Subsidiaries
     beneficially owning such property or assets) and (y) the amount of the
     Indebtedness secured by such Lien at such time (or, if the amount that may
     be realized in respect of such Lien is limited, by contract or otherwise,
     such limited lesser amount) is not increased (other than by an amount
     necessary to pay fees and expenses, including premiums, related to the
     refinancing, refunding, extension, renewal or replacement of such
     Indebtedness);

                                   ARTICLE III
                                  MISCELLANEOUS

     Section 3.1 Notification to Holders.

     The Company shall notify the Holders in accordance with Section 8.2 of the
Indenture of the execution of this First Supplemental Indenture.

     Section 3.2 Ratification of Indenture.

     The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture shall
be deemed part of the Indenture in the manner and to the extent herein and
therein provided.

     Section 3.3 Governing Law.

     This First Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.

     Section 3.4 Separability.

     In case any one or more of the provisions contained in this First
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this First Supplemental Indenture but
this First Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.


                                       4

<PAGE>   5

     Section 3.5 Counterparts.

     This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

     Section 3.6 Effectiveness.

     This First Supplemental Indenture shall be effective and binding when
executed by the Company and the Trustee.

     Section 3.7 Trustee Not Responsible for Recitals.

     The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.

     Section 3.8 Performance by Trustee.

     The Trustee, for itself and its successors accepts the Trust of the
Indenture as amended by this First Supplemental Indenture and agrees to perform
the same, but only upon the terms and conditions set forth in the Indenture,
including the terms and provisions defining and limiting the liability and
responsibility of the Trustee.

                                      * * *


                                       5

<PAGE>   6

     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.

                                     CALPINE CORPORATION


                                     By: /s/ ANN B. CURTIS
                                        ----------------------------------------
                                        Ann B. Curtis
                                        Executive Vice President and
                                        Chief Financial Officer


                                     STATE STREET BANK AND TRUST COMPANY
                                     as successor trustee to Fleet National Bank


                                     By: /s/ SUSAN T. KELLER
                                        ----------------------------------------
                                        Name: Susan T. Keller
                                        Title: Vice President



                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3.3
<SEQUENCE>8
<FILENAME>f70293ex4-3_3.txt
<DESCRIPTION>EXHIBIT 4.3.3
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 4.3.3

                          SECOND SUPPLEMENTAL INDENTURE

                            Dated as of July 31, 2000

                                     Between

                              CALPINE CORPORATION,

                                    AS ISSUER

                                       and

                              THE BANK OF NEW YORK,

                                   AS TRUSTEE

                           Supplementing the Indenture
                            Dated as of July 8, 1997

<PAGE>   2

     SECOND SUPPLEMENTAL INDENTURE, dated as of July 31, 2000 (the "Second
Supplemental Indenture"), between Calpine Corporation, a Delaware corporation
(the "Company"), and The Bank of New York, as trustee ("the Trustee").

     WHEREAS, the Company executed and delivered the Indenture dated as of July
8, 1997, to the Trustee to provide for the issuance of $275,000,000 of the
Company's 8 3/4% Senior Notes due 2007, as supplemented by the First
Supplemental Indenture dated as of September 10, 1997(the "Indenture");

     WHEREAS, the Holders (as defined in the Indenture) of a majority in
principal amount of such Senior Notes have approved certain amendments proposed
by the Company to certain provisions of the Indenture, and the Company desires
to supplement and amend the Indenture accordingly as contemplated by Section 8.2
thereof;

     WHEREAS, all things necessary to make this Second Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Indenture, have been done.

     NOW THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Terms

     Unless the context otherwise requires

     (a)  capitalized terms used herein that are not otherwise defined herein
shall have the meaning assigned to such terms in the Indenture;

     (b)  the singular includes the plural and vice versa;

     (c)  headings are for convenience of reference only and do not affect
interpretation.

                                   ARTICLE II
                           AMENDMENTS TO THE INDENTURE

     Section 2.1 Amendments

     (a)  The following definitions in Section 1.1 of the Indenture are amended
to read in their entirety as follows:

     "Non-Recourse Debt" means Indebtedness of the Company or any Restricted
     Subsidiary that is Incurred to finance the exploration, drilling,


                                       2

<PAGE>   3

     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or any Restricted
     Subsidiary, provided that such Indebtedness is without recourse to the
     Company or any Restricted Subsidiary or to any property or assets of the
     Company or any Restricted Subsidiary other than property or assets
     (including Capital Stock) subject to a Lien permitted pursuant to Section
     3.7 (f) or (p).

     "Subsidiary" means, as applied to any Person, any corporation, limited or
     general partnership, trust, association or other business entity of which
     an aggregate of at least 50% of the outstanding Voting Shares or an
     equivalent controlling interest therein, of such Person is, at the time,
     directly or indirectly, owned by such Person and/or one or more
     Subsidiaries of such Person.

     (b)  Clause (vii) of Section 3.4(b) is amended to read in its entirety:

     Non-Recourse Debt of a Restricted Subsidiary.

     (c)  Section 3.7(f) of the Indenture is amended to read in its entirety:

          (1)  Liens incurred by the Company or any Restricted Subsidiary
     securing Indebtedness Incurred by the Company or such Restricted
     Subsidiary, as the case may be, to finance the exploration, drilling,
     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or such Restricted
     Subsidiary, as the case may be, which Liens may include Liens on the
     Capital Stock of such Restricted Subsidiary or (2) Liens incurred by any
     Restricted Subsidiary that does not own, directly or indirectly, at the
     time of such original incurrence of such a Lien under this clause (2) any
     operating properties or assets, securing Indebtedness Incurred to finance
     the exploration, drilling, development, construction or purchase of or by,
     or repairs, improvements or additions to, property or assets of any
     Restricted Subsidiary that does not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, which Liens may include Liens on the Capital Stock of one or
     more Restricted Subsidiaries that do not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, provided, however, that the Indebtedness secured by any such
     Lien may not be issued more than 365 days after the later of the
     exploration, drilling, development, completion of construction, purchase,
     repair, improvement, addition or commencement of full commercial operation
     of the property or asset being so financed;

     (d)  Section 3.7(l) is deleted in its entirety and the term "[Deleted]" is
inserted in lieu thereof.


                                       3

<PAGE>   4

     (e)  Section 3.7(p) is amended to read in its entirety:

     Liens to secure any refinancing, refunding, extension, renewal or
     replacement (or successive refinancings, refundings, extensions, renewals
     or replacements) as a whole, or in part, of any Indebtedness secured by any
     Lien referred to in the foregoing clauses (f), (g), (h) and (i), provided,
     however, that (x) such new Lien shall be limited to all or part of the same
     property or assets that secured the original Lien (plus repairs,
     improvements or additions to such property or assets and Liens on the stock
     or other ownership interest in one or more Restricted Subsidiaries
     beneficially owning such property or assets) and (y) the amount of the
     Indebtedness secured by such Lien at such time (or, if the amount that may
     be realized in respect of such Lien is limited, by contract or otherwise,
     such limited lesser amount) is not increased (other than by an amount
     necessary to pay fees and expenses, including premiums, related to the
     refinancing, refunding, extension, renewal or replacement of such
     Indebtedness);

                                   ARTICLE III
                                  MISCELLANEOUS

     Section 3.1 Notification to Holders.

     The Company shall notify the Holders in accordance with Section 8.2 of the
Indenture of the execution of this Second Supplemental Indenture.

     Section 3.2 Ratification of Indenture.

     The Indenture, as supplemented by this Second Supplemental Indenture, is in
all respects ratified and confirmed, and this Second Supplemental Indenture
shall be deemed part of the Indenture in the manner and to the extent herein and
therein provided.

     Section 3.3 Governing Law.

     This Second Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.

     Section 3.4 Separability.

     In case any one or more of the provisions contained in this Second
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Second Supplemental Indenture but
this Second Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.


                                       4

<PAGE>   5

     Section 3.5 Counterparts.

     This Second Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

     Section 3.6 Effectiveness.

     This Second Supplemental Indenture shall be effective and binding when
executed by the Company and the Trustee.

     Section 3.7 Trustee Not Responsible for Recitals.

     The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
Second Supplemental Indenture.

     Section 3.8 Performance by Trustee.

     The Trustee, for itself and its successors accepts the Trust of the
Indenture as amended by this Second Supplemental Indenture and agrees to perform
the same, but only upon the terms and conditions set forth in the Indenture,
including the terms and provisions defining and limiting the liability and
responsibility of the Trustee.

                                      * * *


                                        5

<PAGE>   6


     IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed as of the day and year first above written.

                                        CALPINE CORPORATION


                                        By: /s/ ANN B. CURTIS
                                           -------------------------------------
                                           Ann B. Curtis
                                           Executive Vice President and
                                           Chief Financial Officer



                                        THE BANK OF NEW YORK
                                        as Trustee

                                        By: /s/ MICHELE L. RUSSO
                                           -------------------------------------
                                           Name: Michele L. Russo
                                           Title: Assistant Vice President



                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4.3
<SEQUENCE>9
<FILENAME>f70293ex4-4_3.txt
<DESCRIPTION>EXHIBIT 4.4.3
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 4.4.3

                          SECOND SUPPLEMENTAL INDENTURE

                            Dated as of July 31, 2000

                                     Between

                              CALPINE CORPORATION,

                                    AS ISSUER

                                       and

                              THE BANK OF NEW YORK,

                                   AS TRUSTEE

                           Supplementing the Indenture
                           Dated as of March 31, 1998


<PAGE>   2

     SECOND SUPPLEMENTAL INDENTURE, dated as of July 31, 2000 (the "Second
Supplemental Indenture"), between Calpine Corporation, a Delaware corporation
(the "Company"), and The Bank of New York, as trustee ("the Trustee").

     WHEREAS, the Company executed and delivered the Indenture dated as of March
31, 1999, to the Trustee to provide for the issuance of $400,000,000 of the
Company's 77/8% Senior Notes due 2008, as supplemented by the First Supplemental
Indenture dated as of July 24, 1998 (the "Indenture");

     WHEREAS, the Holders (as defined in the Indenture) of a majority in
principal amount of such Senior Notes have approved certain amendments proposed
by the Company to certain provisions of the Indenture, and the Company desires
to supplement and amend the Indenture accordingly as contemplated by Section 8.2
thereof;

     WHEREAS, all things necessary to make this Second Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Indenture, have been done.

     NOW THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Terms

     Unless the context otherwise requires

     (a)  capitalized terms used herein that are not otherwise defined herein
shall have the meaning assigned to such terms in the Indenture;

     (b)  the singular includes the plural and vice versa;

     (c)  headings are for convenience of reference only and do not affect
interpretation.

                                   ARTICLE II
                           AMENDMENTS TO THE INDENTURE

     Section 2.1 Amendments

     (a)  The following definitions in Section 1.1 of the Indenture are amended
to read in their entirety as follows:

     "Non-Recourse Debt" means Indebtedness of the Company or any Restricted
     Subsidiary that is Incurred to finance the exploration, drilling,


                                       2

<PAGE>   3

     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or any Restricted
     Subsidiary, provided that such Indebtedness is without recourse to the
     Company or any Restricted Subsidiary or to any property or assets of the
     Company or any Restricted Subsidiary other than property or assets
     (including Capital Stock) subject to a Lien permitted pursuant to Section
     3.7 (f) or (p).

     "Subsidiary" means, as applied to any Person, any corporation, limited or
     general partnership, trust, association or other business entity of which
     an aggregate of at least 50% of the outstanding Voting Shares or an
     equivalent controlling interest therein, of such Person is, at the time,
     directly or indirectly, owned by such Person and/or one or more
     Subsidiaries of such Person.

     (b)  Clause (vii) of Section 3.4(b) is amended to read in its entirety:

     Non-Recourse Debt of a Restricted Subsidiary.

     (c)  Section 3.7(f) of the Indenture is amended to read in its entirety:

          (1)  Liens incurred by the Company or any Restricted Subsidiary
     securing Indebtedness Incurred by the Company or such Restricted
     Subsidiary, as the case may be, to finance the exploration, drilling,
     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or such Restricted
     Subsidiary, as the case may be, which Liens may include Liens on the
     Capital Stock of such Restricted Subsidiary or (2) Liens incurred by any
     Restricted Subsidiary that does not own, directly or indirectly, at the
     time of such original incurrence of such a Lien under this clause (2) any
     operating properties or assets, securing Indebtedness Incurred to finance
     the exploration, drilling, development, construction or purchase of or by,
     or repairs, improvements or additions to, property or assets of any
     Restricted Subsidiary that does not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, which Liens may include Liens on the Capital Stock of one or
     more Restricted Subsidiaries that do not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, provided, however, that the Indebtedness secured by any such
     Lien may not be issued more than 365 days after the later of the
     exploration, drilling, development, completion of construction, purchase,
     repair, improvement, addition or commencement of full commercial operation
     of the property or asset being so financed;

     (d)  Section 3.7(l) is deleted in its entirety and the term "[Deleted]" is
inserted in lieu thereof.


                                       3

<PAGE>   4

     (e)  Section 3.7(p) is amended to read in its entirety:

     Liens to secure any refinancing, refunding, extension, renewal or
     replacement (or successive refinancings, refundings, extensions, renewals
     or replacements) as a whole, or in part, of any Indebtedness secured by any
     Lien referred to in the foregoing clauses (f), (g), (h) and (i), provided,
     however, that (x) such new Lien shall be limited to all or part of the same
     property or assets that secured the original Lien (plus repairs,
     improvements or additions to such property or assets and Liens on the stock
     or other ownership interest in one or more Restricted Subsidiaries
     beneficially owning such property or assets) and (y) the amount of the
     Indebtedness secured by such Lien at such time (or, if the amount that may
     be realized in respect of such Lien is limited, by contract or otherwise,
     such limited lesser amount) is not increased (other than by an amount
     necessary to pay fees and expenses, including premiums, related to the
     refinancing, refunding, extension, renewal or replacement of such
     Indebtedness);

                                   ARTICLE III
                                  MISCELLANEOUS

     Section 3.1 Notification to Holders.

     The Company shall notify the Holders in accordance with Section 8.2 of the
Indenture of the execution of this Second Supplemental Indenture.

     Section 3.2 Ratification of Indenture.

     The Indenture, as supplemented by this Second Supplemental Indenture, is in
all respects ratified and confirmed, and this Second Supplemental Indenture
shall be deemed part of the Indenture in the manner and to the extent herein and
therein provided.

     Section 3.3 Governing Law.

     This Second Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.

     Section 3.4 Separability.

     In case any one or more of the provisions contained in this Second
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Second Supplemental Indenture but
this Second Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.


                                       4

<PAGE>   5

     Section 3.5 Counterparts.

     This Second Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

     Section 3.6 Effectiveness.

     This Second Supplemental Indenture shall be effective and binding when
executed by the Company and the Trustee.

     Section 3.7 Trustee Not Responsible for Recitals.

     The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
Second Supplemental Indenture.

     Section 3.8 Performance by Trustee.

     The Trustee, for itself and its successors accepts the Trust of the
Indenture as amended by this Second Supplemental Indenture and agrees to perform
the same, but only upon the terms and conditions set forth in the Indenture,
including the terms and provisions defining and limiting the liability and
responsibility of the Trustee.

                                      * * *


                                        5

<PAGE>   6

     IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed as of the day and year first above written.

                                        CALPINE CORPORATION


                                        By: /s/ ANN B. CURTIS
                                           -------------------------------------
                                           Ann B. Curtis
                                           Executive Vice President and
                                           Chief Financial Officer


                                        THE BANK OF NEW YORK
                                        as Trustee

                                        By: /s/ MICHELE L. RUSSO
                                           -------------------------------------
                                           Name: Michele L. Russo
                                           Title: Assistant Vice President



                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5.2
<SEQUENCE>10
<FILENAME>f70293ex4-5_2.txt
<DESCRIPTION>EXHIBIT 4.5.2
<TEXT>

<PAGE>   1
                                                                   Exhibit 4.5.2


                          FIRST SUPPLEMENTAL INDENTURE

                            Dated as of July 31, 2000

                                     Between

                              CALPINE CORPORATION,

                                    AS ISSUER

                                       and

                              THE BANK OF NEW YORK,

                                   AS TRUSTEE

                           Supplementing the Indenture
                           Dated as of March 29, 1999
<PAGE>   2

     FIRST SUPPLEMENTAL INDENTURE, dated as of July 31, 2000 (the "First
Supplemental Indenture"), between Calpine Corporation, a Delaware corporation
(the "Company"), and The Bank of New York, as trustee ("the Trustee").

     WHEREAS, the Company executed and delivered the Indenture dated as of March
29, 1999 (the "Indenture"), to the Trustee to provide for the issuance of
$350,000,000 of the Company's 7 3/4% Senior Notes due 2009;

     WHEREAS, the Holders (as defined in the Indenture) of a majority in
principal amount of such Senior Notes have approved certain amendments proposed
by the Company to certain provisions of the Indenture, and the Company desires
to supplement and amend the Indenture accordingly as contemplated by Section 8.2
thereof;

     WHEREAS, all things necessary to make this First Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Indenture, have been done.

     NOW THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Terms

     Unless the context otherwise requires

     (a) capitalized terms used herein that are not otherwise defined herein
shall have the meaning assigned to such terms in the Indenture;

     (b) the singular includes the plural and vice versa;

     (c) headings are for convenience of reference only and do not affect
interpretation.

                                   ARTICLE II
                           AMENDMENTS TO THE INDENTURE

     Section 2.1 Amendments

     (a) The following definition in Section 1.1 of the Indenture is amended to
read in its entirety as follows:

     "Non-Recourse Debt" means Indebtedness of the Company or any Restricted
     Subsidiary that is Incurred to finance the exploration, drilling,
     development, construction or purchase of or by, or repairs, improvements

                                       2
<PAGE>   3

     or additions to, property or assets of the Company or any Restricted
     Subsidiary, provided that such Indebtedness is without recourse to the
     Company or any Restricted Subsidiary or to any property or assets of the
     Company or any Restricted Subsidiary other than property or assets
     (including Capital Stock) subject to a Lien permitted pursuant to Section
     3.7 (f) or (p).

     (b) Clause (vii) of Section 3.4(b) is amended to read in its entirety:

     Non-Recourse Debt of a Restricted Subsidiary.

     (c) Section 3.7(f) of the Indenture is amended to read in its entirety:

     (1) Liens incurred by the Company or any Restricted Subsidiary securing
     Indebtedness Incurred by the Company or such Restricted Subsidiary, as the
     case may be, to finance the exploration, drilling, development,
     construction or purchase of or by, or repairs, improvements or additions
     to, property or assets of the Company or such Restricted Subsidiary, as the
     case may be, which Liens may include Liens on the Capital Stock of such
     Restricted Subsidiary or (2) Liens incurred by any Restricted Subsidiary
     that does not own, directly or indirectly, at the time of such original
     incurrence of such a Lien under this clause (2) any operating properties or
     assets, securing Indebtedness Incurred to finance the exploration,
     drilling, development, construction or purchase of or by, or repairs,
     improvements or additions to, property or assets of any Restricted
     Subsidiary that does not, directly or indirectly, own any operating
     properties or assets at the time of such original incurrence of such Lien,
     which Liens may include Liens on the Capital Stock of one or more
     Restricted Subsidiaries that do not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, provided, however, that the Indebtedness secured by any such
     Lien may not be issued more than 365 days after the later of the
     exploration, drilling, development, completion of construction, purchase,
     repair, improvement, addition or commencement of full commercial operation
     of the property or asset being so financed;

     (d) Section 3.7(l) is deleted in its entirety and the term "[Deleted]" is
inserted in lieu thereof.

     (e) Section 3.7(p) is amended to read in its entirety:

     Liens to secure any refinancing, refunding, extension, renewal or
     replacement (or successive refinancings, refundings, extensions, renewals
     or replacements) as a whole, or in part, of any Indebtedness secured by any
     Lien referred to in the foregoing clauses (f), (g), (h) and (i), provided,
     however, that (x) such new Lien shall be limited to


                                       3

<PAGE>   4


     all or part of the same property or assets that secured the original Lien
     (plus repairs, improvements or additions to such property or assets and
     Liens on the stock or other ownership interest in one or more Restricted
     Subsidiaries beneficially owning such property or assets) and (y) the
     amount of the Indebtedness secured by such Lien at such time (or, if the
     amount that may be realized in respect of such Lien is limited, by contract
     or otherwise, such limited lesser amount) is not increased (other than by
     an amount necessary to pay fees and expenses, including premiums, related
     to the refinancing, refunding, extension, renewal or replacement of such
     Indebtedness);

                                   ARTICLE III
                                  MISCELLANEOUS

     Section 3.1 Notification to Holders.

     The Company shall notify the Holders in accordance with Section 8.2 of the
Indenture of the execution of this First Supplemental Indenture.

     Section 3.2 Ratification of Indenture.

     The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture shall
be deemed part of the Indenture in the manner and to the extent herein and
therein provided.

     Section 3.3 Governing Law.

     This First Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.

     Section 3.4 Separability.

     In case any one or more of the provisions contained in this First
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this First Supplemental Indenture but
this First Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.

     Section 3.5 Counterparts.

     This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

     Section 3.6 Effectiveness.

                                       4
<PAGE>   5


     This First Supplemental Indenture shall be effective and binding when
executed by the Company and the Trustee.

     Section 3.7 Trustee Not Responsible for Recitals.

     The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.

     Section 3.8 Performance by Trustee.

     The Trustee, for itself and its successors accepts the Trust of the
Indenture as amended by this First Supplemental Indenture and agrees to perform
the same, but only upon the terms and conditions set forth in the Indenture,
including the terms and provisions defining and limiting the liability and
responsibility of the Trustee.

                                      * * *

                                       5

<PAGE>   6

     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.

                                           CALPINE CORPORATION


                                           By: /s/ ANN B. CURTIS
                                               -----------------------------
                                               Ann B. Curtis
                                               Executive Vice President and
                                               Chief Financial Officer



                                           THE BANK OF NEW YORK
                                           as Trustee

                                           By: /s/ MICHELE L. RUSSO
                                              -----------------------------
                                           Name: Michele L. Russo
                                           Title: Assistant Vice President



                                       6




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.6.2
<SEQUENCE>11
<FILENAME>f70293ex4-6_2.txt
<DESCRIPTION>EXHIBIT 4.6.2
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 4.6.2

                          FIRST SUPPLEMENTAL INDENTURE

                            Dated as of July 31, 2000

                                     Between

                              CALPINE CORPORATION,

                                    AS ISSUER

                                       and

                              THE BANK OF NEW YORK,

                                   AS TRUSTEE

                           Supplementing the Indenture
                           Dated as of March 29, 1999


<PAGE>   2

     FIRST SUPPLEMENTAL INDENTURE, dated as of July 31, 2000 (the "First
Supplemental Indenture"), between Calpine Corporation, a Delaware corporation
(the "Company"), and The Bank of New York, as trustee ("the Trustee").

     WHEREAS, the Company executed and delivered the Indenture dated as of March
29, 1999 (the "Indenture"), to the Trustee to provide for the issuance of
$250,000,000 of the Company's 75/8% Senior Notes due 2006;

     WHEREAS, the Holders (as defined in the Indenture) of a majority in
principal amount of such Senior Notes have approved certain amendments proposed
by the Company to certain provisions of the Indenture, and the Company desires
to supplement and amend the Indenture accordingly as contemplated by Section 8.2
thereof;

     WHEREAS, all things necessary to make this First Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Indenture, have been done.

     NOW THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Terms

     Unless the context otherwise requires

     (a)  capitalized terms used herein that are not otherwise defined herein
shall have the meaning assigned to such terms in the Indenture;

     (b)  the singular includes the plural and vice versa;

     (c)  headings are for convenience of reference only and do not affect
interpretation.

                                   ARTICLE II
                           AMENDMENTS TO THE INDENTURE

     Section 2.1 Amendments

     (a)  The following definition in Section 1.1 of the Indenture is amended to
read in its entirety as follows:

     "Non-Recourse Debt" means Indebtedness of the Company or any Restricted
     Subsidiary that is Incurred to finance the exploration, drilling,
     development, construction or purchase of or by, or repairs, improvements


                                       2

<PAGE>   3

     or additions to, property or assets of the Company or any Restricted
     Subsidiary, provided that such Indebtedness is without recourse to the
     Company or any Restricted Subsidiary or to any property or assets of the
     Company or any Restricted Subsidiary other than property or assets
     (including Capital Stock) subject to a Lien permitted pursuant to Section
     3.7 (f) or (p).

     (b)  Clause (vii) of Section 3.4(b) is amended to read in its entirety:

     Non-Recourse Debt of a Restricted Subsidiary.

     (c)  Section 3.7(f) of the Indenture is amended to read in its entirety:

          (1)  Liens incurred by the Company or any Restricted Subsidiary
     securing Indebtedness Incurred by the Company or such Restricted
     Subsidiary, as the case may be, to finance the exploration, drilling,
     development, construction or purchase of or by, or repairs, improvements or
     additions to, property or assets of the Company or such Restricted
     Subsidiary, as the case may be, which Liens may include Liens on the
     Capital Stock of such Restricted Subsidiary or (2) Liens incurred by any
     Restricted Subsidiary that does not own, directly or indirectly, at the
     time of such original incurrence of such a Lien under this clause (2) any
     operating properties or assets, securing Indebtedness Incurred to finance
     the exploration, drilling, development, construction or purchase of or by,
     or repairs, improvements or additions to, property or assets of any
     Restricted Subsidiary that does not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, which Liens may include Liens on the Capital Stock of one or
     more Restricted Subsidiaries that do not, directly or indirectly, own any
     operating properties or assets at the time of such original incurrence of
     such Lien, provided, however, that the Indebtedness secured by any such
     Lien may not be issued more than 365 days after the later of the
     exploration, drilling, development, completion of construction, purchase,
     repair, improvement, addition or commencement of full commercial operation
     of the property or asset being so financed;

     (d)  Section 3.7(l) is deleted in its entirety and the term "[Deleted]" is
inserted in lieu thereof.

     (e)  Section 3.7(p) is amended to read in its entirety:

     Liens to secure any refinancing, refunding, extension, renewal or
     replacement (or successive refinancings, refundings, extensions, renewals
     or replacements) as a whole, or in part, of any Indebtedness secured by any
     Lien referred to in the foregoing clauses (f), (g), (h) and (i), provided,
     however, that (x) such new Lien shall be limited to


                                       3

<PAGE>   4

     all or part of the same property or assets that secured the original Lien
     (plus repairs, improvements or additions to such property or assets and
     Liens on the stock or other ownership interest in one or more Restricted
     Subsidiaries beneficially owning such property or assets) and (y) the
     amount of the Indebtedness secured by such Lien at such time (or, if the
     amount that may be realized in respect of such Lien is limited, by contract
     or otherwise, such limited lesser amount) is not increased (other than by
     an amount necessary to pay fees and expenses, including premiums, related
     to the refinancing, refunding, extension, renewal or replacement of such
     Indebtedness);

                                   ARTICLE III
                                  MISCELLANEOUS

     Section 3.1 Notification to Holders.

     The Company shall notify the Holders in accordance with Section 8.2 of the
Indenture of the execution of this First Supplemental Indenture.

     Section 3.2 Ratification of Indenture.

     The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture shall
be deemed part of the Indenture in the manner and to the extent herein and
therein provided.

     Section 3.3 Governing Law.

     This First Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.

     Section 3.4 Separability.

     In case any one or more of the provisions contained in this First
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this First Supplemental Indenture but
this First Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.

     Section 3.5 Counterparts.

     This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

     Section 3.6 Effectiveness.


                                        4

<PAGE>   5

     This First Supplemental Indenture shall be effective and binding when
executed by the Company and the Trustee.

     Section 3.7 Trustee Not Responsible for Recitals.

     The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.

     Section 3.8 Performance by Trustee.

     The Trustee, for itself and its successors accepts the Trust of the
Indenture as amended by this First Supplemental Indenture and agrees to perform
the same, but only upon the terms and conditions set forth in the Indenture,
including the terms and provisions defining and limiting the liability and
responsibility of the Trustee.

                                      * * *


                                        5

<PAGE>   6

     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.

                                        CALPINE CORPORATION


                                        By: /s/ ANN B. CURTIS
                                           -------------------------------------
                                           Ann B. Curtis
                                           Executive Vice President and
                                           Chief Financial Officer


                                        THE BANK OF NEW YORK
                                        as Trustee

                                        By: /s/ MICHELE L. RUSSO
                                           -------------------------------------
                                           Name: Michele L. Russo
                                           Title: Assistant Vice President



                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.7.2
<SEQUENCE>12
<FILENAME>f70293ex4-7_2.txt
<DESCRIPTION>EXHBIT 4.7.2
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 4.7.2

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

                              CALPINE CORPORATION,

                                       and

                        WILMINGTON TRUST COMPANY, Trustee

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

                          FIRST SUPPLEMENTAL INDENTURE

                         Dated as of September 28, 2000

                           Supplementing the Indenture
                           Dated as of August 10, 2000

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

                                 Debt Securities

<PAGE>   2

     FIRST SUPPLEMENTAL INDENTURE, dated as of September 28, 2000, between
Calpine Corporation, a Delaware corporation (the "Company"), and Wilmington
Trust Company, a Delaware banking corporation ("the Trustee").

     WHEREAS, the Company executed and delivered the Indenture, dated as of
August 10, 2000 (the "Indenture"), to the Trustee to provide for the issuance of
debt securities in one or more series from time to time thereunder in an
unlimited aggregate principal amount;

     WHEREAS, pursuant to Section 2.1 of the Indenture, two duly authorized
members of the Board of Directors of the Company executed and delivered to the
Trustee a Directors' Certificate, dated as of August 10, 2000 (the "Directors'
Certificate"), that established the terms of the Company's 8-1/4% Senior Notes
due 2005 (the "8-1/4% Senior Notes") and the Company's 8-5/8% Senior Notes due
2010 (the "8-5/8% Senior Notes" and together with the 8-1/4% Senior Notes, the
"Senior Notes");

     WHEREAS, the Company, when authorized by a Board Resolution, and the
Trustee may amend the Indenture pursuant to Section 8.1 thereof without notice
to or consent of any Holder of the Senior Notes to make any change that does not
adversely affect the rights of any Holder of such Series, including, without
limitation, changing any payment record dates as necessary to conform to the
then-current market practice;

     WHEREAS, the Company desires to supplement and amend the Indenture as
contemplated by Section 8.1 thereof; and

     WHEREAS, all things necessary to make this First Supplemental Indenture a
valid agreement of the Company and the Trustee in accordance with its terms and
a valid amendment and supplement to the Indenture have been done.

     NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the Company and the Trustee agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section 1.1 Definition of Terms

     Unless the context otherwise requires:

     (a)  capitalized terms used herein that are not otherwise defined herein
shall have the meaning assigned to such terms in the Indenture or the Directors'
Certificate, as the case may be;

     (b)  the singular includes the plural and vice versa;

     (c)  headings are for convenience of reference only and do not affect
interpretation.

<PAGE>   3

                                   ARTICLE II
                           AMENDMENTS TO THE INDENTURE

     Section 2.1 Amendments

     (a)  Paragraph 4 of the Directors' Certificate relating to the 8-1/4%
Senior Notes is hereby deleted in its entirety and the following paragraph is
inserted in lieu thereof to conform the payment record dates in respect of the
8-1/4% Senior Notes to current market practice:

          4.   The 8-1/4% Senior Notes shall bear interest from August 10, 2000
     at the rate of 8-1/4% per annum, payable on February 15 and August 15,
     commencing February 15, 2001, for payment to Holders of record on the
     immediately preceding February 1 and August 1, respectively;

     (b)  Paragraph 4 of the Directors' Certificate relating to the 8-5/8%
Senior Notes is hereby deleted in its entirety and the following paragraph is
inserted in lieu thereof to conform the payment record dates in respect of the
8-5/8% Senior Notes to current market practice:

          4.   The 8-5/8% Senior Notes shall bear interest from August 10, 2000
     at the rate of 8-5/8% per annum, payable on February 15, and August 15,
     commencing February 15, 2001, for payment to the Holders of record on the
     immediately preceding February 1 and August 1, respectively;

                                   ARTICLE III
                                  MISCELLANEOUS

     Section 3.1 Notification to Holders.

     The Company shall notify the Holders in accordance with Section 8.1 of the
Indenture of the execution of this First Supplemental Indenture.

     Section 3.2 Notation on Senior Notes.

     All Senior notes authenticated and delivered after the date hereof shall
bear the following notation, which may be stamped or imprinted thereon:

     "In accordance with the First Supplemental Indenture dated as of September
     28, 2000, to the Indenture, dated as of August 10, 2000, each between
     Calpine Corporation and Wilmington Trust Company, as Trustee, the interest
     payable on this Security on each February 15 and August 15 shall be payable
     to the Holders of record on the immediately preceding February 1 and August
     1, respectively."


                                       2

<PAGE>   4

     The Company shall arrange for and pay all expenses related to such
notation.

     Section 3.3 Ratification of Indenture.

     The Indenture (including, without limitation, the Directors' Certificate),
as supplemented by this First Supplemental Indenture, is in all respects
ratified and confirmed, and this First Supplemental Indenture shall be deemed
part of the Indenture in the manner and to the extent herein and therein
provided.

     Section 3.4 Governing Law.

     This First Supplemental Indenture shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State.

     Section 3.5 Separability.

     In case any one or more of the provisions contained in this First
Supplemental Indenture shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this First Supplemental Indenture but
this First Supplemental Indenture shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.

     Section 3.6 Counterparts.

     This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.

     Section 3.7 Effectiveness.

     This First Supplemental Indenture shall be effective and binding when
executed and delivered by the Company and the Trustee.

     Section 3.8 Trustee Not Responsible for Recitals.

     The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.

     Section 3.9 Performance by Trustee.

     The Trustee, for itself and its successors accepts the trusts under the
Indenture as amended by this First Supplemental Indenture, and agrees to perform
the same, but only upon the terms and conditions set forth in the Indenture,
including, without limitation, the terms and provisions defining and limiting
the liability and responsibility of the Trustee.


                                       3

<PAGE>   5

     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.

                                        CALPINE CORPORATION


                                        By: /s/ ANN B. CURTIS
                                           -------------------------------------
                                           Name: Ann B. Curtis
                                           Title: Executive Vice President and
                                                  Chief Financial Officer


                                        WILMINGTON TRUST COMPANY,
                                        as Trustee


                                        By: /s/ BRUCE L. BISSON
                                           -------------------------------------
                                           Name: Bruce L. Bisson
                                           Title: Vice President



                                       4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12.1
<SEQUENCE>13
<FILENAME>f70293ex4-12_1.txt
<DESCRIPTION>EXHIBIT 4.12.1
<TEXT>

<PAGE>   1

                                                                  EXHIBIT 4.12.1


                                                                  EXECUTION COPY


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



                          PASS THROUGH TRUST AGREEMENT

                          Dated as of December 19, 2000

                                     between

                 TIVERTON POWER ASSOCIATES LIMITED PARTNERSHIP,

                  RUMFORD POWER ASSOCIATES LIMITED PARTNERSHIP,

                                       and

              STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
                             NATIONAL ASSOCIATION,
                   not in its individual capacity, but solely
                             as Pass Through Trustee

                  Tiverton and Rumford 2000 Pass Through Trust

                         9.00% Pass Through Certificates



================================================================================
<PAGE>   2


<TABLE>
<S>          <C>                                                                     <C>
SECTION 1.   DEFINITIONS..............................................................6

     Section 1.1.    Definitions......................................................6

     Section 1.2.    Compliance Certificates and Opinions............................11

     Section 1.3.    Form of Documents Delivered to Pass Through Trustee.............12

     Section 1.4.    Acts of Holders.................................................13

     Section 1.5.    Conflict with Trust Indenture Act...............................14

SECTION 2.   ACQUISITION OF LESSOR NOTES; ORIGINAL ISSUANCE OF
             CERTIFICATES............................................................14

     Section 2.1.    Issuance of Certificates; Acquisition of Lessor Notes...........14

     Section 2.2.    Acceptance by Pass Through Trustee..............................15

     Section 2.3.    Limitation of Powers............................................15

SECTION 3.   THE CERTIFICATES........................................................15

     Section 3.1.    Form, Denomination and Execution of Certificates................15

     Section 3.2.    Authentication of Certificates..................................16

     Section 3.3.    Temporary Certificates..........................................16

     Section 3.4.    Registration of Transfer and Exchange of Certificates...........17

     Section 3.5.    Mutilated, Destroyed, Lost or Stolen Certificates...............19

     Section 3.6.    Persons Deemed Owners...........................................19

     Section 3.7.    Cancellation....................................................19

     Section 3.8.    Limitation of Liability for Payments............................19

     Section 3.9.    Book-Entry and Definitive Certificates..........................20

     Section 3.10.   Form of Certification...........................................23

SECTION 4.   DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS.........................23

     Section 4.1.    Certificate Account and Special Payments Account................23

     Section 4.2.    Distributions from Certificate Account and Special Payments
                     Account.........................................................24

     Section 4.3.    Statements to Certificateholders................................25

     Section 4.4.    Investment of Special Payment Moneys............................26

SECTION 5.   FINANCIAL STATEMENTS AND OTHER REPORTS..................................26

SECTION 6.   DEFAULT.................................................................27

     Section 6.1.    Events of Default...............................................27

     Section 6.2.    Incidents of Sale of Lessor Notes...............................28
</TABLE>
<PAGE>   3


<TABLE>

<S>                  <C>                                                             <C>
     Section 6.3.    Judicial Proceedings Instituted by Pass Through Trustee.........28

     Section 6.4.    Control by Certificateholders...................................29

     Section 6.5.    Waiver of Defaults..............................................30

     Section 6.6.    Undertaking to Pay Court Costs..................................30

     Section 6.7.    Right of Certificateholders to Receive Payments Not to Be
                     Impaired........................................................31

     Section 6.8.    Certificateholders May Not Bring Suit Except Under Certain
                     Conditions......................................................31

     Section 6.9.    Remedies Cumulative.............................................32

SECTION 7.   THE PASS THROUGH TRUSTEE................................................32

     Section 7.1.    Certain Duties and Responsibilities.............................32

     Section 7.2.    Notice of Defaults..............................................33

     Section 7.3.    Certain Rights of Pass Through Trustee..........................33

     Section 7.4.    Not Responsible for Recitals; Issuance of Certificates..........34

     Section 7.5.    May Hold Certificates...........................................34

     Section 7.6.    Money Held in Pass Through Trust................................35

     Section 7.7.    Compensation, Reimbursement and Indemnification.................35

     Section 7.8.    Corporate Trustee Required; Eligibility.........................35

     Section 7.9.    Resignation and Removal: Appointment of Successor...............36

     Section 7.10.   Acceptance of Appointment by Successor..........................37

     Section 7.11.   Merger, Conversion, Consolidation or Succession to Business.....38

     Section 7.12.   Maintenance of Agencies.........................................38

     Section 7.13.   Money for Certificate Payments to Be Held in Trust..............39

     Section 7.14.   Registration of Lessor Notes in Pass Through Trustee's Name.....40

     Section 7.15.   Withholding Taxes; Information Reporting........................40

SECTION 8.   CERTIFICATEHOLDERS' LISTS AND REPORTS...................................40

     Section 8.1.    The Partnerships to Furnish Pass Through Trustee with Names
                     and Addresses of Certificateholder..............................40

     Section 8.2.    Preservation of Information.....................................41

     Section 8.3.    Reports by the Partnerships.....................................41

     Section 8.4.    Reports by the Pass Through Trustee.............................41

SECTION 9.   SUPPLEMENTAL TRUST AGREEMENTS...........................................41

     Section 9.1.    Supplemental Trust Agreement Without Consent of
                     Certificateholders..............................................41
</TABLE>

                                       2
<PAGE>   4

<TABLE>
<S>                  <C>                                                             <C>
     Section 9.2.    Supplemental Trust Agreements with Consent of
                     Certificateholders..............................................42

     Section 9.3.    Documents Affecting Immunity or Indemnity.......................43

     Section 9.4.    Execution of Supplemental Trust Agreements......................43

     Section 9.5.    Effect of Supplemental Trust Agreements.........................44

     Section 9.6.    Reference in Certificates to Supplemental Trust Agreements......44

     Section 9.7.    Conformity with Trust Indenture Act.............................44

SECTION 10.  AMENDMENTS AND CONSENTS TO COLLATERAL TRUST
             INDENTURE AND OTHER LESSOR NOTE DOCUMENTS...............................44

SECTION 11.  TERMINATION OF PASS THROUGH TRUST.......................................45

     Section 11.1.   Termination of the Pass Through Trust...........................45

SECTION 12.  MISCELLANEOUS PROVISIONS................................................46

     Section 12.1.   Amendments and Waivers..........................................46

     Section 12.2.   Limitation on Rights of Certificateholders......................46

     Section 12.3.   Certificates Nonassessable and Fully Paid.......................46

     Section 12.4.   Notices, etc. to Partnerships and Pass Through Trustee..........46

     Section 12.5.   Notices to Holders; Waiver......................................48

     Section 12.6.   Successors and Assigns..........................................48

     Section 12.7.   Business Day....................................................48

     Section 12.8.   Governing Law...................................................49

     Section 12.9.   Severability....................................................49

     Section 12.10.  Benefits of Pass Through Trust Agreement........................49

     Section 12.11.  Counterparts....................................................49

     Section 12.12.  Headings and Table of Contents..................................49

     Section 12.13.  Further Assurances..............................................49

     Section 12.14.  Effectiveness...................................................49

     Section 12.15.  Statement of Intent.............................................49
</TABLE>





                                       3
<PAGE>   5


SCHEDULE:

      Schedule 1  Participation Agreement

EXHIBITS:

      Exhibit A   Form of Certificate
      Exhibit B   Form of Pass Through Trustee's Certificate of Authentication
      Exhibit C   Form of Transfer Certificate
      Exhibit D   Form of Purchase Letter for Institutional Accredited Investors






                                       4
<PAGE>   6


                          PASS THROUGH TRUST AGREEMENT

               This PASS THROUGH TRUST AGREEMENT, dated as of December 19, 2000
(this "Pass Through Trust Agreement"), with respect to the formation of the
Tiverton and Rumford 2000 Pass Through Trust (the "Pass Through Trust"), between
TIVERTON POWER ASSOCIATES LIMITED PARTNERSHIP, a Rhode Island limited
partnership ("Tiverton"), RUMFORD POWER ASSOCIATES LIMITED PARTNERSHIP, a Maine
limited partnership ("Rumford," together, the "Partnerships"), and STATE STREET
BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, a national banking
association organized and existing under the laws of the United States, as Pass
Through Trustee (the "Pass Through Trustee").

                              W I T N E S S E T H:

               WHEREAS, the Partnerships, the Pass Through Trustee, and certain
other parties named therein have entered into the Participation Agreement
referred to on Schedule 1 hereto, pursuant to which the Partnerships have agreed
to (a) sell to the Owner Lessor certain interests in the Tiverton facility and
Rumford facility (together, the "Facilities"), and (b) lease from the Owner
Lessor such Facilities;

               WHEREAS, Tiverton and Rumford will consummate the sale to and
lease from the Owner Lessor of the Facilities on the Closing Date;

               WHEREAS, on the Closing Date, the Owner Lessor will enter into a
Collateral Trust Indenture and issue, on a non-recourse basis, Lessor Notes
thereunder to finance a portion of the purchase price for the Facilities;

               WHEREAS, subject to the terms and conditions of this Pass Through
Trust Agreement, the Pass Through Trust will purchase the Lessor Notes issued in
connection with the purchase of the Facilities from Tiverton and Rumford on the
Closing Date and will hold all such Lessor Notes in trust for the benefit of the
Certificateholders;

               WHEREAS, the Pass Through Trustee, upon the execution and
delivery of this Pass Through Trust Agreement, hereby declares the creation of
this Pass Through Trust for the benefit of the Certificateholders, and the
initial Certificateholders as the grantors of the Pass Through Trust and by
their respective acceptances of the Certificates join in the creation of this
Pass Through Trust with the Pass Through Trustee; and

               WHEREAS, to facilitate the sale of the Lessor Notes to the Pass
Through Trust and the purchase of the Lessor Notes by the Pass Through Trust,
the Partnerships are, on a joint and several basis, undertaking to perform
certain administrative and ministerial duties hereunder and are also undertaking
to pay the fees and expenses of the Pass Through Trustee.


                                       5
<PAGE>   7

               NOW, THEREFORE, in consideration of the foregoing premises, the
mutual agreements herein contained, and of the other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

SECTION 1.  DEFINITIONS

        Section 1.1. Definitions.

               (a)    Unless the context hereof otherwise requires, capitalized
terms used in this Pass Through Trust Agreement, including those in the
recitals, and not otherwise defined herein shall have the respective meanings
set forth in Appendix A to the Participation Agreement. The general provisions
of Appendix A to such Participation Agreement shall apply to the terms used in
this Pass Through Trust Agreement and specifically defined herein.

               (b)    As used in this Pass Through Trust Agreement, the
following terms shall have the respective meanings assigned thereto as follows:

                      "Act", when used with respect to any Holder, shall have
               the meaning specified in Section 1.4.

                      "Authorized Agent" shall mean any Paying Agent or
               Registrar.

                      "Avoidable Tax" shall have the meaning specified in
               7.9(e).

                      "Book-Entry Certificate" shall mean a beneficial interest
               in the Certificates, ownership and transfers of which shall be
               made through book entries by a Clearing Agency as described in
               Section 3.9.

                      "Cedelbank" shall have the meaning specified in Section
               3.9.

                      "Certificate" shall mean any one of the certificates
               executed and authenticated by the Pass Through Trustee,
               substantially in the form of Exhibit A hereto.

                      "Certificate Account" shall mean that account or accounts
               created and maintained pursuant to Section 4.1(a).

                      "Certificate Owner" shall mean, when used in Section 3.9,
               the Person for whom a Clearing Agency Participant acts.

                      "Certificate Owner Request" shall mean a request to the
               Pass Through Trustee to receive the reports and other information
               the Partnerships or any other Person is required to furnish to
               the Pass Through Trustee pursuant to the Operative Documents,
               which request certifies that the Person making the request is a
               Certificateholder or Certificate Owner. Any Certificateholder or
               Certificate Owner making a Certificate Owner Request may specify
               its election to receive such information from the Pass Through
               Trustee on an ongoing basis.


                                       6
<PAGE>   8

                      "Certificateholder" or "Holder" shall mean the Person in
               whose name a Certificate is registered in the Register.

                      "Clearing Agency" shall mean an organization registered as
               a "clearing agency" pursuant to Section 17A of the Exchange Act.

                      "Clearing Agency Participant" shall mean a broker, dealer,
               bank, other financial institution or other Person for whom from
               time to time a Clearing Agency effects, directly or indirectly,
               book-entry transfers and pledges of securities deposited with the
               Clearing Agency.

                      "Collateral Trust Indenture" shall mean (i) an Indenture
               of Trust, Mortgage and Security Agreement between the Owner
               Lessor and the Indenture Trustee, entered into pursuant to the
               Participation Agreement, as the same may be amended or
               supplemented in accordance with its terms and (ii) any Indenture
               of Trust, Mortgage and Security Agreement, or analogous document,
               between the Partnerships and a Indenture Trustee, entered into in
               connection with the assumption by the Partnerships of the
               indebtedness evidenced by any Lessor Note, as the same may be
               amended or supplemented in accordance with its terms.

                      "Consideration" shall have the meaning specified in
               Section 2.1.

                       "Default" shall mean any event which is or, after notice
               or lapse of time or both would become, an Event of Default.

                      "Definitive Certificates" shall have the meaning specified
               in Section 3.9.

                      "Direction" shall have the meaning specified in Section
               1.4(c).

                      "Distribution Date" shall mean, with respect to
               distributions of Scheduled Payments, each January 15 and July 15
               until payment of all the Scheduled Payments to be made under the
               Lessor Notes have been made, commencing on July 15, 2001.

                      "DTC" shall mean The Depository Trust Company and any
               successor that is a Clearing Agency.

                      "Euroclear" shall have the meaning specified in Section
               3.9.

                      "Event of Default" shall have the meaning specified in
               Section 6.1(a).

                      "Exchange Act" shall mean the Securities Exchange Act of
               1934, as amended.

                      "Fractional Undivided Interest" shall mean the fractional
               undivided interest in the Pass Through Trust that is evidenced by
               a Certificate.


                                       7
<PAGE>   9

                      "Holder" shall have the meaning set forth in the
               definition of "Certificateholder".

                       "Indenture Trustee" shall mean a bank or trust company
               acting as indenture trustee under the Collateral Trust Indenture,
               and any successor to such Indenture Trustee as such trustee. The
               term "Indenture Trustee" refers to any one or all of such
               Indenture Trustees, as the context requires.

                      "Institutional Accredited Investor" shall mean an
               institutional "accredited investor", as such term is defined in
               Rule 501(a)(1), (2), (3) or (7) under the Securities Act.

                      "Lease" shall mean a Facility Lease Agreement between the
               Owner Lessor, as the lessor, and each respective Partnership, as
               the lessee, entered into pursuant to the Participation Agreement,
               as such Lease may be amended or supplemented in accordance with
               its terms. The term "Lease" refers to any one or all of such
               Leases, as the context requires.

                      "Lease Event of Default" shall mean any Lease Event of
               Default (as such term is defined in a Lease).

                      "Lease Indenture Default" shall mean any event which is,
               or after notice or lapse of time or both would become, a Lease
               Indenture Event of Default.

                      "Lease Transaction" shall mean a sale leaseback
               transaction in respect of an Undivided Interest between Tiverton
               or Rumford, as applicable, and the Owner Lessor that is financed
               in part by the issuance of Lessor Notes to the Pass Through
               Trust, as contemplated by the Participation Agreement and the
               agreements and instruments referred to therein.

                      "Lessor Note" shall mean any one of the Notes (as defined
               in the Collateral Trust Indenture) issued under the Collateral
               Trust Indenture, including any Lessor Note (as so defined) issued
               under the Collateral Trust Indenture in replacement or
               substitution therefor, held by the Pass Through Trustee.

                      "Lessor Note Documents" shall mean, with respect to any
               Lessor Note, the Collateral Trust Indenture, Participation
               Agreement and the Lease entered into pursuant to the
               Participation Agreement.

                      "Letter of Representations" shall mean the agreement among
               the Partnerships, the Pass Through Trustee and the initial
               Clearing Agency.

                      "Outstanding" shall mean, when used with respect to
               Certificates, as of the date of determination, and subject to
               Section 1.4(c), all Certificates theretofore authenticated and
               delivered under this Pass Through Trust Agreement, except:


                                       8
<PAGE>   10

                      (i)    Certificates theretofore canceled by the Registrar
               or delivered to the Pass Through Trustee or the Registrar for
               cancellation;

                      (ii)   Certificates for which money in the full amount
               thereof has been theretofore deposited with the Pass Through
               Trustee or any Paying Agent in trust for the holders of such
               Certificates as provided in Section 4.1 pending distribution of
               such money to the Certificateholders pursuant to the final
               distribution payment to be made pursuant to Section 11.1; and

                      (iii)  Certificates in exchange for or in lieu of which
               other Certificates have been authenticated and delivered pursuant
               to this Pass Through Trust Agreement.

                      "Owner Lessor" shall mean a Delaware limited liability
               company indirectly owned by an institutional investor.

                      "Owner Participant" shall mean a Delaware limited
               liability company indirectly owned by an institutional investor.

                      "Participation Agreement" shall mean the Participation
               Agreement among Tiverton, Rumford, the Owner Participant, the
               Owner Lessor, an Indenture Trustee and the Pass Through Trustee,
               providing for the Lease Transaction, as identified on Schedule 1
               hereto.

                      "Partnerships" shall have the meaning specified in the
               Preamble hereto.

                      "Pass Through Trust" shall mean the trust created by this
               Pass Through Trust Agreement, the estate of which consists of the
               Trust Property.

                      "Pass Through Trustee" shall mean State Street Bank and
               Trust Company of Connecticut, National Association, not in its
               individual capacity, but solely as Pass Through Trustee under
               this Pass Through Trust Agreement, and each other Person that may
               be acting as a Pass Through Trustee in accordance with the
               provisions provided herein.

                      "Paying Agent" shall mean the paying agent maintained and
               appointed pursuant to Section 7.12.

                      "Permanent Regulation S Global Certificate" shall have the
               meaning specified in Section 3.9.

                      "Permitted Government Investment" shall mean the
               obligations of the United States of America for the payment of
               which the full faith and credit of the United States of America
               is pledged, maturing in not more than 60 days or such lesser time
               as is necessary for payment of any Special Payments on a Special
               Distribution Date.


                                       9

<PAGE>   11

                      "Record Date" shall mean (i) for Scheduled Payments to be
               distributed on any Distribution Date, other than the final
               distribution, the day (whether or not a Business Day) which is
               fifteen days preceding such Distribution Date, and (ii) for
               Special Payments to be distributed on any Special Distribution
               Date, other than the final distribution, the day (whether or not
               a Business Day) which is fifteen days preceding such Special
               Distribution Date.

                      "Register" and "Registrar" shall mean the register
               maintained and the registrar appointed pursuant to Sections 3.4
               and 7.12.

                      "Regulation S Global Certificate" shall have the meaning
               specified in Section 3.9.

                      "Request" shall mean a request by the Partnerships, the
               Owner Lessor, or any Indenture Trustee setting forth the subject
               matter of the request accompanied by an Officer's Certificate and
               an Opinion of Counsel as provided in Section 1.2.

                      "Responsible Officer" shall mean, with respect to any
               Person, (i) its Chairman of the Board, its President, any Senior
               Vice President, the Chief Financial Officer, any Vice President,
               the Treasurer or any other management employee (a) that has the
               power to take the action in question and has been authorized,
               directly or indirectly, by the Board of Directors or equivalent
               body of such Person, (b) working under the direct supervision of
               such Chairman of the Board, President, Senior Vice President,
               Chief Financial Officer, Vice President or Treasurer and (c)
               whose responsibilities include the administration of the Overall
               Transaction and (ii) with respect to the Pass Through Trustee and
               the Indenture Trustee an officer in their respective corporate
               trust departments.

                      "Restricted Certificate" shall have the meaning specified
               in Section 3.1.

                      "Restricted Global Certificate" shall have the meaning
               specified in Section 3.9.

                      "Scheduled Payment" shall mean, with respect to a
               Distribution Date, any payment (other than a Special Payment) of
               principal and interest on a Lessor Note, due from the Owner
               Lessor, which payment represents the payment of a regularly
               scheduled installment of principal then due on such Lessor Note,
               or the payment of regularly scheduled interest accrued on such
               Lessor Note.

                      "SEC" shall mean the Securities and Exchange Commission,
               as from time to time constituted, created under the Exchange Act.

                      "Securities Act" shall mean the Securities Act of 1933, as
               amended.

                      "Special Distribution Date" shall mean (i) with respect to
               the prepayment, redemption or otherwise prepayment of any Lessor
               Notes, the day on which such prepayment, redemption or otherwise
               prepayment is scheduled to occur pursuant to the terms of the
               Collateral Trust Indenture, and (ii) with respect to any Special


                                       10
<PAGE>   12

               Payment relating to a Lessor Note other than as described in
               clause (i) of the definition of Special Payment, the earliest
               second day of a month for which it is practicable for the Pass
               Through Trustee to give notice pursuant to Section 4.2(c).

                      "Special Payment" shall mean (i) any payment of principal,
               premium, if any, and interest on a Lessor Note resulting from the
               redemption or otherwise prepayment of such Lessor Note pursuant
               to the applicable provisions of the Collateral Trust Indenture,
               (ii) any payment of principal and interest (including any
               interest accruing upon default) on, or any other amount in
               respect of, such Lessor Note upon a Lease Indenture Event of
               Default in respect thereof or upon the exercise of remedies under
               the Collateral Trust Indenture relating to such Lessor Note,
               (iii) any Special Payment referred to in clause (i) of this
               definition or any Scheduled Payment which is not in fact paid
               within five days of the Special Distribution Date or Distribution
               Date applicable thereto, or (iv) any proceeds from the sale of
               any Lessor Note by the Pass Through Trustee pursuant to Section 6
               hereof.

                      "Special Payments Account" shall mean the account or
               accounts created and maintained pursuant to Section 4.1(b).

                      "Temporary Regulation S Global Certificate" shall have the
               meaning specified in Section 3.9.

                      "Transfer Date" shall mean the closing date of the public
               offering of the Certificates.

                      "Trust Indenture Act" shall mean the Trust Indenture Act
               of 1939, as amended and as in force on the date on which this
               Pass Through Trust Agreement was executed and delivered, except
               as provided in Section 9.7; provided, however, that in the event
               the Trust Indenture Act of 1939 is amended after such date,
               "Trust Indenture Act" shall mean, to the extent required by any
               such amendment, the Trust Indenture Act of 1939 as so amended.

                      "Trust Property" shall mean the Lessor Notes held as the
               property of the Pass Through Trust created hereby and all monies
               at any time paid thereon and all monies due and to become due
               thereunder, funds from time to time deposited in the Certificate
               Account and the Special Payments Account and any proceeds from
               the sale by the Pass Through Trustee pursuant to Section 6 hereof
               of any Lessor Note.

        Section 1.2. Compliance Certificates and Opinions.

               (a)    Upon any application or request by either Partnership, the
Owner Lessor or any Indenture Trustee to the Pass Through Trustee to take any
action under any provision of this Pass Through Trust Agreement, such
Partnership, the Owner Lessor or such Indenture Trustee, as the case may be,
shall furnish to the Pass Through Trustee an Officer's Certificate


                                       11
<PAGE>   13

stating that, in the opinion of the signers, all conditions precedent, if any,
provided for in this Pass Through Trust Agreement relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Pass Through Trust Agreement relating to such particular application or
request, no additional certificate or opinion need be furnished.

               (b)    Every certificate or opinion with respect to compliance
with a condition or covenant provided for in this Pass Through Trust Agreement
shall include:

               (1)    a statement that each individual signing such certificate
        or opinion has read such covenant or condition and the definitions
        herein relating thereto;

               (2)    a brief statement as to the nature and scope of the
        examination or investigation upon which the statements or opinions
        contained in such certificate or opinion are based;

               (3)    a statement that, in the opinion of each such individual,
        he has made such examination or investigation as is necessary to enable
        him to express an informed opinion as to whether or not such covenant or
        condition has been complied with; and

               (4)    a statement as to whether, in the opinion of each such
        individual, such condition or covenant has been complied with.

        Section 1.3. Form of Documents Delivered to Pass Through Trustee.

               (a)    In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters and any such
Person may certify or give an opinion as to such matters in one or several
documents.

               (b)    Any Officer's Certificate may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless the signer of such Officer's Certificate knows that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion is based are erroneous. Any such certificate or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
an Officer's Certificate stating that the information with respect to such
factual matters is in the possession of the signer of such Officer's
Certificate, unless such counsel knows that the certificate or opinions or
representations with respect to such matters are erroneous.

               (c)    Any Opinion of Counsel stated to be based on the opinion
of other counsel shall be accompanied by a copy of such other opinion.

               (d)    Where any Person is required to make, give or execute two
or more applications, requests, consents, certificates, statements, opinions or
other instruments under this


                                       12
<PAGE>   14

Pass Through Trust Agreement, they may, but need not, be consolidated and form
one instrument.

        Section 1.4. Acts of Holders.

               (a)    Any direction, consent, waiver, demand, authorization,
request, approval or other action provided by this Pass Through Trust Agreement
to be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent or agents duly appointed in writing; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Pass Through Trustee and, where it is hereby
expressly required, to the Partnerships, the Owner Lessor or any Indenture
Trustee. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Pass Through Trust Agreement and (subject to Section 7.1)
conclusive in favor of the Pass Through Trustee, the Partnerships, the Owner
Lessor and any Indenture Trustee, if made in the manner provided in this
Section.

               (b)    The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable manner which the Pass
Through Trustee deems sufficient.

               (c)    In determining whether the Holders of the requisite
Fractional Undivided Interests of Certificates Outstanding have given any
direction, consent, waiver or other action (a "Direction"), under this Pass
Through Trust Agreement, Certificates owned by the Partnerships, the Owner
Lessor, the Owner Participant or any Affiliate of any such Person shall be
disregarded and deemed not to be Outstanding under this Pass Through Trust
Agreement for purposes of any such determination. In determining whether the
Pass Through Trustee shall be protected in relying upon any such Direction, only
Certificates which the Pass Through Trustee knows to be so owned shall be so
disregarded. Notwithstanding the foregoing, (i) if any such Person owns 100% of
the Certificates Outstanding, such Certificates shall not be so disregarded as
aforesaid, and (ii) if any amount of Certificates so owned by any such Person
have been pledged in good faith, such Certificates shall not be disregarded as
aforesaid if the pledgee establishes to the satisfaction of the Pass Through
Trustee the pledgee's right so to act with respect to such Certificates and that
the pledgee is not one of the Partnerships, the Owner Lessor, the Owner
Participant or any Affiliate of any such Person.

               (d)    Any Act by the Holder of any Certificate shall bind the
Holder of every Certificate issued upon the transfer thereof or in exchange
therefor or in lieu thereof, whether or not notation of such Act is made upon
such Certificate.

               (e)    Except as otherwise provided in Section 1.4(c),
Certificates owned by or pledged to any Person shall have an equal and
proportionate benefit under the provisions of this Pass Through Trust Agreement,
without preference, priority or distinction as among all of the Certificates.


                                       13
<PAGE>   15

               (f)    Notwithstanding anything herein to the contrary, the
Certificates will vote and consent together on all matters as one class and will
not have the right to vote or consent as a separate class on any matter.

               (g)    The Pass Through Trustee may fix in advance a record date
for the determination of the Holders entitled to give any request, demand,
authorization, direction, notice, consent, waiver or other Act solicited by the
Partnerships, but the Pass Through Trustee shall not have any obligation to do
so.

        Section 1.5. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with a provision of the Trust Indenture Act that
is required or deemed under such Act to be a part of and govern this Pass
Through Trust Agreement, such required or deemed provision shall, so long as the
Certificates shall be subject to the Trust Indenture Act, control. If any
provision of this Pass Through Trust Agreement modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or to
be excluded, as the case may be.

SECTION 2. ACQUISITION OF LESSOR NOTES; ORIGINAL ISSUANCE OF CERTIFICATES

        Section 2.1. Issuance of Certificates; Acquisition of Lessor Notes.

               (a)    The Pass Through Trustee, at or promptly following the
execution and delivery of this Pass Through Trust Agreement, shall also execute
and deliver the Participation Agreement, in the form delivered to the Pass
Through Trustee on or prior to the date of the execution and delivery hereof.
Upon delivery of an authentication order by each of the Partnerships and the
satisfaction of the closing conditions with respect to the Lessor Notes in
Section 4 of the Participation Agreement, the Pass Through Trustee shall
execute, deliver and authenticate, on behalf of the Pass Through Trust,
Certificates equaling in the aggregate the total principal amount of the Lessor
Notes deposited into the Pass Through Trust on the Transfer Date. The
Certificates so executed, delivered and authenticated on the Transfer Date shall
evidence the entire ownership of the Pass Through Trust. The Pass Through Trust
shall issue such Certificates on the Transfer Date, in authorized denominations
and in such Fractional Undivided Interests, so as to result in the receipt of
consideration (the "Consideration") in an amount equal to the aggregate
principal amount of such Lessor Notes referred to in the second preceding
sentence. The Pass Through Trust shall purchase Lessor Notes on the Transfer
Date at an aggregate purchase price equal to the amount of the Consideration so
received. Except as provided in Sections 3.4 and 3.5 hereof, the Pass Through
Trustee shall not execute or deliver Certificates in excess of the aggregate
amount specified in this paragraph.

               (b)    The Partnerships' Assumption of Lessor Notes. If either
Partnership shall assume the obligations of the Owner Lessor under its Lessor
Note pursuant to the Collateral Trust Indenture, the Pass Through Trustee shall,
upon its receipt of written instructions from such Partnership, surrender the
applicable Lessor Notes issued pursuant to the Collateral Trust Indenture to the
Indenture Trustee in exchange for new Lessor Notes of the same aggregate
outstanding principal amount as the Lessor Notes so surrendered, bearing
interest at the same rate, and having the same maturity and amortization
schedule, and otherwise of similar tenor,


                                       14
<PAGE>   16

issued under the Collateral Trust Indenture and any new Collateral Trust
Indenture entered into by such Partnership and the Indenture Trustee in
connection with such assumption, and thereafter each reference to such Lessor
Notes in this Pass Through Trust Agreement shall be deemed to mean a reference
to such new Lessor Notes.

               (c)    Authentication. Any authentication order delivered by
either of the Partnerships hereunder shall be signed by one of such
Partnership's authorized signatories and shall specify the amount and maturity
of the Certificates to be authenticated and the date on which the original issue
of Certificates is to be authenticated. The Pass Through Trustee may appoint an
authenticating agent to authenticate the Certificates. Unless limited by the
terms of such appointment, an authenticating agent may authenticate the
Certificates whenever the Pass Through Trustee may do so. Each reference in this
Pass Through Trust Agreement to authentication by the Pass Through Trustee
includes authentication by such agent. An authenticating agent has the same
rights as any Registrar, Paying Agent or agent for service of notices and
demands.

        Section 2.2. Acceptance by Pass Through Trustee. The Pass Through
Trustee, upon the execution and delivery of this Pass Through Trust Agreement,
acknowledges on behalf of the Pass Through Trust its acceptance of all right,
title, and interest in and to the Lessor Notes acquired pursuant to Section 2.1
hereof and declares that the Pass Through Trustee holds and will hold such
right, title, and interest, together with all other property constituting the
Trust Property, for the benefit of all present and future Certificateholders,
upon the trusts herein set forth. By its payment for and acceptance of each
Certificate issued to it hereunder, each initial Certificateholder as grantor of
the Pass Through Trust thereby joins in the creation and declaration of the Pass
Through Trust. The Pass Through Trustee shall be under no duty or obligation to
inspect, review or examine the Lessor Notes to determine that they are genuine,
valid, binding, enforceable or appropriate for the represented purpose or that
they are other than what they purport to be on their face.

        Section 2.3. Limitation of Powers. The Pass Through Trust is constituted
solely for the purpose of making the investment in the Lessor Notes, and, except
as set forth herein, the Pass Through Trustee is not authorized or empowered to
acquire any other investments or engage in any other activities and, in
particular, the Pass Through Trustee is not authorized or empowered to do
anything that would cause the Pass Through Trust to fail to qualify as a pass
through entity for federal income tax purposes (including, as subject to this
restriction, acquiring any Undivided Interest or any portion thereof by bidding
the Lessor Notes or otherwise, or taking any action with respect to any
Undivided Interest or any portion thereof once acquired).

SECTION 3. THE CERTIFICATES

        Section 3.1. Form, Denomination and Execution of Certificates. The
Certificates shall be issued in registered form without coupons and shall be
substantially in the form attached hereto as Exhibit A, with such omissions,
variations and insertions as are permitted by this Pass Through Trust Agreement,
and may have such letters, numbers or other marks of identification and such
legends or endorsements printed, lithographed or engraved thereon, as may be
required to comply with the rules of any securities exchange on which such
Certificates may be listed or to conform to any usage in respect thereof, or as
may, consistently herewith, be prescribed by the


                                       15
<PAGE>   17

Pass Through Trustee or by the officer executing such Certificates, such
determination by said officer to be evidenced by his signing the Certificates.

               Except as provided in Section 3.9, definitive Certificates shall
be printed, lithographed or engraved or produced by any combination of these
methods, all as determined by the officer executing such Certificates, as
evidenced by his execution of such Certificates.

               During the period beginning on the Closing Date and ending on the
date two years from the Closing Date, all Certificates issued on the Closing
Date, and all Certificates issued upon registration of transfer of, or in
exchange for, such Certificates, shall be "Restricted Certificates" and shall be
subject to the restrictions on transfer provided in the legend set forth on the
face of the form of certificate in Exhibit A; provided, however, that the term
"Restricted Certificates" shall not include Certificates as to which such
restrictions on transfer have been terminated in accordance with Section 3.4.
All Restricted Certificates shall bear the legend set forth on the face of the
Certificate in Exhibit A. Certificates which are not Restricted Certificates
shall not bear such legend.

               The Certificates shall be issued in minimum denominations of
$100,000 or integral multiples of $1,000 in excess thereof.

               The Certificates shall be executed on behalf of the Pass Through
Trust by manual or facsimile signature of a Responsible Officer of the Pass
Through Trustee. Certificates bearing the manual or facsimile signature of an
individual who was, at the time when such signature was affixed, authorized to
sign on behalf of the Pass Through Trustee shall be valid and binding
obligations of the Pass Through Trust, notwithstanding that such individual has
ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such office at the date of such Certificates. No
Certificate shall be entitled to any benefit under this Pass Through Trust
Agreement, or be valid for any purpose unless there appears on such Certificate
a certificate of authentication substantially in the form set forth in Exhibit B
hereto executed by the Pass Through Trustee by manual signature, and such
certificate of authentication upon any Certificate shall be conclusive evidence,
and the only evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
authentication.

        Section 3.2. Authentication of Certificates. Upon delivery of an
authentication order by the Partnerships, the Pass Through Trustee shall cause
to be delivered Certificates duly authenticated by the Pass Through Trustee, in
authorized denominations equaling in the aggregate the aggregate principal
amount set forth in the authentication order evidencing the entire ownership of
the Pass Through Trust.

        Section 3.3. Temporary Certificates. Pending the preparation of
definitive Certificates, the Pass Through Trustee may execute, authenticate and
deliver temporary Certificates which are printed, lithographed, typewritten, or
otherwise produced, in any denomination, containing substantially the same terms
and provisions as set forth in Exhibit A, except for such appropriate
insertions, omissions, substitutions and other variations relating to their
temporary nature as the officer executing such temporary Certificates may
determine, as evidenced by his or her execution of such temporary Certificates.


                                       16
<PAGE>   18

               If temporary Certificates are issued, the Partnerships will cause
definitive Certificates to be prepared without unreasonable delay. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates upon surrender of the temporary
Certificates at the Corporate Trust Office of the Pass Through Trustee, or at
the office or agency of the Pass Through Trustee maintained in accordance with
Section 7.12, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Certificates, the Pass Through Trustee shall execute,
authenticate and deliver in exchange therefor definitive Certificates of
authorized denominations of a like aggregate Fractional Undivided Interest.
Until so exchanged, such temporary Certificates shall in all respects be
entitled to the same benefits under this Pass Through Trust Agreement as
definitive Certificates.

        Section 3.4. Registration of Transfer and Exchange of Certificates.

               (a)    The Pass Through Trustee shall cause to be kept, at the
office or agency to be maintained by it in accordance with the provisions of
Section 7.12, a register (the "Register") in which, subject to the provisions of
this Section 3.4 and the Certificates, the Pass Through Trustee shall provide
for the registration of Certificates (registering owners of Certificates and the
principal of and any interest on the Lessor Notes represented by the
Certificates held by each owner) and of transfers and exchanges of Certificates
as herein provided. The Pass Through Trustee shall initially be the registrar
(the "Registrar") for the purpose of registering Certificates and transfers and
exchanges of Certificates as herein provided.

               (b)    Every Restricted Certificate shall be subject to the
restrictions on transfer provided in the legend required to be set forth on the
face of each Restricted Certificate pursuant to Section 3.1, and the Holder of
each Restricted Certificate, by such Holder's acceptance thereof, agrees to be
bound by such restrictions on transfer. Whenever any Restricted Certificate is
presented or surrendered for registration of transfer or for exchange for a
Certificate registered in a name other than that of the Holder, such Restricted
Certificate must be accompanied by a certificate in substantially the form set
forth in Exhibit C hereto, dated the date of such surrender and signed by the
Holder of such Restricted Certificate, or such Holder's attorney duly authorized
in writing, as to compliance with such restrictions on transfer. Neither the
Pass Through Trustee nor any Registrar shall be required to accept for such
registration of transfer or exchange any Restricted Certificate not so
accompanied by a properly completed certificate. Notwithstanding the preceding
two sentences, a properly completed certificate shall not be required in
connection with any transfer of any Restricted Certificate through the
facilities of DTC or any other United States securities clearance and settlement
organization; provided, that such transfer does not require a change in the name
(other than to another nominee of DTC or such other securities clearance and
settlement organization) in which such Restricted Certificate is then
registered. Any transfer of ownership of Certificates shall be effective only
when such transfer is reflected on the Register.

        Whenever any Restricted Certificate is proposed to be transferred by a
Holder to an Institutional Accredited Investor, the Pass Through Trustee shall
have received from such Institutional Accredited Investor, prior to such
transfer, a signed letter substantially in the form of Exhibit D relating to
certain representations and agreements regarding restrictions on transfer of
such Restricted Certificate. In addition, if such Restricted Certificate
evidences a Fractional


                                       17
<PAGE>   19

Undivided Interest of less than $100,000, the Institutional Accredited Investor
must, prior to such transfer, furnish to the Registrar an Opinion of Counsel to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.

               The restrictions imposed by this Section 3.4 and Section 3.1 upon
the transferability of any particular Restricted Certificate shall cease and
terminate if and when such Restricted Certificate has been (i) sold pursuant to
an effective registration statement under the Securities Act, or (ii)
transferred pursuant to Rule 144 under the Securities Act (or any successor
provision thereto), unless the Holder thereof is an affiliate of either of the
Partnerships within the meaning of Rule 144 (or such successor provision). Any
Restricted Certificate as to which such restrictions on transfer shall have
expired in accordance with their terms or shall have terminated may, upon
surrender of such Restricted Certificate for exchange to the Pass Through
Trustee or any Registrar in accordance with the provisions of this Section 3.4
(accompanied, in the event that such restrictions on transfer have terminated by
reason of a transfer pursuant to Rule 144 or any successor provision, by an
Opinion of Counsel having substantial experience in practice under the
Securities Act and otherwise reasonably acceptable to each of the Partnerships,
addressed to each of the Partnerships and the Pass Through Trustee and in form
acceptable to each of the Partnerships, to the effect that the transfer of such
Restricted Certificate has been made in compliance with Rule 144 or such
successor provision), be exchanged for a new Certificate, of authorized
denominations of a like aggregate Fractional Undivided Interest, which shall not
bear the restrictive legend required by Section 3.1. The Pass Through Trustee
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the aforementioned Opinion of Counsel.

               (c)    Upon surrender for registration of transfer of any
Certificate that is not a Restricted Certificate at the Corporate Trust Office
or such other office or agency, the Pass Through Trustee shall execute,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates, in authorized denominations of a like
aggregate Fractional Undivided Interest.

               (d)    At the option of a Certificateholder, Certificates may be
exchanged for other Certificates, in authorized denominations and of a like
aggregate Fractional Undivided Interest, upon surrender of the Certificates to
be exchanged at any such office or agency; provided, that a Restricted
Certificate may only be exchanged for another Restricted Certificate, until such
restrictions on such Restricted Certificate shall cease and terminate in
accordance with the terms of this Section 3.4. Whenever any Certificates are so
surrendered for exchange, the Pass Through Trustee shall execute, authenticate
and deliver the Certificates that the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to each of the Partnerships and the
Pass Through Trustee and the Registrar duly executed by the Certificateholder
thereof or its attorney duly authorized in writing.

               (e)    No service charge shall be made to a Certificateholder for
any registration of transfer or exchange of Certificates, but the Pass Through
Trustee shall require payment of a


                                       18
<PAGE>   20

sum sufficient to cover any tax or charge that may be imposed in connection with
any transfer or exchange of Certificates.

               (f)    All Certificates surrendered for registration of transfer
and exchange shall be canceled and disposed of in accordance with the usual
practices of the Pass Through Trustee.

        Section 3.5. Mutilated, Destroyed, Lost or Stolen Certificates. If any
mutilated Certificate is surrendered to the Registrar, or the Registrar receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate and in the case of such destruction, loss or theft, there is
delivered to the Registrar, the Pass Through Trustee, the Partnerships and the
Owner Lessor such security, indemnity or bond as may be required by them to
protect each of them and the Pass Through Trust from any loss that any of them
may suffer if a Certificate is replaced, then, in the absence of notice to the
Registrar or the Pass Through Trustee that such Certificate has been acquired by
a bona fide purchaser, the Pass Through Trustee, on behalf of the Pass Through
Trust, shall execute, authenticate and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
like Fractional Undivided Interest with the same final Distribution Date. In
connection with the issuance of any new Certificate under this Section 3.5, the
Pass Through Trustee shall require the payment of a sum sufficient to cover any
tax or other charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Pass Through Trustee and the
Registrar) connected therewith. Any duplicate Certificate issued pursuant to
this Section 3.5 shall constitute conclusive evidence of the appropriate
Fractional Undivided Interest in the Pass Through Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.

        Section 3.6. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Pass Through Trustee, the
Partnerships, the Owner Lessor, the Registrar and any Paying Agent may treat the
person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 4.2
and for all other purposes whatsoever, and neither the Pass Through Trustee,
either Partnership, the Owner Lessor, the Registrar nor any Paying Agent shall
be affected by any notice to the contrary.

        Section 3.7. Cancellation. All Certificates surrendered for payment,
transfer or exchange shall, if surrendered to any Person a party hereto other
than the Registrar, be delivered by such Person to the Registrar for
cancellation. No Certificates shall be authenticated in lieu of or in exchange
for any Certificates canceled as provided in this Section 3.7, except as
expressly permitted by this Pass Through Trust Agreement. All canceled
Certificates held by the Registrar shall be disposed of in accordance with the
usual practice of the Pass Through Trustee and, if destroyed, a certification of
their destruction shall be delivered to the Pass Through Trustee.

        Section 3.8. Limitation of Liability for Payments. All payments or
distributions made to Certificateholders under this Pass Through Trust Agreement
shall be made only from the Trust Property and only to the extent that the Pass
Through Trustee shall have received sufficient income or proceeds from the Trust
Property to make such payments in accordance with the terms of Section 4 of this
Pass Through Trust Agreement. Each Holder of a Certificate, by its acceptance of
such Certificate, agrees that it will look solely to the income and proceeds
from the


                                       19
<PAGE>   21

Trust Property to the extent available for distribution to the Holder thereof as
provided in this Pass Through Trust Agreement. Nothing in this Pass Through
Trust Agreement shall be construed as an agreement, or otherwise creating an
obligation, of (a) either of the Partnerships, the Pass Through Trust or the
Pass Through Trustee to pay any of the principal, premium, if any, or interest
due from time to time under the Lessor Notes, or (b) either of the Partnerships,
the Pass Through Trust or the Pass Through Trustee to pay any amount due from
time to time in respect of the Certificates. The liability of the Owner Lessor
under the applicable Lessor Notes shall be limited as set forth therein and in
the Collateral Trust Indenture.

        Section 3.9. Book-Entry and Definitive Certificates.

               (a)    Except for Certificates issued to Institutional Accredited
Investors which must be issued in the form of definitive, fully registered
Certificates ("Definitive Certificates"), the Certificates may be issued in the
form of one or more typewritten Certificates representing the Book-Entry
Certificates to be delivered to DTC, the initial Clearing Agency, by, or on
behalf of, the Pass Through Trustee. In such case, the Certificates delivered to
DTC shall initially be registered on the Register in the name of Cede & Co., the
nominee of the initial Clearing Agency, and no Certificate Owner will receive a
definitive certificate representing such Certificate Owner's interest in the
Certificates, except as provided above and in subsection (d) below. As to the
Book-Entry Certificates, unless and until Definitive Certificates have been
issued pursuant to subsection (d) below:

                      (i)    the provisions of this Section 3.9 shall be in full
               force and effect;

                      (ii)   the Partnerships, the Owner Lessor, the Paying
               Agent, the Registrar and the Pass Through Trustee may deal with
               the Clearing Agency for all purposes (including the making of
               distributions on the Certificates) as the authorized
               representative of the Certificate Owners;

                      (iii)  to the extent that the provisions of this Section
               3.9 conflict with any other provisions of this Pass Through Trust
               Agreement (other than the provisions of any supplemental
               agreement amending this Section 3.9 as permitted by this Pass
               Through Trust Agreement), the provisions of this Section 3.9
               shall control;

                      (iv)   the rights of Certificate Owners shall be exercised
               only through the Clearing Agency and shall be limited to those
               established by law and agreements between such Certificate Owners
               and the Clearing Agency Participants; and until Definitive
               Certificates are issued pursuant to subsection (d) below, the
               Clearing Agency will make book-entry transfers among the Clearing
               Agency Participants and receive and transmit distributions of
               principal and interest and premium, if any, on the Certificates
               to such Clearing Agency Participants; and

                      (v)    whenever this Pass Through Trust Agreement requires
               or permits actions to be taken based upon instructions or
               directions of


                                       20
<PAGE>   22

               Certificateholders holding Certificates evidencing a specified
               percentage of the Fractional Undivided Interests in the Pass
               Through Trust, the Clearing Agency shall be deemed to represent
               such percentage only to the extent that it has received
               instructions to such effect from Certificate Owners and/or
               Clearing Agency Participants owning or representing,
               respectively, such required percentage of the beneficial interest
               in Certificates and has delivered such instructions to the Pass
               Through Trustee. The Pass Through Trustee shall have no
               obligation to determine (and shall incur no liability in
               connection with any determination of) whether the Clearing Agency
               has in fact received any such instructions.

               (b)    With respect to Book-Entry Certificates, whenever notice
or other communication to the Certificateholders is required under this Pass
Through Trust Agreement, unless and until Definitive Certificates shall have
been issued pursuant to subsection (d) below, the Pass Through Trustee shall
give all such notices and communications specified herein to be given to
Certificateholders to the Clearing Agency and/or the Clearing Agency
Participants (and, upon receipt of a valid Certificate Owner Request, to the
Certificateholder or Certificate Owner making such request), and shall make
available additional copies as reasonably requested by such Clearing Agency
Participants.

               (c)    Unless and until Definitive Certificates are issued
pursuant to subsection (d) below, on the Record Date prior to each applicable
Distribution Date and Special Distribution Date, the Pass Through Trustee will
request from the Clearing Agency a "Securities Position Listing" setting forth
the names of all Clearing Agency Participants reflected on the Clearing Agency's
books as holding interests in the Certificates on such Record Date. The Pass
Through Trustee shall mail to each such Clearing Agency Participant the
statements described in Section 4.3 hereof.

               (d)    If with respect to the Certificates (i) the Partnerships
or either of them advise the Pass Through Trustee in writing that the Clearing
Agency is no longer willing or able to properly discharge its responsibilities
and the Partnerships are unable to locate a qualified successor, (ii) the
Partnerships (or, following the occurrence of a Lease Event of Default, the
Owner Lessor) at their option, advise the Pass Through Trustee in writing that
it elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of an Event of Default, Certificate Owners of
Book-Entry Certificates evidencing Fractional Undivided Interests aggregating
not less than a majority in interest in the Pass Through Trust, by Act of said
Certificate Owners delivered to the Partnerships and the Pass Through Trustee,
advise the Partnerships, the Owner Lessor, the Pass Through Trustee and the
Clearing Agency through the Clearing Agency Participants in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of the Certificate Owners, then the Pass Through Trustee
shall notify all Certificate Owners, through the Clearing Agency, of the
occurrence of any such event and of the availability of Definitive Certificates.
Upon surrender to the Pass Through Trustee of all the Certificates held by the
Clearing Agency, accompanied by registration instructions from the Clearing
Agency for registration of Definitive Certificates in the names of Certificate
Owners, the Pass Through Trust shall issue and deliver the Definitive
Certificates in accordance with the instructions of the Clearing Agency. None of
the Partnerships, the Owner Lessor, the Registrar, the Paying Agent or the Pass
Through Trustee


                                       21
<PAGE>   23

shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such registration
instructions. Upon the issuance of Definitive Certificates, the Pass Through
Trustee shall recognize the Person in whose name the Definitive Certificates are
registered in the Register as Certificateholder hereunder. Neither the
Partnerships nor the Pass Through Trustee shall be liable if the Partnerships
are unable to locate a qualified successor Clearing Agency.

               (e)    The Certificates sold in offshore transactions in reliance
on Regulation S under the Securities Act will be represented initially by a
single, temporary Book-Entry Certificate, in definitive, fully registered form
without interest coupons (the "Temporary Regulation S Global Certificate") and
will be deposited with the Pass Through Trustee as custodian for DTC and
registered in the name of a nominee of DTC for the accounts of Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear System
("Euroclear"), and Cedelbank ("Cedelbank"). Each Temporary Regulation S Global
Certificate will be exchangeable for a single, permanent Book-Entry Certificate
(the "Permanent Regulation S Global Certificate," and together with the
Temporary Regulation S Global Certificate, the "Regulation S Global
Certificate") on or after 40 days after the later of the commencement of the
offering of the Certificates and the Closing Date upon certification that the
beneficial interests in such Book-Entry Certificate are owned by persons who are
not U.S. persons as defined in Regulation S. Prior to the expiration of such
40-day period, beneficial interests in the Temporary Regulation S Global
Certificate may be held only through Euroclear or Cedelbank, and any resale or
other transfer of such interests to U.S. persons shall not be permitted during
such period unless such resale or transfer is made pursuant to Rule 144A or
Regulation S under the Securities Act and in accordance with the certification
requirements specified in Section 3.9(f) below. The aggregate original principal
amount of the Regulation S Global Certificate may from time to time be increased
or decreased by adjustments made on the records of the Pass Through Trustee, as
custodian for DTC, in connection with a corresponding decrease or increase in
the aggregate original principal amount of a Definitive Certificate or the
Restricted Global Certificate, as hereinafter provided.

               (f)    The Certificates sold in reliance on Rule 144A under the
Securities Act will be represented by a single, permanent Book-Entry
Certificate, in definitive, fully registered form without interest coupons (the
"Restricted Global Certificate"), which will be deposited with the Pass Through
Trustee as custodian for DTC and registered in the name of a nominee of DTC.
Prior to the 40th day after the later of the commencement of the offering of the
Certificates and the Closing Date, a beneficial interest in the Temporary
Regulation S Global Certificate may be transferred to a person who takes
delivery in the form of an interest in the Restricted Global Certificate only
upon receipt by the Pass Through Trustee of a written certification from the
transferor (in the form of Exhibit C hereto) to the effect that such transfer is
being made to a person who the transferor reasonably believes is a "qualified
institutional buyer" within the meaning of Rule 144A in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction. Beneficial
interests in the Restricted Global Certificate may be transferred to a person
who takes delivery in the form of an interest in the Regulation S Global
Certificate whether before, on or after such 40th day, only upon receipt by the
Pass Through Trustee of a written certification (in the form of Exhibit C
hereto) to the effect that such transfer is being made in accordance with
Regulation S under the Securities Act and, if such transfer occurs prior


                                       22
<PAGE>   24

to such 40th day, the interest will be held immediately thereafter only through
Euroclear or Cedelbank. The aggregate initial principal amount of the Restricted
Global Certificate may from time to time be increased or decreased by
adjustments made on the records of the Pass Through Trustee, as custodian for
DTC, in connection with a corresponding decrease or increase in the aggregate
initial principal amount of a Definitive Certificate or a Regulation S Global
Certificate, as hereinafter provided.

               (g)    Any beneficial interest in one of the Book-Entry
Certificates that is transferred to a person who takes delivery in the form of
an interest in another Book-Entry Certificate will, upon transfer, cease to be
an interest in such first Book-Entry Certificate and become an interest in such
other Book-Entry Certificate and, accordingly, will thereafter be subject to all
transfer restrictions, if any, and other procedures applicable to beneficial
interests in such other Book-Entry Certificate for so long as it remains such an
interest. Upon the transfer of Definitive Certificates to a qualified
institutional buyer or in accordance with Regulation S, such Definitive
Certificates will be exchanged for an interest in a Book-Entry Certificate.

               (h)    The Partnerships and the Pass Through Trustee, if
necessary, shall each enter into the Letter of Representations with respect to
the Certificates and fulfill its responsibilities thereunder.

        Section 3.10. Form of Certification. In connection with any
certification contemplated by Section 3.4, relating to compliance with certain
restrictions relating to transfers of Restricted Certificates, such
certification shall be provided substantially in the form of Exhibit C hereto,
with only such changes as shall be reasonably approved by the Partnerships and
reasonably acceptable to the Pass Through Trustee.

SECTION 4. DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS

        Section 4.1. Certificate Account and Special Payments Account.

               (a)    The Pass Through Trust shall establish and maintain on
behalf of the Certificateholders the Certificate Account with the Pass Through
Trustee as one or more non-interest bearing accounts. The Pass Through Trustee
shall hold the Certificate Account in trust for the benefit of the
Certificateholders, and shall make or permit withdrawals therefrom only as
provided in this Pass Through Trust Agreement. On each day when a Scheduled
Payment is made and identified as such under the Collateral Trust Indenture to
the Pass Through Trust, as holder of the Lessor Notes issued under Collateral
Trust Indenture, the Pass Through Trustee upon receipt shall immediately deposit
the aggregate amount of such Scheduled Payment in the Certificate Account.

               (b)    The Pass Through Trust shall establish and maintain on
behalf of the Certificateholders the Special Payments Account with the Pass
Through Trustee as one or more accounts, which shall be non-interest bearing
except as provided in Section 4.4. The Pass Through Trustee shall hold the
Special Payments Account in trust for the benefit of the Certificateholders, and
shall make or permit withdrawals therefrom only as provided in this Pass Through
Trust Agreement. On each day when a Special Payment is made and identified as
such under the Collateral Trust Indenture to the Pass Through Trustee, as holder
of the Lessor Notes


                                       23
<PAGE>   25

issued under the Collateral Trust Indenture, the Pass Through Trustee upon
receipt shall immediately deposit the aggregate amounts of such Special Payments
in the Special Payments Account.

               (c)    The Pass Through Trustee shall present to the applicable
Indenture Trustee each Lessor Note on the date of its stated final maturity, or
in the case of any Lessor Note which is to be redeemed or otherwise prepaid in
whole pursuant to the Collateral Trust Indenture, on the applicable redemption
or other prepayment date under the Collateral Trust Indenture.

        Section 4.2. Distributions from Certificate Account and Special Payments
Account.

               (a)    On each Distribution Date if the Pass Through Trustee
receives payment of the Scheduled Payments due on any Lessor Notes on such date
by 12:00 noon, New York time, on such date, the Pass Through Trustee shall
distribute out of the Certificate Account the entire amount deposited therein
pursuant to Section 4.1(a). If a Scheduled Payment is received by the Pass
Through Trustee after 12:00 noon, New York time, on a Distribution Date, such
payment shall be distributed on the next Business Day. If a Scheduled Payment is
not received by the Pass Through Trustee on a Distribution Date but is received
prior to the time such payment would become a Special Payment, such payment
shall be distributed (i) on the date received, if received by 12:00 noon, New
York time, on such date or (ii) on the next Business Day, if received after
12:00 noon, New York time, on such date. There shall be so distributed to each
Certificateholder of record on the Record Date with respect to such Distribution
Date (other than as provided in Section 11.1 concerning the final distribution)
(i) if (A) DTC is the Certificateholder of record, or (B) a Certificateholder
holds a Certificate or Certificates in an aggregate amount greater than
$10,000,000 or (C) a Certificateholder holds a Certificate or Certificates in an
aggregate amount greater than $1,000,000 and so requests to the Pass Through
Trustee, by wire transfer in immediately available funds to an account
maintained by such Certificateholder with a bank, or (ii) if none of the above
apply, by check mailed to such Certificateholder at the address appearing in the
Register, such Certificateholder's pro rata share (based on the aggregate
Fractional Undivided Interest held by such Certificateholder) of the aggregate
amount in the Certificate Account.

               (b)    On each Special Distribution Date with respect to any
Special Payment if the Pass Through Trustee receives the Special Payments due on
the required date by 12:00 noon, New York time, on such date, the Pass Through
Trustee shall distribute out of the Special Payments Account the entire amount
deposited therein with respect to such Special Payment pursuant to this Section
4.1(b). If a Special Payment is received by the Pass Through Trustee after 12:00
noon, New York time, on a Special Distribution Date, such payment shall be
distributed on the next Business Day. If a Special Payment is not received by
the Pass Through Trustee on a Special Distribution Date, such payment shall be
distributed (i) on the date received, if received by 12:00 noon, New York time,
on such date or (ii) on the next Business Day, if received after 12:00 noon, New
York time, on such date. There shall be so distributed to each Certificateholder
of record on the Record Date with respect to such Special Distribution Date
(other than as provided in Section 11.1 concerning the final distribution) (i)
if (A) DTC is the Certificateholder of record, or (B) a Certificateholder holds
a Certificate or Certificates in an aggregate amount greater than $10,000,000 or
(C) a Certificateholder holds a Certificate or Certificates in an aggregate
amount greater than $1,000,000 and so requests to the Pass Through


                                       24
<PAGE>   26

Trustee, by wire transfer in immediately available funds to an account
maintained by the Certificateholder with a bank, or (ii) if none of the above
apply, by check mailed to such Certificateholder at the address appearing in the
Register, such Certificateholder's pro rata share (based on the aggregate
Fractional Undivided Interest held by such Certificateholder) of the aggregate
amount in the Special Payments Account on account of such Special Payment.

               (c)    The Pass Through Trustee shall, at the expense of the
Partnerships, cause notice of each Special Payment to be mailed to (i) each
Certificateholder, at the address of such Certificateholder as it appears in the
Register and (ii) any Certificate Owner who has made a valid Certificate Owner
Request, at the address specified in such Certificate Owner Request. In the
event of prepayment of any Lessor Notes, such notice shall be mailed not less
than 20 days prior to the date any such Special Payment is scheduled to be
distributed. In the case of any other Special Payments, such notice shall be
mailed as soon as practicable after the Pass Through Trustee has confirmed that
it has received funds for such Special Payment. Notices mailed by the Pass
Through Trustee shall set forth:

                      (i)    the Special Distribution Date and the Record Date
               therefor (except as otherwise provided in Section 11.1);

                      (ii)   the amount of the Special Payment per $1,000 of
               face amount of Certificates and the amount thereof constituting
               principal, premium, if any, and interest;

                      (iii)  the reason for the Special Payment; and

                      (iv)   if the Special Distribution Date is the same date
               as a Distribution Date, the total amount to be received on such
               date per $1,000 of face amount of Certificates.

If the amount of premium payable upon the prepayment of a Lessor Note has not
been calculated at the time that the Pass Through Trustee mails notice of a
Special Payment, it shall be sufficient if the notice sets forth the other
amounts to be distributed and states that any premium received will also be
distributed. If a Distribution Date or Special Distribution Date is not a
Business Day, distribution shall be made on the immediately following Business
Day.

        Section 4.3. Statements to Certificateholders.

               (a)    On each Distribution Date and Special Distribution Date,
the Pass Through Trustee will include with each distribution to
Certificateholders a statement, giving effect to such distribution to be made on
such date, setting forth the following information (per a $1,000 face amount
Certificate):

                      (i)    the amount of such distribution allocable to
               principal and the amount allocable to premium if any; and

                      (ii)   the amount of such distribution allocable to
               interest.


                                       25
<PAGE>   27

               (b)    Within a reasonable period of time after the end of each
calendar year but not later than the latest date permitted by law, the Pass
Through Trustee shall furnish (i) to each Person who at any time during such
calendar year was a Certificateholder of record and (ii) to any Person who at
any time during such calendar year was a Certificate Owner who has made a valid
Certificate Owner Request and provided the Pass Through Trustee with such
pertinent information as the Pass Through Trustee shall reasonably request, a
statement containing the sum of the amounts determined pursuant to clauses
(a)(i) and (a)(ii) with respect to the Pass Through Trust for such calendar year
or, in the event such Person was a Certificateholder of record or Certificate
Owner during a portion of such calendar year, for the applicable portion of such
year, and such other items as are readily available to the Pass Through Trustee
and which a Certificateholder or Certificate Owner shall reasonably request as
necessary for the purpose of such Certificateholder's or Certificate Owner's
preparation of its Federal income tax returns.

        Section 4.4. Investment of Special Payment Moneys. Any money received by
the Pass Through Trustee pursuant to Section 4.1(b) representing a Special
Payment which is not to be promptly distributed shall, to the extent
practicable, be invested in Permitted Government Investments by the Pass Through
Trustee pending distribution of such Special Payment pursuant to Section 4.2.
Any investment made pursuant to this Section 4.4 shall be in such Permitted
Government Investments having maturities not later than the date that such
moneys are required to be paid to make the payment required under Section 4.2 on
the applicable Special Distribution Date and the Pass Through Trustee shall hold
any such Permitted Government Investments until maturity. The Pass Through
Trustee shall have no liability with respect to any investment made pursuant to
this Section 4.4, other than by reason of the willful misconduct or negligence
of the Pass Through Trustee. All income and earnings from such investments shall
be distributed on such Special Distribution Date as part of such Special
Payment.

SECTION 5. FINANCIAL STATEMENTS AND OTHER REPORTS

        For so long as any Certificates remain Outstanding, the Partnerships
shall furnish:

               (a)    to Certificateholders, Certificate Owners and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act so long as the Certificates are not
freely transferable under the Securities Act; and

               (b)    to the Pass Through Trustee, who in turn shall provide
such information, upon a Certificate Owner Request, to Certificateholders and
Certificate Owners:

                      (i)    within 60 days following the end of each of the
               first three fiscal quarters of the Partnerships during each
               fiscal year, a copy of Form 10-Q (or any successor form) filed by
               the Partnerships with the SEC for such fiscal quarter, or if the
               Partnerships are not then subject to the reporting requirements
               of the Exchange Act, unaudited consolidated quarterly financial
               statements for the Partnerships for such fiscal quarter in the
               form required by Section 5.3(b) of the Participation Agreement;

                      (ii)   within 120 days following the end of the fiscal
               year of the Partnerships, a copy of the Form 10-K (or any
               successor form) filed by the


                                       26
<PAGE>   28

               Partnerships with the SEC for such fiscal year, or, if the
               Partnerships are not then subject to the reporting requirements
               of the Exchange Act, audited consolidated annual financial
               statements in the form required by Section 5.3(a) of the
               Participation Agreement; and

                      (iii)  within 20 days after the occurrence thereof, (A) a
               copy of any current report on Form 8-K (or any successor form)
               filed by the Partnerships with the SEC, if any, and (B) notice of
               the following events (1) a Change of Control; (2) any litigation
               or claim against the Partnerships, or the Tiverton or Rumford
               facilities which could reasonably be expected to have a Material
               Adverse Effect; (3) the appointment of a receiver over either of
               the Partnerships or the confirmation of a plan of reorganization
               or liquidation for either of the Partnerships; or (4) the
               resignation or dismissal of the independent accountants engaged
               by the Partnerships.

SECTION 6. DEFAULT

        Section 6.1. Events of Default.

               (a)    If any Lease Indenture Event of Default under the
Collateral Trust Indenture (an "Event of Default") shall occur and be
continuing, then, and in each and every case, so long as such Lease Indenture
Event of Default shall be continuing, the Pass Through Trustee may vote all of
the Lessor Notes issued under the Collateral Trust Indenture held in the Pass
Through Trust, and upon the Direction of the Holders of Certificates evidencing
Fractional Undivided Interests aggregating not less than a majority in interest
of the Fractional Undivided Interests evidenced by all Certificates at the time
Outstanding (determined as provided in Section 1.4(c)), the Pass Through Trustee
shall vote a corresponding majority of such Lessor Notes, in favor of directing
the Indenture Trustee to declare the unpaid principal amount of such Lessor
Notes then outstanding and accrued interest thereon to be due and payable under,
and to the extent permitted by and in accordance with, the provisions of the
Collateral Trust Indenture.

               In addition, if an Event of Default shall have occurred and be
continuing, the Pass Through Trustee may in its discretion, and upon the
Direction of the Holders of Certificates evidencing Fractional Undivided
Interests aggregating not less than a majority in interest of the Fractional
Undivided Interests evidenced by all Certificates at the time Outstanding
(determined as provided in Section 1.4(c)) shall, by such officer or agent as it
may appoint, sell, convey, transfer and deliver all or a portion of such Lessor
Note or Lessor Notes issued under the Collateral Trust Indenture with respect to
which the Event of Default has occurred, without recourse to or warranty by the
Pass Through Trustee or any Certificateholders to any Person. In any such case,
the Pass Through Trustee shall sell, assign, contract to sell or otherwise
dispose of and deliver such Lessor Note or Lessor Notes in one or more parcels
at public or private sale or sales, at any location or locations at the option
of the Pass Through Trustee, all upon such terms and conditions as it may
reasonably deem advisable and at such prices as it may reasonably deem
advisable, for cash. The Pass Through Trustee shall give notice to the
Partnerships and the Owner Lessor promptly after any such sale.

               In the event that the Pass Through Trustee shall deem it
advisable to sell any or all


                                       27
<PAGE>   29

of the Lessor Notes in accordance with the provisions of this Section, the
parties agree that if registration of any such Lessor Notes shall be required,
in the opinion of counsel for the Pass Through Trustee under the Securities Act
of 1933, as amended, or other applicable law, and regulations promulgated
thereunder, and if the Partnerships shall not effect, or cause to be effected,
such registration promptly, the Pass Through Trustee may sell any such Lessor
Notes at a private sale, and no Person shall attempt to maintain that the prices
at which such Lessor Notes are sold are inadequate by reason of the failure to
sell at public sale, or hold the Pass Through Trustee liable thereafter.

        Section 6.2. Incidents of Sale of Lessor Notes. Upon any sale of all or
any part of the Lessor Notes made either under the power of sale given under
this Pass Through Trust Agreement or otherwise for the enforcement of this Pass
Through Trust Agreement, the following shall be applicable:

               (1)    Certificateholders and Pass Through Trustee May Purchase
        Lessor Notes. Any Certificateholder, the Pass Through Trustee in its
        individual or any other capacity or any other Person may bid for and
        purchase any of the Lessor Notes and, upon compliance with the terms of
        sale, may hold, retain, possess and dispose of such Lessor Notes in
        their or its or his own absolute right without further accountability.

               (2)    Receipt of Pass Through Trustee Shall Discharge Purchaser.
        The receipt of immediately available funds by the Pass Through Trustee
        or the officer or agent appointed by the Pass Through Trustee shall be a
        sufficient discharge to any purchaser for his purchase money, and, after
        paying such purchase money and receiving such receipt, such purchaser or
        his personal representative or assigns shall not be obliged to see to
        the application of such purchase money, or be in any way answerable for
        any loss, misapplication or non-application thereof.

               (3)    Application of Moneys Received upon Sale. Any moneys
        collected by the Pass Through Trustee, upon any sale made either under
        the power of sale given by this Pass Through Trust Agreement or
        otherwise for the enforcement of this Pass Through Trust Agreement,
        shall be applied as provided in Section 4.2.

        Section 6.3. Judicial Proceedings Instituted by Pass Through Trustee.

               (a)    Pass Through Trustee May Bring Suit. If there shall be a
failure to make payment of the principal of, premium, if any, or interest on any
Lessor Note, or if there shall be any failure to pay Rent (as defined in a
Lease) under the Lease related to any Lessor Note when due and payable, then the
Pass Through Trustee, in its own name, and as trustee of an express trust, as
holder of such Lessor Notes shall be, to the extent permitted by and in
accordance with the terms of the Lessor Note Documents, entitled and empowered
(but not obligated) to institute any suits, actions or proceedings at law, in
equity or otherwise, for the collection of the sums so due and unpaid on such
Lessor Notes or under such Lease and may prosecute any such claim or proceeding
to judgment or final decree with respect to the whole amount of any such sums so
due and unpaid; subject, however, to the limitations of liability set forth in
the Lessor Notes and the Lessor Note Documents.


                                       28
<PAGE>   30

               (b)    Pass Through Trustee May File Proofs of Claim; Appointment
of Pass Through Trustee as Attorney-in-Fact in Judicial Proceedings. The Pass
Through Trustee in its own name, or as trustee of an express trust, or as
attorney-in-fact for the Certificateholders, or in any one or more of such
capacities (irrespective of whether distributions on the Certificates shall then
be due and payable, or the payment of the principal on the Lessor Notes shall
then be due and payable, as therein expressed or by declaration or otherwise and
irrespective of whether the Pass Through Trustee shall have made any demand to
the applicable Indenture Trustee for the payment of overdue principal, premium
(if any) or interest on the Lessor Notes), shall, subject to the terms of the
Lessor Note Documents, be entitled and empowered to file such proofs of claim
and other papers or documents as may be necessary or advisable in order to have
the claims of the Pass Through Trustee and of the Certificateholders allowed in
any receivership, insolvency, bankruptcy, liquidation, readjustment,
reorganization or any other judicial proceedings relative to the Partnerships or
the Owner Lessor, or the Owner Participant, or their respective creditors or
property. Subject to the terms of the Lessor Note Documents, any receiver,
assignee, trustee, liquidator or sequestrator (or similar official) in any such
judicial proceeding is hereby authorized by each Certificateholder to make
payments in respect of such claim to the Pass Through Trustee, and in the event
that the Pass Through Trustee shall consent to the making of such payments
directly to the Certificateholders, to pay to the Pass Through Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Pass Through Trustee, its agents and counsel and any other
amounts due the Pass Through Trustee under Section 7.7. Subject to Section 6.4,
nothing contained in this Pass Through Trust Agreement shall be deemed to give
to the Pass Through Trustee any right to accept or consent to any plan of
reorganization or otherwise by action of any character in any such proceeding to
waive or change in any way any right of any Certificateholder.

        Section 6.4. Control by Certificateholders. The Holders of Certificates
evidencing Fractional Undivided Interests aggregating not less than a majority
in interest of the Fractional Undivided Interests evidenced by all Certificates
at the time Outstanding (determined as provided in Section 1.4(c)) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Pass Through Trustee, or exercising any trust or
power conferred upon the Pass Through Trustee, under this Pass Through Trust
Agreement, including any right of the Pass Through Trustee as holder of the
Lessor Notes, provided that:

               (1)    such Direction shall not be in conflict with any rule of
        law or with this Pass Through Trust Agreement and would not involve the
        Pass Through Trustee in personal liability or expense;

               (2)    the Pass Through Trustee shall not determine that the
        action so directed would expose it to personal liability or be unjustly
        prejudicial to the Certificateholders not taking part in such direction;

               (3)    the Pass Through Trustee may take any other action deemed
        proper by the Pass Through Trustee which is not inconsistent with such
        Direction;

               (4)    such Holders shall have offered to the Pass Through
        Trustee security or indemnity against the costs, expenses or liabilities
        which may be incurred thereby; and


                                       29
<PAGE>   31

               (5)    if a Lease Indenture Event of Default shall have occurred
        and be continuing, such Direction shall not obligate the Pass Through
        Trustee to vote more than a corresponding majority of the related Lessor
        Notes held by the Pass Through Trust in favor of directing any action by
        the Indenture Trustee with respect to such Lease Indenture Event of
        Default.

        Section 6.5. Waiver of Defaults. The Holders of Certificates evidencing
Fractional Undivided Interests aggregating not less than a majority in interest
of the Fractional Undivided Interests evidenced by all Certificates at the time
Outstanding (determined as provided in Section 1.4(c)) may on behalf of the
Certificateholders of all the Certificates waive any Default or Event of Default
hereunder and its consequences or may instruct the Pass Through Trustee to waive
any default under the Collateral Trust Indenture and its consequences, except:

               (1)    a default in the deposit of any Scheduled Payment or
        Special Payment under Section 4.1 or in the distribution of any payment
        under Section 4.2 on the Certificates; or

               (2)    a default in the payment of the principal of, premium, if
        any, or interest on any Lessor Notes; or

               (3)    a default in respect of a covenant or provision hereof
        which under Section 9 hereof cannot be modified or amended without the
        consent of the Holder of each Outstanding Certificate affected.

               Upon any such waiver, such Default shall cease to exist with
respect to this Pass Through Trust Agreement, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this Pass
Through Trust Agreement and any direction given by the Pass Through Trustee on
behalf of such Holders to the applicable Indenture Trustee shall be annulled
with respect thereto; but no such waiver shall extend to any subsequent or other
Default, Event of Default or impair any right consequent thereon. Upon any such
waiver with respect to a Default under the Collateral Trust Indenture, the Pass
Through Trustee shall vote a corresponding majority of the Lessor Notes issued
under the Collateral Trust Indenture to waive the corresponding Lease Indenture
Default or Lease Indenture Event of Default.

               With respect to consents, approvals, waivers and authorizations
which under the terms of Section 8 of the Collateral Trust Indenture may be
given by the applicable Indenture Trustee without the necessity of the consent
of any of the holders of Lessor Notes issued with respect to the Collateral
Trust Indenture, no consent, approval, waiver or authorization shall be required
hereunder on the part of the Pass Through Trustee or the Certificateholders.

        Section 6.6. Undertaking to Pay Court Costs. All parties to this Pass
Through Trust Agreement, and each Certificateholder by his acceptance of a
Certificate, shall be deemed to have agreed that any court may in its discretion
require, in any suit, action or proceeding for the enforcement of any right or
remedy under this Pass Through Trust Agreement, or in any suit, action or
proceeding against the Pass Through Trustee for any action taken or omitted by
it as Pass Through Trustee hereunder, the filing by any party litigant in such
suit, action or proceeding of an undertaking to pay the costs of such suit,
action or proceeding, and that such court may, in


                                       30
<PAGE>   32

its discretion, assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, action or proceeding, having due regard
to the merits and good faith of the claims or defenses made by such party
litigant; provided, however, that the provisions of this Section 6.6 shall not
apply to (a) any suit, action or proceeding instituted by any Holder, or group
of Holders, holding in the aggregate Certificates evidencing Fractional
Undivided Interests aggregating more than 10% of the Pass Through Trust, (b) any
suit, action or proceeding instituted by any Certificateholder for the
enforcement of the distribution of payments pursuant to Section 4.2 hereof on or
after the respective due dates expressed herein or (c) any suit, action or
proceeding instituted by the Pass Through Trustee.

        Section 6.7. Right of Certificateholders to Receive Payments Not to Be
Impaired. Anything in this Pass Through Trust Agreement to the contrary
notwithstanding, but subject to Section 3.8 hereof, the right of any
Certificateholder to receive distributions of payments required pursuant to
Section 4.2 hereof on the Certificates when due, or to institute suit for the
enforcement of any such payment on or after the applicable Distribution Date or
Special Distribution Date, shall not be impaired or affected without the consent
of such Certificateholder.

        Section 6.8. Certificateholders May Not Bring Suit Except Under Certain
Conditions. A Certificateholder shall not have the right to institute any suit,
action or proceeding at law or in equity or otherwise with respect to this Pass
Through Trust Agreement, for the appointment of a receiver or for the
enforcement of any other remedy under this Pass Through Trust Agreement, unless:

               (1)    such Certificateholder previously shall have given written
        notice to the Pass Through Trustee of a continuing Event of Default;

               (2)    the Holders of Certificates evidencing Fractional
        Undivided Interests aggregating not less than a majority in interest of
        the Fractional Undivided Interests evidenced by all Certificates at the
        time Outstanding (determined as provided in Section 1.4(c)) shall have
        requested the Pass Through Trustee in writing to institute such suit,
        action or proceeding and shall have offered to the Pass Through Trustee
        indemnity as provided in Section 7.3(e);

               (3)    the Pass Through Trustee shall have refused or neglected
        to institute any such suit, action or proceeding for 60 days after
        receipt of such notice, request and offer of indemnity; and

               (4)    no Direction inconsistent with such written request has
        been given to the Pass Through Trustee during such 60-day period by the
        Holders of Certificates evidencing Fractional Undivided Interests
        aggregating not less than a majority in interest of the Fractional
        Undivided Interests evidenced by all Certificates at the time
        Outstanding (determined as provided in Section 1.4(c)).

               It is understood and intended that no one or more of the
Certificateholders shall have any right in any manner whatever hereunder or
under the Certificates to (i) surrender, impair, waive, affect, disturb or
prejudice any property in the Trust Property or the lien of the Collateral Trust
Indenture on any property subject thereto, or the rights of the
Certificateholders


                                       31
<PAGE>   33

or the holders of the Lessor Notes, (ii) obtain or seek to obtain priority over
or preference to any other such Holder, or (iii) enforce any right under this
Pass Through Trust Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all the Certificateholders subject to the
provisions of this Pass Through Trust Agreement.

        Section 6.9. Remedies Cumulative. Every remedy given hereunder to the
Pass Through Trustee or to any of the Certificateholders shall not be exclusive
of any other remedy or remedies, and every such remedy shall be cumulative and
in addition to every other remedy given hereunder or now or hereafter given by
statute, law, equity or otherwise.

SECTION 7. THE PASS THROUGH TRUSTEE

        Section 7.1. Certain Duties and Responsibilities.

               (a)    Prior to an Event of Default of which a Responsible
Officer of the Pass Through Trustee has actual knowledge:

               (1)    the Pass Through Trustee shall not be liable except for
        the performance of such duties as are specifically set out in this Pass
        Through Trust Agreement; and

               (2)    the Pass Through Trustee may conclusively rely, as to the
        truth of the statements and the correctness of the opinions expressed
        therein, in the absence of bad faith on the part of the Pass Through
        Trustee, upon Officer's Certificates or Opinions of Counsel conforming
        to the requirements of this Pass Through Trust Agreement;

but the Pass Through Trustee shall, at any time that the Certificates shall be
subject to the Trust Indenture Act, examine any evidence furnished to it
pursuant to this Pass Through Trust Agreement or Section 314 of the Trust
Indenture Act to determine whether or not such evidence conforms to the
requirements of this Pass Through Trust Agreement; provided, however, that the
Pass Through Trustee shall not be responsible for the accuracy or content of
such evidence.

               (b)    In case an Event of Default has occurred and is
continuing, the Pass Through Trustee shall exercise each of the rights and
powers vested in it by this Pass Through Trust Agreement, and use the same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of his own affairs.

               (c)    No provision of this Pass Through Trust Agreement shall be
construed to relieve the Pass Through Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

               (1)    this paragraph (c) shall not be construed to limit the
        effect of paragraph (a) of this Section 7.1;

               (2)    the Pass Through Trustee shall not be liable in its
        individual capacity for any error of judgment made in good faith by a
        Responsible Officer of the Pass Through Trustee, unless it shall be
        proved that the Pass Through Trustee was negligent in ascertaining the
        pertinent facts; and


                                       32
<PAGE>   34

               (3)    the Pass Through Trustee shall not be liable with respect
        to any action taken or omitted to be taken by it in good faith in
        accordance with the Direction of the Holders of Certificates evidencing
        Fractional Undivided Interests aggregating not less than a majority in
        interest of the Fractional Undivided Interests evidenced by all
        Certificates at the time Outstanding (determined as provided in Section
        1.4(c)) (A) relating to the time, method and place of conducting any
        proceeding for any remedy available to the Pass Through Trustee, or (B)
        exercising any trust or power conferred upon the Pass Through Trustee,
        under this Pass Through Trust Agreement.

               (d)    Whether or not herein expressly so provided, every
provision of this Pass Through Trust Agreement relating to the conduct or
affecting the liability of or affording protection to the Pass Through Trustee
shall be subject to the provisions of this Section 7.1.

        Section 7.2. Notice of Defaults. The Pass Through Trustee shall give to
the Certificateholders, at any time that the Certificates shall be subject to
the Trust Indenture Act, in the manner and to the extent required by Section
313(c) of the Trust Indenture Act, and to each of the Partnerships, the Owner
Lessor and the applicable Indenture Trustee in accordance with Section 12.4,
notice of all Defaults actually known to a Responsible Officer of the Pass
Through Trustee within 90 days after the occurrence thereof; provided, however,
that, except in the case of a Default in the payment of the principal of,
premium, if any, or interest on any Lessor Note, the Pass Through Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors or
Responsible Officers of the Pass Through Trustee in good faith determine that
the withholding of such notice is in the interests of the Certificateholders.

        Section 7.3. Certain Rights of Pass Through Trustee. Except as otherwise
provided in Section 7.1:

               (a)    the Pass Through Trustee may rely and shall be protected
in acting or refraining from acting in reliance upon any Act, Direction,
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;

               (b)    any request or direction of either of the Partnerships,
the Owner Lessor or any Indenture Trustee mentioned herein shall be sufficiently
evidenced by a Request;

               (c)    whenever in the administration of this Pass Through Trust
Agreement the Pass Through Trustee shall deem it desirable that a matter be
proved or established prior to taking, suffering or omitting any action
hereunder, the Pass Through Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officer's Certificate of either of the Partnerships, the Owner Lessor or the
applicable Indenture Trustee;

               (d)    the Pass Through Trustee may consult with counsel and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in


                                       33
<PAGE>   35

respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon;

               (e)    the Pass Through Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Pass Through Trust
Agreement at the request or direction of any of the Certificateholders pursuant
to this Pass Through Trust Agreement, unless such Certificateholders shall have
offered to the Pass Through Trustee reasonable security or indemnity against the
cost, expenses and liabilities which might be incurred by it in compliance with
such request or direction;

               (f)    the Pass Through Trustee shall not be bound to make any
investigation into the facts or matters stated in any Act, Direction,
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or document;

               (g)    the Pass Through Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Pass Through Trustee shall not be
responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it hereunder with due care;

               (h)    the Pass Through Trustee shall not be personally liable
for any action taken, suffered or omitted by it in good faith and believed by it
to be authorized or within the discretion of rights or powers conferred upon it
by this Pass Through Trust Agreement;

               (i)    the right of the Pass Through Trustee to perform any
discretionary act enumerated in this Pass Through Trust Agreement shall not be
construed as a duty, and the Pass Through Trustee shall not be answerable for
other than its negligence or willful misconduct in the performance of such act;

               (j)    the Pass Through Trustee shall not be required to give any
bond or surety in respect of the execution of the trust fund created hereby or
the powers granted hereunder; and

               (k)    the Pass Through Trustee shall have no responsibility for
filing any financing or continuation statement in any public office at any time
or to otherwise perfect or maintain the perfection of any security interest or
lien granted to it hereunder or to record this Pass Through Trust Agreement.

        Section 7.4. Not Responsible for Recitals; Issuance of Certificates. The
recitals contained herein and in the Certificates, except the certificates of
authentication, shall not be taken as the statements of the Pass Through
Trustee, and the Pass Through Trustee assumes no responsibility for their
correctness. The Pass Through Trustee makes no representations as to the
validity or sufficiency of this Pass Through Trust Agreement, the Lessor Notes,
the Lessor Note Documents, or the Certificates, or the collateral securing the
Lessor Notes, except that the Pass Through Trustee hereby represents and
warrants that this Pass Through Trust Agreement has been, and each Certificate
will be, executed and delivered by one of its officers who is duly authorized to
execute and deliver such document on its behalf.


                                       34
<PAGE>   36

        Section 7.5. May Hold Certificates. The Pass Through Trustee, any Paying
Agent, Registrar or any other agent, in their respective individual or any other
capacity, may become the owner or pledgee of Certificates and may otherwise deal
with the Partnerships, Owner Lessor, Owner Participant or Indenture Trustee with
the same rights it would have if it were not the Pass Through Trustee, Paying
Agent, Registrar or such other agent, subject to Section 7.8 in the case of the
Pass Through Trustee.

        Section 7.6. Money Held in Pass Through Trust. Money held by the Pass
Through Trustee or the Paying Agent in trust hereunder need not be segregated
from other funds except to the extent required herein or by law and neither the
Pass Through Trustee nor the Paying Agent shall have any liability for interest
upon any such moneys except as provided for herein.

        Section 7.7. Compensation, Reimbursement and Indemnification. Each of
the Partnerships agrees, on a joint and severable basis:

               (1)    to pay, or cause to be paid, to the Pass Through Trustee
        from time to time the compensation separately agreed to by the Pass
        Through Trustee and the Partnerships for all services rendered by it
        hereunder (which compensation shall not be limited by any provision of
        law in regard to the compensation of a trustee of an express trust); and

               (2)    except as otherwise expressly provided herein, to
        reimburse, or cause to be reimbursed, the Pass Through Trustee upon its
        request for all reasonable out-of-pocket expenses, disbursements and
        advances incurred or made by the Pass Through Trustee in accordance with
        any provision of this Pass Through Trust Agreement (including the
        reasonable compensation and the expenses and disbursements of its agents
        and counsel), except any such expense, disbursement or advance as may be
        attributable to its negligence, willful misconduct or bad faith.

               In addition, the Pass Through Trustee shall be entitled to
reimbursement from, and shall have a lien prior to the Certificates upon, all
property and funds held or collected by the Pass Through Trustee in its capacity
as Pass Through Trustee for any tax incurred without negligence, bad faith or
willful misconduct, on its part, arising out of or in connection with the
acceptance or administration of this Pass Through Trust (other than any tax
attributable to the Pass Through Trustee's compensation for serving as such),
including any costs and expenses incurred in contesting the imposition of any
such tax. If the Pass Through Trustee reimburses itself for any such tax, it
will within 30 days mail a brief report setting forth the circumstances thereof
to all Certificateholders as their names and addresses appear in the Register.

        Section 7.8. Corporate Trustee Required; Eligibility. There shall at all
times be a Pass Through Trustee hereunder which (a) shall be, at any time that
the Certificates shall be subject to the Trust Indenture Act, a Person eligible
to act as a trustee under Section 310(a) of the Trust Indenture Act and (b)
shall be a corporation organized and doing business under the laws of the United
States of America or of any state, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$150,000,000, and subject to supervision or examination by Federal or state
authority. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.8, the combined capital and
surplus

                                       35
<PAGE>   37
of such corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Pass Through Trustee shall cease to be eligible in accordance with the
provisions of clause (a) of this Section 7.8 at a time when it is required to be
so qualified, it shall resign immediately in the manner and with the effect
hereinafter specified in this Section 7.

        Section 7.9. Resignation and Removal: Appointment of Successor.

               (a)    No resignation or removal of the Pass Through Trustee and
no appointment of a successor Pass Through Trustee pursuant to this Section 7.9
shall become effective until the acceptance of appointment by the successor Pass
Through Trustee under Section 7.10.

               (b)    The Pass Through Trustee may resign at any time by giving
written notice thereof to the Partnerships, the Authorized Agents, the Owner
Lessor, the Owner Participant and each Indenture Trustee. If an instrument of
acceptance by a successor Pass Through Trustee shall not have been delivered to
the Partnerships, the Owner Lessor, the Owner Participant and each Indenture
Trustee within 30 days after the giving of such notice of resignation, the
resigning Pass Through Trustee may petition any court of competent jurisdiction
for the appointment of a successor Pass Through Trustee.

               (c)    The Pass Through Trustee may be removed at any time by Act
of the Holders holding Certificates evidencing Fractional Undivided Interests
aggregating not less than a majority in interest in the Pass Through Trust
delivered to the Pass Through Trustee and to the Partnerships, the Owner Lessor
and each Indenture Trustee.

               (d)    If at any time:

                      (1)    the Pass Through Trustee fails to, at any time that
               the Certificates shall be subject to the Trust Indenture Act,
               comply with the requirements of Section 310 of the Trust
               Indenture Act after written request for such compliance by a
               Certificateholder that has been a bona fide Certificateholder for
               at least six months; or

                      (2)    the Pass Through Trustee shall cease to be eligible
               under Section 7.8 hereof and shall fail to resign after written
               request therefor by the Partnerships (or, following the
               occurrence of a Lease Event of Default, the Owner Lessor) or by
               any such Certificateholder; or

                      (3)    the Pass Through Trustee shall become incapable of
               acting or shall be adjudged bankrupt or insolvent or a receiver
               of the Pass Through Trustee or of its property shall be appointed
               or any public officer shall take charge or control of the Pass
               Through Trustee or of its property or affairs for the purpose of
               rehabilitation, conservation or liquidation;

then, in any case, (i) the Partnerships (or, following the occurrence of a Lease
Event of Default, the Owner Lessor), may remove the Pass Through Trustee or (ii)
subject to Section 6.6 hereof, any Certificateholder who has been a bona fide
Holder of a Certificate for at least six months


                                       36
<PAGE>   38

may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Pass Through Trustee and the
appointment of a successor Pass Through Trustee.

               (e)    If a Responsible Officer of the Pass Through Trustee shall
obtain Actual Knowledge of an Avoidable Tax (as hereinafter defined) which has
been or is likely to be asserted, the Pass Through Trustee shall promptly notify
the Partnerships and the Owner Lessor thereof and shall, within 30 days of such
notification, resign hereunder unless within such 30-day period the Pass Through
Trustee shall have received notice that the Partnerships or the Owner Lessor has
agreed to pay such tax. The Partnerships shall promptly appoint a successor Pass
Through Trustee in a jurisdiction where there are no Avoidable Taxes. As used
herein an "Avoidable Tax" means a state or local tax: (i) upon (w) the Pass
Through Trust, (x) the Trust Property, (y) Holders of the Certificates or (z)
the Pass Through Trustee for which the Pass Through Trustee is entitled to seek
reimbursement from the Trust Property, and (ii) that would be avoided if the
Pass Through Trustee were located in another state, or jurisdiction within a
state, within the United States. A tax shall not be an Avoidable Tax if the
Partnerships or the Owner Lessor shall agree to pay, and shall pay, such tax.

               (f)    If the Pass Through Trustee shall resign, be removed or
become incapable of acting, or if a vacancy shall occur in the office of the
Pass Through Trustee for any cause, the Partnerships (or, following the
occurrence of a Lease Event of Default, the Owner Lessor) shall promptly appoint
a successor Pass Through Trustee. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Pass
Through Trustee shall be appointed by Act of the Holders holding Certificates
evidencing Fractional Undivided Interests aggregating not less than a majority
in interest in the Pass Through Trust, delivered to the Partnerships, the Owner
Lessor, the Owner Participant, the Indenture Trustees and the retiring Pass
Through Trustee, the successor Pass Through Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Pass
Through Trustee and supersede the successor Pass Through Trustee appointed as
provided above. If no successor Pass Through Trustee shall have been so
appointed as provided above and accepted appointment in the manner hereinafter
provided, any Certificateholder who has been a bona fide Holder of a Certificate
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Pass Through Trustee.

               (g)    The successor Pass Through Trustee shall give notice of
the resignation and removal of the Pass Through Trustee and appointment of the
successor Pass Through Trustee by mailing written notice of such event by
first-class mail, postage prepaid, to the Holders of Certificates as their names
and addresses appear in the Register. Each notice shall include the name of such
successor trustee and the address of its Corporate Trust Office.

        Section 7.10. Acceptance of Appointment by Successor. Every successor
Pass Through Trustee appointed hereunder shall execute, acknowledge and deliver
to the Partnerships, the Owner Lessor and to the retiring Pass Through Trustee
an instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Pass Through Trustee shall become effective and such
successor Pass Through Trustee, without any further act, deed or conveyance,
shall become vested with all the rights, powers, trusts and duties of the
retiring Pass


                                       37
<PAGE>   39

Through Trustee; but, on request of either of the Partnerships (or, following
the occurrence of a Lease Event of Default, the Owner Lessor) to the successor
Pass Through Trustee, such retiring Pass Through Trustee shall execute and
deliver an instrument transferring to such successor Pass Through Trustee all
the rights, powers and trusts of the retiring Pass Through Trustee and shall
duly assign, transfer and deliver to such successor Pass Through Trustee all
property and money held by such retiring Pass Through Trustee hereunder, subject
nevertheless to its lien, if any, provided for in Section 7.7. Upon request of
any such successor Pass Through Trustee, the Partnerships, the Owner Lessor, the
retiring Pass Through Trustee and such successor Pass Through Trustee shall
execute and deliver any and all instruments containing such provisions as shall
be necessary or desirable to transfer and confirm to, and for more fully and
certainly vesting in, such successor Pass Through Trustee all such rights,
powers and trusts.

               No successor Pass Through Trustee shall accept its appointment
unless at the time of such acceptance such successor Pass Through Trustee shall
be qualified and eligible under this Section 7.

        Section 7.11. Merger, Conversion, Consolidation or Succession to
Business. Any Person into which the Pass Through Trustee may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Pass Through Trustee shall be a
party, or any Person succeeding to all or substantially all of the corporate
trust business of the Pass Through Trustee, shall be the successor of the Pass
Through Trustee hereunder, provided such Person shall be otherwise qualified and
eligible under this Section 7, without the execution or filing of any paper or
any further act on the part of any of the parties hereto. In case any
Certificates shall have been authenticated, but not delivered, by the Pass
Through Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Pass Through Trustee may adopt such
authentication and deliver the Certificates so authenticated with the same
effect as if such successor Pass Through Trustee had itself authenticated such
Certificates.

        Section 7.12. Maintenance of Agencies.

               (a)    There shall at all times be maintained in the Borough of
Manhattan, The City of New York, an office or agency where Certificates may be
presented or surrendered for registration of transfer or for exchange, and for
payment thereof and where notices and demands to or upon the Pass Through
Trustee in respect of the Certificates or of this Pass Through Trust Agreement
may be served. Written notice of the location of each such other office or
agency and of any change of location thereof shall be given by the Pass Through
Trustee to the Partnerships, the Owner Lessor, the Owner Participant, each
Indenture Trustee and the Certificateholders. In the event that no such office
or agency shall be maintained or no such notice of location or of change of
location shall be given, presentations and demands may be made and notices may
be served at the Corporate Trust Office of the Pass Through Trustee.

               (b)    There shall at all times be a Registrar and a Paying Agent
hereunder. Each such Authorized Agent shall be a bank or trust company, shall be
a corporation organized and doing business under the laws of the United States
or any state, with a combined capital and surplus of at least $150,000,000, and
shall be authorized under such laws to exercise corporate trust powers, subject
to supervision by Federal or state authorities. The Pass Through Trustee


                                       38
<PAGE>   40

shall initially be the Paying Agent and, as provided in Section 3.4, Registrar
hereunder. Each Registrar shall furnish to the Pass Through Trustee (unless they
are the same entity), at stated intervals of not more than six months, and at
such other times as the Pass Through Trustee may request in writing, a copy of
the Register.

               (c)    Any Person into which any Authorized Agent may be merged
or converted or with which it may be consolidated, or any Person resulting from
any merger, consolidation or conversion to which any Authorized Agent shall be a
party, or any Person succeeding to the corporate trust business of any
Authorized Agent, shall be the successor of such Authorized Agent hereunder, if
such successor Person is otherwise eligible under this Section 7.12, without the
execution or filing of any paper or any further act on the part of the parties
hereto or such Authorized Agent or such successor Person.

               (d)    Any Authorized Agent may at any time resign by giving
written notice of resignation to the Pass Through Trustee, the Partnerships, the
Owner Lessor, the Owner Participant and each Indenture Trustee. The Partnerships
(or, following the occurrence of a Lease Event of Default, the Owner Lessor)
may, and at the request of the Pass Through Trustee shall, at any time terminate
the agency of any Authorized Agent by giving written notice of termination to
such Authorized Agent and to the Pass Through Trustee. Upon the resignation or
termination of an Authorized Agent or in case at any time any such Authorized
Agent shall cease to be eligible under this Section 7.12 (when, in either case,
no other Authorized Agent performing the functions of such Authorized Agent
shall have been appointed), the Partnerships (or, following the occurrence of a
Lease Event of Default, the Owner Lessor) shall promptly appoint one or more
qualified successor Authorized Agents reasonably satisfactory to the Pass
Through Trustee, to perform the functions of the Authorized Agent which has
resigned or whose agency has been terminated or who shall have ceased to be
eligible under this Section 7.12. The Partnerships (or, following the occurrence
of a Lease Event of Default, the Owner Lessor) shall give written notice of any
such appointment made by it to the Pass Through Trustee, the Partnerships, the
Owner Lessor and each Indenture Trustee; and in each case the Pass Through
Trustee shall mail notice of such appointment to all Holders as their names and
addresses appear on the Register.

               (e)    Each Partnership agrees to pay, or cause to be paid, from
time to time to each Authorized Agent the compensation as set forth in the
schedule agreed to by each Authorized Agent and such Partnership for its
services and to reimburse it for its reasonable expenses.

        Section 7.13. Money for Certificate Payments to Be Held in Trust. All
moneys deposited with any Paying Agent for the purpose of any payment on
Certificates shall be deposited in a non interest bearing account and held in
trust for the benefit of the Holders of the Certificates entitled to such
payment, subject to the provisions of this Section 7.13. Moneys so deposited and
held in trust shall constitute a separate trust fund for the benefit of the
Holders of the Certificates with respect to which such money was deposited.

               The Pass Through Trustee will cause each Paying Agent other than
the Pass Through Trustee to execute and deliver to it an instrument in which
such Paying Agent shall


                                       39
<PAGE>   41

agree with the Pass Through Trustee, subject to the provisions of this Section
7.13, that such Paying Agent will:

               (1)    hold all sums held by it for payments on Certificates in
        trust for the benefit of the Persons entitled thereto until such sums
        shall be paid to such Persons or otherwise disposed of as herein
        provided;

               (2)    give the Pass Through Trustee notice in writing of any
        default by any obligor upon the Lessor Notes in the making of any such
        payment; and

               (3)    at any time during the continuance of any such default,
        upon the written request of the Pass Through Trustee, forthwith pay to
        the Pass Through Trustee all sums so held in trust by such Paying Agent.

               The Pass Through Trustee may at any time, for the purpose of
obtaining the satisfaction and discharge of this Pass Through Trust Agreement or
for any other purpose, direct any Paying Agent to pay to the Pass Through
Trustee all sums held in trust by such Paying Agent, such sums to be held by the
Pass Through Trustee upon the same trusts as those upon which such sums were
held by such Paying Agent; and, upon such payment by any Paying Agent to the
Pass Through Trustee, such Paying Agent shall be released from all further
liability with respect to such money.

        Section 7.14. Registration of Lessor Notes in Pass Through Trustee's
Name. The Pass Through Trustee agrees that all Lessor Notes and Permitted
Government Investments, if any, shall be issued in the name of the Pass Through
Trustee or its nominee and held by the Pass Through Trustee, or, if not so held,
the Pass Through Trustee or its nominee shall be reflected as the owner of such
Lessor Notes or Permitted Government Investments, as the case may be, in the
register of the issuer of such Lessor Notes or Permitted Government Investments
under the applicable provisions of the Uniform Commercial Code in effect where
the Pass Through Trustee holds such Lessor Notes or Permitted Government
Investments, or other applicable law then in effect.

        Section 7.15. Withholding Taxes; Information Reporting. The Pass Through
Trustee, as trustee, shall exclude and withhold from each distribution of
principal, premium, if any, and interest and other amounts due hereunder or
under the Certificates any and all withholding taxes applicable thereto as
required by law. The Pass Through Trustee agrees (i) to act as such withholding
agent and, in connection therewith, whenever any present or future taxes or
similar charges are required to be withheld with respect to any amounts payable
in respect of the Certificates, to withhold such amounts and timely pay the same
to the appropriate authority in the name of and on behalf of the Holders of the
Certificates, (ii) that it will file any necessary withholding tax returns or
statements when due, and (iii) that, as promptly as possible after the payment
thereof, it will deliver to each Holder of a Certificate appropriate
documentation showing the payment thereof, together with such additional
documentary evidence as such Holders may reasonably request from time to time.
The Pass Through Trustee agrees to file any other information reports as it may
be required to file under United States law. Any amounts withheld and paid to a
relevant taxing authority pursuant to this Section 7.15 shall be deemed to have
been paid to the related Certificateholders for all purposes under the Operative
Documents.


                                       40
<PAGE>   42

SECTION 8. CERTIFICATEHOLDERS' LISTS AND REPORTS

        Section 8.1. The Partnerships to Furnish Pass Through Trustee with Names
and Addresses of Certificateholder. Each Partnership will furnish to the Pass
Through Trustee within fifteen days after each Record Date with respect to a
Scheduled Payment, and at such other times as the Pass Through Trustee may
request in writing, a list, in such form as the Pass Through Trustee may
reasonably require, of all information in the possession or control of such
Partnership as to the names and addresses of the Holders of Certificates, in
each case as of a date not more than sixty days prior to the time such list is
furnished; provided, however, that so long as the Pass Through Trustee is the
sole Registrar, no such list need be furnished; and provided, further, however,
that no such list need be furnished for so long as a copy of the Register is
being furnished to the Pass Through Trustee pursuant to Section 7.12(b).

        Section 8.2. Preservation of Information. The Pass Through Trustee shall
preserve, in as current a form as is reasonably practicable, the names and
addresses of Holders of Certificates contained in the most recent list furnished
to the Pass Through Trustee as provided in Section 7.12(b) or Section 8.1, as
the case may be, and the names and addresses of Holders of Certificates received
by the Pass Through Trustee in its capacity as Registrar, if so acting. The Pass
Through Trustee may destroy any list furnished to it as provided in Section
7.12(b) or Section 8.1, as the case may be, upon receipt of a new list so
furnished.

        Section 8.3. Reports by the Partnerships. Each Partnership shall, at any
time that the Certificates shall be subject to the Trust Indenture Act, comply
with Section 314 of the Trust Indenture Act and shall file, furnish and deliver
the reports, information, documents, certificates and opinions required
thereunder, and, at any time that the Certificates shall be subject to the Trust
Indenture Act, acknowledge and agree that, for purposes of Section 314 of the
Trust Indenture Act, each Partnership shall be considered to be the "obligor"
upon the Certificates. Without limiting the generality of the foregoing, at any
time that the Certificates shall be subject to the Trust Indenture Act, each
Partnership shall deliver to the Pass Through Trustee the annual certificate
required under clause (4) of Section 314(a) of the Trust Indenture Act within
120 days following the end of each fiscal year of such Partnership (which ends
on December 31) ending after the date hereof. The provisions of this Section 8.3
shall not be construed to impose any obligation or liability on the Partnerships
to pay any of the principal, premium, if any, or interest in respect of the
Lessor Notes or the Certificates.

        Section 8.4. Reports by the Pass Through Trustee. At any time that the
Certificates shall be subject to the Trust Indenture Act, the Pass Through
Trustee shall transmit, on or before May 15 of each year, reports with respect
to events described in Section 313(a) of the Trust Indenture Act in accordance
with and to the extent required under Section 313(a) of the Trust Indenture Act.
Additionally, the Pass Through Trustee shall comply with the reporting
requirements imposed under Treasury Regulation 1.67.

SECTION 9. SUPPLEMENTAL TRUST AGREEMENTS

        Section 9.1. Supplemental Trust Agreement Without Consent of
Certificateholders. Without the consent of the Holder of any Certificates, the
Partnerships may, and the Pass Through Trustee (subject to Section 9.3) shall,
at any time and from time to time enter into one


                                       41
<PAGE>   43

or more agreements supplemental hereto, in form satisfactory to the Pass Through
Trustee, for any of the following purposes:

               (1)    to evidence the succession of another corporation to
        either Partnership and the assumption by any such successor of the
        obligations of such Partnership herein contained;

               (2)    to add to the covenants of the Partnerships, for the
        protection of the Holders of the Certificates;

               (3)    to surrender any right or power herein conferred upon the
        Partnerships;

               (4)    to cure any ambiguity, to correct or supplement any
        provision herein which may be defective or inconsistent with any other
        provision herein or to make any other provisions with respect to matters
        or questions arising under this Pass Through Trust Agreement; provided
        that any such action will not adversely affect in any material respect
        the interests of the Holders of the Certificates;

               (5)    to correct or amplify the description of property that
        constitutes Trust Property or the conveyance of such property to the
        Pass Through Trustee;

               (6)    to evidence and provide for a successor Pass Through
        Trustee;

               (7)    to comply with requirements of the SEC, any applicable
        law, rules or regulations of any exchange or quotation system on which
        the Certificates are listed, or any regulatory body;

               (8)    at any time that the Certificates shall be subject to the
        Trust Indenture Act, to modify, eliminate or add to the provisions of
        this Pass Through Trust Agreement to the extent as shall be necessary to
        qualify or continue the qualification of this Pass Through Trust
        Agreement (including any supplemental agreement) under the Trust
        Indenture Act or under any similar Federal statute hereafter enacted, or
        to add to this Pass Through Trust Agreement such other provisions as may
        be expressly permitted by the Trust Indenture Act, excluding, however,
        the provisions referred to in Section 316(a)(2) of the Trust Indenture
        Act as in effect at the date as of which this instrument was executed or
        any corresponding provision in any similar Federal statute hereafter
        enacted;

               (9)    to modify, amend or supplement any provision herein to
        reflect changes relating to the assumption and substitution of any
        Lessor Note pursuant to Section 2.10(b) of the Collateral Trust
        Indenture; or

               (10)   to add, eliminate, or change any provision under this Pass
        Through Trust Agreement that will not adversely affect the interests of
        the Certificateholders in any material respect.

provided that in each case the Pass Through Trustee shall have received an
opinion of counsel, which may be counsel to the Partnerships, to the effect that
such supplemental agreement does not cause the Pass Through Trust to become
taxable as an "association" within the meaning of


                                       42
<PAGE>   44

Treasury Regulation Section 301.7701-4 or to be taxable as other than a pass
through entity for Federal income tax purposes.

        Section 9.2. Supplemental Trust Agreements with Consent of
Certificateholders. With the consent of the Holders of Certificates evidencing
Fractional Undivided Interests aggregating not less than a majority in interest
of the Fractional Undivided Interests evidenced by all Certificates at the time
Outstanding (determined as provided in Section 1.4(c) hereof), by Act of said
Holders delivered to the Partnerships and the Pass Through Trustee, the
Partnerships may (with the consent of the Owner Lessor, such consent not to be
unreasonably withheld), and the Pass Through Trustee (subject to Section 9.3
hereof) shall, enter into an agreement or agreements supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Pass Through Trust Agreement or of modifying in any
manner the rights and obligations of the Holders of the Certificates under this
Pass Through Trust Agreement; provided, however, that no such supplemental
agreement shall, without the consent of the Holder of each Outstanding
Certificate affected thereby:

               (1)    reduce in any manner the amount of, or delay the timing
        of, any receipt by the Pass Through Trustee of payments on the Lessor
        Notes held in the Pass Through Trust, or distributions that are required
        to be made herein on any Certificate of such Pass Through Trust, or
        change any date of payment on any such Certificate, or change the place
        of payment where, or the coin or currency in which, any such Certificate
        is payable, or impair the right of any Holder of any such Certificate to
        institute suit for the enforcement of any such payment or distribution
        on or after the Distribution Date or Special Distribution Date
        applicable thereto; or

               (2)    except as provided in this Pass Through Trust Agreement,
        permit the disposition of any Lessor Note in the Trust Property, or
        permit the creation of any lien on the Trust Property, or otherwise
        deprive any Certificateholder of the benefit of the ownership of the
        Lessor Notes held in the Pass Through Trust or the lien of the
        Collateral Trust Indenture; or

               (3)    reduce the percentage of the aggregate Fractional
        Undivided Interests which is required to approve any such supplemental
        agreement, or reduce such percentage required for any waiver provided
        for in this Pass Through Trust Agreement.

Notwithstanding the foregoing, no such supplemental agreement shall be entered
into unless the Pass Through Trustee shall have received an opinion of counsel,
which may be counsel to the Partnerships or either of them, to the effect that
such supplemental agreement does not cause the Pass Through Trust to become
taxable as an "association", within the meaning of Treasury Regulation Section
301.7701-4 or to be taxable as other than a pass through entity for Federal
income tax purposes.

               It shall not be necessary for any Act of Certificateholders under
this Section 9.2 to approve the particular form of any proposed supplemental
agreement, but it shall be sufficient if such Act shall approve the substance
thereof.


                                       43
<PAGE>   45

        Section 9.3. Documents Affecting Immunity or Indemnity. If in the
opinion of the Pass Through Trustee any document required to be executed by it
pursuant to the terms of Section 9.1 or 9.2 affects any interest, right, duty,
immunity or indemnity in favor of the Pass Through Trustee under this Pass
Through Trust Agreement, the Pass Through Trustee may in its discretion decline
to execute such document.

        Section 9.4. Execution of Supplemental Trust Agreements. In executing,
or accepting the additional trusts created by, any supplemental agreement
permitted by this Section 9 or the modification thereby of the trusts created by
this Pass Through Trust Agreement, the Pass Through Trustee shall be entitled to
receive, and (subject to Section 7.1) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental agreement
is authorized or permitted by this Pass Through Trust Agreement.

        Section 9.5. Effect of Supplemental Trust Agreements. Upon the execution
of any supplemental agreement under this Section 9, this Pass Through Trust
Agreement shall be modified in accordance therewith, and such supplemental
agreement shall form a part of this Pass Through Trust Agreement for all
purposes; and every Holder of Certificates theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.

        Section 9.6. Reference in Certificates to Supplemental Trust Agreements.
Certificates authenticated and delivered after the execution of any supplemental
agreement pursuant to this Section 9 may bear a notation in form approved by the
Pass Through Trustee as to any matter provided for in such supplemental
agreement; and, in such case, suitable notation may be made upon Outstanding
Certificates after proper presentation and demand.

        Section 9.7. Conformity with Trust Indenture Act. Every supplemental
agreement under this Section 9 executed at a time that the Certificates shall be
subject to the Trust Indenture Act, shall conform to requirements of the Trust
Indenture Act as in effect on the date such supplemental agreement is executed.

SECTION 10. AMENDMENTS AND CONSENTS TO COLLATERAL TRUST INDENTURE AND OTHER
            LESSOR NOTE DOCUMENTS

               (a)    In the event that the Pass Through Trustee, as holder of
any Lessor Note in trust for the benefit of the Certificateholders, receives a
request for a consent to any amendment, modification, waiver or supplement under
the Collateral Trust Indenture or other Lessor Note Document that requires the
consent of the holder of such Lessor Note, the Pass Through Trustee shall
forthwith send a notice of such proposed amendment, modification, waiver or
supplement to each Certificateholder registered on the Register as of such date.
Any such notice shall describe the proposed amendment, modification, waiver or
supplement (or attach a copy thereof). The Pass Through Trustee shall request
from the Certificateholders Directions as to (i) whether or not to direct the
applicable Indenture Trustee to take or refrain from taking any action which a
holder of such Lessor Note has the option to direct, (ii) whether or not to give
or execute any waivers, consents, amendments, modifications or supplements as a
holder of such Lessor Note and (iii) how to vote any Lessor Note if a vote has
been called for with respect thereto. Any such request shall specify a date by
which Certificateholders are requested to respond. Provided such a request for
Certificateholder Direction shall have been made, in


                                       44
<PAGE>   46

directing any action or casting any vote or giving any consent as the holder of
any Lessor Note, the Pass Through Trustee shall vote or consent with respect to
such Lessor Note in the same proportion as the Certificates were actually voted
by Acts of Holders delivered to the Pass Through Trustee at least two Business
Days prior to the date the Pass Through Trustee directs such action or casts
such vote or gives such consent. Notwithstanding the foregoing, but subject to
Section 6.4, in the case that an Event of Default hereunder shall have occurred
and be continuing, the Pass Through Trustee may, in its own discretion and at
its own direction, consent and notify the applicable Indenture Trustee of such
consent to any amendment, modification, waiver or supplement under the
Collateral Trust Indenture or other Lessor Note Document.

               (b)    With respect to consents, approvals, waivers and
authorizations which under the terms of Section 8 of the Collateral Trust
Indenture may be given by the Indenture Trustee without the necessity of the
consent of any of the holders of Lessor Notes, no consent, approval, waiver or
authorization shall be required hereunder on the part of the Pass Through
Trustee or the Certificateholders.

               (c)    Neither the Pass Through Trustee nor any Certificateholder
shall have any obligation to purchase any Additional Lessor Notes issued under
the Collateral Trust Indenture.

SECTION 11. TERMINATION OF PASS THROUGH TRUST

        Section 11.1. Termination of the Pass Through Trust. The respective
obligations and responsibilities of the Partnerships and the Pass Through
Trustee created hereby and the Pass Through Trust created hereby shall terminate
upon the distribution to all Certificateholders of all amounts required to be
distributed to them pursuant to this Pass Through Trust Agreement and the
disposition of all property held as part of the Trust Property; provided,
however, that if and to the extent that any of the options, rights and
privileges granted under this Pass Through Trust Agreement, would, in the
absence of the limitation imposed by this sentence, be invalid or unenforceable
as being in violation of the rule against perpetuities or any other rule or law
relating to the vesting of interest in property or the suspension of the power
of alienation of property, then it is agreed that notwithstanding any other
provision of this Pass Through Trust Agreement, such options, rights and
privileges, subject to the respective conditions hereof governing the exercise
of such options, rights and privileges, will be exercisable only during (a) the
longer of (i) a period which will end twenty-one (21) years after the death of
the last survivor of the descendants living on the date of the execution of this
Pass Through Trust Agreement of the following Presidents of the United States:
Franklin D. Roosevelt, Harry S. Truman, Dwight D. Eisenhower, John F. Kennedy,
Lyndon B. Johnson, Richard M. Nixon, Gerald R. Ford, James E. Carter, Ronald W.
Reagan, George H.W. Bush and William J. Clinton or (ii) the period provided
under the Uniform Statutory Rule Against Perpetuities or (b) the specific
applicable period of time expressed in this Pass Through Trust Agreement,
whichever of (a) or (b) is shorter.

               Notice of any termination, specifying the Distribution Date (or
Special Distribution Date, as the case may be) upon which the Certificateholders
may surrender their Certificates to the Pass Through Trustee for payment of the
final distribution and cancellation, shall be mailed promptly by the Pass
Through Trustee to Certificateholders not earlier than the 60th day and not
later than the 20th day next preceding such final distribution specifying (A)
the


                                       45
<PAGE>   47

Distribution Date (or Special Distribution Date, as the case may be) upon which
final payment of the Certificates will be made upon presentation and surrender
of Certificates at the office or agency of the Pass Through Trustee therein
specified, (B) the amount of any such final payment, and (C) that the Record
Date otherwise applicable to such Distribution Date (or Special Distribution
Date, as the case may be) is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office or agency of the
Pass Through Trustee therein specified. The Pass Through Trustee shall give such
notice to the Registrar at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Pass Through Trustee
shall cause to be distributed to Certificateholders amounts distributable on
such Distribution Date or Special Distribution Date, as the case may be,
pursuant to Section 4.2 hereof.

               In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Pass Through Trustee shall
give a second written notice to the remaining Certificateholders to surrender
their Certificates for cancellation and receive the final distribution with
respect thereto. In the event that any money held by the Pass Through Trustee
for the payment of distributions on the Certificates shall remain unclaimed for
two years (or such lesser time as the Pass Through Trustee shall be satisfied,
after sixty days' written notice from the Partnerships, is one month prior to
the escheat period provided under applicable law) after the final distribution
date with respect thereto, the Pass Through Trustee shall pay to each Indenture
Trustee the appropriate amount of money relating to such Indenture Trustee and
shall give written notice thereof to the Owner Lessor, the Owner Participant and
the Partnerships.

SECTION 12. MISCELLANEOUS PROVISIONS

        Section 12.1. Amendments and Waivers. No term, covenant, agreement or
condition of this Pass Through Trust Agreement may be terminated, amended or
compliance therewith waived (either generally or in a particular instance,
retroactively or prospectively) except by an instrument or instruments in
writing executed by each party hereto.

        Section 12.2. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this Pass
Through Trust Agreement or the Pass Through Trust, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a partition or
winding up of the Pass Through Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.

        Section 12.3. Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Pass
Through Trust, the Fractional Undivided Interests represented by the
Certificates shall be nonassessable for any losses or expenses of the Pass
Through Trust or for any reason whatsoever, and Certificates upon authentication
thereof by the Pass Through Trustee pursuant to Section 3.2 hereof are and shall
be deemed fully paid. No Certificateholder shall have any right (except as
expressly provided herein) to vote or in any manner otherwise control the
operation and management of the Trust Property, the Pass Through Trust
established hereunder, or the obligations of the parties hereto, nor shall
anything set forth


                                       46
<PAGE>   48

herein, or contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association.

        Section 12.4. Notices, etc. to Partnerships and Pass Through Trustee.
Unless otherwise expressly specified or permitted by the terms hereof, all
communications and notices provided for herein to a party hereto shall be in
writing or by a telecommunications device capable of creating a written record,
and any such notice shall become effective (a) upon personal delivery thereof,
including by overnight mail or courier service, (b) in the case of notice by
United States mail, certified or registered, postage prepaid, return receipt
requested, upon receipt thereof, or (c) in the case of notice by such a
telecommunications device, upon transmission thereof, provided such transmission
is promptly confirmed by either of the methods set forth in clauses (a) or (b)
above, in each case addressed to such party and copy party at its address set
forth below or at such other address as such party or copy party may from time
to time designate by written notice to the other party:

               If to Tiverton:

                      c/o Calpine Corporation
                      50 West San Fernando Street, 5th Floor
                      San Jose, California 95113
                      Telephone No.: (408) 995-5115
                      Facsimile No.: (408) 995-0505
                      Attention: Asset Manager and General Counsel

                      c/o Calpine Corporation
                      The Pilot House, 2nd Floor
                      Lewis Wharf
                      Boston, Massachusetts 02110
                      Telephone No.: (617) 723-7200
                      Facsimile No.: (617) 723-7635

               If to Rumford:

                      c/o Calpine Corporation
                      50 West San Fernando Street, 5th Floor
                      San Jose, California 95113
                      Telephone No.: (408) 995-5115
                      Facsimile No.: (408) 995-0505
                      Attention: Asset Manager and General Counsel

                      c/o Calpine Corporation
                      The Pilot House, 2nd Floor
                      Lewis Wharf
                      Boston, Massachusetts 02110
                      Telephone No.: (617) 723-7200
                      Facsimile No.: (617) 723-7635


                                       47
<PAGE>   49

               If to the Pass Through Trustee:

                      State Street Bank and Trust Company of Connecticut,
                      National Association
                      225 Asylum Street, Goodwin Square
                      Hartford, Connecticut 06103
                      Telephone No.: (860) 244-1822
                      Facsimile No.: (860) 244-1889
                      Attention: Corporate Trust Department

               With a Copy to:

                      State Street Bank and Trust Company of California,
                      National Association
                      633 West 5th Street, 12th Floor
                      Los Angeles, California 90071
                      Telephone No.: (213) 362-7373
                      Facsimile No.: (213) 362-7357
                      Attention: Corporate Trust Department

        Section 12.5. Notices to Holders; Waiver. Except as otherwise expressly
provided herein, where this Pass Through Trust Agreement provides for notice to
Holders of any event, such notice shall be sufficiently given if in writing and
mailed, first-class postage prepaid, to each Holder affected by such event, at
such Holder's address as it appears in the Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice.

               In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice to
Holders, then such notification as shall be made by overnight courier, or in any
other manner acceptable to the Pass Through Trustee, shall constitute a
sufficient notification for every purpose hereunder.

               Where this Pass Through Trust Agreement provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Pass Through Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.

               In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
any other Holder, and any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given.


                                       48
<PAGE>   50

        Section 12.6. Successors and Assigns.

               (a)    This Pass Through Trust Agreement shall be binding upon
and shall inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns as permitted by and in
accordance with the terms hereof.

               (b)    Except as expressly provided herein or in the other
Operative Documents, no party hereto may assign its interests or transfer its
obligations herein without the consent of the other parties hereto.

        Section 12.7. Business Day. In any case where any Distribution Date or
Special Distribution Date relating to any Certificate is not a Business Day,
then (notwithstanding any other provision of this Pass Through Trust Agreement)
the payment otherwise payable on such date shall be payable on the next
succeeding Business Day with the same force and effect as if made on such
Distribution Date or Special Distribution Date and, provided that such payment
is made on such succeeding Business Day, no interest shall accrue on the amount
of such payment from and after such scheduled date to the time of such payment
on such next succeeding Business Day.

        Section 12.8. Governing Law. This Pass Through Trust Agreement, the
Certificates and the rights and duties of the parties hereunder and thereunder
shall be in all respects governed by and construed in accordance with the law of
the State of New York, including all matters of construction, validity and
performance (without giving effect to the conflicts of laws provisions thereof,
other than New York General Obligations Law Section 5-1401).

        Section 12.9. Severability. Any provision of this Pass Through Trust
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

        Section 12.10. Benefits of Pass Through Trust Agreement. Nothing in this
Pass Through Trust Agreement or in the Certificates, express or implied, shall
give to any person, other than the Partnerships, the Pass Through Trustee, the
Owner Lessor and each Indenture Trustee, and their respective successors, and
the Holders of Certificates as expressly provided herein, any benefit or any
legal or equitable right, remedy or claim under this Pass Through Trust
Agreement.

        Section 12.11. Counterparts. This Pass Through Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.

        Section 12.12. Headings and Table of Contents. The headings of the
sections of this Pass Through Trust Agreement and the Table of Contents are
inserted for purposes of convenience only and shall not be construed to affect
the meaning or construction of any of the provisions hereof.


                                       49
<PAGE>   51
        Section 12.13. Further Assurances. Each party hereto will promptly and
duly execute and deliver such further documents and assurances for and take such
further action reasonably requested by the other party, all as may be reasonably
necessary to carry out more effectively the intent and purpose of this Pass
Through Trust Agreement.

        Section 12.14. Effectiveness. This Pass Through Trust Agreement has been
dated as of the date first above written for convenience only. This Pass Through
Trust Agreement shall be effective on December 19, 2000, the date of execution
and delivery by the Partnerships and the Pass Through Trustee.

        Section 12.15. Statement of Intent. It is intended that, if the Pass
Through Trust were ever to be classified as a partnership for Federal income tax
purposes, that the Pass Through Trust be excluded from the application of
Subchapter K of the Internal Revenue Code, in accordance with Treasury
Regulation 1.761-2(b)(2)(ii).





                                       50
<PAGE>   52

               IN WITNESS WHEREOF, the Partnerships and the Pass Through Trustee
have caused this Pass Through Trust Agreement to be duly executed and delivered
by their respective officers thereunto duly authorized.


                                        TIVERTON POWER ASSOCIATES
                                        LIMITED PARTNERSHIP


                                        By: /s/ ERIC PRYOR
                                           -------------------------------------
                                           Name: Eric Pryor
                                           Title: Authorized Agent


                                        RUMFORD POWER ASSOCIATES
                                        LIMITED PARTNERSHIP


                                        By: /s/ ERIC PRYOR
                                           -------------------------------------
                                           Name: Eric Pryor
                                           Title: Authorized Agent


                                        STATE STREET BANK AND TRUST COMPANY OF
                                        CONNECTICUT, NATIONAL ASSOCIATION,
                                        as Pass Through Trustee


                                        By: /s/ MARK HENSON
                                           -------------------------------------
                                           Name: Mark Henson
                                           Title: Assistant Vice President


<PAGE>   53


                                                                      SCHEDULE 1


                             Participation Agreement

               The Participation Agreement providing for Lease Transactions to
be financed by the purchase of Lessor Notes hereunder, and the parties thereto,
is as follows: the Participation Agreement, dated as of December 19, 2000, among
(i) Tiverton Power Associates Limited Partnership, a limited partnership
organized under the laws of the State of Rhode Island, (ii) Rumford Power
Associates Limited Partnership, a limited partnership organized under the laws
of the State of Maine, (iii) Calpine Corporation, a Delaware corporation, as
Guarantor, (iv) PMCC Calpine New England Investment LLC, a Delaware limited
liability company, as Owner Lessor, (v) PMCC Calpine NEIM LLC, a Delaware
limited liability company, as the Owner Participant, (vi) State Street Bank and
Trust Company of Connecticut, National Association, a national banking
association organized and existing under the laws of the United States, not in
its individual capacity, except as expressly provided herein, but solely as
Indenture Trustee under the Collateral Trust Indenture, and (vii) State Street
Bank and Trust Company of Connecticut, National Association, a national banking
association organized and existing under the laws of the United States, not in
its individual capacity, but solely as Pass Through Trustee.





                                     SCH 1-1
<PAGE>   54


                                                                       EXHIBIT A


                               FORM OF CERTIFICATE


        THIS CERTIFICATE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT") AND UNDER APPLICABLE STATE SECURITIES LAWS, AND THIS
CERTIFICATE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
CERTIFICATE IS HEREBY NOTIFIED THAT THE SELLER OF THIS CERTIFICATE MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER.

        THE HOLDER OF THIS CERTIFICATE AGREES FOR THE BENEFIT OF THE ISSUER AND
CALPINE CORPORATION THAT (A) THIS CERTIFICATE MAY BE OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (i) IN THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (ii) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE FROM IT OF THE RESALE
RESTRICTION REFERRED TO IN (A) ABOVE.

        [IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS.]



                                     EXH A-1
<PAGE>   55


                  TIVERTON AND RUMFORD 2000 PASS THROUGH TRUST

                               9.00% Pass Through
                                   Certificate

                                CUSIP: _________

                     Final Distribution Date: July 15, 2018

               evidencing a fractional undivided interest in a trust,
               the property of which includes certain notes secured
               by certain property leased to Tiverton Power
               Associates Limited Partnership and Rumford Power
               Associates Limited Partnership

Certificate No. __                    $[_________] Fractional Undivided Interest

               THIS CERTIFIES THAT Cede & Co., as nominee of The Depository
Trust Company, for value received, is the registered owner of a $______________
(__________ dollars) Fractional Undivided Interest in the Tiverton and Rumford
2000 Pass Through Trust (the "Pass Through Trust") created pursuant to a Pass
Through Trust Agreement, dated as of December 19, 2000 (the "Agreement") between
Tiverton Power Associates Limited Partnership, a Rhode Island limited
partnership ("Tiverton"), Rumford Power Associates Limited Partnership, a Maine
limited partnership (together with Tiverton, the "Partnerships"), and State
Street Bank and Trust Company of Connecticut, National Association, as trustee
(the "Pass Through Trustee"), a summary of certain of the pertinent provisions
of which is set forth below. To the extent not otherwise defined herein, the
capitalized terms used herein have the meanings assigned to them in the
Agreement. This Certificate is one of the duly authorized Certificates
designated as "9.00% Pass Through Certificates" (herein called the
"Certificates"). This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound. The property of the Pass Through Trust includes certain Lessor
Notes (the "Trust Property"). The Lessor Notes are secured by a security
interest in certain undivided interests in the Facility, and liability
thereunder is limited to the income and proceeds of such security.

               Subject to and in accordance with the terms of the Agreement,
from funds then available to the Pass Through Trustee, there will be distributed
on each January 15 and July 15 (a "Distribution Date"), commencing on July 15,
2001, to the person in whose name this Certificate is registered at the close of
business on the day of the month which is fifteen days preceding the
Distribution Date, an amount in respect of the Scheduled Payments on the Lessor
Notes due on such Distribution Date, the receipt of which has been confirmed by
the Pass Through Trustee, equal to the product of the percentage interest in the
Pass Through Trust evidenced by this


                                     EXH A-2
<PAGE>   56

Certificate and an amount equal to the sum of such Scheduled Payments. Subject
to and in accordance with the terms of the Agreement, in the event that Special
Payments on the Lessor Notes are received by the Pass Through Trustee, from
funds then available to the Pass Through Trustee, there shall be distributed on
the applicable Special Distribution Date, to the Person in whose name this
Certificate is registered at the close of business on the day of the month which
is fifteen days preceding the Special Distribution Date, an amount in respect of
such Special Payments on the Lessor Notes, the receipt of which has been
confirmed by the Pass Through Trustee, equal to the product of the percentage
interest in the Pass Through Trust evidenced by this Certificate and an amount
equal to the sum of such Special Payments so received. The Special Distribution
Date shall be determined as provided in the Agreement. If a Distribution Date or
Special Distribution Date is not a Business Day, distribution shall be made on
the immediately following Business Day. The Pass Through Trustee shall mail
notice of each Special Payment and the Special Distribution Date therefor to the
Holders of the Certificates.

               Distributions on this Certificate will be made by the Pass
Through Trustee (i) if (A) The Depository Trust Company ("DTC"), or its nominee,
is the Certificateholder of record of this Certificate, or (B) a
Certificateholder holds a Certificate or Certificates in an aggregate amount
greater than $10,000,000, or (C) a Certificateholder holds a Certificate or
Certificates in an aggregate amount greater than $1,000,000 and so requests to
the Pass Through Trustee, by wire transfer in immediately available funds to an
account maintained by such Certificateholder with a bank, or (ii) if none of the
above apply, by check mailed to such Certificateholder at the address appearing
in the Register, without the presentation or surrender of this Certificate or
the making of any notation hereon. Except as otherwise provided in the Agreement
and notwithstanding the above, the final distribution on this Certificate will
be made after notice mailed by the Pass Through Trustee of the pendency of such
distribution and only upon presentation and surrender of this Certificate at the
office or agency of the Pass Through Trustee specified in such notice.

               Unless this Certificate is presented by an authorized
representative of DTC to the Partnerships or their agent for registration of
transfer, exchange or payment, and any Certificate issued is registered in the
name of Cede & Co., or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co., or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL in as much as the registered owner hereof, Cede & Co., has an interest
herein.

               Each Person who acquires or accepts this Certificate or an
interest herein will be deemed by such acquisition or acceptance to have
represented and warranted that either: (i) no Plan assets have been used to
purchase this Certificate or an interest herein or (ii) the purchase and holding
of this Certificate or interest herein are either exempt from the prohibited
transaction restrictions of ERISA and the Code pursuant to one or more
prohibited transaction statutory or administrative exemptions or do not
constitute a prohibited transaction under such restrictions of ERISA and the
Code.


                                     EXH A-3
<PAGE>   57

               This Certificate shall be governed by and construed in accordance
with the law of the State of New York.

               Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.

               Unless the certificate of authentication hereon has been executed
by the Pass Through Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.







                                     EXH A-4
<PAGE>   58

               IN WITNESS WHEREOF, the Pass Through Trustee has caused this
Certificate to be duly executed.


                                        TIVERTON AND RUMFORD 2000 PASS
                                        THROUGH TRUST


                                        By: STATE STREET BANK AND TRUST
                                            COMPANY OF CONNECTICUT,
                                            NATIONAL ASSOCIATION,
                                            as Pass Through Trustee


                                          By: _________________________________
                                              Name:
                                              Title:





                                     EXH A-5
<PAGE>   59


                            [Reverse Of Certificate]

               The Certificates do not represent a direct obligation of, or an
obligation guaranteed by, or an interest in, the Partnerships, the Pass Through
Company or the Pass Through Trustee or any affiliate thereof. The Certificates
are limited in right of payment, all as more specifically set forth in the
Agreement. All payments or distributions made to Certificateholders under the
Agreement shall be made only from the Trust Property and only to the extent that
the Pass Through Trustee shall have received sufficient income or proceeds from
the Trust Property to make such payments in accordance with the terms of the
Agreement. Each Holder of this Certificate, by its acceptance hereof, agrees
that it will look solely to the income and proceeds from the Trust Property to
the extent available for distribution to such Holder as provided in the
Agreement. This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds and duties evidenced hereby.
A copy of the Agreement may be examined during normal business hours at the
principal office of the Pass Through Trustee, and at such other places, if any,
designated by the Pass Through Trustee, by any Certificateholder upon request.

               The Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Partnerships and the rights of the Certificateholders under the Agreement at any
time by the Partnerships and the Pass Through Trustee with the consent of the
Holders of Certificates evidencing Fractional Undivided Interests aggregating
not less than a majority in interest of the Fractional Undivided Interests
evidenced by all Certificates at the time Outstanding. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.

               As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Register upon surrender of this Certificate for registration of transfer at the
offices or agencies maintained by the Pass Through Trustee in its capacity as
Registrar, or by any successor Registrar, in the Borough of Manhattan, the City
of New York, duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Pass Through Trustee and the Registrar duly executed by
the Holder hereof or such Holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of authorized denominations evidencing
the same aggregate Fractional Undivided Interest in the Pass Through Trust will
be issued to the designated transferee or transferees.

               The Certificates are issuable only as registered Certificates
without coupons in minimum denominations of $100,000 Fractional Undivided
Interest and any integral multiples of $1,000 in excess thereof. As provided in
the Agreement and subject to certain limitations therein


                                     EXH A-6
<PAGE>   60

set forth, Certificates are exchangeable for new Certificates of authorized
denominations evidencing the same aggregate Fractional Undivided Interest in the
Pass Through Trust, as requested by the Holder surrendering the same.

               No service charge will be made for any such registration of
transfer or exchange, but the Pass Through Trustee shall require payment of an
amount sufficient to cover any tax or charge payable in connection therewith.

               The Pass Through Trustee, the Partnerships, the Owner Lessor, the
Registrar and any agent of the Pass Through Trustee or the Registrar may treat
the person in whose name this Certificate is registered as the owner hereof for
all purposes, and neither the Pass Through Trustee, the Partnerships, the Owner
Lessor, the Registrar nor any such agent shall be affected by any notice to the
contrary.

The obligations and responsibilities created by the Agreement and the Pass
Through Trust created thereby shall terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant to
the Agreement and the disposition of all property held as part of the Trust
Property.





                                     EXH A-7
<PAGE>   61


                                                                       EXHIBIT B

          FORM OF PASS THROUGH TRUSTEE'S CERTIFICATE OF AUTHENTICATION


                                December 19, 2000


State Street Bank and Trust Company of Connecticut, National Association
225 Asylum Street
Goodwin Square
Hartford, Connecticut 06103


Re:  Preparation and Registration of Lessor Notes


Ladies and Gentlemen:


               Reference is made to the $366,000,000 in aggregate principal
amount of the 9.00% Pass Through Certificates due July 15, 2018 (the "Pass
Through Certificates") of the Tiverton and Rumford 2000 Pass Through Trust
representing undivided beneficial interests in $366,000,000 aggregate principal
amount of secured lease obligation notes (the "Lessor Notes") of PMCC Calpine
New England Investment LLC, a Delaware limited liability company (the "Owner
Lessor"), issued pursuant to the Indenture of Trust, Mortgage and Security
Agreement, dated as of December 19, 2000, between the Owner Lessor and State
Street Bank and Trust Company of Connecticut, National Association, as Indenture
Trustee, comprising $190,000,000 aggregate principal amount of Lessor Notes
relating to the Tiverton Generating Station and $176,000,000 aggregate principal
amount of Lessor Notes relating to the Rumford Generating Station.

               You are hereby directed to have the Lessor Notes prepared and
registered in the name of State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee (the "Pass Through Trustee") under
the Pass Through Trust Agreement, dated as of December 19, 2000, among Tiverton
Power Associates Limited Partnership, a Rhode Island limited partnership,
Rumford Power Associates Limited Partnership, a Maine limited partnership, and
the Pass Through Trustee, and to have the Lessor Notes delivered to the Pass
Through Trustee at 9:00 a.m., Eastern Standard Time, on December 19, 2000.



                                     EXH B-1

<PAGE>   62

                            [CONTINUED ON NEXT PAGE]










                                     EXH B-2
<PAGE>   63


                                        Very truly yours,

                                        PMCC Calpine New England Investment LLC

                                        By  PMCC Calpine NEIM LLC,
                                            its Sole Member


                                            By: ________________________________
                                                Name:
                                                Title:




                                     EXH B-3
<PAGE>   64

                                                                       EXHIBIT C

                          FORM OF TRANSFER CERTIFICATE

                                   CERTIFICATE

                  TIVERTON AND RUMFORD 2000 PASS THROUGH TRUST

                            PASS THROUGH CERTIFICATES

               This is to certify that as of the date hereof with respect to
$__________ (__________ dollars) Fractional Undivided Interest of the
above-captioned securities presented or surrendered on the date hereof (the
"Surrendered Certificates") for registration of transfer, or for exchange where
the securities issuable upon such exchange are to be registered in a name other
than that of the undersigned Holder (each such transaction being a "transfer"),
the undersigned Holder (as defined in the Pass Through Trust Agreement)
certifies that the transfer of Surrendered Certificates associated with such
transfer complies with the restrictive legend set forth on the face of the
Surrendered Certificates for the reason checked below:

[ ] Transfer to Tiverton and Rumford    [ ] Transfer outside the United States
    2000 Pass Through Trust                 in compliance with Rule 904 of the
                                            Securities Act.

[ ] Transfer inside the United States   [ ] Transfer inside the United States
    to a Qualified Institutional Buyer      to an Institutional Accredited
    in compliance with Rule 144A under      Investor that has previously
    the Securities Act.                     furnished to the Pass Through
                                            Trustee a signed letter containing
[ ] Transfer pursuant to an exemption       certain representations and
    from registration provided by Rule      agreements relating to restrictions
    144 under the Securities Act (if        on transfer and if such transfer is
    available).                             in respect of an aggregate
                                            Fractional Undivided Interest of
                                            less than $100,000, an opinion of
                                            counsel acceptable to the
                                            Partnerships that such transfer is
                                            in compliance with the Securities
                                            Act.


                                [Name of Holder]

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

Dated: _____________, _____*

*To be dated the date of presentation or surrender



                                     EXH C-1
<PAGE>   65

                                                                       EXHIBIT D


             FORM OF LETTER TO BE DELIVERED BY ACCREDITED INVESTORS

Tiverton Power Associates Limited Partnership/
Rumford Power Associates Limited Partnership
c/o Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Credit Suisse First Boston Corporation
  As Representative of the
  Several Initial Purchasers
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629

Dear Sirs and Madams,

               We are delivering this letter in connection with an offering of
Pass Through Certificates (the "Securities") evidencing a fractional interest in
a pass through trust, the property of which consists of certain notes secured by
certain property leased by Tiverton Power Associates Limited Partnership, a
Rhode Island limited partnership, and Rumford Power Associates Limited
Partnership, a Maine limited partnership (the "Lessees"), the obligations of the
Lessees under the leases and the related lease documents being guaranteed by
Calpine Corporation, a Delaware Corporation (the "Company"), all as described in
the Confidential Offering Circular (the "Offering Circular") relating to the
offering.

               We hereby confirm that:

               (i) we are an "accredited investor" within the meaning of Rule
        501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the
        "Securities Act"), or an entity in which all of the equity owners are
        accredited investors within the meaning of Rule 501 (a) (1), (2) or (3)
        under the Securities Act (an "Institutional Accredited Investor");

               (ii) (A) any purchase of the Securities by us will be for our own
        account or for the account of one or more other Institutional Accredited
        Investors or as fiduciary for the account of one or more trusts, each of
        which is an "accredited investor" within the meaning of Rule 501 (a) (7)
        under the Securities Act and for each of which we exercise sole
        investment discretion or (B) we are a "bank," within the meaning of
        Section 3(a) (2) of the Securities Act, or a "savings and loan
        association" or other institution described in Section 3(a) (5) (A) of
        the Securities Act that is acquiring the Securities as fiduciary for the
        account of one or more institutions for which we exercise sole
        investment discretion;


                                     EXH. D-1
<PAGE>   66

               (iii) in the event that we purchase any of the Securities, we
        will acquire Securities having a minimum purchase price of not less than
        $100,000 for our own account or for any separate account for which we
        are acting;

               (iv) we have such knowledge and experience in financial and
        business matters that we are capable of evaluating the merits and risks
        of purchasing the Securities;

               (v) we are not acquiring the Securities with a view to
        distribution thereof or with any present intention of offering or
        selling any of the Securities, except inside the United States in
        accordance with Rule l44A under the Securities Act or outside the United
        States in accordance with Regulation S under the Securities Act, as
        provided below; provided that the disposition of our property and the
        property of any accounts for which we are acting as fiduciary shall
        remain at all times within our control; and

               (vi) we have received a copy of the Offering Circular relating to
        the offering of the Securities and acknowledge that we have had access
        to such financial and other information, and have been afforded the
        opportunity to ask such questions of representatives of the Lessees and
        the Company and receive answers thereto, as we deem necessary in
        connection with our decision to purchase the Securities.

               We understand that the Securities are being offered in a
transaction not involving any public offering within the United States within
the meaning of the Securities Act and that the Securities have not been and will
not be registered under the Securities Act, and we agree, on our own behalf and
on behalf of each account for which we acquire any Securities, that if in the
future we decide to resell, pledge or otherwise transfer such Securities, such
Securities may be offered, resold, pledged or otherwise transferred only (i) in
the United States to a person who we reasonably believe is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (ii) outside the United
States in a transaction in accordance with Rule 904 under the Securities Act,
(iii) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available) or (iv) pursuant to an effective
registration statement under the Securities Act, in each of cases (i) through
(iv), in accordance with any applicable securities laws of any State of the
United States or any other applicable jurisdiction. We understand that the
registrar and transfer agent for the Securities will not be required to accept
for registration of transfer any Securities acquired by us, except upon
presentation of evidence satisfactory to the Lessees and the Company and the
transfer agent that the foregoing restrictions on transfer have been complied
with. We further understand that any Securities acquired by us will be in the
form of definitive physical certificates and that such certificates will bear a
legend reflecting the substance of this paragraph.

               We acknowledge that you, the Lessees, the Company and others will
rely upon our confirmations, acknowledgements and agreements set forth herein,
and we agree to notify you promptly in writing if any of our representations or
warranties herein ceases to be accurate and complete.


                                     EXH. D-2
<PAGE>   67


               THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.



Date:_________________                  ________________________________________
                                                  (Name of Purchaser)


                                        By:_____________________________________
                                           Name:

                                           Title:




                                     EXH. D-3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12.2
<SEQUENCE>14
<FILENAME>f70293ex4-12_2.txt
<DESCRIPTION>EXHIBIT 4.12.2
<TEXT>

<PAGE>   1

                                                                  EXHIBIT 4.12.2

                                                                  EXECUTION COPY





                             PARTICIPATION AGREEMENT

                          Dated as of December 19, 2000

                                      among

      TIVERTON POWER ASSOCIATES LIMITED PARTNERSHIP, as a Facility Lessee,

       RUMFORD POWER ASSOCIATES LIMITED PARTNERSHIP, as a Facility Lessee,

            PMCC CALPINE NEW ENGLAND INVESTMENT LLC, as Owner Lessor,

                        CALPINE CORPORATION, as Guarantor

                  PMCC CALPINE NEIM LLC, as Owner Participant,

    STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION,
                     not in its individual capacity, except
                    as expressly provided herein, but solely
                            as Indenture Trustee, and

          STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
                      ASSOCIATION, as Pass Through Trustee





                           CALPINE NEW ENGLAND PROJECT


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

<PAGE>   2


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----

<S>                                                                            <C>
SECTION 1.     DEFINITIONS; INTERPRETATION OF THIS PARTICIPATION AGREEMENT........3


SECTION 2.     PARTICIPATION; CLOSING DATE; TRANSACTION COSTS.....................3

    Section 2.1.      Agreements to Participate...................................3
    Section 2.2.      Closing Date; Procedure for Participation...................4
    Section 2.3.      Transaction Costs...........................................6

SECTION 3.     REPRESENTATIONS AND WARRANTIES.....................................6

    Section 3.1.      Representations and Warranties of the Facility Lessees......6
    Section 3.2.      Representations and Warranties of the Owner Lessor.........16
    Section 3.3.      Intentionally Omitted......................................17
    Section 3.4.      Representations and Warranties of the Owner Participant....17
    Section 3.5.      Representations and Warranties of Indenture Trustee and
                      the Lease Indenture Company................................19
    Section 3.6.      Representations, Warranties and Covenants of Pass Through
                      Trustee and the Pass Through Company.......................21

SECTION 4.     CLOSING CONDITIONS................................................23

    Section 4.1.      Completion of the Facility.................................23
    Section 4.2.      Operative Documents........................................23
    Section 4.3.      Certificates and the Lessor Notes..........................23
    Section 4.4.      Equity Investment..........................................23
    Section 4.5.      Organizational Documents...................................23
    Section 4.6.      Representations and Warranties.............................24
    Section 4.7.      Defaults, Events of Default, Events of Loss................24
    Section 4.8.      Intentionally Omitted......................................24
    Section 4.9.      Consents...................................................24
    Section 4.10.     Governmental Actions.......................................24
    Section 4.11.     Insurance..................................................24
    Section 4.12.     Ratings....................................................24
    Section 4.13.     Environmental Report.......................................24
    Section 4.14.     Surveys; Site Description..................................25
    Section 4.15.     Appraisal; Condition of the Facility.......................25
    Section 4.16.     Letter from the Appraiser..................................25
    Section 4.17.     Other Reports..............................................25
    Section 4.18.     Opinion with Respect to Certain Tax Aspects................25
    Section 4.19.     Opinions of Counsel........................................25
    Section 4.20.     Recordings and Filings.....................................26
    Section 4.21.     Intentionally Omitted......................................26
</TABLE>


                                       i
<PAGE>   3


                                TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----

<S>                                                                            <C>
    Section 4.22.     Taxes......................................................26
    Section 4.23.     No Changes in Applicable Law...............................26
    Section 4.24.     Registered Agent for the Facility Lessees and the Owner
                      Lessor.....................................................26
    Section 4.25.     Operating Lease Treatment..................................26
    Section 4.26.     Rent Adjustments...........................................27
    Section 4.27.     Title Insurance............................................27
    Section 4.28.     Intentionally Omitted......................................27
    Section 4.29.     Intentionally Omitted......................................27
    Section 4.30.     Intentionally Omitted......................................27
    Section 4.31.     Intentionally Omitted......................................27
    Section 4.32.     Letter as to Number of Offerees............................27
    Section 4.33.     Lien Search................................................27
    Section 4.34.     Intentionally Omitted......................................27
    Section 4.35.     Litigation.................................................27
    Section 4.36.     No Material Adverse Change.................................27
    Section 4.37.     Regulatory Approvals.......................................27
    Section 4.38.     Private Placement Number...................................28
    Section 4.39.     Credit Ratings.............................................28
    Section 4.40.     Proceedings and Documents..................................28
    Section 4.41.     Intentionally Omitted......................................28
    Section 4.42.     Payment of Fees and Expenses...............................28
    Section 4.43.     Qualifying Letter of Credit................................28

SECTION 5.     COVENANTS OF FACILITY LESSEES AND GUARANTOR.......................28

    Section 5.1.      Maintenance of Existence...................................28
    Section 5.2.      Merger, Consolidation, Sale of Substantially All Assets....29
    Section 5.3.      Intentionally Omitted......................................29
    Section 5.4.      Intentionally Omitted......................................29
    Section 5.5.      Administrator Fees.........................................29
    Section 5.6.      Conduct of Business, Properties, Etc.......................30
    Section 5.7.      Obligations................................................30
    Section 5.8.      Books, Records, Access.....................................30
    Section 5.9.      Other Information..........................................30
    Section 5.10.     Warranty of Title to Facility Site.........................31
    Section 5.11.     ERISA......................................................31
    Section 5.12.     Certain Contracts and Agreements...........................31
    Section 5.13.     Certain Costs..............................................31
    Section 5.14.     Limitations on Liens.......................................32
    Section 5.15.     Investments................................................32
    Section 5.16.     Survey (Rumford)...........................................32
    Section 5.17.     Regulations................................................32
</TABLE>


                                       ii
<PAGE>   4
                                TABLE OF CONTENTS (continued)

<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----

<S>                                                                            <C>
    Section 5.18.     Partnerships...............................................32
    Section 5.19.     Dissolution................................................32
    Section 5.20.     Termination of Contracts, Etc..............................32
    Section 5.21.     Name and Location..........................................33
    Section 5.22.     Use of Facility Site.......................................33
    Section 5.23.     Abandonment of Facility....................................33
    Section 5.24.     Taxes, Other Government Charges and Utility Charges........33
    Section 5.25.     Compliance with Laws, Instruments, Etc.....................33
    Section 5.26.     PUHCA......................................................34
    Section 5.27.     Intentionally Omitted......................................34
    Section 5.28.     Intentionally Omitted......................................34
    Section 5.29.     Intentionally Omitted......................................34
    Section 5.30.     Intentionally Omitted......................................34
    Section 5.31.     Further Assurances.........................................34
    Section 5.32.     Intentionally Omitted......................................35
    Section 5.33.     Intentionally Omitted......................................35
    Section 5.34.     Intentionally Omitted......................................35
    Section 5.35.     Intentionally Omitted......................................35
    Section 5.36.     Intentionally Omitted......................................35
    Section 5.37.     No Subsidiaries............................................35
    Section 5.38.     Permitted Business.........................................35
    Section 5.39.     Intentionally Omitted......................................35
    Section 5.40.     Guaranty and Contingent Obligations........................35
    Section 5.41.     Assignment of Rights.......................................36
    Section 5.42.     Intentionally Omitted......................................36
    Section 5.43.     Intentionally Omitted......................................36
    Section 5.44.     Support Arrangements.......................................36
    Section 5.45.     Insurance..................................................36
    Section 5.46.     Qualifying Letter of Credit; Equity Collateral Account.....36

SECTION 6.     COVENANTS OF THE OWNER LESSOR.....................................39

    Section 6.1.      Compliance with the LLC Agreement..........................39
    Section 6.2.      Owner Lessor's Liens.......................................39
    Section 6.3.      Amendments to Operative Documents..........................39
    Section 6.4.      Transfer of the Owner Lessor's Interest....................40
    Section 6.5.      Owner Lessor; Lessor Estate................................40
    Section 6.6.      Limitation on Indebtedness and Actions.....................40
    Section 6.7.      Change of Location.........................................40

SECTION 7.     COVENANTS OF THE OWNER PARTICIPANT................................40

    Section 7.1.      Restrictions on Transfer of Member Interest................40
    Section 7.2.      Owner Participant's Liens..................................43
</TABLE>

                                       iii
<PAGE>   5

                                TABLE OF CONTENTS (continued)

<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----

<S>                                                                            <C>
    Section 7.3.      Amendments or Revocation of LLC Agreement..................43
    Section 7.4.      Bankruptcy Filings.........................................43
    Section 7.5.      Instructions...............................................43
    Section 7.6.      Intentionally Omitted......................................43
    Section 7.7.      Intentionally Omitted......................................43
    Section 7.8.      Right of First Refusal.....................................43

SECTION 8.     COVENANTS OF THE INDENTURE TRUSTEE AND THE PASS THROUGH TRUSTEE...44

    Section 8.1.      Indenture Trustee's Liens..................................44
    Section 8.2.      Pass Through Trustee's Covenant Not to Transfer Lessor
                      Notes......................................................44

SECTION 9.     INDEMNIFICATION...................................................44

    Section 9.1.      General Indemnity..........................................44
    Section 9.2.      General Tax Indemnity......................................51

SECTION 10.    FACILITY LESSEE'S RIGHT OF QUIET ENJOYMENT........................60


SECTION 11.    SUPPLEMENTAL FINANCING IMPROVEMENTS; OPTIONAL REFINANCINGS........60

    Section 11.1.     Financing Improvements.....................................60
    Section 11.2.     Optional Refinancing of Lease Debt.........................62
    Section 11.3.     Cooperation................................................63

SECTION 12.    CERTAIN ADJUSTMENTS TO PERIODIC RENT AND TERMINATION VALUE........63


SECTION 13.    TRANSFER OF THE FACILITY LESSEE OWNERSHIP.........................64

    Section 13.1.     Transfer of the Facility Lessee Ownership..................64

SECTION 14.    MISCELLANEOUS.....................................................66

    Section 14.1.     Consents; Cooperation......................................66
    Section 14.2.     Successor Owner Lessor.....................................66
    Section 14.3.     Bankruptcy of Lessor Estate................................66
    Section 14.4.     Waivers....................................................66
    Section 14.5.     Notices....................................................66
    Section 14.6.     Survival...................................................69
    Section 14.7.     Successors and Assigns.....................................70
    Section 14.8.     Business Day...............................................70
    Section 14.9.     Governing Law..............................................70
</TABLE>


                                       iv
<PAGE>   6

                                TABLE OF CONTENTS (continued)

<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----

<S>                                                                            <C>
    Section 14.10.    Severability...............................................70
    Section 14.11.    Counterparts...............................................70
    Section 14.12.    Headings and Table of Contents.............................70
    Section 14.13.    Limitation of Liability....................................71
    Section 14.14.    Consent to Jurisdiction; Waiver of Trial by Jury; Process
                      Agent......................................................72
    Section 14.15.    Further Assurances.........................................72
    Section 14.16.    Effectiveness..............................................73
    Section 14.17.    Measuring Life.............................................73
    Section 14.18.    No Partnership, Etc........................................73
    Section 14.19.    Entire Agreement...........................................73
    Section 14.20.    Public Utility Regulation..................................73
    Section 14.21.    Confidentiality of Information.............................74
    Section 14.22.    Reliance...................................................74
    Section 14.23.    Intentionally Omitted......................................75
    Section 14.24.    Amendments, Etc............................................75
    Section 14.25.    Credit for Certain Disbursements...........................75
</TABLE>


                                       v
<PAGE>   7

APPENDICES:

        Appendix A    Definitions and Rules of Interpretation

SCHEDULES:

    Schedule 1-A          Equity Investment
    Schedule 1-B          Indenture Trustee's Account
    Schedule 1-C          Owner Participant's Account
    Schedule 2            Pricing Assumptions
    Schedule 3.1(m)       Environmental Matters - Hazardous Substances
    Schedule 4.20         Recording and Filings
    Schedule 5.45         Maintenance of Insurance



EXHIBITS:

    Exhibit A-1           Description of Tiverton Facility
    Exhibit A-2           Description of Rumford Facility
    Exhibit B-1           Form of Tiverton Bill of Sale
    Exhibit B-2           Form of Rumford Bill of Sale
    Exhibit C-1           Form of Tiverton Facility Lease Agreement
    Exhibit C-2           Form of Rumford Facility Lease Agreement
    Exhibit D-1           Form of Tiverton Site Lease
    Exhibit D-2           Form of Rumford Site Lease
    Exhibit E-1           Form of Tiverton Site Sublease
    Exhibit E-2           Form of Rumford Site Sublease
    Exhibit F             Form of Pass Through Trust Agreement
    Exhibit G             Form of OP Parent Guaranty
    Exhibit H-1           Form of Calpine Guaranty (Tiverton)
    Exhibit H-2           Form of Calpine Guaranty (Rumford)
    Exhibit I             Form of Collateral Trust Indenture
    Exhibit J             Form of OP Assignment and Assumption Agreement
    Exhibit K             List of Competitors
    Exhibit L             Required coverages for Qualifying Letters of Credit
                              & Equity Collateral Account
    Exhibit M             Form of Guarantor Assignment and Assumption Agreement


                                       vi
<PAGE>   8


                             PARTICIPATION AGREEMENT


               This PARTICIPATION AGREEMENT, dated as of December 19, 2000 (as
        amended, supplemented or otherwise modified from time to time, in
        accordance with the provisions hereof, this "Participation Agreement" or
        this "Agreement"), among (i) TIVERTON POWER ASSOCIATES LIMITED
        PARTNERSHIP, a limited partnership organized under the laws of the State
        of Rhode Island (the "Tiverton Lessee"), (ii) RUMFORD POWER ASSOCIATES
        LIMITED PARTNERSHIP, a limited partnership organized under the laws of
        the State of Maine (the "Rumford Lessee") (the Rumford Lessee, together
        with the Tiverton Lessee and each of their successors and permitted
        assigns, collectively, the "Facility Lessees," or individually, as the
        case may be, each a "Facility Lessee"), (iii) CALPINE CORPORATION, a
        Delaware corporation, as Guarantor (together with its successors and
        permitted assigns, the "Guarantor") under the Calpine Guaranty
        (Tiverton) and the Calpine Guaranty (Rumford) (the Calpine Guaranty
        (Rumford), together with the Calpine Guaranty (Tiverton), collectively,
        the "Calpine Guaranties," or individually, as the case may be, each a
        "Calpine Guaranty"), (iv) PMCC CALPINE NEW ENGLAND INVESTMENT LLC, a
        Delaware limited liability company (the "Owner Lessor"), (v) PMCC
        CALPINE NEIM LLC, a Delaware limited liability company (herein, together
        with its successors and permitted assigns, called the "Owner
        Participant"), (vi) STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
        NATIONAL ASSOCIATION, a national banking association organized and
        existing under the laws of the United States, not in its individual
        capacity, except as expressly provided herein, but solely as trustee
        under the Collateral Trust Indenture (herein in its capacity as trustee
        under the Collateral Trust Indenture, together with its successors and
        permitted assigns, called the "Indenture Trustee", and herein in its
        individual capacity, together with its successors and permitted assigns,
        called the "Lease Indenture Company"), and (vii) STATE STREET BANK AND
        TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, a national banking
        association organized and existing under the laws of the United States,
        not in its individual capacity, but solely as trustee under the Pass
        Through Trust Agreement (herein in its capacity as trustee under the
        Pass Through Trust Agreement, the "Pass Through Trustee").

                                   WITNESSETH:

        WHEREAS, (a) Tiverton Lessee, an indirect, wholly-owned subsidiary of
Calpine, will, as of the Closing Date, own a 265 MW gas-fired combined cycle
merchant power plant located in Tiverton, Rhode Island and more fully described
in Exhibit A-1 hereto ("Tiverton Facility") and (b) Rumford Lessee, an indirect,
wholly-owned subsidiary of Calpine, will, as of the Closing Date, own a 265 MW
gas-fired combined cycle merchant power plant located in Rumford, Maine and more
fully described in Exhibit A-2 hereto ("Rumford Facility") (each of the Tiverton
Facility and the Rumford Facility, a "Facility" and, collectively, the
"Facilities");

        WHEREAS, (a) Tiverton Lessee desires to sell to the Owner Lessor the
Tiverton Facility pursuant


<PAGE>   9

to the Tiverton Bill of Sale, and to lease to the Owner Lessor the Tiverton Site
pursuant to the Tiverton Site Lease, and to lease the Tiverton Facility and
sublease the Tiverton Site from the Owner Lessor pursuant to the Tiverton
Facility Lease and the Tiverton Site Sublease, respectively and (b) Rumford
Lessee desires to sell to the Owner Lessor in the Rumford Facility pursuant to
the Rumford Bill of Sale, and to lease to the Owner Lessor the Rumford Site
pursuant to the Rumford Site Lease, and to lease the Rumford Facility and
sublease the Rumford Site from the Owner Lessor pursuant to the Rumford Facility
Lease and the Rumford Site Sublease, respectively (the Tiverton Site and the
Rumford Site, each a "Facility Site" and, collectively, the "Facility Sites" and
the Tiverton Bill of Sale and the Rumford Bill of Sale, each a "Bill of Sale"
and collectively, the "Bills of Sale");

        WHEREAS, the Owner Participant desires to cause the Owner Lessor to
purchase the Facilities from the Facility Lessees pursuant to the Bills of Sale,
to lease the Facility Sites from the Facility Lessees pursuant to the Facility
Site Leases, and to lease the Facilities and to sublease the Facility Sites to
the Facility Lessees pursuant to the Facility Leases and the Facility Site
Subleases, respectively;

        WHEREAS, the Owner Participant has entered into the LLC Agreement,
pursuant to which the Owner Participant has authorized the Owner Lessor to,
among other things and subject to the terms and conditions thereof and hereof,
issue the Lessor Notes and sell such Lessor Notes to the Pass Through Trust,
purchase the Facilities from the Facility Lessees pursuant to the Bills of Sale,
lease the Facility Sites from the Facility Lessees pursuant to the Facility Site
Leases, and lease the Facilities and sublease the Facility Sites to the Facility
Lessees pursuant to the Facility Leases and the Facility Site Subleases,
respectively;

        WHEREAS, in order to provide a portion of the Purchase Price payable by
the Owner Lessor in respect of its acquisition of the Facilities pursuant to the
Bills of Sale, the Owner Participant is willing to make an investment in the
Owner Lessor in an amount equal to the Equity Investment, all in the manner and
subject to the conditions set forth herein;

        WHEREAS, on the Closing Date, the Owner Lessor intends to sell to the
Pass Through Trust the Lessor Notes and to grant to the Indenture Trustee liens
and security interests in the Indenture Estate to secure its obligations
thereunder;

        WHEREAS, concurrently with the execution and delivery of this
Participation Agreement, the Pass Through Trustee has entered into the Pass
Through Trust Agreement, pursuant to which the Pass Through Trustee has been
directed to use the Proceeds to purchase the Lessor Notes from the Owner Lessor
on the Closing Date;

        WHEREAS, concurrently with the execution and delivery of this
Participation Agreement, the Facility Lessees have entered into the Certificate
Purchase Agreement with the Initial Purchasers and the Pass Through Trust
pursuant to which the Initial Purchasers will purchase the Certificates on the
Closing Date from the Pass Through Trust;

        WHEREAS, concurrently with the execution and delivery of this
Participation Agreement, the OP Guarantor has executed and delivered the OP
Parent Guaranty pursuant to which the OP Guarantor guarantees the payment and
performance obligations of the Owner Participant under the Operative Documents;


                                       2
<PAGE>   10

        WHEREAS, pursuant to the Calpine Guaranty (Tiverton) and the Calpine
Guaranty (Rumford), Calpine has guaranteed all of the respective obligations of
each Facility Lessee under the Participation Agreement and as of the Closing
Date shall guarantee all of the obligations of each Facility Lessee under the
other Operative Documents to which such Facility Lessee is a party; and

        WHEREAS, the parties hereto desire to consummate the transactions
contemplated hereby.

        NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:


SECTION 1. DEFINITIONS; INTERPRETATION OF THIS PARTICIPATION AGREEMENT

        The capitalized terms used in this Participation Agreement, including
the foregoing recitals, and not otherwise defined herein shall have the
respective meanings specified in Appendix A hereto. The rules of interpretation
set forth in Appendix A shall apply to terms used in this Participation
Agreement and specifically defined herein.


SECTION 2. PARTICIPATION; CLOSING DATE; TRANSACTION COSTS

         Section 2.1. Agreements to Participate. Subject to the terms and
conditions of this Agreement, and in reliance on the agreements, representations
and warranties made herein, the parties agree to participate in the transactions
described in this Section 2.1 on the Closing Date as follows:

        (a) the Owner Participant agrees to provide funds in an amount
sufficient to (i) fund the Equity Investment and (ii) pay the Transaction Costs
which the Owner Lessor is responsible to pay pursuant to Section 2.3(a) hereof
(collectively, the "Owner Participant's Commitment");

        (b) the Tiverton Lessee agrees to sell the Tiverton Facility to the
Owner Lessor on the terms and conditions set forth in the Tiverton Bill of Sale
and to lease the related Tiverton Site to the Owner Lessor on the terms and
conditions set forth in the Tiverton Site Lease; the Owner Lessor agrees to buy
the Tiverton Facility and to lease the Tiverton Site from the Tiverton Lessee,
and each agrees to execute and deliver the Tiverton Bill of Sale and the
Tiverton Site Lease;

        (c) the Rumford Lessee agrees to sell the Rumford Facility to the Owner
Lessor on the terms and conditions set forth in the Rumford Bill of Sale and to
lease the related Rumford Site to the Owner Lessor on the terms and conditions
set forth in the Rumford Site Lease; the Owner Lessor agrees to buy the Rumford
Facility and to lease the Rumford Site from the Rumford Lessee, and each agrees
to execute and deliver the Rumford Bill of Sale and the Rumford Site Lease;


                                       3
<PAGE>   11

         (d) the Owner Lessor agrees to lease the Tiverton Facility and to
sublease the Tiverton Site to the Tiverton Lessee on the terms and conditions
set forth in the corresponding Tiverton Facility Lease and Tiverton Site Lease;
the Tiverton Lessee agrees to lease the Tiverton Facility and sublease the
corresponding Tiverton Site from the Owner Lessor, and each agrees to execute
and deliver the respective Tiverton Site Sublease and Tiverton Facility Lease;

        (e) the Owner Lessor agrees to lease the Rumford Facility and to
sublease the Rumford Site to the Rumford Lessee on the terms and conditions set
forth in the corresponding Rumford Facility Lease and Rumford Site Lease; the
Rumford Lessee agrees to lease its Rumford Facility and sublease the
corresponding Rumford Site from the Owner Lessor, and each agrees to execute and
deliver the respective Rumford Site Sublease and Rumford Facility Lease;

        (f) the Indenture Trustee agrees to act as the trustee under and enter
into the Collateral Trust Indenture pursuant to which the Lessor Notes will be
issued;

        (g) the Pass Through Trustee agrees to use the Proceeds from the sale of
the Certificates by the Pass Through Trust to purchase the Lessor Notes from the
Owner Lessor;

        (h) the Owner Lessor agrees to sell to the Pass Through Trust the Lessor
Notes and to grant to the Indenture Trustee, for the benefit of the Pass Through
Trustee, certain liens and security interests in the Indenture Estate to secure
its obligations thereunder;

        (i) the Owner Lessor agrees to use the funds received from the Owner
Participant and the Pass Through Trust pursuant to clause (a)(i) and (g),
respectively, of this Section 2.1 on the Closing Date to pay the Purchase Price;

         (j) the Owner Participant and the Facility Lessees agree to enter into
the Tax Indemnity Agreement; and

        (k) the parties agree to enter into the agreements referred to above and
the other Operative Documents (other than the Operative Documents previously
entered into on the Effective Date), and to cause each Affiliate thereof that is
not a party hereto but is a party to an Operative Document to enter into such
Operative Document, as the case may be (in each case, if attached as an Exhibit
hereto, in substantially the form attached hereto).

        Section 2.2. Closing Date; Procedure for Participation.

        (a) Closing Date. The closing of the transactions contemplated hereby
(the "Closing") shall take place after 10:00 a.m., New York City time, on the
Scheduled Closing Date or such other date as the parties hereto shall mutually
agree (the "Closing Date"), at the offices of Latham & Watkins, 885 Third
Avenue, New York, New York 10022 or at such other place as the parties hereto
shall mutually agree.

        (b) Procedures for Funding. Unless the Closing Date shall have been
postponed pursuant to Section 2.2(c), subject to the terms and conditions of
this Participation Agreement, the Owner Participant shall make the Owner
Participant's Commitment available not later than 10:00 a.m., New York City
time, on the Scheduled Closing Date, by transferring or delivering


                                       4
<PAGE>   12

such amount, in funds immediately available on such Closing Date, to the Owner
Lessor in New York, New York.

        (c) Postponement of the Closing. The Scheduled Closing Date may be
postponed from time to time for any reason if the Facility Lessees give the
Owner Participant, the Owner Lessor, the Indenture Trustee and the Pass Through
Trustee a facsimile or telephonic (confirmed in writing) notice of such
postponement and notice of the date to which the Closing has been postponed,
such notice of postponement to be received by each party no later than noon, New
York City time, on the Scheduled Closing Date. If, prior to receipt of a
postponement notice under this Section 2.2(c), the Owner Participant shall have
provided funds in accordance with Section 2.2(b), such funds shall be returned
to the Owner Participant, as soon as reasonably practicable but in no event
later than the Business Day following the date of such notice, unless the Owner
Participant shall have otherwise directed. All funds made available pursuant to
Section 2.2(b) will be held by the Owner Lessor in trust for the Owner
Participant and shall not be part of the Indenture Estate or the Lessor Estate,
shall be invested by the Owner Lessor in accordance with clause (d) below and
such funds shall remain the sole property of the Owner Participant unless and
until released by the Owner Participant and made available to the Owner Lessor
and applied to pay the Purchase Price or Transaction Costs or returned to the
Owner Participant, as provided in this Agreement.

        (d) Investment of Funds. If, on the Scheduled Closing Date, the Owner
Participant has made the Owner Participant's Commitment available to the Owner
Lessor in accordance with Section 2.2(b), the Closing does not occur on such
date and the Owner Lessor is unable to return such funds to the Owner
Participant on such date, the Owner Lessor shall, subject to Section 2.2(c)
above, use reasonable efforts to invest such funds from time to time at the
written direction of Calpine, and at Calpine's sole expense and risk, in
Permitted Investments until such funds can be returned to the Owner Participant.
If, on the Scheduled Closing Date, the Owner Participant has made the Owner
Participant's Commitment available to the Owner Lessor in accordance with
Section 2.2(b), the Closing does not occur on such date and the Owner Lessor has
not returned such funds to the Owner Participant on or before 1:00 p.m., New
York City time, on such date, then Calpine shall reimburse the Owner Participant
for loss of the use of such funds at the Applicable Rate for each day, from and
including the day that such funds were made available to the Owner Lessor by the
Owner Participant to, but excluding the earlier of (i) the day that such funds
have been returned to the Owner Participant pursuant to Section 2.2(c) (funds
received by the Owner Participant after 1:00 p.m., New York City time, of any
day shall be deemed to be returned on the next succeeding Business Day) and (ii)
the Closing Date. Subject to payment for the account of the Owner Participant of
any reimbursement for loss of use of funds due to it at the Applicable Rate, any
net gain realized on the investment of such funds (including interest) shall be
paid to Calpine by the Owner Lessor on the earlier of (i) the date such funds
are returned to the Owner Participant pursuant to Section 2.2(c) and (ii) the
Closing Date. The Owner Lessor shall not be liable for any interest on or loss
resulting from such investments and, if such funds are made available to the
Owner Lessor and utilized to pay the Purchase Price or Transaction Costs on the
Closing Date, Calpine shall reimburse the Owner Lessor for any net loss realized
on the investment of such funds. If such funds are not so


                                       5
<PAGE>   13

utilized, Calpine shall, in addition to its obligation to reimburse the Owner
Participant for loss of use as provided above, reimburse the Owner Participant
on the date such funds are returned to the Owner Participant for any net loss
realized on the investment of such funds. In order to obtain funds for payment
of the Purchase Price or Transaction Costs or to return funds made available to
the Owner Lessor by the Owner Participant, the Owner Lessor is authorized to
sell any investments or obligations purchased as aforesaid.

        (e) Expiration of Commitments. The obligation of the Owner Participant
to make its Equity Investment shall expire at 11:59 p.m., New York City time, on
December 31, 2000. If the Closing Date has not occurred on or before December
31, 2000 the Transaction Parties shall have no obligation to consummate the
transactions contemplated under this Agreement and, except as provided in
Sections 2.3, 9.1 and 9.2, all obligations of the Transaction Parties shall
cease and terminate.

        Section 2.3. Transaction Costs.

        (a) If the transactions contemplated by this Agreement are consummated,
all Transaction Costs up to an amount equal to US$9,150,000.00, which shall be
substantiated or otherwise supported in reasonable detail (provided that legal
bills may be redacted to preserve attorney-client privilege), shall be paid
promptly after the Closing Date but in no event later than December 29, 2000 by
the Owner Lessor (with funds provided by the Owner Participant), assuming all
invoices have been approved by Calpine and received by the Owner Lessor by
December 26, 2000. All other Transaction Costs, fees, costs and expenses
incurred by the Facility Lessees, the Owner Lessor and the Owner Participant
shall be paid by Calpine. If the Overall Transaction is not consummated for any
reason (including as a result of the Facility Lessees' terminating this
Agreement pursuant to Section 12(a)), then Calpine shall bear all Transaction
Costs; provided, however, that Calpine shall not be obligated to pay Transaction
Costs incurred by the Owner Participant if the Overall Transaction is not
consummated on the basis of the provisions of this Agreement due to a failure of
the Owner Participant to satisfy any condition to the Closing required to be
satisfied by the Owner Participant.

        (b) Following the Closing Date, the Facility Lessees will be responsible
for, and will pay as Supplemental Rent on an After-Tax Basis to the
Administrator, the annual administration fees, if any, and expenses (including
reasonable and documented fees and expenses of its outside counsel) of
Wilmington Trust Company (as Administrator pursuant to the LLC Administration
Agreements and in its individual capacity), the Indenture Trustee (as such and
in its individual capacity) and the Pass Through Trustee.


SECTION 3. REPRESENTATIONS AND WARRANTIES

         Section 3.1. Representations and Warranties of the Facility Lessees.
Each of the Facility Lessees represent and warrant that (i) as of the Effective
Date, as set forth in clauses (a), (b) and (c) below and (ii) as of the Closing
Date, as set forth in each of the clauses of this Section 3.1:

        (a) Due Incorporation, etc. Each Facility Lessee is a limited
partnership duly organized, validly existing, and in good standing under the
laws of the State of Rhode Island (in the case of the Tiverton Lessee) or Maine
(in the case of the Rumford Lessee), is duly licensed or qualified and in good
standing in each jurisdiction where the character of its properties or the
nature of its activities makes such qualification necessary, and has the power
and authority to (i)


                                       6
<PAGE>   14

own or hold under lease the property it purports to own or hold under lease,
(ii) carry on its business as now being conducted and as presently proposed to
be conducted and (iii) take all actions as may be necessary to consummate the
transactions contemplated hereunder and under the other Operative Documents.
Each Facility Lessee is an indirect wholly-owned subsidiary of Calpine.

        (b) Authorization; Enforceability, etc. This Agreement and each of the
other Operative Documents to which such Facility Lessee is or will be a party
have been, or when executed and delivered will be, duly authorized, executed and
delivered by all necessary action by such Facility Lessee and, assuming the due
authorization, execution and delivery by each other party thereto, this
Agreement constitutes and, when executed and delivered, the other Operative
Documents to which such Facility Lessee is or will be a party will constitute
the legal, valid and binding obligations of such Facility Lessee which is a
party hereto or thereto, enforceable against such Facility Lessee in accordance
with their respective terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of equity.

        (c) Non-Contravention. The execution, delivery and performance by each
Facility Lessee of this Agreement and each of the other Operative Documents to
which it is or will be a party, the consummation by such Facility Lessee of the
transactions contemplated hereby and thereby, and compliance by such Facility
Lessee with the terms and provisions hereof and thereof, do not and will not (i)
contravene any Applicable Law binding on such Facility Lessee or its property,
or its organizational documents, (ii) constitute a default by such Facility
Lessee under, or result in the creation of any Lien upon the property of such
Facility Lessee (other than pursuant to any Operative Document) under any
indenture, mortgage or other material contract, agreement or instrument to which
such Facility Lessee is a party or by which such Facility Lessee or any of its
property is bound, (iii) contravene the Partnership Agreement of such Facility
Lessee or (iv) require the consent or approval of any Person which has not
already been obtained, in each case with respect to clauses (i), (ii) and (iv)
above, which would reasonably be expected to have a Material Adverse Effect.

        (d) Government Actions. Such Facility Lessee has all Permits with, any
Governmental Entity or under any Applicable Law required (x) for the due
execution, delivery or performance by such Facility Lessee of this Agreement,
and the other Operative Documents to which such Facility Lessee is or will be a
party or (y) without regard to any other transactions or other actions of the
Owner Participant, the Owner Lessor or any Affiliate of any of them or any
assignee or transferee of any of the Owner Participant, the Owner Lessor (or any
Affiliate of any transferee or assignee) and assuming that none of the Owner
Participant, the Owner Lessor or any Affiliate of any of them or any assignee or
transferee of any of the Owner Participant (or any Affiliate of any such
transferee or assignee) is an "electric utility" or a "public utility" or a
"public utility holding company" or any similar entity subject to public utility
regulation under any Applicable Law immediately prior to the Closing, with
respect to the participation by the Owner Participant, the Owner Lessor in the
Overall Transaction, other than (i) any Permit where the failure to obtain or
maintain such Permit would not be reasonably likely to result in a Material
Adverse Effect, (ii) the FERC Orders, (iii) as may be required under Applicable
Law providing for the supervision or regulation of the Owner Participant, the
Owner Lessor or any Affiliate of any of them as a result of investing, lending
or other commercial activity in which


                                       7
<PAGE>   15

the Owner Participant, the Owner Lessor or any Affiliate of any of them is or
may be engaged other than the transactions contemplated hereby or by any of the
other Operative Documents, (iv) as may be required under existing Applicable
Laws to be obtained, given, accomplished or renewed at any time, or from time to
time, in each case, after the Closing Date and which such Facility Lessee has no
reason to believe will not be timely obtained and the lack of which would not
reasonably be expected to have a Material Adverse Effect or involve any danger
of criminal or material civil liability being incurred by the Owner Participant,
the Owner Lessor, the Indenture Trustee or the Pass Through Trustee, (v) in
connection with any modification to or rebuilding or replacement of the
Facilities or any portion thereof that may occur in the future, (vi) as may be
required in connection with any refinancing of the applicable Lessor Note or the
Certificates or the issuance of applicable Additional Lessor Notes or Additional
Certificates, (vii) as may be required in consequence of any transfer of the
Member Interest or any transfer of ownership of the applicable Facility or the
Owner Lessor's Interest, or any part thereof by the Owner Lessor or the exercise
by any such party of dispossessory remedies under the Operative Documents or any
relinquishment of the use or operation of such Facility by such Facility Lessee,
(viii) appropriate filing and recording to perfect the Lien of the Collateral
Trust Indenture, if required, and the ownership and leasehold interests conveyed
pursuant to this Agreement, or (ix) as may be required under any Applicable Law
enacted or adopted after the date hereof.

        (e) Litigation. There is no pending or, to the Actual Knowledge of such
Facility Lessee, threatened, action, suit, investigation or proceeding against
such Facility Lessee or any other Calpine Party before any Governmental Entity
which (i) questions the validity of the Tiverton Operative Documents or the
Rumford Operative Documents, as the case may be, or the ability of such Facility
Lessee or such other Calpine Party to perform its obligations under such
Operative Documents to which such Facility Lessee or such other Calpine Party is
or will be a party or (ii) if determined adversely to it, could reasonably be
expected to have a Material Adverse Effect or otherwise materially adversely
affect the Facility leased by such Facility Lessee.

        (f) No Defaults. Neither such Facility Lessee nor any other Calpine
Party is in default, and no condition exists that with notice or lapse of time
or both would constitute a default, under any mortgage, indenture or other
contract, agreement or instrument to which such Facility Lessee or such other
Calpine Party is a party or by which such Facility Lessee or such other Calpine
Party or its property is bound in any such case where any such default,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.

        (g) Location of Chief Executive Office and Principal Place of Business,
etc. (1) (x) The chief executive office and principal place of business of the
Tiverton Lessee and the office where the Tiverton Lessee keeps its company
records concerning the Tiverton Facility, the Tiverton Site and the Tiverton
Operative Documents is located at: The Pilot House, 2nd Floor, Lewis Wharf,
Boston, Massachusetts 02110 and 50 West San Fernando Street, San Jose,
California 95113 and (y) the chief executive office and principal place of
business of the Rumford Lessee and the office where the Rumford Lessee keeps its
company records concerning the Rumford Facility, the Rumford Site and the
Rumford Operative Documents is located in the aforementioned addresses in Boston
and San Jose, respectively.


                                       8
<PAGE>   16

        (2) The Tiverton Facility is located on the Tiverton Site and the
Rumford Facility is located on the Rumford Site.

        (3) The condition of such Facility Lessee's applicable Facility is
substantially identical to the condition it was in when inspected by the
Appraiser in connection with the Closing Appraisal.

        (h) Title; Liens. (1) Each Facility Lessee has (i) good and valid title
to the respective Facility leased by such Facility Lessee, free and clear of all
Liens other than Permitted Closing Date Liens, and (ii) good and valid title to
its interests in its respective Facility Site and Easements free and clear of
all Liens other than Permitted Closing Date Liens.

        (2) Upon execution and delivery of the Operative Documents and recording
or filing (as appropriate) of the instruments and documents referred to in Part
I of Schedule 4.20 in accordance with Section 4.20, (A) good and valid title to
the applicable Facility will be duly, validly and effectively conveyed and
transferred to the Owner Lessor free and clear of all Liens other than Permitted
Closing Date Liens, and (B) good and valid leasehold interest in the related
Facility Site will be duly, validly and effectively granted to the Owner Lessor
upon the terms and conditions in the corresponding Facility Site Lease, free and
clear of all Liens other than Permitted Closing Date Liens.

        (3) When duly authorized, executed and delivered by each of the parties
thereto, the Collateral Trust Indenture will create a valid and, when the
filings and recordings to be made pursuant to Section 4.20 have been made, first
priority perfected Lien in favor of the Indenture Trustee in the Indenture
Estate and no filing, recording, registration or notice with, or payment of any
fees to, any federal or state Governmental Entity will be necessary to establish
or, except for such filings and recordings as will be made pursuant to Section
4.20, to perfect, or give record notice of, the Lien in favor of the Indenture
Trustee in the Indenture Estate to the extent such Lien may be perfected by
filings or recordings.

        (4) None of the Permitted Encumbrances will, on and after the Closing,
interfere with the use, operation or possession of the Facilities (as
contemplated by the Operative Documents) or the use of or the exercise by the
Owner Lessor of its rights under the applicable Bills of Sale or the Facility
Site Leases with respect to the Facilities, the Facility Sites or the Easements,
in each case, which could reasonably be expected to have a Material Adverse
Effect.

        (i) Regulation U, etc. No Calpine Party is engaged principally, or as
one of its principal activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (as defined in Regulations T, U
or X of the Federal Reserve Board), and no part of the proceeds of Lessor Notes
or the Equity Investment will be used by any Calpine Party, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve such Person in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220).


                                       9
<PAGE>   17

         (j) Holding Company Act. Such Facility Lessee is not an "electric
utility company," a "holding company", a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" within the meaning of the
Holding Company Act, and the execution, delivery and performance of the
Operative Documents to which such Facility Lessee is or will be a party will not
subject such Facility Lessee to such regulation under the Holding Company Act
and do not violate any provision of the Holding Company Act or any rule or
regulation thereunder.

         (k) Investment Company Act. Such Facility Lessee is not an "investment
company" or a company controlled by an "investment company" within the meaning
of the Investment Company Act of 1940.

         (l) Securities Act. Neither such Facility Lessee nor anyone authorized
by it has directly or indirectly offered or sold any interest in the Member
Interest, the Lessor Notes or the Certificates or any part thereof, or in any
similar security or lease, or in any security or lease the offering of which for
the purposes of the Securities Act would be deemed to be part of the same
offering as the offering of the Member Interest, the Lessor Notes or the
Certificates or any part thereof or solicited any offer to acquire any of the
same, in any such case, in violation of the registration requirements of Section
5 of the Securities Act.

         (m) Environmental Matters. Except as set forth in Schedule 3.1(m):

         (1) Such Facility Lessee has not received and does not have Actual
Knowledge of any written notice, letter, citation, order, warning, complaint,
inquiry, claim or demand from any Governmental Entity or any other Person that:
(i) there has been a Release, or there is a threat of Release, of Hazardous
Substances in, on, under or from the Facility leased by such Facility Lessee, or
the related Facility Site or any of the Easements relating to such Facility;
(ii) such Facility Lessee or any other Calpine Party is or is asserted to be
liable, in whole or in part, for the costs of cleaning up, remedying or
responding at any location (including any location at which any Hazardous
Substances have been generated, stored, treated or disposed by or on behalf of
such Facility Lessee or such other Calpine Party) to a Release or threatened
Release of any Hazardous Substance generated, used or stored at or Released in,
on, under or from the Facility leased by such Facility Lessee, or the related
Facility Site or any of the Easements relating to such Facility; (iii) either of
the Facilities or either of the Facility Sites is subject to a Lien in favor of
any Governmental Entity in response to a Release or threatened Release of
Hazardous Substances or (iv) either of the Facility Lessees, Facilities, or the
Facility Sites or any of the Easements is or is asserted to be in violation of
or not in compliance with any Environmental Law, in any case with respect to
clauses (ii), (iii) or (iv), which could reasonably be expected to have a
Material Adverse Effect;

         (2) Such Facility Lessee and the other Calpine Parties are in
compliance with and have complied with all Environmental Laws, except to the
extent that failure to so comply could not reasonably be expected to have a
Material Adverse Effect; and

         (3) To such Facility Lessee's Actual Knowledge, there is not and has
not been any Environmental Condition (A) at, on, under or from the Facility
leased by such Facility Lessee, or the related Facility Site or any of the
Easements relating to such Facility, or (B) at, on, under or


                                       10
<PAGE>   18

from any other location resulting from or arising in connection with the
operation by any Person of such Facility leased by such Facility Lessee, or the
related Facility Site or any of the Easements relating to such Facility, that in
each case could reasonably be expected to have a Material Adverse Effect or
involve any danger of (i) foreclosure, sale, forfeiture or loss of, or
imposition of a material lien on, such Facility leased by such Facility Lessee,
or the related Facility Site or any of such Easements, (ii) the impairment of
the ownership, use, operation or, maintenance of such Facility, Facility Site or
any of the Easements relating to such Facility in any material respect, or (iii)
any criminal or material civil liability being incurred by the Owner
Participant, the Owner Lessor, the Indenture Trustee or the Pass Through
Trustee.

         (4) All environmental permits necessary to own, operate, lease or
maintain the Facility leased by such Facility Lessee, the related Facility Site
and, to such Facility Lessees' Actual Knowledge, the Easements relating to such
Facility in accordance with the Operative Documents and Environmental Laws have
been obtained on behalf of the Owner Lessor or by the Lessee and they are final,
in proper form, and in full force and effect, with all appeal periods expired,
and such Facility Lessee is in compliance with the provisions of all such
permits, except where the failure to obtain, maintain the effectiveness of, or
comply with such permits would not reasonably be expected to have a Material
Adverse Effect or involve any danger of (i) foreclosure, sale, forfeiture or
loss of, or imposition of a material lien on, such Facility, Facility Site or
Easements, (ii) the impairment of the ownership (or leasehold or easement
interest in), use, operation or maintenance of such Facility, Facility Site or
Easements in any material respect, or (iii) any criminal or material civil
liability being incurred by the Owner Participant, the Owner Lessor, the
Indenture Trustee, the Pass Through Trustee or the Certificateholders.

         (n) Operation and Use. Assuming each Facility will continue to be
operated substantially as operated as of the Closing Date, the rights and
interests to be possessed on the Closing Date by (i) the Tiverton Lessee with
respect to the Tiverton Facility, the Tiverton Site and the Tiverton Easements
and (ii) the Rumford Lessee with respect to the Rumford Facility, the Rumford
Site and the Rumford Easements, and based upon such Facility Lessee's reasonable
expectations and on Applicable Law in effect on and as of the Closing Date, the
rights and interests made available to the Owner Lessor pursuant to the
Operative Documents and the rights contemplated by the related Facility Lease to
be made available under such Operative Documents, permit on a commercially
practicable basis during the applicable Facility Lease Term and the period
following the expiration or termination of such Facility Lease Term, as
applicable, until the end of each Facility's useful life as set forth in the
Closing Appraisal, (i) the location, occupation, interconnection, maintenance
and repair of each Facility, (ii) the use, operation and possession of each
Facility, (iii) as of the Closing Date, the use, operation, possession,
maintenance, replacement, renewal and repair of all Improvements required to be
made to each Facility, (iv) adequate ingress to and egress from each Facility in
connection with the ownership, use, operation, possession, maintenance or repair
of each Facility and (v) the transmission of electricity from each Facility
substantially in the manner currently transmitted as of the Closing Date.

         (o) Tax Returns. Such Facility Lessee and each other Calpine Party has
filed all federal, state and local income tax returns which are required to be
filed by it and has paid all Taxes shown to be due and payable on such returns
or pursuant to any assessment received by it (other than Taxes and assessments
the payment of which is being contested in good faith by such


                                       11
<PAGE>   19

Person and with respect to which appropriate accounting reserves have to the
extent required by GAAP been set aside) and neither such Facility Lessee or any
other Calpine Party has any Actual Knowledge of any actual or proposed
assessment in connection therewith which, either in any case or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.

         (p) Jurisdiction. In accordance with Section 14.14 hereof, such
Facility Lessee has validly submitted to the jurisdiction of the Supreme Court
of the State of New York, New York County and the United States District Court
for the Southern District of New York.

         (q) Applicable Law. Such Facility Lessee is in compliance with all
Applicable Law, including all applicable zoning, use and building codes, laws,
regulations and ordinances relating to the operations, maintenance, use, lease
or ownership of its applicable Facility, the related Facility Site and the
applicable Easements, except where the noncompliance would not reasonably be
expected to have a Material Adverse Effect or involve any danger of (i)
foreclosure, sale, forfeiture or loss of, or imposition of a material lien on,
such Facility, such Facility Site or any of such Easements, (ii) the impairment
of the ownership, use, operation or maintenance of such Facility or such
Facility Site in any material respect, or (iii) any criminal or material civil
liability being incurred by the Owner Participant, the Owner Lessor, the
Indenture Trustee or the Pass Through Trustee, including subjecting the Owner
Participant or the Owner Lessor to regulation as a public utility under
Applicable Law. None of the Calpine Parties is in default of any judgments,
orders or decrees of any Governmental Entity relating to such Facility, such
Facility Site or any of such Easements.

         (r) ERISA. Assuming the accuracy of the representations of the other
parties hereto and the Certificateholders in the Certificates, the execution and
delivery of the Operative Documents and the issuance and sale of the Lessor
Notes under the Collateral Trust Indenture and the Certificates under the Pass
Through Trust Agreement will be exempt from, or will not involve any transaction
which is subject to, the prohibitions of either Section 406 of ERISA or Section
4975 of the Code and will not involve any transaction in connection with which a
penalty could be imposed under Section 502(i) of ERISA or a tax could be imposed
pursuant to Section 4975 of the Code.

         (s) Insurance. All insurance required to be obtained pursuant to
Schedule 5.45 is in full force and effect.

         (t) No Default; No Event of Loss. No Lease Default or Lease Event of
Default, exists or will exist upon execution and delivery of the Operative
Documents. No Event of Loss exists or will exist upon the execution and delivery
of the Operative Documents.

         (u) Special Assessments. There is no action pending or, to such
Facility Lessee's Actual Knowledge, threatened by a Governmental Entity or other
Person to specially assess the applicable Facility or the applicable Facility
Site for any public improvements constructed or to be constructed which would
reasonably be expected to have a Material Adverse Effect.

         (v) Utility Services. The Facilities and the Facility Sites have
available all services of public utilities necessary for use and operation of
the Facilities as currently being used and as contemplated by the applicable
Operative Documents, except where the failure to have any such


                                       12
<PAGE>   20

services or public utilities available would not result in a material adverse
effect with respect to either of the Facilities.

         (w) Eminent Domain. There is no action pending with respect to, or
threatened by a Governmental Entity or other Person to initiate, a Requisition
of any of such Facility, Facility Site or any of the Easements relating to such
Facility, which would reasonably be expected to have a Material Adverse Effect.

         (x) Permitted Liens. There are no violations or proceedings or actions
pending or threatened, with respect to any easements, reciprocal easement
agreements, declarations, development agreements or recorded restrictions or
covenants relating, in the case of the Tiverton Lessee, to the Tiverton
Facility, the Tiverton Facility Site or any of the Tiverton Easements, and in
the case of the Rumford Lessee, to the Rumford Facility, the Rumford Facility
Site or any of the Rumford Easements, which would reasonably be expected to have
a Material Adverse Effect.

         (y) Access; Egress. Access to and egress from the Facility leased by
such Facility Lease and the related Facility Site is available and provided by
public streets and/or private roads fully accessible by such Facility Lessee. To
such Facility Lessee's Actual Knowledge, there are no plans of any Governmental
Entity to change the highway or road system in the vicinity of its related
Facility or its related Facility Site, or to restrict or change access from any
such highway or road to such Facility or such Facility Site, in either case, in
any manner which would reasonably be expected to have a Material Adverse Effect.

         (z) Notices. To such Facility Lessee's Actual Knowledge, (i) there are
no outstanding written notices from any Governmental Entity of any violation of,
or that its applicable Facility or Facility Site is not in compliance with, any
and all Applicable Laws relating to such Facility and such Facility Site or the
ownership, use, occupancy and operation thereof and (ii) there are no
outstanding written notices that any repairs or work or capital improvements are
required to be done at or with respect to such Facility or Facility Site by any
Governmental Entity or by any insurance company which currently issues any
insurance to such Facility Lessee or by any board of fire underwriters or other
body exercising similar functions, except, in either case with respect to (i) or
(ii) above, where such violation, noncompliance or repairs could not reasonably
be expected to have a Material Adverse Effect.

         (aa) Business. Such Facility Lessee has not conducted any business
other than the acquisition, construction, development, ownership, operation,
maintenance, leasing and financing of such Facility Lessee's applicable Facility
and Facility Site and activities incidental thereto.

         (bb) Intentionally Omitted.

         (cc) Intellectual Property. To the Actual Knowledge of such Facility
Lessee, such Facility Lessee has the right to use all patents, trademarks,
service marks, trade names, copyrights, licenses and other rights which are
necessary for the operation of its business as presently conducted and to
transfer all such rights to the Owner Lessor subsequent to termination


                                       13
<PAGE>   21

of the related Facility Lease, except to the extent failure to possess such
rights would not reasonably be likely to result in a Material Adverse Effect.

         (dd) Land Not in Flood Zone. No portion of the Facility leased by such
Facility Lessee, or the Easements relating to such Facility or the Facility Site
relating to such Facility includes improved real property that is located in an
area that has been identified by the Director of the Federal Emergency
Management Agency as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of
1968, as amended.

         (ee) No Fraudulent Conveyances. Each Facility Lessee is consummating
the transactions contemplated hereby, including transfer of certain of its
assets and properties to the Owner Lessor, in good faith and without any intent
to defraud creditors of such Facility Lessee or subsequent purchasers. The
execution and delivery of the Operative Documents to which such Facility Lessee
is a party will not render such Facility Lessee insolvent under GAAP or leave
such Facility Lessee with assets whose present fair valuation of assets is less
than the present fair valuation of such Facility Lessee's debts. As used in this
Section 3.1(ee), "debts" includes any and all liabilities, whether matured or
unmatured, liquidated or unliquidated, absolute, fixed or contingent, and
whether or not such liabilities are required under GAAP to be shown on each
Facility Lessee's balance sheet. The execution and delivery of the Operative
Documents to which each Facility Lessee is a party will not leave it with
property remaining in its hands which would constitute unreasonably small assets
or capital, and each Facility Lessee has and, after giving effect to such
transactions will have, an adequate amount of assets and capital to engage in
its business now and in the future, based on the actual and anticipated needs
for capital of the businesses anticipated to be conducted by such Facility
Lessee, and based upon the other information described herein. After giving
effect to the transactions contemplated under the Operative Documents, each
Facility Lessee will be able to pay all of its debts and liabilities, including
unrecorded contingent liabilities, as they mature, each Facility Lessee will
have positive cash flow after paying all of its scheduled and anticipated debt
as it matures, and each Facility Lessee will realize sufficient monies from
current assets in the ordinary and usual course of business to pay recurring
current debt, short-term debt and long-term debt as such debts mature.

         (ff) No Additional Fees. Except for the fees referred to in clause
(xviii) and (xix) of the definition of Transaction Costs, such Facility Lessee
has not paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of arranging the financing of the
transactions contemplated by the Operative Documents.

         (gg) Status under Certain Statutes. Neither the Facility Lessees, the
Owner Participant, the Owner Lessor, the Indenture Trustee, the Pass Through
Trustee nor any Certificateholder solely as a result of execution, delivery and
performance of, and the consummation of the transactions contemplated by the
Operative Documents shall be or become (i) subject to regulation as a "public
utility company," "holding company," an "affiliate" of a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of PUHCA or (ii)
a "public utility" (except that the Facility Lessees will each be a public
utility subject to the Federal Power Act with authority to sell wholesale
electricity at market-based rates and with waivers of regulations customarily
granted to a public utility that sells wholesale power


                                       14
<PAGE>   22

at market-based rates), a "transmitting utility," or an "electric utility"
within the meaning of the Federal Power Act (iii) subject to state regulation of
rates, or (iv) organizational requirements for electric utilities.

         (hh) Material Omission. Neither the Offering Circular (including any
preliminary offering circular approved by such Facility Lessee for distribution)
nor the written information furnished to the Owner Lessor, the Owner
Participant, the Indenture Trustee and the Pass Through Trustee by or on behalf
of such Facility Lessee or any of its Affiliates in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading; provided, that no representation or warranty is made with regard to
(i) any projections or other forward-looking statements provided by or on behalf
of the Facility Lessee, or (ii) the descriptions of the Operative Documents or
the tax consequences to beneficial owners of Certificates; provided, further,
each of the Transaction Parties acknowledge and agrees that (i) Calpine has
heretofore provided to the Appraiser, solely in order to assist the Appraiser in
connection with the preparation of the appraisal to be delivered by the
Appraiser to certain of the Transaction Parties at the Closing, certain (1)
general market information, (2) information about the Maine and Rhode Island
energy markets and (3) information passed along from other Persons and (ii) that
the Facility Lessee makes no representation or warranty whatsoever with respect
to the information described in clause (i) above except to the extent expressly
set forth in Section 4(b) of the Tax Indemnity Agreement.

         (ii) Exempt Wholesale Generator. Each Facility Lessee is an "exempt
wholesale generator" under PUHCA. The Facility leased by such Facility Lessee is
interconnected with the high voltage network operated by ISO New England and has
access to transmission services and ancillary services sufficient to sell the
net generating capacity of such Facility at wholesale, and such Facility Lessee
has the authority to sell wholesale electric power from the net generating
capacity of such generating Facility at market-based rates.

         (jj) FERC Orders. The Facility Lessees have duly filed with FERC the
filings referenced in Section 4.37 and, except with respect to the determination
by FERC of EWG status, received from FERC the orders referenced therein.

         (kk) Fully Taxable. As of the Closing Date, each Person owning an
Ownership Interest (i) is fully taxable at the highest federal tax rate and (ii)
expects to be fully taxable at the highest federal tax rate throughout the Lease
Term; for the avoidance of doubt, this representation is not intended to be
construed as nor shall it be deemed to be a guaranty as to any such Person's
future taxation.

         (ll) Commencement of Commercial Operations and Compliance. To the
knowledge of the Tiverton Lessee, the Tiverton Facility has commenced commercial
operations with at least 260 MW of capacity and complies in all material
respects with the other specifications set forth in the purchase and
construction contracts for such Facility, and to the knowledge of the Rumford
Lessee, the Rumford Facility has commenced commercial operations with at least
260 MW of capacity and complies in all material respects with the other
specifications set forth in the purchase and construction contracts for such
Facility, except as disclosed in the R.W. Beck


                                       15
<PAGE>   23

Reports delivered to the Owner Participant, the Owner Lessor, and the Indenture
Trustee prior to the Closing Date.

         Section 3.2. Representations and Warranties of the Owner Lessor. The
Owner Lessor represents and warrants that (i) as of the Effective Date, as set
forth in clauses (a), (b) and (c) below and (ii) as the Closing Date, as set
forth in each of the clauses of this Section 3.2:

         (a) Due Organization. The Owner Lessor is a duly organized and validly
existing limited liability company under the laws of the State of Delaware of
which the Owner Participant is the sole member, and has the power and authority
to enter into and perform its obligations under this Agreement and each of the
other Operative Documents to which it is a party.

         (b) Due Authorization, Enforceability; etc. (1) (i) This Agreement and
each of the other Operative Documents (other than the Lessor Notes) to which the
Owner Lessor is or will be a party has been or when executed and delivered will
be duly authorized, executed and delivered by the Owner Lessor, and (ii)
assuming the due authorization, execution and delivery of this Agreement by each
party hereto other than the Owner Lessor, this Agreement constitutes and when
executed and delivered each of the other Operative Documents (other than the
Lessor Notes) to which it is or will be a party will be the legal, valid and
binding obligations of the Owner Lessor, enforceable against the Owner Lessor in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of equity.

         (2) Upon the execution of the Lessor Notes by the Owner Lessor in
accordance with the Collateral Trust Indenture and delivery of such Lessor Notes
against payment therefor, the Lessor Notes will constitute legal, valid and
binding obligations of the Owner Lessor, enforceable against the Owner Lessor in
accordance with their terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of equity.

         (c) Non-Contravention. The execution and delivery by the Owner Lessor
of this Agreement and the other Operative Documents to which it is or will be a
party, the consummation by the Owner Lessor of the transactions contemplated
hereby and thereby, and the compliance by the Owner Lessor with the terms and
provisions hereof and thereof, do not and will not contravene any Applicable Law
of the United States of America or the State of Delaware, or the LLC Agreement
or the Owner Lessor's other organizational documents or contravene the
provisions of, or constitute a default by the Owner Lessor under any indenture,
mortgage or other material contract, agreement or instrument to which the Owner
Lessor is a party or by which the Owner Lessor or its property is bound, or in
the creation of any Owner Lessor's Lien; provided, however, that no
representation is made with respect to the right, power or authority of the
Owner Lessor to act as operator of the Facilities following a Lease Event of
Default.

        (d) Governmental Actions. Assuming the representations and warranties
of the Facility Lessees contained in paragraphs (j), (k), (l), (m), (q), (z),
(gg) and (ii) of Section 3.1 are true, no authorization or approval or other
action by, and no notice to or filing or registration with, any Governmental
Entity is required for the due execution, delivery or performance by the


                                       16
<PAGE>   24

Owner Lessor, as the case may be, of the LLC Agreement, the Collateral Trust
Indenture, the Lessor Notes, this Agreement or the other Operative Documents to
which the Owner Lessor is or will be a party, other than any such authorization
or approval or other action or notice or filing as has been duly obtained, taken
or given.

         (e) Litigation. There is no pending or, to the Actual Knowledge of the
Owner Lessor, threatened, action, suit, investigation or proceeding against the
Owner Lessor before any Governmental Entity which (i) questions the validity of
the Operative Documents or the ability of the Owner Lessor to perform its
obligations under the Operative Documents to which it is or will be a party or
(ii) if determined adversely to it, could reasonably be expected to materially
adversely affect the ability of the Owner Lessor to perform its obligations
under this Agreement or any other Operative Document to which it is or will be a
party or would materially adversely affect the Facilities, the Facility Sites or
any interest therein or part thereof or the Lien of the Indenture Trustee on the
Indenture Estate.

         (f) Liens. The Owner Lessor's right, title and interest in and to the
Lessor Estate is free of all Owner Lessor's Liens.

         (g) Location of Chief Executive Office; Principal Place of Business.
The chief executive office and principal place of business of the Owner Lessor
where the Owner Lessor will keep its corporate records concerning the
Facilities, the Facility Sites and the Operative Documents is located in
Stamford, Connecticut.

         (h) Securities Act. Neither the Owner Lessor nor anyone authorized by
it has directly or indirectly offered or sold any interest in the Member
Interest, the Lessor Notes or the Certificates or any part thereof, or in any
similar security or lease, the offering of which for the purposes of the
Securities Act would be deemed to be part of the same offering as the offering
of the Member Interest, the Lessor Notes or the Certificates or any part thereof
or solicited any offer to acquire any of the same in violation of the
registration requirements of Section 5 of the Securities Act.

         Section 3.3. Intentionally Omitted.

         Section 3.4. Representations and Warranties of the Owner Participant.
The Owner Participant represents and warrants (i) as of the Effective Date, as
set forth in clauses (a), (b) and (c) below and (ii) as of the Closing Date, as
set forth in each of the clauses of this Section 3.4:

         (a) Due Organization. The Owner Participant is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware and has the power and authority to enter into and perform
its obligations under this Agreement, the LLC Agreement and the Tax Indemnity
Agreement. The Owner Participant is an indirect wholly owned subsidiary of
Philip Morris Capital Corporation.

         (b) Due Authorization, Enforceability; etc. This Agreement, the LLC
Agreement and the Tax Indemnity Agreement have been or when executed and
delivered will be duly authorized, executed and delivered by the Owner
Participant and assuming the due authorization, execution and delivery by each
other party thereto, this Agreement, the LLC Agreement, the Tax Indemnity
Agreement and any other Operative Document to which the Owner Participant is or


                                       17
<PAGE>   25

will be a party constitute or when executed and delivered will constitute the
legal, valid and binding obligations of the Owner Participant, enforceable
against the Owner Participant in accordance with their respective terms, except
as the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors generally and
by general principles of equity.

         (c) Non-Contravention. The execution and delivery by the Owner
Participant of this Agreement, the LLC Agreement, the Tax Indemnity Agreement
and any other Operative Document to which the Owner Participant is or will be a
party, the consummation by the Owner Participant of the transactions
contemplated hereby and thereby, and the compliance by the Owner Participant
with the terms and provisions hereof and thereof, do not and will not contravene
any Applicable Law binding on the Owner Participant, or its organizational
documents, or contravene the provisions of, or constitute a default under any
indenture, mortgage or other material contract, agreement or instrument to which
the Owner Participant is a party or by which the Owner Participant or its
property is bound or result in the creation of any Owner Participant's Lien
(other than any Lien created under any Operative Document) upon the Lessor
Estate, the Facility Sites or any interest therein or part thereof (it being
understood that no representation or warranty is being made as to (i) any
Applicable Laws relating to the particular nature of the Facilities or the
Facility Sites or (ii) other than its representations set forth in Section
3.4(g), ERISA or Section 4975 of the Code).

         (d) Governmental Action. Assuming the representations and warranties of
the Facility Lessees contained in paragraphs (j), (k), (l), (m), (q), (z), (gg)
and (ii) of Section 3.1 are true, no authorization or approval or other action
by, and no notice to or filing or registration with, any Governmental Entity is
required for the due execution, delivery or performance by the Owner Participant
of this Agreement, the LLC Agreement, the Tax Indemnity Agreement or any other
Operative Document to which the Owner Participant is or will be a party, other
than any authorization or approval or other action or notice or filing as has
been duly obtained, taken or given (it being understood that no representation
or warranty is being made as to any Applicable Laws relating to the Facilities
or the Facility Sites).

        (e) Litigation. There is no pending or, to the Actual Knowledge of the
Owner Participant, threatened, action, suit, investigation or proceeding against
the Owner Participant before any Governmental Entity which (i) questions the
validity of the Operative Documents or the ability of the Owner Participant to
perform its obligations under the Operative Documents to which it is or will be
a party or (ii) if determined adversely to it, could reasonably be expected to
materially adversely affect the ability of the Owner Participant to perform its
obligations under the LLC Agreement, this Agreement or any other Operative
Document to which it is or will be a party or would materially adversely affect
the Facilities, the Facility Sites or any interest therein or part thereof or
the Lien of the Indenture Trustee on the Indenture Estate.

        (f) Liens. Each of the Lessor Estate, the Facility Sites, the
Easements and any interest therein or part thereof is free of any Owner
Participant's Liens.

        (g) ERISA. No part of the funds to be used by the Owner Participant to
make its investment pursuant to this Agreement, directly or indirectly,
constitutes or is deemed to constitute assets (within the meaning of ERISA and
any applicable rules, regulations and court


                                       18
<PAGE>   26

decisions thereunder) of any "employee benefit plan" (as defined in Section 3(3)
of ERISA) that is subject to ERISA, of any Transaction Party and ERISA Affiliate
thereof.

         (h) Acquisition for Investment. The Owner Participant is purchasing the
Member Interest to be acquired by it for its own account with no present
intention of distributing such Member Interest or any part thereof in any manner
which would require registration under or would violate the Securities Act, but
without prejudice, however, to the right of the Owner Participant at all times
to sell or otherwise dispose of all or any part of such Member Interest under an
exemption from registration available under such Act.

         (i) Securities Act. Neither the Owner Participant nor anyone authorized
by it has directly or indirectly offered or sold any interest in the Member
Interest, the Lessor Notes or the Certificates or any part thereof, or in any
similar security or lease, or in any security or lease the offering of which for
the purposes of the Securities Act would be deemed to be part of the same
offering as the offering of the Member Interest, the Lessor Notes or the
Certificates or any part thereof or solicited any offer to acquire any of the
same in violation of the registration requirements of Section 5 of the
Securities Act.

         (j) Holding Company Act and Federal Power Act. Immediately prior to
executing this Agreement, the Owner Participant is not an "electric utility",
"electric utility company", "public utility", "public-utility company", "holding
company" or a "subsidiary company" or "affiliate" of any of the foregoing, under
the Federal Power Act or the Holding Company Act.

         (k) Investment Company Act. The Owner Participant is not an "investment
company" or a company controlled by an "investment company" within the meaning
of the Investment Company Act of 1940.

         Section 3.5. Representations and Warranties of Indenture Trustee and
the Lease Indenture Company. The Lease Indenture Company and the Indenture
Trustee hereby severally represent and warrant (i) as of the Effective Date, as
set forth in clauses (a), (b) and (c) below and (ii) as of the Closing Date, as
set forth in each of the clauses of this Section 3.5:

         (a) Due Organization. The Lease Indenture Company is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States, has the corporate power and authority, as Indenture
Trustee and/or in its individual capacity to the extent expressly provided
herein or in the Collateral Trust Indenture, to enter into and perform its
obligations under the Collateral Trust Indenture, this Agreement and each of the
other Operative Documents to which it is or will be a party.

        (b) Due Authorization, Enforceability; etc. (1) (i) This Agreement has
been duly authorized, executed and delivered by the Indenture Trustee and the
Lease Indenture Company, and (ii) assuming the due authorization, execution and
delivery of this Agreement by each party hereto other than the Indenture Trustee
and the Lease Indenture Company, this Agreement constitutes a legal, valid and
binding obligation of the Lease Indenture Company and the Indenture Trustee,
enforceable against the Lease Indenture Company or the Indenture Trustee, as the
case may be, in accordance with its terms, except as the same may be limited by
applicable


                                       19
<PAGE>   27
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of equity.

         (2) (i) Each of the other Operative Documents to which the Indenture
Trustee is or will be a party has been or when executed and delivered will be
duly authorized, executed and delivered by the Indenture Trustee, and (ii)
assuming the due authorization, execution and delivery of each of the other
Operative Documents by each party thereto other than the Indenture Trustee, each
of the other Operative Documents to which the Indenture Trustee is or will be a
party constitutes or when executed and delivered will be a legal, valid and
binding obligation of the Indenture Trustee, enforceable against the Indenture
Trustee in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally and by general principles of
equity.

         (c) Non-Contravention. The execution and delivery by the Lease
Indenture Company, in its individual capacity or as Indenture Trustee, as the
case may be, of this Agreement and the other Operative Documents to which it is
or will be a party, the consummation by the Lease Indenture Company, in its
individual capacity or as Indenture Trustee, as the case may be, of the
transactions contemplated hereby and thereby, and the compliance by the Lease
Indenture Company, in its individual capacity or as Indenture Trustee, as the
case may be, with the terms and provisions hereof and thereof, do not and will
not contravene any Applicable Law of the State of Connecticut or the United
States of America governing the Lease Indenture Company or the banking or trust
powers of the Lease Indenture Company, or its articles of association or
by-laws, or contravene the provisions of, or constitute a default by the Lease
Indenture Company under or pursuant to any indenture, mortgage or other material
contract, agreement or instrument to which the Lease Indenture Company is a
party or by which the Lease Indenture Company or its property is bound, or
result in the creation of any Lien attributable to the Lease Indenture Company
upon the Indenture Estate, the Facility Sites or any interest therein or any
part thereof (other than the Lien of the Collateral Trust Indenture), which
would materially adversely affect the ability of the Lease Indenture Company, in
its individual capacity or as Indenture Trustee, as the case may be, to perform
its obligations under this Agreement or the other Operative Documents to which
it is or will be a party or would materially adversely affect the Facilities,
the Facility Sites or any interest therein or part thereof or the security
interest of the Indenture Trustee in the Indenture Estate; provided, however,
that no representation or warranty is made with respect to the right, power or
authority of the Lease Indenture Company or the Indenture Trustee to act as
operator of the Facilities following a Lease Event of Default.

         (d) Governmental Action. Assuming the representations and warranties of
the Facility Lessees contained in paragraphs (j), (k), (l), (m), (q), (z), (gg)
and (ii) of Section 3.1 are true, no authorization or approval or other action
by, and no notice to or filing or registration with, any Governmental Entity of
the State of Delaware or of the United State of America governing its banking or
trust powers is required for the due execution, delivery or performance by the
Lease Indenture Company or the Indenture Trustee, as the case may be, of this
Agreement or the other Operative Documents to which the Indenture Trustee is or
will be a party, other than any such authorization or approval or other action
or notice or filing as has been duly obtained, taken or given.


                                       20
<PAGE>   28

        (e) Litigation. There is no pending or, to the Actual Knowledge of the
Lease Indenture Company, threatened, action, suit, investigation or proceeding
against the Lease Indenture Company before any Governmental Entity which (i)
questions the validity of the Operative Documents or the ability of the Lease
Indenture Company or the Indenture Trustee to perform its obligations under the
Operative Documents to which it is or will be a party or (ii) if determined
adversely to it, could reasonably be expected to materially adversely affect the
ability of the Lease Indenture Company to perform its obligations under this
Agreement or any other Operative Document to which it is or will be a party or
could reasonably be expected to materially adversely affect the Facilities, the
Facility Sites or any interest therein or part thereof or the Lien of the
Indenture Trustee on the Indenture Estate.

         Section 3.6. Representations, Warranties and Covenants of Pass Through
Trustee and the Pass Through Company.

         The Pass Through Company and the Pass Through Trustee hereby severally
represent and warrant (i) as of the Effective Date, as set forth in clauses (a),
(b) and (c) below and (ii) as of the Closing Date, as set forth in each of the
clauses of this Section 3.6:

        (a) Due Organization. The Pass Through Company is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States, has the corporate power and authority, as Pass Through
Trustee and/or in its individual capacity to the extent expressly provided
herein or in the Pass Through Trust Agreements, to enter into and perform its
obligations under the Pass Through Trust Agreement, this Agreement and each of
the other Operative Documents to which it is or will be a party.

         (b) Due Authorization, Enforceability; etc.

             (i) (A) This Agreement has been duly authorized, executed and
delivered by the Pass Through Trustee and the Pass Through Company and (B)
assuming the due authorization, execution and delivery of this Agreement by each
party hereto other than each Pass Through Trustee and the Pass Through Company,
as the case may be, this Agreement constitutes a legal, valid and binding
obligation of the Pass Through Company and each Pass Through Trustee,
enforceable against the Pass Through Company or each Pass Through Trustee, as
the case may be, in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, arrangement,
moratorium or other laws relating to or affecting the rights of creditors
generally and by general principles of equity.

             (ii) (A) Each of the other Operative Documents to which the Pass
Through Company or such Pass Through Trustee is or will be a party has been or
when executed and delivered will be duly authorized, executed and delivered by
the Pass Through Company or such Pass Through Trustee, as the case may be, and
(B) assuming the due authorization, execution and delivery of each of the other
Operative Documents by each party thereto other than the Pass Through Company or
such Pass Through Trustee, as the case may be, each of the other Operative
Documents to which the Pass Through Company or such Pass Through Trustee is or
will be a party constitutes or when executed and delivered will constitute a
legal, valid and binding obligation of the Pass Through Company or such Pass
Through Trustee, enforceable


                                       21
<PAGE>   29

against the Pass Through Company or such Pass Through Trustee, as the case may
be, in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, arrangement,
moratorium or other laws relating to or affecting the rights of creditors
generally and by general principles of equity.

        (c) Non-Contravention. The execution and delivery by the Pass Through
Company, in its individual capacity or as Pass Through Trustee, as the case may
be, of this Agreement and the other Operative Documents to which it is or will
be a party, the consummation by the Pass Through Company, in its individual
capacity or as Pass Through Trustee, as the case may be, of the transactions
contemplated hereby and thereby, and the compliance by the Pass Through Company,
in its individual capacity or as Pass Through Trustee, as the case may be, with
the terms and provisions hereof and thereof, do not and will not contravene any
Applicable Law of the United States of America or the State of Connecticut
governing the Pass Through Company or the banking or trust powers of the Pass
Through Company, or its organizational documents or by-laws, or contravene the
provisions of, or constitute a default by the Pass Through Company under, or
result in the creation of any Lien attributable to the Pass Through Company upon
the Certificates or any indenture, mortgage or other material contract,
agreement or instrument to which the Pass Through Company is a party or by which
the Pass Through Company or its property is bound which would materially
adversely affect the ability of the Pass Through Company, in its individual
capacity or as Pass Through Trustee, as the case may be, to perform its
obligations under this Agreement or the other Operative Documents to which it is
a party or would materially adversely affect the Facilities, the Facility Sites
or any interest therein or part thereof or the security interest of any Pass
Through Trustee in the Indenture Estate; provided, however, that no
representation is made with respect to the right, power or authority of the Pass
Through Company or any Pass Through Trustee to act as operator of the Facilities
following a Lease Event of Default.

        (d) Governmental Action. Assuming the representations and warranties of
the Facility Lessees contained in paragraphs (j), (k), (l), (m), (q), (z), (gg)
and (ii) of Section 3.1 are true, no authorization or approval or other action
by, and no notice to or filing or registration with, any Governmental Entity
governing its banking or trust powers is required for the due execution,
delivery or performance by the Pass Through Company or any Pass Through Trustee,
as the case may be, of this Agreement or the other Operative Documents to which
such Pass Through Trustee is or will be a party, other than any such
authorization or approval or other action or notice or filing as has been duly
obtained, taken or given.

        (e) Litigation. There is no pending or, to the knowledge of the Pass
Through Company, threatened action, suit, investigation or proceeding against
the Pass Through Company either in its individual capacity or as Pass Through
Trustee, before any Governmental Entity which, if determined adversely to it,
would materially adversely affect the ability of the Pass Through Company, in
its individual capacity or as Pass Through Trustee, as the case may be, to
perform its obligations under this Agreement or the other Operative Documents to
which it is a party or would materially adversely affect the Facilities, the
Facility Sites or any interest therein or part thereof or the security interest
of any Pass Through Trustee in the Indenture Estate or which questions the
validity or enforceability of any Operative Document to which the Pass Through
Trustee or the Pass Through Company is a party.


                                       22
<PAGE>   30

SECTION 4. CLOSING CONDITIONS

         The obligations of the Owner Participant, the Owner Lessor, the Lease
Indenture Company, the Indenture Trustee, the Pass Through Company, the Pass
Through Trustee, the Guarantor and the Facility Lessees to consummate the
transactions contemplated hereby on the Closing Date shall be subject to the
following conditions, except that the obligations of any Person shall not be
subject to such Person's own performance or compliance, and each of the
Transaction Parties (other than the Certificateholders) shall provide such proof
of satisfaction of these conditions as any other Transaction Party shall
reasonably request.

        Section 4.1.  Completion of the Facility.

         (a) the Tiverton Facility shall have commenced commercial operations
with at least 260 MW of capacity and shall comply in all material respects with
the other specifications set forth in the purchase and construction contracts
for such Facility, and the Rumford Facility shall have commenced commercial
operations with at least 260 MW of capacity and shall comply in all material
respects with the other specifications set forth in the purchase and
construction contracts for such Facility, except as disclosed in the R.W. Beck
Reports delivered to the Owner Participant, the Owner Lessor and the Indenture
Trustee prior to the Closing Date.

         Section 4.2. Operative Documents. On or before the Closing Date, each
of the Operative Documents to be delivered at or before the Closing (as well as
any other agreements, certificates and other documents relating to the Overall
Transaction to be delivered at Closing (including, without limitation, the
Offering Circular)) shall have been duly authorized, executed and delivered by
the parties thereto (if attached as an Exhibit hereto, in substantially the form
attached as such Exhibit or if not so attached, in form and substance
satisfactory to each Transaction Party), shall each be in full force and effect,
and executed counterparts of each shall have been delivered to each of the
parties hereto (other than the Tax Indemnity Agreement, which shall only be
delivered to the parties thereto). Notwithstanding any of the foregoing, the
Calpine Guaranties, the OP Parent Guaranty and this Agreement shall be executed
on the Effective Date and shall, on the Closing Date, remain in full force and
effect.

         Section 4.3. Certificates and the Lessor Notes. Each of the conditions
precedent contained in the Certificate Purchase Agreement shall have been
satisfied or waived by the Initial Purchasers and such Initial Purchasers shall
have purchased the Certificates pursuant to and in accordance with, the terms of
the Certificate Purchase Agreement and the Proceeds shall have been provided to
the Owner Lessor through the purchase by the Pass Through Trustee of the Lessor
Notes.

         Section 4.4. Equity Investment. The Owner Participant shall have made
or caused to be made the Equity Investment available to the Owner Lessor at the
place and in the manner contemplated by Section 2.

         Section 4.5. Organizational Documents. Each of the Transaction Parties
shall have received certified copies of the organizational documents of each of
the other parties hereto and resolutions of the board of directors of each such
other corporate party duly authorizing the transaction and such documents and
such evidence as each party may reasonably request in order to establish the
authority of each such other party to consummate the transactions contemplated


                                       23
<PAGE>   31

by this Agreement, the taking of all corporate and other proceedings in
connection therewith and compliance with the conditions herein or therein set
forth and the incumbency of all officers signing any of the Operative Documents.
Each of the foregoing documents shall be reasonably satisfactory to each
recipient thereof.

         Section 4.6. Representations and Warranties. The representations and
warranties of each party hereto set forth in Section 3 shall be true and correct
on and as of the Closing Date with the same effect as though made on and as of
the Closing Date.

         Section 4.7. Defaults, Events of Default, Events of Loss. No Lease
Event of Default, Lease Indenture Event of Default or Event of Loss or event
that with the passage of time or giving of notice or both would constitute a
Lease Event of Default, Lease Indenture Event of Default or an Event of Loss
shall have occurred and be continuing.

         Section 4.8. Intentionally Omitted.

         Section 4.9. Consents. All permits, licenses, approvals and consents
(including management, credit and other internal approvals of the Transaction
Parties) necessary to consummate the Overall Transaction and to own and operate
the Facilities as currently operated shall have been duly obtained and shall be
in full force and effect and in the form and substance satisfactory to each of
the Transaction Parties.

         Section 4.10. Governmental Actions. All actions, if any, required to
have been taken by any Governmental Entity on or prior to the Closing Date in
connection with the transactions contemplated by any Operative Document,
including, without limitation, the FERC Orders, shall have been taken and,
except with respect to the determination by FERC of EWG status, all Applicable
Permits required to be in effect on the Closing Date in connection with the
consummation of the transactions contemplated by the Operative Documents shall
have been issued and shall be in full force and effect; and all such Applicable
Permits shall be final, in full force and effect on the Closing Date and with
all appeal periods expired.

         Section 4.11. Insurance. Insurance (including all related endorsements)
complying with the requirements of Schedule 5.45 shall be in full force and
effect and all premiums thereon shall be current. The Owner Participant and the
Manager shall have received a certificate or certificates (or binders, if
certificates are not then available) dated the Closing Date of Marsh USA, Inc.
or an independent insurance broker or carrier reasonably satisfactory to such
Persons stating that such insurance complies with the requirements of Schedule
5.45, is in full force and effect and all premiums then due and payable in
connection therewith have been paid.

         Section 4.12. Ratings. The Certificates shall have been rated at least
Ba1 by Moody's and BB+ by S&P.

         Section 4.13. Environmental Report. The Owner Participant and the
Manager shall have received copies of the Environmental Reports which shall be
in form and substance satisfactory to such parties (with a copy to the Indenture
Trustee). Each Facility Lessee shall use reasonable efforts to cause the
Environmental Consultant to deliver at the same time a reliance letter addressed
to the Owner Lessor, the Manager and the Owner Participant allowing them to rely
on such reports as if addressed to each of them.


                                       24
<PAGE>   32

         Section 4.14. Surveys; Site Description. With respect to the Tiverton
Facility, the Owner Participant shall have received a copy of the Survey
(Tiverton) in form and substance satisfactory to the Owner Participant. With
respect to the Rumford Facility, the Owner Participant shall have received a
"boundaries" drawing in form and substance reasonably satisfactory to the Owner
Participant and a certificate of an independent engineer certifying that the
Rumford Facility is located on the Rumford Facility Site.

         Section 4.15. Appraisal; Condition of the Facility. The Owner
Participant shall have received the Closing Appraisal prepared by the Appraiser
addressed and delivered only to the Owner Participant and in form and substance
satisfactory to the Owner Participant, together with a letter of the Appraiser
certifying that its conclusions set forth in the Closing Appraisal are true and
correct as of the Closing Date.

         Section 4.16. Letter from the Appraiser. The Owner Lessor shall have
received a satisfactory letter of the Appraiser setting forth the conclusions of
the Closing Appraisal as to the fair market value and useful life of each
Facility as of the Closing Date and the methodology of determination thereof.

         Section 4.17. Other Reports. The Owner Participant shall have received
copies of the reports of the Engineering Consultant, the Insurance Consultant,
and the Power Market Consultant, each in form and substance reasonably
satisfactory to the Owner Participant.

         Section 4.18. Opinion with Respect to Certain Tax Aspects. The Owner
Participant shall have received the opinion, dated the Closing Date, of Hunton &
Williams LLP addressed and delivered only to the Owner Participant as to certain
tax matters and in form and substance satisfactory to the Owner Participant.

         Section 4.19. Opinions of Counsel. Each of the relevant Transaction
Parties shall have received an opinion or opinions, dated the Closing Date, of
(a) Ronald W. Fischer, Esq., in-house counsel to the Facility Lessees and
Guarantor, (b) Thelen Reid & Priest LLP, special counsel to the Facility Lessees
and Guarantor, (c) Steptoe & Johnson, special regulatory counsel to the Facility
Lessees, (d) Drummond Woodsom & MacMahon, Maine special counsel to the Facility
Lessees, (e) Hinckley, Allen & Snyder LLP, Rhode Island special counsel to the
Facility Lessees, (f) Doug Levene, Esq., in-house counsel to the Owner
Participant and the Owner Lessor, (g) Hunton & Williams, counsel to the Owner
Participant and to the Owner Lessor, (h) Verill & Dana, LLP, Maine counsel to
the Initial Purchasers, (i) Peabody & Arnold, Rhode Island counsel to the
Initial Purchasers, (j) Bingham Dana LLP, counsel to the Lease Indenture Company
and the Indenture Trustee and (k) Bingham Dana LLP, counsel to the Pass Though
Trustee and the Pass Through Company, (l) Dewey Ballantine LLP, special counsel
to CSFB, and (m) Roger Wiegley, Esq., counsel to CSFB, in each case in form and
substance reasonably satisfactory to each Transaction Party. Each such Person
expressly consents to the rendering by its counsel of the opinion referred to in
this Section 4.19 and acknowledges that such opinion shall be deemed to be
rendered at the request and upon the instructions of such Person, each of whom
has consulted with and has been advised by its counsel as to the consequences of
such request, instructions and consent. Furthermore, each such counsel shall, to
the extent requested, permit the Rating Agencies and the Initial Purchasers to
rely on their opinion as if such opinion were addressed to such parties.


                                       25
<PAGE>   33

         Section 4.20. Recordings and Filings. All filings and recordings listed
on Schedule 4.20 hereto shall have been duly made and all filing, recordation,
transfer and other fees payable in connection therewith shall have been paid;
and the filing of all precautionary financing statements under the Uniform
Commercial Code of Rhode Island, Maine and Delaware and any other documents as
may be reasonably requested by counsel to the Owner Participant, the Indenture
Trustee or the Pass Through Trustee to perfect (i) the right, title and interest
of the Owner Lessor in the Facilities and its leasehold interest in the Facility
Sites and Easements, or any part thereof or interest therein and (ii) and the
Lien of the Indenture Trustee on the Indenture Estate.

         Section 4.2.1 Intentionally Omitted.

         Section 4.22. Taxes. All Taxes, if any, due and payable on or before
the Closing Date in connection with the execution, delivery, recording and
filing of this Agreement or any other Operative Document, or any document or
instrument contemplated thereby shall have been duly paid in full.

         Section 4.23. No Changes in Applicable Law. No change shall have
occurred in Applicable Law or the interpretation thereof by any competent court
or other Governmental Entity that would make it illegal for the Owner
Participant, the Owner Lessor, the Indenture Trustee, the Pass Through Trustee
or either of the Facility Lessees, to participate in any of the transactions
contemplated by the Operative Documents or would materially adversely affect the
Facilities or the Facility Sites. On the Closing Date, each Certificateholder's
purchase of Lessor Notes shall (i) be permitted by the laws and regulations of
each jurisdiction to which such Certificateholder is subject, (ii) not violate
any Applicable Law (including Regulation U, T or X of the Board of Governors of
the Federal Reserve System) and (iii) not subject any Certificateholder to any
tax, penalty or liability under or pursuant to any Applicable Law, which
Applicable Law was not in effect on the date hereof. If requested by any
Certificateholder, such Certificateholder shall have received an Officer's
Certificate of the Owner Lessor, in form and substance satisfactory to such
Certificateholder, certifying as to such matters of fact as such
Certificateholder may reasonably specify to enable such Certificateholder to
determine whether such purchase is so permitted.

         Section 4.24. Registered Agent for the Facility Lessees and the Owner
Lessor. National Registered Agents, Inc. shall have been appointed by the
Facility Lessees, and CT Corporation System shall have been appointed by the
Owner Lessor, each as registered agent for service of process in the State of
New York as provided in the Operative Documents and each of National Registered
Agents, Inc. and CT Corporation System shall have accepted such appointments.

         Section 4.25. Operating Lease Treatment. As to each Facility Lessee,
the present value of Basic Rent payable during the Basic Lease Term under the
applicable Facility Lease (taking into account any rent adjustment through or
contemplated on the Closing Date), together with all rent payable under the
related Facility Site Lease and Facility Site Sublease, discounted at the
Discount Rate, shall satisfy the 90 percent test for operating lease
classification under FASB 13. Each Facility Lessee shall have received
confirmation from Arthur Andersen LLP that its applicable Facility Lease will be
treated as an operating lease under FASB 13 and FASB 98 for the purposes of
GAAP.


                                       26
<PAGE>   34

         Section 4.26. Rent Adjustments. As to each Facility Lessee, the
aggregate of all rent adjustments made on or before, or contemplated to be made
on, the Closing Date (other than adjustments to reflect a change in Transaction
Costs or the actual interest rates on the Certificates) shall not cause either
(i) the pre-tax net present value of Basic Rent discounted at 6% to increase by
more than 100 basis points or (ii) the total Basic Rent to increase by more than
2%.

         Section 4.27. Title Insurance. Each of the Title Policies shall have
been delivered to the Owner Participant, the Owner Lessor, the Indenture
Trustee, as the case may be, with copies to the Pass Through Trustee.

         Section 4.28. Intentionally Omitted.

         Section 4.29. Intentionally Omitted.

         Section 4.30. Intentionally Omitted.

         Section 4.31. Intentionally Omitted.

         Section 4.32. Letter as to Number of Offerees. (i) The Owner
Participant and the Certificateholders shall have received a certification from
the Facility Lessees as to the number of offerees by it of the Lessor Estate and
(ii) the Facility Lessees and the Initial Purchasers shall have received
certification from CSFB as to the number of offerees by it of the Lessor Estate
and the Certificates, respectively.

         Section 4.33. Lien Search. The Owner Participant (with a copy to the
Indenture Trustee) shall have received Lien searches with respect to each
Facility Lessee and its partners in form and substance satisfactory to such
parties.

         Section 4.34. Intentionally Omitted.

         Section 4.35. Litigation. There shall be no actions, investigations,
suits or proceedings pending or threatened against any of the Facility Lessees
and/or the Calpine Parties or their properties before any court or Governmental
Entity which, individually or in the aggregate, would, if adversely determined,
be reasonably likely to have a Material Adverse Effect (including, but not
limited to, a Facility Lessee, the Owner Participant, the Owner Lessor or the
Certificateholders being subject to or not exempted from regulation as a "public
utility company" or a "holding company" under PUHCA or under state laws and
regulations respecting the rates or the financial and organizational regulation
of electric utilities), nor shall any order, judgment or decree have been issued
or proposed by any Governmental Entity at the time of the Closing Date, to set
aside, restrain, enjoin or prevent the consummation of the Operative Documents
or any of the Transactions contemplated by any of the Operative Documents.

         Section 4.36. No Material Adverse Change. The annual reports,
information, documents and other reports referred to in Section 3.2(a) of each
of the Calpine Guaranties shall have been received by the Owner Participant, and
there shall have been no material adverse change in the financial condition,
business assets or operation of Calpine and its Consolidated Subsidiaries since
the date of such annual reports, information, documents and other reports.


                                       27
<PAGE>   35

         Section 4.37. Regulatory Approvals. Except with respect to the
determination by FERC of EWG status, the Owner Participant and the Pass Through
Trustee shall have received evidence of receipt of the FERC Orders.

         Section 4.38. Private Placement Number. A private placement number
issued by S&P's CUSIP Service bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for the Certificates.

         Section 4.39. Credit Ratings. The Certificates shall have been rated at
least Ba1 by Moody's and BB+ by S&P.

         Section 4.40. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory to the Facility Lessees, the Owner Participant and the
Initial Purchasers and their respective special counsel, and such parties and
their respective special counsel shall have received all such information and
counterpart originals or certified or other copies of such documents and
certificates as each such party or its special counsel may reasonably request in
connection with the matters contemplated hereby and by the other Operative
Documents.

         Section 4.41. Intentionally Omitted.

         Section 4.42. Payment of Fees and Expenses.

         Without limiting the provisions of Section 2.3, all Transaction Costs
invoiced at least 3 Business Days prior to Closing to the Owner Participant with
a copy to the Facility Lessee shall be paid promptly after the Closing Date (but
no later than December 29, 2000).

         Section 4.43. Qualifying Letter of Credit.

         Calpine shall have caused the Initial Letter of Credit to be issued in
favor of the Owner Participant.


SECTION 5. COVENANTS OF FACILITY LESSEES AND GUARANTOR

         The Facility Lessees and the Guarantor, to the extent provided below,
covenant as follows;


         Section 5.1. Maintenance of Existence. Except as permitted by Section
5.2, each Facility Lessee, at its own cost and expense, will at all times do or
cause to be done all things necessary to preserve and keep in full force and
effect both its legal existence and its qualification to do business in any
state in which the conduct of its business or the ownership or leasing of assets
used in its business requires such qualification and where the failure to be so
qualified would reasonably be expected to have a Material Adverse Effect.


                                       28
<PAGE>   36

         Section 5.2. Merger, Consolidation, Sale of Substantially All Assets.
Each Facility Lessee covenants and agrees as follows:

        (a) Neither Facility Lessee will consolidate or merge with or into any
other Person, or sell, assign, convey, lease, transfer or otherwise dispose of,
all or substantially all of its properties or assets to any Person or Persons in
one or a series of transactions, unless (i) immediately after giving effect to
any such transaction or transactions, either (A) Calpine would own, directly or
indirectly, at least a majority of the Ownership Interest of each succeeding or
surviving entity (as well as at least a majority of the Ownership Interest of
any Facility Lessee who does not engage in such transaction), the Calpine
Guaranties remain in full force and effect (without a transferee of Calpine's
obligations thereunder having succeeded thereto in accordance with Section
8.4(b) thereof) and Calpine shall have reaffirmed in writing its obligations
under the Calpine Guaranties and the other Operative Documents to which Calpine
is a party in a manner reasonably satisfactory to the Owner Participant and
Owner Lessor or (B) Calpine's obligations under the Calpine Guaranties have been
succeeded to in accordance with Section 8.4(b) of the Calpine Guaranties, the
transferee of Calpine shall own, directly or indirectly, at least a majority of
the Ownership Interest of each succeeding or surviving entity (as well as at
least a majority of the Ownership Interest of any Facility Lessee who does not
engage in such transaction) and the Calpine Guaranties shall remain in full
force and effect, (ii) immediately after giving effect to such transaction, the
requirements set forth in Section 13.1(b)(i) through (vi) of this Agreement
(with appropriate conforming changes to take into account the nature of the
transactions referred to hereunder) have been satisfied in connection with such
transfer, and (iii) each succeeding or surviving entity shall be organized under
the laws of the United States, any state thereof or the District of Columbia.

         (b) Upon the consummation of such transaction described in Section
5.2(a), the resulting, surviving or succeeding entity, if other than the
applicable Facility Lessee, shall succeed to, and be substituted for, and may
exercise every right and power and shall perform every obligation of, such
Facility Lessee under this Participation Agreement and each other Operative
Document to which such Facility Lessee was a party immediately prior to such
transaction, with the same effect as if such entity had been named herein and
therein. The applicable Facility Lessee will pay the costs and expenses
(including reasonable attorneys' fees and expenses) of the Owner Participant,
the Owner Lessor, the Indenture Trustee, the Pass Through Trustee and the
Certificateholders in connection with any transaction contemplated by this
Section 5.2.

         Section 5.3. Intentionally Omitted.

         Section 5.4. Intentionally Omitted.

         Section 5.5. Administrator Fees. Each Facility Lessee and Calpine shall
pay the fees, costs and expenses of the Administrator (including the reasonable
compensation and expenses of its counsel) arising out of the Owner Lessor's and
the Owner Participant's discharge of their duties under or in connection with
the Operative Documents, all pursuant to the LLC Administration Agreements, as
in effect on the Closing Date.


                                       29
<PAGE>   37

         Section 5.6. Conduct of Business, Properties, Etc. Except as otherwise
expressly permitted under this Agreement, each Facility Lessee shall (a) perform
and comply with all of its contractual obligations under the Operative Documents
to which it is a party and all other material agreements and contracts by which
it is bound, unless (other than in connection with the Operative Documents) such
noncompliance would not cause a Material Adverse Effect, and (b) engage only in
the business contemplated by the Operative Documents to which it is a party.

         Section 5.7. Obligations. Each Facility Lessee shall pay all of its
obligations, howsoever arising, as and when due and payable except such as may
be contested in good faith or as to which a bona fide dispute may exist;
provided, that (i) adequate reserves consistent with GAAP requirements are
maintained for such contested or disputed obligations or (ii) such Facility
Lessee otherwise establishes and maintains adequate security arrangements for
the payment of such contested or disputed obligations which are reasonably
acceptable to the Owner Participant.

         Section 5.8. Books, Records, Access. Each Facility Lessee shall
maintain or cause to be maintained adequate books, accounts and records with
respect to itself, its applicable Facility and Facility Site and prepare all
financial statements required hereunder in accordance with GAAP and in
compliance with the regulations of any Governmental Entity having jurisdiction
thereof, and permit employees, agents and representatives of the Owner Lessor,
the Owner Participant, and, so long as the Lien of the Collateral Trust
Indenture shall have not been terminated or discharged, the Indenture Trustee,
the Pass Through Trustee and the Certificateholders, and such parties'
independent consultants, at all reasonable times during normal business hours
and upon reasonable prior notice and at no risk or (except during the existence
of a Lease Default or Lease Event of Default) expense to such Facility Lessee to
inspect, such Facility and Facility Site, to examine or audit all of or any of
such Facility Lessee's books, accounts and records and make copies and memoranda
thereof and, together with such consultants, to observe the operation,
maintenance and repair of such Facility; provided, however, any such inspection
shall be conducted in accordance with Section 12 of the applicable Facility
Lease.

         Section 5.9. Other Information. Each Facility Lessee shall furnish, or
shall cause to be furnished to, the Owner Lessor, the Owner Participant and, so
long as the Lien of the Collateral Trust Indenture has not been terminated or
discharged, the Indenture Trustee and the Pass Through Trustee, and their
respective authorized representatives from time to time such information as such
party shall reasonably request concerning the Facilities and Facility Sites
including information concerning the condition, operation, maintenance and use
of the Facilities and Facility Sites and such other financial or operating
information as it shall reasonably request and which is routinely made available
to creditors of the applicable Facility Lessee, to the extent it possesses such
information; provided that, each Facility Lessee reserves the right not to
provide any information that is not otherwise publicly available to any
transferee Owner Participant (or its Owner Lessor) if it reasonably believes in
its good faith judgment that such transferee Owner Participant or any Affiliate
thereof is a competitor or is an Affiliate of a competitor of such Facility
Lessee or its Affiliates in the competitive power market, unless, before
receiving any such information, such transferee Owner Participant shall have put
in place (to the reasonable satisfaction of such Facility Lessee) appropriate
confidentiality arrangements.


                                       30
<PAGE>   38

To the extent such information consists of information contained in records kept
by the Facility Lessees or any Affiliate, such information shall be furnished
without cost to the recipient.

         Section 5.10. Warranty of Title to Facility Site.

         (a) Each Facility Lessee shall maintain good and valid fee, title to,
or easement or other surface rights in, as applicable, its Facility Site and the
applicable Easements, subject only to Permitted Encumbrances. Each Facility
Lessee shall use its commercially reasonable efforts to remove all mechanic's
liens which constitute Permitted Encumbrances existing as of the Closing Date
within 2 (two) years after the Closing Date, provided that the failure to do so
shall not constitute, in whole or in part, the basis of any default under any
Operative Document.

         (b) Each Facility Lessee shall maintain good and valid title to all of
its other properties and assets (other than properties and assets disposed of in
the ordinary course of business including any sale, transfer or other
disposition of any obsolete, surplus or worn out equipment, parts, supplies or
other materials or assets to the extent permitted by the Operative Documents),
subject only to Permitted Liens or to the extent that failure to do so would
have a Material Adverse Effect.

         Section 5.11. ERISA. Neither Facility Lessee shall establish, maintain
or contribute to, any Plan. If any Plan is established, maintained or
contributed to by either Facility Lessee or any ERISA Affiliate, or if such
Facility Lessee or any ERISA Affiliate becomes obligated to contribute to any
Plan, (a) with respect to each such Plan, such Facility Lessee or such ERISA
Affiliate (i) shall have at all times fulfilled in all material respects their
obligations under the minimum funding standards of ERISA and the Code, (ii)
shall not allow any such Plan to have an Unfunded Current Liability, (iii)
shall, with respect to each Plan (and each related trust, if any) which is
intended to be qualified under Sections 401(a) and 501(a) of the Code, obtain a
determination letter from the Internal Revenue Service to the effect that such
Plan (and trust, if any) meets the requirements of Sections 401(a) and 501(a) of
the Code, and (iv) shall at all times be in compliance in all material respects
with applicable provisions of ERISA and the Code, and (b) within fifteen (15)
days after (i) the occurrence of any reportable event (as defined in Section
4043(c) of ERISA) with respect to any Plan, (ii) the complete or partial
withdrawal by such Facility Lessee or any ERISA Affiliate from any Multiemployer
Plan, (iii) to the extent such Facility Lessee or any ERISA Affiliate is
notified that any Multiemployer Plan has entered reorganization status, has
become insolvent, or has terminated (or any Multiemployer Plan notifies such
Facility Lessee or any ERISA Affiliate of its intent to terminate) under Section
4041A of ERISA, (iv) the institution of any action to terminate a Plan in a
distress termination under Section 4041(c) of ERISA, or (v) in the case of the
breach of any other covenant contained in this Section 5.11, such Facility
Lessee shall report such occurrence or breach to the Indenture Trustee, the Pass
Through Trustee, the Owner Lessor and the Owner Participant and furnish such
information as such Persons may reasonably request with respect thereto.

         Section 5.12. Certain Contracts and Agreements. Without the consent of
the Owner Participant, each Facility Lessee agrees that, except as required by
the Operative Documents, it will not enter into or become bound by any contract
or agreement providing for the sale of energy produced from the Facilities, or
the purchase of services to be performed at, for or in connection with, the
Facilities or any other contract or agreement relating to the Facilities that
(i)


                                       31
<PAGE>   39

has a term that extends beyond the Lease Term or the scheduled expiration of any
Renewal Lease Term then in effect or elected by such Facility Lessee, unless
such contract or agreement may be terminated by such Facility Lessee without
material costs or obligation prior to the Lease Term or the scheduled expiration
of such Renewal Lease Term, as the case may be or (ii) results in any lien,
encumbrance, restriction or agreement relating to a Facility which extends
beyond the expiration of the Lease Term for such Facility or which binds a
Facility or the owner of a Facility beyond the expiration of the Lease Term;
provided that nothing in this Section 5.12 shall prevent the Operator from
entering agreements to operate the Facilities in accordance with the Operative
Documents.

         Section 5.13. Certain Costs. The Facility Lessees, jointly and
severally, agree to pay to the Owner Lessor as Supplemental Rent (i) overdue
interest with respect to the Lessor Notes issued under the Collateral Trust
Indenture if the same is due and payable because of the occurrence of a Lease
Indenture Event of Default which is attributable to a Lease Event of Default and
(ii) an amount equal to any Make-Whole Amount which has become due and payable
with respect to the Lessor Notes under the Collateral Trust Indenture.

         Section 5.14. Limitations on Liens. Neither Facility Lessee shall,
directly or indirectly, create, assume or permit to exist any Lien, securing a
charge or obligation on the Facilities, the Facility Sites, the Easements or on
any of its other properties real or personal, whether now owned or hereafter
acquired, except Permitted Liens.

         Section 5.15. Investments. The Facility Lessees shall not make or
permit to remain outstanding any advances, loans or extensions of credit to, or
purchase or own any stock, bonds, notes, debentures or other securities of any
Person, except Permitted Investments.

         Section 5.16. Survey (Rumford). The Rumford Lessee shall use diligent
and commercially reasonable efforts to deliver a copy of the Survey (Rumford) as
soon as practicable, such survey to be an ALTA survey or other survey in form
and substance reasonably satisfactory to the Owner Participant, provided that
the failure to do so shall not constitute, in whole or in part, the basis of any
default under any Operative Document.

         Section 5.17. Regulations. The Facility Lessees shall not, directly or
indirectly, apply the proceeds of the sale of Lessor Notes or any other revenues
to the purchasing or carrying of any margin stock within the meaning of
Regulations T, U or X of the Federal Reserve Board, or any regulations,
interpretations or rulings thereunder.

         Section 5.18. Partnerships. The Facility Lessees shall not become a
general or limited partner in any partnership or a joint venturer in any joint
venture.

         Section 5.19. Dissolution. The Facility Lessees shall not liquidate or
dissolve, except pursuant to transactions permitted under Section 5.2.

         Section 5.20. Termination of Contracts, Etc. Each Facility Lessee shall
not without the prior written consent of the Owner Participant and, except as
otherwise provided in Section 8 of the Collateral Trust Indenture and so long as
the Lien of the Collateral Trust Indenture has not been terminated or
discharged, the Indenture Trustee, (a) cause or consent to or (b) permit, any


                                       32
<PAGE>   40

amendment, modification, extension, termination, variance or waiver of timely
compliance with any terms or conditions of any Operative Document.

         Section 5.21. Name and Location. Neither Facility Lessee shall change
its name or the location of its chief executive office or place of business
without notice to the Owner Lessor, the Indenture Trustee, the Pass Through
Trustee and the Owner Participant at least thirty (30) days prior to such
change.

         Section 5.22. Use of Facility Site. Each Facility Lessee shall not use,
or permit to be used, its applicable Facility Site or the related Easements for
any purpose other than for the operation and maintenance of the applicable
Facility, except as otherwise required or permitted under the Operative
Documents.

         Section 5.23. Abandonment of Facility. Neither Facility Lessee shall
voluntarily abandon the operation, maintenance or repair of its applicable
Facility, except as otherwise permitted by the Operative Documents.

         Section 5.24. Taxes, Other Government Charges and Utility Charges. Each
Facility Lessee shall pay, or cause to be paid, as and when due and prior to
delinquency, all taxes, assessments and governmental charges of any kind that
may at any time be lawfully assessed or levied against or with respect to such
Facility Lessee, the related Facility or its leasehold interests in the related
Facility Site, all utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of such Facility or such Facility Site,
and all assessments and charges lawfully made by any Governmental Entity for
public improvements that may be secured by a Lien on any part of such Facility;
provided, that each such Facility Lessee may contest in good faith any such
taxes, assessments and other charges and, in such event, may permit the taxes,
assessments or other charges so contested to remain unpaid during any period,
including appeals, when such Facility Lessee is in good faith contesting the
same, so long as (a) adequate reserves consistent with GAAP requirements (or
other security arrangements reasonably satisfactory to the Indenture Trustee and
the Owner Participant) are established and maintained in an amount sufficient to
pay any such taxes, assessments or other charges, accrued interest thereon and
potential penalties or other costs relating thereto, or other adequate provision
for the payment thereof shall have been made, and (b) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon, is immediately paid after resolution of such contest.

         Section 5.25. Compliance with Laws, Instruments, Etc. At its expense,
each Facility Lessee shall promptly (a) comply or cause compliance with all
Applicable Laws, including those relating to pollution control, environmental
protection, equal employment opportunity plans, Plans and employee safety, with
respect to each such Facility Lessee, the related Facility, Facility Site or
Easements, whether or not compliance therewith shall require structural changes
in such Facility or any part thereof or require major changes in operational
practices or interfere with the use and enjoyment of such Facility or any part
thereof, and (b) procure, maintain and comply, or cause to be procured,
maintained and complied with, all Applicable Permits, except (1) as may be
contested in accordance with Section 7 or 8 of the related Facility Lease and
(2) each Facility Lessee may, in good faith and by appropriate proceedings,
diligently contest the validity or application of any such Applicable Laws in
any reasonable manner which does not


                                       33
<PAGE>   41

involve any danger of (i) foreclosure, sale, forfeiture or loss of, or
imposition of a material Lien on the related Facility, (ii) impair the use,
operation or maintenance of the Facility in any material respect, (iii) any
criminal liability being incurred by the Owner Participant, the Owner Lessor,
the Indenture Trustee, the Lease Indenture Company, the Pass Through Trustee,
the Pass Through Company or any Certificateholder, (iv) the Owner Participant,
the Owner Lessor, the Indenture Trustee, the Lease Indenture Company, the Pass
Through Trustee, the Pass Through Company or any Certificateholder being
subjected to any unindemnified civil liability or of the Owner Participant or
the Owner Lessor being subject to regulation as a public utility under
Applicable Law, or (v) any Material Adverse Effect.

         Section 5.26. PUHCA. No Facility Lessee shall take any action or fail
to take any action within its control that would subject the Owner Lessor, the
Owner Participant, the Indenture Trustee or the Pass Through Trustee to
regulation under PUHCA.

         Section 5.27. Intentionally Omitted.

         Section 5.28. Intentionally Omitted.

         Section 5.29. Intentionally Omitted.

         Section 5.30. Intentionally Omitted.

         Section 5.31. Further Assurances. Each Facility Lessee, at its own
cost, expense and liability, will cause to be promptly and duly taken, executed,
acknowledged and delivered all such further acts, documents and assurances as
may be necessary in order to carry out the intent and purposes of this
Participation Agreement and the other Operative Documents, and the transactions
contemplated hereby and thereby. The Facility Lessee, at its own cost, expense
and liability, will cause such financing statements and fixture filings (and
continuation statements with respect thereto) as may be necessary and such other
documents as the Owner Participant, the Owner Lessor and, so long as the Lien of
the Collateral Trust Indenture shall not have been terminated or discharged, the
Indenture Trustee and the Pass Through Trustee shall reasonably request to be
recorded or filed at such places and times in such manner, and will take all
such other actions or cause such actions to be taken, as may be necessary in
order to establish, preserve, protect and perfect the right, title and interest
of the Owner Lessor in and to the Facilities, the Facility Sites under the
Facility Site Leases, any Component or any portion of any thereof or any
interest therein and the first priority Lien intended to be created by the
Collateral Trust Indenture therein and with respect to the Equity Collateral
Account. Each Facility Lessee shall promptly from time to time furnish to the
Owner Participant, the Owner Lessor or, so long as the Lien of the Collateral
Trust Indenture shall not have been terminated or discharged, the Indenture
Trustee or the Pass Through Trustee such information with respect to the
Facilities or the Facility Sites or the transactions contemplated by the
Operative Documents to which the Facility Lessee is a party as may be required
to enable the Owner Participant, the Owner Lessor or, so long as the Lien of the
Collateral Trust Indenture shall not have been terminated or discharged, the
Indenture Trustee or the Pass Through Trustee, as the case may be, to timely
file with any Governmental Entity any reports and obtain any licenses or permits
required to be filed or obtained by the Owner Lessor under any Operative
Document, the Owner Participant as the owner of the Member Interest or the
Indenture Trustee. Each Facility Lessee will preserve,


                                       34
<PAGE>   42

protect, defend and enforce, or cause to be preserved, protected, defended and
enforced, the rights of such Facility Lessee, the Owner Lessor and the Owner
Participant under each and every Operative Document to which it is a party
(including by assignment and assumption of the rights thereunder), including
using commercially reasonable efforts to prosecute suits to enforce any such
rights and, at the request of Indenture Trustee, so long as the Lien of the
Collateral Trust Indenture has not been discharged or terminated (and thereafter
at the request of the Owner Participant), permit the Indenture Trustee and the
Owner Participant, at their respective cost and expense, to participate in such
capacity as it may choose in any such suit, any defense thereof or in the
preparation therefor; provided, however, that upon the occurrence and during the
continuance of any Lease Event of Default, if the Indenture Trustee or the Owner
Participant request that certain actions be taken and such Facility Lessee fails
to take the requested action, or to cause the requested action to be taken
within (5) Business Days, the Indenture Trustee, so long as the Lien of the
Collateral Trust Indenture has not been discharged or terminated, and the Owner
Lessor may, at such Facility Lessee's reasonable expense, enforce, in its own
name, or such Facility Lessee's name, such rights of such Facility Lessee.

         Section 5.32. Intentionally Omitted.

         Section 5.33. Intentionally Omitted.

         Section 5.34. Intentionally Omitted.

         Section 5.35. Intentionally Omitted.

         Section 5.36. Intentionally Omitted.

         Section 5.37. No Subsidiaries. Neither Facility Lessee shall create or
suffer to exist any Subsidiaries of such Facility Lessee.

         Section 5.38. Permitted Business. Neither Facility Lessee shall engage
in any business or activities other than the lease, operation, maintenance and
marketing and sale of the output, fuel or other products from, the Facility
leased by such Facility Lessee. Notwithstanding any of the foregoing, no
Facility Lessee may change the nature of its business.

         Section 5.39. Intentionally Omitted.

         Section 5.40. Guaranty and Contingent Obligations. Neither Facility
Lessee will create, incur, assume or suffer to exist any guaranty or other
contingent obligations except (i) by reason of endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of each such Facility Lessee's business, (ii) indemnities in respect of
unfiled mechanics' liens and other liens permitted by clause (d) of the
definition of "Permitted Liens", (iii) contingent obligations set forth in, or
incurred in connection with, or indemnities set forth in, the Operative
Documents, (iv) customary indemnities provided by each such Facility Lessee in
connection with easements relating to its applicable interest in the Facilities
or the Facility Sites, (v) customary indemnities in favor of the title insurers
providing the title policies covering the Facility Sites or any portion thereof
or any easement or appurtenant right relating thereto in respect of claims by
the holder of mechanics' liens, and (vi) the indemnities referred to in Section
9.1 and 9.2 of the Participation Agreement or pursuant to the Tax Indemnity
Agreement.


                                       35
<PAGE>   43

         Section 5.41. Assignment of Rights. Neither Facility Lessee shall
assign any of its rights or obligations except as permitted by the Operative
Documents.

         Section 5.42. Intentionally Omitted.

         Section 5.43. Intentionally Omitted.

         Section 5.44. Support Arrangements.

         (a) Intentionally Omitted

         (b) Each Facility Lessee agrees that, to the extent that the rights
described in Section 3.1(n) which have already been made available to the Owner
Lessor prior to the expiration or termination of the related Facility Lease
Term, and any rights assigned pursuant to the last sentence of this Section
5.44(b), are insufficient to permit on a commercially practicable basis during
the period following the expiration or termination of such Facility Lease Term,
until the end of the applicable Facility's useful life as set forth in the
Closing Appraisal, (i) the location, occupation, interconnection (including with
respect to electricity, steam, gas and water), maintenance and repair of such
Facility, (ii) the use, operation and possession of such Facility, (iii) the
use, operation, possession, maintenance, replacement, renewal and repair of all
Improvements then required to be made to such Facility, (iv) adequate ingress to
and egress from such Facility in connection with the ownership, use, maintenance
or operation of such Facility, (v) adequate transmission of electricity from
such Facility to enable such Person to deliver the net electrical and steam
output of such Facility on a commercially reasonable basis and (vi) the
ownership by the Owner Lessor (or any successor) of such Facility, such Facility
Lessee will cause Calpine to provide, and Calpine will provide, the Owner Lessor
with any additional services relating to the ownership and operation of the
applicable Facility substantially in the same manner as operated as of the
Closing Date (to the extent Calpine or any Affiliate thereof then owns or
controls the physical assets and/or contractual rights necessary to provide such
services (or can enter into contracts on a commercially reasonable basis for
such ownership, control or other rights) and remains in the business of
providing such services) necessary to permit the Owner Lessor to use such
Facility as described in (i) through (vi) above. Such arrangements will provide
for fair market value compensation to Calpine (payable periodically on no more
frequently than a monthly and no less frequently than on a quarterly basis) and
will terminate upon the expiration or termination of the related Facility Site
Lease, or earlier at the option of the Owner Lessor. Each Facility Lessee shall
also, subject to obtaining any required third party consents, assign to the
Owner Lessor upon termination of the applicable Facility Lease any support or
similar agreements to the extent relating to the Facility it has with third
parties.


         Section 5.45. Insurance. The Facility Lessee shall comply with the
covenants set forth in Schedule 5.45.

         Section 5.46. Qualifying Letter of Credit; Equity Collateral Account.

         (a) The Guarantor shall cause the Initial Letter of Credit to be issued
on the Closing Date for the benefit of the Owner Participant and shall maintain
for the benefit of the Owner


                                       36
<PAGE>   44

Participant a Qualifying Letter of Credit (I) prior to January 1, 2011 or at all
times when the outstanding aggregate principal amount of either the Tiverton
Notes or the Rumford Notes is $50,000,000 or greater, if the Guarantor's
long-term unsecured indebtedness is not rated at least A- by S&P and A3 by
Moody's (and the Guarantor is not on credit watch with either such agency), and
(II) after January 1, 2011 and at all times so long as the aggregate principal
amount of each of (A) the Tiverton Notes or (B) the Rumford Notes is less than
$50,000,000 but the aggregate principal amount of the Tiverton Notes and Rumford
Notes is greater than $5.2 million, if such ratings are not at least BBB- by S&P
and Baa3 by Moody's, respectively (and the Guarantor is not on credit watch with
either credit agency). Each Qualifying Letter of Credit shall (i) be issued in
favor of the Owner Participant by a Qualifying Letter of Credit Bank, (ii) have
a drawing amount, as of the date of original issuance and thereafter, equal to
the applicable amounts of L/C Termination Value set forth in Exhibit L hereto
for the date set forth in such Exhibit L, as adjusted pursuant to Section
5.46(j), and (iii) have a stated expiration date not earlier than 364 days after
the date of issuance of such Qualifying Letter of Credit. The Guarantor shall
not be required to maintain the Qualifying Letter of Credit after the aggregate
principal amount of the Tiverton Notes and the Rumford Notes has been reduced to
$5.2 million or less. The Qualifying Letter of Credit shall secure the
Guarantor's obligation under the respective Calpine Guaranties to pay the Equity
Portion of Termination Value as set forth in Sections 2.1(a) and 2.1(b) of each
Calpine Guaranty.

         (b) If the Guarantor or the issuer of any Qualifying Letter of Credit
elects to terminate any Qualifying Letter of Credit (other than the Initial
Qualifying Letter of Credit) prior to the maturity date thereof, the Guarantor
and such issuer shall notify the Owner Participant and the Owner Lessor of its
intent to terminate the Qualifying Letter of Credit not less than 120 days prior
to the proposed termination date and the Guarantor shall replace such Qualifying
Letter of Credit on or before a date that is not less than 45 days prior to the
proposed termination date with a replacement Qualifying Letter of Credit.

         (c) If at any time subsequent to the issuance of a Qualifying Letter of
Credit, the issuer of such Qualifying Letter of Credit ceases to be a Qualifying
Letter of Credit Bank, the Guarantor shall, within 30 days of receiving Actual
Knowledge of such issuer failing to be a Qualifying Letter of Credit Bank,
replace such previously Qualifying Letter of Credit with a replacement
Qualifying Letter of Credit issued by a Qualifying Letter of Credit Bank.

         (d) The Guarantor shall replace any Qualifying Letter of Credit that is
scheduled to expire with a replacement Qualifying Letter of Credit no later than
30 days prior to the scheduled expiration date of any such Qualifying Letter of
Credit. The Guarantor will promptly forward to the Owner Participant any notice
of non-renewal or scheduled termination of a Qualifying Letter of Credit that it
receives from the issuer.

         (e) The Guarantor shall be permitted, from time to time, to replace any
Qualifying Letter of Credit with a replacement Qualifying Letter of Credit
(other than the Initial Qualifying Letter of Credit) as long as there shall be
no interruption in the coverage provided by the Qualifying Letter of Credit in
consequences of such optional replacement and so long as such replacement occurs
at least 30 days before any expiration of the Qualifying Letter of Credit being
replaced.


                                       37
<PAGE>   45

         (f) As provided in the Qualifying Letter of Credit, in the event that
the Qualifying Letter of Credit is not replaced as provided in paragraphs (b),
(c) or (d) above, the Owner Participant shall be entitled to draw the full
amount thereof and cause the proceeds of such drawing to be deposited into the
Equity Collateral Account. Any such drawing or deposit shall not relieve the
Guarantor from its obligations under paragraphs (a), (b), (c) and (d) above to
maintain a Qualifying Letter of Credit, unless the Guarantor is unable to
discharge such obligations using its commercial efforts, but the failure to
maintain a Qualifying Letter of Credit shall not constitute, in whole or in
part, the basis of any Lease Default or Lease Event of Default under any
Operative Document. The Guarantor shall ensure at all times that the amounts on
deposit in the Equity Collateral Account from time to time are at least equal to
the applicable L/C Termination Values set forth in Exhibit L hereto for each
date set forth in such Exhibit L, as adjusted pursuant to Section 5.46(j) hereof
and subject to Section 5.46(k) hereof, provided that the failure to do so shall
not constitute, in whole or in part, the basis of any Lease Default or Lease
Event of Default under any Operative Document, and except to the extent
expressly provided in Section 16(e) of each Facility Lease. If the Guarantor,
subsequent to the Equity Collateral Account deposit described above (and prior
to application of such proceeds to the account of the Owner Participant as set
forth in paragraph (g) below) establishes a new Qualifying Letter of Credit and
is otherwise in compliance with its obligations under paragraphs (a), (b), (c)
and (d) above, the Owner Lessor shall forthwith return by wire transfer of
immediately available funds, the amounts held in the Equity Collateral Account
to the Guarantor.

         (g) The Equity Collateral Account shall be a segregated pledged
account, the documentation of which will be in form and substance satisfactory
to the Owner Participant, subject to a first priority security interest in favor
of the Owner Participant, and maintained by the Owner Participant to secure the
Guarantor's obligation under the Calpine Guaranties to pay the Equity Portion of
Termination Value as set forth in Section 2.1 of both such Calpine Guaranties.
The Owner Lessor shall be entitled (1) to retain control over the amounts on
deposit therein, and (2) to foreclose upon the funds therein upon the occurrence
and during the continuance of a Drawing Event. The Owner Participant shall
direct the Owner Lessor to, and the Owner Lessor shall, forthwith pay over, by
wire transfer of immediately available funds, to the Guarantor, any balance of
amounts remaining in the Equity Collateral Account after the Equity Portion of
Termination Value as specified in Section 2.1(b) of each Calpine Guaranty,
together with other amounts then due and payable to the Owner Participant and
Owner Lessor by the Facility Lessees or the Guarantor under the Operative
Documents, have been paid.

         (h) Costs and Expenses. The Guarantor shall pay the reasonable and
documented costs and expenses incurred by the Owner Participant in connection
with the actions referred to in this Section 5.46, except costs and expenses
attributable to a transfer by the Owner Participant of its rights in the Member
Interest pursuant to Section 7.1 of the Participation Agreement.

         (i) Gross Ups For Withholding Taxes. (i) If at any time the issuer of
any Qualifying Letter of Credit shall not be a United States person (within the
meaning of Section 7701 of the Code) and any deduction or withholding of tax is
required by Applicable Law (in effect at the time of issuance of the Qualifying
Letter of Credit) to be made in respect of any drawing or payment thereunder,
then Guarantor shall cause the Qualifying Letter of Credit to provide that the
amount to be paid thereunder shall be increased by the amount of such deduction
or


                                       38
<PAGE>   46

withholding such that the amount received by the Owner Participant is not less
than the amount it would have received in the absence of the application of any
such deduction or withholding.

                  (ii) In the event that there occurs a change in Applicable Law
    subsequent to the date any Qualifying Letter of Credit is issued such that
    deduction or withholding of tax is applicable to any payment under any such
    Qualifying Letter of Credit, the Guarantor shall (within 30 days after a
    Responsible Officer has Actual Knowledge of such change) furnish to the
    applicable Owner Participant an additional Qualifying Letter of Credit in an
    available amount equal in aggregate to the amount of withholding tax that
    would be required to be deducted or withheld on any given date in connection
    with a payment under the Qualifying Letter of Credit on such date.

         (j) Adjustment to L/C Termination Value. Any time an adjustment is made
to Termination Value pursuant to Section 3.4 of either of the Tiverton Facility
Lease or the Rumford Facility Lease, appropriate adjustments shall be made to
the L/C Termination Values set forth in such Facility Lease.

         (k) In the event of a failure by the Guarantor to comply with its
obligation under Sections 5.46(f) or (g) within 10 Business Days after receipt
of written notice of non-compliance from the Owner Participant, the Owner
Participant shall be entitled to deliver a notice of ECA Shortfall Event
referred to in Section 16(e) of each Facility Lease.


SECTION 6. COVENANTS OF THE OWNER LESSOR

         Section 6.1. Compliance with the LLC Agreement. The Owner Lessor hereby
covenants and agrees that it will:

         (a) comply with all of the terms of the LLC Agreement applicable to it;
and

         (b) not amend, supplement, or otherwise modify Section 10 of the LLC
Agreement without the prior written consent of the applicable Facility Lessee so
long as no Significant Lease Default or Lease Event of Default has occurred and
is continuing and the Indenture Trustee so long as the Lien of the Collateral
Trust Indenture has not been terminated or discharged.

         Section 6.2. Owner Lessor's Liens. The Owner Lessor covenants that it
will not directly or indirectly create, incur, assume or suffer to exist any
Owner Lessor's Lien attributable to it and will promptly notify the applicable
Facility Lessee, the Owner Participant and the Indenture Trustee of the
imposition of any such Lien of which it has Actual Knowledge and shall promptly,
at its own expense, take such action as may be necessary to duly discharge such
Owner Lessor's Lien attributable to it.

         Section 6.3. Amendments to Operative Documents. The Owner Lessor
covenants that it will not unless such action is expressly permitted by the
Operative Documents (a) through its own action terminate any Operative Document
to which it is a party, (b) amend, supplement, waive or modify (or consent to
any such amendment, supplement, waiver or modification) such Operative Documents
in any manner or (c) except as provided in Section 11 hereof or Section


                                       39
<PAGE>   47

2.10 of the Collateral Trust Indenture, take any action to prepay or refund the
Lessor Notes or amend any of the payment terms of the Lessor Notes without, in
each case, the prior written consent of the applicable Facility Lessee so long
as no Significant Lease Default or Lease Event of Default shall have occurred
and be continuing and, in the case of clause (a) or (b), the Indenture Trustee
so long as the Lien of the Collateral Trust Indenture has not been terminated or
discharged.

         Section 6.4. Transfer of the Owner Lessor's Interest. Other than as
permitted by the Operative Documents, the Owner Lessor covenants that it will
not assign, pledge, sell, lease, convey or otherwise transfer any of its then
existing right, title or interest in and to the Owner Lessor's Interest, the
Lessor Estate or the other Operative Documents.

         Section 6.5. Owner Lessor; Lessor Estate. The Owner Lessor covenants
that it will not voluntarily take any action to subject the Owner Lessor or the
Lessor Estate to the provisions of any applicable bankruptcy, insolvency or
similar law (as now or hereafter in effect).

         Section 6.6. Limitation on Indebtedness and Actions. The Owner Lessor
covenants that it will not incur any indebtedness nor enter into any business or
activity except as required or expressly permitted by any Operative Document.

         Section 6.7. Change of Location. The Owner Lessor shall provide the
Owner Participant, the Indenture Trustee, the Certificateholders, the Pass
Through Trustee and the Facility Lessees 30 days' written notice of any
relocation of the Owner Lessor's chief executive office or the place where
documents and records relating to the Owner Lessor or the Lessor Estate are kept
from the location set forth in Section 3.2(g) and of any change in its name.


SECTION 7. COVENANTS OF THE OWNER PARTICIPANT

         Section 7.1. Restrictions on Transfer of Member Interest.

         (a) The Owner Participant covenants and agrees that it shall not during
the Facility Lease Term assign, convey or transfer any of its right, title or
interest in the Member Interest without the prior written consent of the
Facility Lessees and, so long as the Lien of the Collateral Trust Indenture has
not been terminated or discharged, without the prior written consent of the
Indenture Trustee; provided, however, that the Owner Participant may, without
such consent, assign to CSFB, on a contingent basis, the rights of the Owner
Participant to receive certain revenues and assets deriving from or attributable
to the Owner Participant's ownership of the Member Interest, pursuant to the
CSFB-OP Letter Agreement as in effect on the Closing Date, a copy of which has
been delivered to the Facility Lessees and the Indenture Trustee, and provided,
further, that the Owner Participant may, subject to Section 7.8, assign, convey
or transfer all or any part of its interest in the Member Interest without such
consent to a Person (the "Transferee") which shall assume the duties and
obligations of the Owner Participant under the Operative Documents with respect
to the interest being transferred pursuant to an OP Assignment and Assumption
Agreement substantially in the form of Exhibit J hereto, if each of the
following conditions shall have been satisfied on or prior to such transfer:


                                       40
<PAGE>   48

               (i) The Facility Lessees, the Indenture Trustee and the Pass
Through Trustee shall have received an opinion(s) of counsel (including an
opinion with respect to a guaranty pursuant to clause (iii) of this Section 7.1,
if applicable), which opinion(s) and counsel are reasonably satisfactory to the
Facility Lessees and consistent in scope to the opinions delivered on behalf of
the Owner Participant at the Closing, including that all regulatory approvals
required in connection with such transfer or necessary to assume the Owner
Participant's obligations under the Operative Documents shall have been
obtained;;

               (ii) the Transferee shall be a "United States person" within the
meaning of Section 7701(a)(30) of the Code;

               (iii) the Transferee shall be either (A) an Affiliate of the
transferor Owner Participant which does not otherwise qualify under clause (B)
below (but in any event, such Affiliate shall not be a Competitor of Calpine);
provided that all of the payment and performance obligations of the Transferee
with respect to the interest being transferred under the Operative Documents
shall be guaranteed by the transferor Owner Participant, or a Person then
providing a guaranty of the transferor Owner Participant's obligations
hereunder, pursuant to an OP Parent Guaranty or (B) a Person which meets, or the
payment and performance obligations of which with respect to the interest being
transferred under the Operative Documents are guaranteed (pursuant to a OP
Parent Guaranty) by a Person (the transferor Owner Participant or such other
guarantor, the "Transferee Guarantor") which meets, the following criteria: (1)
the tangible net worth of the Transferee or Transferee Guarantor, is at least
equal to $75 million calculated in accordance with GAAP; and (2) unless waived
in writing by the Facility Lessees prior to such transfer, such Transferee is
not a Competitor of Calpine; and

               (iv) upon consummation of such transfer, there shall not be more
than four (4) Owner Participants for the Overall Transaction; provided that any
related Owner Participants that shall have the same decision maker and vote
their interest together as a single vote shall count as one for purposes of this
clause (iv).

         Notwithstanding the foregoing, the restrictions set forth in Section
7.1 shall not inure to the benefit of the Facility Lessee if such transfer
occurs during the continuance of a Significant Lease Default or Lease Event of
Default.

         (b) For purposes of determining whether a Transferee is a "Competitor"
of Calpine, Calpine shall provide to the transferor Owner Participant on or
prior to the Closing Date a list of entities which Calpine reasonably believes
in its good faith judgment are competitors of Calpine or any of its Affiliates,
in the business in which Calpine or any of its Affiliates is engaged as of the
Closing Date, which list shall be attached to the Participation Agreement as
Exhibit K. Any such Person on such list shall be deemed to be a "Competitor" for
purposes of Section 7.1(a). The initial list of Competitors may be modified or
supplemented (in a manner consistent with the first sentence of this clause
(b)), from time to time, but no later than five Business Days after the Facility
Lessees receives each notice from the Owner Participant of its intent to
transfer its interest and, in addition, no more than once in any calendar year
plus each time the Facility Lessees receives such notice of transfer from the
Owner Participant, and such list as modified shall govern for the purposes of
this Section 7.1(b).


                                       41
<PAGE>   49

         (c) No Facility Lessee shall be responsible for any adverse tax
consequence to the Owner Lessor or the Owner Participant resulting from any
transfer pursuant to this Section 7.1 and the Pricing Assumptions shall not be
changed as a result of any such transfer.

         (d) The Owner Participant shall give the Owner Lessor, the Indenture
Trustee and the Facility Lessees 10 Business Days' prior written notice of such
transfer, specifying the name and address of any proposed Transferee and such
additional information as shall be necessary to determine whether the proposed
transfer satisfies the requirements of this Section 7.1. If requested by the
Owner Participant or the Indenture Trustee, the Facility Lessees will
acknowledge qualifying transfers. All reasonable fees, expenses and charges of
the Indenture Trustee, the Pass Through Trustee, any Qualifying Letter of Credit
Bank (if it should impose fees, expenses and charges), and the Facility Lessees
(including reasonable attorneys' fees and expenses in connection with any such
transfer or proposed transfer), including any of the foregoing relating to any
amendments to the Operative Documents required in connection therewith, shall be
paid by the Owner Lessor, without any right of indemnification from the Facility
Lessees or any other Person; provided, however, that the Owner Participant shall
have no obligation to pay fees, expenses or charges of the Facility Lessees as a
result of any transfer while a Significant Lease Default or a Lease Event of
Default is continuing, in which case the Facility Lessees shall be obligated to
pay such costs.

         (e) Upon any such transfer in compliance with this Section 7.1, (i)
such Transferee shall (x) be deemed the "Owner Participant" for all purposes,
and (y) enjoy the rights and privileges and perform the obligations of the Owner
Participant hereunder and under each of the OP Assignment and Assumption
Agreement, the Calpine Guaranties and each other Operative Document to which
such Owner Participant is a party, and each reference in this Agreement, the
Calpine Guaranties and each other Operative Document to the "Owner Participant"
shall thereafter be deemed to include such Transferee for all purposes and (ii)
the transferor Owner Participant and the OP Guarantor, if any, of such
transferor Owner Participant's obligations shall be released from all
obligations hereunder and under each other Operative Document to which such
transferor or OP Guarantor is a party or by which such transferor Owner
Participant or OP Guarantor is bound to the extent such obligations are
expressly assumed by a Transferee meeting the requirements of this Section 7.1;
provided, however, that in no event shall any such transfer waive or release the
transferor or its OP Guarantor from any liability accruing or existing in
respect of any period occurring on or prior to or occurring simultaneously with
such transfer.

         (f) The transfer restrictions set forth in Section 7.1 (other than the
requirement that the Owner Participant and the Transferee enter into an OP
Assignment and Assumption Agreement) shall also apply to any transfer of the
equity ownership interests of an Owner Participant which has as its sole (or
substantially equivalent to sole) business activity its participation in the
transactions contemplated by the Operative Documents. In the case of such a
transfer of equity ownership interests which satisfies such restrictions of this
Section 7.1, the Owner Participant's obligations under the Operative Documents
shall continue, but the Owner Participant shall, except in the case of a
transfer to a transferee described in clause (a)(iii)(A) above, procure a new OP
Parent Guaranty from a guarantor meeting the requirements of clause (a)(iii)(B)
above.


                                       42
<PAGE>   50

         Section 7.2. Owner Participant's Liens. The Owner Participant covenants
that it will not directly or indirectly create, incur, assume or suffer to exist
any Owner Participant's Lien and the Owner Participant shall promptly notify the
Facility Lessees and the Indenture Trustee of the imposition or existence of any
such Lien of which the Owner Participant has Actual Knowledge and shall
promptly, at its own expense, take such action as may be necessary to duly
discharge such Owner Participant's Lien.

         Section 7.3. Amendments or Revocation of LLC Agreement. Notwithstanding
anything to the contrary contained in the LLC Agreement, the Owner Participant
covenants that it will not (a) amend, supplement, or otherwise modify Section 10
of the LLC Agreement without the prior written consent of the Facility Lessees
so long as no Significant Lease Default or Lease Event of Default has occurred
and is continuing, and without the prior written consent of the Indenture
Trustee so long as the Lien of the Collateral Trust Indenture has not been
terminated or discharged, or (b) revoke, or otherwise waive compliance with or
terminate the LLC Agreement without the prior written consent of the Facility
Lessees so long as no Significant Lease Default or Lease Event of Default has
occurred and is continuing, and the Indenture Trustee so long as the Lien of the
Collateral Trust Indenture has not been terminated or discharged.

         Section 7.4. Bankruptcy Filings. The Owner Participant agrees that it
will not file a petition, or join in the filing of a petition, seeking
reorganization, arrangement, adjustment or composition of, or in respect of, the
Owner Lessor under the Bankruptcy Code, or any other applicable federal or state
law or the law of the District of Columbia.

         Section 7.5. Instructions. The Owner Participant agrees that it will
not instruct the Owner Lessor to take any action prohibited by this Agreement or
any other Operative Document.

         Section 7.6. Intentionally Omitted.

         Section 7.7. Intentionally Omitted.

         Section 7.8. Right of First Refusal. In the event the Owner Participant
desires to sell, lease, convey or otherwise transfer its Member Interest or
cause the Owner Lessor to sell all or substantially all of the Owner Lessor's
Interest at any time during the three (3) year period commencing on the
termination or expiration of the Facility Lease (except in the event that a
Lease Event of Default shall have existed at such time of termination or
expiration), any such sale or other transfer shall be subject to each Facility
Lessee's right of first refusal on the terms and conditions set forth in this
Section 7.8. The Owner Participant shall give the Facility Lessees prompt
written notice of all bona fide offers that have been received from any other
Person to purchase or acquire its interest of the Owner Lessor's Interest or the
Member Interest of the Owner Participant, and which offers it wishes to accept,
together with a full and complete statement of the price and all of the terms,
conditions and provisions contained in such offers. The Facility Lessees shall
thereafter have the right within a period of 45 days from and after the receipt
by them of such notice (the "Notice Period") to notify the Owner Participant of
its intent to exercise its right of first refusal; provided however, if both
Facility Lessees exercise their right of first refusal hereunder, then the
Facility Lessees shall collectively purchase or acquire 100% of the interest to
be conveyed in the Owner Lessor's Interest or the Member Interest of the Owner
Participant, as the case may be. If a Facility Lessee elects to exercise the
right provided in the


                                       43
<PAGE>   51

preceding sentence, it will within 60 days of such notice (the "Agreement
Period") execute a contract on the same terms and conditions as the offer giving
rise to such right. If neither of the Facility Lessees give such notice to the
Owner Participant within the 45 day period or execute such a contract within 60
days of such notice, the Owner Participant will be free to proceed under the
terms and conditions set forth in its notice to the Facility Lessees, unless the
failure to execute the contract within 60 days is attributable to acts or
omissions of the Owner Participant. In the event that such terms are revised in
any way that changes the agreement for sale, lease, conveyance or transfer such
that the terms of the sale are less favorable to the Owner Participant (it being
understood and agreed that any reduction in the price or a change in the terms
of payment thereof in a manner beneficial to the potential purchaser shall be
deemed to be less favorable to the Owner Participant), the Owner Participant
shall again comply with the notice and right of first refusal provisions of this
Section prior to entering into such revised agreement; provided that, for such
revised offer, the Notice Period shall be 10 Business Days from the date of such
new notice, and the Agreement Period shall not exceed 45 days from the date of
the Facility Lessees' notice accepting such new terms.


SECTION 8. COVENANTS OF THE INDENTURE TRUSTEE AND THE PASS THROUGH TRUSTEE

         Section 8.1. Indenture Trustee's Liens. Neither the Lease Indenture
Company, nor the Indenture Trustee will directly or indirectly create, incur,
assume or suffer to exist any Indenture Trustee's Lien attributable to it and
arising out of events or conditions not related to its rights in the Indenture
Estate or the administration thereof, and will promptly notify the Owner
Participant, the Owner Lessor and the Facility Lessees of the imposition of any
such Lien of which it has Actual Knowledge and shall promptly (and in any event
within 30 days of obtaining Actual Knowledge of such Lien), at its own expense,
take such action as may be necessary to duly discharge such Indenture Trustee's
Lien.

         Section 8.2. Pass Through Trustee's Covenant Not to Transfer Lessor
Notes.

         Section 8.2. The Pass Through Trustee agrees that it will not transfer
any Lessor Note (or any part thereof) to any entity (except to a successor Pass
Through Trustee appointed pursuant to the terms of the Pass through Trust
Agreement) until it receives from such entity a certification which makes a
representation and warranty as of the date of such transfer that no part of the
funds to be used by it for the purchase and holding of such Lessor Note (or any
part thereof) constitutes assets of any Plan or that such purchase and holding
will be covered by a prohibited transaction class exemption issued by the U.S.
Department of Labor.


SECTION 9. INDEMNIFICATION

         Section 9.1. General Indemnity.

         (a) Claims Indemnified. Subject to the exclusions stated in paragraph
(b) below, the Facility Lessees, jointly and severally, agree to indemnify,
protect, defend and hold harmless, and do hereby indemnify the Owner
Participant, the Owner Lessor, the Administrator (but only in connection with
the performance of its duties under the LLC Administration Agreements), the


                                       44
<PAGE>   52

Lease Indenture Company in its individual capacity, the Indenture Trustee, each
Certificateholder, the Pass Through Company in its individual capacity, the Pass
Through Trustee, and their respective Affiliates, successors, assigns, agents,
directors, officers and employees (each an "Indemnitee") against any and all
Claims (whether or not any of the transactions contemplated by the Operative
Documents are consummated) imposed on, incurred or suffered by or asserted
against any Indemnitee in any way relating to or resulting from or arising out
of or attributable to:

               (i) the construction, financing, refinancing, acquisition,
operation, rebuilding, warranty, ownership, possession, maintenance, repair,
lease, condition, alteration, modification, restoration, refurbishing, return,
purchase, sale or other disposition, insuring, sublease, or other use or non-use
of the Facilities, the Facility Sites, the Easements or any Component or any
portion of any thereof or any interest therein;

               (ii) the conduct of the business or affairs of any applicable
Facility Lessee or Calpine and any other business or affairs conducted at the
Facilities, the Easements or the Facility Sites;

               (iii) the manufacture, design, purchase, acceptance, rejection,
delivery or condition of, or improvement to, the Facilities, the Facility Sites,
the Easements or any Component, or any portion of any thereof or any interest
therein;

               (iv) the Facility Leases, the Facility Site Leases, the Facility
Site Subleases, or any other Operative Document, the execution or delivery
thereof or the performance, enforcement, attempted enforcement or amendment of
any terms thereof, or the transactions contemplated thereby or resulting
therefrom;

               (v) any Environmental Condition at, related to or caused by the
Facilities, the Easements or the Facility Sites or any Component, or any portion
thereof, including, for the avoidance of doubt, any such Environmental Condition
existing prior to the Closing Date;

               (vi) the offer, issuance, sale, acquisition or delivery of the
Lessor Notes, the Certificates, any Additional Lessor Notes, any Additional
Certificates or any refinancing thereof;

               (vii) the reasonable costs and expenses of the Transaction
Parties in connection with amendments or supplements to the Operative Documents
requested by an applicable Facility Lessee, or resulting from the actions of an
applicable Facility Lessee or in connection with any Lease Default or Lease
Event of Default;

               (viii) the imposition of any Lien other than with respect to a
particular Indemnitee (or a Related Party), an Owner Lessor's Lien, an Owner
Participant's Lien or Indenture Trustee's Lien attributable to such Indemnitee;

               (ix) any violation by, or liability relating to, any Facility
Lessee or any other Calpine Party of, or under, any Applicable Law, whether now
or hereafter in effect (including Environmental Laws), or any action of any
Governmental Entity or other Person taken with respect to the Facilities, the
Facility Sites, the Operative Documents or the interests of the Owner
Participant, the Owner Lessor, the Indenture Trustee or the Pass Through
Trustee, or under the


                                       45
<PAGE>   53

Operative Documents or the presence, use, storage, release, threatened release,
transportation, arrangement for transportation, treatment, arrangement for
treatment, manufacture, disposal or arrangement for disposal of any Hazardous
Substance in, at, under or from the Facilities, the Easements or the Facility
Sites, including, for the avoidance of doubt, any of the foregoing existing or
occurring prior to the Closing Date;

             (x) the non-performance or breach by any Person of any obligation
contained in this Agreement or any other Operative Document or the falsity or
inaccuracy of any representation, warranty or obligation of any Person contained
in this Agreement or any other Operative Document;

             (xi) the continuing fees (if any) and expenses of the Owner Lessor
and the Administrator pursuant to the LLC Administration Agreements (including
the reasonable compensation and expenses of their respective counsel) arising
out of the Owner Lessor's discharge of its duties under or in connection with
the Operative Documents (other than the Facility Leases and the Facility Site
Leases);

             (xii) the continuing fees (if any) and expenses of the Lease
Indenture Company, the Indenture Trustee, the Pass Through Company, the Pass
Through Trustee, (including the reasonable compensation and expenses of their
respective counsel, accountants and other professional persons) arising out of
the discharge of their respective duties as provided in the Operative Documents;
or

             (xiii) any Applicable Permits including any obligations imposed by
FERC in connection with the Facilities or the Facility Sites.

         (b) Claims Excluded. Any Claim, to the extent relating to or resulting
from or arising out of or attributable to any of the following, is excluded from
the Facility Lessees' obligations to indemnify, defend, protect and hold
harmless any Indemnitee under this Section 9.1:

             (i) (A) acts, omissions or events with respect to a particular
Facility first occurring after the later of (x) expiration or early termination
of a related Facility Lease and, where required by such Facility Lease,
surrender to the Owner Lessor or its successor of the relevant Facility Lessee's
interest in the related Facility in compliance with the provisions of such
Facility Lease and (y) if the Owner Lessor exercises its option set forth in
Article VI of the related Facility Site Lease, the performance by the applicable
Facility Lessee of all obligations required to be performed by it thereunder, or
(B), if the Closing Date does not occur, acts, omission or events occurring
after the date set forth in Section 2.2(e);

             (ii) with respect to a particular Indemnitee and Related Parties,
any offer, sale, assignment, transfer or other disposition (voluntary or
involuntary) by or on behalf of (A) in the case of the Owner Participant, the
Owner Participant of its Member Interest or with respect to any Related Party,
its direct or indirect interest in the Owner Participant, (B) in the case of the
Owner Lessor, and if such action is taken at the written direction of the Owner
Participant, the Owner Participant, and Related Parties, the Owner Lessor of all
or any of the Owner Lessor's Interest, (C) the Indenture Trustee of all or any
of its interest in the Lessor Notes, unless, in any such case referred to in
this paragraph (ii), such transfer is required by the terms of the Operative


                                       46
<PAGE>   54

Documents or occurs during the continuance of a Lease Event of Default;
(provided that this paragraph (ii) shall not serve to cap the indemnity to be
received by a transferee Indemnitee for a Claim (other than a Claim relating
solely to or arising solely out of any offer, transfer, sale, assignment or
other disposition of any such rights or interests) based on what the relevant
transferor Indemnitee would have received had no such transfer occurred);

             (iii) with respect to any Indemnitee, any Claim attributable to (i)
the gross negligence or willful misconduct of such Indemnitee or a Related Party
except to the extent such gross negligence or willful misconduct is attributable
to any breach by the Facility Lessees (or any of them) or any other Calpine
Party of any covenant, representation or warranty contained in any Operative
Document or (ii) any violation of Applicable Law by any such Person except to
the extent attributable to a violation of Applicable Law by the Facility Lessees
(or either of them) or any other Calpine Party or to any breach by the Facility
Lessees (or any of them) or such other Calpine Party of any covenant,
representation or warranty contained in any Operative Document;

             (iv) as to any Indemnitee, any Claim to the extent attributable to
the noncompliance of such Indemnitee or a Related Party, with any of the terms
of, or any misrepresentation or breach of warranty by such Indemnitee or Related
Party contained in any Operative Document made by such Indemnitee or Related
Party or any breach by such Indemnitee or a Related Party of any covenant
contained in any Operative Document or any breach by such Indemnitee or a
Related Party of any covenant contained in any Operative Document made by such
Indemnitee or Related Party except to the extent attributable to any breach by a
Facility Lessee or any other Calpine Party of any covenant, representation or
warranty contained in any Operative Document;

             (v) any Claim constituting or arising from an Owner Lessor's Lien;

             (vi) with respect to the Indenture Trustee and the Lease Indenture
Company, any Claim constituting or arising from a Indenture Trustee's Lien;

             (vii) with respect to the Owner Participant, any claim constituting
or arising from an Owner Participant's Lien;

             (viii) any Claim that is a Tax, or is a cost of contesting a Tax
whether or not the relevant Facility Lessee is required to indemnify therefor
pursuant to Section 9.2 hereof or under the Tax Indemnity Agreement;

             (ix) any failure on the part of the Administrator to distribute in
accordance with the LLC Agreement or the LLC Administration Agreements any
amounts received by it under the Operative Documents and distributable by it
thereunder;

             (x) a Claim arising out of a Indenture Default or Lease Indenture
Event of Default that is not also (or attributable to) a Lease Default or Lease
Event of Default;

             (xi) with respect to a particular Indemnitee and Related Party, any
obligation or liability expressly assumed in any Operative Document by the
Indemnitee seeking indemnification;


                                       47
<PAGE>   55

             (xii) any Claim that constitutes scheduled principal and/or
interest on the Lessor Notes, Additional Lessor Notes, or the corresponding
payments under the Certificates or any Additional Certificates; and

             (xiii) any Claim relating to the payment of any amount which
constitutes Transaction Costs which the Owner Participant is obligated to pay
pursuant to Section 2.3(a) hereof or any other amount to the extent such
Indemnitee or a Related Party has expressly agreed in any Operative Document to
pay such amount without express right of reimbursement;

provided that the terms "omission," "gross negligence" and "willful misconduct,"
when applied with respect to the Owner Lessor, the Owner Participant, the
Indenture Trustee, the Pass Through Trustee or any Affiliate of any thereof,
shall not include any liability imputed as a matter of law to such Indemnitee
solely by reason of any such entity's interest in the Facilities or the Facility
Sites or such Indemnitee's failure to act in respect of matters which are or
were the obligation of the Facility Lessees under this Agreement or any other
Operative Document. Nothing herein shall be deemed to constitute a guaranty of
any useful life or any present or future residual value of the Facilities or a
guaranty that any amount of any Secured Indebtedness will be paid.

         (c) Insured Claims. Subject to the provisions of paragraph (e) of this
Section 9.1, in the case of any Claim indemnified by the Facility Lessees
hereunder which is covered by a policy of insurance maintained by the Facility
Lessees, each Indemnitee agrees, unless it and each other Indemnitee shall waive
its rights to indemnification (for itself and each Related Party thereto) in a
manner reasonably acceptable to the Facility Lessees, to cooperate, at the sole
cost and expense of the Facility Lessees, with insurers in exercise of their
rights to investigate, defend or compromise such Claim.

         (d) After-Tax Basis. The Facility Lessees agree that any payment or
indemnity pursuant to this Section 9.1 in respect of any Claim shall be made on
an After-Tax Basis to the Indemnitees.

         (e) Claims Procedure. Each Indemnitee shall promptly after such
Indemnitee shall have Actual Knowledge thereof notify the Facility Lessees of
any Claim as to which indemnification is sought; provided, that the failure so
to notify the Facility Lessees shall not reduce or affect the Facility Lessees'
liability which it may have to such Indemnitee under this Section 9.1, and no
payment hereunder by the Facility Lessees to an Indemnitee shall be deemed to
constitute a waiver or release of any right or remedy that the Facility Lessee
may have against any such Indemnitee for actual damages resulting directly from
the failure or delay of such Indemnitee to give the Facility Lessees such
notice. Subject to the foregoing, any amount payable to any Indemnitee pursuant
to this Section 9.1 shall be paid within thirty (30) days after receipt of such
written demand therefor from such Indemnitee, accompanied by a certificate of
such Indemnitee stating in reasonable detail the basis for the indemnification
thereby sought and (if such Indemnitee is not a party hereto) an agreement to be
bound by the terms hereof as if such Indemnitee were such a party. The foregoing
shall not, however, constitute an obligation to disclose confidential
information of any kind without the execution of an appropriate confidentiality
agreement. Promptly after the Facility Lessees receive notification of such
Claim accompanied by a written statement describing in reasonable detail the
Claims which are the


                                       48
<PAGE>   56

subject of and basis for such indemnity and the computation of the amount so
payable, the Facility Lessees shall, without affecting its obligations
hereunder, notify such Indemnitee whether it intends to pay, object to,
compromise or defend any matter involving the asserted liability of such
Indemnitee. The Facility Lessees shall have the right to investigate and so long
as no Significant Lease Default or Lease Event of Default shall have occurred
and be continuing, the Facility Lessees shall have the right in its sole
discretion, to defend or compromise any Claim for which indemnification is
sought under this Section 9.1 which the Facility Lessees acknowledge is subject
to indemnification hereunder; provided that no such defense or compromise shall
involve any danger of (i) foreclosure, sale, forfeiture or loss of, or
imposition of a Lien on any part of the Facilities, the Facility Sites, the
Lessor Estate or the Indenture Estate or the impairment of the Facilities in any
material respect or (ii) any criminal liability being incurred or any material
adverse effect on such Indemnitee; provided, further, that no Claim shall be
compromised by the Facility Lessees on a basis that admits any criminal
violation or gross negligence or willful misconduct on the part of such
Indemnitee without the express written consent of such Indemnitee; and provided,
further, that to the extent that other Claims unrelated to the transactions
contemplated by the Operative Documents are part of the same proceeding
involving such Claim, the Facility Lessees may assume responsibility for the
contest or compromise of such Claim only if the same may be and is severed from
such other Claims (and each Indemnitee agrees to use reasonable efforts to
obtain such a severance). In the event that in the course of the investigation
or defense of a claim, the Facility Lessees shall in good faith reasonably
determine that it is not liable for indemnification with respect thereto under
this Section 9.1, it may give notice to the applicable Indemnitee of such fact;
and, in such case, any acknowledgment, theretofore made by the Facility Lessees
of liability with respect to such claim under this Section 9.1 shall be deemed
revoked, and the Facility Lessees may thereupon cease to defend such claim;
provided that (i) the Facility Lessees shall have given the Indemnitee
reasonable prior notice of its intention to renounce such acknowledgment, (ii)
the Facility Lessees' conduct regarding the defense of such claim or any
decision to withdraw from such defense shall not prejudice or have prejudiced
the Indemnitee's ability to contest such claim (taking into account, among other
things, the timing of the Facility Lessees' withdrawal and the theory or
theories upon which the Facility Lessees shall have based its defense), and
(iii) the Facility Lessees shall have given such Indemnitee all materials,
documents and records relating to its defense of such claim as such Indemnitee
shall have reasonably requested in connection with the assumption by such
Indemnitee of the defense of such claim at the cost and expense of such Facility
Lessee. In the event that the Facility Lessees shall cease to defend any claim
pursuant to the preceding sentence, the Facility Lessees shall indemnify each
Indemnitee, without regard to any exclusion that might otherwise apply
hereunder, to the extent that the actions of the Facility Lessees in defending
such claim or the manner or time of the Facility Lessees' election to withdraw
from the defense of such claim shall have caused such Indemnitee to incur any
loss, cost, liability or expense which such Indemnitee would not have incurred
had the Facility Lessees not ceased to defend such claim in such manner or such
time. If the Facility Lessees elect, subject to the foregoing, to compromise or
defend any such asserted liability, it may do so at its own expense and by
counsel selected by it. Upon the Facility Lessees' election to compromise or
defend such asserted liability and prompt notification to such Indemnitee of its
intent to do so, such Indemnitee shall cooperate at the Facility Lessees'
expense with all reasonable requests of the Facility Lessees in connection
therewith and will provide the Facility Lessee with all information not within
the control of the Facility Lessees as is reasonably


                                       49
<PAGE>   57

available to such Indemnitee which the Facility Lessees may reasonably request;
provided, however, that such Indemnitee shall not, unless otherwise required by
Applicable Law, be obligated to disclose to the Facility Lessees or any other
Person, or permit the Facility Lessees or any other Person to examine (i) any
income tax returns of the Owner Participant or (ii) any confidential information
or pricing information not generally accessible by the public possessed by the
Owner Participant (and, in the event that any such information is made
available, the Facility Lessees shall treat such information as confidential and
shall take all actions reasonably requested by such Indemnitee for purposes of
obtaining a stipulation from all parties to the related proceeding providing for
the confidential treatment of such information from all such parties). Where the
Facility Lessees, or the insurers under a policy of insurance maintained by the
Facility Lessees, undertake the defense of such Indemnitee with respect to a
Claim (with counsel reasonably satisfactory to such Indemnitee and without
reservation of rights against such Indemnitee), no additional legal fees or
expenses of such Indemnitee in connection with the defense of such Claim shall
be indemnified hereunder unless such fees or expenses were incurred at the
request of the Facility Lessees or such insurers. Notwithstanding the foregoing,
an Indemnitee may participate at its own expense in any judicial proceeding
controlled by the Facility Lessees pursuant to the preceding provisions, but
only to the extent that such party's participation does not in the reasonable
opinion of counsel to the Facility Lessees interfere with such control or
defense of such claim; provided, however, that such party's participation does
not constitute a waiver of the indemnification provided in this Section 9.1;
provided, further, that if and to the extent that (i) such Indemnitee is advised
by counsel that an actual or potential conflict of interest exists where it is
advisable for such Indemnitee to be represented by separate counsel or (ii)
there is a risk that such Indemnitee may be subject to criminal liability and
such Indemnitee informs the Facility Lessees that such Indemnitee desires to be
represented by separate counsel, such Indemnitee shall have the right to control
its own defense of such Claim and the reasonable fees and expenses of such
defense (including, without limitation, the reasonable fees and expenses of such
separate counsel) shall be borne by the Facility Lessees. So long as no Lease
Event of Default described in clause (a), (b), (g) or (h) of Section 16 of a
Facility Lease shall have occurred and be continuing, no Indemnitee shall enter
into any settlement or other compromise with respect to any Claim without the
prior written consent of the Facility Lessees unless (i) the Indemnitee waives
its rights to indemnification hereunder or (ii) the Facility Lessees have not
acknowledged their indemnity obligation with respect thereto and there is a
significant risk that a default judgment will be entered against such
Indemnitee. Nothing contained in this Section 9.1(e) shall be deemed to require
an Indemnitee to contest any Claim or to assume responsibility for or control of
any judicial proceeding with respect thereto.

        (f) Subrogation. To the extent that a Claim indemnified by the Facility
Lessees under this Section 9.1 is in fact paid in full by the Facility Lessees
or an insurer under an insurance policy maintained by the Facility Lessees, the
Facility Lessees (so long as no Lease Event of Default shall have occurred and
be continuing) or such insurer shall be subrogated to the rights and remedies of
the Indemnitee on whose behalf such Claim was paid to the extent of such payment
(other than rights of such Indemnitee under insurance policies maintained at its
own expense) with respect to the transaction or event giving rise to such Claim.
Should an Indemnitee receive any refund, in whole or in part, with respect to
any Claim paid by the Facility Lessees hereunder, it shall promptly pay over to
the Facility Lessees the lesser of (i) the amount refunded reduced by the amount
of any Tax incurred by reason of the receipt or accrual of such refund and
increased by the amount of any Tax (but not in excess of the amount of such


                                       50
<PAGE>   58

reduction) saved as a result of such payment or (ii) the amount the Facility
Lessees or any of their insurers has paid in respect of such Claim; provided
that, so long as a Significant Lease Default or Lease Event of Default shall
have occurred and is continuing such amount may be held by the Owner Lessor as
security for the Facility Lessees' obligations under the Facility Leases and the
other Operative Documents.

        (g) Minimize Claims. The Owner Participant, the Owner Lessor, and each
of the other Transaction Parties will use their respective reasonable and
diligent efforts to minimize Claims indemnifiable by the Facility Lessees under
this Section 9.1, including by complying with reasonable requests by the
Facility Lessees to do or to refrain from doing any act if such compliance is,
in the good faith opinion of the Owner Participant, the Owner Lessor, or such
other Transaction Party, as the case may be, of a purely ministerial nature or
otherwise has no unindemnified adverse impact on the Owner Participant, the
Owner Lessor, or such Transaction Party, as the case may be, or any Affiliate of
any thereof or on the business or operations of any of the foregoing.

        Section 9.2. General Tax Indemnity.

        (a) Indemnity. Except as provided in paragraph (b), the Facility Lessees
jointly and severally agree to indemnify each of the Owner Participant, the
Owner Lessor, the Lease Indenture Company in its individual capacity, the
Indenture Trustee, the Pass Through Company in its individual capacity, the Pass
Through Trustee, each Certificateholder and their respective successors and
assigns, the past and present partners or members of or holders of the ownership
interests in, as the case may be, the Owner Participant (each of the foregoing,
together with any Affiliate thereof, a "Tax Indemnitee") for, to hold each Tax
Indemnitee harmless from and to defend each Tax Indemnitee against all Taxes
that are imposed upon or with respect to or borne by or asserted against any Tax
Indemnitee, the Facilities, the Easements, the Facility Sites, or any portion or
Component thereof or any interest therein, or upon any Operative Document or
interest therein, or in any way arising out of, in connection with or relating
to, any of the following:

            (i) the construction, financing, refinancing, acquisition,
operation, warranty, ownership, possession, maintenance, repair, lease,
condition, alteration, modification, restoration, refurbishing, rebuilding,
return, transport, assembly, repossession, servicing, dismantling, abandonment,
retirement, decommissioning, preparation, installation, storage, replacement,
purchase, sale or other disposition, insuring, sublease, or other use or non-use
of, the imposition of any lien (or incurrence of any liability to refund or pay
over any amount as a result of any lien) on, the Facilities, the Facility Sites,
the Easements or any portion or Component thereof or any interest therein;

            (ii) the Facilities, the Facility Sites, the Easements, any portion
thereof or Component or interest therein, the applicability of the Facility
Leases to the Facilities, or the conduct of the business or affairs of the
Facility Lessees or Calpine, the Facilities or the Facility Sites;


                                       51
<PAGE>   59

            (iii) the manufacture, design, purchase, acceptance, rejection,
delivery, non-delivery, redelivery or condition of, or improvement to, the
Facilities, the Easements, the Facility Sites or any portion or Component
thereof, or any interest therein;

            (iv) the Facility Leases, or any other Operative Document, the
execution or delivery thereof, any other documents contemplated thereby or the
performance, enforcement or amendment of any terms thereof;

            (v) the payment or receipt of Periodic Rent, Basic Rent and
Supplemental Rent or any other payment, receipt or earning under the Facility
Leases or the Facility Site Subleases or arising from the Facilities, the
Facility Sites, the Easements, or any portion or Component thereof or any
interest therein;

            (vi) any other amount paid or payable pursuant to the Operative
Documents;

            (vii) the conveyance of title to the Facilities; or

            (viii) otherwise relating to the transactions contemplated by the
Operative Documents.

        Notwithstanding anything herein to the contrary and without regard to
paragraph (b) hereof, the Facility Lessees will indemnify the Owner Participant
and the Owner Lessor on an After-Tax Basis for any Taxes collected by way of
withholding (and any interest, penalties or additions to tax associated
therewith) (or for the failure to withhold taxes) imposed on the Lessor Notes or
the Additional Lessor Notes or any other payments to each Certificateholder or
the Indenture Trustee (each a "Certificateholder Indemnitee"), including any
penalties, interest, or additions to tax applicable in connection therewith;
provided, however, that if the Facility Lessees are required, for any reason, to
indemnify the Owner Participant or the Owner Lessor with respect to any failure
to withhold such tax, and the withholding tax would otherwise be an Excluded Tax
under Section 9.2(b) without regard to the first sentence of this paragraph,
then the Certificateholder Indemnitee with respect to which such withholding was
not made will pay the amount of tax not withheld to the relevant taxing
authority if such taxes remain unpaid or will reimburse the Facility Lessees for
the amount of tax not withheld, but paid to such taxing authority, on demand,
plus interest at (a) the Lease Debt Rate during the period commencing on the
date the Facility Lessees shall have made the indemnity payment to such taxing
authority and ending the earlier of the date of repayment by such Tax Indemnitee
and five Business Days after the date the Facility Lessees demand reimbursement
thereof pursuant to this sentence, and (b) the Overdue Rate for the period
thereafter to the date the Facility Lessees actually receive such payment.

        (b) Excluded Taxes. The indemnity provided for in paragraph (a) above
shall not extend to any of the following Taxes (the "Excluded Taxes"):

            (i) Taxes imposed by the United States federal government or any
state or local government, any political subdivision of any of the foregoing,
imposed on, based on or measured by gross or net income, receipts, capital gain,
capital or net worth, or conduct of business (other than, in each case, Taxes
that are in the nature of sales, use, rental, license, value added (to the
extent value added taxes are not imposed in clear and direct substitution for
income


                                       52
<PAGE>   60

taxes), property or similar taxes ("Income Taxes")), including any such Taxes
collected by way of withholding, minimum or alternative minimum taxes, and
franchise taxes; provided that this exclusion (i) shall not affect any express
requirement that payments be made on an "after-tax" basis nor shall it apply to
Taxes that would have been imposed on a Certificateholder Indemnitee had the
transactions contemplated by the Operative Documents been the sole connection
between the jurisdiction imposing such Taxes and the Certificateholder
Indemnitee with respect to which such Taxes were imposed;

            (ii) Taxes imposed on a Tax Indemnitee other than a
Certificateholder Indemnitee that are attributable to any act, event or omission
by such Tax Indemnitee that occurs after expiration or other termination of the
Facility Leases and surrender of the Facilities to the Owner Lessor or its
successors (or in the case of a Certificateholder Indemnitee, Taxes imposed for
any period after the repayment of the Lease Debt) in accordance with the
Facility Leases, (in contrast to an act, event or omission occurring prior to or
simultaneous with such expiration, termination or surrender (or, in the case of
a Certificateholder Indemnitee, such repayment)), provided that this exclusion
shall not apply so long as a Lease Event of Default shall have occurred and be
continuing;

            (iii) Taxes imposed on a Tax Indemnitee that are attributable to the
gross negligence or willful misconduct of such Tax Indemnitee, unless such
negligence or misconduct is imputed to such Tax Indemnitee solely as a result of
its participation in the transactions contemplated by the Operative Documents
and not as a result of any action or inaction by such Tax Indemnitee;

            (iv) Taxes imposed on a Tax Indemnitee arising from a breach by such
Tax Indemnitee of any of its representations, warranties or covenants under any
Operative Document except to the extent attributable to any breach by the
Facility Lessees or any other Calpine Party of any covenant, representation or
warranty contained in any Operative Document;

            (v) Taxes (A)(x) arising out of, or caused by any voluntary direct
or indirect assignment, sale, transfer or other voluntary disposition or (y) an
involuntary direct or indirect transfer or disposition resulting from a
bankruptcy or similar proceeding for relief of debtors in which such Tax
Indemnitee is a debtor or a foreclosure by a creditor of such Tax Indemnitee, in
the case of either (x) or (y),(1) by the Owner Participant of all or part of its
Member Interest, (2) by the Owner Lessor of all or part of its interest in the
Facilities or the Facility Sites, or (3) by the Indenture Trustee of any
interest in the Lease Debt or the Indenture Estate, or (4) in the case of the
Owner Lessor or the Owner Participant of any direct or indirect interest in the
Owner Lessor or the Owner Participant, in each case to the extent imposed
directly by reason of any transfer described in this clause (v)(A), or (B)
imposed after any such transfer to the extent that, under law in effect on the
date of the transfer such Taxes exceed the amount of Taxes that would be
indemnified hereunder had there been no such assignment, sale, transfer or other
voluntary disposition, unless such transfer or disposition occurs during the
continuance of a Lease Event of Default or is otherwise pursuant to the Facility
Lessees' exercise of their rights under the Operative Documents;


                                       53
<PAGE>   61

            (vi) Taxes imposed on a Tax Indemnitee that would not have been
imposed but for the creation or existence of any Owner Lessor's Lien or Owner
Participant's Lien attributable to such Tax Indemnitee;

            (vii) Taxes that are included as a part of the cost of the
Facilities;

            (viii) Intentionally Omitted.

            (ix) With respect to the Owner Participant, Taxes for which the
Facility Lessees are obligated to indemnify the Owner Participant under the Tax
Indemnity Agreement (or which are expressly excluded from indemnification
thereunder);

            (x) Taxes that are imposed on a Tax Indemnitee (other than a
Certificateholder Indemnitee) resulting from the Owner Lessor not being treated
as a grantor trust or other conduit entity for federal, state or local income
tax purposes, but only to the extent such Taxes exceed Taxes indemnified
hereunder that otherwise would have been imposed and are otherwise
indemnifiable;

            (xi) Taxes imposed on a Tax Indemnitee that are attributable to the
failure of such Tax Indemnitee to comply with certification, information,
documentation, reporting or other similar requirements concerning the
nationality, residence, identity or connection with the jurisdiction imposing
such Taxes; provided that the foregoing exclusion shall only apply if such
compliance is required by statute or regulation of the jurisdiction imposing
such Taxes as a precondition to relief or exemption from or reduction in such
Taxes, such Tax Indemnitee is eligible to comply with such requirement, the
Facility Lessees shall have given such Tax Indemnitee timely written notice of
such requirement and the Tax Indemnitee shall have determined in good faith that
compliance with any such requirement shall not result in any identified
non-immaterial adverse effect to its interests or to those of its Affiliates;

            (xii) Taxes consisting of interest, penalties, additions to tax or
fines resulting from a failure of such Tax Indemnitee to properly and timely
file returns as required by a taxing authority unless such failure is
attributable to the Facility Lessees not providing information that it is
expressly required to provide under the Operative Documents;

            (xiii) Taxes imposed on any Tax Indemnitee resulting from an
amendment, modification, supplement to or waiver of any provision of, any
Operative Document which amendment, modification, supplement or waiver was not
requested by or consented to by the Facility Lessees, and as to which the
Facility Lessees are not a party and the Tax Indemnitee (or, in the case of the
Owner Participant, the Owner Lessor if acting at the express direction of the
Owner Participant or any Related Party) is a party, unless such amendment,
modification, supplement or waiver (A) was required by applicable law or the
Operative Documents, (B) may be necessary or appropriate to, and is in
conformity with, any amendment to any Operative Document requested by the
Facility Lessee in writing, or (C) was consented to by a Calpine Party;

            (xiv) Taxes imposed as a result of, or in connection with, any
"prohibited transaction," within the meaning of Section 4975 of the Code,
Section 406 of ERISA or any comparable laws of any Governmental Entity, engaged
in by any Tax Indemnitee (which for this


                                       54
<PAGE>   62

purpose shall include any ERISA Affiliate thereof) resulting from the breach by
such Tax Indemnitee of any of its representations or warranties contained in
Section 3.4(g) or Section 8.2 of the Participation Agreement;

            (xv) Taxes to the extent such Taxes would not have been imposed on a
Tax Indemnitee if such Tax Indemnitee or any related Tax Indemnitee were a
United States Person; and

            (xvi) Taxes imposed that would not have been imposed on a Tax
Indemnitee but for the activities in the taxing jurisdiction of such Tax
Indemnitee or any Affiliate thereof unrelated to the transactions contemplated
by the Operative Documents.

        (c) Payment. Notwithstanding anything to the contrary herein and without
regard to paragraph (b) hereof, any payment by the Facility Lessees pursuant to
this Section 9.2 shall be increased by amounts necessary to ensure that all such
payments are made on an After-Tax Basis. Each payment required to be made by the
Facility Lessees to a Tax Indemnitee pursuant to this Section 9.2 shall be paid
either (i) when due directly to the applicable taxing authority by the Facility
Lessees if they are permitted to do so, or (ii) where direct payment is not
permitted, and with respect to gross up amounts, in immediately available funds
to such Tax Indemnitee by the later of (A) 10 days following the Facility
Lessees' receipt of the Tax Indemnitee's written demand for the payment pursuant
to clause (g)(i) below (which demand shall be accompanied by a written statement
of the Tax Indemnitee describing in reasonable detail the Taxes for which the
Tax Indemnitee is demanding payment and the computation of such Taxes), (B)
subject to paragraph (g) below, in the case of amounts which are being contested
pursuant to such paragraph (g), at the time and in accordance with a final
determination of such contest or (C) in the case of any indemnity demand for
which the Facility Lessees have requested review and determination pursuant to
paragraph (d) below, the completion of such review and determination; provided,
however, in no event later than the date which is one Business Day prior to the
date on which such Taxes are required to be paid to the applicable taxing
authority. Any amount payable to the Facility Lessees pursuant to paragraph (e)
or (f) below shall be paid promptly after the Tax Indemnitee realizes a Tax
Benefit giving rise to a payment under paragraph (e) or receives a refund or
credit giving rise to a payment under paragraph (f), as the case may be, and
shall be accompanied by a statement of the Tax Indemnitee computing in
reasonable detail the amount of such payment. Upon the final determination of
any contest pursuant to paragraph (g) below in respect of any Taxes for which
the Facility Lessees have made a Tax Advance, the amount of the Facility
Lessees' obligation under paragraph (a) above shall be determined as if such Tax
Advance had not been made. Any obligation of the Facility Lessees under this
Section 9.2 and the Tax Indemnitee's obligation to repay the Tax Advance will be
satisfied first by set off against each other, and any difference owing by
either party will be paid within 10 days of such final determination.

        (d) Independent Examination. Within 10 days after the Facility Lessees
receives any computation from the Tax Indemnitee, the Facility Lessees may
request in writing that an independent public accounting firm selected by the
Tax Indemnitee and reasonably acceptable to the Facility Lessees review and
determine on a confidential basis the amount of any indemnity payment by the
Facility Lessees to the Tax Indemnitee pursuant to this Section 9.2 or any
payment by a Tax Indemnitee to the Facility Lessees pursuant to paragraph (e) or
(f) below. The


                                       55
<PAGE>   63

Tax Indemnitee shall cooperate with such accounting firm and supply it with all
information reasonably necessary for the accounting firm to conduct such review
and determination (but not tax returns and books); provided that such accounting
firm shall agree in writing in a manner reasonably satisfactory to the Tax
Indemnitee to maintain the confidentiality of such information. The parties
hereto agree that the independent public accounting firm's sole responsibility
shall be to verify the computation of any payment pursuant to this Section 9.2
and that matters of interpretation of this Participation Agreement or any other
Operative Document are not within the scope of the independent accountant's
responsibility. The fees and disbursements of such accounting firm will be paid
by the Facility Lessees; provided that such fees and disbursements will be paid
by the Tax Indemnitee if the verification results in an adjustment in the
Facility Lessees' favor of 5 percent or more of the indemnity payment or
payments computed by the Tax Indemnitee.

        (e) Tax Benefit. If, as the result of any Taxes paid or indemnified
against by the Facility Lessees under this Section 9.2, the aggregate Taxes
actually paid by the Tax Indemnitee for any taxable year and not subject to
indemnification pursuant to this Section 9.2 are less (whether by reason of a
deduction, credit, allocation or apportionment of income or otherwise) than the
amount of such Taxes that otherwise would have been payable by such Tax
Indemnitee (a "Tax Benefit"), then to the extent such Tax Benefit was not taken
into account in determining the amount of indemnification payable by the
Facility Lessees under paragraph (a) or (c) above and provided no Significant
Lease Default or Lease Event of Default shall have occurred and be continuing
(in which event the payment provided under this Section 9.2(e) shall be deferred
until the Significant Lease Default or Lease Event of Default has been cured),
such Tax Indemnitee shall pay to the Facility Lessees the lesser of (A) (y) the
amount of such Tax Benefit, plus (z) an amount equal to any United States
federal, state or local income tax benefit resulting to the Tax Indemnitee from
the payment under clause (y) above and this clause (z) (determined using the
same assumptions as set forth in the second sentence under the definition of
After-Tax Basis) and (B) the amount of the indemnity paid pursuant to this
Section 9.2 giving rise to such Tax Benefit; provided, however, that any excess
of (A) over (B) shall be carried forward and reduce the Facility Lessees'
obligations to make subsequent payments to such Tax Indemnitee pursuant to this
Section 9.2. If it is subsequently determined that the Tax Indemnitee was not
entitled to such Tax Benefit, the portion of such Tax Benefit that is required
to be repaid or recaptured will be treated as Taxes for which the Facility
Lessees must indemnify the Tax Indemnitee pursuant to this Section 9.2 without
regard to paragraph (b) hereof.

        Notwithstanding anything to the contrary herein, each Certificateholder
Indemnitee shall determine the allocation of any tax benefits, savings, credit,
deduction or allocation in its sole good faith discretion and each position to
be taken on its tax return shall be in its sole control and it shall not be
required to disclose any tax return or related documentation to any Person.

        (f) Refund. If a Tax Indemnitee obtains a refund or credit of all or
part of any Taxes paid, reimbursed or advanced by the Facility Lessees pursuant
to this Section 9.2, the Tax Indemnitee promptly shall pay to the Facility
Lessees (x) the amount of such refund or credit (net of any Tax payable by the
Tax Indemnitee as a result of the receipt or accrual of such refund or credit)
plus (y) an amount equal to any United States federal, state or local income tax
benefit realized by such Tax Indemnitee by reason of such payment to the
Facility Lessees (determined using the same assumptions as set forth in the
second sentence under the definition of After-Tax


                                       56
<PAGE>   64

Basis); provided that (A) if at the time such payment is due to the Facility
Lessees a Significant Lease Default or Lease Event of Default shall have
occurred and be continuing, such amount shall not be payable until such
Significant Lease Default or Lease Event of Default has been cured, and (B) the
amount payable to the Facility Lessees pursuant to this sentence shall not
exceed the amount of the indemnity payment in respect of such refunded or
credited Taxes that was made by the Facility Lessees. Any excess of (x) and (y)
over (B) in this Section 9.2(f) shall be carried forward and reduce the Facility
Lessees' obligations to make subsequent payments to such Tax Indemnitee pursuant
to this Section 9.2. If it is subsequently determined that the Tax Indemnitee
was not entitled to such refund or credit, the portion of such refund or credit
that is required to be repaid or recaptured will be treated as Taxes for which
the Facility Lessees must indemnify the Tax Indemnitee pursuant to this Section
9.2 without regard to paragraph (b) hereof. If, in connection with a refund or
credit of all or part of any Taxes paid, reimbursed or advanced by the Facility
Lessees pursuant to this Section 9.2, a Tax Indemnitee receives an amount
representing interest on such refund or credit, the Tax Indemnitee promptly
shall pay to the Facility Lessees (1) the amount of such interest that shall be
fairly attributable to such Taxes paid, reimbursed or advanced by the Facility
Lessees prior to the receipt of such refund or credit (net of Taxes payable in
respect of the receipt or accrual of such interest) and (2) any Tax savings
resulting from payments made by the Tax Indemnitee under (1) and (2).

        (g) Contest.

            (i) Notice of Contest. If a written claim for payment is made by any
taxing authority against a Tax Indemnitee for any Taxes with respect to which
the Facility Lessees may be liable for indemnity hereunder (a "Tax Claim"), such
Tax Indemnitee shall give the Facility Lessees written notice of such Tax Claim
promptly after its receipt, and shall furnish the Facility Lessees with copies
of such Tax Claim and all other writings received from the taxing authority to
the extent relating to such claim; provided that failure to so notify the
Facility Lessees shall not relieve the Facility Lessees of any obligation to
indemnify the Tax Indemnitee hereunder except to the extent that such failure
effectively precludes the ability to conduct a contest hereunder (and without
limiting any damage claim or remedy the Facility Lessees may otherwise have for
such failure).

            (ii) Control of Contest. Subject to subsection (g)(iii) below, the
Facility Lessee will be entitled to contest (acting through counsel selected by
the Facility Lessees and reasonably satisfactory to the Tax Indemnitee), and
control the contest of, any Tax Claim if (A) such Tax Claim may be pursued in
the name of the Facility Lessees and may be segregated procedurally from tax
claims for which the Facility Lessees are not obligated to indemnify the Tax
Indemnitee or (B) the Tax Indemnitee requests that the Facility Lessees control
such contest. In the case of all other Tax Claims, the Tax Indemnitee will
contest the Tax Claim if the Facility Lessees shall request that the Tax be
contested (subject to subsection (g)(iii) below), and the following rules shall
apply with respect to such contest:

                 (1) the Tax Indemnitee will control the contest of such Tax
Claim (acting through counsel selected by the Tax Indemnitee and reasonably
satisfactory to the Facility Lessees) at the Facility Lessees' expense,


                                       57
<PAGE>   65

                 (2) the decisions regarding what actions to be taken shall be
made by the Tax Indemnitee in its sole judgment, and

                 (3) the Tax Indemnitee shall not otherwise settle, compromise
or abandon such contest without the Facility Lessees' prior written consent
except as provided in paragraph (g)(iv) below.

        In either case, the party conducting such contest shall consult in good
faith with the other party and its designated counsel with respect to such Tax
Claim and shall provide the other party with copies of any reports or claims (or
extracts therefrom) issued by the relevant auditing agents or taxing authority
relating to such Tax Claim.

            (iii) Conditions of Contest. Notwithstanding the foregoing, no
contest with respect to a Tax Claim will be required or permitted pursuant to
this Section 9.2, and the Facility Lessees shall be required to pay the
applicable Taxes without contest, unless:

                 (1) within 30 days after written notice by the Tax Indemnitee
to the Facility Lessees of such Tax Claim (or such shorter period, to be
specified by the Tax Indemnitee in such notice, as required for taking action
with respect to such Tax Claim), the Facility Lessees shall request in writing
to the Tax Indemnitee that such Tax Claim be contested,

                 (2) no Significant Lease Default or Lease Event of Default has
occurred and is continuing, unless the Facility Lessees have provided security
for the indemnity payment and the expenses of contest in a manner reasonably
acceptable to the Tax Indemnitee, both as to coverage and credit,

                 (3) there is no risk of sale, forfeiture or loss of, or the
creation of any Lien on any Facilities, the Facility Sites, or any portion or
Component thereof or any interest therein as a result of such Tax Claim;
provided that this clause (3) shall not apply if the Facility Lessees post
security satisfactory to the Tax Indemnitee, both as to coverage and credit, in
its sole discretion,

                 (4) there is no risk of imposition of any criminal penalties or
liabilities,

                 (5) if such contest involves payment of such Tax, the Facility
Lessees will advance such amount necessary to pay the Tax to the Tax Indemnitee
or its Affiliates on an interest-free basis and with no after-tax cost to such
Tax Indemnitee (a "Tax Advance"),

                 (6) The Facility Lessees agree to pay (and pays on demand) and
with no after-tax cost to such Tax Indemnitee or its Affiliates all reasonable
costs, losses and expenses incurred by the Tax Indemnitee in connection with the
contest of such claim (including, without limitation, all reasonable legal,
accounting and investigatory fees and disbursements and penalties, interest and
additions to tax),

                 (7) the Tax Indemnitee has been provided at the Facility
Lessees' sole expense with an opinion, reasonably acceptable to such Tax
Indemnitee, of independent tax counsel selected by the Tax Indemnitee and
reasonably acceptable to the Facility Lessees to the effect that there is a
Reasonable Basis for contesting such Tax Claim,


                                       58
<PAGE>   66

                 (8) in the case of a judicial appeal, the appeal is not to the
U.S. Supreme Court,

                 (9) if such contest is controlled by the Facility Lessees,
prior to commencement of a judicial action with respect to the contest, the
Facility Lessees shall have admitted in writing its liability to pay an
indemnity pursuant to this Section 9.2 with respect to such Tax, which admission
shall be binding on the Facility Lessees unless and to the extent such contest
is determined in a manner that conclusively demonstrates that the Facility
Lessees are not so liable,

                 (10) if the amount of Taxes at issue is in excess of $20,000,
and

                 (11) if the subject matter of such claim shall be of a
continuing or recurring nature and shall have previously been decided pursuant
to this paragraph (g), there shall have been a change in law after such
previously decided claim and such Tax Indemnitee receives, at the Facility
Lessees' sole cost, an opinion of counsel selected by such Tax Indemnitee and
reasonably acceptable to the Facility Lessees to the effect that such change is
favorable to the position asserted in the previous contest.

            (iv) Waiver of Indemnification. Notwithstanding anything to the
contrary contained in this Section 9.2, the Tax Indemnitee at any time may elect
to decline to take any action or any further action with respect to (and the
Facility Lessees shall not be permitted to contest) a Tax Claim and may in its
sole discretion settle or compromise any contest with respect to such Tax Claim
without the Facility Lessees' consent if the Tax Indemnitee:

                 (1) waives its right to any indemnity payment by the Facility
Lessees pursuant to this Section 9.2 in respect of such Tax Claim (and any other
claim for Taxes with respect to any other taxable year the contest of which is
effectively precluded by the Tax Indemnitee's declination to take action with
respect to the Tax Claim), and

                 (2) promptly repays to the Facility Lessees any Tax Advance and
any amount paid to such Tax Indemnitee under Section 9.2(a) above in respect of
such Taxes, but not any costs or expenses with respect to any such contest.

        Except as provided in the preceding sentence, any such waiver shall be
without prejudice to the rights of the Tax Indemnitee with respect to any other
Tax Claim.

        (h)    Reports.

               (i) If any report, statement or return is required to be filed by
a Tax Indemnitee with respect to any Tax that is subject to indemnification
under this Section 9.2, the Facility Lessees will (1) notify the Tax Indemnitee
in writing of such requirement not later than 30 days prior to the date such
report, statement or return is required to be filed (determined without regard
to extensions) and (2) either (y) unless directed by the Tax Indemnitee
otherwise, if permitted by applicable law, prepare such report, statement or
return for filing by the Facility Lessees in such manner as will show the
ownership of the Facilities by the Owner Lessor for United States federal, state
and local income tax purposes (if applicable), send a copy of such report,
statement or return to the Tax Indemnitee and timely file such report, statement
or return


                                       59
<PAGE>   67

with the appropriate taxing authority, or (z) in all other cases, prepare and
furnish to such Tax Indemnitee not later than 30 days prior to the date such
report, statement or return is required to be filed (determined without regard
to extensions) a proposed form of such report, statement or return for filing by
the Tax Indemnitee; provided that the only consequence for failure to file after
compliance by the Facility Lessees with the requirements hereof shall be a loss
of indemnification from the Facility Lessees in respect of any Tax to the extent
resulting from such failure.

            (ii) Each of the Tax Indemnitee and the Facility Lessees, as the
case may be, will timely provide the other, at the Facility Lessees' expense,
with all information in its possession that the other party may reasonably
require and request to satisfy its tax filing obligations.

        (i) Non-Parties. If a Tax Indemnitee is not a party to this Agreement,
the Facility Lessees may require such Tax Indemnitee to agree in writing, in a
form reasonably acceptable to the Facility Lessees, to the terms of this Section
9.2 prior to making any payment to such Tax Indemnitee under this Section.
Subject to the preceding sentence, the Facility Lessees' obligations under this
Section 9.2 shall inure to the benefit of each and every Tax Indemnitee without
regard to whether such Tax Indemnitee is a party to this Agreement.


SECTION 10. FACILITY LESSEE'S RIGHT OF QUIET ENJOYMENT

        Each party to this Agreement acknowledges notice of, and consents in all
respects to, the terms of the Facility Leases and the Facility Site Subleases
and expressly, severally and as to its own actions only, agrees that, so long as
no Lease Event of Default has occurred and is continuing, it shall not take or
cause to be taken any action or direct that any action be taken, which is
contrary to or inconsistent with any Facility Lessee's rights under its Facility
Lease and Facility Site Sublease, including the right to possession, use and
quiet enjoyment of such Facility, Easements and Facility Site.


SECTION 11. SUPPLEMENTAL FINANCING IMPROVEMENTS; OPTIONAL REFINANCINGS

        Section 11.1. Financing Improvements. Upon the request of a Facility
Lessee delivered at least 90 days prior to financing a portion of the cost of
any Improvement, the Owner Lessor and the Indenture Trustee agree to cooperate
with such Facility Lessee to (a) issue Additional Lessor Notes under the
Collateral Trust Indenture to finance such Improvement which will rank pari
passu with the applicable Lessor Notes and/or any applicable Additional Lessor
Notes then outstanding; (b) execute and deliver one or more supplements to the
Collateral Trust Indenture for purpose of subjecting the Owner Lessor's interest
in any such Improvements to the Liens thereof, and (c) execute and deliver an
amendment to the applicable Facility Lease to reflect the adjustments required
by clause (iv) below; provided, however, that (x) the Owner Participant shall
have been given the opportunity, but shall have no obligation, to provide all or
part of the funds required to finance any such Improvement by making an
Additional Equity Investment in such amount, if any, as it may determine in its
sole and absolute discretion, but such Facility Lessee shall have no obligation
to accept such Additional Equity Investment; and (y) the


                                       60
<PAGE>   68

conditions set forth below and in Section 2.12 of the Collateral Trust Indenture
shall have been satisfied. The obligation to finance such Improvements through
the issuance of Additional Lessor Notes under Section 2.12 of the Collateral
Trust Indenture (any financing of Improvements through the issuance of such
Additional Lessor Notes under the Collateral Trust Indenture being called a
"Supplemental Financing") is subject to the following additional conditions:

            (i) there shall be no more than one such financing in any calendar
year;

            (ii) the applicable Additional Lessor Notes (A) shall have a final
maturity no later than the final maturity of the Lessor Notes issued on the
Closing Date and (B) will be fully repaid out of additional Basic Rent, as
adjusted pursuant to the applicable Facility Lease, during the Facility Lease
Term;

            (iii) the applicable Additional Lessor Notes shall have an average
life to maturity equal to the average life to maturity of the Lessor Notes
issued on the Closing Date;

            (iv) appropriate adjustments to Basic Rent and Termination Value
(determined without regard to any tax benefits associated with such
Improvements, unless the Owner Participant is making an Additional Equity
Investment) shall be made to protect the Owner Participant's Net Economic
Return;

            (v) the applicable Facility Lessee shall have paid, on an After-Tax
Basis, all reasonable costs and expenses of the Transaction Parties, including
the reasonable fees and expenses of counsel to the Owner Participant, the Owner
Lessor, the Indenture Trustee, the Lease Indenture Company, the Pass Through
Company and the Pass Through Trustee, in each case to the extent incurred in
connection with any financing or refinancing pursuant to this Section 11 whether
or not the financing is consummated;

            (vi) no Significant Lease Default or Lease Event of Default shall
have occurred and be continuing unless the Improvements to be constructed with
the proceeds of the applicable Additional Lessor Notes shall cure such
Significant Lease Default or Lease Event of Default and such Improvements shall
be made in compliance with the Operative Documents;

            (vii) such Additional Lessor Notes represent an aggregate amount not
less than $20 million, nor greater than 100% of the costs of the Improvements
being financed; provided that the aggregate balance of the Notes for such
Facility never exceeds 80% of the fair market value (which fair market value
shall be determined by an appraiser selected by the Facility Lessees and
reasonably acceptable to the Owner Participant) of such Facility taking into
account the fair market value of such Improvements;

            (viii) the Owner Participant shall have received a favorable opinion
of its tax counsel satisfactory to such Owner Participant to the effect that
such financing creates no incremental tax risk not indemnified to the Owner
Participant's satisfaction (including additional indebtedness incurred to
finance the Improvements not constituting "qualified nonrecourse indebtedness"
within the meaning of Treasury Regulations Section 1-861-10T(b));


                                       61
<PAGE>   69

            (ix) the Owner Participant shall suffer no adverse accounting
effects under GAAP as a result of such financing;

            (x) the Facility Lessees shall have made or delivered such
representations, warranties, covenants, opinions or certificates as the Owner
Participant, the Indenture Trustee may reasonably request;

            (xi) the applicable Facility Lessee or the Guarantor shall have, at
such time, a credit rating of at least investment grade from S&P and Moody's;

            (xii) the applicable Facility Lessee shall pay to (a) the Owner
Participant a fee of $100,000 and (b) the Pass Through Trustee for the benefit
of the Certificateholders, to be shared by such Certificateholders on a pro rata
basis, a fee of $100,000 for each such financing, in each case other than the
first financing; and

            (xiii) Calpine shall have affirmed to the Transaction Parties that
the Calpine Guaranties cover the additional indebtedness contemplated by this
Section 11.1.

        Notwithstanding the prior provision dealing with the financing of
Improvements through the Facility Leases, the Facility Lessees shall at all
times have the right to fund Improvements to the Facilities other than through
the Facility Leases; provided that Required Improvements and non-Severable
Improvements may only be financed other than through the Facility Leases on an
unsecured basis. Notwithstanding any of the foregoing of this Section 11.1,
except for Required Improvements and Improvements relating to pollution control,
no Improvement shall materially decrease the value, residual value, utility or
remaining useful life of such Facility immediately prior to such Improvement or
cause such Facility to become limited-use property.

        Section 11.2. Optional Refinancing of Lease Debt. Each Facility Lessee
shall have the right, exercisable at any time on no more than three occasions,
to request the Owner Lessor (and the Owner Lessor shall reasonably consider and
not unreasonably withhold its consent), to refund or refinance the Lease Debt
(and all Certificates then outstanding), in whole but not in part, through the
issuance of Additional Lessor Notes; provided that all conditions to the
issuance of such Additional Lessor Notes contained in Section 2.12 of the
Collateral Trust Indenture shall have been satisfied and all applicable
Make-Whole Amounts shall have been paid. Any refinancing under this Section 11.2
shall also be subject to satisfaction of the following additional conditions:

            (i) the Owner Lessor shall be able to issue and sell such debt in an
amount adequate to accomplish such refunding or refinancing;

            (ii) such Additional Lessor Notes shall have a final maturity no
later than the final maturity date of the Lessor Notes issued on the Closing
Date and will be fully repaid out of Basic Rent during the Facility Lease Term;

            (iii) appropriate adjustments to Basic Rent and Termination Value
shall be made to protect the Owner Participant's Net Economic Return; provided
that no adjustments shall be made to the amortization schedule;


                                       62
<PAGE>   70

            (iv) no Significant Lease Default or Lease Event of Default shall
have occurred and be continuing;

            (v) the Owner Participant shall suffer no adverse accounting effects
under GAAP;

            (vi) such Facility Lessee shall have made or delivered such
representations, warranties, covenants, opinions and certificates as the Owner
Participant may reasonably request, which representations, warranties, covenants
and agreements shall be of no greater scope than those provided by such Facility
Lessee under the Operative Documents to which it is a party (except to the
extent necessitated by differences between existing Operative Documents and the
terms and conditions of the proposed refinancing);

            (vii) all documentation in connection with such refinancing shall be
reasonably satisfactory to the Owner Lessor and the Owner Participant;

            (viii) the Owner Participant shall receive a consent fee of $100,000
in the aggregate for each refinancing after the first such refinancing;

            (ix) the Lease Debt as financed constitutes qualified nonrecourse
indebtedness within the meaning of Treasury Regulations Section 1-861-10T(b) and
the Owner Participant shall have received an opinion satisfactory to it to such
effect; and

            (x) the Owner Participant shall receive an opinion satisfactory to
it that the refinancing (as opposed to the right to request such refinancing)
shall not result in any incremental tax risk not indemnified to the Owner
Participant's satisfaction.

        Calpine shall have affirmed in writing to the Transaction Parties that
the Calpine Guaranties cover the additional indebtedness contemplated by this
Section 11.1.

        Section 11.3. Cooperation. The Owner Participant will cooperate with and
assist the Facility Lessees in connection with any refinancing and/or assumption
of the Lease Debt, so long as such refinancing and/or assumption of the Lease
Debt is in accordance with the terms of the Operative Documents. The Owner
Participant will execute such agreements and documents as may be necessary with
respect to any such refinancing and will instruct the Owner Lessor to act
accordingly.


SECTION 12. CERTAIN ADJUSTMENTS TO PERIODIC RENT AND TERMINATION VALUE

        (a) Prior to or on the Closing Date, Periodic Rent and Termination Value
shall be adjusted, either upward or downward, in accordance with the Facility
Leases:

            (i) at the request of a Facility Lessee, to re-optimize the Lease
Debt; provided such re-optimization shall not adversely affect the Owner Lessor
or the Owner Participant;


                                       63
<PAGE>   71

            (ii) at the request of a Facility Lessee or the Owner Participant,
to reflect any changes in the Pricing Assumptions, including, without
limitation, (x) the initial interest rate on any of the applicable Lessor Notes
which is different from the applicable interest rate set forth in the Pricing
Assumptions, (y) an increase in the Transaction Costs from the amount assumed in
the Pricing Assumptions, unless the Facility Lessees have elected to pay such
increase, and (z) a Closing Date other than the Scheduled Closing Date; and

            (iii) at the request of a Facility Lessee or the Owner Participant
to reflect any enactment, promulgation, release or adoption of, amendment to or
change in the Code, Treasury Regulations, Revenue Rulings or Revenue Procedures
("Tax Law Change") enacted prior to the Closing;

provided that if any adjustment required by this paragraph (a) would result in
(i) a Facility Lease not qualifying as an operating lease for a Facility Lessee
under FASB 13 or FASB 98, or (ii) the aggregate of all rent adjustments made on
or before, or contemplated to be made on, the Closing Date (other than
adjustments to reflect a change in Transaction Costs or the actual interest rate
of the Certificates) shall cause either (x) the after-tax net present value of
Basic Rent discounted at 6% to increase by more than 100 basis points or (y) the
total Basic Rent to increase by more than 2%, then in either such case, the
Facility Lessees shall not be obligated to close the Overall Transaction.

        (b) After the Closing Date, Periodic Rent and Termination Value, as well
as the coverage under the Qualifying Letter of Credit, shall be adjusted at the
request of a Facility Lessee or the Owner Participant in accordance with the
terms of the related Facility Lease to which it is a party.

        (c) Any adjustment pursuant to this Section 12 shall be calculated (A)
to preserve the Owner Participant's Net Economic Return through the Basic Lease
Term and (B) to the extent consistent with (A) above, to maintain operating
lease treatment for each Facility Lessee; provided, however, that to the extent
consistent with preserving the Owner Participant's Net Economic Return, all
adjustments shall at the option of the Facility Lessees be calculated to (x)
minimize the average annual Periodic Rent over the Basic Lease Term for the
Facility Lessees' GAAP accounting purposes and/or (y) minimize the present value
to each Facility Lessee of Periodic Rent; and provided, further, that no such
adjustment shall require the Owner Participant to record a loss as of the date
such adjustment is made. Adjustments will be computed by the Owner Participant
based upon the Pricing Assumptions and the Tax Assumptions originally used to
calculate the Basic Rent and Termination Value. Adjustments made pursuant to
this Section 12 shall be subject to verification as provided in Section 3.4 of
each Facility Lease.


SECTION 13. TRANSFER OF THE FACILITY LESSEE OWNERSHIP

        Section 13.1. Transfer of the Facility Lessee Ownership.

        (a) Each Facility Lessee covenants and agrees that it shall not during
the Facility Lease Term assign any Facility Lease or any other Operative
Document, or any interest therein, without the prior written consent of the
Owner Lessor, the Owner Participant and, so long as the Lien of the Collateral
Trust Indenture has not been terminated or discharged, the Indenture


                                       64
<PAGE>   72

Trustee and the Pass Through Trustee. Notwithstanding the foregoing, upon
satisfaction of the conditions in paragraph (b) below, either Facility Lessee
may assign its respective Facility Lease or any other Operative Document to
which it is a party, or any interest therein to any Person, without the consent
of the Owner Lessor, the Owner Participant, the Indenture Trustee or any other
Transaction Party.

        (b) Assignment under Section 13(a) above by either Facility Lessee or by
both Facility Lessees shall be permitted if (A) after giving effect to such
assignment or assignments, either (x) Calpine owns, directly or indirectly, at
least a majority of the Ownership Interest of each assignee (as well as at least
a majority of the Ownership Interest of any non-assigning Facility Lessee), the
Calpine Guaranties remain in full force and effect (without a transferee of
Calpine's obligations thereunder having succeeded thereto in accordance with
Section 8.4(b) thereof), and Calpine shall have reaffirmed in writing its
obligations under the Calpine Guaranties or (y) Calpine's obligations under the
Calpine Guaranties have been succeeded to in accordance with Section 8.4(b)
thereof, the transferee of Calpine shall own, directly or indirectly, at least a
majority of the Ownership Interest of each assignee (as well as at least a
majority of the Ownership Interest of any non-assigning Facility Lessee) and the
Calpine Guaranties shall remain in full force and effect and (B) satisfaction of
the following conditions:

            (i) the transferee shall assume all the obligations of the
applicable Facility Lessee under the Operative Documents pursuant to an
assignment and assumption agreement in form and substance satisfactory to the
Owner Participant;

            (ii) the Owner Participant, the Owner Lessor and, so long as the
Lien of the Collateral Trust Indenture shall not have been terminated or
discharged, the Indenture Trustee and the Pass Through Trustee shall have
received an Opinion of Counsel as to such assignment and assumption agreement
and the satisfaction of the requirements and conditions set forth in this
Section 13.1(b) (except for clauses (iii) and (vi) hereof;

            (iii) no Significant Lease Default or Lease Event of Default shall
have occurred and be continuing at the time of or immediately following such
transfer;

            (iv) the transfer shall not subject either of the Facility Lessees,
the Owner Participant, the Owner Lessor, the Indenture Trustee, the Pass Through
Trustee or any Certificateholder to regulation under PUHCA or state laws and
regulations regarding the rate and financial or organizational regulation of
electric utilities in the affected party's reasonable opinion, nor result in a
Regulatory Event of Loss;

            (v) the transferee shall be organized under the laws of the United
States, any state thereof or the District of Columbia; and

            (vi) the applicable Facility Lessee shall have paid, at no after-tax
cost to such parties, all reasonable documented out-of-pocket expenses
(including reasonable attorneys' fees and expenses) of the Owner Lessor, the
Administrator, the Owner Participant, the Indenture Trustee, the Lease Indenture
Company and the Pass Through Trustee in connection with such assignment.


                                       65
<PAGE>   73

SECTION 14. MISCELLANEOUS

        Section 14.1. Consents; Cooperation. The Owner Participant covenants and
agrees that it shall not unreasonably withhold its consent to any consent
requested of the Owner Lessor under the terms of the Operative Documents that by
its terms is not to be unreasonably withheld by the Owner Lessor.

        Section 14.2 Successor Owner Lessor. The parties hereto agree that the
transfer or assignment pursuant to the terms of the LLC Agreement by the Owner
Lessor to a successor Owner Lessor, will not violate the terms of any Operative
Document.

        Section 14.3. Bankruptcy of Lessor Estate. If (i) all or any part of the
Lessor Estate becomes the property of a debtor subject to the reorganization
provisions of Title 11 of the United States Code, as amended from time to time,
(ii) pursuant to such reorganization provisions the Owner Participant is
required, by reason of the Owner Participant being held to have recourse
liability to the debtor or the trustee of the debtor directly or indirectly, to
make payment on account of any amount payable as principal or interest on the
Lessor Notes, and (iii) the Indenture Trustee actually receives any Excess
Amount, as defined below, which reflects any payment by the Owner Participant on
account of clause (ii) above, the Indenture Trustee upon written request of the
Owner Participant shall promptly refund to the Owner Participant such Excess
Amount (and, to the extent so refunded, such amount owing under the Lessor Notes
shall be reinstated). For purposes of this Section 14.3, "Excess Amount" means
the amount by which such payment exceeds the amount which would have been
received by the Indenture Trustee if the Owner Participant had not become
subject to the recourse liability referred to in clause (ii) above, as stated in
the Owner Participant's written request to the Indenture Trustee. Nothing
contained in this Section 14.3 shall prevent the Indenture Trustee from
enforcing any personal recourse obligations (and retaining the proceeds thereof)
of the Owner Participant as contemplated by this Participation Agreement (other
than referred to in clause (ii)).

        Section 14.4. Waivers. No term, covenant, agreement or condition of this
Agreement may be terminated, amended or compliance therewith waived (either
generally or in a particular instance, retroactively or prospectively) except by
an instrument or instruments in writing executed by each party hereto.

        Section 14.5. Notices. Unless otherwise expressly specified or permitted
by the terms hereof, all communications and notices provided for herein shall be
in writing or by a telecommunications device capable of creating a written
record, and any such notice shall become effective (a) upon personal delivery
thereof, including, without limitation, by overnight mail or courier service,
(b) in the case of notice by United States mail, certified or registered,
postage prepaid, return receipt requested, upon receipt thereof, or (c) in the
case of notice by such a telecommunications device, upon transmission thereof;
provided such transmission is promptly confirmed by either of the methods set
forth in clauses (a) or (b) above, in each case addressed to each party hereto
at its address set forth below or, in the case of any such party hereto, at such
other address as such party may from time to time designate by written notice to
the other parties hereto:


                                       66
<PAGE>   74

        If to the Tiverton Lessee:

               Tiverton Power Associates Limited Partnership
               The Pilot House, 2nd Floor
               Lewis Wharf
               Boston, MA 02110
               Attention: Asset Manager
               Telephone: (617) 723-7200
               Facsimile: (617) 723-7635

               with a copy to:

                      Calpine Corporation
                      50 West San Fernando Street, 5th Floor
                      San Jose, California  95113
                      Attention: Asset Manager and General Counsel,
                      Telephone: (408) 995-5115
                      Facsimile: (408) 995-0505

        If to the Rumford Lessee:

               Rumford Power Associates Limited Partnership
               The Pilot House, 2nd Floor
               Lewis Wharf
               Boston, MA 02110
               Attention:  Asset Manager
               Telephone: (617).723-7200
               Facsimile: (617) 723-7635

               with a copy to:

                      Calpine Corporation
                      50 West San Fernando Street, 5th Floor
                      San Jose, California  95113
                      Attention: Asset Manager and General Counsel,
                      Telephone: (408) 995-5115
                      Facsimile: (408) 995-0505

        If to the Guarantor:

               Calpine Corporation
               50 West San Fernando Street, 5th Floor
               San Jose, California  95113
               Attention: Asset Manager and General Counsel,
               Telephone: (408) 995-5115
               Facsimile: (408) 995-0505


                                       67
<PAGE>   75

        If to the Owner Lessor:

               PMCC Calpine New England Investment LLC
               c/o Philip Morris Capital Corporation
               225 High Ridge, Suite 300
               Stamford, CT 06905
               Telephone: (914) 335-8170
               Facsimile:  (914) 335-8287
               Attention:  Vice President - Leasing

               with a copy to:

                      Philip Morris Capital Corporation
                      225 High Ridge, Suite 300
                      Stamford, CT 06905
                      Telephone: (914) 335-8347
                      Facsimile:  (914) 335-8256
                      Attention:  General Counsel


        If to the Owner Participant:

               PMCC Calpine NEIM LLC
               c/o Philip Morris Capital Corporation
               225 High Ridge, Suite 300
               Stamford, CT 06905
               Telephone: (914) 335-8170
               Facsimile:  (914) 335-8287
               Attention:  Vice President - Leasing

               with a copy to:


                      Philip Morris Capital Corporation
                      225 High Ridge, Suite 300
                      Stamford, CT 06905
                      Telephone: (914) 335-8347
                      Facsimile:  (914) 335-8256
                      Attention:  General Counsel


                                       68
<PAGE>   76

        If to the Indenture Trustee:

               State Street Bank and Trust Company of Connecticut, National
                  Association
               225 Asylum Street, Goodwin Square
               Hartford, CT 06103
               Telephone No.: (860) 244-1822
               Facsimile No.: (860) 244-1889
               Attn: Corporate Trust Department

        copy to:

               State Street Bank and Trust Company of California, National
                  Association
               633 West 5th Street, 12th floor
               Los Angeles, California 90071
               Telephone No.: (213) 362-7373
               Facsimile No.: (213) 362-7357
               Attention: Corporate Trust Department

        If to the Pass Through Trustee:

               State Street Bank and Trust Company of Connecticut, National
                  Association
               225 Asylum Street, Goodwin Square
               Hartford, CT 06103
               Telephone No.: (860) 244-1822
               Facsimile No.: (860) 244-1889
               Attn: Corporate Trust Department

        copy to:

               State Street Bank and Trust Company of California, National
                  Association
               633 West 5th Street, 12th floor
               Los Angeles, California 90071
               Telephone No.: (213) 362-7373
               Facsimile No.: (213) 362-7357
               Attention: Corporate Trust Department

A copy of all notices provided for herein shall be sent by the party giving such
notice to each of the other parties hereto. In addition, the Facility Lessees
shall (unless otherwise directed by the applicable Rating Agency) provide to
each Rating Agency a copy of any information, report or notice it gives to the
Indenture Trustee hereunder or any other Operative Documents.

        Section 14.6. Survival. All warranties, representations, indemnities and
covenants made by any party hereto, herein or in any certificate or other
instrument delivered by any such party or on behalf of any such party under this
Agreement shall be considered to have been relied upon by each other party
hereto and shall survive the consummation of the transactions contemplated
hereby and in the other Operative Documents regardless of any investigation made
by any such party or on behalf of any such party. In addition, the
indemnifications by the Facility Lessees


                                       69
<PAGE>   77

under Sections 9.1 and 9.2 of this Agreement, subject to Sections 9.1(b) and
9.2(b), respectively, the Facility Site Leases and the Calpine Guaranties, shall
expressly survive the expiration or early termination (in either case, for
whatever reason) of the Facility Lease or the transfer or other disposition of
the respective interests of the Owner Participant, the Owner Lessor, the
Administrator, the Lease Indenture Company, the Indenture Trustee, the Pass
Through Trustee and the Certificateholders in, to and under this Agreement, the
Bills of Sale and the other Operative Documents. Except as expressly provided
above or in Section 22.3 of the Facility Leases, the Tax Indemnity Agreement or
as otherwise expressly provided in the Operative Documents, the representations,
warranties, covenants and agreements of the Transaction Parties under the
Operative Documents shall terminate and be of no further force and effect
effective upon the expiration or earlier termination of the Facility Leases.

        Section 14.7. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns as permitted by and in
accordance with the terms hereof, including each successive holder of the Member
Interest of the Owner Participant permitted under Section 7.1 and each
successive transferee or transferees of Lessor Notes permitted under Section 2.8
of the Collateral Trust Indenture. Except as expressly provided herein or in the
other Operative Documents, no party hereto may assign its interests herein
without the prior written consent of the other parties hereto.

        Section 14.8. Business Day. Notwithstanding anything herein or in any
other Operative Document to the contrary, if the date on which any payment is to
be made pursuant to this Agreement or any other Operative Document is not a
Business Day, the payment otherwise payable on such date shall be payable on the
next succeeding Business Day with the same force and effect as if made on such
scheduled date and (provided such payment is made on such succeeding Business
Day) no interest shall accrue on the amount of such payment from and after such
scheduled date to the time of such payment on such next succeeding Business Day.

        Section 14.9. Governing Law. This Agreement has been delivered in the
State of New York and shall be in all respects governed by and construed in
accordance with the laws of the State of New York including all matters of
construction, validity and performance without giving effect to the conflicts of
laws provisions thereof except New York General Obligations Law Section 5-1401.

        Section 14.10. Severability. If any provision hereof shall be invalid,
illegal or unenforceable under Applicable Law, the validity, legality and
enforceability of the remaining provisions hereof shall not be affected or
impaired thereby.

        Section 14.11. Counterparts This Agreement may be executed in any number
of counterparts, each executed counterpart constituting an original but all
together only one agreement.

        Section 14.12. Headings and Table of Contents The headings of the
sections of this Agreement and the Table of Contents are inserted for purposes
of convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.


                                       70
<PAGE>   78

        Section 14.13. Limitation of Liability

        (a) None of the Owner Participant, the Owner Lessor, the Indenture
Trustee, the Lease Indenture Company, the Pass Through Trustee, the Pass Through
Trustee Company or the Certificateholders shall have any obligation or duty to
the Facility Lessees or to others with respect to the transactions contemplated
hereby, except those obligations or duties expressly set forth in this Agreement
and the other Operative Documents to which such Person is a party, and none of
the Owner Participant, the Owner Lessor, the Indenture Trustee, the Lease
Indenture Company, the Pass Through Trustee, the Pass Through Company or the
Certificateholders shall be liable for performance by any other party hereto of
such other party's obligations or duties hereunder. Without limitation of the
generality of the foregoing, under no circumstances whatsoever shall the Owner
Participant be liable to the Facility Lessees for any action or inaction on the
part of the Owner Lessor in connection with the transactions contemplated
herein, whether or not such action or inaction is caused by willful misconduct
or gross negligence of the Owner Lessor, unless such action or inaction is at
the written direction of the Owner Participant.

        (b) Neither Facility Lessee or any other Calpine Party shall have any
obligation or duty to the Owner Participant, the Owner Lessor, the Indenture
Trustee, the Lease Indenture Company, the Pass Through Trustee, the Pass Through
Company, the Certificateholders or to others with respect to the transactions
contemplated hereby, except those obligations or duties expressly set forth in
this Agreement and the other Operative Documents, and neither of the Facility
Lessee or any other Calpine Party (except Calpine to the extent set forth in the
Calpine Guaranties) shall be liable for performance by any other party hereto of
such other party's obligations or duties hereunder.

        (c) The Lease Indenture Company and the Pass Through Company are
entering into the Operative Documents to which it is a party solely as trustees
under the Collateral Trust Indenture and the Pass Through Trust Agreement,
respectively, and not in their individual capacities, except as expressly
provided herein or therein, and in no case whatsoever shall the Lease Indenture
Company and the Pass Through Company be personally liable for, or for any loss
in respect of, any of the statements, representations, warranties, agreements or
obligations of the Owner Lessor hereunder or under any other Operative Document,
as to all of which the other parties hereto agree to look solely to the
Indenture Estate and the Lessor Estate, respectively; provided, however, that
the Lease Indenture Company and the Pass Through Trust Company shall be liable
hereunder for their own negligence or willful misconduct or for a breach of
their representations, warranties and covenants made in their individual
capacity under any Operative Document.

        (d) The right of the Indenture Trustee or the Pass Through Trustee to
perform any discretionary act enumerated herein or in any other Operative
Document (including, without limitation, the right to consent to any action
which requires their consent and the right to waive any provision of, or consent
to any change or amendment to, any of the Operative Documents) shall not be
construed as a duty, and neither the Indenture Trustee nor the Pass Through
Trustee shall be liable or answerable for other than its negligence or willful
misconduct in the performance of such acts. In connection with any such
discretionary acts, the Indenture Trustee may in its sole discretion (but shall
not, except as otherwise provided herein or in the Collateral Trust Indenture or
as otherwise required by Applicable Law, have any obligation to) request the


                                       71
<PAGE>   79

approval or instruction of the Pass Through Trustee as the holder of the Lessor
Notes, and the Pass Through Trustee may in its sole discretion (but shall not,
except as otherwise provided in the Operative Documents or as otherwise required
by Applicable Law, have any obligation to) request the approval of the
Certificateholders.

        (e) The Owner Participant will give the Facility Lessees at least 15
days' prior notice of any proposed amendment or supplement to the LLC Agreement
(other than an amendment solely effecting a transfer of the Owner Participant's
interest in the Lessor Estate) and deliver true, complete and fully executed
copies to the Facility Lessees of any amendment or supplement to the LLC
Agreement. No amendment or supplement to the LLC Agreement that would reasonably
be expected to materially adversely affect the interests of the Facility Lessees
or the Indenture Trustee shall become effective without the written consent of
the Indenture Trustee and the Facility Lessees.

        Section 14.14. Consent to Jurisdiction; Waiver of Trial by Jury; Process
Agent.

        (a) Each of the parties hereto (i) hereby irrevocably submits to the
nonexclusive jurisdiction of the Supreme Court of the State of New York, New
York County (without prejudice to the right of any party to remove to the United
States District Court for the Southern District of New York) and to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York for the purposes of any suit, action or other proceeding
arising out of this Agreement, the other Operative Documents, or the subject
matter hereof or thereof or any of the transactions contemplated hereby or
thereby brought by any of the parties hereto or their successors or assigns;
(ii) hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State court, or in such
federal court; and (iii) to the extent permitted by Applicable Law, hereby
irrevocably waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding any claim that it is not
personally subject to the jurisdiction of the above-named courts, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement, the other
Operative Documents, or the subject matter hereof or thereof may not be enforced
in or by such court.

        (b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES THE RIGHT TO DEMAND A TRIAL BY JURY, IN ANY
SUCH SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT, THE OTHER
OPERATIVE DOCUMENTS, OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY BROUGHT BY ANY OF THE PARTIES HERETO
OR THEIR SUCCESSORS OR ASSIGNS.

        (c) By the execution and delivery of this Agreement, the Facility
Lessees designate, appoint and empower National Registered Agents, Inc., 440
Ninth Avenue, 5th Floor, New York, New York 10001, and the Owner Lessor
designates, appoints and empowers CT Corporation System, with an office at 111
Eighth Avenue, New York, New York 10011, as its authorized agent to receive for
and on its behalf service of any summons, complaint or other legal process in
any such action, suit or proceeding in the State of New York for so long as any
obligation of the Facility Lessees or the Owner Lessor, as applicable, shall
remain outstanding


                                       72
<PAGE>   80

hereunder or under any of the other Operative Documents. Each Facility Lessee
shall grant an irrevocable power of attorney to CT Corporation System, in
respect of such appointment and shall maintain such power of attorney in full
force and effect for so long as any obligation of such Facility Lessee shall
remain outstanding hereunder or under any of the Operative Documents.

        Section 14.15. Further Assurances Each party hereto will promptly and
duly execute and deliver such further documents to make such further assurances
for and take such further action reasonably requested by any party to whom such
first party is obligated, all as may be reasonably necessary to carry out more
effectively the intent and purpose of this Participation Agreement and the other
Operative Documents.

        Section 14.16. Effectiveness. The Participation Agreement has been dated
as of the date first above written for convenience only. This Participation
Agreement shall be effective on the date of execution and delivery by each of
the parties hereto.

        Section 14.17. Measuring Life. If and to the extent that any of the
options, rights and privileges granted under this Agreement, would, in the
absence of the limitation imposed by this sentence, be invalid or unenforceable
as being in violation of the rule against perpetuities or any other rule or law
relating to the vesting of interests in property or the suspension of the power
of alienation of property, then it is agreed that notwithstanding any other
provision of this Agreement, such options, rights and privileges, subject to the
respective conditions hereof governing the exercise of such options, rights and
privileges, will be exercisable only during (a) the longer of (i) a period which
will end twenty-one (21) years after the death of the last survivor of the
descendants living on the date of the execution of this Agreement of the
following Presidents of the United States: Franklin D. Roosevelt, Harry S.
Truman, Dwight D. Eisenhower, John F. Kennedy, Lyndon B. Johnson, Richard M.
Nixon, Gerald R. Ford, James E. Carter, Ronald W. Reagan, George H.W. Bush and
William J. Clinton or (ii) the period provided under the Uniform Statutory Rule
Against Perpetuities or (b) the specific applicable period of time expressed in
this Agreement, whichever of (a) and (b) is shorter.

        Section 14.17. No Partnership, Etc. The parties hereto intend that
nothing contained in this Participation Agreement or any other Operative
Document shall be deemed or construed to create a partnership, joint venture or
other co-ownership arrangement by and among any of them.

        Section 14.18. Entire Agreement. This Agreement, together with the other
applicable Operative Documents, constitutes the entire agreement of the parties
hereto and thereto with respect to the subject matter hereof and thereof and
supersedes all oral and all prior written agreements and understandings with
respect to such subject matter; provided that, notwithstanding the foregoing,
the obligations of Calpine with respect to fees, expenses and indemnifications
set forth in the letter agreement, dated October 16, 2000 between Calpine and
CSFB shall not be superceded hereby and shall remain in full force and effect.

        Section 14.19. Public Utility Regulation The Facility Lessees, the Owner
Lessor and the Owner Participant agree to cooperate and to take reasonable
measures to alleviate the source or consequence of any regulation constituting a
Regulatory Event of Loss, at the cost and expense


                                       73
<PAGE>   81

of the Facility Lessees, so long as there shall be no adverse consequences to
the Owner Lessor or the Owner Participant as the result of such cooperation or
taking of reasonable measures.

        Section 14.21. Confidentiality of Information. Each of the parties
hereto agrees that any information (x) contained herein or in the other
Operative Documents (including any terms, conditions, agreements, financial
projections, and other financial and operating information contained herein or
therein, and the terms of any insurance policies required or otherwise
maintained pursuant hereto), (y) disclosed or to be disclosed by one such party
to another such party (for purposes of this Section 14.21, each of the parties
to this Agreement being referred to herein as a "Receiving Party") in connection
with this Agreement or any other Operative Document, or (z) otherwise received
in connection with this Agreement or any other Operative Document (or the
transactions contemplated thereby) and designated by the disclosing party in
writing as confidential, shall, in each case, be kept confidential by the
Receiving Party and shall not be used otherwise than in connection with the
business of the Parties contemplated hereunder except:

        (a) to the extent such information is generally available to the public
prior to the Receiving Party's receipt thereof, or which becomes public after
such receipt, but through no violation by such Receiving Party of this Section
14.21;

        (b) as may be required by Applicable Law or, upon prompt prior written
notice to the affected party, by judicial process;

        (c) as may be independently developed by the Receiving Party other than
in connection with the transactions contemplated hereby with respect to the
Facilities or the Facility Sites;

        (d) as may be disclosed to counsel, auditors or accountants to the
Receiving Party, or to the National Association of Insurance Commissioners;

        (e) to the extent used in connection with any litigation to which the
Receiving Party is a party, provided that the other parties hereto shall have
been given prompt prior written notice (to the extent permitted by law) of such
proposed disclosure;

        (f) as may be disclosed to any transferee or proposed transferee of the
Receiving Party; provided, however, that, prior to any such disclosure, any such
transferee or proposed transferee, as the case may be, shall have agreed in
writing to be bound by the terms of this Section 14.20; or

        (g) as may be necessary or desirable in connection with the enforcement
of remedies by any party to any of the Operative Documents.

        The foregoing obligation as to confidentiality and non-use shall survive
the termination of this Agreement for a period of five years.

        Section 14.22. Reliance. Calpine and the Facility Lessees agree that the
Transaction Parties may rely on the Environmental Reports.


                                       74
<PAGE>   82

        Section 14.23. Intentionally Omitted

        Section 14.24. Amendments, Etc. No Operative Document nor any of the
terms thereof (including the terms of this Section 14.24) may be terminated,
amended, supplemented, waived or modified, except by an instrument in writing
(a) signed in the case of a waiver, by the party against which enforcement of
such waiver is sought, and no such waiver shall become effective unless signed
copies thereof shall have been delivered to each such party or (b) in the case
of termination, amendments, supplements or modifications, consented to by all
parties hereto; provided, however, that the consent of the Facility Lessees is
not required in the case of amendments to any Operative Document to which the
Facility Lessees are not a party and which would not increase or accelerate the
Facility Lessees' or the Guarantor's obligations under any of the Operative
Documents nor impair the Facility Lessees' or the Guarantor's rights under any
of the Operative Documents; provided further, that the consent of the Facility
Lessees, the Indenture Trustee or the Pass Through Trustee shall not be required
(but the consent of the Guarantor shall be so required) for the amendment,
termination, replacement, supplement, waiver or modification of any Qualifying
Letter of Credit. Notwithstanding the foregoing, Section 5.6 of the Collateral
Trust Indenture shall not be amended without the Guarantor's consent.

        Section 14.25. Credit for Certain Disbursements. Notwithstanding any
other provision of this Agreement or any provision of any other Operative
Document, any payment to the Owner Participant under a Qualified Letter of
Credit (exclusive of any deposit into the Equity Collateral Account) or from the
Equity Collateral Account shall reduce, dollar-for-dollar, the obligation of the
Guarantor under the Calpine Guaranty (Tiverton), on the one hand, and the
Guarantor under the Calpine Guaranty (Rumford), on the other hand, the aggregate
amount of such reductions to be allocated between the respective amounts of the
Equity Portion of Termination Value applicable, on the date of such reduction,
to the Calpine Guaranty (Tiverton) and to the Calpine Guaranty (Rumford),
respectively. Upon the reduction referred to in the prior sentence becoming
effective, comparable and parallel reductions will automatically be made in the
Termination Values specified in the Facility Leases.


                                       75
<PAGE>   83

        IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed and delivered by their respective officers thereunto
duly authorized.


                             TIVERTON POWER ASSOCIATES LIMITED PARTNERSHIP,
                             a Rhode Island limited partnership

                             By:   Calpine Tiverton, Inc.,
                                     a Delaware corporation
                                     its general partner


                               By:  /s/ ERIC PRYOR
                                    --------------------------------
                                     Name:
                                     Title:
                                     Date:










                            RUMFORD POWER ASSOCIATES LIMITED PARTNERSHIP,
                            a Maine limited partnership

                            By:   Calpine Rumford, Inc.,
                                    a Delaware corporation
                                    its general partner


                              By:   /s/ ERIC PRYOR
                                    --------------------------------
                                     Name:
                                     Title:
                                     Date:


                                       76
<PAGE>   84

                    PMCC CALPINE NEW ENGLAND INVESTMENT LLC, a Delaware
                        limited liability company

                    By: PMCC Calpine NEIM LLC, a Delaware limited liability
                        company, its managing member

                        By:  General Foods Credit Corporation, a Delaware
                        corporation, its managing member
                           Name:
                           Title:
                           Date:





                        By: /s/ ILLEGIBLE
                           ---------------------------------
                        Name:
                        Title:
                        Date:









              PMCC CALPINE NEIM LLC

                    By: General Foods Credit Corporation, its managing
                        member



                    By: /s/ ILLEGIBLE
                        ---------------------------------
                        Name:
                        Title:
                        Date:


                                       77
<PAGE>   85

                    STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
                        NATIONAL ASSOCIATION,
                    not in its individual capacity, except to
                    the extent expressly provided herein, but
                    solely as Indenture Trustee under the
                    Collateral Trust Indenture

                    By: /s/ MARK HENSON
                        ---------------------------------
                        Name: Mark Henson
                        Title: Assistant Vice President
                        Date:


                    STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
                        NATIONAL ASSOCIATION,
                    not in its individual capacity, except to
                    the extent expressly provided herein, but
                    solely as Pass Through Trustee under the
                    Pass Through Trust Agreement



                    By: /s/ MARK HENSON
                        ---------------------------------
                        Name: Mark Henson
                        Title: Assistant Vice President
                        Date:


                                       78
<PAGE>   86

                          CALPINE CORPORATION


                          By: /s/ ERIC PRYOR
                              ----------------------------
                              Name:
                              Title:
                              Date:




                                       79
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12.3
<SEQUENCE>15
<FILENAME>f70293ex4-12_3.txt
<DESCRIPTION>EXHIBIT 4.12.3
<TEXT>

<PAGE>   1

                                                                  EXHIBIT 4.12.3

                                                                  EXECUTION COPY



              APPENDIX A - DEFINITIONS AND RULES OF INTERPRETATION



RULES OF INTERPRETATION

        In this Appendix A and each Operative Document (as hereinafter defined),
unless otherwise provided herein or therein:

                (a) the terms set forth in this Appendix A or in any such
Operative Document shall have the meanings herein provided for and any term used
in an Operative Document and not defined therein or in this Appendix A but in
another Operative Document shall have the meaning herein or therein provided for
in such other Operative Document;

                (b) any term defined in this Appendix A by reference to another
document, instrument or agreement shall continue to have the meaning ascribed
thereto whether or not such other document, instrument or agreement remains in
effect;

                (c) words importing the singular include the plural and vice
versa;

                (d) words importing a gender include any gender;

                (e) a reference to a part, clause, section, paragraph, article,
party, annex, appendix, exhibit, schedule or other attachment to or in respect
of an Operative Document is a reference to a part, clause, section, paragraph,
or article of, or a party, annex, appendix, exhibit, schedule or other
attachment to, such Operative Document unless, in any such case, otherwise
expressly provided in any such Operative Document;

                (f) a reference to any statute, regulation, proclamation,
ordinance or law includes all statutes, regulations, proclamations, ordinances
or laws varying, consolidating or replacing the same from time to time, and a
reference to a statute includes all regulations, policies, protocols, codes,
proclamations and ordinances issued or otherwise applicable under that statute
unless, in any such case, otherwise expressly provided in any such statute or in
such Operative Document;

                (g) a definition of or reference to any document, schedule,
exhibit, instrument or agreement includes an amendment or supplement to, or
restatement, replacement, modification or novation of, any such document,
schedule, exhibit, instrument or agreement unless otherwise specified in such
definition or in the context in which such reference is used;

                (h) a reference to a particular section, paragraph or other part
of a particular statute shall be deemed to be a reference to any other section,
paragraph or other part substituted therefor from time to time;


<PAGE>   2

                (i) if a capitalized term describes, or shall be defined by
reference to, a document, instrument or agreement that has not as of any
particular date been executed and delivered and such document, instrument or
agreement is attached as an exhibit to the Participation Agreement (as
hereinafter defined), such reference shall be deemed to be to such form and,
following such execution and delivery and subject to paragraph (g) above, to the
document, instrument or agreement as so executed and delivered;

                (j) a reference to any Person (as hereinafter defined) includes
such Person's successors and permitted assigns;

                (k) any reference to "days" shall mean calendar days unless
"Business Days" (as hereinafter defined) are expressly specified;

                (l) if the date as of which any right, option or election is
exercisable, or the date upon which any amount is due and payable, is stated to
be on a date or day that is not a Business Day, such right, option or election
may be exercised, and such amount shall be deemed due and payable, on the next
succeeding Business Day with the same effect as if the same was exercised or
made on such date or day (without, in the case of any such payment, the payment
or accrual of any interest or other late payment or charge, provided such
payment is made on such next succeeding Business Day);

                (m) any reference to the satisfaction, release and/or discharge
of the Collateral Trust Indenture or the Collateral Documents (each as
hereinafter defined) or the Lien (as hereinafter defined) thereof or words of
similar import shall, whether or not so expressly stated, be deemed to be a
reference to the satisfaction, release and discharge in full and cancellation of
the Lien of the Collateral Trust Indenture or the Collateral Documents, as the
case may be, in accordance with the express provisions thereof.

                (n) words such as "hereunder", "hereto", "hereof" and "herein"
and other words of similar import shall, unless the context requires otherwise,
refer to the whole of the applicable document and not to any particular article,
section, subsection, paragraph or clause thereof; and

                (o) a reference to "including" shall mean including without
limiting the generality of any description preceding such term, and for purposes
hereof and of each Operative Document the rule of ejusdem generis shall not be
applicable to limit a general statement, followed by or referable to an
enumeration of specific matters, to matters similar to those specifically
mentioned.


DEFINED TERMS

                "467 LOAN PRINCIPAL BALANCE" with respect to a Facility Lease,
shall have the meaning set forth in Section 3.2(d) of such Facility Lease.

                "ACCEPTABLE BANK" shall mean, for the purposes of Section 5.3 of
each Facility Lease, a banking institution the senior long-term unsecured debt
of which is rated at least A by



                                       2
<PAGE>   3

S&P and by Moody's, and which maintains an office or corresponding bank located
in New York City.

                "ACTUAL KNOWLEDGE" shall mean, with respect to any Transaction
Party, actual knowledge of, or receipt of written notice by, an officer (or
other employee whose responsibilities include the administration of the Overall
Transaction) of such Transaction Party.

                "ADDITIONAL CERTIFICATES" shall mean any additional certificates
issued by the Pass Through Trust in connection with the issuance of Additional
Lessor Notes.

                "ADDITIONAL EQUITY INVESTMENT" shall mean the amount, if any,
the Owner Participant shall provide (in its sole and absolute discretion) to
finance all or a portion of the cost of any Improvement financed pursuant to
Section 11.1 of the Participation Agreement.

                "ADDITIONAL LESSOR NOTES" shall mean, collectively, the Tiverton
Additional Lessor Notes and the Rumford Additional Lessor Notes.

                "ADMINISTRATOR" shall mean Wilmington Trust Company pursuant to
an LLC Administration Agreement between the Owner Lessor and Wilmington Trust
Company dated as of the Closing Date.

                "AFFILIATE" of a particular Person shall mean, at any time, (a)
any Person directly or indirectly controlling, controlled by or under common
control with such particular Person and (b) any Person beneficially owning or
holding, directly or indirectly, 10% or more of any class of voting or equity
interest of such first Person or any corporation of which such first Person
beneficially owns or holds, in the aggregate, directly or indirectly, 10% or
more of any class of voting or equity interest. For purposes of this definition,
"control" when used with respect to any particular Person shall mean the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing; provided, however, that under no circumstances shall the Lease
Indenture Company be considered to be an Affiliate of either the Indenture
Trustee or any Certificateholder, nor shall any of the Indenture Trustee or any
Certificateholder be considered to be an Affiliate of the Lease Indenture
Company, nor shall the Lease Indenture Company, the Indenture Trustee, solely
because any Operative Document contemplates that any of them may request or act
at the instruction of any such Person or such Person's Affiliate.

                "AFTER-TAX BASIS" shall mean, in the context of determining the
amount of a payment to be made on such basis, the payment of an amount which,
after reduction by the net increase in Taxes of the recipient (actual or
constructive) of such payment, which net increase shall be calculated by taking
into account any reduction in such Taxes resulting from any Tax benefits
realized or to be realized by the recipient as a result of such payment, shall
be equal to the amount required to be paid. In calculating the amount payable by
reason of this provision, all income taxes payable and tax benefits realized or
to be realized shall be determined on the assumptions that (i) the recipient
shall be subject to the applicable income taxes at the highest marginal tax
rates then applicable to corporate taxpayers taxed on the same basis as the
recipient that are in effect in the applicable jurisdictions at the time such
amount is received or properly



                                       3
<PAGE>   4

accrued, and (ii) all related tax benefits are utilized at the highest marginal
rates then applicable to corporate taxpayers taxed on the same basis as the
recipient that are then in effect in the applicable jurisdictions.

                "AGREEMENT PERIOD" shall have the meaning set forth in Section
7.8 of the Participation Agreement.

                "ALLOCATED RENT" with respect to a Facility Lease, shall have
the meaning specified in Section 3.2(b) of such Facility Lease.

                "APPLICABLE LAW" shall mean, without limitation, all applicable
laws, including, without limitation, all Environmental Laws, and treaties,
judgments, decrees, injunctions, writs and orders of any court, arbitration
board or Governmental Entity and rules, regulations, orders, ordinances,
licenses and permits of any Governmental Entity.

                "APPLICABLE PERMIT" shall mean any Permit, including any zoning,
environmental protection, pollution, sanitation, FERC, safety, siting or
building Permit, (a) that is necessary at any given time in light of the stage
of development, construction or operation of the Facilities or Facility Sites to
acquire, operate, maintain, repair, own or use the Facilities or Facility Sites
as contemplated by the Operative Documents, to sell electricity therefrom, to
enter into any Operative Document or to consummate any transaction contemplated
thereby, or (b) that is necessary so that none of the Owner Lessor, the Owner
Participant, the Indenture Trustee, the Pass Through Trustee or any
Certificateholder nor any Affiliate of any of them may be deemed by any
Governmental Entity to be subject to regulation under PUHCA or under any other
Applicable Law relating to electric utilities, generators, wholesalers or
retailers, in each case as a result of the operation of the Facilities or either
of them or the sale of electricity therefrom.

                "APPLICABLE RATE" shall mean the Prime Rate plus 1% per annum.

                "APPRAISER" shall mean Deloitte & Touche LLP Valuation Group.

                "APPRAISAL PROCEDURE" shall mean (except with respect to the
Closing Appraisal and any appraisal to determine Fair Market Sales Value or Fair
Market Rental Value during any period when a Lease Event of Default shall have
occurred and be continuing), an appraisal conducted by an appraiser or
appraisers in accordance with the following procedures. Within ten (10) Business
Days of written notice from the initiating party of the commencement of an
Appraisal Procedure, the Owner Participant and the applicable Facility Lessee
will each appoint one Independent Appraiser, which Independent Appraisers shall
attempt to agree upon the Fair Market Sales Value or Fair Market Rental Value
that is the subject of the appraisal. If either the Owner Participant or the
applicable Facility Lessee does not appoint its appraiser within such ten
Business Day period, the determination of the other appraiser shall be
conclusive and binding on the Owner Participant and such Facility Lessee. If the
appraisers appointed by the Owner Participant and such Facility Lessee are
unable to agree upon the value, period, amount or other determination in
question within thirty (30) days, such appraisers shall jointly appoint a third
Independent Appraiser or, if such appraisers do not appoint a third Independent
Appraiser, the Owner Participant and such Facility Lessee shall jointly appoint
the third Independent Appraiser. In such case, the average of the determinations
of the three appraisers shall be conclusive and



                                       4
<PAGE>   5

binding on the Owner Participant and such Facility Lessee, unless the
determination of one appraiser is disparate from the middle determination by
more than twice the amount by which the third determination is disparate from
the middle determination, in which case the determination of the most disparate
appraiser shall be excluded, and the average of the remaining two determinations
shall be conclusive and binding on the Owner Participant and such Facility
Lessee. Any appraisal determined in accordance with the foregoing must be
delivered within thirty (30) days after the date on which the last of the
appraisers is appointed pursuant to the process set forth above.

                "ASSIGNED DOCUMENTS" shall have the meaning specified in clause
(2) of the Granting Clause of the Collateral Trust Indenture.

                "ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
rate of interest set forth or implicit in the terms of such lease (or, if not
practicable to determine such rate, the weighted average rate of interest borne
by the Certificates outstanding under the Pass Through Trust Agreement
(calculated, in the event of the issuance of any original issue discount Lessor
Notes, based on the imputed interest rate with respect thereto)), compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).

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


                "BANKRUPTCY CODE" shall mean the United States Bankruptcy Code
of 1978, as amended from time to time, 11 U. S.C. Section 101 et seq.

                "BANKRUPTCY LAW" means Title 11 of the United States Code or any
similar Federal or State law for the relief of debtors.

                "BASIC LEASE TERM" with respect to a Facility Lease, shall have
the meaning specified in Section 3.1 of such Facility Lease.

                "BASIC RENT" with respect to a Facility Lease, shall have the
meaning specified in Section 3.2(a) of such Facility Lease.

                "BENEFICIARY" OR "BENEFICIARIES" with respect to a Calpine
Guaranty, shall have the meaning set forth in Section 4 of such Calpine
Guaranty.

                "BILL(s) OF SALE" shall mean, individually or collectively as
the context may require, the Tiverton Bill of Sale or Rumford Bill of Sale.



                                       5
<PAGE>   6

                "BOARD OF DIRECTORS" means the Board of Directors or General
Partner, as applicable, of the Guarantor or the Facility Lessees, as the context
requires, or any authorized committee of either thereof.

                "BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Guarantor to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Indenture Trustee.

                "BURDENSOME TERMINATION NOTICE" with respect to a Facility
Lease, shall mean a notice required in accordance with Section 13.1 or Section
13.2, as the case may be, of such Facility Lease upon the exercise of a
termination option by the applicable Facility Lessee.

                "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday, or a day on which commercial banking institutions are authorized or
required by law, regulation or executive order to be closed in New York, New
York, the city and the state in which the Corporate Trust Office of the
Indenture Trustee is located or the city and state in which the Pass Through
Trustee is located.

                "CALPINE" shall mean Calpine Corporation, a Delaware
corporation.

                "CALPINE DOCUMENTS" shall mean have the meaning set forth in
Section 3.1 of the Calpine Guaranty (Tiverton) or the Calpine Guaranty
(Rumford), as the context may require.

                "CALPINE GUARANTY" OR "CALPINE GUARANTIES" shall mean,
individually or collectively as the context may require, the Calpine Guaranty
(Tiverton) and the Calpine Guaranty (Rumford).

                "CALPINE GUARANTY EVENT OF DEFAULT" shall mean any of the
"Events of Default" as specified in Section 7.1 of the Calpine Guaranty
(Tiverton) and/or the Calpine Guaranty (Rumford), as the case may be.

                "CALPINE GUARANTY (RUMFORD)" shall mean the Calpine Guaranty and
Payment Agreement (Rumford) dated as of the Closing Date in favor of the
Beneficiaries, substantially in the form of Exhibit H-2 to the Participation
Agreement.

                "CALPINE GUARANTY (TIVERTON)" shall mean the Calpine Guaranty
and Payment Agreement (Tiverton) dated as of the Closing Date in favor of the
Beneficiaries, substantially in the form of Exhibit H-1 to the Participation
Agreement.

                "CALPINE PARTIES" shall mean Calpine, the Facility Lessees,
Calpine Eastern Corporation, and each other Affiliate of Calpine that is party
to any Operative Document.

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



                                       6
<PAGE>   7

                "CAPITALIZED LEASE OBLIGATIONS" of any Person means the rental
obligations under any lease of any property (whether real, personal or mixed) of
which the discounted present value of the rental obligations of such Person as
lessee, in conformity with GAAP, is required to be capitalized on the balance
sheet of such Person; the Stated Maturity of any such lease 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.

                "CERTIFICATE PURCHASE AGREEMENT shall mean the Certificate
Purchase Agreement, dated the Closing Date, among the Facility Lessees, Calpine,
and the Initial Purchasers.

                "CERTIFICATEHOLDER INDEMNITEE" shall have the meaning set forth
in Section 9.2(a) of the Participation Agreement.

                "CERTIFICATEHOLDERS" shall mean each of the holders of
Certificates, and each of such holder's successors and permitted assigns.

                "CERTIFICATES" shall mean the 9.00% Pass Through Certificates
issued on the Closing Date and any certificates issued in replacement therefor
pursuant to Section 3.3, 3.4 or 3.5 of the Pass Through Trust Agreement.

                "CLAIM(s)" individually or collectively as the context may
require, shall mean any liability (including in respect of negligence (whether
passive or active or other torts), strict or absolute liability in tort or
otherwise, warranty, latent or other defects (regardless of whether or not
discoverable), statutory liability, property damage, bodily injury or death),
obligation, loss, settlement, damage, penalty, claim, action, suit, proceeding
(whether civil or criminal), judgment, penalty, fine and other legal or
administrative sanction, judicial or administrative proceeding, cost, expense or
disbursement, including reasonable legal, investigation and expert fees,
expenses and reasonable related charges, of whatsoever kind and nature.

                "CLOSING"' shall have the meaning specified in Section 2.2(a) of
the Participation Agreement.

                "CLOSING APPRAISAL" shall mean the appraisal, dated as of the
Closing Date, prepared by the Appraiser with respect to the Owner Lessor's
Interest in each Facility and the related Facility Site.

                "CLOSING DATE" shall mean the Scheduled Closing Date or such
later date on which the Closing shall occur.

                "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.

                "COLLATERAL DOCUMENTS" shall mean the Collateral Trust Indenture
and the financing statements.



                                       7
<PAGE>   8

                "COLLATERAL TRUST INDENTURE" shall mean the Indenture of Trust,
Mortgage and Security Agreement, dated as of the Closing Date, between the Owner
Lessor and the Indenture Trustee, in substantially the form of Exhibit I to the
Participation Agreement.

                "COMMENCEMENT DATE" with respect to a Facility Site Lease, shall
have the meaning specified in Section 2.1(a) of such Facility Site Lease.

                "COMPETITOR" shall have the meaning specified in Section 7.1(b)
of the Participation Agreement.

                "COMPONENT" shall mean any appliance, part, instrument,
appurtenance, accessory, furnishing, equipment or other property of whatever
nature that may from time to time be incorporated in the Facility, except to the
extent constituting Improvements or spare parts while being held for future use.

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

                "CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of
determination, as applied to the Guarantor, the total amount of Consolidated
assets (less accumulated depreciation or amortization, allowances for doubtful
receivables, other applicable reserves and other properly deductible items)
under GAAP which would appear on a Consolidated balance sheet of the Guarantor
and its Subsidiaries, determined in accordance with GAAP, and after giving
effect to purchase accounting and after deducting therefrom, to the extent
otherwise included, the amounts of: (i) Consolidated Current Liabilities; (ii)
minority interests in consolidated Restricted Subsidiaries held by Persons other
than the Guarantor or a Restricted Subsidiary; (iii) excess of cost over fair
value of assets of businesses acquired, as determined in good faith by the Board
of Directors; (iv) any revaluation or other write-up in value of assets
subsequent to December 31, 1993 as a result of a change in the method of
valuation in accordance with GAAP; (v) unamortized debt discount and expenses
and other unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, licenses, organization or developmental expenses
and other intangible items; (vi) treasury stock; and (vii) any cash set apart
and held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of Capital Stock to the extent such obligation is
not reflected in Consolidated Current Liabilities.

                "CONSOLIDATED SUBSIDIARY" shall mean with respect to any Person
at any date any Subsidiary or other entity the accounts of which would be
consolidated in accordance with GAAP with those of such Person in its
consolidated financial statements as of such date.

                "CONSOLIDATION" means, with respect to any Person, the
consolidation of accounts of such Person and each of its subsidiaries if and to
the extent the accounts of such



                                       8
<PAGE>   9

Person and such subsidiaries are consolidated in accordance with GAAP. The term
"Consolidated" shall have a correlative meaning.

                "CORPORATE TRUST OFFICE" shall mean, with respect to the
Indenture Trustee, the office of such Person in the city in which at any
particular time its corporate trust business shall be principally administered.

                "CSFB" shall mean Credit Suisse First Boston.

                "CSFB-OP LETTER AGREEMENT" shall mean the letter agreement dated
as the Closing Date among the Owner Participant, the OP Guarantor and CSFB, as
in effect on the Closing Date.

                "CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.

                "DEBT PORTION OF PERIODIC RENT" means for any Rent Payment Date
with respect to a Facility Lease, the difference between (i) the Periodic Rent
scheduled to be paid under such Facility Lease on such Rent Payment Date and
(ii) the Equity Portion of Periodic Rent for such Rent Payment Date.

                "DEBT PORTION OF TERMINATION VALUE" in respect of any
determination of Termination Value or amount determined by reference to the
Termination Value payable pursuant to the Tiverton Operative Documents and/or
the Rumford Operative Documents, as the case may be, shall mean an amount equal
to the excess of (i) the Termination Value set forth opposite the Termination
Date corresponding to such date of determination on Schedule 2 of the applicable
Facility Lease, and, if such date of determination is a Rent Payment Date,
Periodic Rent due on that date (to the extent payable in arrears) minus (ii) the
sum of (A) the Equity Portion of Termination Value set forth opposite the
Termination Date corresponding to such date of determination on Exhibit A to the
applicable Calpine Guaranty, and, (B) if such date of determination is a Rent
Payment Date, the Equity Portion of Periodic Rent due on that date. The Debt
Portion of Termination Value is set forth on Exhibit B to the applicable Calpine
Guaranty.

                "DEFAULT" means any event which is, or after notice or passage
of time or both would be, a Calpine Guaranty Event of Default.

                "DELAYED PERMIT", with respect to a Facility Lease, means a
material environmental permit required under Applicable Law in connection with
the sale on the Closing Date of such Facility to the Owner Lessor, which permit
has not been obtained by the applicable Facility Lessee when required by
applicable law if such failure would reasonably be expected to (i) have a
material adverse effect on the applicable Facility or (ii) result in a criminal
or material civil liability to the Owner Lessor or the Owner Participant.

                "DEPRECIATION DEDUCTION" shall have the meaning specified in
Section 1(a) of the Tax Indemnity Agreement.

                "DISCOUNT RATE" shall mean each Facility Lessee's incremental
borrowing rate as determined by such Facility Lessee in accordance with FASB 13.



                                       9
<PAGE>   10

                "DOLLARS" or the sign "$" shall mean United States dollars or
other lawful currency of the United States.

                "DRAWING EVENT" means any of the following events:

                (A) Calpine has failed to replace the Letter of Credit with a
Qualifying Letter of Credit within the respective time periods specified in
Section 5.46(b), (c) or (d) of the Participation Agreement or comply with its
obligations under Section 5.46(i) of the Participation Agreement;

                (B) a Lease Event of Default has occurred and is continuing
under the Tiverton Facility Lease or the Rumford Facility Lease and (i) pursuant
to Sections 5.6(b) or 5.6(c) of the Collateral Trust Indenture, the Owner
Lessor, as between itself and the Indenture Trustee, is permitted to exercise
remedies against Calpine under any of the Calpine Guaranties or (ii) the Owner
Lessor shall be entitled to exercise its rights under Section 2.1(d) of any of
the Calpine Guaranties;

                (C) the Indenture Trustee (as assignee of the Owner Lessor) has
either (1) exercised remedies under Sections 17.1(b), (c), (d) or (e) of either
of the Tiverton Facility Lease or the Rumford Facility Lease, (2) demanded
payment of all or a portion of Termination Value, the Equity Portion of
Termination Value or the Debt Portion of Termination Value under any of the
Calpine Guaranties or any of the Facility Leases or (3) foreclosed upon the
Indenture Estate;

                (D) the Collateral Trust Indenture has terminated in accordance
with Section 9.1 thereof and a Lease Event of Default pursuant to the Tiverton
Facility Lease or the Rumford Facility Lease has occurred and is continuing; or

                (E) a Lease Event of Default pursuant to Section 16(g) or 16(h)
of the Tiverton Facility Lease or the Rumford Facility Lease, or "Event of
Default" under Section 17(f) or Section 17(g) of the Calpine Guaranty (Tiverton)
or the Calpine Guaranty (Rumford) shall have occurred or be continuing.

                "EASEMENTS" shall mean the Tiverton Easements and the Rumford
Easements.

                "ECA SHORTFALL EVENT" means a failure of the Guarantor to
maintain the coverage of the Qualifying Letter of Credit or the Equity
Collateral Account at the levels required by Section 5.46 of the Participation
Agreement, after notice by the Owner Participant of such failure and the lapse
of the cure period referred to in Section 5.46(k) of the Participation
Agreement.

                "EFFECTIVE DATE" shall mean December 19, 2000.

                "ENFORCEMENT NOTICE" shall have the meaning specified in Section
5.1 of the Collateral Trust Indenture.

                "ENGINEERING CONSULTANT" shall mean S&W Consultants, Inc.



                                       10
<PAGE>   11

                "ENGINEERING REPORT" shall mean, with respect to the Facilities,
the report of the Engineering Consultant, dated December, 2000.

                "ENVIRONMENTAL CONDITION" shall mean any action, omission,
event, condition or circumstance, including, without limitation, the presence of
any Hazardous Substance, which does or reasonably could (i) require assessment,
investigation, abatement, correction, removal or remediation, (ii) give rise to
any obligation or liability of any nature (whether civil or criminal, arising
under a theory of negligence or strict liability, or otherwise) under any
Environmental Law, (iii) create or constitute a public or private nuisance or
trespass, or (iv) constitute a violation of or non-compliance with any
Environmental Law.

                "ENVIRONMENTAL CONSULTANT" shall mean Earth Tech, Inc.

                "ENVIRONMENTAL LAWS" shall mean any international, national,
Native American, provincial, regional, federal, state, municipal or local laws,
ordinances, rules, orders, statutes, decrees, judgments, injunctions,
directives, permits, licenses, approvals, codes, regulations, common or
decisional law (including principles of tort, negligence, trespass, nuisance,
strict liability, contribution and indemnification) or other requirement of any
Governmental Entity relating to the environment, the safety or health of human
beings or other living organisms, natural resources or toxic, explosive,
corrosive, flammable, infectious, radioactive or other Hazardous Substances, as
each may from time to time be amended, supplemented or supplanted.

                "ENVIRONMENTAL REPORTS" shall mean (a) that certain Phase I
Environmental Site Assessment (Maine Power Associates, 43 Rumford Industrial
Parkway, Rumford, Maine) prepared for Calpine by the Environmental Consultant
dated December 2000 and (b) that certain Phase I Environmental Site Assessment
(Tiverton Power Facility, 304 Progress Way, Tiverton, Rhode Island) prepared for
Calpine by the Environmental Consultant dated December 2000.

                "EQUITY COLLATERAL ACCOUNT" shall mean the Equity Collateral
Account referred to in Section 5.46 of the Participation Agreement.

                "EQUITY INVESTMENT" shall mean the amount specified with respect
thereto on Schedule 1-A to the Participation Agreement.

                "EQUITY PORTION OF PERIODIC RENT" shall mean for any Rent
Payment Date (A) with respect to the Rumford Facility, the difference between
(i) Periodic Rent scheduled to be paid under the Rumford Facility Lease on such
Rent Payment Date and (ii) the principal and interest scheduled to be paid on
the Rumford Lessor Notes on such Rent Payment Date, and (B) with respect to the
Tiverton Facility, the difference between (i) Periodic Rent scheduled to be paid
under the Tiverton Facility Lease on such Rent Payment Date and (ii) the
principal and interest scheduled to be paid on the Tiverton Lessor Notes on such
Rent Payment Date.

                "EQUITY PORTION OF TERMINATION VALUE" in respect of any
determination of Termination Value or amount determined by reference to
Termination Value payable pursuant to the Tiverton Operative Documents and/or
the Rumford Operative Documents, as the case may be, shall mean an amount equal
to the excess, if any, of (i) the Termination Value set forth opposite the
Termination Date corresponding to such date of determination on Schedule 2 of
the



                                       11
<PAGE>   12

applicable Facility Lease, and, if such date of determination is a Rent Payment
Date, Periodic Rent due on that date (to the extent payable in arrears) over
(ii) the balance, including scheduled (in accordance with the payment terms of
the related Lessor Notes) accrued interest, on the related Lessor Notes
scheduled (in accordance with the payment terms of such Lessor Notes) to be
outstanding on such date of determination corresponding to such Facility Lease.
The Equity Portion of Termination Value is set forth on Exhibit A to the
applicable Calpine Guaranty.

                "ERISA" shall mean the Employee Retirement Income Security Act
of 1974.

                "ERISA AFFILIATE" shall mean each person (as defined in Section
3(9) of ERISA) which together with either of the Facility Lessees or a
Subsidiary of either of the Facility Lessees would be deemed to be a "single
employer" (i) within the meaning of Section 414(b), (c), (m) and/or (o) of the
Code or (ii) as a result of either of the Facility Lessees or a Subsidiary of
either of the Facility Lessees being or having been a general partner of such
person.

                "EVENT OF LOSS" shall mean, with respect to either Facility, any
of the following events:

                        (i) the loss of such Facility or use thereof due to
destruction or damage that renders repair uneconomic or that renders such
Facility permanently unfit for normal use or which does not satisfy the
preconditions for repair of such Facility set forth below; or

                        (ii) any damage that results in an insurance settlement
with respect to such Facility on the basis of a total loss or an agreed
constructive or a compromised total loss of such Facility; or

                        (iii) (a) seizure, condemnation, confiscation or taking
of, or requisition (a "Requisition") of title to such Facility by any
Governmental Entity that shall have resulted in loss by the Owner Lessor of
title to such Facility, following exhaustion of all permitted appeals or an
election by the applicable Facility Lessee in its discretion not to pursue such
appeals or rights; provided that no such contest (or exercise) shall extend
beyond the earlier of the date which is (x) six months after the loss of such
title, or (y) 48 months prior to the end of the Basic Lease Term or any Renewal
Lease Term then in effect or elected by such Facility Lessee or (b) Requisition
of use of such Facility or title to or the use of the related Facility Site by
any Governmental Entity that shall have resulted in the loss of possession of
such Facility or all or any part of the related Facility Site that is required
for the use or operation of such Facility; provided that in any case involving
Requisition of use of such Facility, or all or any part of the related Facility
Site that is required for the use or operation, of such Facility, such event
shall be an Event of Loss only if loss of possession continues beyond the Basic
Lease Term or any Renewal Lease Term then in effect or elected by the such
Facility Lessee; or

                        (iv) (A) if elected in writing by the Owner Participant,
such election to be made only in circumstances where the termination of the
Facility Lease with respect to such Facility shall remove the basis of the
regulation described below, subjection of the Owner Participant or the Owner
Lessor to any public utility regulation of any Governmental Entity or law which
in the reasonable opinion of the Owner Participant is burdensome, or the
subjection of



                                       12
<PAGE>   13

the Owner Participant's or the Owner Lessor's interest in the Facility Leases to
any rate of return regulation by any Governmental Entity, in either case by
reason of the participation of the Owner Lessor or the Owner Participant in the
transactions contemplated by the Operative Documents and not, in any event, as a
result of (a) investments, loans or other business activities of the Owner
Participant or any of its Affiliates in respect of equipment or facilities
similar in nature to the Facilities or any part thereof or in any other
electrical, cogeneration or other energy or utility related equipment or
facilities or the general business or other activities of the Owner Participant
or any of its Affiliates or the nature of any of the properties or assets from
time to time owned, leased, operated, managed or otherwise used or made
available for use by the Owner Participant or any of its Affiliates or (b) a
failure of the Owner Participant to perform routine, administrative or
ministerial actions the performance of which would not subject the Owner
Participant to any adverse consequence (in the reasonable opinion of such Owner
Participant acting in good faith), provided that the Facility Lessees and the
Owner Lessor and Owner Participant agree to cooperate and to take reasonable
measures to alleviate the source or consequence of any regulation constituting
an Event of Loss under this paragraph (iv), so long as there shall be no adverse
consequences to the Owner Lessor or Owner Participant as a result of such
cooperation or the taking of reasonable measures ,or (B) if elected in writing
by the Owner Participant, any failure to obtain any Delayed Permit by June 30,
2001, provided that such period shall be extended to December 31, 2001 if the
relevant Facility Lessee certifies (in an Officer's Certificate) on or before
June 30, 2001 to the Owner Participant that it is reasonable to expect that the
Facility Lessee will obtain such permit by on or before December 31, 2001, and
sets forth in such Officer's Certificate relevant facts in support of such
certification, or (C) if elected in writing by the Owner Participant, any
failure by the Facility Lessees to obtain, within 180 days following the Closing
Date, an order of FERC in which FERC disclaims jurisdiction over the Owner
Participant and the Owner Lessor (the events and circumstances described in any
of clause (A), (B) or (C) herein, a "Regulatory Event of Loss").

                        (v) if elected by the Owner Participant, the FERC Owner
Lessor EWG Orders shall not have been obtained and become final within ninety
(90) days of the Closing Date, such election to be conditioned upon receipt of a
reasoned legal opinion of nationally recognized independent counsel (Owner
Participant's outside counsel at Closing to be deemed to meet such
qualifications) that any pending proceeding, if adversely determined, would
reasonably be expected to have a material adverse effect on the Owner
Participant or subject the Owner Participant or the Owner Lessor to regulation
as a public utility company or a holding company under the Holding Company Act.

                The date of occurrence of an Event of Loss described in clauses
(i) or (ii) above shall be the date of the applicable Facility Lessee's notice
to the Owner Lessor, the Owner Participant, the Indenture Trustee and the Pass
Through Trustee pursuant to Section 10.1 of the applicable Facility Lease that
it does not elect to rebuild the applicable Facility pursuant to Section 10.3 of
the applicable Facility Lease but to pay Termination Value and terminate such
Facility Lease with respect to such Facility pursuant to Section 10.2 thereof,
or the date an Event of Loss is deemed to occur pursuant to the last sentence of
Section 10.1 of such Facility Lease. The date of occurrence of an Event of Loss
described in clause (iii)(a) above shall be the earlier of (A) the date which is
six months following the loss of title, (B) the date upon which the applicable
Facility Lessee shall have concluded all efforts to contest such loss of title
or exercise its rights of eminent domain, and (C) the date which is 48 months
prior to the end of the Basic



                                       13
<PAGE>   14

Lease Term or any Renewal Lease Term then in effect or elected by the Facility
Lessee (if an event described in clause (iii)(a) shall be continuing at such
time). The date of occurrence of an Event of Loss described in clause (iii)(b)
above shall be the date of requisition of title to the relevant Facility Site
or, in the case of a requisition of use of such Facility Site, the date which is
the scheduled expiration date of the Basic Lease Term or any Renewal Lease Term
then in effect or elected by the applicable Facility Lessee, as the case may be
(if an event described in clause (iii)(b) shall be continuing at such time). The
date of occurrence of an Event of Loss described in clause (iv) above shall be
the date on which the Facility Lessees receive the Owner Participant's election
made in accordance with such clause (iv) during any period when an event is
continuing which upon election by Owner Participant in accordance with such
clause (iv) would constitute a Regulatory Event of Loss. The date of occurrence
of an Event of Loss described in clause (v) above shall be the date on which the
Facility Lessees receive the Owner Participant's election made in accordance
with such clause (v).

                "EXCEPTED PAYMENTS" shall mean and include (i)(A) any right,
title or interest to any indemnity (whether or not constituting Supplemental
Rent and whether or not a Lease Event of Default exists) payable to either the
Owner Lessor, the Administrator, the Lease Indenture Company, or the Owner
Participant or to their respective Indemnitees and successors and permitted
assigns (other than the Indenture Trustee) pursuant to Section 2.3, 9.1, 9.2,
11.1 or 11.2 of the Participation Agreement, and any payments under any Tax
Indemnity Agreement or (B) any amount payable by a Facility Lessee to the Owner
Lessor or the Owner Participant to reimburse any such Person for its costs and
expenses in exercising its rights under the Operative Documents, (ii)(A)
insurance proceeds, if any, payable to the Owner Lessor or the Owner Participant
under insurance separately maintained by the Owner Lessor or the Owner
Participant with respect to the Facilities as permitted by Section 3(b) of
Schedule 5.45 to the Participation Agreement or (B) proceeds of personal injury
or property damage liability insurance maintained under any Operative Document
for the benefit of the Owner Lessor or the Owner Participant, (iii) any amount
payable to the Owner Participant as the purchase price of the Owner
Participant's right and interest in the Member Interest, (iv) all other fees
expressly payable to the Owner Participant under the Operative Documents, (v)
all right, title and interest in any Qualifying Letter of Credit, the Equity
Collateral Account and proceeds of drawings by the Owner Lessor under any
Qualifying Letter of Credit and all funds on deposit in the Equity Collateral
Account, (vi) all right, title and interest in (x) amounts constituting the
Equity Portion of Termination Value, the Equity Portion of Periodic Rent or any
interest thereon payable to the Owner Lessor by the Guarantor as the result of a
proceeding brought by the Owner Lessor as permitted by Section 5.6(b) of the
Collateral Trust Indenture and which, pursuant to such section, the Owner Lessor
is entitled to retain for its own account and (y) amounts payable following
foreclosure, sale or transfer to the extent provided in Section 2.1(d) of each
of the Calpine Guaranties; (vii) any payments in respect of interest, or any
payments made on an After-Tax Basis, to the extent attributable to payments
referred to in clause (i) through (vi) above; (viii) any amounts paid to the
Owner Lessor as reimbursement for amounts expended pursuant to Section 21 of
each of the Tiverton Facility Lease and the Rumford Facility Lease; (ix) all
right, title and interest in the credit support arrangements referred to in
clause (iv) of Section 3.6(a) of each of the Guaranties; (x) proceeds of the
items referred to in clause (i) through (ix) above; and (xi) any rights to
demand, collect, sue for, or otherwise receive and enforce payment of the
foregoing amounts, including under the Calpine Guaranties, but without limiting
clause (vi) of this definition above.



                                       14
<PAGE>   15

                "EXCESS AMOUNT" shall have the meaning specified in Section 14.3
of the Participation Agreement, and, with respect to the Collateral Trust
Indenture, the meaning specified in Section 9.13 thereof.

                "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.

                "EXCLUDED TAXES" shall have the meaning specified in Section
9.2(b) of the Participation Agreement.

                "EXEMPT WHOLESALE GENERATOR" or "EWG" shall mean an entity which
is an "exempt wholesale generator" as defined in Section 32 of PUHCA.

                "FACILITY" shall mean either the Tiverton Facility or the
Rumford Facility, as the case may be.

                "FACILITIES" shall mean a collective reference to the Tiverton
Facility and the Rumford Facility.

                "FACILITY LEASE(s)" shall mean, individually or collectively as
the context may require, Tiverton Facility Lease and Rumford Facility Lease.

                "FACILITY LEASE TERM" with respect to a Facility Lease, shall
mean the term of such Facility Lease, including the Basic Lease Term and all
Renewal Lease Terms.

                "FACILITY LESSEE(s)" shall mean individually or collectively as
the context may require, (i) Tiverton Lessee as lessee under the Tiverton
Facility Lease or (ii) Rumford Lessee as lessee under the Rumford Facility
Lease.

                "FACILITY SITE(s)" shall mean, individually or collectively as
the context may require, (i) the Tiverton Site or (ii) the Rumford Site.

                "FACILITY SITE LEASE(s)" shall mean, individually or
collectively as the context may require, the Tiverton Site Lease and the Rumford
Site Lease.

                "FACILITY SITE SUBLEASE(s)" shall mean, individually or
collectively as the context may require, the Facility Site Sublease (Tiverton)
and the Facility Site Sublease (Rumford).

                "FACILITY SITE SUBLEASE (RUMFORD)" shall mean the Facility Site
Sublease (Rumford) dated as of December 19, 2000 among the Rumford Site
Sublessor and the Rumford Site Sublessee.

                "FACILITY SITE SUBLEASE (TIVERTON)" shall mean the Facility Site
Sublease (Tiverton) dated as of December 19, 2000 among the Tiverton Site
Sublessor and the Tiverton Site Sublessee.

                "FAIR MARKET RENTAL VALUE" or "FAIR MARKET SALES VALUE" shall
mean with respect to any property or service as of any date, the cash rent or
cash price obtainable in an arm's-length lease, sale or supply, respectively,
between an informed and willing lessee or



                                       15
<PAGE>   16

purchaser under no compulsion to lease or purchase and an informed and willing
lessor or seller or supplier under no compulsion to lease or sell or supply of
the property or service in question, and shall, in the case of any Facility or
the Owner Lessor's Interest, be determined (except pursuant to Section 17 of the
Facility Leases or as otherwise provided below or in the Operative Documents) on
the basis and assumption that (i) the conditions contained in Sections 7 and 8
of the Facility Leases shall have been complied with in all respects, (ii) the
lessee or buyer shall have rights in, or an assignment of, the Operative
Documents to which the Owner Lessor is a party and the obligations relating
thereto, (iii) the Facility or the Owner Lessor's Interest, as the case may be,
is free and clear of all Liens (other than Owner Lessor's Liens, Owner
Participant's Liens and Indenture Trustee Liens), (iv) taking into account the
remaining term of the Facility Site Leases, and (v) in the case the Fair Market
Rental Value, taking into account the terms of the Facility Lease and the other
Operative Documents. If the Fair Market Sales Value of the Owner Lessor's
Interest is to be determined during the continuance of a Lease Event of Default
or in connection with the exercise of remedies by the Owner Lessor pursuant to
Section 17 of the Facility Lease, such value shall be determined by an
Independent Appraiser appointed solely by the Owner Lessor on an "as-is",
"where-is" and "with all faults" basis and shall take into account all Liens
(other than Owner Lessor's Liens, Owner Participant's Liens and Indenture
Trustee Liens); provided, however, in any such case where the Owner Lessor shall
be unable to obtain constructive possession sufficient to realize the economic
benefit of the Owner Lessor's Interest, Fair Market Sales Value of the Owner
Lessor's Interest shall be deemed equal to $0 (zero). If in any case other than
in the preceding sentence the parties are unable to agree upon a Fair Market
Sales Value of the Owner Lessor's Interest within 30 days after a request
therefor has been made, the Fair Market Sales Value of the Owner Lessor's
Interest shall be determined by appraisal pursuant to the Appraisal Procedures.
Any fair market value determination of a Severable Improvement shall take into
consideration any liens or encumbrances to which the Severable Improvement being
appraised is subject and which are being assumed by the transferee.

                "FASB 13" shall mean the Statement of the Financial Accounting
Standards Board No. 13, as amended and interpreted from time to time.

                "FASB 98" shall mean the Statement of the Financial Accounting
Standards Board No. 98, as amended and interpreted from time to time.

                "FEDERAL POWER ACT" or "FPA" shall mean the Federal Power Act,
as amended.

                "FERC" shall mean the Federal Energy Regulatory Commission of
the United States or any successor or predecessor agency thereto.

                "FERC ORDERS" shall mean any or all of the following of the FERC
Orders required pursuant to Section 4.37 of the Participation Agreement:

                        (i) a determination by FERC of EWG status of each
Facility Lessee and Owner Lessor and the Owner Participant;

                        (ii) an approval from FERC for each Facility Lessee to
sell power at market-based rates effective on or before the Closing Date;



                                       16
<PAGE>   17

                        (iii) either an approval by FERC of the issuance of
securities and the assumption of obligations necessary to effect the
sale/leaseback pursuant to Section 204 of the Federal Power Act or blanket
authorization to issue securities and assume obligations under such Section; and

                        (iv) an approval of the transfer of certain general and
limited partnership interests from affiliates of Energy Management, Inc. to
Calpine Corporation and its affiliates under Section 203 of the Federal Power
Act.

                "FERC OWNER LESSOR EWG ORDERS" shall mean the orders issued by
the FERC determining that the Owner Lessor and the Owner Participant are EWGs.

                "FINAL DETERMINATION" shall have the meaning specified in
Section 9 of the Tax Indemnity Agreement.

                "FIRST RENEWAL LEASE TERM" with respect to a Facility Lease,
shall have the meaning specified in Section 15.1(a) of such Facility Lease.

                "FIRST WINTERGREEN RENEWAL LEASE OPTION" with respect to a
Facility Site Lease, shall have the meaning specified in Section 2.2(a)(i) of
such Facility Site Lease.

                "FMV RENEWAL LEASE OPTION" with respect to a Facility Lease
Term, shall have the meaning set forth in Section 2.2(a)(iii) of such Facility
Site Lease.

                "FMV RENEWAL LEASE TERM" with respect to a Facility Lease, shall
have the meaning specified in Section 15.2 of such Facility Lease.

                "FORECLOSURE TRANSFER" with respect to a Facility Site Lease,
shall have the meaning set forth in Section 19.3 of such Facility Site Lease.

                "GAAP" shall mean generally accepted accounting principles.

                "GOVERNMENTAL ACTIONS" shall mean all authorizations, consents,
approvals, waivers, exceptions, variances, filings, permits, orders, licenses,
exemptions and declarations of or with any Governmental Entity and shall include
those citing, environmental and operating permits and licenses (including the
Applicable Permits) that are required for the use and operation of the
Facilities and the Facility Sites.

                "GOVERNMENTAL ENTITY" shall mean and include any international,
national, Native American, provincial, regional, state, municipal or local
government, any political subdivision of any thereof or any board, commission,
department, division, organ, instrumentality, court or agency of any thereof.

                "GUARANTOR" shall mean Calpine Corporation.

                "GUARANTOR ASSIGNMENT AND ASSUMPTION AGREEMENT" shall mean the
Guarantor Assignment and Assumption Agreement (Tiverton) or the Guarantor
Assignment and Assumption Agreement (Rumford), as the context may require.



                                       17
<PAGE>   18

                "GUARANTOR ASSIGNMENT AND ASSUMPTION AGREEMENT (RUMFORD)" shall
mean an assignment and assumption agreement in form and substance substantially
in the form of Exhibit N-2 to the Participation Agreement.

                "GUARANTOR ASSIGNMENT AND ASSUMPTION AGREEMENT (TIVERTON)" shall
mean an assignment and assumption agreement in form and substance substantially
in the form of Exhibit N-1 to the Participation Agreement.

                "HAZARDOUS SUBSTANCE" shall mean any pollutant, contaminant,
hazardous substance, hazardous waste, toxic substance, petroleum or
petroleum-derived substance, waste, or additive, asbestos, PCBs, radioactive
material, or other compound, element, material or substance in any form
whatsoever (including products) regulated, restricted or controlled by or under
any Environmental Law.

                "HOLDING COMPANY ACT" shall mean the Public Utility Holding
Company Act of 1935, as amended.

                "IMPROVEMENT" shall mean an addition, betterment or enlargement
of the Facilities. Improvements shall include any Required Improvements or
Optional Improvements, but do not include Components.

                "INCOME TAXES" shall have the meaning set forth in Section
9.2(b)(i) of the Participation Agreement.

                "INCUR" means, as applied to any obligation, to create, incur,
issue, assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "Incurred," "Incurrence" and
"Incurring" shall each have a correlative meaning; provided, however, that any
amendment, modification or waiver of any provision of any document pursuant to
which Indebtedness was previously Incurred shall not be deemed to be an
Incurrence of Indebtedness as long as (i) such amendment, modification or waiver
does not (A) increase the principal or premium thereof or interest rate thereon,
(B) change to an earlier date the Stated Maturity thereof or the date of any
scheduled or required principal payment thereon or the time or circumstances
under which such Indebtedness may or shall be redeemed, (C) if such Indebtedness
is contractually subordinated in right of payment to the Obligations (Tiverton)
or the Obligations (Rumford), as the context may require, modify or affect, in
any manner adverse to the Beneficiaries, such subordination or (D) if the
Guarantor is the obligor thereon, provide that a Restricted Subsidiary shall be
an obligor and (ii) such Indebtedness would, after giving effect to such
amendment, modification or waiver as if it were an Incurrence, comply with
clause (i) of the first proviso to the definition of "Refinancing Indebtedness."

                "INDEBTEDNESS" of any Person shall mean (i) all indebtedness of
such Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person to pay the deferred purchase price of property or services, (iv) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (v)
all Lease Obligations of such Person



                                       18
<PAGE>   19

(including payments of Termination Value and any other amounts owed pursuant to
the Operative Documents), (vi) all obligations, contingent or otherwise, of such
Person under acceptance, letter of credit or similar facilities, (vii) all
unconditional obligations of such Person to purchase, redeem, retire, defease or
otherwise acquire for value any capital stock or other equity interests of such
Person or any warrants, rights or options to acquire such capital stock or other
equity interests, (viii) all obligations under "swaps", "caps", "floors",
"collars", or other interest rate hedging contracts or similar arrangements,
(ix) all Indebtedness of any other Person of the type referred to in clauses (i)
through (ix), guaranteed by such Person or for which such Person shall otherwise
(including pursuant to any keepwell, makewell or similar arrangement) become
directly or indirectly liable, and (x) all Indebtedness of the type referred to
in clauses (i) through (xi) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including accounts and contracts rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness, the amount of such obligation being deemed to be the
lesser of the value of such property or the amount of the obligation so secured.

                "INDEMNITEE" shall have the meaning specified in Section 9.1(a)
of the Participation Agreement.

                "INDEMNITOR" with respect to a Facility Site Lease, shall have
the meaning set forth in Section 13.3 of such Facility Site Lease.

                "INDENTURE BANKRUPTCY DEFAULT" shall mean any event or
occurrence, which, with the passage of time or the giving of notice or both,
would become an Lease Indenture Event of Default under Section 4.2(e) or (f) of
the Collateral Trust Indenture.

                "INDENTURE DEFAULT" shall mean any event or occurrence, which,
with the passage of time or the giving of notice or both, would become an Lease
Indenture Event of Default.

                "INDENTURE ESTATE" shall have the meaning specified in the
Granting Clause of the Collateral Trust Indenture.

                "INDENTURE TRUSTEE OFFICE" shall mean the office to be used for
notices to the Indenture Trustee from time to time pursuant to Section 9.5 of
the Collateral Trust Indenture.

                "INDENTURE TRUSTEE'S ACCOUNT" shall mean the account specified
with respect thereto on Schedule 1-B to the Participation Agreement or such
other account of the Indenture Trustee, as the Indenture Trustee may from time
to time specify in a notice to the other parties to the Participation Agreement.

                "INDENTURE TRUSTEE'S LIENS" shall mean any Lien on the Lessor
Estate, any of the Facilities, the Facility Sites or any part thereof or any
interest therein arising as a result of (i) Taxes against or affecting the Lease
Indenture Company or the Indenture Trustee, or any Affiliate thereof that are
not related to, or that are in violation of, any Operative Document or the
transactions contemplated thereby, (ii) Claims against or any act or omission of
the Lease Indenture Company or the Indenture Trustee, or Affiliate thereof that
is not related to, or that is



                                       19
<PAGE>   20

in violation of, any of such Person's representations, warranties, covenants or
agreements in an Operative Document or the transactions contemplated thereby or
that is in breach of any covenant or agreement of the Lease Indenture Company or
the Indenture Trustee specified therein, (iii) Taxes imposed upon the Lease
Indenture Company or the Indenture Trustee, or any Affiliate thereof that are
not indemnified against by the Facility Lessees pursuant to any Operative
Document or (iv) Claims against or affecting the Lease Indenture Company or the
Indenture Trustee, or any Affiliate thereof arising out of the voluntary or
involuntary transfer by the Lease Indenture Company or the Indenture Trustee of
any portion of the interest of the Lease Indenture Company or the Indenture
Trustee in the Lessor Estate, other than pursuant to the Operative Documents.

                "INDEPENDENT APPRAISER" shall mean a disinterested, licensed
industrial property appraiser who is a member of the Appraisal Institute having
experience in the business of evaluating facilities similar to the Facilities.

                "INITIAL LETTER OF CREDIT" shall mean the letter of credit dated
as of the Closing Date issued by CSFB in favor of the Owner Participant, as
Beneficiary.

                "INITIAL PURCHASERS" shall mean CSFB, TD Securities (USA) Inc.,
and ING Barings LLC.

                "INITIAL SUBLEASE TERM" with respect to a Facility Site
Sublease, shall have the meaning set forth in Section 2.1(a) of such Facility
Site Sublease.

                "INITIAL TERM" with respect to a Facility Site Lease, shall have
the meaning specified in Section 2.1(a) of such Facility Site Lease.

                "INSURANCE CONSULTANT" shall mean Marsh USA, Inc.

                "INVESTMENT BANKER" shall have the meaning set forth in Section
2.10(d) of the Collateral Trust Indenture.

                "INVESTMENT COMPANY ACT" shall mean the Investment Company Act
of 1940.

                "INVESTMENT GRADE" with respect to a Rating Agency, shall mean,
with respect to S&P, BBB- or higher, and with respect to Moody's, Baa3 or
higher, or, if after the Closing Date a different system of ratings is
established, the term shall mean a rating in one of such Rating Agency's generic
rating categories that is comparable to such ratings.

                "IRS" shall mean the Internal Revenue Service of the United
States Department of Treasury or any successor agency.

                "L/C BANK" shall mean the Acceptable Bank providing a letter of
credit pursuant to Section 5.3 of the Facility Lease.

                "L/C TERMINATION VALUE" means in respect to any date specified
in Part II of Exhibit L of the Participation Agreement, the amount set forth
opposite such date in Part II of



                                       20
<PAGE>   21

Exhibit L to the Participation Agreement, as adjusted in accordance with Section
5.46(i) of the Participation Agreement.

                "LEASE DEBT" shall mean the debt evidenced by the Lessor Notes.

                "LEASE DEBT RATE" shall mean the applicable interest rate
accruing on Lessor Notes.

                "LEASE DEFAULT" shall mean any event or occurrence, which, with
the passage of time or the giving of notice or both, would become a Lease Event
of Default.

                "LEASE EVENT OF DEFAULT" with respect to a Facility Lease, shall
have the meaning specified in Section 16 of such Facility Lease.

                "LEASE INDENTURE COMPANY" shall mean State Street Bank & Trust
Company of Connecticut, N.A., in its individual capacity under the Operative
Documents.

                "LEASE INDENTURE EVENT OF DEFAULT" shall have the meaning set
forth in Section 4.2 in the Collateral Trust Indenture.

                "LEASE OBLIGATIONS" shall mean, without duplication, (i)
indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes, (ii) with respect to operating
leases of electric generating facilities, the termination value or similar
amount payable by the lessee under such lease and (iii) the principal amount of
financial obligations under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product where such
transaction is considered borrowed money indebtedness of the lessee for tax
purposes but is classified as an operating lease under GAAP.

                "LEASE TERM" shall mean the Basic Lease Term together with the
First Renewal Lease Term and Second Renewal Lease Term.

                "LEASEHOLD LIEN" with respect to a Facility Site Lease or a
Facility Site Sublease, shall have the meaning set forth in Section 16.4 of such
Facility Site Lease or Section 15.3 of such Facility Site Sublease.

                "LEASEHOLD MORTGAGEE" with respect to a Facility Site Lease or a
Facility Site Sublease, shall have the meaning set forth in Section 16.4 of such
Facility Site Lease or Section 15.3 of such Facility Site Sublease.

                "LESSEE 467 LOAN INTEREST" with respect to a Facility Lease,
shall have the meaning specified in Section 3.2(d) of such Facility Lease.

                "LESSEE 467 LOAN PRINCIPAL BALANCE" with respect to a Facility
Lease, shall have the meaning set forth in Section 3.2(d) of such Facility
Lease.

                "LESSOR 467 LOAN INTEREST" with respect to a Facility Lease,
shall have the meaning specified in Section 3.2(d) of such Facility Lease.



                                       21
<PAGE>   22

                "LESSOR 467 LOAN PRINCIPAL BALANCE" with respect to a Facility
Lease, shall have the meaning set forth in Section 3.2(d) of such Facility
Lease.

                "LESSOR ESTATE" shall mean all the estate, right, title and
interest of the Owner Lessor in, to and under the Facilities, the Facility Sites
and the Operative Documents, including all funds advanced to the Owner Lessor by
the Owner Participant, all installments and other payments of Periodic Rent,
Supplemental Rent or Termination Value under the Facility Leases, condemnation
awards, purchase price, sale proceeds, insurance proceeds and all other
proceeds, rights and interests of any kind for or with respect to the estate,
right, title and interest of the Owner Lessor in, to and under the Facilities,
the Facility Sites and the Operative Documents and any of the foregoing, but
shall not include Excepted Payments.

                "LESSOR NOTES" shall mean, collectively, the Tiverton Lessor
Notes and the Rumford Lessor Notes.

                "LESSOR PUT RENEWAL LEASE TERM" with respect to a Facility
Lease, shall have the meaning specified in Section 15.3 of such Facility Lease.

                "LIEN" shall mean any mortgage, security deed, security title,
pledge, lien, charge, encumbrance, lease, and security interest or title
retention arrangement.

                "LLC ADMINISTRATION AGREEMENTS" shall mean (i) the agreement
dated as of December 18, 2000 between the Owner Lessor and the Administrator as
in effect on the Closing Date and (ii) the agreement dated as of December 18,
2000 between the Owner Participant and the Administrator as in effect on the
Closing Date.

                "LLC AGREEMENT" shall mean the Limited Liability Company
Agreement, dated as of December 18, 2000, between the Owner Participant and the
Administrator, pursuant to which the Owner Lessor shall be governed.

                "MAJORITY IN INTEREST OF NOTEHOLDERS" as of any date of
determination, shall mean Noteholders holding in aggregate more than 50% of the
total outstanding principal amount of the Notes; provided, however, that any
Note held by a Facility Lessee, the Guarantor or any Affiliate of either such
party shall not be considered outstanding for purposes of this definition.

                "MAKE-WHOLE AMOUNT" shall mean, with respect to any Lessor Note
subject to redemption pursuant to the Lease Indenture, an amount equal to the
Discounted Present Value of such Lessor Note less the unpaid principal amount of
such Lessor Note; provided that the Make Whole Premium shall not be less than
zero. For purposes of this definition, the "Discounted Present Value" of any
Lessor Note subject to redemption pursuant to the Lease Indenture shall be equal
to the discounted present value of all principal and interest payments scheduled
to become due after the date of such redemption in respect of such Lessor Note,
calculated using a discount rate equal to the sum of (i) the yield to maturity
on the U.S. Treasury security having an average life equal to the remaining
average life of such Lessor Note and trading in the secondary market at the
price closest to par and (ii) 50 basis points; provided, however, that if there
is no U.S. Treasury security having an average life equal to the remaining
average life of such Lessor Note, such discount rate shall be calculated using a
yield to maturity interpolated or extrapolated on a



                                       22
<PAGE>   23

straight-line basis (rounding to the nearest calendar month, if necessary) from
the yields to maturity for two U.S. Treasury securities having average lives
most closely corresponding to the remaining life of such Lessor Note and trading
in the secondary market at the price closest to par.

                "MANAGER" shall mean Credit Suisse First Boston.

                "MATERIAL ADVERSE CHANGE" and "MATERIAL ADVERSE EFFECT" shall
mean a material adverse effect on (a) the economic prospects, operations,
assets, financial position, results of operation or business of the Guarantor,
including a material adverse effect on (i) the Facilities which adversely
affects the ability of the Guarantor to perform its obligations under the
Operative Documents or (ii) the validity or enforceability of the Operative
Documents, (b) the Indenture Estate or the Lessor Estate, the security interests
in the Lessor Estate, or (c) with respect to the Owner Participant's (but not
the Certificateholders') interest in the Facilities, the residual value or
remaining useful life of the Facilities.

                "MEMBER INTEREST" shall mean the interest of the Owner
Participant in the Owner Lessor.

                "MEMORANDUM OF FACILITY SITE LEASE" or "MEMORANDA OF FACILITY
SITE LEASE" shall mean, individually or collectively as the context may require,
the Memorandum of Facility Site Lease (Rumford) or the Memorandum of Facility
Site Lease (Tiverton).

                "MEMORANDUM OF FACILITY SITE LEASE (RUMFORD)" shall mean the
Memorandum of Facility Site Lease, dated as of the Closing Date, between Rumford
Lessee, as landlord, and the Owner Lessor, as tenant, and filed with Oxford
County, Maine Registry of Deeds .

                "MEMORANDUM OF FACILITY SITE LEASE (TIVERTON)" shall mean the
Memorandum of Facility Site Lease, dated as of the Closing Date, between
Tiverton Lessee, as landlord, and the Owner Lessor, as tenant, and filed with
the Land Evidence Records of the Town of Tiverton, State of Rhode Island.

                "MEMORANDUM OF FACILITY SITE SUBLEASE" or "MEMORANDA OF FACILITY
SITE SUBLEASE" shall mean, individually or collectively as the context may
require, the Memorandum of Facility Site Sublease (Rumford) and the Memorandum
of Facility Site Sublease (Tiverton).

                "MEMORANDUM OF FACILITY SITE SUBLEASE (RUMFORD)" shall mean the
Memorandum of Facility Site Sublease, dated as of the Closing Date, between the
Owner Lessor, as sublandlord, and Rumford Lessee, as subtenant, and filed with
Oxford County, Maine Registry of Deeds .

                "MEMORANDUM OF FACILITY SITE SUBLEASE (TIVERTON)" shall mean the
Memorandum of Facility Site Sublease, dated as of the Closing Date, between the
Owner Lessor, as sublandlord, and Tiverton Lessee, as subtenant, and filed with
the Land Evidence Records of the Town of Tiverton, State of Rhode Island.



                                       23
<PAGE>   24

                "MEMORANDUM OF LEASE" or "MEMORANDA OF LEASE" shall mean,
individually or collectively as the context may require, the Memorandum of Lease
(Rumford) and the Memorandum of Lease (Tiverton).

                "MEMORANDUM OF LEASE (RUMFORD)" shall mean the Memorandum of
Facility Lease, dated as of the Closing Date, between the Owner Lessor and the
Rumford Lessee and filed with Oxford County, Maine Registry of Deeds .

                "MEMORANDUM OF LEASE (TIVERTON)" shall mean the Memorandum of
Facility Lease, dated as of the Closing Date, between the Owner Lessor and the
Tiverton Lessee and filed with the Land Evidence Records of the Town of
Tiverton, State of Rhode Island.

                "MOODY'S" shall mean Moody's Investors Service, Inc. and any
successor thereto.

                "MULTIEMPLOYER PLAN" shall mean any Plan that is a multiemployer
plan (as defined in Section 4001(a)(3) of ERISA).

                "NOTE REGISTER" shall have the meaning specified in Section 2.8
of the Collateral Trust Indenture.

                "NOTEHOLDER(s)" shall mean any holder of record (as reflected on
the Note Register) from time to time of a Lessor Note outstanding.

                "NOTES" shall mean, individually or collectively as the context
may require, (i) the Tiverton Lessor Notes and Tiverton Additional Lessor Notes
or (ii) the Rumford Lessor Notes and Rumford Additional Lessor Notes, each
issued pursuant to the Collateral Trust Indenture.

                "NOTICE PERIOD" shall have the meaning set forth in Section 7.8
of the Participation Agreement.

                "OBLIGATIONS" shall mean, collectively, the Obligations
(Rumford) and the Obligations (Tiverton).

                "OBLIGATIONS (RUMFORD)" shall have the meaning set forth in
Section 2.2 of the Calpine Guaranty and Payment Agreement (Rumford).

                "OBLIGATIONS (TIVERTON)" shall have the meaning set forth in
Section 2.2 of the Calpine Guaranty and Payment Agreement (Tiverton).

                "OBSOLESCENCE TERMINATION DATE" with respect to a Facility
Lease, shall have the meaning specified in Section 14.1 of such Facility Lease.

                "OFFERING CIRCULAR" shall mean the Offering Circular, dated
December 15, 2000, with respect to the Certificates.



                                       24
<PAGE>   25

                "OFFICER" shall mean, solely with respect to the Guarantor, the
Chairman, the President, any Vice President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, the Secretary, any Assistant Treasurer,
any Assistant Secretary or the Controller or Principal Accounting Officer of the
Guarantor.

                "OFFICER'S CERTIFICATE" shall mean with respect to any Person, a
certificate signed (i) in the case of a corporation, by the Chairman of the
Board, the President, or a Vice President of such Person or any Person
authorized by or pursuant to the organizational documents, the by-laws or any
resolution of the Board of Directors or Executive Committee of such Person
(whether general or specific) to execute, deliver and take actions on behalf of
such Person in respect of any of the Operative Documents, (ii) in the case of a
partnership, by the Chairman of the Board of Directors, the President or any
Vice President, the Treasurer or an Assistant Treasurer of a corporate general
partner and (iii) in the case of an Indenture Trustee, a certificate signed by a
Responsible Officer of such Indenture Trustee.

                "OFFICIAL RECORDS" with respect to a Facility Site Lease, shall
have the meaning specified in the recitals to such Facility Site Lease.

                "OP ASSIGNMENT AND ASSUMPTION AGREEMENT" shall mean an
assignment and assumption agreement in form and substance substantially in the
form of Exhibit J to the Participation Agreement.

                "OP GUARANTOR" shall mean Philip Morris Capital Corporation or
any Person that shall guaranty the obligations of a Transferor under the
Operative Documents in accordance with Section 7.1 of the Participation
Agreement.

                "OP PARENT GUARANTY" shall mean, as applicable, (i) that certain
guaranty of Philip Morris Capital Corporation dated as of the Closing Date in
favor of the Facility Lessees, the Owner Lessor, the Indenture Trustee, the Pass
Through Trustee and the Certificateholders, or (ii) any other guaranty agreement
provided by an OP Guarantor in form and substance substantially in the form of
Exhibit G to the Participation Agreement.

                "OPERATIVE DOCUMENTS" shall mean the Participation Agreement,
the Bills of Sale, the Facility Leases, the Certificates, the Facility Site
Leases, the Facility Site Subleases, the Collateral Trust Indenture, the Lessor
Notes, the Pass Through Trust Agreement, the LLC Agreement, the Tax Indemnity
Agreement, the Calpine Guaranties, the OP Parent Guaranty (if any) and any
Qualifying Letter of Credit.

                "OPERATOR" shall mean Calpine Eastern Corporation or any
replacement Operator appointed pursuant to the Operative Documents.

                "OPINION OF COUNSEL" shall mean, with respect to any Calpine
Party, a written opinion (i) from Ronald W. Fischer or any other internal
counsel of Calpine, as to matters contained in such opinions delivered at
Closing, and as to all other matters, Thelen Reid & Priest and/or Steptoe &
Johnson, or any other outside legal counsel reasonably acceptable to the Owner
Participant, (ii) in form and substance (with respect to qualifications,
exception, assumption and the like) substantially equivalent to the legal
opinions delivered at Closing, with any material



                                       25
<PAGE>   26

modification or supplements thereto to be reasonably acceptable to the Owner
Participant, or in any such other form as may be reasonably acceptable to the
Owner Participant, and (iii) the scope of which shall cover due authorization,
execution, delivery and enforceability of the applicable agreement(s), and
exemption from regulation, in each case, substantially in the form set forth in
the opinions delivered at Closing with any material modifications thereto to be
reasonably acceptable to the Owner Participant.

                "OPTIONAL IMPROVEMENT" with respect to a Facility Lease, shall
have the meaning specified in Section 8.2 of such Facility Lease.

                "OPTION CLOSING DATE" with respect to a Facility Site Lease,
shall have the meaning set forth in Section 5.2 of such Facility Site Lease.

                "OVERALL TRANSACTION" shall mean all of the transactions
contemplated by the Operative Documents.

                "OVERDUE RATE" shall mean a rate per annum equal to the prime
commercial lending rate of the Chase Manhattan Bank (as publicly announced to be
effect from time to time, such rate to be adjusted automatically, without
notice, on the effective date of any change in such rate) plus 1%.

                "OWNER LESSOR" shall mean PMCC Calpine New England Investment
LLC, a Delaware limited liability company created for the benefit of the Owner
Participant.

                "OWNER LESSOR'S ACCOUNT" shall mean Citibank, N.A., New York,
NY, ABA # 021000089, Account: Philip Morris Capital Corporation, Account #
3024-1278.

                "OWNER LESSOR'S INTEREST" shall mean the Owner Lessor's right,
title and interest in and to the ownership of the Facilities and the Facility
Sites, as applicable.

                "OWNER LESSOR'S LIEN(s)" individually or collectively as the
context may require, shall mean any Lien on the Lessor Estate, the Facility
Sites or the Easements, or any part of any thereof or interest therein arising
as a result of (i) Taxes against or affecting the Owner Lessor or any Affiliate
thereof that are not related to, or that are in violation of, any Operative
Document or the transactions contemplated thereby, (ii) Claims against or any
act or omission of the Owner Lessor or Affiliate thereof that is not related to,
or that is in violation of, any Operative Document or the transactions
contemplated thereby or that is in breach of any covenant or agreement of the
Owner Lessor specified therein, (iii) Taxes imposed upon the Owner Lessor or any
Affiliate thereof that are not indemnified against by the Facility Lessees
pursuant to any Operative Document or (iv) Claims against or affecting the Owner
Lessor or any Affiliate thereof arising out of the voluntary or involuntary
transfer by the Owner Lessor of any portion of the interest of the Owner Lessor
in the Owner Lessor's Interest, other than pursuant to the Operative Documents.

                "OWNER PARTICIPANT" shall mean PMCC Calpine NEIM LLC, a Delaware
limited liability company.



                                       26
<PAGE>   27

                "OWNER PARTICIPANT'S ACCOUNT" shall mean the account maintained
by the Owner Participant at the bank specified with respect thereto on Schedule
1-C to the Participation Agreement, or such other account of the Owner
Participant, as the Owner Participant may from time to time specify in a notice
to the Indenture Trustee pursuant to Section 9.5 of the Collateral Trust
Indenture.

                "OWNER PARTICIPANT'S COMMITMENT" shall mean the Owner
Participant's investment in the Owner Lessor contemplated by Section 2.1(a) of
the Participation Agreement.

                "OWNER PARTICIPANT'S LIEN(s)" individually or collectively as
the context may require, shall mean any Lien on the Lessor Estate, the Facility
Sites or the Easements, or any part of any thereof or interest therein arising
as a result of (i) Claims against or any act or omission of the Owner
Participant that is not related to, or that is in violation of, any Operative
Document or the transactions contemplated thereby or that is in breach of any
covenant or agreement of the Owner Participant set forth therein, (ii) Taxes
against the Owner Participant that are not indemnified against by the applicable
Facility Lessee pursuant to the Operative Documents or (iii) Claims against or
affecting the Owner Participant arising out of the voluntary or involuntary
transfer by the Owner Participant of any portion of the interest of the Owner
Participant in the Member Interest, other than any transfer (x) pursuant to the
exercise of any of the applicable Facility Lessee's (or any Affiliate thereof)
rights under the Operative Documents or (y) during the continuance of a Lease
Event of Default.

                "OWNER PARTICIPANT'S NET ECONOMIC RETURN" shall mean the Owner
Participant's anticipated (i) after-tax yield, calculated according to the
multiple investment sinking fund method of analysis, and (ii) periodic GAAP
income and aggregate after-tax cash flow.

                "OWNERSHIP INTEREST" shall mean, with respect to a Facility
Lessee (or any assigns of such Facility Lessee), any and all equity interest in
such Facility Lessee (or such assignee of such Facility Lessee) howsoever
designated (whether capital stock, partnership interest, member interest or any
equivalent interest).

                "PARTICIPATION AGREEMENT" shall mean the Participation
Agreement, dated as of December 19, 2000, among the Facility Lessees, the
Guarantor, the Owner Lessor, the Owner Participant, State Street Bank & Trust
Company of Connecticut, as Indenture Trustee, and State Street Bank & Trust
Company of Connecticut, as Pass Through Trustee.

                "PARTNERSHIP AGREEMENT" shall mean the Tiverton Partnership
Agreement or the Rumford Partnership Agreement, as the context may require.

                "PASS THROUGH COMPANY" shall mean State Street Bank and Trust
Company of Connecticut, N.A., in its individual capacity, together with its
successors and permitted assigns.

                "PASS THROUGH TRUST AGREEMENT" shall mean the Pass Through Trust
Agreement, dated as of December 19, 2000, between the Facility Lessees and the
Pass Through Trustee.



                                       27
<PAGE>   28

                "PASS THROUGH TRUSTEE" shall mean State Street Bank and Trust
Company of Connecticut, N.A., not in its individual capacity, but solely as Pass
Through Trustee under the Pass Through Trust Agreement, and each other Person
that may from time to time be acting as a Pass Through Trustee in accordance
with the provisions of the Pass Through Trust Agreement.

                "PASS THROUGH TRUST" shall mean the pass through trusts created
pursuant to the Pass Through Trust Agreement.

                "PAYING AGENT" shall have the meaning set forth in Section 2.6
of the Collateral Trust Indenture.

                "PERIODIC RENT" with respect to a Facility Lease, shall mean the
sum of Basic Rent and Renewal Rent, if any, as specified in Schedule 1 to such
Facility Lease.

                "PERMIT" shall mean any action, approval, certificate, consent,
waiver, exemption, variance, franchise, order, permit, authorization, right or
license of or from, and any filing with a Governmental Entity.

                "PERMITTED CLOSING DATE LIENS" shall mean Permitted Liens
described in clause (a), (b), (f), (g) and (i) of the definition thereof.

                "PERMITTED ENCUMBRANCES" shall mean with respect to the Facility
Sites, all matters shown as exceptions on Schedule B to each of the Title
Policies as in effect on the Closing Date.

                "PERMITTED INVESTMENTS" shall mean investments in securities
that are: (i) direct obligations of the United States or any agency thereof;
(ii) obligations fully guaranteed by the United States or any agency thereof;
(iii) certificates of deposit or bankers acceptances issued by commercial banks
(or any of their affiliates) organized under the laws of the United States or of
any political subdivision thereof or under the laws of Canada, Japan,
Switzerland or any country that is a member of the European Economic Community
having a combined capital and surplus of at least $250 million and having
long-term unsecured debt securities then rated "A" or better by S&P or "A2" or
better by Moody's (but at the time of investment not more than $25,000,000 may
be invested in such certificates of deposit from any one bank); (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i) and (ii) above, entered into with any
financial institution meeting the qualifications specified in clause (iii)
above; (v) open market commercial paper of any corporation incorporated or doing
business under the laws of the United States or of any political subdivision
thereof having a rating of at least "A-1" from S&P and "P-1" from Moody's (but
at the time of investment not more than $25,000,000 may be invested in such
commercial paper from any one company); (vi) auction rate securities or money
market preferred stock having one of the two highest ratings obtainable from
either S&P or Moody's (or, if at any time neither S&P nor Moody's is rating such
obligations, then from another nationally recognized rating service acceptable
to the Depositary); and (vii) investments in money market funds or money market
mutual funds sponsored by any securities broker dealer of recognized national
standing (or an affiliate thereof), having an investment policy that requires
substantially all the invested assets of



                                       28
<PAGE>   29

such fund to be invested in investments described in any one or more of the
foregoing clauses having a rating of "A" or better by S&P or "A2" or better by
Moody's.

                "PERMITTED LIENS" shall mean (a) the rights and interests of the
parties as provided in the Operative Documents, as well as the rights of
sublessees and/or assignees to the extent set forth in or expressly permitted
pursuant to the Facility Leases or any other Operative Document, (b) as to
Facility Lessees, Owner Lessor's Liens, Owner Participant's Liens and Indenture
Trustee's Liens, (c) Liens for any tax, assessment or other governmental charge,
either secured by a bond reasonably acceptable to the Indenture Trustee and the
Pass Through Trustee and, so long as no Lease Indenture Event of Default which
is not a Lease Event of Default exists, the Owner Lessor, or not yet due or
being contested in good faith and by appropriate proceedings, so long as (i)
such proceedings shall not reasonably be expected to give rise to criminal
liability or material civil liability on the part of the Owner Lessor, the Owner
Participant, the Indenture Trustee, the Pass Through Trustee or any
Certificateholders, and would not otherwise reasonably be expected to have a
Material Adverse Effect, or (ii) adequate reserves consistent with GAAP
requirements have been established and are maintained, so as to assure such
Persons that any taxes, assessments or other charges determined to be due will
be promptly paid in full when such contest is determined, (d) materialmen's,
mechanics', workers', repairmen's, employees' or other like Liens arising in the
ordinary course of business or in connection with the maintenance or repair of
the Facilities, for amounts not yet due or for amounts being contested in good
faith and by appropriate proceedings, so long as (i) such proceedings shall not
reasonably be expected to give rise to criminal liability or material civil
liability on the part of the Owner Lessor, the Owner Participant, the Indenture
Trustee, the Pass Through Trustee or any Certificateholders, and would not
otherwise reasonably be expected to have a Material Adverse Effect, and (ii)
adequate reserves consistent with GAAP requirements have been established and
are maintained, so as to ensure that any amounts determined to be due will be
promptly paid in full when such contest is determined, (e) Liens arising out of
judgments or awards, but only so long as an appeal or proceeding for review is
being prosecuted in good faith and so long as (i) such proceedings shall not
reasonably be expected to give rise to criminal liability or material civil
liability on the part of the Owner Lessor, the Owner Participant, the Indenture
Trustee, the Pass Through Trustee or any Certificateholders, and would not
otherwise reasonably be expected to have a Material Adverse Effect, and (ii)
adequate reserves consistent with GAAP requirements have been established and
are maintained, so as to ensure that any amounts determined to be due will be
promptly paid in full when such contest is determined, or are fully covered by
insurance, (f) mineral rights the use and enjoyment of which do not materially
interfere with the use and enjoyment of the Facilities, (g) Permitted
Encumbrances, (h) Liens, deposits or pledges to secure statutory obligations or
performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases, or for purposes of like general nature in the
ordinary course of its business, (i) existing Liens that have been disclosed to
the Transaction Parties prior to the Closing Date and which are reasonably
acceptable to the Transaction Parties, and (j) Liens incident to the ordinary
course of business that are not incurred in connection with the obtaining of any
loan, advance or credit in respect of borrowed money permitted to be incurred
pursuant to the Operative Documents so long as such Liens (x) do not in the
aggregate materially impair the use of the property or assets of the Facility
Lessees or the value of such property or assets for the purposes of such
business and (y) shall not reasonably be expected to give rise to criminal
liability or unindemnified, material civil liability on the part of the Owner
Lessor, the Owner Participant, the Indenture Trustee, the Pass Through Trustee
or any



                                       29
<PAGE>   30

Certificateholders, and would not otherwise reasonably be expected to have a
Material Adverse Effect.

                "PERSON" shall mean any individual, corporation, cooperative,
partnership, joint venture, association, joint-stock company, limited liability
company, other entity, trust, unincorporated organization or government or any
agency or political subdivision thereof or any other entity.

                "PLAN" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) either of the Facility Lessees or a Subsidiary of
either of the Facility Lessees or an ERISA Affiliate, and each such plan for the
five year period immediately following the latest date on which such Facility
Lessee, or a Subsidiary of such Facility Lessee or an ERISA Affiliate
maintained, contributed to or had an obligation to contribute to such plan.

                "POWER MARKET CONSULTANT" shall mean CC Pace.

                "PREFERRED STOCK", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.

                "PRICING ASSUMPTIONS" shall mean the "Pricing Assumptions"
(attached as Schedule 2 to the Participation Agreement) for each Facility
Lease,.

                "PRIME RATE" shall mean the rate of interest publicly announced
by Citibank, N.A. from time to time as its prime rate.

                "PROCEEDS" shall mean the proceeds from the sale of the
Certificates by the Pass Through Trust to the Certificateholders on the Closing
Date.

                "PROPORTIONAL RENTAL AMOUNT" shall have the meaning given the
term "proportional rental amount" in Treasury Regulations section 1.467-2(c) and
unless and until such time s there is an adjustment pursuant to Section 3.4 of
the applicable Facility Lease it shall be the amounts set forth in Section 1-C
to the Facility Leases.

                "PRUDENT INDUSTRY PRACTICE" shall mean, at a particular time,
(a) any of the practices, methods and acts engaged in or approved by a
significant portion of the competitive electric generating industry at such
time, or (b) with respect to any matter to which clause (a) does not apply, any
of the practices, methods and acts which, in the exercise of reasonable judgment
at the time the decision was made, could have been expected to accomplish the
desired result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. "Prudent Industry Practice" is not intended
to be limited to the optimum practice, method or act to the exclusion of all
others, but rather to be a spectrum of possible practices, methods or acts
having due regard for, among other things, manufacturers' warranties and the
requirements of any Governmental Entity of competent jurisdiction.



                                       30
<PAGE>   31

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

                "PURCHASE PRICE" with respect to the Tiverton Facility, shall
mean $237,500,000.00, and with respect to the Rumford Facility, shall mean
$220,000,000.00.

                "QUALIFYING CASH BIDS" with respect to a Facility Lease, shall
have the meaning specified in Section 13.2 of such Facility Lease.

                "QUALIFYING LETTER OF CREDIT" shall mean (I) the Initial Letter
of Credit, and (II) any other irrevocable standby letter of credit (i) in favor
of the Owner Participant issued by a Qualifying Letter of Credit Bank (ii) which
shall be drawable or presentable in New York (or such other location as the
Owner Participant shall agree in its sole and absolute discretion) in Dollars
and in whole upon presentation of a drawing certificate pursuant to which a
beneficiary of such letter of credit certifies that a Drawing Event has occurred
and is continuing; (iii) to the extent such letter of credit is a new or
replacement Qualifying Letter of Credit, such new or replacement Qualifying
Letter of Credit must be issued at least 30 days (or 45 days in the
circumstances described in Section 5.46(b) of the Participation Agreement) prior
to the stated expiration of the existing letter of credit; (iv) the maturity of
such letter of credit may be shorter than the last day of the Lease Term of the
Tiverton Facility Lease or the Lease Term of the Rumford Facility Lease,
whichever is later, provided, however, that (a) such letter of credit shall have
a maturity of at least 364 days from the date of issuance and be automatically
renewed for at least one year unless notice of non-renewal is received by the
Owner Lessor at least 60 days prior to the expiration of the Qualifying Letter
of Credit, and (b) the relevant Owner Lessor shall receive such new or
replacement Qualifying Letter of Credit not later than 30 days prior to the
expiration of the then outstanding letter of credit; and (v) shall otherwise
contain terms that are substantially the same as those set forth in the Initial
Letter of Credit and the CSFB LOC Indemnity Letter (as in effect on the
Closing), with such substantive changes (proposed because Calpine has been
unable to obtain such terms) as are reasonably acceptable to the Owner
Participant. The Owner Participant agrees, that in considering any changes
referred to in clause (v) of the preceding sentence, it will base its acceptance
or non-acceptance of such changes on an evaluation of whether the terms in
question are available pursuant to then current practices of banks meeting the
definition of "Qualifying Letter of Credit Bank" with respect to comparable
letters of credit being issued in comparable transactions, and if the Owner
Participant fails to so accept such changes it will set forth its basis
therefor. Subject to the same conditions set forth in the preceding sentence
(including with respect to the acceptance or non-acceptance of the legal
opinions referred to below by the Owner Participant), each Qualifying Letter of
Credit shall be supported by legal opinions substantially in the forms of legal
opinions delivered with the Initial Letter of Credit.

                "QUALIFYING LETTER OF CREDIT BANK" shall mean a banking
institution organized in the United States or in another country the
Dollar-denominated long-term indebtedness of which is rated on the date on which
the relevant Qualifying Letter of Credit is issued, AAA by S&P and Aaa by
Moody's (or if rated by only one Rating Agency, rated as aforesaid by such
Rating Agency), (i) the unsecured long-term senior Dollar-denominated debt
obligations of which are rated A or better by S&P and A2 or better by Moody's,
(ii) having a branch in New York City at which the Qualifying Letter of Credit
can be drawn upon, (iii) having, on the date



                                       31
<PAGE>   32

on which the relevant Qualifying Letter of Credit is issued, a consolidated
stockholders equity determined in accordance with GAAP of at least US$ 3.5
billion and (iv) which banking institution is reasonably acceptable to the Owner
Participant. Notwithstanding the foregoing, CSFB shall be deemed a "Qualifying
Letter of Credit Bank" so long as it meets the requirement of clause (i) above.

                "RATING AGENCIES" shall mean S&P and Moody's.

                "REASONABLE BASIS" for a position shall exist if tax counsel may
properly advise reporting such position on a tax return in accordance with
Formal Opinion 85-352 issued by the Standing Committee on Ethics and
Professional Responsibility of the American Bar Association (or any successor to
such opinion).

                "REBUILDING CLOSING DATE" with respect to a Facility Lease,
shall have the meaning specified in Section 10.3(e) of such Facility Lease.

                "RECEIVING PARTY" shall have the meaning set forth in Section
14.21 of the Participation Agreement.

                "REDEMPTION DATE" shall mean, when used with respect to any Note
to be redeemed, the date fixed for such redemption by or pursuant to the
Collateral Trust Indenture or the respective Note, which date shall be a
Termination Date.

                "REFINANCING INDEBTEDNESS" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness of the Guarantor or a
Restricted Subsidiary existing on the date of the Guaranty or Incurred in
compliance with the Indenture, dated as of August 10, 2000, between the
Guarantor and Wilmington Trust Company, as Trustee (including Indebtedness of
the Guarantor that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) if the Indebtedness being
refinanced is contractually subordinated in right of payment to the Obligations
(Tiverton) or the Obligations (Rumford), as the context may require, the
Refinancing Indebtedness shall be contractually subordinated in right of payment
to such Obligations to at least the same extent as the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness is scheduled to mature either (a)
no earlier than the Indebtedness being refinanced or (b) after the Stated
Maturity of the Obligations (Tiverton) or the Obligations (Rumford), as the
context may require, (iii) the Refinancing Indebtedness has an Average Life at
the time such Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being refinanced and (iv) such
Refinancing Indebtedness is in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding (plus fees and expenses, including
any premium, swap breakage and defeasance costs) under the Indebtedness being
refinanced; and provided, further, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary of the Guarantor that refinances



                                       32
<PAGE>   33

Indebtedness of the Guarantor or (y) Indebtedness of the Guarantor or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.

                "REGISTRAR" shall have the meaning set forth in Section 2.8 of
the Collateral Trust Indenture.

                "REGULATORY EVENT OF LOSS" shall have meaning specified in
clause (iv) of the definition of "Event of Loss".

                "REIMBURSEMENT AGREEMENT" shall mean the Letter of Credit and
Reimbursement Agreement, dated as of December 19, 2000, between Calpine and
CSFB.

                "RELATED PARTY" shall mean, with respect to any Person or its
successors and assigns, an Affiliate of such Person or its successors and
assigns and any director, officer, servant, employee or agent of that Person or
any such Affiliate or their respective successors and assigns; provided that the
Owner Lessor shall not be treated as a Related Party to any Owner Participant
except that, for purposes of Section 9 of the Participation Agreement, the Owner
Lessor will be treated as a Related Party to an Owner Participant to the extent
that the Owner Lessor acts on the express direction or with the express consent
of an Owner Participant.

                "RELEASE" shall mean any release, pumping, pouring, emptying,
injecting, escaping, leaching, migrating, dumping, seepage, spill, flow, leak,
discharge, disposal or emission.

                "RENEWAL RENT" with respect to a Facility Lease, shall mean the
rent payable during any Renewal Lease Term, in each case as determined in
accordance with Section 15.4 of such Facility Lease.

                "RENEWAL LEASE TERM" with respect to a Facility Lease, shall
mean the First Renewal Lease Term, the Second Renewal Term, any FMV Renewal
Lease Term or the Lessor Put Renewal Term.

                "RENEWAL SITE LEASE TERM(s)" individually or collectively as the
context shall require, with respect to a Facility Site Lease, shall have the
meaning set forth in Section 2.2(b) of such Facility Site Lease.

                "RENEWAL TERM" with respect to a Facility Site Sublease, shall
have the meaning set forth in Section 2.1(b) of such Facility Site Sublease.

                "RENT" shall mean Basic Rent, Renewal Rent and Supplemental
Rent.

                "RENT PAYMENT DATE" with respect to a Facility Lease, shall
mean, with respect to each Facility Lease March 19, 2001, each January 15 and
July 15 occurring thereafter (through and including July 15, 2036) and December
19, 2036.

                "RENT PAYMENT PERIOD" with respect to a Facility Lease, shall
mean (i) in the case of the first Rent Payment Period the period commencing on
the Closing Date and ending on March 19, 2001, (ii) in the case of the second
Rent Payment Period, the period commencing on



                                       33
<PAGE>   34

March 19, 2001 and ending on July 15, 2001 and (iii) in all cases thereafter
(except for the last Rent Payment Period which period shall commence on July 19,
2036 and end on, and include, December 19, 2036), each six-month period
commencing on each Rent Payment Date through and including the following January
15 or July 15 as the case may be.

                "REPLACEMENT COMPONENT" with respect to a Facility Lease, shall
have the meaning specified in Section 7.2 of such Facility Lease.

                "REQUIRED IMPROVEMENT" with respect to a Facility Lease, shall
have the meaning specified in Section 8.1 of such Facility Lease.

                "REQUISITION" shall have the meaning specified in clause (iii)
of the definition of "Event of Loss".

                "RESPONSIBLE OFFICER" shall mean, with respect to any Person,
(i) its Chairman of the Board, its President, any Senior Vice President, the
Chief Financial Officer, any Vice President, the Treasurer or any other
management employee (a) that has the power to take the action in question and
has been authorized, directly or indirectly, by the Board of Directors or
equivalent body of such Person, (b) working under the direct supervision of such
Chairman of the Board, President, Senior Vice President, Chief Financial
Officer, Vice President or Treasurer and (c) whose responsibilities include the
administration of the Overall Transaction and (ii) with respect to the Pass
Through Trustee and the Indenture Trustee an officer in their respective
corporate trust departments.

                "RESTRICTED SUBSIDIARY" means any Subsidiary of the Guarantor
that is not designated an Unrestricted Subsidiary by the Board of Directors.

                "REVENUES" shall have the meaning specified in clause (3) of the
Granting Clause of the Collateral Trust Indenture.

                "RUMFORD ADDITIONAL LESSOR NOTES" shall have the meaning
specified in Section 2.12 of the Collateral Trust Indenture.

                "RUMFORD BILL OF SALE" shall mean the Rumford Bill of Sale,
dated as of the Closing Date, between Rumford Lessee and the Owner Lessor,
substantially in the form of Exhibit B-2 to the Participation Agreement duly
completed, executed and delivered on the Closing Date pursuant to which the
Owner Lessor will acquire the Rumford Facility from the Tiverton Lessee.

                "RUMFORD EASEMENTS" shall mean the easements defined in the
recitals to the Rumford Facility Site Lease and the Rumford Facility Site
Sublease.

                "RUMFORD FACILITY" shall mean a 265 MW nameplate capacity
gas-fired combined cycle merchant power plant located in Rumford, Maine and more
fully described in Exhibit A-2 to the Participation Agreement. The Rumford
Facility does not include the Rumford Facility Site.



                                       34
<PAGE>   35

                "RUMFORD FACILITY LEASE" shall mean, the Facility Lease
Agreement (Rumford), dated as of December 19, 2000, between the Owner Lessor and
Rumford Lessee, substantially in the form of Exhibit C-2 to the Participation
Agreement.

                "RUMFORD FACILITY SITE RENT" shall have the meaning set forth in
Section 4.1 of the Rumford Facility Site Lease.

                "RUMFORD LEASE" shall have the meaning set forth in the recitals
to the Rumford Sublease.

                "RUMFORD LESSEE" shall mean Rumford Power Associates Limited
Partnership.

                "RUMFORD LESSOR NOTE(s)" shall have the meaning specified in
Section 2.2 of the Collateral Trust Indenture.

                "RUMFORD NOTES" shall mean any Rumford Lessor Notes or Rumford
Additional Lessor Notes issued pursuant to the Collateral Trust Indenture.

                "RUMFORD OPERATIVE DOCUMENTS" shall mean the Participation
Agreement, the Rumford Bill of Sale, the Rumford Facility Lease, the
Certificates, the Rumford Facility Site Lease, the Rumford Facility Site
Sublease, the Collateral Trust Indenture, the Rumford Lessor Notes, the Pass
Through Trust Agreement, the LLC Agreement, the Tax Indemnity Agreement, the
Calpine Guaranty (Rumford), the OP Parent Guaranty (if any), the Certificate
Purchase Agreement and the Qualifying Letter of Credit.

                "RUMFORD PARCEL" shall have the meaning specified in Section
2.1(a) of the Rumford Site Lease and Section 2.1(a) of the Rumford Site
Sublease.

                "RUMFORD POWER ASSOCIATES" shall mean Rumford Power Associates
Limited Partnership.

                "RUMFORD SITE" shall have the meaning set forth in the recitals
to the Facility Site Lease and the Facility Site Sublease.

                "RUMFORD SITE LEASE" shall mean the Facility Site Lease
(Rumford), dated as of December 19, 2000, between the Rumford Lessee and the
Owner Lessor, substantially in the form of Exhibit D-2 to the Participation
Agreement.

                "RUMFORD SITE LESSEE" shall mean PMCC Calpine New England
Investment LLC.

                "RUMFORD SITE LESSOR" shall mean Rumford Power Associates
Limited Partnership.

                "RUMFORD SUBLEASE" shall have the meaning set forth in the
recitals to the Rumford Site Lease.



                                       35
<PAGE>   36

                "RUMFORD SITE SUBLESSEE" shall mean Rumford Power Associates
Limited Partnership.

                "RUMFORD SITE SUBLESSEE EVENT OF DEFAULT" shall have the meaning
set forth in Section 13.1 of the Facility Site Sublease (Rumford).

                "RUMFORD SITE SUBLESSOR" shall mean PMCC Calpine New England
Investment LLC.

                "R.W. BECK REPORTS" shall mean, collectively, that certain (i)
letter dated September 26, 2000 to Mr. Paul J. Colatrella of Bayersiche Hypo-und
Vereinsbank AG from R.W. Beck, Inc., and (ii) letter dated November 21, 2000 to
Mr. Mohammed J. Alam of Fortis Capital Corp. from R. W. Beck, Inc.

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

                "SCHEDULED CLOSING DATE" shall mean December 19, 2000.

                "SEC" shall mean the Securities and Exchange Commission.

                "SECOND RENEWAL LEASE TERM" with respect to a Facility Lease,
shall have the meaning specified in Section 15.1(b) of such Facility Lease.

                "SECOND WINTERGREEN RENEWAL LEASE OPTION" with respect to a
Facility Site Lease, shall have the meaning set forth in Section 2.2(a)(ii) of
such Facility Site Lease.

                "SECTION 467 INTEREST" with respect to a Facility Lease, shall
have the meaning set forth in Section 3.2(d) of such Facility Lease.

                "SECTION 467 LOAN" with respect to a Facility Lease, shall have
the meaning specified in Section 3.2(d) of such Facility Lease.

                "SECURED INDEBTEDNESS" shall have the meaning specified in
Section 1(b) of the Collateral Trust Indenture.

                "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.

                "SEVERABLE IMPROVEMENT" shall mean any Improvement that is
readily removable without causing material damage to the applicable Facility.

                "SIGNIFICANT LEASE DEFAULT" shall mean, with respect to a
Facility Lease, (i) an event that is, or solely with the passage of time or the
giving of notice (or both) would become, a "Lease Event of Default" under
clauses (a), (b), (c), (g), (h) or (m) of Section 16 of such Facility



                                       36
<PAGE>   37

Lease and (ii) the failure of a Facility Lessee to comply in any material
respect with its obligations under Section 6 of the Facility Lease corresponding
to such Facility Lessee.

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

                "SITE LEASE EVENT OF DEFAULT" with respect to a Facility Site
Lease, shall have the meaning set forth in Section 14.1 of such Facility Site
Lease.

                "S&P" shall mean Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. or any successor thereto.

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

                "SUBSIDIARY" shall mean, with respect to any Person (the
"parent"), any corporation or other entity of which sufficient securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at the
time directly or indirectly owned by such parent.

                "SUPPLEMENTAL FINANCING" shall have the meaning specified in
Section 11.1 of the Participation Agreement.

                "SUPPLEMENTAL RENT" shall mean any and all amounts, liabilities
and obligations (other than Basic Rent and Renewal Rent) which the Facility
Lessees assume or agree to pay under the Operative Documents (whether or not
identified as "Supplemental Rent") to the Owner Lessor or any other Person,
including Termination Value.

                "SURVEY(s)" shall mean the Survey (Rumford) and/or the Survey
(Tiverton), as the context may require.

                "SURVEY (RUMFORD)" shall mean the survey of the Rumford Site, to
be dated after the Closing Date, which inter alia, will show the location of the
Rumford Site.

                "SURVEY (TIVERTON)" shall mean the survey of the Tiverton Site,
to be dated the Closing Date, which inter alia, will show the location of the
Tiverton Site.

                "TAX" or "TAXES" shall mean all fees, taxes (including, without
limitation, income taxes, sales taxes, use taxes, stamp taxes, value-added
taxes, excise taxes, ad valorem taxes and property taxes (personal and real,
tangible and intangible)), levies, assessments, withholdings and other charges
and impositions of any nature, plus all related interest, penalties, fines and
additions to tax, now or hereafter imposed by any federal, state, local or
foreign government or other taxing authority.



                                       37
<PAGE>   38

                "TAX ADVANCE" shall have the meaning specified in Section
9.2(g)(iii)(5) of the Participation Agreement.

                "TAX ASSUMPTIONS" shall mean the items described in Section 1 of
the Tax Indemnity Agreement.

                "TAX BENEFIT" shall have the meaning set forth in Section 9.2(e)
of the Participation Agreement.

                "TAX CLAIM" shall have the meaning set forth in Section
9.2(g)(i) of the Participation Agreement.

                "TAX EVENT" shall mean any event or transaction that will be a
taxable transaction to the direct or indirect holders of the Lessor Notes.

                "TAX INDEMNITEE" shall have the meaning set forth in Section
9.2(a) of the Participation Agreement.

                "TAX INDEMNITY AGREEMENT" shall mean the Tax Indemnity
Agreement, dated as of the Closing Date, between the Facility Lessees and the
Owner Participant.

                "TAX LAW CHANGE" shall have the meaning specified in Section
12(a) of the Participation Agreement.

                "TAX REPRESENTATION" shall mean each of the items described in
Section 4 of the Tax Indemnity Agreements.

                "TAXES AND ASSESSMENTS" with respect to a Facility Site Lease,
shall have, collectively, the meaning set forth in Section 18.1 of such Facility
Site Lease.

                "TERM" with respect to a Facility Site Lease or a Facility Site
Sublease, shall have the meaning set forth in Section 2.2(b) of such Facility
Site Lease or Facility Site Sublease.

                "TERMINATION DATE" with respect to a Facility Lease, shall mean
each of the monthly dates during the Facility Lease Term identified as a
"Termination Date" on Schedule 2 of such Facility Lease.

                "TERMINATION PAYMENT DATE" with respect to a Facility Lease,
shall have the meaning specified in Section 10.2(a) of such Facility Lease.

                "TERMINATION VALUES" with respect to a Facility Lease, shall
have the meaning specified in Schedule 2 to such Facility Lease.

                "TIA" shall mean the Trust Indenture Act of 1939.

                "TITLE POLICIES" shall mean (i) with respect to the Tiverton
Lessee, the title insurance policy (#75272) dated as of December 19, 2000 and
(ii) with respect to the Rumford Lessee, the title insurance policy (#206-269)
dated as of December 19, 2000.



                                       38
<PAGE>   39

                "TIVERTON ADDITIONAL LESSOR NOTES" shall have the meaning
specified in Section 2.12 of the Collateral Trust Indenture.

                "TIVERTON BILL OF SALE" shall mean the Tiverton Bill of Sale,
dated as of the Closing Date, between Tiverton Lessee and the Owner Lessor,
substantially in the form of Exhibit B-1 to the Participation Agreement duly
completed, executed and delivered on the Closing Date pursuant to which the
Owner Lessor will acquire the Tiverton Facility from the Tiverton Lessee.

                "TIVERTON EASEMENTS" shall mean the easements appurtenant,
easements in gross, license agreements and other rights running in favor of the
Tiverton Lessee and/or appurtenant to the Tiverton Site.

                "TIVERTON FACILITY" shall mean a 265 MW nameplate capacity
gas-fired combined cycle merchant power plant located in Tiverton, Rhode Island
and more fully described in Exhibit A-1 to the Participation Agreement. The
Tiverton Facility does not include the Tiverton Facility Site.

                "TIVERTON FACILITY LEASE" shall mean the Facility Lease
Agreement (Tiverton), dated as of December 19, 2000, between the Owner Lessor
and Tiverton Lessee, substantially in the form of Exhibit C-1 to the
Participation Agreement.

                "TIVERTON FACILITY SITE RENT" shall have the meaning set forth
in Section 4.1 of the Tiverton Facility Site Lease.

                "TIVERTON LEASE" shall have the meaning set forth in the
recitals to the Tiverton Sublease.

                "TIVERTON LESSEE" shall mean Tiverton Power Associates Limited
Partnership.

                "TIVERTON LESSOR NOTE(s)" shall have the meaning specified in
Section 2.2 of the Collateral Trust Indenture.

                "TIVERTON NOTES" shall mean any Tiverton Lessor Notes or
Tiverton Additional Lessor Notes issued pursuant to the Collateral Trust
Indenture.

                "TIVERTON OPERATIVE DOCUMENTS" shall mean the Participation
Agreement, the Tiverton Bill of Sale, the Tiverton Facility Lease, the
Certificates, the Tiverton Facility Site Lease, the Tiverton Facility Site
Sublease, the Collateral Trust Indenture, the Tiverton Lessor Notes, the Pass
Through Trust Agreement, the LLC Agreement, the Tax Indemnity Agreement, the
Calpine Guaranty (Tiverton), the OP Parent Guaranty (if any), the Certificate
Purchase Agreement and the Qualifying Letter of Credit.

                "TIVERTON PARCEL" shall have the meaning specified in Section
2.1(a) of the Tiverton Site Lease and of the Tiverton Site Sublease.

                "TIVERTON POWER ASSOCIATES" shall mean Tiverton Power Associates
Limited Partnership.



                                       39
<PAGE>   40

                "TIVERTON SITE" shall have the meaning set forth in the recitals
to the Facility Site Lease and the Facility Site Sublease.

                "TIVERTON SITE LEASE" shall mean the Facility Site Lease
(Tiverton), dated as of December 19, 2000, between the Tiverton Lessee and the
Owner Lessor, substantially in the form of Exhibit D-1 to the Participation
Agreement.

                "TIVERTON SITE LESSEE" shall mean PMCC Calpine New England
Investment LLC.

                "TIVERTON SITE LESSOR" shall mean Tiverton Power Associates
Limited Partnership.

                "TIVERTON SUBLEASE" shall have the meaning set forth in the
recitals to the Tiverton Site Lease.

                "TIVERTON SITE SUBLESSEE" or "TIVERTON SUBLESSEE" as the context
may require, shall mean Tiverton Power Associates, Limited Partnership.

                "TIVERTON SITE SUBLESSEE EVENT OF DEFAULT" shall have the
meaning set forth in Section 13.1 of the Facility Site Sublease (Tiverton).

                "TIVERTON SITE SUBLESSOR" shall mean PMCC Calpine New England
Investment LLC.

                "TRANSACTION COSTS" shall mean the following costs, to the
extent substantiated or otherwise supported in reasonable detail:

                (i) the reasonable costs of reproducing and printing the
Operative Documents and all costs and fees, including but not limited to filing
and recording fees and recording, transfer, mortgage, intangible and similar
taxes in connection with the execution, delivery, filing and recording of the
Facility Leases, the Facility Site Leases, the Facility Site Subleases and any
other Operative Document and any other document required to be filed or recorded
pursuant to the provisions hereof or of any other Operative Document and any
Uniform Commercial Code filing fees in respect of the perfection of any security
interests created by any of the Operative Documents or as otherwise reasonably
required by the Owner Lessor or the Indenture Trustee and surveyor fees;

                (ii) the reasonable fees and expenses of Dewey Ballantine LLP,
counsel to CSFB, for their services rendered in connection with the negotiation,
execution and delivery of the Participation Agreement and the other Operative
Documents;

                (iii) the reasonable fees and expenses of Hunton and Williams,
counsel to the Owner Participant and the Owner Lessor for their services
rendered in connection with the negotiation, execution and delivery of the
Participation Agreement and the other Operative Documents;



                                       40
<PAGE>   41

                (iv) the reasonable fees and expenses of Verill & Dana, Maine
counsel to the Initial Purchasers;

                (v) the reasonable fees and expenses of Peabody & Arnold, Rhode
Island counsel to the Initial Purchasers;

                (vi) the reasonable fees and expenses of Thelen Reid & Priest
LLP, counsel to the Facility Lessees and the Guarantors for their services
rendered in connection with the negotiation, execution and delivery of the
Participation Agreement and other Operative Documents;

                (vii) the reasonable fees and expenses of Hinckley, Allen &
Snyder, Rhode Island counsel to the Facility Lessees;

                (viii) the reasonable fees and expenses of Drummond Woodsom &
MacMahon, Maine counsel to the Facility Lessees;

                (ix) the reasonable fees and expenses of Steptoe & Johnson,
special regulatory counsel to the Facility Lessees;

                (x) the reasonable fees and expenses of Latham & Watkins,
counsel to the Underwriters, for their services rendered in connection with the
negotiation, execution and delivery of the Participation Agreement and the other
Operative Documents;

                (xi) the reasonable fees and expenses for services rendered in
connection with the recording of the Memorandum of Lease, the Memorandum of
Facility Site Lease, the Memorandum of Facility Site Sublease and the other
applicable Operative Documents;

                (xii) the reasonable fees and expenses of Bingham Dana, counsel
for the Indenture Trustee and the Lease Indenture Company and the Pass Through
Company and the Pass Through Trustee, for their services rendered in connection
with the negotiation, execution and delivery of the Participation Agreement and
the other Operative Documents;

                (xiii) the initial fees and expenses of the Indenture Trustee in
connection with the execution and delivery of the Participation Agreement and
the other Operative Documents to which either one is or will be a party;

                (xiv) the fees and expenses of the Engineering Consultant, for
its services rendered in connection with delivering the Engineering Report
required by Section 4.17 of the Participation Agreement;

                (xv) the fees and expenses of the other consultants listed in
Section 4.17 of the Participation Agreement, for their respective services
rendered in connection with delivering the reports required by such Section
4.17;

                (xvi) the fees and expenses of the Appraiser, for its services
rendered in connection with delivering the Closing Appraisal required by Section
4.15 of the Participation Agreement;



                                       41
<PAGE>   42

                (xvii) the fees and expenses of the Environmental Consultant
retained by the Owner Participant;

                (xviii) the debt and equity arrangement fees set forth in the
letter agreement dated October 16, 2000 between CSFB and Calpine, and its
reasonable out-of-pocket costs and expenses payable to Underwriters;

                (xix) the debt arrangement fees set forth in the Certificate
Purchase Agreement to be dated as of the Closing Date among the Facility
Lessees, Calpine and the Initial Purchasers, and its reasonable out-of-pocket
costs and expenses;

                (xx) all reasonable costs and expenses incurred pursuant to the
syndication of the debt and equity;

                (xxi) the fees and expenses of the Rating Agencies in connection
with the rating of the Certificates;

                (xxii) the out-of-pocket expenses of the Owner Participant
incurred in connection with the Overall Transaction;

                (xxiii) the reasonable fees and expenses of Curtis, Thaxter,
Stevens Broder & Micoleau LLC, Maine counsel to the Owner Participant and the
Owner Lessor; and

                (xxiv) the reasonable fees and expenses of Edwards & Angell,
LLP, Rhode Island counsel to the Owner Participant and the Owner Lessor.

                Notwithstanding the foregoing, Transaction Costs shall not
include internal costs and expenses such as salaries and overhead of whatsoever
kind or nature nor costs incurred by the parties to the Participation Agreement
pursuant to arrangements with third parties for services (other than those
expressly referred to above), such as computer time procurement (other than
out-of-pocket expenses of the Owner Participant), financial analysis and
consulting, advisory services, and costs of a similar nature.

                "TRANSACTION PARTY" shall mean, individually or collectively, as
the context shall require, all or any of the parties to the Operative Documents
(including the Lease Indenture Company and the Pass Through Company).

                "TRANSACTIONS" shall mean, collectively, each of the
transactions contemplated under the Participation Agreement and the other
Operative Documents.

                "TRANSFEREE" shall mean a transferee of the Owner Participant
permitted by Section 7.1 of the Participation Agreement.

                "TRANSFEREE GUARANTOR" shall have the meaning set forth in
Section 7.1(a)(iii) of the Participation Agreement.

                "TREASURY REGULATIONS" shall mean regulations, including
temporary regulations, promulgated under the Code.



                                       42
<PAGE>   43

                "TRUST INDENTURE ACT" shall mean

                "UNDERWRITERS" shall mean Credit Suisse First Boston, TD
Securities and ING Barings LLC.

                "UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount,
if any, by which the value of the accumulated plan benefits under the Plan
determined on a plan termination basis in accordance with actuarial assumptions
at such time consistent with those prescribed by the PBGC for purposes of
Section 4044 of ERISA, exceeds the fair market value of all plan assets
allocable to such liabilities under Title IV of ERISA (excluding any accrued but
unpaid contributions).

                "UNIFORM COMMERCIAL CODE" or "UCC" shall mean the Uniform
Commercial Code as in effect in the applicable jurisdiction.

                "UNITED STATES PERSON" shall have the meaning specified in
Section 7701(a)(30) of the Code or any successor provision thereto.

                "UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided by the Indenture, dated as of August
10, 2000, between the Guarantor and Wilmington Trust Company, as Trustee and
(ii) any Subsidiary of an Unrestricted Subsidiary.

                "U.S. GOVERNMENT OBLIGATIONS" shall have the meaning set forth
in Section 9.1(b) of the Collateral Trust Indenture.

                "VERIFIER" with respect to a Facility Lease, shall have the
meaning specified in Section 3.4(c) of such Facility Lease.

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



                                       43
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12.4
<SEQUENCE>16
<FILENAME>f70293ex4-12_4.txt
<DESCRIPTION>EXHIBIT 4.12.4
<TEXT>

<PAGE>   1
                                                                  Exhibit 4.12.4

WHEN RECORDED, RETURN TO:

THOMAS M. SIMPSON, ESQ.
LATHAM & WATKINS
885 THIRD AVE.
NEW YORK, NEW YORK  10022

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


                       OPEN-END MORTGAGE TO SECURE PRESENT
                        AND FUTURE LOANS UNDER CHAPTER 25
                     OF TITLE 34 OF THE GENERAL LAWS OF THE
                              STATE OF RHODE ISLAND


                          INDENTURE OF TRUST, MORTGAGE
                             AND SECURITY AGREEMENT


                          Dated as of December 19, 2000


                                     between


                     PMCC CALPINE NEW ENGLAND INVESTMENT LLC


                                       and


 STATE STREET TRUST BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION
                              as Indenture Trustee


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

                         TIVERTON AND RUMFORD FACILITIES



<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                <C>                                                                    <C>
SECTION 1.         DEFINITIONS..............................................................4

SECTION 2.         THE NOTES................................................................5

Section 2.1.          Limitation on Notes...................................................5

Section 2.2.          Lessor Notes..........................................................6

Section 2.3.          Execution and Authentication of Notes.................................6

Section 2.4.          Issuance and Terms of the Lessor Notes................................6

Section 2.5.          Payments from Indenture Estate Only; No Personal Liability of the
                         Owner Lessor, the Owner Participant or the Indenture Trustee.......7

Section 2.6.          Method of Payment.....................................................7

Section 2.7.          Application of Payments...............................................8

Section 2.8.          Registration, Transfer and Exchange of Notes..........................9

Section 2.9.          Mutilated, Destroyed, Lost or Stolen Notes............................9

Section 2.10.         Redemptions; Assumption..............................................10

Section 2.11.         Payment of Expenses on Transfer......................................13

Section 2.12.         Additional Lessor Notes..............................................13

Section 2.13.         Restrictions of Transfer Resulting from Federal Securities Laws;
                         Legend............................................................15

Section 2.14.         Security for and Parity of Notes.....................................15

Section 2.15.         Acceptance of the Indenture Trustee..................................15

SECTION 3.         RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM INDENTURE ESTATE...15

Section 3.1.          Distribution of Periodic Rent........................................15

Section 3.2.          Payments Following Event of Loss or Other Early Termination..........17

Section 3.3.          Payments After Lease Indenture Event of Default......................18

Section 3.4.          Investment of Certain Payments Held by the Indenture Trustee.........19

Section 3.5.          Application of Certain Other Payments................................19

Section 3.6.          Other Payments.......................................................19

Section 3.7.          Excepted Payments....................................................20

Section 3.8.          Distributions to the Owner Lessor....................................20

Section 3.9.          Payments Under Assigned Documents....................................20

Section 3.10.         Disbursement of Amounts Received by the Indenture Trustee............20
</TABLE>



                                       -i-
<PAGE>   3

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                <C>                                                                    <C>
SECTION 4.         COVENANTS OF OWNER LESSOR; DEFAULTS; REMEDIES OF INDENTURE TRUSTEE......21

Section 4.1.          Covenants of Owner Lessor............................................21

Section 4.2.          Occurrence of Lease Indenture Event of Default.......................21

Section 4.3.          Remedies of the Indenture Trustee....................................23

Section 4.4.          Right to Cure Certain Lease Events of Default........................25

Section 4.5.          Rescission of Acceleration...........................................27

Section 4.6.          Return of Indenture Estate, Etc......................................28

Section 4.7.          Power of Sale and Other Remedies.....................................29

Section 4.8.          Appointment of Receiver..............................................30

Section 4.9.          Remedies Cumulative..................................................30

Section 4.10.         Waiver of Various Rights by the Owner Lessor.........................30

Section 4.11.         Discontinuance of Proceedings........................................31

Section 4.12.         No Action Contrary to the Facility Lessees' Rights Under the
                         Facility Leases...................................................31

Section 4.13.         Right of the Indenture Trustee to Perform Covenants, Etc.............31

Section 4.14.         Further Assurances...................................................31

Section 4.15.         Waiver of Past Defaults..............................................32

SECTION 5.         DUTIES OF INDENTURE TRUSTEE; CERTAIN RIGHTS AND DUTIES OF OWNER LESSOR..32

Section 5.1.          Notice of Action Upon Lease Indenture Event of Default...............32

Section 5.2.          Actions Upon Instructions Generally..................................32

Section 5.3.          Action Upon Payment of Notes or Termination of Facility Leases.......32

Section 5.4.          Compensation of the Indenture Trustee; Indemnification...............33

Section 5.5.          No Duties Except as Specified; No Action Except Under Facility
                         Leases, Indenture or Instructions.................................33

Section 5.6.          Certain Rights of the Owner Lessor...................................34

Section 5.7.          Restrictions on Dealing with Indenture Estate........................35

Section 5.8.          Filing of Financing Statements and Continuation Statements...........35

SECTION 6.         INDENTURE TRUSTEE AND OWNER LESSOR......................................36

Section 6.1.          Acceptance of Trusts and Duties......................................36

Section 6.2.          Absence of Certain Duties............................................37
</TABLE>



                                      -ii-
<PAGE>   4

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                <C>                                                                    <C>
Section 6.3.          Representations and Warranties.......................................38

Section 6.4.          No Segregation of Moneys; No Interest................................38

Section 6.5.          Reliance; Agents; Advice of Experts..................................39

SECTION 7.         SUCCESSOR INDENTURE TRUSTEES AND SEPARATE TRUSTEES......................39

Section 7.1.          Resignation or Removal of the Indenture Trustee; Appointment of
                          Successor........................................................39

Section 7.2.          Appointment of Additional and Separate Trustees......................44

SECTION 8.         SUPPLEMENTS AND AMENDMENTS TO THIS INDENTURE AND OTHER DOCUMENTS........42

Section 8.1.          Supplemental Indenture and Other Amendment With Consent; Conditions
                         and Limitations...................................................42

Section 8.2.          Supplemental Indentures and other Amendments Without Consent.........43

Section 8.3.          Conditions to Action by the Indenture Trustee........................44

SECTION 9.         MISCELLANEOUS...........................................................45

Section 9.1.          Surrender, Defeasance and Release....................................45

Section 9.2.          Conveyances Pursuant to Section 4.2 of Site Leases and Subleases.....46

Section 9.3.          Appointment of the Indenture Trustee as Attorney; Further Assurances.46

Section 9.4.          Indenture for Benefit of Certain Persons Only........................46

Section 9.5.          Notices; Furnishing Documents, etc...................................47

Section 9.6.          Severability.........................................................48

Section 9.7.          Limitation of Liability..............................................48

Section 9.8.          Written Changes Only.................................................48

Section 9.9.          Counterparts.........................................................49

Section 9.10.         Successors and Permitted Assigns.....................................49

Section 9.11.         Headings and Table of Contents.......................................49

Section 9.12.         Governing Law........................................................49

Section 9.13.         Reorganization Proceedings with Respect to the Lessor Estate.........49

Section 9.14.         Withholding Taxes: Information Reporting.............................50

Section 9.15.         Fixture Financing Statement..........................................50
</TABLE>



                                      -iii-
<PAGE>   5

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                 PAGE
<S>                   <C>                                        <C>
APPENDIX

Appendix A            Definitions

EXHIBITS

Exhibit A-1           Description of Tiverton Site
Exhibit A-2           Description of Rumford Site
Exhibit B-1           Form of Tiverton Lessor Note
Exhibit B-2           Form of Rumford Lessor Note
Exhibit C             Form of Certificate of Authentication
Exhibit D-1           Description of Tiverton Facility
Exhibit D-2           Description of Rumford Facility
</TABLE>



                                      -iv-
<PAGE>   6

                       OPEN-END MORTGAGE TO SECURE PRESENT

                        AND FUTURE LOANS UNDER CHAPTER 25

                     OF TITLE 34 OF THE GENERAL LAWS OF THE

                              STATE OF RHODE ISLAND

                 INDENTURE OF TRUST, MORTGAGE AND SECURITY TRUST


        This OPEN-END MORTGAGE TO SECURE PRESENT AND FUTURE LOANS UNDER CHAPTER
25 OF TITLE 34 OF THE GENERAL LAWS OF THE STATE OF RHODE ISLAND, INDENTURE OF
TRUST, MORTGAGE AND SECURITY AGREEMENT (this "Indenture"), dated as of December
19, 2000, between PMCC Calpine New England Investment LLC, a Delaware limited
liability company as mortgagor (the "Owner Lessor") and STATE STREET BANK AND
TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION as mortgagee on behalf of the
Noteholders (the "Indenture Trustee").


                                   WITNESSETH:

        WHEREAS, pursuant to the Participation Agreement, the Owner Lessor has
purchased the Tiverton Facility from Tiverton Power Associates Limited
Partnership and the Rumford Facility from Rumford Power Associates Limited
Partnership (the "Facility Lessees");

        WHEREAS, the Owner Lessor has entered into a Facility Lease, dated as of
the date hereof with each of the Facility Lessees pursuant to which the Facility
Lessees have leased from the Owner Lessor for a term of years the Facilities,
which they sold to the Owner Lessor pursuant to the Bills of Sale;

        WHEREAS, the Tiverton Facility is more particularly described on Exhibit
D-1 hereto and made a part hereof, and the Rumford Facility is more particularly
described on Exhibit D-2 hereto and made a part hereof;

        WHEREAS, the Facility Lessees have leased the Tiverton and Rumford
Ground Interests (as hereinafter defined) with the right to nonexclusive
possession thereof to the Owner Lessor pursuant to the certain Tiverton Site
Lease and Rumford Site Lease, respectively, a memorandum of which shall be
recorded with this Indenture in the appropriate registry of [deeds/land records]
described in Exhibits A-1 and A-2, respectively, attached hereto, and the Owner
Lessor simultaneously therewith has leased the Facility Lessees' respective
Ground Interest back to the Facility Lessees pursuant to the Tiverton Site
Sublease and Rumford Site Sublease, respectively;

        WHEREAS, the Tiverton and Rumford Sites are more particularly described
in Exhibits A-1 and A-2, respectively, attached hereto;



<PAGE>   7

        WHEREAS, in accordance with this Indenture, the Owner Lessor will (i)
execute and deliver the Tiverton Lessor Notes and the Rumford Lessor Notes, the
proceeds of which will be used by the Owner Lessor to finance a portion of the
Purchase Price for the Rumford Facility and the Tiverton Facility purchased from
the Facility Lessees, and (ii) grant to the Indenture Trustee the security
interests herein provided;

        WHEREAS, this Indenture is regarded as a mortgage deed under the laws of
the States of Rhode Island and Maine, as a security agreement under the Uniform
Commercial Codes of the States of New York, Rhode Island, Maine, Connecticut,
Massachusetts and California and as a fixture filing under the laws of the
States of Rhode Island and Maine;

        WHEREAS, the Owner Lessor and the Indenture Trustee desire to enter into
this Indenture, to, among other things, provide for (a) the issuance by the
Owner Lessor of the Lessor Notes to be issued on the Closing Date, and
Additional Lessor Notes from time to time and (b) the conveyance and assignment
to the Indenture Trustee on the Closing Date of the Facilities conveyed to the
Owner Lessor and the Owner Lessor's right, title and interest in and under the
Operative Documents executed in connection therewith and all payments and other
amounts received hereunder or thereunder in accordance herewith (excluding
Excepted Payments);

        WHEREAS, all things have been done to make the Notes, when executed by
the Owner Lessor, authenticated and delivered hereunder and issued, the valid
obligations of the Owner Lessor; and

        WHEREAS, all things necessary to make this Indenture the valid, binding
and legal obligation of the Owner Lessor, for the uses and purposes herein set
forth, in accordance with its terms, have been done and performed and have
happened.

        NOW THEREFORE, in consideration of the foregoing premises, the mutual
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and in order to secure
(i) the prompt payment when and as due of the principal of and the Make-Whole
Amount, if any, and interest on the Notes and of all other amounts owing with
respect to all Notes from time to time outstanding hereunder, and the prompt
payment when and as due of any and all other amounts from time to time owing in
respect of the Secured Indebtedness and (ii) the performance and observance by
the Owner Lessor for the benefit of the holders of the Notes and the Indenture
Trustee of all other obligations, agreements, and covenants of the Owner Lessor
set forth hereinafter and in the Notes, the Operative Documents and the other
documents, certificates and agreements delivered in connection therewith:

                                GRANTING CLAUSE:

The Owner Lessor hereby irrevocably grants, conveys, assigns, transfers,
pledges, bargains, sells and confirms unto the Indenture Trustee and its
successors and permitted assigns, for the benefit of the holders of the Notes
from time to time, a first priority security interest in and mortgage lien on
all estate, right, title and interest of the Owner Lessor, WITH MORTGAGE
COVENANTS and grants a security interest in, to and under the following
described property, rights, interests and privileges, whether now held or
hereafter acquired



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<PAGE>   8

(which collectively, including all property hereafter specifically subjected to
the security interest created by this Indenture by any supplement hereto,
exclusive of Excepted Payments) are included within, and are hereafter referred
to as, the "Indenture Estate"):

            (1) the Facilities (described in Exhibits D-1 and D-2 attached
hereto) conveyed to the Owner Lessor pursuant to the Bills of Sale located on
the Tiverton Site and the Rumford Site (said Sites being more particularly
described in Exhibits A-1 and A-2 attached hereto), and the leasehold estates in
the Ground Interest (as hereinafter defined) granted to the Owner Lessor by the
Tiverton Site Lease, the Tiverton Sublease, the Rumford Site Lease and the
Rumford Sublease, together with all titles, estates, interests, rights, powers
and privileges of the Owner Lessor in respect thereof;

            (2) all the estate, right, title and interest of the Owner Lessor
in, to and under the Bills of Sale, the Facility Leases, the Facility Site
Leases and Facility Site Subleases, the Calpine Guaranties and the Participation
Agreement (collectively, the "Assigned Documents"), including (a) all amounts of
Periodic Rent and Supplemental Rent and payments of any kind payable under the
Facility Leases, including Termination Value, insurance proceeds and
condemnation, requisition and other awards and payments of any kind for or with
respect to any part of the Indenture Estate as contemplated in the Assigned
Documents and (b) all rights of the Owner Lessor to exercise any election or
option or to make any decision or determination or to give or receive any
notice, consent, waiver or approval or to take any other action under or in
respect of any Assigned Document, as well as all the rights, powers and remedies
on the part of the Owner Lessor, whether arising under any Assigned Document or
by statute or at law or equity or otherwise, and whether or not arising out of
any Significant Lease Default, Lease Indenture Event of Default or Event of
Default (except to the extent provided under Section 5.6 hereof);

            (3) all rents (including Periodic Rent and Supplemental Rent payable
under the Facility Leases), issues, profits, royalties, products, revenues, and
other income of all property from time to time subjected or required to be
subjected to the Lien of this Indenture, including all payments or proceeds
payable to the Owner Lessor after termination of the Facility Leases with
respect to the Facilities or any portion thereof as the result of the sale,
lease or other disposition of the Facilities or any portion thereof and the
Ground Interests or any portion thereof, and all the estate, right, title, and
interest, of every nature whatsoever of the Owner Lessor in and to the same and
every part thereof (the "Revenues");

            (4) all moneys, securities and other investment property now or
hereafter deposited or paid or required to be deposited or paid with the
Indenture Trustee pursuant to any term of this Indenture or any other Assigned
Document and held or required to be held by or for the benefit of the Indenture
Trustee hereunder;

            (5) all the estate, right, title and interest of the Owner Lessor in
and to any right to restitution from the Facility Lessees in respect of any
determination of invalidity of any Assigned Document;

            (6) all rights of the Owner Lessor to amounts paid or payable by the
Facility Lessees to the Owner Lessor under the Participation Agreement and all
rights of the Owner Lessor to enforce payment of any such amounts;



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            (7) all other property, rights and privileges of every kind and
description, real, personal and mixed, tangible and intangible and all interests
therein, now held or hereafter acquired by the Owner Lessor pursuant to any term
of any Assigned Document, whether located on the Tiverton or Rumford Site or
elsewhere and whether or not subjected to the Lien of this Indenture by a
supplement hereto; and

            (8) all proceeds of the foregoing;

        BUT EXCLUDING from such property, rights and privileges all Excepted
Payments and SUBJECT TO the rights of the Owner Lessor and the Owner Participant
hereunder, including under Sections 4.3(d), 4.4 and 5.6 hereof;

        TO HAVE AND TO HOLD the Indenture Estate and all parts, rights, members
and appurtenances thereof, unto the Indenture Trustee and the successors and
permitted assigns of the Indenture Trustee, for the benefit and security of the
Noteholders from time to time, forever, and in fee simple as to all parts
thereof constituting real property;

        PROVIDED, HOWEVER, that if the principal of and the Make-Whole Amount,
if any, and interest on the Notes, and all other Secured Indebtedness hereunder
shall have been paid and the Owner Lessor shall have performed and complied with
all the covenants, agreements, terms and provisions hereof, then this Indenture
and the rights hereby granted shall terminate and cease.

        Concurrently with the delivery of this Indenture, the Owner Lessor is
delivering to the Indenture Trustee the chattel paper originally-executed
counterpart of each of the Facility Leases. All property referred to in this
Granting Clause, whenever acquired by the Owner Lessor, shall secure all
obligations under and with respect to the Notes at any time outstanding. Any and
all properties referred to in this Granting Clause which are hereafter acquired
by the Owner Lessor, shall, without further conveyance, assignment or act by the
Owner Lessor or the Indenture Trustee thereby become and be subject to the
security interest hereby granted as fully and completely as though specifically
described herein.

        This Indenture is intended to constitute a security agreement as
required under the Uniform Commercial Codes of the States of New York, Rhode
Island, Maine, Connecticut, Massachusetts and California.

        The Indenture Trustee, for itself and its successors and permitted
assigns, hereby agrees that it shall hold the Indenture Estate, in trust for the
benefit and security of (i) the holders from time to time of the Notes from time
to time outstanding, without any priority of any one Note over any other except
as herein otherwise expressly provided and (ii) the Indenture Trustee, and for
the uses and purposes and subject to the terms and provisions set forth in this
Indenture. It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Owner Lessor shall remain liable under the Assigned
Documents to perform all of the obligations assumed by it thereunder, all in
accordance with and pursuant to the terms and provisions thereof, and the
Indenture Trustee and the Noteholders shall have no obligation or liability
under any Assigned Document by reason of or arising out of the assignment
hereunder, nor shall the Indenture Trustee or the Noteholders be required or
obligated in any manner, except as herein



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<PAGE>   10

expressly provided, to perform or fulfill any obligation of the Owner Lessor
under or pursuant to any such Assigned Document or, except as herein expressly
provided, to make any payment, or to make any inquiry as to the nature or
sufficiency of any payment received by it, or to present or file any claim, or
to take any action to collect or enforce the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times).

        Accordingly, the Owner Lessor, for itself and its successors and
permitted assigns, agrees that all Notes are to be issued and delivered and that
all property subject or to become subject hereto is to be held subject to the
further covenants, conditions, uses and trusts hereinafter set forth, and the
Owner Lessor, for itself and its successors and permitted assigns, hereby
covenants and agrees with the Indenture Trustee, for the benefit and security of
the holders from time to time of the Notes from time to time outstanding and to
protect the security of this Indenture, and the Indenture Trustee agrees to
accept the trusts and duties hereinafter set forth, as follows:

SECTION 1. DEFINITIONS

        (b) (a) Unless the context hereof shall otherwise require, capitalized
terms used, including those in the recitals, and not otherwise defined herein
shall have the respective meanings set forth in Appendix A attached hereto. The
general provisions of such Appendix A shall apply to the terms used in this
Indenture and specifically defined herein.

        (c) (b) In addition, the following terms shall have the following
meanings.

        "Ground Interests" means the interest in the Rumford Site as described
in Exhibit A-2 or the Tiverton Site as described in Exhibit A-1 leased to the
Owner Lessor and subleased to the applicable Lessee pursuant to the Rumford Site
Lease and Rumford Site Sublease and the Tiverton Site Lease and Tiverton Site
Sublease, respectively.

        "Secured Indebtedness" means principal of and the Make-Whole Amount, if
any, and interest on and other amounts due under all Notes and all other sums
payable to the Indenture Trustee or the Noteholders from time to time hereunder
and under the Participation Agreement and the other Operative Documents by the
Facility Lessees, the Owner Participant and the Owner Lessor, including:

              (i) (i) The indebtedness evidenced by the Lessor Notes, together
        with interest thereon at the rate provided in each Lessor Note and the
        Make-Whole Amount thereon and together with any and all renewals,
        modifications, consolidations and extensions of the indebtedness
        evidenced by such Lessor Notes, and principal of such Lessor Notes being
        due and payable as provided in such Lessor Notes;

              (ii) (ii) Any and all other indebtedness now owing or which may
        hereafter be owing by the Owner Lessor to or for the benefit of the
        Indenture Trustee under the Operative Documents including indemnities
        and other Supplemental Rent payable by the Facility Lessees under the
        Operative Documents, whether evidenced by Additional Lessor Notes issued
        pursuant to Section 2.12 hereof or otherwise, however and whenever
        incurred or evidenced, whether direct or indirect, absolute or
        contingent, due or to become due, together with interest thereon at the
        rate provided in each Additional Lessor Note and the Make-Whole Amount
        thereon (if any) and together with any and all



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<PAGE>   11

        renewals, modifications, consolidations and extensions of the
        indebtedness evidenced by such Additional Lessor Notes, and principal of
        such Additional Lessor Notes being due and payable as provided in each
        such Additional Lessor Note.

              (iii) (iii) Any and all additional advances made by the Indenture
        Trustee to protect or preserve the Indenture Estate or the security
        interest and other interests created hereby on the Indenture Estate or
        for taxes, assessments or insurance premiums as hereinafter provided or
        for performance of any of the Owner Lessor's obligations hereunder or
        for any other purpose provided herein, including advances made pursuant
        to Section 4.13 hereof (whether or not the Owner Lessor remains the
        owner of the Indenture Estate at the time of such advances); and

              (iv) (iv) Any and all expenses incident to the collection of the
        Secured Indebtedness and the foreclosure hereof by action in any court
        or by exercise of the power of sale herein contained.

SECTION 2. THE NOTES

        Section 2.1. Limitation on Notes. No Notes may be issued under the
provisions of, or become secured by, this Indenture except in accordance with
the provisions of this Section 2. The aggregate principal amount of the Notes
which may be authenticated and delivered and outstanding at any one time under
this Indenture shall be limited to the principal amount of the Lessor Notes
issued on the Closing Date to the Pass Through Trustee, plus the aggregate
principal amount of Additional Lessor Notes issued pursuant to Section 2.12.

        Section 2.2. Lessor Notes. There is hereby created and established
hereunder a note in the aggregate principal amount of $190,000,000 with a final
maturity date of July 15, 2018, substantially in the form set forth in Exhibit
B-1 to this Indenture (the "Tiverton Lessor Notes"). There is hereby created and
established hereunder a note in the aggregate principal amount of $176,000,000
with a final maturity date of July 15, 2018, substantially in the form set forth
in Exhibit B-2 to this Indenture (the "Rumford Lessor Notes" and, together with
the Tiverton Lessor Note, the "Lessor Notes").

        Section 2.3. Execution and Authentication of Notes. Each Note issued
hereunder shall be executed and delivered on behalf of the Owner Lessor by one
of its authorized signatories, be in fully registered form, be dated the date of
original issuance of such Note and be in denominations of not less than $1,000.
Any Note may be signed by a Person who, at the actual date of the execution of
such Note, is an authorized signatory of the Owner Lessor although at the
nominal date of such Note such Person may not have been an authorized signatory
of the Owner Lessor. No Note shall be secured by or be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose unless there
appears thereon a certificate of authentication in the form contained in Exhibit
C (or in the appropriate form provided for in any supplement hereto executed
pursuant to Section 2.12 hereof), executed by the Indenture Trustee by the
manual signature of one of its authorized officers, and such certificate upon
any Note shall be conclusive evidence that such Note has been duly authenticated
and delivered hereunder. The Indenture Trustee shall authenticate and deliver
the Lessor Note for original issue on the Closing Date in the principal amount
specified in Section 2.2, upon a written order of the Owner Lessor.



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<PAGE>   12

The Indenture Trustee shall authenticate and deliver Additional Lessor Notes,
upon a written order of the Owner Lessor and satisfaction of the conditions
specified in Section 2.12. Such order shall specify the principal amount of the
Additional Lessor Notes to be authenticated and the date on which the original
issue of Additional Lessor Notes is to be authenticated.

        Section 2.4.  Issuance and Terms of the Lessor Notes.

        (a) Issuance of the Lessor Notes at the Closing. On the Closing Date,
the Lessor Notes shall be issued to the Pass Through Trust in the amounts set
forth in Section 2.2 hereof, and shall be dated the Closing Date.

        (b) Principal and Interest. The principal amount of each Lessor Note
shall be due and payable in a series of installments having a final payment date
of July 15, 2018. The principal of each Lessor Note shall be due and payable in
installments on the dates and in the amounts set forth in the Schedule(s)
attached to such Lessor Note on the date of issuance and authentication thereof.
The Schedule(s) to each Lessor Note to the contrary notwithstanding, the last
payment made under such Lessor Note shall be equal to the then unpaid balance of
the principal of such Lessor Note plus all accrued and unpaid interest on, and
any other amounts due under, such Lessor Note. Each Lessor Note shall bear
interest on the principal from time to time outstanding from and including the
date of issuance thereof (computed on the basis of a 360-day year of twelve
30-day months) until paid in full at the rate set forth in such Lessor Note.
Interest on each Lessor Note shall be due and payable in arrears semi-annually
commencing on July 15, 2001, and on each July 15 and January 15 thereafter until
paid in full. If any day on which principal, Make-Whole Amount, if any, or
interest on the Lessor Notes are payable is not a Business Day, payment thereof
shall be made on the next succeeding Business Day with the same effect as if
made on the date on which such payment was due.

        (c) Overdue Payments. Interest (computed on the basis of a 360-day year
of twelve 30-day months) on any overdue principal, Make-Whole Amount (if any)
and, to the extent permitted by Applicable Law, interest and any other amounts
payable shall be paid on demand at the Overdue Rate.

        (d) Indemnity Amounts. The Owner Lessor agrees to pay to the Indenture
Trustee for distribution in accordance with Section 3.5 hereof any and all
indemnity amounts received by the Owner Lessor which are payable by the Facility
Lessees to (i) the Indenture Trustee, (ii) the Pass Through Trust, or (iii) the
Pass Through Trustee.

        Section 2.5. Payments from Indenture Estate Only; No Personal Liability
of the Owner Lessor, the Owner Participant or the Indenture Trustee. Except as
otherwise specifically provided in this Indenture or the Participation
Agreement, all payments in respect of the Notes or under this Indenture shall be
made only from the Indenture Estate, and the Owner Lessor shall have no
obligation for the payment thereof except to the extent that there shall be
sufficient income or proceeds from the Indenture Estate to make such payments in
accordance with the terms of Section 3 hereof; and the Owner Participant shall
not have any obligation for payments in respect of the Notes or under this
Indenture. The Indenture Trustee and each Noteholder, by its acceptance thereof,
agrees that it will look solely to the income and proceeds from the Indenture
Estate to the extent available for distribution to the Indenture Trustee or such



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Noteholder, as the case may be, as herein provided and that, except as expressly
provided in this Indenture, the Participation Agreement or any other Operative
Document, none of the Owner Participant, the Owner Lessor, the Lease Indenture
Company, nor the Indenture Trustee shall be personally liable to such Noteholder
or the Indenture Trustee for any amounts payable hereunder, under such Note or
for any performance to be rendered under any Assigned Document or for any
liability under any Assigned Document. Without prejudice to the foregoing, the
Owner Lessor will duly and punctually pay or cause to be paid the principal of,
Make-Whole Amount, if any, and interest on all Notes according to their terms
and the terms of this Indenture. Nothing contained in this Section 2.5 limiting
the liability of the Owner Lessor shall derogate from the right of the Indenture
Trustee and the Noteholders to proceed against the Indenture Estate and the
Calpine Guaranties to secure and enforce all payments and obligations due
hereunder and under the Assigned Documents and the Notes.

        (a) In furtherance of the foregoing, to the fullest extent permitted by
law, each Noteholder (and each assignee of such Person), by its acceptance
thereof, agrees that neither it nor the Indenture Trustee will exercise any
statutory right to negate the agreements set forth in this Section 2.5.

        (b) Nothing herein contained shall be interpreted as affecting the
representations, warranties or agreements of the Owner Lessor set forth in the
Participation Agreement or the LLC Agreement.

        Section 2.6. Method of Payment. The Owner Lessor shall maintain an
office or agency where Notes may be presented for payment (the "Paying Agent").
The Owner Lessor may have one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Owner Lessor initially appoints
the Indenture Trustee as Paying Agent in connection with the Notes.

        (a) The Owner Lessor shall deposit with the Paying Agent a sum
sufficient to pay such principal and interest when so becoming due. The Owner
Lessor shall require each Paying Agent (other than the Indenture Trustee) to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Noteholders or the Indenture Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Notes and shall notify the
Indenture Trustee of any default by the Owner Lessor in making any such payment.

        (b) The principal of and the Make-Whole Amount, if any, and interest on
each Note shall be paid by the Paying Agent from amounts available in the
Indenture Estate on the dates provided in the Notes by mailing a check for such
amount, payable in New York Clearing House funds, to each Noteholder at the last
address of each such Noteholder appearing on the Note Register, or by whichever
of the following methods shall be specified by notice from a Noteholder to the
Indenture Trustee: (i) by crediting the amount to be distributed to such
Noteholder to an account maintained by such Noteholder with the Indenture
Trustee, (ii) by making such payment to such Noteholder in immediately available
funds at the Indenture Trustee Office, or (iii) in the case of the Lessor Notes
and in the case of other Notes, if such Noteholder is the Pass Through Trustee,
or a bank or other institutional investor, by transferring such amount in
immediately available funds for the account of such Noteholder to the banking
institution having bank wire transfer facilities as shall be specified by such
Noteholder, such



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transfer to be subject to telephonic confirmation of payment. Any payment made
under any of the foregoing methods shall be made free and clear of and without
reduction for or on account of all wire and like charges and without any
presentment or surrender of such Note, unless otherwise specified by the terms
of the Note, except that, in the case of the final payment in respect of any
Note, such Note shall be surrendered to the Indenture Trustee for cancellation
after such payment. All payments in respect of the Notes shall be made (1) as
soon as practicable prior to the close of business on the date the amounts to be
distributed by the Indenture Trustee are actually received by the Indenture
Trustee if such amounts are received by 12:00 noon New York City time, on a
Business Day, or (2) on the next succeeding Business Day if received after such
time or on any day other than a Business Day. One or more of the foregoing
methods of payment may be specified in a Note. Prior to due presentment for
registration of transfer of any Note, the Owner Lessor and the Indenture Trustee
may deem and treat the Person in whose name any Note is registered on the Note
Register as the absolute owner and holder of such Note for the purpose of
receiving payment of all amounts payable with respect to such Note and for all
other purposes, and neither the Owner Lessor nor the Indenture Trustee shall be
affected by any notice to the contrary. All payments made on any Note in
accordance with the provisions of this Section 2.6 shall be valid and effective
to satisfy and discharge the liability on such Note to the extent of the sums so
paid and (except as provided herein) neither the Indenture Trustee nor the Owner
Lessor shall have any liability in respect of such payment.

        Section 2.7. Application of Payments. Each payment on any outstanding
Note shall be applied, first, to the payment of accrued interest (including
interest on overdue principal and the Make-Whole Amount, if any, and, to the
extent permitted by Applicable Law, overdue interest) on such Note to the date
of such payment, second, to the payment of the principal amount of, and the
Make-Whole Amount, if any, on such Note then due (including any overdue
installments of principal) thereunder and third, to the extent permitted by
Section 2.10 of this Indenture, the balance, if any, remaining thereafter, to
the payment of the principal amount of, and the Make-Whole Amount, if any, on
such Note. The order of application of payments prescribed by this Section 2.7
shall not be deemed to supersede any provision of Section 3 hereof regarding
application of funds.

        Section 2.8. Registration, Transfer and Exchange of Notes. The Owner
Lessor shall maintain an office or agency where Notes may be presented for
registration of transfer or for exchange (the "Registrar"). The Registrar shall
keep a register of the Notes and of their transfer and exchange. The Owner
Lessor may have one or more co-registrars. The Owner Lessor initially appoints
the Indenture Trustee as Registrar in connection with the Notes. The Indenture
Trustee shall maintain at the Indenture Trustee Office a register in which it
will provide for the registration, registration of transfer and exchange of
Notes (such register being referred to herein as the "Note Register"). If any
Note is surrendered at said office for registration of transfer or exchange
(accompanied by a written instrument of transfer duly executed by or on behalf
of the holder thereof, together with the amount of any applicable transfer
taxes), the Owner Lessor will execute and the Indenture Trustee will
authenticate and deliver, in the name of the designated transferee or
transferees, if any, one or more new Notes (subject to the limitations specified
in Sections 2.3 and 2.13 hereof) in any denomination or denominations not
prohibited by this Indenture, as requested by the Person surrendering the Note,
dated the same date as the Note so surrendered and of like tenor and aggregate
unpaid principal amount. Any Note or Notes issued



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in a registration of transfer or exchange shall be valid obligations of the
Owner Lessor entitled to the same security and benefits to which the Note or
Notes so transferred or exchanged were entitled, including rights as to interest
accrued but unpaid and to accrue so that there will not be any loss or gain of
interest on the Note or Notes surrendered. Every Note presented or surrendered
for registration of transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Indenture Trustee duly executed by the holder thereof or his attorney
duly authorized in writing, and the Indenture Trustee may require an opinion of
counsel as to compliance of any such transfer with the Securities Act. The
Indenture Trustee shall make a notation on each new Note of the amount of all
payments of principal previously made on the old Note or Notes with respect to
which such new Note is issued and the date on which such new Note is issued and
the date to which interest on such old Note or Notes shall have been paid. The
Indenture Trustee shall not be required to register the transfer or exchange of
any Note during the 10 days preceding the due date of any payment on such Note.

               Each Noteholder, by its acceptance of a Note, shall be deemed to
have consented to, and agreed to be bound by, the terms and conditions hereof,
of such Note (and any instrument of assignment or transfer) and of the other
Operative Documents.

        Section 2.9. Mutilated, Destroyed, Lost or Stolen Notes. Upon receipt by
the Owner Lessor and the Indenture Trustee of evidence satisfactory to each of
them of the loss, theft, destruction or mutilation of any Note and, in case of
loss, theft or destruction, of indemnity satisfactory to each of them, and upon
reimbursement to the Owner Lessor and the Indenture Trustee of all reasonable
expenses incidental thereto and payment or reimbursement for any transfer taxes,
and upon surrender and cancellation of such Note, if mutilated, the Owner Lessor
will execute and the Indenture Trustee will authenticate and deliver in lieu of
such Note, a new Note, dated the same date as such Note and of like tenor and
principal amount. Any indemnity provided by the holder of a Note pursuant to
this Section 2.9 must be sufficient in the reasonable judgment of the Owner
Lessor and the Indenture Trustee to protect the Owner Lessor, the Indenture
Trustee, the Paying Agent, the Registrar and any co-registrar or co-paying agent
from any loss which any of them may suffer if a Note is replaced.

        Section 2.10. Redemptions; Assumption.

        (a) Except as provided in paragraphs (c) and (d) of this Section 2.10 or
as provided in any indenture supplemental hereto, the applicable Notes shall be
redeemed at a price equal to the principal amount of the Notes redeemed,
together with accrued interest on such principal amount so redeemed to the
Redemption Date, in whole or, to the extent set forth in clause (i), (ii), (iii)
or (iv), in part, in the event of:

              (i) a termination of either of the Facility Leases pursuant to
        Section 10 thereof as a result of the occurrence of an Event of Loss
        (other than a Regulatory Event of Loss or an Event of Loss described in
        clause (v) of the definition of "Event of Loss");

             (ii) a termination of either of the Facility Leases pursuant to
        Section 10 thereof as a result of a Regulatory Event of Loss (other than
        a termination as a result of a Regulatory Event of Loss set forth in
        subsection (B) of clause (iv) of the definition of



                                       10
<PAGE>   16

        "Event of Loss"), unless the applicable Facility Lessee effects an
        assumption of the applicable Notes in accordance with paragraph (b) of
        this Section 2.10;

              (iii) a termination pursuant to Section 13.1 of either of the
        Facility Leases, unless the applicable Facility Lessee purchases the
        applicable Facility and effectuates an assumption of the applicable
        Notes in accordance with paragraph (b) of this Section 2.10; and

               (iv) a termination pursuant to clause (a) of Section 14.1 of
        either of the Facility Leases.

Any such redemption shall be made in accordance with the applicable provisions
of Section 3 hereof.

        (b) Unless a Significant Lease Default or a Lease Event of Default shall
have occurred and be continuing after giving effect to such assumption, the
obligations and liabilities of the Owner Lessor hereunder and under all of the
Tiverton Notes or the Rumford Notes may be assumed in whole (but not in part) by
the Tiverton Lessee or the Rumford Lessee, respectively, in the event of the
occurrence of (i) a Regulatory Event of Loss affecting the applicable Facility,
or (ii) a termination by the Tiverton Lessee or the Rumford Lessee,
respectively, pursuant to Section 13.1 or 13.2 of the Facility Lease to which
such Facility Lessee is a party, where in connection with such termination the
respective Facility Lessee acquires the applicable Facility, in each case,
pursuant to an assumption agreement (which assumption agreement may be combined
with the indenture supplemental to this Indenture hereinafter referred to in
this Section 2.10(b), and shall provide for the assumption by the applicable
Facility Lessee of the obligations and liabilities of the Owner Lessor and the
Owner Participant under the Operative Documents pertaining to the Facility
leased by such Facility Lessee) which shall make such obligations and
liabilities fully recourse to the applicable Facility Lessee and shall otherwise
be in form and substance acceptable to the Indenture Trustee and the Owner
Lessor. Such assumption agreement shall be accompanied by an Opinion of Counsel.
The applicable Facility Lessee will execute and deliver, and the Indenture
Trustee will authenticate, to each Noteholder in exchange for such old Note a
new Note, in a principal amount equal to the outstanding principal amount of
such old Note and otherwise in substantially similar form and tenor to such old
Note but indicating that the applicable Facility Lessee are the issuers thereof.
When such assumption agreement becomes effective, the Owner Lessor shall be
released and discharged without further act from all obligations and liabilities
assumed by the applicable Facility Lessee. All documentation in connection with
any such assumption (including an indenture supplemental to this Indenture which
shall, among other things, contain provisions appropriately amending references
to the Facility Leases in this Indenture and contain covenants by the applicable
Facility Lessee similar to those contained in the Facility Leases (other than
any covenants which were solely for the benefit of the Owner Participant),
changed as appropriate, and amendments or supplements to the other Operative
Documents, officers' certificates, opinions of counsel and regulatory approvals)
shall be prepared by and at the expense of the applicable Facility Lessee
acceptable in form and substance to the Indenture Trustee. As a condition to the
effectiveness of the assumption by the applicable Facility Lessee and the
release of the Owner Lessor and the Indenture Estate thereby effected, (A) the
Indenture Trustee shall have received an Opinion of Counsel of the applicable
Facility Lessee, including, in the case of clause (2) below, a nationally



                                       11
<PAGE>   17

recognized counsel selected by the applicable Facility Lessee and reasonably
acceptable to the Noteholders (it being acknowledged and agreed that the
applicable Facility Lessee's counsel on the Closing Date shall be deemed
acceptable), addressed to the Indenture Trustee and the Noteholders, to the
effect (1) set forth in the definition of "Opinion of Counsel", and (2) that
such assumption agreement and the assumption of the applicable Notes thereunder
would not cause a Tax Event to occur, (3) the Lien of this Indenture shall
continue to be a first priority perfected mortgage and security interest on the
Indenture Estate, and (4) addressing such other issues as the Indenture Trustee
shall reasonably request, and (B) Moody's and S&P shall have confirmed that such
assumption will not result in a downgrading of the rating on the Certificates.

        (c) The Owner Lessor may, at its option, redeem any Additional Lessor
Notes in whole, or in part, on any date to the extent permitted by, and at the
prices set forth in, the supplemental indenture establishing the terms,
conditions and designations of such Additional Lessor Notes, together with the
accrued interest on such principal amount plus the Make Whole Amount, if any, so
redeemed.

        (d) The Lessor Notes shall be redeemed, in whole or, solely to the
extent provided in clause (iii) below, in part, as provided below, at the
redemption price equal to the principal amount thereof, together with accrued
interest on such principal amount, plus the Make-Whole Amount, as follows:

              (i) The Lessor Notes shall be redeemed at such redemption price
        upon receipt of moneys by the Indenture Trustee as a result of an
        optional refinancing pursuant to Section 11.2 of the Participation
        Agreement. The Owner Lessor's failure to consummate such redemption as a
        result of an event described in this clause (i) following delivery of
        such notice shall not constitute a Lease Indenture Event of Default or
        any other default under the Operative Documents.

              (ii) The Lessor Notes shall be redeemed at such redemption price
        upon an optional prepayment, if the Owner Lessor elects to so redeem the
        Lessor Notes, as described in the next two succeeding sentences. In the
        case of a redemption pursuant to this clause (ii), the Owner Lessor
        shall indemnify the Indenture Trustee and the Facility Lessees for any
        and all costs and expenses incurred in connection with such redemption
        or, in the event no redemption occurs following delivery of notice of
        redemption, the failure to consummate any such redemption. The Owner
        Lessor's failure to consummate such redemption as a result of an event
        described in this clause (ii) following delivery of such notice shall
        not constitute a Lease Indenture Event of Default or any other default
        under the Operative Documents.

              (iii) The Lessor Notes shall be redeemed, in whole or in part,
        at such redemption price upon the exercise by either of the Facility
        Lessees of their rights to terminate their respective Facility Lease as
        a result of an event described in Section 13.2 or clause (b) of Section
        14.1 of the Facility Leases. The Owner Lessor's failure to consummate
        such redemption as a result of an event described in Section 13.2 of the
        Facility Leases following delivery of such notice shall not constitute a
        Lease Indenture Event of Default or any other default under the
        Operative Documents;



                                       12
<PAGE>   18

              (iv) The Lessor Notes shall be redeemed at such redemption price
        upon termination of either of the Facility Leases pursuant to Section 10
        thereof as a result of the occurrence of an Event of Loss described in
        clause (v) of the definition of "Event of Loss"; and

              (v) The Lessor Notes shall be redeemed at such redemption price
        upon termination of either of the Facility Leases pursuant to Section 10
        thereof as a result of the occurrence of and Event of Loss described in
        subclause (B) or (C) of clause (iv) of the definition of "Event of
        Loss".

The Make-Whole Amount, if any, payable with respect to the Notes will be
determined by an investment banking institution of national standing in the
United States (the "Investment Banker") selected by the applicable Facility
Lessee or, if the Owner Lessor or the Indenture Trustee does not receive notice
of such selection at least ten days prior to a scheduled prepayment date or if a
Lease Event of Default under the applicable Facility Lease shall have occurred
and be continuing, selected by the Owner Lessor.

        (e) In connection with a termination of a Facility Lease and redemption
of the Notes pertaining to the Facility leased under such Facility Lease in part
as contemplated by clauses (a)(i), (a)(ii), (a)(iii), (a)(iv) or (d)(iii), the
applicable Lessor Note shall be redeemed in part as follows: (1) any amounts
payable by the Tiverton Facility Lessee shall be applied first to the Tiverton
Notes in accordance with Section 2.7 hereof and otherwise in accordance with
Section 3 hereof; and (2) any amounts payable by the Rumford Facility Lessee
shall be applied first to the Rumford Notes in accordance with Section 2.7
hereof and otherwise in accordance with Section 3 hereof.

        (f) If the Owner Lessor elects to redeem Notes, or Notes are otherwise
required to be redeemed pursuant to this Section 2.10, the Owner Lessor shall
notify the Indenture Trustee in writing of the Redemption Date, the Section of
this Indenture pursuant to which the redemption will occur. The Owner Lessor
shall give each notice to the Indenture Trustee provided for in this Section
2.10 at least 30 days before the Redemption Date unless the Indenture Trustee
consents in writing to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an opinion of counsel from the Facility Lessees to the
effect that such redemption will comply with the conditions herein.

        (g) At least 20 days but not more than 60 days before a Redemption Date,
the Indenture Trustee shall deliver notification of such redemption by
first-class mail to each Holder of Notes to be redeemed at such Holder's
registered address; provided, that no notice shall be required so long as the
Pass Through Trustee and the Indenture Trustee are the same entity. Each such
notice shall state:

              (i)    the Redemption Date;

              (ii)   the redemption price;

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



                                       13
<PAGE>   19

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

               (v)   that, unless the Owner Lessor defaults in making such
        redemption payment, interest on Notes called for redemption ceases to
        accrue on and after the redemption date; and

               (vi)  the paragraph of this Indenture pursuant to which the
        Notes called for redemption are being redeemed.

        (h) [Intentionally omitted.]

        (i) Upon surrender to the Paying Agent, such Notes shall be paid at the
redemption price stated in the notice, plus accrued interest to the Redemption
Date. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.

        Section 2.11. Payment of Expenses on Transfer. Upon the issuance of a
new Note or Notes pursuant to Section 2.8 or 2.9 hereof, the Owner Lessor or the
Indenture Trustee may require from the party requesting such new Note or Notes
payment of a sum to reimburse the Owner Lessor and the Indenture Trustee for, or
to provide funds for, the payment of any tax or other governmental charge in
connection therewith or any charges and expenses connected with such tax or
governmental charge paid or payable by the Owner Lessor or the Indenture
Trustee.

        Section 2.12. Additional Lessor Notes.

        (a) Additional Notes (each, an "Additional Lessor Note") of the Owner
Lessor may be issued under and secured by this Indenture, at any time or from
time to time, in addition to the Lessor Note and subject to the conditions
hereinafter provided in this Section 2.12, for cash in the amount equal to the
original principal amount of such Additional Lessor Notes, for the purpose of
(i) providing funds in connection with Supplemental Financing pursuant to
Section 11.1 of the Participation Agreement for the payment of all or any
portion of Modifications to the Facilities pursuant to Section 8 of the Facility
Leases, or (ii) redeeming any previously issued Notes pursuant to an optional
refinancing pursuant to Section 11.2 of the Participation Agreement and
providing funds for the payment of all reasonable costs and expenses in
connection therewith.

        (b) Before any Additional Lessor Notes shall be issued under the
provisions of this Section 2.12, the Owner Lessor shall have delivered to the
Indenture Trustee, not less than fifteen (15) (unless a shorter period shall be
satisfactory to the Indenture Trustee) days nor more than thirty (30) days prior
to the proposed date of issuance of any Additional Lessor Notes, a request and
authorization to issue such Additional Lessor Notes, which request and
authorization shall include the amount of such Additional Lessor Notes, the
proposed date of issuance thereof and (except in connection with a refinancing
of all of the Notes pursuant to Section 11.2 of the Participation Agreement) a
certification that the terms thereof are not inconsistent with this Indenture.
Additional Lessor Notes shall have a designation so as to distinguish such
Additional Lessor Notes from the Notes theretofore issued, but otherwise shall
rank pari passu with any Notes outstanding upon issuance of the Additional
Notes, be entitled to the same benefits and



                                       14
<PAGE>   20

security of this Indenture as any other such Notes then outstanding, be dated
the date of original issuance of such Additional Lessor Notes, bear interest at
such rates as shall be agreed between the Facility Lessees and the Owner Lessor
and indicated in the aforementioned request and authorization, and shall be
stated to be payable by their terms not later than the final maturity date of
the Lessor Notes issued on the Closing Date.

        (c) The terms, conditions and designations of such Additional Lessor
Notes (which shall be consistent with this Indenture, except in the case of a
refinancing of all of the Notes pursuant to Section 11.2 of the Participation
Agreement) shall be set forth in an indenture supplemental to this Indenture
executed by the Owner Lessor and the Indenture Trustee. Such Additional Lessor
Notes shall be executed as provided in Section 2.3 hereof and deposited with the
Indenture Trustee for authentication, but before such Additional Lessor Notes
shall be authenticated and delivered by the Indenture Trustee there shall be
filed with the Indenture Trustee the following, all of which shall be dated as
of the date of the supplemental indenture:

              (i) a copy of such supplemental indenture (which shall include the
        form of such Additional Lessor Notes and the certificate of
        authentication in respect thereof);

              (ii) an Officer's Certificate from the applicable Facility Lessee
        (1) stating that no Significant Lease Default or Lease Event of Default
        has occurred and is continuing under its respective Facility Lease, (2)
        stating that the conditions in respect of the issuance of such
        Additional Lessor Notes contained in this Section 2.12 have been
        satisfied, (3) specifying the amount of the costs and expenses relating
        to the issuance and sale of such Additional Lessor Notes, and (4)
        stating that payments pursuant to the applicable Facility Lease and all
        supplements thereto of Periodic Rent and Termination Value, together
        with all other amounts payable pursuant to the terms of the Facility
        Leases, are calculated to be sufficient to pay when due all of the
        principal of and interest on the outstanding Notes, after taking into
        account the issuance of such Additional Lessor Notes and any related
        redemption of Notes theretofore outstanding;

              (iii) with respect to any Supplemental Financing, an Officer's
        Certificate from the Owner Lessor stating that no Indenture Default
        under clauses (b) through (f) of Section 4.2 hereof or Lease Indenture
        Event of Default as to the Owner Lessor has occurred and is continuing;

              (iv) such additional documents, certificates and opinions as shall
        be reasonably required by the Indenture Trustee, and as shall be
        reasonably acceptable to the Indenture Trustee;

              (v) a request and authorization to the Indenture Trustee by the
        Owner Lessor to authenticate and deliver such Additional Lessor Notes to
        or upon the order of the Person or Persons noted in such request at the
        address set forth therein, and in such principal amounts as are stated
        therein, upon payment to the Indenture Trustee, but for the account of
        the Owner Lessor, of the sum or sums specified in such request and
        authorization;

              (vi) the consent of the applicable Facility Lessee to such
        request and authorization; and



                                       15
<PAGE>   21

              (vii) an Opinion of Counsel as to the authorization, validity and
        enforceability of the Additional Lessor Notes and that all conditions
        hereunder to the authentication and delivery of such Additional Lessor
        Notes have been complied with.

        (d) When the documents referred to in the foregoing clauses (i) through
(vii) above shall have been filed with the Indenture Trustee and when the
Additional Lessor Notes described in the above mentioned request and
authorization shall have been executed and authenticated as required by this
Indenture and the related supplemental indenture, the Indenture Trustee shall
deliver such Additional Lessor Notes in the manner described in clause (v)
above, but only upon payment to the Indenture Trustee of the sum or sums
specified in such request and authorization.

        (e) This Indenture is an open-end mortgage which secures existing
indebtedness, "future advances", "protective advances" and "contingent
obligations" as such terms are defined in 33 M.R.S.A. Section 505. The maximum
principal indebtedness secured by this Indenture, including future advances and
contingent obligations but excluding protective advances, shall not at any time
exceed the total amount of Seven Hundred Fifty Million Dollars ($750,000,000);
provided, however, that nothing herein contained shall limit the amount secured
by this Indenture if the Secured Indebtedness is increased by protective
advances; and provided, further, such limitation as to such future advances and
contingent obligations shall only pertain to the record priority of the amount
thereof secured hereby pursuant to 33 M.R.S.A. Section 505 and does not
otherwise limit the amount of total indebtedness of Owner Lessor secured hereby
or limit the liability of Owner Lessor to Indenture Trustee for such total
indebtedness, including future advances and contingent obligations. The future
advances secured hereby shall be made to or for the account of Owner Lessor and
may be made under the Additional Lessor Notes, or pursuant to promissory notes
or other instruments evidencing such future advances which may be hereafter
executed and delivered by Owner Lessor to Indenture Trustee. In the event that
any notice described in subsections 5(A) or 5(B) of 33 M.R.S.A. Section 505 is
recorded or is received by Indenture Trustee, any commitment, agreement, or
obligation to make future advances to or for the benefit of Owner Lessor shall
immediately terminate.

        (f) This Indenture permits and secures any and all current and future
advances made to or for the account of the Owner Lessor and may be made under
the Notes or the Additional Lessor Notes or other documents evidencing the
Secured Indebtedness, as may be signed by the Owner Lessor and such other
agreement(s) as may be entered into by and with the Indenture Trustee and signed
by the Owner Lessor. The unpaid principal balance of the indebtedness
outstanding under this Indenture shall at no time exceed Seven Hundred Fifty
Million Dollars ($750,000,000). The Indenture Trustee will accept notices
pursuant to Section 34-25-10(b) and 34-25-11 of the General Laws of the State of
Rhode Island at the address specified in Section 9.5 of this Indenture.

        Section 2.13. Restrictions of Transfer Resulting from Federal Securities
Laws; Legend. Each Note shall be delivered to the initial Noteholder thereof
without registration of such Note under the Securities Act and without
qualification of this Indenture under the Trust Indenture Act of 1939, as
amended. Prior to any transfer of any such Note, in whole or in part, to any
Person, the Noteholder thereof shall furnish to the applicable Facility Lessee,
the Indenture Trustee and the Owner Lessor an opinion of counsel, which opinion
and which counsel shall be reasonably satisfactory to the Indenture Trustee, the
Owner Lessor and the applicable Facility Lessee, to the



                                       16
<PAGE>   22

effect that such transfer will not violate the registration provisions of the
Securities Act or require qualification of this Indenture under the Trust
Indenture Act of 1939, as amended, and all Notes issued hereunder shall be
endorsed with a legend which shall read substantially as follows:

         THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
         MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH
         ACT.

        Section 2.14. Security for and Parity of Notes. All Notes issued and
outstanding hereunder shall rank on a parity with each other and shall as to
each other be secured equally and ratably by this Indenture, without preference,
priority or distinction of any thereof over any other by reason of difference in
time of issuance or otherwise.

        Section 2.15. Acceptance of the Indenture Trustee. Each Noteholder, by
its acceptance of a Note, shall be deemed to have consented to the appointment
of the Indenture Trustee.

SECTION 3. RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM INDENTURE ESTATE

        Section 3.1.  Distribution of Periodic Rent.

        (a) Periodic Rent Distribution. Except as otherwise provided in Section
3.2, 3.3 or 3.7 of this Indenture, each installment of Periodic Rent and any
payment of Supplemental Rent constituting interest on overdue installments of
Periodic Rent received by the Indenture Trustee shall be distributed by the
Indenture Trustee in the following order of priority:

        First, so much of such amounts as shall be required to pay in full the
        aggregate principal and accrued interest (as well as any interest on
        overdue principal and, to the extent permitted by Applicable Law, on
        overdue interest) then due and payable under the Notes shall be
        distributed to the Noteholders ratably, without priority of any
        Noteholder over any other Noteholder, in the proportion that the amount
        of such payment then due and payable under each such Note bears to the
        aggregate amount of the payments then due and payable under all such
        Notes; and

        Second, the balance, if any, of such amounts remaining shall be
        distributed to the Owner Lessor for distribution by it in accordance
        with the terms of the LLC Agreement.

        (b) Application of Other Amounts Held by the Indenture Trustee upon Rent
Default. If, as a result of any failure by either of the Facility Lessees to pay
Periodic Rent in full on any date when an installment of Periodic Rent is due,
there shall not have been distributed on any date (or within any applicable
period of grace) pursuant to Section 3.1(a) hereof the full amount then
distributable pursuant to clause "First" of Section 3.1(a) of this Indenture,
the Indenture Trustee shall distribute other payments of the character referred
to in Sections 3.5 and 3.6 hereof then held by it, or thereafter received by it,
to all Noteholders to the extent necessary to enable it to make all the
distributions then due pursuant to such clause "First." To the extent the
Indenture Trustee thereafter receives the deficiency in Periodic Rent, the
amount so received shall, unless a Significant Lease Default or Lease Indenture
Event of Default shall have occurred and be continuing, be applied to restore
the amounts held by the Indenture Trustee under Section 3.5 or



                                       17
<PAGE>   23

3.6 hereof and distributed pursuant to this Section 3.1(b), as the case may be.
The portion of each such payment made to the Indenture Trustee which is to be
distributed by the Indenture Trustee in payment of Notes shall be applied in
accordance with Section 2.7 hereof. Any payment received by the Indenture
Trustee pursuant to Section 4.3 hereof as a result of payment by the Owner
Lessor of principal or interest or both (as well as any interest on overdue
principal and, to the extent permitted by Applicable Law, on overdue interest)
then due on all Notes shall be distributed to the Noteholders, ratably, without
priority of one over the other, in the proportion that the amount of such
payment or payments then due and unpaid on all Notes held by each such
Noteholder bears to the aggregate amount of the payments then due and unpaid on
all Notes outstanding; and the Owner Lessor shall (to the extent of such payment
made by it) be subrogated to the rights of the Noteholders under this Section
3.1 to receive the payment of Periodic Rent or Supplemental Rent with respect to
which its payment under Sections 4.3(a) and (b) hereof relates, and the payment
of interest on account of such Periodic Rent or Supplemental Rent being overdue,
to the extent provided in and subject to the provisions of Section 4.3(a) and
(b) hereof.

        (c) Retention of Amounts by the Indenture Trustee. If at the time of
receipt by the Indenture Trustee of an installment of Periodic Rent (whether or
not then overdue) or of payment of interest on any overdue installment of
Periodic Rent, there shall have occurred and be continuing a Lease Indenture
Event of Default, the Indenture Trustee shall retain such installment of
Periodic Rent or payment of interest (to the extent not then required to be
distributed pursuant to clause "First" of Section 3.1(a)) as part of the
Indenture Estate and shall not distribute any such payment of Periodic Rent or
interest pursuant to clause "Second" of Section 3.1(a) until such time as the
Indenture Trustee shall have received notice that there shall not be continuing
any such Lease Indenture Event of Default or until such time as the Indenture
Trustee shall have received written instructions from a Majority in Interest of
Noteholders to make such a distribution; provided that such amounts must be
returned to the Owner Lessor within six (6) months from the receipt thereof by
the Indenture Trustee unless (i) the Indenture Trustee has declared the unpaid
principal of all Notes due and payable (or such amounts shall have automatically
become due and payable), pursuant to Section 4.2(a) and the Indenture Trustee is
diligently pursuing any dispossessary remedies available under Section 4.3
hereof (unless such remedies are stayed or prevented by operation of law) or
(ii) any other Lease Indenture Event of Default shall have occurred during the
intervening period and be continuing, in which case, such six-month period will
be restarted from the date such other Lease Indenture Event of Default shall
have occurred. Upon the cure or waiver of such Lease Indenture Event of Default,
withheld Periodic Rent shall, subject to clause (ii) of the immediately
preceding sentence, be distributed to the Owner Lessor (to the extent that all
payments to be distributed pursuant to clause "First" of Section 3.1(a) have
been made), and no further withholding of Periodic Rent on account of such Lease
Indenture Event of Default shall be effected.

        Section 3.2. Payments Following Event of Loss or Other Early
Termination.

        (a) Any payment received by the Indenture Trustee as a result of (x) an
Event of Loss (other than a Regulatory Event of Loss in respect of which the
Facility Lessees shall, pursuant to Section 2.10(b) hereof, assume the
obligations and liabilities of the Owner Lessor hereunder, in which event only
clauses "First" and "Fourth" below shall be applicable), (y) early terminations
of either of the Facility Leases pursuant to Section 13 thereof (other than a
termination in respect



                                       18
<PAGE>   24

of which either of the Facility Lessees shall, pursuant to Section 2.10(b)
hereof assume the obligations and liabilities of the Owner Lessor hereunder, in
which event only clauses "First" and "Fourth" below shall be applicable), or (z)
any early terminations of the Facility Leases, in whole or in part, pursuant to
Section 14 thereof, shall be distributed on the applicable Redemption Date to
the extent of available funds, in the following order of priority:

        First, so much of such payments and amounts as shall be required to
        reimburse the Indenture Trustee for any unpaid fees for its services
        under this Indenture and any expense (including any legal fees and
        disbursements) or loss incurred by it (to the extent incurred in
        connection with its duties as the Indenture Trustee and to the extent
        reimbursable and not previously reimbursed) shall be distributed to the
        Indenture Trustee for application to itself;

        Second, so much of such payment remaining as shall be required to pay in
        full the applicable redemption price (as described in Section 2.10(a) or
        2.10(d) hereof or any supplemental indenture hereto) (including,
        interest on overdue principal and, to the extent permitted by Applicable
        Law, overdue interest) upon all of the Notes which shall be distributed
        to the holders of such Notes, in each case ratably, without priority of
        any Noteholder over any other, in the proportion that the aggregate
        unpaid principal amount of all such Notes held by each such holder, plus
        the Make-Whole Amount, if any, and accrued but unpaid interest thereon
        to the scheduled date of distribution to the Noteholders bears to the
        aggregate unpaid principal amount of all such Notes held by all such
        holders, together with the Make-Whole Amount, if any, plus accrued but
        unpaid interest thereon to the date of scheduled distribution;

        Third, so much of such payments and amounts as shall be required to pay
        the then existing or prior Noteholders all other amounts then payable
        and unpaid to them as holders of the Notes which this Indenture by its
        terms secures shall be distributed to such existing or prior holders of
        Notes, ratably to each such holder, without priority of any such holder
        over any other, in the proportion that the amount of such payments or
        amounts to which each such holder is so entitled bears to the aggregate
        amount of such payments and amounts to which all such holders are so
        entitled; and

        Fourth, the balance, if any, of such payment remaining shall be
        distributed to the Owner Lessor for distribution in accordance with the
        LLC Agreement.

        Section 3.3. Payments After Lease Indenture Event of Default. All
payments received and all amounts held or realized by the Indenture Trustee
after a Lease Indenture Event of Default shall have occurred and be continuing
(including any amounts realized by the Indenture Trustee from the exercise of
any remedies pursuant to Section 17 of the Facility Lease or from the
application of Section 4.3 hereof) and after either (a) the Indenture Trustee
has declared a Facility Lease to be in default pursuant to Section 17 thereof or
(b) the Lessor Note shall have been declared or shall automatically have become
due and payable, together with all payments or amounts then held or thereafter
received by the Indenture Trustee hereunder, shall, so long as such declaration
shall not have been rescinded, be distributed forthwith by the Indenture Trustee
in the following order of priority:



                                       19
<PAGE>   25

        First, so much of such payments and amounts as shall be required to
        reimburse the Indenture Trustee for any unpaid fees for its services
        under this Indenture and any expense (including any legal fees and
        disbursements) or loss incurred by it (to the extent incurred in
        connection with its duties as the Indenture Trustee and to the extent
        reimbursable and not previously reimbursed) shall be distributed to the
        Indenture Trustee for application to itself;

        Second, so much of such payment remaining as shall be required to pay
        the aggregate unpaid principal amount of all Notes then outstanding and
        all accrued but unpaid interest on such Notes to the date of such
        distribution (including interest on overdue principal and, to the extent
        permitted by Applicable Law, overdue interest) shall be distributed to
        the holders of such Notes, in each case ratably without priority of any
        Noteholder over any other, in the proportion that the aggregate unpaid
        principal amount of all such Notes held by each such holder and accrued
        but unpaid interest thereon to the scheduled date of distribution to the
        Noteholders bears to the aggregate unpaid principal amount of all such
        Notes held by all such holders and accrued but unpaid interest thereon
        to the date of scheduled distribution to the Noteholders;

        Third, so much of such payments and amounts as shall be required to pay
        the then existing or prior Noteholders all other amounts then payable
        and unpaid to them as holders of the Notes which this Indenture by its
        terms secures, including the Make-Whole Amount, if any, required to be
        paid pursuant to Section 2.10(a)(v) hereof, in respect of such Notes
        required to be paid pursuant to Section 4.3(a) hereof, shall be
        distributed to such existing or prior holders of Notes, ratably to each
        such holder, without priority of any such holder over any other, in the
        proportion that the amount of such payments or amounts to which each
        such holder is so entitled bears to the aggregate amount of such
        payments and amounts to which all such holders are so entitled; and

        Fourth, the balance, if any, of such payments and amounts remaining
        shall be distributed to the Owner Lessor for distribution by it in
        accordance with the terms of the LLC Agreement.

        Section 3.4. Investment of Certain Payments Held by the Indenture
Trustee. Upon the written direction and at the risk and expense of the Owner
Lessor, the Indenture Trustee shall invest and reinvest any moneys held by the
Indenture Trustee pursuant to Section 3.1(c), 3.5 or 3.6 hereof in such
Permitted Investments as may be specified in such direction. The proceeds
received upon the sale or at maturity of any Permitted Investment and any
interest received on such Permitted Investment and any payment in respect of a
deficiency contemplated by the following sentence shall be held as part of the
Indenture Estate and applied by the Indenture Trustee in the same manner as the
moneys used to buy such Permitted Investment, and any Permitted Investment may
be sold (without regard to maturity date) by the Indenture Trustee whenever
necessary to make any payment or distribution required by this Section 3. If the
proceeds received upon the sale or at maturity of any Permitted Investment
(including interest received on such Permitted Investment) shall be less than
the cost thereof (including accrued interest), the Owner Lessor will pay or
cause to be paid to the Indenture Trustee an amount equal to such deficiency.



                                       20
<PAGE>   26

        Section 3.5. Application of Certain Other Payments. Except as otherwise
provided in Section 3.1(b) or 3.1(c) hereof, any payment received by the
Indenture Trustee for which provision as to the application thereof is made in
an Operative Document, but not elsewhere in this Indenture (including payments
received by the Indenture Trustee under the Calpine Guaranties), shall, unless a
Lease Indenture Event of Default shall have occurred and be continuing, be
applied forthwith to the purpose for which such payment was made in accordance
with the terms of such Operative Document. If at the time of the receipt by the
Indenture Trustee of any payment referred to in the preceding sentence there
shall have occurred and be continuing a Lease Indenture Event of Default, the
Indenture Trustee shall hold such payment as part of the Indenture Estate, but
the Indenture Trustee shall, except as otherwise provided in Section 3.1(b) or
3.1(c) hereof, cease to hold such payment and shall apply such payment to the
purpose for which it was made in accordance with the terms of such Operative
Document if and whenever there is no longer continuing any Lease Indenture Event
of Default; provided, however, that any such payment received by the Indenture
Trustee which is payable to the Facility Lessees shall not be held by the
Indenture Trustee unless a Significant Lease Default or Lease Event of Default
shall have occurred and be continuing.

        Section 3.6. Other Payments. Except as otherwise provided in Section 3.5
hereof:

        (a) any payment received by the Indenture Trustee for which no provision
as to the application thereof is made in the Participation Agreement, the
Facility Lease or elsewhere in this Section 3; and

        (b) all payments received and amounts realized by the Indenture Trustee
with respect to the Indenture Estate (including all amounts realized after the
termination of the Facility Lease), to the extent received or realized at any
time after payment in full of the principal of and, Make-Whole Amount, if any,
and interest on all Notes then outstanding and all other amounts due the
Indenture Trustee or the Noteholders, as well as any other amounts remaining as
part of the Indenture Estate after such payment in full of the principal of,
Make-Whole Amount, if any, and interest on all Notes outstanding;

        (c) shall be distributed forthwith by the Indenture Trustee in the order
of priority set forth in Section 3.3 hereof, omitting clause "Second" thereof.

        Section 3.7. Excepted Payments. Notwithstanding any other provision of
this Indenture including this Section 3 or any provision of any of the Operative
Documents to the contrary, any Excepted Payments received or held by the
Indenture Trustee at any time shall promptly be paid or distributed by the
Indenture Trustee to the Person or Persons entitled thereto.

        Section 3.8. Distributions to the Owner Lessor. Unless otherwise
directed in writing by the Owner Lessor, all amounts from time to time
distributable by the Indenture Trustee to the Owner Lessor in accordance with
the provisions hereof shall be paid by the Indenture Trustee in immediately
available funds to the Owner Participant's Account. Any amounts payable to the
Trust Company in its individual capacity shall be paid to the Trust Company.

        Section 3.9. Payments Under Assigned Documents. Notwithstanding anything
to the contrary contained in this Indenture, until the discharge and
satisfaction of the Lien of this



                                       21
<PAGE>   27

Indenture, all payments due or to become due under any Assigned Document to the
Owner Lessor (except so much of such payments as constitute Excepted Payments)
shall be made directly to the Indenture Trustee's Account and the Owner Lessor
shall give all notices as shall be required under the Assigned Documents to
direct payment of all such amounts to the Indenture Trustee hereunder. The Owner
Lessor agrees that if it should receive any such payments directed to be made to
the Indenture Trustee or any proceeds for or with respect to the Indenture
Estate or as the result of the sale or other disposition thereof or otherwise
constituting a part of the Indenture Estate to which the Owner Lessor is not
entitled hereunder, it will promptly forward such payments to the Indenture
Trustee or in accordance with the Indenture Trustee's instructions. The
Indenture Trustee agrees to apply payments from time to time received by it
(from the Facility Lessee, the Owner Lessor or otherwise) with respect to the
Facility Leases, any other Assigned Document or the Facilities in the manner
provided in Section 2.7 hereof, and this Section 3.

        Section 3.10. Disbursement of Amounts Received by the Indenture Trustee.
Subject to the last sentence of this Section 3.10 and Section 3.2, amounts to be
distributed by the Indenture Trustee pursuant to this Section 3 shall be
distributed on the date such amounts are actually received by the Indenture
Trustee. Notwithstanding anything to the contrary contained in this Section 3,
in the event the Indenture Trustee shall be required or directed to make a
payment under this Section 3 on the same date on which such payment is received,
any amounts received by the Indenture Trustee after 12:00 noon, New York City
time, or on a day other than a Business Day, may be distributed on the next
succeeding Business Day.

SECTION 4. COVENANTS OF OWNER LESSOR; DEFAULTS; REMEDIES OF INDENTURE TRUSTEE

        Section 4.1. Covenants of Owner Lessor. The Owner Lessor hereby
covenants and agrees as follows:

        (a) the Owner Lessor will duly and punctually pay the principal of,
Make-Whole Amount, if any, and interest on and other amounts due under the Notes
and hereunder in accordance with the terms of the Notes and this Indenture and
all amounts payable by it to the Noteholders under the Participation Agreement;
and

        (b) the Owner Lessor will not, except as provided in this Indenture
(including Sections 4.4, 5.6, 8.1 and 8.2) and except as to Excepted Payments
(i) enter into any agreement amending, modifying or supplementing any of the
Assigned Documents, or exercise any election or option, or make any decision or
determination, or give any notice, consent, waiver or approval, or take any
other action, under or in respect of any Assigned Document, (ii) accept and
retain any payment from, or settle or compromise any claim arising under, any of
the Assigned Documents, except that it may forward any payment to the Indenture
Trustee in accordance with Section 3.9, (iii) give any notice or exercise any
right or take any action under any of the Assigned Documents, or (iv) submit or
consent to the submission of any dispute, difference or other matter arising
under or in respect of any of the Assigned Documents to arbitration thereunder.



                                       22
<PAGE>   28

        Section 4.2. Occurrence of Lease Indenture Event of Default. Subject to
Section 4.4 hereof, the term "Lease Indenture Event of Default," wherever used
herein, shall mean any of the following events (whatever the reason for such
Lease Indenture Event of Default and whether it shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):

        (a) any Lease Event of Default (other than the failure of a Facility
    Lessee to pay any amount which shall constitute an Excepted Payment and
    other than a Lease Event of Default in consequence of a Facility Lessee's
    failure to maintain the insurance required by Section 11 of the Facility
    Leases if, and so long as, (i) such Lease Event of Default is waived by the
    Owner Lessor and the Owner Participant and (ii) the insurance maintained by
    each of the Facility Lessees still constitutes Prudent Industry Practice);
    or

        (b) the Owner Lessor shall fail (other than as a result of a Lease Event
    of Default) to make any payment in respect of the principal of, or
    Make-Whole Amount, if any, or interest on, the Notes within five Business
    Days after the same shall have become due; or

        (c) the Owner Lessor shall fail to perform or observe any material
    covenant, obligation or agreement to be performed or observed by it under
    this Indenture (other than any covenant, obligation or agreement contained
    in clause (b) of this Section 4.2), the Owner Lessor shall fail to perform
    or observe any material covenant, obligation or agreement to be performed by
    it under Section 6 of the Participation Agreement, the Owner Participant
    shall fail to perform or observe any material covenant, obligation or
    agreement to be performed by it under Section 7 of the Participation
    Agreement, or the OP Guarantor shall fail to perform or observe any material
    covenant, obligation or agreement to be performed by it under the OP
    Guaranty in each case, in any material respect, which failure shall continue
    unremedied for 30 days after receipt by such party of written notice
    thereof; provided, however, that if such condition cannot be remedied within
    such 30-day period, then the period within which to remedy such condition
    shall be extended up to 180 days, so long as such party diligently pursues
    such remedy and such condition is reasonably capable of being remedied
    within such extended period;

        (d) any representation or warranty made by the Owner Lessor in Section
    3.2 of the Participation Agreement or in the certificate delivered by the
    Owner Lessor at the Closing pursuant to Section 4.6 of the Participation
    Agreement or any representation or warranty made by the Owner Participant in
    Section 3.4 of the Participation Agreement (other than Section 3.4(i)) or
    the certificate delivered by the Owner Participant at the Closing pursuant
    to Section 4.6 of the Participation Agreement, or any representation or
    warranty made by the OP Guarantor (provided the OP Guaranty shall not have
    been terminated or released) under the OP Guaranty or in the certificate
    delivered by such OP Guarantor at the Closing pursuant to Section 4.6 of the
    Participation Agreement, shall prove to have been incorrect in any material
    respect when made and continues to be material and unremedied for a period
    of 30 days after receipt by such party of written notice thereof; provided,
    however, that if such condition cannot be remedied within such 30-day
    period, then the period within which to remedy such condition shall be
    extended up to an additional 120 days, so long as such party



                                       23
<PAGE>   29

    diligently pursues such remedy and such condition is reasonably capable of
    being remedied within such extended period;

        (e) the Owner Participant, the Owner Lessor or the OP Guarantor
    (provided the OP Guaranty shall not have been terminated or released) shall
    (i) commence a voluntary case or other proceeding seeking relief under Title
    11 of the Bankruptcy Code or liquidation, reorganization or other relief
    with respect to itself or its debts under any bankruptcy, insolvency or
    other similar law now or hereafter in effect, or apply for or consent to the
    appointment of a trustee, receiver, liquidator, custodian or other similar
    official of it or any substantial part of its property, or (ii) consent to,
    or fail to controvert in a timely manner, any such relief or the appointment
    of or taking possession by any such official in any voluntary case or other
    proceeding commenced against it, or (iii) file an answer admitting the
    material allegations of a petition filed against it in any such proceeding;
    or

        (f) an involuntary case or other proceeding shall be commenced against
    the Owner Participant, the Owner Lessor or the OP Guarantor (provided the OP
    Guaranty shall not have been terminated or released) seeking (i)
    liquidation, reorganization or other relief with respect to it or its debts
    under Title 11 of the Bankruptcy Code or any bankruptcy, insolvency or other
    similar law now or hereafter in effect, or (ii) the appointment of a
    trustee, receiver, liquidator, custodian or other similar official with
    respect to it or any substantial part of its property or (iii) the
    winding-up or liquidation of the Owner Lessor; and such involuntary case or
    other proceeding shall remain undismissed and unstayed for a period of 60
    days.

        Section 4.3. Remedies of the Indenture Trustee.

        (a) In the event that a Lease Indenture Event of Default shall have
occurred and be continuing, the Indenture Trustee in its discretion may, or upon
receipt of written instructions from a Majority in Interest of Noteholders shall
declare, by written notice to the Owner Lessor and the Owner Participant, the
unpaid principal amount of all Notes, with accrued interest thereon, to be
immediately due and payable, upon which declaration such principal amount and
such accrued interest shall immediately become due and payable (except in the
case of a Lease Indenture Event of Default under Section 4.2(e) or (f), such
principal and interest shall automatically become due and payable immediately
without any such declaration or notice) without further act or notice of any
kind. If any Make-Whole amount is due and payable pursuant to Section 2.10(d)
(iii) or (iv) at the time of any such acceleration, such Make-Whole Amount shall
also be due and payable in connection with such acceleration.

        (b) If a Lease Indenture Event of Default shall have occurred and be
continuing, then and in every such case, the Indenture Trustee, as assignee
under the Facility Leases or hereunder or otherwise, may, and where required
pursuant to the provisions of Section 5 hereof shall, upon written notice to the
Owner Lessor, exercise any or all of the rights and powers and pursue any or all
of the remedies pursuant to this Section 4 and, in the event such Lease
Indenture Event of Default shall be a Lease Event of Default, any and all of the
remedies provided pursuant to this Section 4 and Section 17 of the Facility
Leases and, subject to Section 4.4, may take possession of all or any part of
the Indenture Estate and may exclude therefrom the Owner Participant, the Owner
Lessor and, in the event such Lease Indenture Event of Default shall be a Lease
Event of Default, the Facility Lessees and all persons claiming under them, and
may exercise all remedies



                                       24
<PAGE>   30

available to a secured party under the Uniform Commercial Code or any other
provision of Applicable Law. The Indenture Trustee may proceed to enforce the
rights of the Indenture Trustee and of the Noteholders by directing payment to
it of all moneys payable under any agreement or undertaking constituting a part
of the Indenture Estate, by proceedings in any court of competent jurisdiction
to recover damages for the breach hereof or for the appointment of a receiver or
for sale of all or any part of the Facilities or for foreclosure of the
Facilities, together with the Owner Lessor's interest in the Assigned Documents,
and by any other action, suit, remedy or proceeding authorized or permitted by
this Indenture, at law or in equity, or whether for the specific performance of
any agreement contained herein, or for an injunction against the violation of
any of the terms hereof, or in aid of the exercise of any power granted hereby
or by law, and in addition may foreclose upon, sell, assign, transfer and
deliver, from time to time to the extent permitted by Applicable Law, all or any
part of the Indenture Estate or any interest therein, at any private sale or
public auction with or without demand, advertisement or notice (except as herein
required or as may be required by law) of the date, time and place of sale and
any adjournment thereof, for cash or credit or other property, for immediate or
future delivery and for such price or prices and on such terms as the Indenture
Trustee, in its unfettered discretion, may determine, or as may be required by
law, so long as the Owner Participant and the Owner Lessor are afforded a
commercially reasonable opportunity to bid for all or such part of the Indenture
Estate in connection therewith unless Section 4.7 shall otherwise be applicable;
provided that 20 days shall be deemed to be a commercially reasonable
opportunity to bid for purposes of this Section 4.3(b). The Indenture Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Indenture Trustee and of the
Noteholders asserted or upheld in any bankruptcy, receivership or other judicial
proceedings.

        (c) To the fullest extent permitted by Applicable Law, all rights of
action and rights to assert claims under this Indenture or under any of the
Notes may be enforced by the Indenture Trustee without the possession of the
Notes at any trial or other proceedings instituted by the Indenture Trustee, and
any such trial or other proceedings shall be brought in its own name as
mortgagee of an express trust, and any recovery or judgment shall be for the
ratable benefit of the Noteholders as herein provided. In any proceedings
brought by the Indenture Trustee (and also any proceedings involving the
interpretation of any provision of this Indenture), the Indenture Trustee shall
be held to represent all the Noteholders, and it shall not be necessary to make
any such Persons parties to such proceedings.

        (d) Anything herein to the contrary notwithstanding, neither the
Indenture Trustee nor any Noteholder shall at any time, including at any time
when a Lease Indenture Event of Default shall have occurred and be continuing
and there shall have occurred and be continuing a Lease Event of Default, be
entitled to exercise any remedy under or in respect of this Indenture which
could or would divest the Owner Lessor of title to, or its ownership interest
in, any portion of the Indenture Estate unless, in the case of a Lease Indenture
Event of Default as a consequence of a Lease Event of Default under Section 16
of the Facility Lease, the Indenture Trustee shall have, to the extent it is
then entitled to do so hereunder and is not then stayed or otherwise prevented
from doing so by operation of law, commenced the exercise of one or more
remedies under both Facility Leases intending to dispossess the Facility Lessees
of the Facilities and is using good faith efforts in the exercise of such
remedies (and not merely asserting a right or claim to do so); provided that
during any period that the Indenture Trustee is stayed or otherwise prevented by



                                       25
<PAGE>   31

operation of law from exercising such remedies with respect to either Facility,
the Indenture Trustee will not divest the Owner Lessor of title to any portion
of the Indenture Estate until the earlier of (a) the expiration of the 180-day
period following the date of commencement of a stay or other prevention with
respect to the first such affected Facility (regardless of whether a prevention
or stay subsequently affects the other Facility during such 180-day period) or
(b) the date of repossession of both Facilities under the applicable Facility
Leases.

        (e) Anything herein to the contrary notwithstanding, in the case of a
Lease Indenture Event of Default as a consequence of a Lease Event of Default
under Section 16(a) of the Facility Leases with respect to the Equity Portion of
Periodic Rent only, the Indenture Trustee shall not, so long as no other Lease
Indenture Event of Default shall have occurred and be continuing, be entitled to
exercise remedies under this Indenture for a period of 180 days unless the Owner
Lessor or the Owner Participant consents to the declaration of a Lease Event of
Default by the Indenture Trustee.

        (f) Any provisions of the Facility Leases or this Indenture to the
contrary notwithstanding, if the Facility Lessees shall fail to pay any Excepted
Payment to any Person entitled thereto as and when due, such Person shall have
the right at all times, to the exclusion of the Indenture Trustee, to demand,
collect, sue for, enforce performance of obligations relating to, or otherwise
obtain all amounts due in respect of such Excepted Payment or to declare a Lease
Event of Default under Section 16 of the Facility Leases solely to enforce such
obligations in respect of any Excepted Payments (provided that any such
declaration shall not be deemed to constitute a Lease Indenture Event of Default
hereunder without the consent of the Indenture Trustee).

        Section 4.4.  Right to Cure Certain Lease Events of Default.

        (a) If either of the Facility Lessees shall fail to make any payment of
Periodic Rent due on any Rent Payment Date when the same shall have become due,
and if such failure of such Facility Lessee to make such payment of Periodic
Rent shall not constitute the fourth consecutive such failure or the eighth
cumulative failure of the Facility Lessee, then the Owner Lessor may (but need
not) pay to the Indenture Trustee, at any time prior to the expiration of ten
(10) Business Days after the Owner Lessor and the Owner Participant shall have
received notice from the Indenture Trustee or have Actual Knowledge of the
failure of the Facility Lessee to make such payment of Periodic Rent, an amount
equal to the principal of, Make-Whole Amount, if any, and interest on the Notes,
then due (otherwise than by declaration of acceleration) on such Rent Payment
Date, together with any interest due thereon on account of the delayed payment
thereof, and such payment by the Owner Lessor shall be deemed (for purposes of
this Indenture) to have cured any Lease Indenture Event of Default which arose
or would have arisen from such failure of such Facility Lessee.

        (b) If either of the Facility Lessees shall fail to make any payment of
Supplemental Rent when the same shall become due or otherwise fail to perform
any obligation under the Facility Leases or any other Operative Document, then
the Owner Lessor may (but need not) make such payment on the date such
Supplemental Rent was payable, together with any interest due thereon on account
of the delayed payment thereof, or perform such obligation at any time prior to
the expiration of ten (10) Business Days after the Owner Lessor or the Owner
Participant



                                       26
<PAGE>   32

shall have received notice or have Actual Knowledge of the occurrence of such
failure, and such payment or performance by the Owner Lessor shall be deemed to
have cured any Lease Indenture Event of Default which arose or would have arisen
from such failure of the Facility Lessee.

        (c) The Owner Lessor, upon exercising its rights under paragraph (a) or
(b) of this Section 4.4 to cure either of the Facility Lessee's failure to pay
Periodic Rent or Supplemental Rent or to perform any other obligation under the
Facility Leases or any other Operative Document, shall not obtain any Lien on
any part of the Indenture Estate on account of such payment or performance nor,
except as expressly provided in the next sentence, pursue any claims against a
Facility Lessee or any other party, for the repayment thereof if such claims
would impair the prior right and security interest of the Indenture Trustee in
and to the Indenture Estate. Upon such payment or performance by the Owner
Lessor, the Owner Lessor shall (to the extent of such payment made by it and the
costs and expenses incurred in connection with such payments and performance
thereof together with interest thereon and so long as no event which would, with
the passing of time or giving of notice or both, become a Lease Indenture Event
of Default under Section 4.2(b), (e) or (f), or any Lease Indenture Event of
Default hereunder shall have occurred and be continuing) be subrogated to the
rights of the Indenture Trustee and the Noteholders to receive the payment of
Periodic Rent or Supplemental Rent, as the case may be, with respect to which
the Owner Lessor made such payment and interest on account of such Periodic Rent
Payment or Supplemental Rent payment being overdue in the manner set forth in
the next two sentences. If the Indenture Trustee shall thereafter receive such
payment of Periodic Rent, Supplemental Rent or such interest, the Indenture
Trustee shall, notwithstanding the requirements of Section 3.1 hereof,
forthwith, remit such payment of Periodic Rent or Supplemental Rent, as the case
may be (to the extent of the payment made by the Owner Lessor pursuant to this
Section 4.4) and such interest to the Owner Lessor in reimbursement for the
funds so advanced by it, provided that if (A) any event which, with the passing
of time or giving of notice or both, would become a Lease Indenture Event of
Default under Section 4.2(b), (e) or (f) hereof, or any Lease Indenture Event of
Default hereunder shall have occurred and be continuing or (B) any payment of
principal, interest, or Make-Whole Amount, if any, on any Note then shall be
overdue, such payment shall not be remitted to the Owner Lessor but shall be
held by the Indenture Trustee as security for the obligations secured hereby and
distributed in accordance with Section 3.1 hereof. The Owner Lessor shall not
attempt to recover any amount paid by it on behalf of a Facility Lessee pursuant
to this Section 4.4 except by demanding of a Facility Lessee payment of such
amount or by commencing an action against a Facility Lessee for the payment of
such amount, and except where a Lease Indenture Event of Default (other than a
Lease Event of Default) has occurred and is continuing, the Owner Lessor shall
be entitled to receive the amount of such payment and the costs and expenses
incurred in connection with such payments and performance thereof together with
interest thereon from a Facility Lessee (but neither the Owner Lessor nor the
Owner Participant shall have any right to collect such amounts by exercise of
any of the remedies under Section 17 of the Facility Leases) or, if paid by a
Facility Lessee to the Indenture Trustee, from the Indenture Trustee to the
extent of funds actually received by the Indenture Trustee.

        (d) Until the expiration of the period during which the Owner Lessor or
the Owner Participant shall be entitled to exercise rights under paragraph (a)
or (b) of this Section 4.4 with respect to any failure by either of the Facility
Lessees referred to therein, neither the Indenture



                                       27
<PAGE>   33

Trustee nor any Noteholder shall take or commence any action it would otherwise
be entitled to take or commence as a result of such failure by a Facility
Lessee, whether under this Section 4 or Section 17 of the Facility Leases or
otherwise.

        (e) Each Noteholder agrees, by acceptance thereof, that if (i) (x) a
Lease Indenture Event of Default, which also constitutes a Lease Event of
Default, shall have occurred and be continuing for a period of at least 90 days
without the Notes having been accelerated or the Indenture Trustee having
exercised any remedy under the Facility Leases intended to dispossess the
Facility Lessees of the Facilities, (y) the Notes have been accelerated pursuant
to Section 4.3(a) and such acceleration has not theretofore been rescinded, or
(z) an Enforcement Notice giving notice of the intent of the Indenture Trustee
to foreclose on the Facilities or otherwise dispossess of the Facilities has
been given pursuant to Section 5.1 within the previous 30 days, (ii) no Lease
Indenture Event of Default of the nature described in any of clauses (b) through
(f) of Section 4.2 hereof shall have occurred and be continuing and (iii) the
Owner Lessor shall give written notice to the Indenture Trustee of the Owner
Lessor's intention to purchase all of the Notes in accordance with this
paragraph, then, upon receipt within ten (10) Business Days after such notice
from the Owner Lessor of an amount equal to the sum of (x) the aggregate unpaid
principal amount of any unpaid Notes then held by the Noteholders, together with
accrued but unpaid interest thereon to the date of such receipt (as well as any
interest on overdue principal and, to the extent permitted by Applicable Law,
overdue interest), plus the aggregate amount, if any, of all sums which, if
Section 3.3 were then applicable, such Noteholder would be entitled to be paid
before any payments were to be made to the Owner Lessor but excluding any
Make-Whole Amount, such Noteholder will forthwith (and upon its receipt of the
payment referred to in clause (1) below, will be deemed to) sell, assign,
transfer and convey to the Owner Lessor (without recourse or warranty of any
kind other than of title to the Notes so conveyed) all of the right, title and
interest of such Noteholder in and to the Indenture Estate, this Indenture, all
Notes held by such Noteholder and the Assigned Documents, and the Owner Lessor
shall thereupon assume all such Noteholder's rights and obligations in such
documents; provided, that no such holder shall be required to so convey unless
(1) the Owner Lessor shall have simultaneously tendered payment on all other
Notes issued by the Owner Lessor at the time outstanding pursuant to this
paragraph and (2) such conveyance is not in violation of any Applicable Law. All
charges and expenses required to be paid in connection with the issuance of any
new Note or Notes in connection with this paragraph shall be borne by the Owner
Lessor. Notwithstanding the foregoing, the Owner Trust may exercise the right
set forth in this clause (e) prior to the end of the 90 day period set forth
above but, in such case, the Make-Whole Amount, if any, shall also be payable.

        Section 4.5. Rescission of Acceleration. If at any time after the
outstanding principal amount of the Notes shall have become due and payable by
acceleration pursuant to Section 4.3 hereof, (a) all amounts of principal,
Make-Whole Amount, if any, and interest which are then due and payable in
respect of all the Notes other than pursuant to Section 4.3 hereof shall have
been paid in full, together with interest on all such overdue principal and (to
the extent permitted by Applicable Law) overdue interest at the rate or rates
specified in the Notes, and an amount sufficient to cover all costs and expenses
of collection incurred by or on behalf of the holders of the Notes (including
counsel fees and expenses and all expenses and reasonable compensation of the
Indenture Trustee) and (b) every other Lease Indenture Event of Default shall
have been remedied, then a Majority in Interest of Noteholders may, by written
notice or notices to the



                                       28
<PAGE>   34

Owner Lessor, the Indenture Trustee and the Facility Lessees, rescind and annul
such acceleration and any related declaration of default under the Facility
Leases and their respective consequences, but no such rescission and annulment
shall extend to or affect any subsequent Lease Indenture Event of Default or
impair any right consequent thereon, and no such rescission and annulment shall
require any Noteholder to repay any principal or interest actually paid as a
result of such acceleration.

        Section 4.6. Return of Indenture Estate, Etc.

        (a) If at any time the Indenture Trustee has the right to take
possession of the Indenture Estate pursuant to Section 4.3 hereof, at the
request of the Indenture Trustee, the Owner Lessor promptly shall (i) execute
and deliver to the Indenture Trustee such instruments of title and other
documents and (ii) make all such demands and give all such notices as are
permitted by the terms of the Facility Leases to be made or given by the Owner
Lessor upon the occurrence and continuance of a Lease Event of Default, in each
case as the Indenture Trustee may deem necessary or advisable to enable the
Indenture Trustee or an agent or representative designated by the Indenture
Trustee, at such time or times and place or places as the Indenture Trustee may
specify, to obtain possession of all or any part of the Indenture Estate the
possession of which the Indenture Trustee shall at the time be entitled to
hereunder. If the Owner Lessor shall for any reason fail to execute and deliver
such instruments and documents after such request by the Indenture Trustee, the
Indenture Trustee may (i) obtain a judgment conferring on the Indenture Trustee
the right to immediate possession and requiring the Owner Lessor to execute and
deliver such instruments and documents to the Indenture Trustee, to the entry of
which judgment the Owner Lessor hereby specifically consents, and (ii) pursue
all or any part of the Indenture Estate wherever it may be found and enter any
of the premises wherever all or part of the Indenture Estate may be or is
supposed to be and search for all or part of the Indenture Estate and take
possession of and remove all or part of the Indenture Estate.

        (b) Upon every such taking of possession, the Indenture Trustee may,
from time to time, as a charge against proceeds of the Indenture Estate, make
all such expenditures with respect to the Indenture Estate as it may deem
proper. In each such case, the Indenture Trustee shall have the right to deal
with the Indenture Estate and to carry on the business and exercise all rights
and powers of the Owner Lessor relating to the Indenture Estate, as the
Indenture Trustee shall deem best, and, the Indenture Trustee shall be entitled
to collect and receive all rents (including Periodic Rent and Supplemental
Rent), revenues, issues, income, products and profits of the Indenture Estate
and every part thereof (without prejudice to the right of the Indenture Trustee
under any provision of this Indenture to collect and receive cash held by, or
required to be deposited with, the Indenture Trustee hereunder) and to apply the
same to the management of or otherwise dealing with the Indenture Estate and of
conducting the business thereof, and of all expenditures with respect to the
Indenture Estate and the making of all payments which the Indenture Trustee may
be required or may elect to make, if any, for taxes, assessments, insurance or
other proper charges upon the Indenture Estate or any part thereof (including
the employment of engineers and accountants to examine, inspect and make reports
upon the properties and books and records of the Owner Lessor and the Facility
Lessees relating to the Indenture Estate and the Operative Documents), or under
any provision of, this Indenture, as well as just and reasonable compensation
for the services of the Indenture Trustee and of all Persons properly engaged
and employed by the Indenture Trustee.



                                       29
<PAGE>   35

        Section 4.7. Power of Sale and Other Remedies.

        (a) In addition to all other remedies provided for herein if a Lease
Indenture Event of Default shall have occurred and be continuing, the Indenture
Trustee shall, subject to Sections 4.3 and 4.4, have the right to sell the
Indenture Estate or any part of the Indenture Estate at public sale or sales, in
order to pay the Secured Indebtedness, and all impositions, if any, with accrued
interest thereon, and all expenses of the sale and of all proceedings in
connection therewith, including reasonable attorney's fees, if incurred. At any
such public sale, the Indenture Trustee may execute and deliver to the purchaser
a conveyance of the Indenture Estate or any part of the Indenture Estate, and to
this end, the Owner Lessor hereby constitutes and appoints the Indenture Trustee
the agent and attorney in fact of the Owner Lessor to make such sale and
conveyance, and thereby to divest the Owner Lessor of all right, title or equity
that the Owner Lessor may have in and to the Indenture Estate and to vest the
same in the purchaser or purchasers at such sale or sales, and all the acts and
doings of said agent and attorney in fact are hereby ratified and confirmed and
any recitals in said conveyance or conveyances as to facts essential to a valid
sale shall be binding upon the Owner Lessor. The aforesaid power of sale and
agency hereby granted are coupled with an interest and are irrevocable by death
or otherwise, are granted as cumulative of the other remedies provided hereby or
by law for collection of the Secured Indebtedness and shall not be exhausted by
one exercise thereof but may be exercised until full payment of the Secured
Indebtedness. Further, if a Lease Indenture Event of Default shall have occurred
and be continuing, the Indenture Trustee may, in addition to and not in
abrogation of other rights and remedies provided in this Section, either with or
without entry or taking possession as herein provided or otherwise, proceed by a
suit or suits in law or in equity or by any other appropriate proceeding or
remedy (i) to enforce payment of the Notes or the performance of any term,
covenant, condition or agreement of this Indenture or any other right, and (ii)
to pursue any other remedy available to it, all as the Indenture Trustee shall
determine most effectual for such purposes. Upon any foreclosure sale, the
Indenture Trustee may bid for and purchase the Indenture Estate and shall be
entitled to apply all or any part of the Secured Indebtedness as a credit to the
purchase price. In the event of a foreclosure sale of the Indenture Estate, the
proceeds of said sale shall be applied as provided in Section 3.3 hereof. In the
event of any such foreclosure sale by the Indenture Trustee, the Owner Lessor
shall be deemed a tenant holding over and shall forthwith deliver possession to
the purchaser or purchasers at such sale or be summarily dispossessed according
to provisions of law applicable to tenants holding over. The Indenture Trustee,
at the Indenture Trustee's option, is authorized to foreclose this Indenture
subject to the rights of any tenants of the Indenture Estate, and the failure to
make any such tenants parties to any such foreclosure proceedings and to
foreclose their rights will not be, nor be asserted to be by the Owner Lessor, a
defense to any proceedings instituted by the Indenture Trustee to collect the
Secured Indebtedness.

        (b) In amplification of, and not in limitation of paragraph (a) of this
Section 4.7, the Owner Lessor represents and warrants that this Indenture is
given primarily for a business, commercial or agricultural purpose. Owner
Lessor, therefore, agrees that Indenture Trustee, its successors and permitted
assigns, shall have THE STATUTORY POWER OF SALE pursuant to the applicable
provisions of Titles 14 and 33 of the Maine Revised Statutes of 1964, as said
statutes have been and shall be amended, which POWER is expressly incorporated
herein by reference. Such Statutory Power of Sale shall be in addition to all
rights and remedies set forth herein or available under Applicable Law. In the
exercise of the Statutory Power of Sale,



                                       30
<PAGE>   36

Indenture Trustee, its successors and assigns or its or their agent or attorney,
may sell the Indenture Estate or such portion thereof as may remain subject to
the Indenture in case of any partial release thereof, either as a whole or in
parcels, together with all improvements that may be thereon, by a public sale on
or near any part of the Indenture Estate then subject to this Indenture or at
the Indenture Trustee's principal place of business or at any other office of
the Indenture Trustee or any attorney or agent thereof located in the same
county in which any part of the Indenture Estate is located, and the Indenture
Trustee, its successors and permitted assigns; and such sale shall forever bar
the Owner Lessor and all persons claiming under it from all right and interest
in the Indenture Estate, whether at law or in equity. In the exercise of THE
STATUTORY POWER OF SALE herein given, if the Indenture Trustee elects to sell in
parts or parcels, such sales may be held from time to time, and the POWER shall
not be fully executed until all of the Indenture Estate not previously sold
shall have been sold.

        (c) In amplification of, and not in limitation of paragraph (a) of this
Section 4.7, the Owner Lessor hereby further grants to Indenture Trustee, with
MORTGAGE COVENANTS for breach of which covenants and any other covenants
contained herein Indenture Trustee shall have THE STATUTORY POWER OF SALE, as
set forth in RI. Gen. Laws Section 34-11-22, as said statute shall have been and
shall be amended, which power is expressly incorporated herein by reference.
Such Statutory Power of Sale shall be in addition to all rights and remedies set
forth herein or available under Applicable Law. In the exercise of the Statutory
Power of Sale, Indenture Trustee, its successors and assigns or its or their
agent or attorney, may sell the Indenture Estate or such portion thereof as may
remain subject to the Indenture in case of any partial release thereof, either
as a whole or in parcels, together with all improvements that may be thereon,
pursuant to and in accordance with the requirements and provisions of said
statute. In the exercise of THE STATUTORY POWER OF SALE herein given, if the
Indenture Trustee elects to sell in parts or parcels, such sales may be held
from time to time, and the POWER shall not be fully executed until all of the
Indenture Estate not previously sold shall have been sold. This Indenture is
upon the STATUTORY CONDITION, and upon the further condition that all covenants
contained in this Indenture or in the Operative Documents and/or any other
documents evidencing the Secured Indebtedness, shall be kept and performed, and
for any breach of said STATUTORY CONDITION or further condition, the Indenture
Trustee shall have the STATUTORY POWER OF SALE. Said STATUTORY CONDITION and
STATUTORY POWER OF SALE, as well as the MORTGAGE COVENANTS contained in the
granting clause of this Indenture, are those contained in the General Laws of
the State of Rhode Island. Provided further however, to the extent permitted by
Applicable Law, publication, pursuant to said STATUTORY POWER OF SALE, of notice
of the time and place of sale may, at the sole discretion of the Indenture
Trustee, be made by publishing the same at least once each week for three (3)
successive weeks in a public newspaper published daily in the City of
Providence, Rhode Island, and not as otherwise provided in said STATUTORY POWER
OF SALE. It is expressly understood and agreed to by the Owner Lessor and the
Indenture Trustee that the power of sale contained in this Indenture shall, in
the event that the Indenture Estate is comprised of separate lots or separate
parcels of land or leasehold estates, survive the foreclosure of any portion of
the Indenture Estate and may be exercised on different occasions to separately
foreclose each and every lot or parcel of land or separate leasehold estate,
including, without limitation, the Owner Lessor's leasehold estate under the
Tiverton Site Lease and the Tiverton Site Sublease comprising the Indenture
until all of the Indenture Estate has been foreclosed in accordance with
Applicable Law and the terms of this Indenture.



                                       31
<PAGE>   37

        Section 4.8. Appointment of Receiver. If the outstanding principal
amount of the Notes shall have been declared due and payable pursuant to Section
4.3 hereof, as a matter of right, the Indenture Trustee shall be entitled to the
appointment of a receiver (who may be the Indenture Trustee or any successor or
nominee thereof) for all or any part of the Indenture Estate, whether such
receivership be incidental to a proposed sale of the Indenture Estate or the
taking of possession thereof or otherwise, and the Owner Lessor hereby consents
to the appointment of such a receiver and will not oppose any such appointment.
Any receiver appointed for all or any part of the Indenture Estate shall be
entitled to exercise all the rights and powers with respect to the Indenture
Estate to the extent instructed to do so by the Indenture Trustee.

        Section 4.9. Remedies Cumulative. Each and every right, power and remedy
herein specifically given to the Indenture Trustee or otherwise in this
Indenture shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at law,
in equity or by statute, and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time and as often and in such order as may be deemed expedient by the Indenture
Trustee, and the exercise or the beginning of the exercise of any right, power
or remedy shall not be construed to be a waiver of the right to exercise at the
same time or thereafter any other right, power or remedy. No delay or omission
by the Indenture Trustee in the exercise of any right, remedy or power or in the
pursuance of any remedy shall impair any such right, power or remedy or be
construed to be a waiver of any default on the part of the Owner Participant,
the Owner Lessor or the Facility Lessees or to be an acquiescence therein.

        Section 4.10. Waiver of Various Rights by the Owner Lessor. The Owner
Lessor hereby waives and agrees, to the extent permitted by Applicable Law, that
it will never seek or derive any benefit or advantage from any of the following,
whether now existing or hereafter in effect, in connection with any proceeding
under or in respect of this Lease Indenture:

        (a) any stay, extension, moratorium or other similar law;

        (b) any Applicable Law providing for the valuation of or appraisal of
any portion of the Indenture Estate in connection with a sale thereof; or

        (c) any right to have any portion of the Indenture Estate or other
security for the Notes marshaled.

The Owner Lessor covenants not to hinder, delay or impede the exercise of any
right or remedy under or in respect of this Lease Indenture, and agrees, to the
extent permitted by Applicable Law, to suffer and permit its exercise as though
no laws or rights of the character listed above were in effect; provided that
this shall not affect or reduce Owner Lessor's rights under Sections 4.3 and 4.4
hereof. Owner Lessor agrees for itself, its successors and assigns, that the
acceptance, before the expiration of the right of redemption and after the
commencement of foreclosure proceedings of this Indenture, of insurance
proceeds, eminent domain awards, rents or anything else of value to be applied
on or to the Secured Indebtedness by Indenture Trustee or any person or party
holding under it shall not constitute a waiver of such foreclosure, and this



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<PAGE>   38

agreement by Owner Lessor shall be that agreement referred to in Section 6204 of
Title 14 of the Maine Revised Statutes of 1964, as may be amended, as necessary
to prevent such waiver of foreclosure. This agreement by Owner Lessor is
intended to apply to the acceptance and such application of any such proceeds,
awards, rents and other sums or anything else of value whether the same shall be
accepted from, or for the account of, Owner Lessor or from any other source
whatsoever by Indenture Trustee or by any person or party holding under
Indenture Trustee at any time or times in the future while any of the
obligations secured hereby shall remain outstanding.

        Section 4.11. Discontinuance of Proceedings. In case the Indenture
Trustee or any Noteholder shall have proceeded to enforce any right, power or
remedy under this Indenture by foreclosure, entry or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Indenture Trustee or the Noteholder, then
and in every such case the Owner Lessor, the Indenture Trustee and the Facility
Lessees shall be restored to their former positions and rights hereunder with
respect to the Indenture Estate, and all rights, remedies and powers of the
Indenture Trustee or the Noteholder shall continue as if no such proceedings had
taken place.

        Section 4.12. No Action Contrary to the Facility Lessees' Rights Under
the Facility Leases. Notwithstanding any other provision of any of the Operative
Documents, so long as no Lease Event of Default under a Facility Lease shall
have been declared (or deemed to have been declared), the Indenture Trustee and
the Noteholders shall be subject to the Facility Lessees' rights under the
Facility Leases, and neither the Indenture Trustee nor any Noteholders shall
take or cause to be taken any action contrary to the right of the Facility
Lessees, including their respective rights to quiet use and possession of their
respective Facilities.

        Section 4.13. Right of the Indenture Trustee to Perform Covenants, Etc.
If the Owner Lessor shall fail to make any payment or perform any act required
to be made or performed by it hereunder or under the Facility Leases, the Site
Leases and Subleases or the Participation Agreement, or if the Owner Lessor
shall fail to release any Lien affecting the Indenture Estate which it is
required to release by the terms of this Indenture or the Participation
Agreement or the LLC Agreement, the Indenture Trustee, without notice to or
demand upon the Owner Lessor and without waiving or releasing any obligation or
defaults may (but shall be under no obligation to, and, except as provided in
the last sentence hereof, shall incur no liability in connection therewith) at
any time thereafter make such payment or perform such act for the account and at
the expense of the Indenture Estate and may take all such action with respect
thereto (including entering upon the Tiverton and Rumford Sites or any part
thereof, to the extent, of the Facilities for such purpose) as may be necessary
or appropriate therefor. No such entry shall be deemed an eviction. All sums so
paid by the Indenture Trustee and all costs and expenses (including legal fees
and expenses) so incurred, together with interest thereon from the date of
payment or incurrence, shall constitute additional indebtedness secured by this
Indenture and shall be paid from the Indenture Estate to the Indenture Trustee
on demand. The Indenture Trustee shall not be liable for any damages resulting
from any such payment or action unless such damages shall be a consequence of
willful misconduct or gross negligence on the part of the Indenture Trustee.

        Section 4.14. Further Assurances. The Owner Lessor covenants and agrees
from time to time to do all such acts and execute all such instruments of
further assurance as shall be



                                       33
<PAGE>   39

reasonably requested by the Indenture Trustee for the purpose of fully carrying
out and effectuating this Indenture and the intent hereof.

        Section 4.15. Waiver of Past Defaults. Any past Lease Indenture Event of
Default and its consequences may be waived by the Indenture Trustee or a
Majority in Interest of Noteholders, except a Lease Indenture Event of Default
(i) in the payment of the principal of, Make-Whole Amount, if any, and or
interest on any Note, subject to the provisions of Sections 5.1 and 8.1 hereof,
or (ii) in respect of a covenant or provision hereof which, under Section 8.2
8.1 hereof, cannot be modified or amended without the consent of each
Noteholder. Upon any such waiver and subject to the terms of such waiver, such
Lease Indenture Event of Default shall cease to exist, and any other Lease
Indenture Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Lease Indenture Event of Default or impair any right
consequent thereon.

SECTION 5. DUTIES OF INDENTURE TRUSTEE; CERTAIN RIGHTS AND DUTIES OF OWNER
           LESSOR

        Section 5.1. Notice of Action Upon Lease Indenture Event of Default. The
Indenture Trustee shall give prompt written notice to the Owner Lessor and the
Owner Participant of any Lease Indenture Event of Default with respect to which
the Indenture Trustee has Actual Knowledge and will give the Facility Lessees
and the Owner Participant not less than 30 days' prior written notice of the
date on or after which the Indenture Trustee intends to exercise remedies under
Section 4.3 (an "Enforcement Notice"), which notice may be given
contemporaneously with any notice contemplated by Section 4.3(a) or 4.3(b). The
Indenture Trustee shall take such action, or refrain from taking such action, as
the Majority in Interest of Noteholders shall instruct in writing.

        Section 5.2. Actions Upon Instructions Generally. Subject to the terms
of Sections 5.4, 5.5 and 5.6 hereof, upon written instructions at any time and
from time to time of a Majority in Interest of Noteholders, the Indenture
Trustee shall take such action, or refrain from taking such action, including
any of the following actions as may be specified in such instructions: (a) give
such notice, direction or consent or exercise such right, remedy or power or
take such action hereunder or under any Assigned Document, or in respect of any
part of or all the Indenture Estate, as it shall be entitled to take and as
shall be specified in such instructions; (b) take such action with respect to or
to preserve or protect the Indenture Estate (including the discharge of Liens)
as it shall be entitled to take and as shall be specified in such instructions;
and (c) waive, consent to, approve (as satisfactory to it) or disapprove all
matters required by the terms of any Operative Document to be satisfactory to
the Indenture Trustee. The Indenture Trustee may, and upon written instructions
from a Majority in Interest of Noteholders, the Indenture Trustee shall, execute
and file or cause to be executed and filed any financing statement (and any
continuation statement with respect to such financing statement) or any similar
instrument or document relating to the security interest or the assignment
created by this Indenture or granted by the Owner Lessor herein as may be
necessary to protect and preserve the security interest or assignment created by
or granted pursuant to this Indenture, to the extent otherwise entitled to do so
and as shall be specified in such instructions.



                                       34
<PAGE>   40

        Section 5.3. Action Upon Payment of Notes or Termination of Facility
Leases. Subject to the terms of Section 5.4 hereof, upon payment in full of the
principal of and interest on all Notes then outstanding and all other amounts
then due all Noteholders hereunder, and all other sums secured hereby or
otherwise required to be paid hereunder, under the Participation Agreement and
under the Facility Leases, the Indenture Trustee shall execute and deliver to,
or as directed in writing by, the Owner Lessor and the Facility Lessees an
appropriate instrument in due form for recording, releasing the Indenture Estate
from the Lien of this Indenture. Nothing in this Section 5.3 shall be deemed to
expand the instances in which the Owner Lessor is entitled to prepay the Notes.

        Section 5.4. Compensation of the Indenture Trustee; Indemnification.

        (a) The Owner Lessor will from time to time, on demand, pay to the
Indenture Trustee such compensation for its services hereunder as shall be
agreed to by the Owner Lessor and the Indenture Trustee, or, in the absence of
agreement, reasonable compensation for such services (which compensation shall
include reasonable fees and expenses of its outside counsel and shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust), and the Indenture Trustee agrees that it shall have no right
against the Noteholders or, except as provided in Section 3 and Section 4.3
hereof or this Section 5, the Indenture Estate, for any fee as compensation for
its services hereunder.

        (b) The Indenture Trustee shall not be required to take any action or
refrain from taking any action under Section 4, 5.2 or 9.1 hereof unless it and
any of its directors, officers, employees or agents shall have been indemnified
in manner and form satisfactory to the Indenture Trustee. The Indenture Trustee
shall not be required to take any action under Section 4 or Section 5.2, 5.3 or
9.1 hereof, nor shall any other provision of this Indenture be deemed to impose
a duty on the Indenture Trustee to take any action, if it shall have been
advised by counsel (who shall not be an employee of the Indenture Trustee) that
such action is contrary to the terms hereof or is otherwise contrary to
Applicable Law or (unless it shall have been indemnified in manner and form
satisfactory to the Indenture Trustee) may result in personal liability to the
Indenture Trustee.

        Section 5.5. No Duties Except as Specified; No Action Except Under
Facility Leases, Indenture or Instructions.

        (a) The Indenture Trustee shall not have any duty or obligation to
manage, control, use, sell, dispose of or otherwise deal with any part of the
Indenture Estate or otherwise take or refrain from taking any action under or in
connection with this Indenture or the other Assigned Documents except as
expressly provided by the terms of this Indenture or as expressly provided in
written instructions from a Majority in Interest of Noteholders in accordance
with Section 5.2 hereof; and no implied duties or obligations shall be read into
this Indenture against the Indenture Trustee.

        (b) The Indenture Trustee shall not manage, control, use, sell, dispose
of or otherwise deal with any part of the Indenture Estate except (a) as
required by the terms of the Facility Leases, to the extent applicable to the
Indenture Trustee as assignee of the Owner Lessor, (b) in accordance with the
powers granted to, or the authority conferred upon, the Indenture Trustee



                                       35
<PAGE>   41

pursuant to this Indenture or in accordance with the express terms hereof or
with written instructions from a Majority in Interest of Noteholders in
accordance with Section 5.2 hereof.

        Section 5.6. Certain Rights of the Owner Lessor. Notwithstanding any
other provision of this Indenture or any provision of any Operative Document to
the contrary, and in addition to any rights conferred on the Owner Lessor
hereby:

        (a) The Owner Lessor shall at all times, to the exclusion of the
Indenture Trustee, (i) retain all rights to demand and receive payment of, and
to commence an action for payment of, Excepted Payments but the Owner Lessor
shall have no remedy or right with respect to any such payment against the
Indenture Estate nor any right to collect any such payment by the exercise of
any of the remedies under Section 17 of the Facility Leases, except as expressly
set forth in this Section 5.6; (ii) retain all rights with respect to insurance
that Section 11 of the Facility Leases and Schedule 5.45 of the Participation
Agreement specifically confers upon the Owner Lessor and to waive any failure by
the Facility Lessees to maintain the insurance required by Section 11 of the
Facility Leases before or after the fact so long as the insurance maintained by
the Facility Lessees still conforms to Prudent Industry Practice; (iii) retain
all rights to adjust Periodic Rent and Termination Value as provided in Section
3.4 of the Facility Leases, Section 12 of the Participation Agreement or the Tax
Indemnity Agreement; provided, however, that after giving effect to any such
adjustment (x) the amount of Periodic Rent payable on each Rent Payment Date
shall be at least equal to the aggregate amount of all principal and accrued
interest payable on such Rent Payment Date on all Notes then outstanding and (y)
Termination Value shall in no event be less (when added to all other amounts
required to be paid by the Facility Lessees in respect of any early termination
of the Facility Leases) than an amount sufficient, as of the date of payment, to
pay in full the principal of, and interest on all Notes outstanding on and as of
such date of payment; (iv) retain the right to declare the Facility Lessees to
be in default with respect to any Excepted Payments pursuant to Section 17 of
the Facility Leases; (v) except in connection with the exercise of remedies
pursuant to the Facility Leases, retain all rights to exercise the Owner
Lessor's rights relating to the Appraisal Procedure and to confer and agree with
the Facility Lessees on Fair Market Rental Value, or any Renewal Lease Term and
(vi) retain all rights to compromise and settle claims against the Guarantor
under any Calpine Guaranty (but not claims against the Indenture Estate) with
respect to the Equity Portion of Termination Value and Equity Portion of
Periodic Rent (and all amounts of overdue interest relating to such amount);
provided that the Indenture Trustee shall have the right to settle claims
against the Guarantor inclusive of the Equity Portion of Termination Value and
Equity Portion of Periodic Rent (and all amounts of overdue interest relating to
such amount) for an amount which will result in payment in full to the Owner
Lessor of all such unpaid amounts as certified to the Indenture Trustee by the
Owner Lessor, and satisfaction of all claims of the Noteholders.

        (b) If there shall have occurred and be continuing a Lease Event of
Default under either Facility Lease, and the Indenture Trustee shall not have,
within the 180 day period after the earlier of (i) any declaration thereof or
(ii) receipt by the Indenture Trustee of notice of such Lease Event of Default
from the Owner Lessor, the Owner Participant, either Facility Lessee or any
Noteholder, to the extent it is not then stayed or otherwise prevented from
demanding payment of Termination Value under both Calpine Guaranties by
operation of law, commenced the exercise of one or more remedies against the
applicable Facility Lessee or the Guarantor under the applicable Calpine
Guaranty and, in either case, demanded payment in full of the



                                       36
<PAGE>   42

Termination Value under both Calpine Guaranties, then the Owner Lessor shall
thereafter have the right, shared with the Indenture Trustee, upon notice to the
Indenture Trustee, to exercise remedies and bring one or more proceedings
against the Guarantor under the Calpine Guaranties for the Equity Portion of
Termination Value and the Equity Portion of Periodic Rent (and unpaid interest
thereon) and to receive and retain directly the proceeds thereof; provided that
in any such action or proceeding the Owner Lessor shall compromise, settle and
receive only the Equity Portion of Termination Value, together with all unpaid
amounts of the Equity Portion of Periodic Rent (and all amounts of overdue
interest relating to such amount) and other amounts constituting Excepted
Payments and Owner Lessor shall not, and shall have no right to, compromise,
settle or receive any other amount comprising Termination Value or Periodic
Rent. In addition, the Owner Trustee shall retain the rights set forth in
Section 2.1(d) of each Calpine Guaranty.

        (c) If at any time (i) the Indenture Trustee shall have either exercised
remedies under Sections 17.1(b), (c), (d) or (e) of a Facility Lease, or
foreclosed on the Indenture Estate, (ii) a Lease Event of Default shall have
occurred under Section 16(g) or (h) of the Facility Leases or (iii) an "Event of
Default" as defined in the Calpine Guaranties shall have occurred under Section
(e) or (f) thereof, and in any such case the Indenture Trustee has not promptly,
to the extent it is not then stayed or otherwise prevented from demanding
payment of Termination Value under the Calpine Guaranties by operation of law,
demanded payment and proceeded (and continued to proceed) in good faith to
pursue the full Termination Value under the Calpine Guaranties, then the Owner
Lessor shall thereafter have the right, shared with the Indenture Trustee, upon
notice to the Indenture Trustee, to exercise remedies and bring one or more
proceedings against Guarantor under the Calpine Guaranties for the payment of
Termination Value; provided that in any such action or proceeding the Owner
Lessor shall compromise and settle only the Equity Portion of Termination Value,
together with all unpaid amounts of the Equity Portion of Periodic Rent (and all
amounts of overdue interest relating to such amount) and other amounts
constituting Excepted Payments and shall not, and shall have no right to,
compromise or settle any amount comprising Termination Value other than the
Equity Portion of Termination Value and the Equity Portion of Periodic Rent (and
all amounts of overdue interest relating to such amount); provided further that
any amounts otherwise payable to or received by the Owner lessor pursuant to any
action or proceeding referred to in this Section 5.6(c) shall constitute a
portion of the Indenture Estate and shall be deposited with and paid over to the
Indenture Trustee for application in accordance with the terms of this
Indenture. At all times that the Indenture Trustee is proceeding against Calpine
under the Calpine Guarantees, the Indenture Trustee shall pursue the full
Termination Value, together with all unpaid amounts of unpaid Periodic Rent (and
all amounts of overdue interest relating to such amount); provided that the
Indenture Trustee shall be entitled to compromise on behalf of the Noteholders
amounts constituting Termination Value under the Calpine Guaranties but not
constituting the Equity Portion of Termination Value or the Equity Portion of
Periodic Rent and so long as such compromise would not otherwise have a material
adverse effect on the Owner Participant.

        (d) The Owner Lessor shall have the right, but not to the exclusion of
the Indenture Trustee, (i) to receive from the Facility Lessees and the
Guarantor all notices, certificates, opinions of counsel and other documents and
all information that the Facility Lessees are permitted or required to give or
furnish to the Owner Lessor or the Owner Participant, as the case may be,
pursuant to the Facility Leases or any other Operative Document; (ii) to inspect
the



                                       37
<PAGE>   43

Facilities and the records relating thereto pursuant to Section 12 of the
Facility Leases; (iii) to provide such insurance as may be permitted by Section
11 of the Facility Leases; (iv) to provide notices to the Facility Lessees or
the Guarantor to the extent otherwise permitted by the Operative Documents; and
(v) to perform for the Facility Lessees as provided in Section 20 of the
Facility Leases;

        (e) So long as the Notes have not been accelerated pursuant to Section
4.3(a) hereof (or, if accelerated, such acceleration has theretofore been
rescinded) or the Indenture Trustee shall not have exercised any of its rights
pursuant to Section 4 hereof to take possession of, foreclose, sell or otherwise
take control of all or any part of the Indenture Estate, the Owner Lessor shall
retain the right to the exclusion of the Indenture Trustee to exercise the
rights of the Owner Lessor under, and to determine compliance by the Facility
Lessees with, the provisions of Sections 10 (other than Section 10.3 thereof),
13, 14 and 15 of the Facility Leases; provided, however, that if a Lease
Indenture Event of Default shall have occurred and be continuing, the Owner
Lessor shall cease to retain such rights upon notice from the Indenture Trustee
stating that such rights shall no longer be retained by the Owner Lessor;

        (f) Except as otherwise provided in this Section 5.6, so long as the
Notes have not been accelerated pursuant to Section 4.3(a) hereof (or, if
accelerated, such acceleration has theretofore been rescinded) or the Indenture
Trustee shall not have exercised any of its rights pursuant to Section 4 hereof
to take possession of, foreclose, sell or otherwise take control of all or any
part of the Indenture Estate, the Owner Lessor shall have the right, to be
exercised jointly with the Indenture Trustee, (i) to exercise the rights with
respect to the Facility Lessees' use and operation, modification or maintenance
of the Facility, (ii) to exercise the Owner Lessor's right under Section 13.1 of
the Participation Agreement to withhold or grant its consent to an assignment by
the Facility Lessees of their rights under the Facility Leases, and (iii) to
exercise the rights of the Owner Lessor under Section 10.3 of the Facility
Leases; provided, however, that if a Lease Indenture Event of Default shall have
occurred and be continuing, the Owner Lessor shall cease to exercise such rights
under this clause (iii) upon notice from the Indenture Trustee stating that such
rights shall no longer be retained by the Owner Lessor; provided further,
however, that (A) the Owner Lessor shall have no right to receive any Periodic
Rent or other payments other than Excepted Payments payable to the Owner Lessor,
or the Owner Participant, and (B) no determination by the Owner Lessor or the
Indenture Trustee that the Facility Lessees are in compliance with the
provisions of any applicable Assigned Document shall be binding upon or
otherwise affect the rights hereunder of the Indenture Trustee or any Noteholder
on the one hand or the Owner Lessor or the Owner Participant on the other hand;
and

        (g) Nothing in this Indenture shall give to, or create in, or otherwise
provide the benefit of to, the Indenture Trustee, any rights of the Owner
Participant under or pursuant to the Tax Indemnity Agreement or any other
Operative Document and nothing in this Section 5.6 or elsewhere in this
Indenture shall give to the Owner Lessor the right to exercise any rights
specifically given to the Indenture Trustee pursuant to any Operative Document;
and nothing in this Indenture shall give to, or create in, the Indenture Trustee
the right to, and the Indenture Trustee shall not, release the Guarantor of its
obligations under either Guaranty in respect of payment of the Equity Portion of
Termination Value, unpaid amounts of the Equity Portion of Periodic Rent (and
all amounts of overdue interest relating to such amount) and other amounts
constituting Excepted Payments, unless such release results in payment in full
to the Owner



                                       38
<PAGE>   44

Lessor of all such unpaid amounts as certified to the Indenture Trustee by the
Owner Lessor, and all claims of the Noteholders;

but nothing in clauses (a) through (f) above shall deprive the Indenture Trustee
of the exclusive right, so long as this Indenture shall be in effect, to declare
the Facility Leases to be in default under Section 16 thereof and thereafter to
exercise the remedies pursuant to Section 17 of the Facility Leases (except in
each case as expressly set forth in clause (iv) of Section 5.6(a) and Sections
5.6(b) and (c) above).

        (h) Following any foreclosure of the Owner Lessor's interests in the
Facility Leases in connection with a Lease Indenture Event of Default arising
from a Lease Event of Default, the Indenture Trustee shall not directly or
indirectly enter into any new lease of either or both Facilities with Calpine,
either Facility Lessee or any Affiliate thereof.

        Section 5.7. Restrictions on Dealing with Indenture Estate. Except as
provided in the Operative Documents, but subject to the terms of this Indenture,
the Owner Lessor shall not use, operate, store, lease, control, manage, sell,
dispose of or otherwise deal with either of the Facilities, the Tiverton Site,
the Rumford Site, any part of the Tiverton Site or the Rumford Site or any other
part of the Indenture Estate.

        Section 5.8. Filing of Financing Statements and Continuation Statements.
Pursuant to Section 5.10 of the Participation Agreement, the Facility Lessees
have covenanted to maintain the priority of the Lien of this Indenture on the
Indenture Estate. The Indenture Trustee shall, at the written request and
expense of the Facility Lessees, as provided in the Participation Agreement,
execute and deliver to the Facility Lessees and the Facility Lessees will file,
if not already filed, such financing statements or other documents and such
continuation statements or other documents with respect to financing statements
or other documents previously filed relating to the Lien created by this
Indenture in the Indenture Estate as may be supplied to the Indenture Trustee by
the Facility Lessees. At any time and from time to time, upon the request of the
Facility Lessees or the Indenture Trustee, at the expense of the Facility
Lessees (and upon receipt of the form of document so to be executed), the Owner
Lessor shall promptly and duly execute and deliver any and all such further
instruments and documents as the Facility Lessees or the Indenture Trustee may
request in obtaining the full benefits of the security interest and assignment
created or intended to be created hereby and of the rights and powers herein
granted. Upon the reasonable instructions (which instructions shall be
accompanied by the form of document to be filed) at any time and from time to
time of the Facility Lessees or the Indenture Trustee, the Owner Lessor shall
execute and file any financing statement (and any continuation statement with
respect to any such financing statement), and any other document relating to the
security interest and assignment created by this Indenture as may be specified
in such instructions. In addition, the Indenture Trustee and the Owner Lessor
will execute such continuation statements with respect to financing statements
and other documents relating to the Lien created by this Indenture in the
Indenture Estate as may be specified from time to time in written instructions
of any Noteholder (which instructions may, by their terms, be operative only at
a future date and which shall be accompanied by the form of such continuation
statement or other document to be filed). Neither the Indenture Trustee nor,
except as otherwise herein expressly provided, the Owner Lessor shall have
responsibility for the protection, perfection or preservation of the Lien
created by this Indenture.



                                       39
<PAGE>   45

SECTION 6. INDENTURE TRUSTEE AND OWNER LESSOR

        Section 6.1. Acceptance of Trusts and Duties. The Indenture Trustee
accepts the trusts hereby created and applicable to it and agrees to perform the
same but only upon the terms of this Indenture, and agrees to receive and
disburse all moneys constituting part of the Indenture Estate in accordance with
the provisions hereof. If any Lease Indenture Event of Default shall have
occurred and be continuing, the Indenture Trustee shall, subject to the
provisions of Sections 4 and 5 hereof, exercise such of the rights and remedies
vested in it by this Indenture and shall at all times use the same degree of
care in their exercise as a prudent person would exercise or use in the
circumstances in the conduct of its own affairs. The Indenture Trustee shall not
be liable under any circumstances, except (a) for its own negligence or willful
misconduct, (b) in the case of any inaccuracy of any representation or warranty
of the Indenture Trustee or the Lease Indenture Company contained in Section 3.5
of the Participation Agreement, in the certificate delivered by the Indenture
Trustee at the Closing pursuant to Section 4.6 of the Participation Agreement,
or (c) for the performance of its obligations under Section 8 of the
Participation Agreement; and the Lease Indenture Company and the Indenture
Trustee shall not be liable for any action or inaction of the Owner Trust;
provided, however, that:

              (i) Prior to the occurrence of a Lease Indenture Event of Default
        of which a Responsible Officer of the Indenture Trustee shall have
        Actual Knowledge, and after the curing of all such Indenture Events of
        Default which may have occurred, the duties and obligations of the
        Indenture Trustee shall be determined solely by the express provisions
        of the Operative Documents to which it is a party, the Indenture Trustee
        shall not be liable except for the performance of such duties and
        obligations as are specifically set forth in the Operative Documents, no
        implied covenants or obligations shall be read into the Operative
        Documents against the Indenture Trustee and, in the absence of bad faith
        on the part of the Indenture Trustee, the Indenture Trustee may
        conclusively rely, as to the truth of the statements and the correctness
        of the opinions expressed therein, upon any notes or opinions furnished
        to the Indenture Trustee and conforming to the requirements of this
        Indenture;

              (ii) The Indenture Trustee shall not be liable in its individual
        capacity for an error of judgment made in good faith by a Responsible
        Officer or other officers of the Indenture Trustee, unless it shall be
        proven that the Indenture Trustee was negligent in ascertaining the
        pertinent facts;

            (iii) The Indenture Trustee shall not be liable in its individual
        capacity with respect to any action taken, suffered or omitted to be
        taken by it in good faith in accordance with this Indenture or at the
        direction of the Majority in Interest of Noteholders, relating to the
        time, method and place of conducting any proceeding or remedy available
        to the Indenture Trustee, or exercising or omitting to exercise any
        trust or power conferred upon the Indenture Trustee, under this
        Indenture;

              (iv) The Indenture Trustee shall not be required to take notice or
        be deemed to have notice or knowledge of any default, Lease Event of
        Default, Significant Lease Default or Lease Indenture Event of Default
        (except for a Lease Indenture Event of Default resulting from an event
        of nonpayment) unless a Responsible Officer of the



                                       40
<PAGE>   46

        Indenture Trustee shall have received written notice thereof. In the
        absence of receipt of such notice, the Indenture Trustee may
        conclusively assume that there is no default or Lease Indenture Event of
        Default;

              (v) The Indenture Trustee shall not be required to expend or risk
        its own funds or otherwise incur financial liability for the performance
        of any of its duties hereunder or the exercise of any of its rights or
        powers if there is reasonable ground for believing that the repayment of
        such funds or adequate indemnity against such risk or liability is not
        reasonably assured to it, and none of the provisions contained in this
        Indenture shall in any event require the Indenture Trustee to perform,
        or be responsible for the manner of performance of, any of the
        obligations of the Owner Lessor, under this Indenture; and

              (vi) The right of the Indenture Trustee to perform any
        discretionary act enumerated in this Indenture shall not be construed as
        a duty, and the Indenture Trustee shall not be answerable for other than
        its negligence or willful misconduct in the performance of such act.

        Section 6.2. Absence of Certain Duties. Except in accordance with
written instructions furnished pursuant to Section 5.2 hereof and except as
provided in Section 5.5 and 5.8 hereof, the Indenture Trustee shall have no duty
(a) to see to any registration, recording or filing of any Operative Document
(or any financing or continuation statements in respect thereto) or to see to
the maintenance of any such registration, recording or filing, (b) to see to any
insurance on the Facilities or the Facilities or to effect or maintain any such
insurance, (c) except as otherwise provided in Section 5.5 hereof or in Section
10 of the Participation Agreement, to see to the payment or discharge of any Tax
or any Lien of any kind owing with respect to, or assessed or levied against,
any part of the Indenture Estate, (d) to confirm or verify the contents of any
report, notice, request, demand, certificate, financial statement or other
instrument of the Facility Lessees, (e) to inspect the Facilities at any time or
ascertain or inquire as to the performance or observance of any of the Facility
Lessees' covenants with respect to the Facilities or (f) to exercise any of the
trusts or powers vested in it by this Indenture or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request, order or
direction of any of the Noteholders, pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby (which in the case of the Majority in
Interest of Noteholders will be deemed to be satisfied by a letter agreement
with respect to such costs from such Majority in Interest of Noteholders).
Notwithstanding the foregoing, the Indenture Trustee shall furnish to each
Noteholder and to the Owner Lessor and the Owner Participant promptly upon
receipt thereof duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and other instruments furnished to the
Indenture Trustee hereunder or under any of the Operative Documents unless the
Indenture Trustee shall reasonably believe that each such Noteholder, the Owner
Lessor and the Owner Participant shall have received copies thereof.



                                       41
<PAGE>   47

        Section 6.3.  Representations and Warranties.

        (a) The Owner Lessor represents and warrants that it has not assigned or
pledged any of its estate, right, title or interest subject to this Indenture,
to anyone other than the Indenture Trustee.

        (b) NEITHER THE OWNER LESSOR NOR THE INDENTURE TRUSTEE MAKES, NOR SHALL
BE DEEMED TO HAVE MADE (i) ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
AS TO THE TITLE, VALUE, COMPLIANCE WITH PLANS OR SPECIFICATIONS, QUALITY,
DURABILITY, SUITABILITY, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR
FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE OF THE FACILITY, OR ANY PART
THEREOF, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED,
WITH RESPECT TO THE FACILITIES OR ANY OTHER PART OF THE INDENTURE ESTATE, except
that the Owner Lessor represents and warrants that on the Closing Date it shall
have received whatever title or interest to the Facilities and the Tiverton and
Rumford Sites as were conveyed to it by the Facility Lessees and that on the
Closing Date the Facilities shall be free of Owner Lessor's Liens and the Owner
Participant's Liens; or (ii) any representation or warranty as to the validity,
legality or enforceability of this Indenture, the Notes or any of the other
Operative Documents, or as to the correctness of any statement contained in any
thereof, except that each of the Owner Lessor and the Indenture Trustee
represents and warrants that this Indenture and the Participation Agreement have
been, and, in the case of the Owner Lessor, the other Operative Documents to
which it is or is to become a party have been or will be, executed and delivered
by one of its officers who is and will be duly authorized to execute and deliver
such document on its behalf.

        Section 6.4. No Segregation of Moneys; No Interest. All moneys and
securities deposited with and held by the Indenture Trustee under this Indenture
for the purpose of paying, or securing the payment of, the principal of or
Make-Whole Amount or interest on the Notes shall be held in trust. Except as
specifically provided herein or in the Facility Leases, any moneys received by
the Indenture Trustee hereunder need not be segregated in any manner except to
the extent required by Applicable Law and may be deposited under such general
conditions as may be prescribed by Applicable Law, and neither the Owner Lessor
nor the Indenture Trustee shall be liable for any interest thereon; provided,
however, subject to Section 6.5 hereof, that any payments received or applied
hereunder by the Indenture Trustee shall be accounted for by the Indenture
Trustee so that any portion thereof paid or applied pursuant hereto shall be
identifiable as to the source thereof to the extent known to the Indenture
Trustee.

        Section 6.5. Reliance; Agents; Advice of Experts. The Indenture Trustee
shall be authorized and protected and incur no liability to anyone in acting
upon any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed to be
genuine and believed to be signed by the proper party or parties. The Indenture
Trustee may accept in good faith a certified copy of a resolution of the general
partner (or equivalent body) of the Facility Lessees as conclusive evidence that
such resolution has been duly adopted by such Board and that the same is in full
force and effect. As to the amount of any payment to which any Noteholder is
entitled pursuant to Clause "Third" of Section 3.2 or Section 3.3 hereof, and as
to the amount of any payment to which any other



                                       42
<PAGE>   48

Person is entitled pursuant to Section 3.5 or Section 3.7 hereof, the Indenture
Trustee for all purposes hereof may rely on and shall be authorized and
protected in acting or refraining from acting upon an Officer's Certificate of
such Noteholder or other Person, as the case may be. As to any fact or matter
the manner of ascertainment of which is not specifically described herein, the
Indenture Trustee for all purposes hereof may rely on an Officer's Certificate
of the Owner Lessor or the Facility Lessees or a Noteholder as to such fact or
matter, and such certificate shall constitute full protection to the Indenture
Trustee for any action taken or omitted to be taken by it in good faith in
reliance thereon. The Indenture Trustee shall have the right to request
instructions from the Owner Lessor or the Majority in Interest of Noteholders
with respect to taking or refraining from taking any action in connection with
the Lease Indenture or any other Operative Document to which it is a party, and
shall be entitled to act or refrain from taking such action unless and until the
Indenture Trustee shall have received written instructions from the Owner Lessor
or the Majority in Interest of Noteholders, and the Indenture Trustee shall not
incur liability by reason of so acting (except as provided in Section 6.1) or
refraining from acting. In the administration of the trusts hereunder, the
Indenture Trustee may execute any of the trusts or powers hereof and perform its
powers and duties hereunder directly or through agents or attorneys and may, at
the expense of the Indenture Estate (but subject to the priorities of payment
set forth in Section 3 hereof), consult with independent skilled Persons to be
selected and retained by it (other than Persons regularly in its employ) as to
matters within their particular competence, and the Indenture Trustee shall not
be liable for anything done, suffered or omitted in good faith by it in
accordance with the advice or opinion, within such Person's area of competence,
of any such Person, so long as the Indenture Trustee shall have exercised
reasonable care in selecting such Person.

SECTION 7. SUCCESSOR INDENTURE TRUSTEES AND SEPARATE TRUSTEES

        Section 7.1. Resignation or Removal of the Indenture Trustee;
Appointment of Successor.

        (a) Resignation or Removal. The Indenture Trustee or any successor
thereto may resign at any time with or without cause by giving at least thirty
(30) days' prior written notice to the Owner Lessor, the Owner Participant, the
Facility Lessees and each Noteholder, such resignation to be effective on the
acceptance of appointment by the successor Indenture Trustee pursuant to the
provisions of subsection (b) below. In addition, a Majority in Interest of
Noteholders may at any time remove the Indenture Trustee with or without cause
by an instrument in writing delivered to the Owner Lessor, the Owner Participant
and the Indenture Trustee, and the Owner Lessor shall give prompt written
notification thereof to each Noteholder and the Facility Lessees. Such removal
will be effective on the acceptance of appointment by the successor Indenture
Trustee pursuant to the provisions of subsection (b) below. In the case of the
resignation or removal of the Indenture Trustee, a Majority in Interest of
Noteholders may appoint a successor Indenture Trustee by an instrument signed by
such holders. If a successor Indenture Trustee shall not have been appointed
within thirty (30) days after such resignation or removal, the Indenture Trustee
or any Noteholder may apply to any court of competent jurisdiction to appoint a
successor Indenture Trustee to act until such time, if any, as a successor shall
have been appointed by a Majority in Interest of Noteholders as above provided.
The successor Indenture Trustee so appointed by such court shall immediately and
without further act



                                       43
<PAGE>   49

be superseded by any successor Indenture Trustee appointed by a Majority in
Interest of Noteholders as above provided.

        (b) Acceptance of Appointment. Any successor Indenture Trustee shall
execute and deliver to the predecessor Indenture Trustee, the Owner Participant,
the Owner Lessor and all Noteholders an instrument accepting such appointment
and thereupon such successor Indenture Trustee, without further act, shall
become vested with all the estates, properties, rights, powers and duties of the
predecessor Indenture Trustee hereunder in the trusts hereunder applicable to it
with like effect as if originally named the Indenture Trustee herein; but
nevertheless, upon the written request of such successor Indenture Trustee or a
Majority in Interest of Noteholders, such predecessor Indenture Trustee shall
execute and deliver an instrument transferring to such successor Indenture
Trustee, upon the trusts herein expressed applicable to it, all the estates,
properties, rights and powers of such predecessor Indenture Trustee, and such
predecessor Indenture Trustee shall duly assign, transfer deliver and pay over
to such successor Indenture Trustee all moneys or other property then held by
such predecessor Indenture Trustee hereunder. To the extent required by
Applicable Law or upon request of the successor Indenture Trustee, the Owner
Lessor shall execute any and all documents confirming the vesting of such
estates, properties, rights and powers in the successor Indenture Trustee.

        (c) Qualifications. Any successor Indenture Trustee, however appointed,
shall be a trust company or bank with trust powers (i) which (A) has a combined
capital and surplus of at least $150,000,000, or (B) is a direct or indirect
subsidiary of a corporation which has a combined capital and surplus of at least
$150,000,000 provided such corporation guarantees the performance of the
obligations of such trust company or bank as Indenture Trustee, or (C) is a
member of a bank holding company group having a combined capital and surplus of
at least $150,000,000 provided the parent of such bank holding company group or
a member which itself has a combined capital and surplus of at least
$150,000,000 guarantees the performance of the obligations of such trust company
or bank, and (ii) is willing, able and legally qualified to perform the duties
of Indenture Trustee hereunder upon reasonable or customary terms. No successor
Indenture Trustee, however appointed, shall become such if such appointment
would result in the violation of any Applicable Law or create a conflict or
relationship involving a conflict of interest under the Trust Indenture Act of
1939, as amended.

        (d) Merger, etc. Any Person into which the Indenture Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which the Indenture
Trustee shall be a party, or any Person to which substantially all the corporate
trust business of the Indenture Trustee may be transferred, shall, subject to
the terms of subsection (c) of this Section 7.1, be the Indenture Trustee under
this Indenture without further act.

        Section 7.2.  Appointment of Additional and Separate Trustees.

        (a) Appointment. Whenever (i) the Indenture Trustee shall deem it
necessary or prudent in order to conform to any law of any applicable
jurisdiction or to make any claim or bring any suit with respect to or in
connection with the Indenture Estate, this Indenture, the Facility Leases, the
Notes or any of the transactions contemplated by the Operative Documents, (ii)
the Indenture Trustee shall be advised by counsel, satisfactory to it, that it
is so necessary or



                                       44
<PAGE>   50

prudent in the interest of the Noteholders or (iii) a Majority in Interest of
Noteholders deems it so necessary or prudent and shall have requested in writing
the Indenture Trustee to do so, then in any such case the Indenture Trustee
shall execute and deliver from time to time all instruments and agreements
necessary or proper to constitute another bank or trust company or one or more
Persons approved by the Indenture Trustee either to act as additional trustee or
trustees of all or any part of the Indenture Estate, jointly with the Indenture
Trustee, or to act as separate trustee or trustees of all or any part of the
Indenture Estate, in any such case with such powers as may be provided in such
instruments or agreements, and to vest in such bank, trust company or Person as
such additional trustee or separate trustee, as the case may be, any property,
title, right or power of the Indenture Trustee deemed necessary or advisable by
the Indenture Trustee, subject to the remaining provisions of this Section 7.2.
The Owner Lessor hereby consents to all actions taken by the Indenture Trustee
under the provisions of this Section 7.2 and agrees, upon the Indenture
Trustee's request, to join in and execute, acknowledge and deliver any or all
such instruments or agreements; and the Owner Lessor hereby makes, constitutes
and appoints the Indenture Trustee its agent and attorney-in-fact for it and in
its name, place and stead to execute, acknowledge and deliver any such
instrument or agreement in the event that the Owner Lessor shall not itself
execute and deliver the same within fifteen (15) days after receipt by it of
such request so to do; provided, however, that the Indenture Trustee shall
exercise due care in selecting any additional or separate trustee if such
additional or separate trustee shall not be a Person possessing trust powers
under Applicable Law. If at any time the Indenture Trustee shall deem it no
longer necessary or prudent in order to conform to any such law or take any such
action or shall be advised by such counsel that it is no longer so necessary or
prudent in the interest of the Noteholders or in the event that the Indenture
Trustee shall have been requested to do so in writing by a Majority in Interest
of Noteholders, the Indenture Trustee shall execute and deliver all instruments
and agreements necessary or proper to remove any additional trustee or separate
trustee. In such connection, the Indenture Trustee may act on behalf of the
Owner Lessor to the same extent as is provided above. Notwithstanding anything
contained to the contrary in this Section 7.2(a), to the extent the laws of any
jurisdiction preclude the Indenture Trustee from taking any action hereunder
either alone, jointly or through a separate trustee under the direction and
control of the Indenture Trustee, the Owner Lessor, at the instruction of the
Indenture Trustee, shall appoint a separate trustee for such jurisdiction, which
separate trustee shall have full power and authority to take all action
hereunder as to matters relating to such jurisdiction without the consent of the
Indenture Trustee, but not subject to the same limitations in any exercise of
his power and authority as those to which the Indenture Trustee is subject.

        (b) The Indenture Trustee as Agent. Any additional trustee or separate
trustee at any time by an instrument in writing may constitute the Indenture
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by Applicable Law, to do all acts and things and exercise
all discretions which it is authorized or permitted to do or exercise, for and
in its behalf and in its name. In case any such additional trustee or separate
trustee shall become incapable of acting or cease to be such additional trustee
or separate trustee, the property, rights, powers, trusts, duties and
obligations of such additional trustee or separate trustee, as the case may be,
so far as permitted by Applicable Law, shall vest in and be exercised by the
Indenture Trustee, without the appointment of a new successor to such additional
trustee or separate trustee, unless and until a successor is appointed in the
manner hereinbefore provided.



                                       45
<PAGE>   51

        (c) Requests, etc. Any request, approval or consent in writing by the
Indenture Trustee to any additional trustee or separate trustee shall be
sufficient to warrant such additional trustee or separate trustee, as the case
may be, to take the requested, approved or consented to action.

        (d) Subject to Indenture, etc. Each additional trustee and separate
trustee appointed pursuant to this Section 7.2 shall be subject to, and shall
have the benefit of Sections 3 through 9 hereof insofar as they apply to the
Indenture Trustee. Notwithstanding any other provision of this Section 7.2, (i)
the powers, duties, obligations and rights of any additional trustee or separate
trustee appointed pursuant to this Section 7.2 shall not in any case exceed
those of the Indenture Trustee hereunder, (ii) all powers, duties, obligations
and rights conferred upon the Indenture Trustee in respect of the receipt,
custody, investment and payment of moneys or the investment of moneys shall be
exercised solely by the Indenture Trustee and (iii) no power hereby given to, or
exercisable as provided herein by, any such additional trustee or separate
trustee shall be exercised hereunder by such additional trustee or separate
trustee except jointly with, or with the consent of, the Indenture Trustee.

SECTION 8. SUPPLEMENTS AND AMENDMENTS TO THIS INDENTURE AND OTHER DOCUMENTS

        Section 8.1. Supplemental Indenture and Other Amendment With Consent;
Conditions and Limitations. At any time and from time to time, subject to
Sections 8.2 and 8.3 hereof, but only upon the written direction of a Majority
in Interest of Noteholders and the written consent of the Owner Lessor, (a) the
Indenture Trustee shall execute an amendment or supplement hereto for the
purpose of adding provisions to, or changing or eliminating provisions of, this
Indenture as specified in such request, and (b) the Indenture Trustee, as the
case may be, shall enter into or consent to such written amendment of or
supplement to any Assigned Document as each other party thereto may agree to and
as may be specified in such request, or execute and deliver such written waiver
or modification of or consent to the terms of any such agreement or document as
may be specified in such request; provided, however, that without the consent of
the Noteholders representing one hundred percent (100%) of the outstanding
principal amount of the Notes, such percentage to be determined in the same
manner as provided in the definition of the term "Majority in Interest of
Noteholders," no such supplement to or amendment of this Indenture or any
Assigned Document, or waiver or modification of or consent to the terms hereof
or thereof, shall (i) modify the definition of the terms "Majority in Interest
of Noteholders" or reduce the percentage of Noteholders required to take or
approve any action hereunder, (ii) change the amount or the time of payment of
any amount owing or payable under any Note or change the rate or manner of
calculation of interest payable on any Note, (iii) alter or modify the
provisions of Section 3 hereof with respect to the manner of payment or the
order of priorities in which distributions thereunder shall be made as between
the Noteholders and the Owner Lessor, (iv) reduce the amount (except to any
amount as shall be sufficient to pay the aggregate principal of, and interest on
all outstanding Notes) or extend the time of payment of Periodic Rent or
Termination Value except as expressly provided in Section 3.5 of the Facility
Leases, or change any of the circumstances under which Periodic Rent or
Termination Value is payable, (v) consent to any assignment of the Facility
Leases if in connection therewith the Facility Lessees will be released from its
obligation to pay Periodic Rent and Termination Value, except as expressly
provided in Section 13 of the Participation Agreement, or release the Facility



                                       46
<PAGE>   52

Lessees of their obligation to pay Periodic Rent or Termination Value or change
the absolute and unconditional character of such obligations as set forth in
Section 9 of the Facility Leases; or (vi) consent to any release of the
Guarantor under Section 8.4 of the Guaranty.

        Section 8.2. Supplemental Indentures and other Amendments Without
Consent. Without the consent of any Noteholders but subject to the provisions of
Section 8.3, and only after notice thereof shall have been sent to the
Noteholders and with the consent of the Owner Lessor, the Indenture Trustee
shall enter into any indenture or indentures supplemental hereto or execute any
amendment, modification, supplement, waiver or consent with respect to any other
Operative Document (a) to evidence the appointment of a co-manager in accordance
with the terms of the LLC Agreement, or to evidence the succession of a
successor as the Indenture Trustee hereunder, the removal of the Indenture
Trustee or the appointment of any separate or additional trustee or trustees, in
each case if done pursuant to the provisions of Section 7 hereof and to define
the rights, powers, duties and obligations conferred upon any such separate
trustee or trustees or co-trustee or co-trustees, (b) to correct, confirm or
amplify the description of any property at any time subject to the Lien of this
Indenture or to convey, transfer, assign, mortgage or pledge any property to or
with the Indenture Trustee, (c) to provide for any evidence of the creation and
issuance of any Additional Notes pursuant to, and subject to the conditions of,
Section 2.12 and to establish the form and the terms of such Additional Notes,
(d) to cure any ambiguity in, to correct or supplement any defective or
inconsistent provision of, or to add to or modify any other provisions and
agreements in, this Indenture or any other Operative Document in any manner that
will not in the judgment of the Indenture Trustee materially adversely affect
the interests of the Noteholders, (e) to grant or confer upon the Indenture
Trustee for the benefit of the Noteholders any additional rights, remedies,
powers, authority or security which may be lawfully granted or conferred and
which are not contrary or inconsistent with this Indenture, (f) to add to the
covenants or agreements to be observed by the Facility Lessees or the Owner
Lessor and which are not contrary to this Indenture, to add Indenture Events of
Defaults for the benefit of Noteholders or surrender any right or power of the
Owner Lessor, provided it has consented thereto, (g) to effect the assumption of
all or, to the extent otherwise provided hereunder, part of the Lessor Notes by
the Facility Lessees, provided that the supplemental indenture will contain all
of the covenants applicable to the Facility Lessees contained in the Facility
Leases and the Participation Agreement for the benefit of the Indenture Trustees
or the holders of such Lessor Notes, such that the Facility Lessees' obligations
contained therein, if applicable in the event that the Facility Leases are
terminated, will continue to be in full force and effect, (h) to comply with
requirements of the SEC, any applicable law, rules or regulations of any
exchange or quotation system on which the Certificates are listed, or any
regulatory body, (i) to modify, eliminate or add to the provisions of any
Operative Documents to such extent as shall be necessary to qualify or continue
the qualification of this Lease Indenture or the Pass Through Trust Agreements
(including any supplements thereto) under the Trust Indenture Act, or similar
federal statute enacted after the Closing Date, and to add to this Indenture
such other provisions as may be expressly required or permitted by the Trust
Indenture Act of 1939, and (j) to effect any indenture or indentures
supplemental hereto or any amendment, modification, supplement, waiver or
consent with respect to any other Operative Document, provided such supplemental
indenture, amendment, modification, supplement, waiver or consent shall not
reasonably be expected to materially and adversely affect the interest of the
Noteholders; provided, however, that no such amendment, modification,
supplement, waiver or consent contemplated by this Section 8.2 shall, without
the consent of the holder of each then outstanding



                                       47
<PAGE>   53

Note, cause any of the events specified in clauses (i) through (v) of the first
sentence of Section 8.1 hereof to occur; and provided, further, that no such
amendment, modification, supplement, waiver or consent contemplated by this
Section 8.2 shall, without the consent of the holder of a Majority in Interest
of Noteholders, modify the provisions of Sections 5.2, 5.6, 6, or 13.1 or [__]
of the Participation Agreement, or modify in any material respect the provisions
of either Calpine Guaranty (other than, in each case, any amendment,
modification, supplement, waiver or consent having no adverse affect on the
interest of the Noteholders).

        Section 8.3. Conditions to Action by the Indenture Trustee. If in the
opinion of the Indenture Trustee any document required to be executed pursuant
to the terms of Section 8.1 or 8.2 or the election referred to in Section 9.13
hereof adversely affects any immunity or indemnity in favor of the Indenture
Trustee under this Indenture or the Participation Agreement, or would materially
increase its administrative duties or responsibilities hereunder or thereunder
or may result in personal liability for it (unless it shall have been provided
an indemnity satisfactory to the Indenture Trustee), the Indenture Trustee may
in its discretion decline to execute such document or the election. With every
such document and election, the Indenture Trustee shall be furnished with
evidence that all necessary consents have been obtained and with an opinion of
counsel that such document complies with the provisions of this Indenture, does
not deprive the Indenture Trustee or the holders of the Notes of the benefits of
the Lien hereby created on any property subject hereto or of the assignments
contained herein (except as otherwise consented to in accordance with Section
8.1 hereof) and that all consents required by the terms hereof in connection
with the execution of such document or the making of such election have been
obtained. The Indenture Trustee shall be fully authorized and protected in
relying on such opinion.

SECTION 9. MISCELLANEOUS

        Section 9.1. Surrender, Defeasance and Release.

        (a) Surrender and Cancellation of Indenture. This Indenture shall be
surrendered and cancelled and the trusts created hereby shall terminate and this
Indenture shall be of no further force or effect upon satisfaction of the
conditions set forth in the proviso to the Granting Clause hereof. Upon any such
surrender, cancellation, and termination, the Indenture Trustee shall pay all
moneys or other properties or proceeds constituting part of the Indenture Estate
(the distribution of which is not otherwise provided for herein) to the Owner
Lessor, and the Indenture Trustee shall, upon request and at the cost and
expense of the Owner Lessor, execute and deliver proper instruments
acknowledging such cancellation and termination and evidencing the release of
the security, rights and interests created hereby. If this Indenture is
terminated pursuant to this Section 9.1(a), the Indenture Trustee shall promptly
notify the Facility Lessees and the Owner Participant of such termination.

        (b) Release.

              (i) Whenever a Component is replaced pursuant to the Facility
        Leases, such component shall automatically and without further act of
        any Person be released from the Lien of this Lease Indenture and the
        Indenture Trustee shall, upon the written request of the Owner Lessor or
        the Facility Lessees, execute and deliver to, and as directed in



                                       48
<PAGE>   54

        writing by, the Facility Lessees or the Owner Lessor an appropriate
        instrument (in due form for recording) releasing the replaced Component
        from the Lien of this Indenture.

              (ii) Whenever the Facility Lessees are entitled to acquire or have
        transferred to it their respective Facilities pursuant to the express
        terms of the Facility Leases, the Indenture Trustee shall release the
        Indenture Estate from the Lien of this Indenture and execute and deliver
        to, or as directed in writing by, the Facility Lessees or the Owner
        Lessor an appropriate instrument (in due form for recording) releasing
        the Indenture Estate from the Lien of this Indenture; provided that all
        sums secured by this Indenture have been paid to the Persons entitled to
        such sums.

        Section 9.2. Conveyances Pursuant to Section 4.2 of Site Leases and
Subleases. Sales, grants of leases or easements and conveyances of portions of
the Tiverton and Rumford Sites, rights of way, easements or leasehold interest
made by the Facility Lessees in accordance with Section 4.2 of the Site Leases
and Subleases shall automatically, without further act of any Person, be
released from this Lease Indenture.

        Section 9.3. Appointment of the Indenture Trustee as Attorney; Further
Assurances. The Owner Lessor hereby constitutes the Indenture Trustee the true
and lawful attorney of the Owner Lessor irrevocably with full power as long as
the Lease Indenture is in effect (in the name of the Owner Lessor or otherwise)
to ask, require, demand, receive, compound and give acquittance for any and all
moneys and claims for moneys due and to become due under or arising out of the
Assigned Documents (except to the extent that such moneys and claims constitute
Excepted Payments), to endorse any checks or other instruments or orders in
connection therewith, to make all such demands and to give all such notices as
are permitted by the terms of the Facility Lease to be made or given by the
Owner Lessor upon the occurrence and continuance of a Lease Event of Default, to
enforce compliance by the Facility Lessees with all terms and provisions of the
Facility Leases (except as otherwise provided in Sections 4.3 and 5.6 hereof),
and to file any claims or take any action or institute any proceedings which the
Indenture Trustee may request in the premises.

        Section 9.4. Indenture for Benefit of Certain Persons Only. Nothing in
this Indenture, whether express or implied, shall be construed to give to any
Person other than the parties hereto, the Owner Participant, the Facility
Lessees (with respect to Sections 4.12 and 8.1 hereof) and the Noteholders (and
any successor or assign of any thereof) any legal or equitable right, remedy or
claim under or in respect of this Indenture, and this Indenture shall be for the
sole and exclusive benefit of the parties hereto, the Owner Participant, the
Facility Lessees (as provided in Sections 4.12 and 8.1 hereof) and the
Noteholders.

        Section 9.5. Notices; Furnishing Documents, etc. Unless otherwise
expressly specified or permitted by the terms hereof, all communications and
notices provided for herein to a party hereto shall be in writing or by a
telecommunications device capable of creating a written record, and any such
notice shall become effective (a) upon personal delivery thereof, including by
overnight mail or courier service, (b) in the case of notice by United States
mail, certified or registered, postage prepaid, return receipt requested, upon
receipt thereof, or (c) in the case of notice by such a telecommunications
device, upon transmission thereof, provided such transmission is promptly
confirmed by either of the methods set forth in clauses (a) and (b)



                                       49
<PAGE>   55

above, in each case addressed to such party and copy party at its address set
forth below or at such other address as such party or copy party may from time
to time designate by written notice to the other party:

        If to the Owner Lessor:

               PMCC Calpine New England Investment LLC
               c/o Phillip Morris Capital Corporation
               225 High Ridge, Suite 300
               Stamford, Connecticut  06905
               Telephone No.:  (914) 335-8170
               Facsimile No.:  (914) 335-8287
               Attention: Vice President-Leasing

        with a copy to:

               Philip Morris Capital Corporation
               225 High Ridge Road, Suite 300
               Stamford, Connecticut 06905
               Telephone No.: (914) 335-8347
               Facsimile No.: (914) 335-8256
               Attention: General Counsel

        with a copy to the Owner Participant:

               PMCC Calpine NEIM LCC
               c/o Phillip Morris Capital Corporation
               225 High Ridge, Suite 300
               Stamford, Connecticut  06905
               Telephone No.:  (914) 335-8170
               Facsimile No.:  (914) 335-8287
               Attention: Vice-President Leasing

        with a copy to:

               Philip Morris Capital Corporation
               225 High Ridge Road, Suite 300
               Stamford, Connecticut 06905
               Telephone No.: (914) 335-8347
               Facsimile No.: (914) 335-8256
               Attention: General Counsel



                                       50
<PAGE>   56

        If to the Indenture Trustee:

               State Street Bank and Trust Company of Connecticut, National
               Association
               633 West 5th Street, 12th Floor
               Los Angeles, California  90071
               Telephone No.:  (860) 244-1822
               Facsimile No.:  (860) 244-1889


        If to the Facility Lessees:

        If to the Tiverton Lessee:

               c/o Calpine Corporation
               50 West San Fernando Street, 5th Floor
               San Jose, California  95113
               Telephone No.: (408) 995-5115
               Facsimile No.: (408) 995-0505
               Attention:  Asset Manager and General Counsel

               c/o Calpine Corporation
               The Pilot House, 2nd Floor
               Lewis Wharf
               Boston, Massachusetts  02110
               Telephone No.: (617) 723-7200
               Facsimile No.: (617) 723-7635

        If to the Rumford Lessee:

               c/o Calpine Corporation
               50 West San Fernando Street, 5th Floor
               San Jose, California  95113
               Telephone No.:  (408) 995-5115
               Facsimile No.:  (408) 995-0505
               Attention:  Asset Manager and General Counsel

               c/o Calpine Corporation
               The Pilot House, 2nd Floor
               Lewis Wharf
               Boston, Massachusetts  02110
               Telephone No.:  (617) 723-7200
               Facsimile No.:  (617) 723-7635



                                       51
<PAGE>   57

        If to the Pass Through Trustee:

               State Street Bank and Trust Company of Connecticut,
               National Association
               633 West 5th Street, 12th Floor
               Los Angeles, California  90071
               Telephone No.:  (860) 244-1822
               Facsimile No.:  (860) 244-1889

        Section 9.6. Severability. Any provision of this Indenture which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating or rendering unenforceable the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

        Section 9.7. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) this Indenture is executed and delivered
by, not individually or personally but solely as trustee of the Owner Lessor
under the LLC Agreement, General Foods Credit Corporation ("GFCC"), not
individually or personally but solely as the managing member of PMCC Calpine
NEIM LLC, the Owner Participant and the sole managing member of the Owner
Lessor, in the exercise of the powers and authority conferred and vested in it
pursuant thereto, (b) each of the representations, undertakings and agreements
herein made on the part of the Owner Lessor is made and intended not as personal
representations, undertakings and agreements by GFCC, but is made and intended
for the purpose for binding only the Owner Lessor, (c) nothing herein contained
shall be construed as creating any liability on GFCC, individually or
personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
or by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall GFCC, be personally liable for the payment of any
indebtedness or expenses of the Owner Lessor or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or
undertaken by the Owner Lessor under this Indenture.

        Section 9.8. Written Changes Only. Subject to Sections 8.1 and 8.2
hereof, no term or provision of this Indenture or any Note may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the parties hereto; and any waiver of the terms hereof or of any Note
shall be effective only in the specific instance and for the specific purpose
given.

        Section 9.9. Counterparts. This Indenture may be executed in separate
counterparts, each of which, when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.

        Section 9.10. Successors and Permitted Assigns. All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the parties hereto and their respective successors and permitted assigns and
each Noteholder. Any request, notice, direction, consent, waiver or other
instrument or action by any Noteholder shall bind the successor and assigns
thereof.



                                       52
<PAGE>   58

        Section 9.11. Headings and Table of Contents. The headings of the
sections of this Indenture and the Table of Contents are inserted for purposes
of convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.

        Section 9.12. Governing Law. This Indenture and the Notes shall be in
all respects governed by and construed in accordance with the laws of the State
of New York, including all matters of construction, validity and performance
(without giving effect to the conflicts of laws provisions thereof, other than
New York General Obligation Law Section 5-1401), except to the extent the laws
of the State of Rhode Island and the State of Maine are mandatorily applicable
under the laws of the State of Rhode Island and the State of Maine.

        Section 9.13. Reorganization Proceedings with Respect to the Lessor
Estate. If (a) the Lessor Estate becomes a debtor subject to the reorganization
provisions of Title 11 of the United States Code, or any successor provisions,
(b) pursuant to such reorganization provisions the Owner Participant is required
by reason of the Owner Participant's being held to have recourse liability that
it would not otherwise have had under Section 2.5 hereof to the debtor or the
trustee of the debtor, directly or indirectly, to make payment on account of any
amount payable as principal or interest on the Notes and (c) any Noteholder or
the Indenture Trustee actually receives any Excess Amount (as hereinafter
defined) which reflects any payment by the Owner Participant on account of
clause (b) above, then such Noteholder or the Indenture Trustee, as the case may
be, shall promptly refund such Excess Amount, without interest, to the Owner
Participant after receipt by such Noteholder or the Indenture Trustee, as the
case may be, of a written request for such refund by the Owner Participant
(which request shall specify the amount of such Excess Amount and shall set
forth in detail the calculation thereof). For purposes of this Section 9.13,
"Excess Amount" means the amount by which such payment exceeds the amount which
would have been received by such holder and the Indenture Trustee in respect of
such principal or interest if the Owner Participant had not become subject to
the recourse liability referred to in clause (b) above. Nothing contained in
this Section 9.13 shall prevent the Indenture Trustee or any Noteholder from
enforcing any personal recourse obligations (and retaining the proceeds thereof)
of the Owner Participant under the Participation Agreement.

        The Noteholders and the Indenture Trustee agree that should the Lessor
Estate become a debtor subject to the reorganization provisions of the
Bankruptcy Code, they shall upon the request of the Owner Participant, and
provided that the making of the election hereinafter referred to is permitted to
be made by them under Applicable Law and will not have any adverse impact on any
Noteholder, the Indenture Trustee or the Indenture Estate other than as
contemplated by the preceding paragraph, make the election referred to in
Section 1111(b)(1)(A)(i) of Title 11 of the Bankruptcy Code or any successor
provision if, in the absence of such election, the Noteholders would have
recourse against the Owner Participant for the payment of the indebtedness
represented by the Notes in circumstance in which such Noteholders would not
have recourse under this Indenture if the Lessor Estate had not become a debtor
under the Bankruptcy Code.

        Section 9.14. Withholding Taxes: Information Reporting. The Indenture
Trustee shall exclude and withhold from each distribution of principal,
Make-Whole Amount, if any, and interest and other amounts due hereunder or under
the Lessor Notes and all withholding taxes applicable thereto as required by
law. The Indenture Trustee agrees (i) to act as such



                                       53
<PAGE>   59

withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Lessor Notes, to withhold such amounts and timely pay
the same to the appropriate authority in the name of and on behalf of the
Noteholders and to pay to the Noteholders from amounts received by Paying Agent
pursuant hereto such additional amounts so that the net amount actually received
by the Noteholders, after reduction for such withheld amounts, shall be equal to
the full amount of principal, Make-Whole Amount, interest and other amounts
otherwise due and payable hereunder; provided, however, that, notwithstanding
the foregoing, the Paying Agent shall be required to pay such additional amounts
only if and to the extent that (a) the Facility Lessee is required to indemnify
the Noteholders for such amounts under Section 9 of the Participation Agreement
and (b) the Facility Lessee has not paid such amounts within three (3) days
after notice of nonpayment, (ii) that it will file any necessary withholding tax
returns or statements when due, and (iii) that, as promptly as possible after
the payment thereof, it will deliver to each Noteholder appropriate
documentation showing the payment thereof, together with such additional
documentary evidence as such Noteholders may reasonably request from time to
time. The Indenture Trustee agrees to file any other information as it may be
required to file under United States law.

        Any Noteholder which is organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date such Noteholder becomes
a Holder, (a) so notify the Indenture Trustee, (b) (i) provide the Indenture
Trustee with Internal Revenue Service form Form W-8 BEN or W-8 ECI, as
appropriate, or (ii) notify the Indenture Trustee that it is not entitled to an
exemption from United States withholding tax or a reduction in the rate thereof
on payments of interest. Any such Noteholder agrees by its acceptance of a Note,
on an ongoing basis, to provide like certification for each taxable year and to
notify the Indenture Trustee should subsequent circumstances arise affecting the
information provided the Indenture Trustee in clauses (a) and (b) above. The
Indenture Trustee shall be fully protected in relying upon, and each Noteholder
by its acceptance of a Note hereunder agrees to indemnify and hold the Indenture
Trustee harmless against all claims or liability of any kind arising in
connection with or related to the Indenture Trustee's reliance upon any such
documents, forms or information provided by such Holder to the Indenture
Trustee. In addition, if the Indenture Trustee has not withheld taxes on any
payment made to any Noteholder, and the Indenture Trustee is subsequently
required to remit to any taxing authority any such amount not withheld, such
Noteholder shall return such amount to the Indenture Trustee upon written demand
by the Indenture Trustee, but only to the extent the Indenture Trustee is not
obligated to pay additional amounts with respect to such taxes pursuant to this
Section 9.14. The Indenture Trustee shall be liable only for direct (but not
consequential) damages to any Noteholder due to the Indenture Trustee's
violation of the Code and only to the extent such liability is caused by the
Indenture Trustee's violation of the Code and only to the extent such liability
is caused by the Indenture Trustee's failure to act in accordance with its
standard of care under this Lease Indenture.

        Section 9.15. Fixture Financing Statement. This Indenture also is
intended to serve as a fixture financing statement under the Rhode Island and
Maine Uniform Commercial Codes. In connection therewith, the following
information is provided:

        (a) Name and address of Debtor:



                                       54
<PAGE>   60

               PMCC Calpine New England Investment LLC
               c/o Phillip Morris Capital Corporation
               225 High Ridge, Suite 300
               Stamford, Connecticut  06905
               Telephone No.:  (914) 335-8170
               Facsimile No.:  (914) 335-8287
               Attention: Vice President-Leasing
               Tax ID Number of Debtor:  ____________

        with a copy to:

               Philip Morris Capital Corporation
               225 High Ridge Road, Suite 300
               Stamford, Connecticut 06905
               Telephone No.: (914) 335-8347
               Facsimile No.: (914) 335-8256
               Attention: General Counsel


        (b) Name and Address of Secured Party (from which information concerning
the security interest may be obtained):

               State Street Bank and Trust Company of Connecticut, National
               Association, as Indenture Trustee
               633 West 5th Street, 12th Floor
               Los Angeles, California  90071
               Telephone No.:  (860) 244-1822
               Facsimile No.:  (860) 244-1889

        (c) The personal property covered by the security interest granted
hereunder includes goods which are or are to become fixtures upon the real
property described in Exhibits A-1 and A-2 hereto.

        (d) Recording: This Indenture is to be recorded in the real estate
records of the Town of Tiverton, Rhode Island and West Oxford County, Maine.

        (e) Type of Filing: This is a fixture filing under Section
30-9-401(1)(c) and R.I. Gen. Laws Section 6A-9-401(1)(b) and 6A-9-402(6).


                  (Remainder of Page Intentionally Left Blank)



                                       55
<PAGE>   61

        IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed on the day and year first above written.



                                    STATE STREET BANK AND TRUST COMPANY OF
                                    CONNECTICUT, NATIONAL ASSOCIATION,
                                    as Indenture Trustee



                                    By: /s/ MARK HENSON
                                       -----------------------------------------
                                       Name: Mark Henson
                                       Title: Assistant Vice President



                                    PMCC CALPINE NEW ENGLAND INVESTMENT LLC, as
                                    Owner Lessor

                                    By: PMCC Calpine NEIM LLC, its managing
                                        member

                                    By: General Foods Credit Corporation, its
                                        managing member

                                    By: /s/ ANIL BHATIA
                                       -----------------------------------------
                                       Name:
                                       Title:





<PAGE>   62

STATE OF NEW YORK     )
                      )      SS.:
COUNTY OF NEW YORK    )


        The foregoing instrument was acknowledged before me this 19th day of
December 2000, by Anil Bhatia, Authorized Signator of General Foods Credit
Corporation, Managing Member of PMCC Calpine NEIM LLC, Managing Member of PMCC
Calpine New England Investment LLC, and acknowledged the foregoing investment to
be his/her free act and deed in said capacity and the free act and deed of said
PMCC Calpine New England Investment LLC.


                                            /s/ ANN K. MALLARI
                                            ------------------------------------
                                            Notary Public
My Commission Expires

Ann K. Mallari
Notary Public, State of New York
No. 4936031
Qualified in New York County
Commission Expires July 5, 2002
--------------------------------


STATE OF NEW YORK     )
                      )      SS.:
COUNTY OF NEW YORK    )


        The foregoing instrument was acknowledged before me this 19th day of
December 2000, by Mark Henson, Assistant Vice President of State Street Bank and
Trust Company of Connecticut, National Association, a United States banking
corporation, to be the free act and deed on behalf of the corporation.


                                            /s/ ANN K. MALLARI
                                            ------------------------------------
                                            Notary Public
My Commission Expires

Ann K. Mallari
Notary Public, State of New York
No. 4936031
Qualified in New York County
Commission Expires July 5, 2002
----------------------------------



<PAGE>   63

                                   APPENDIX A

                                   DEFINITIONS



<PAGE>   64

                                                                     EXHIBIT A-1
                                                                              TO
                                                                 LEASE INDENTURE

                          DESCRIPTION OF TIVERTON SITE



                                       A-2
<PAGE>   65

                                                                     EXHIBIT A-2
                                                                              TO
                                                                 LEASE INDENTURE

                           DESCRIPTION OF RUMFORD SITE



                                       A-2
<PAGE>   66

                                                                     EXHIBIT B-1
                                                                              TO
                                                                 LEASE INDENTURE


                          FORM OF TIVERTON LESSOR NOTE

                     PMCC CALPINE NEW ENGLAND INVESTMENT LLC
                  NONRECOURSE PROMISSORY NOTE (TIVERTON) DUE IN
                      A SERIES OF INSTALLMENTS OF PRINCIPAL
                             WITH FINAL PAYMENT DATE
                                OF JULY 15, 2018

                   THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
               SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED,
                SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT


                                                  Issued at:  New York, New York

                                                  Issue Date:  December 19, 2000

$190,000,000


        PMCC CALPINE NEW ENGLAND INVESTMENT LLC, a Delaware limited liability
company (herein called the "Owner Lessor", which term includes any successor
person under the Collateral Trust Indenture hereinafter referred to), hereby
promises to pay to State Street Bank and Trust Company of Connecticut, National
Association, in its capacity as pass through trustee of the Tiverton and Rumford
2000 Pass Through Trust, (the "Pass Through Trustee")or its registered assigns,
the principal sum of $190,000,000, which is due and payable in a series of
installments of principal with a final payment date of July 15, 2018, as
provided below, together with interest at the rate of 9.00% per annum on the
principal remaining unpaid from time to time from and including the Issue Date
until paid in full. Interest on the outstanding principal amount under this Note
shall be due and payable in arrears semiannually at the rate specified above,
commencing on July 15, 2001, and on each July 15th and January 15th thereafter
until the principal of this Note is paid in full or made available for payment.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.

        The principal of this Note shall be due and payable in installments on
each of the dates set forth on Schedules 1 hereto. The installment of principal
payable on any such date shall be in an aggregate amount equal to the product of
the Principal Portion set forth on Schedule 1 multiplied by the percentage set
forth on Schedule 1 under the column headed "Principal Amount Payable" for such
date unless the Principal Portion has been prepaid; provided, that the final
installment of principal shall be equal to the then unpaid principal balance of
this Note.



<PAGE>   67

        Capitalized terms used in this Note that are not otherwise defined
herein shall have the meanings ascribed thereto in the Indenture of Trust,
Mortgage and Security Agreement dated as of December 19, 2000 (the "Collateral
Trust Indenture"), between the Owner Lessor and State Street Bank and Trust
Company of Connecticut, National Association, as trustee (the "Indenture
Trustee").

        Interest (computed on the basis of a 360-day year of twelve 30-day
months) on any overdue principal and premium, if any, and (to the extent
permitted by Applicable Law) any overdue interest shall be paid, on demand, from
the due date thereof at the Overdue Rate for the period during which any such
principal, premium or interest shall be overdue.

        In the event any date on which a payment is due under this Note is not a
Business Day, then payment thereof shall be made on the next succeeding Business
Day with the same force and effect as if made on the date on which such payment
was due.

        Except as otherwise specifically provided in the Collateral Trust
Indenture and in the Participation Agreement, all payments of principal,
premium, if any, and interest on this Note, and all payments of any other
amounts due hereunder or under the Collateral Trust Indenture shall be made only
from the Indenture Estate, and the Indenture Trustee shall have no obligation
for the payment thereof except to the extent that the Indenture Trustee shall
have sufficient income or proceeds from the Indenture Estate to make such
payments in accordance with the terms of Section 3 of the Collateral Trust
Indenture. The holder hereof, by its acceptance of this Note, agrees that it
will look solely to the income and proceeds from the Indenture Estate to the
extent available for distribution to the holder hereof, as herein provided, and
that, none of the Owner Participant, the Owner Lessor or the Indenture Trustee
is or shall be personally liable to the holder hereof for any amounts payable
under this Note or under the Collateral Trust Indenture, or, except as expressly
provided in the Collateral Trust Indenture or, in the case of the Owner
Participant and the Owner Lessor, the Participation Agreement for any
performance to be rendered under the Collateral Trust Indenture or any Assigned
Document or for any liability under the Collateral Trust Indenture or any
Assigned Document.

        The principal of and premium, if any, and interest on this Note shall be
paid by the Indenture Trustee, without any presentment or surrender of this
Note, except that, in the case of the final payment in respect of this Note,
this Note shall be surrendered to the Indenture Trustee, by mailing a check for
the amount then due and payable, in New York Clearing House funds, to the
Noteholder, at the last address of the Noteholder appearing on the Note
Register, or by whichever of the following methods specified by notice from the
Noteholder to the Indenture Trustee: (a) by crediting the amount to be
distributed to the Noteholder to an account maintained by the Noteholder with
the Indenture Trustee, (b) by making such payment to the Noteholder in
immediately available funds at the Indenture Trustee Office, or (c) by
transferring such amount in immediately available funds for the account of the
Noteholder to the banking institution having bank wire transfer facilities as
shall be specified by the Noteholder, such transfer to be subject to telephonic
confirmation of payment. All payments due with respect to this Note shall be
made (i) as soon as practicable prior to the close of business on the date the
amounts to be



<PAGE>   68

distributed by the Indenture Trustee are actually received by the Indenture
Trustee if such amounts are received by 12:00 noon, New York City time, on a
Business Day or (ii) on the next succeeding Business Day if received after such
time or if received on any day other than a Business Day. Prior to due
presentment for registration of transfer of this Note, the Owner Lessor and the
Indenture Trustee may deem and treat the Person in whose name this Note is
registered on the Note Register as the absolute owner and holder of this Note
for the purpose of receiving payment of all amounts payable with respect to this
Note and for all other purposes, and neither the Owner Lessor nor the Indenture
Trustee shall be affected by any notice to the contrary. All payments made on
this Note in accordance with the provisions of this paragraph shall be valid and
effective to satisfy and discharge the liability on this Note to the extent of
the sums so paid and neither the Indenture Trustee nor the Owner Lessor shall
have any liability in respect of such payment.

        The holder hereof, by its acceptance of this Note, agrees that each
payment received by it hereunder shall be applied in the manner set forth in
Section 2.7 of the Collateral Trust Indenture, which provides that each payment
on the Note shall be applied as follows: first, to the payment of accrued
interest (including interest on overdue principal and, to the extent permitted
by Applicable Law, overdue interest) on this Note to the date of such payment;
second, to the payment of the principal amount of, and premium, if any, on this
Note then due (including any overdue installments of principal) thereunder; and
third, to the extent permitted by Section 2.10 of the Collateral Trust
Indenture, the balance, if any, remaining thereafter, to the payment of the
principal amount of, and premium, if any, on this Note.

        This Note is the Note referred to in the Collateral Trust Indenture as
the "Lessor Note". The Collateral Trust Indenture permits the issuance of
additional notes ("Additional Lessor Notes"), as provided in Section 2.12 of the
Collateral Trust Indenture, and the several Notes may be for varying principal
amounts and may have different maturity dates, interest rates, redemption
provisions and other terms. The properties of the Owner Lessor included in the
Indenture Estate are pledged or mortgaged to the Indenture Trustee to the extent
provided in the Collateral Trust Indenture as security for the payment of the
principal of and premium, if any, and interest on this Note and all other Notes
issued and outstanding from time to time under the Collateral Trust Indenture.

        Reference is hereby made to the Collateral Trust Indenture for a
statement of the rights of the holder of, and the nature and extent of the
security for, this Note and of the rights of, and the nature and extent of the
security for, the holders of the other Notes and of certain rights of the Owner
Lessor and the Owner Participant, as well as for a statement of the terms and
conditions of the trust created by the Collateral Trust Indenture, to all of
which terms and conditions the holder hereof agrees by its acceptance of this
Note.

        This Note is subject to redemption, in whole or in part as provided in
the Collateral Trust Indenture, as follows: (x) in the case of redemptions under
the circumstances set forth in Section 2.10(a) of the Collateral Trust
Indenture, at a price



<PAGE>   69

equal to the principal amount of this Note being redeemed together with accrued
interest on such principal amount to the Redemption Date, and (y) in the case of
redemptions under the circumstances set forth in Sections 2.10(d) of the
Collateral Trust Indenture, at a price equal to the principal amount of this
Note then outstanding together with accrued interest on such principal amount to
the Redemption Date, plus the Make-Whole Premium, if any; provided, however,
that no such redemption shall be made until notice thereof is given by the
Indenture Trustee to the holder hereof as provided in the Collateral Trust
Indenture.

        In case either (i) a Regulatory Event of Loss under the Facility Lease
shall occur or (ii) the Facility Lease shall have been terminated pursuant to
Section 13.1 thereof where the Facility Lessee purchases the Undivided Interest
from the Owner Lessor, the obligations of the Owner Lessor under this Note may,
subject to the conditions set forth in Section 2.10(b) of the Collateral Trust
Indenture, be assumed in whole by the Facility Lessee in which case the Owner
Lessor shall be released and discharged from all such obligations. In connection
with such an assumption, the holder of this Note may be required to exchange
this Note for a new Note evidencing such assumption.

        In case a Collateral Trust Indenture Event of Default shall occur and be
continuing, the unpaid balance of the principal of this Note together with all
accrued but unpaid interest thereon may, subject to certain rights of the Owner
Lessor and the Owner Participant contained or referred to in the Collateral
Trust Indenture, be declared or may become due and payable in the manner and
with the effect provided in the Collateral Trust Indenture.

        There shall be maintained at the Indenture Trustee Office a register for
the purpose of registering transfers and exchanges of Notes in the manner
provided in the Collateral Trust Indenture. The transfer of this Note is
registrable, as provided in the Collateral Trust Indenture, upon surrender of
this Note for registration of transfer duly accompanied by a written instrument
of transfer duly executed by or on behalf of the registered holder hereof,
together with the amount of any applicable transfer taxes.

        It is expressly understood and agreed by the holder of this Note that
(a) this Note is executed and delivered by General Foods Credit Corporation, not
individually or personally but solely as the managing member (the "Managing
Member"), of PMCC Calpine NEIM LLC, the Owner Participant and the sole managing
member of the Owner Lessor, in the exercise of the powers and authority
conferred and vested in it pursuant thereto, (b) each of the undertakings and
agreements in this Note made on the part of the Owner Lessor is made and
intended not as personal undertakings and agreements by the Managing Member but
is made and intended for the purpose for binding only the Owner Lessor, (c)
nothing contained in this Note shall be construed as creating any liability on
the Managing Member individually or personally, to perform any covenant either
expressed or implied contained in this Note, all such liability, if any, being
expressly waived by the holder of this Note or by any Person claiming by,
through or under such holder, and (d) under no circumstances shall the Managing
Member, be personally liable for the payment of any indebtedness or expenses of
the Owner Lessor or be liable for the



<PAGE>   70

breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Owner Lessor under this Note.

        This Note shall be governed by the laws of the State of New York.



<PAGE>   71

        IN WITNESS WHEREOF, the Owner Lessor has caused this Note to be duly
executed as of the date hereof.

                                    PMCC CALPINE NEW ENGLAND
                                    INVESTMENT LLC
                                    a Delaware limited liability company,

                                      By:  PMCC Calpine NEIM LLC,
                                           a Delaware limited liability company,
                                           Managing Member

                                      By:  General Foods Credit Corporation,
                                           a Delaware corporation,
                                           Managing Member


                                      By:
                                         ---------------------------------------
                                         Name:
                                         Title:



<PAGE>   72

        This is the Lessor Note referred to in the within-mentioned Collateral
Trust Indenture duly executed as of the date hereof.


                                   STATE STREET BANK AND TRUST
                                       COMPANY OF CONNECTICUT,
                                       NATIONAL ASSOCIATION,
                                   not in its individual capacity, but solely as
                                       the Indenture Trustee


                                      By:
                                         ---------------------------------------
                                         Name:
                                         Title:



<PAGE>   73

                             FORM OF TRANSFER NOTICE


        FOR VALUE RECEIVED the undersigned registered holder hereby sell(s)
assign(s) and transfer(s) unto


Insert Taxpayer Identification No.

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

-----------------------------------
(Please print or typewrite name and address including zip code of assignee)

-----------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing

-----------------------------------
attorney to transfer said Note on the books of the Issuer with full power of
substitution in the premises.


Date:
      ---------------------------   ------------------------------------
                                    (Signature of Transferor)

                                    NOTE: The signature to this assignment must
                                    correspond with the name as written upon the
                                    face of the within-mentioned instrument in
                                    every particular, without alteration or any
                                    change whatsoever.



<PAGE>   74

                                   SCHEDULE 1
                                     TO NOTE


                       Schedule Of Principal Amortization

                         Principal Portion: $190,000,000


<TABLE>
<CAPTION>
                                            Principal Amount Payable
    Payment Date                            (% of Principal Portion)
-----------------------------       --------------------------------------
<S>                                 <C>
Dec 19 2000                                                     0.00000000
Jul 15 2001                                                     0.00000000
Jan 15 2002                                                     0.00000000
Jul 15 2002                                                     0.00000000
Jan 15 2003                                                     0.00000000
Jul 15 2003                                                     0.00000000
Jan 15 2004                                                     0.00000000
Jul 15 2004                                                     0.66256831
Jan 15 2005                                                     0.00000000
Jul 15 2005                                                     0.00000000
Jan 15 2006                                                     0.00000000
Jul 15 2006                                                     2.96557377
Jan 15 2007                                                     0.00000000
Jul 15 2007                                                     2.48633880
Jan 15 2008                                                     1.95765027
Jul 15 2008                                                     0.00000000
Jan 15 2009                                                     2.54617486
Jul 15 2009                                                     0.00000000
Jan 15 2010                                                    49.18032787
Jul 15 2010                                                     0.00000000
Jan 15 2011                                                    13.74617486
Jul 15 2011                                                     0.00000000
Jan 15 2012                                                     7.85655738
Jul 15 2012                                                     0.00000000
Jan 15 2013                                                     3.75792350
Jul 15 2013                                                     0.00000000
Jan 15 2014                                                     4.21038251
Jul 15 2014                                                     0.00000000
Jan 15 2015                                                     4.10983607
Jul 15 2015                                                     0.00000000
Jan 15 2016                                                     5.10737705
Jul 15 2016                                                     0.00000000
Jan 15 2017                                                     0.86639344
Jul 15 2017                                                     0.00000000
Jan 15 2018                                                     0.00000000
Jul 15 2018                                                     0.54672131
</TABLE>



<PAGE>   75

                                                                     EXHIBIT B-2
                                                                              TO
                                                                 LEASE INDENTURE


                           FORM OF RUMFORD LESSOR NOTE

                     PMCC CALPINE NEW ENGLAND INVESTMENT LLC
                  NONRECOURSE PROMISSORY NOTE (RUMFORD) DUE IN
                      A SERIES OF INSTALLMENTS OF PRINCIPAL
                             WITH FINAL PAYMENT DATE
                                OF JULY 15, 2018

                   THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
               SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED,
                SOLD OR OFFERED FOR SALE IN VIOLATION OF SUCH ACT


                                                  Issued at:  New York, New York

                                                  Issue Date:  December 19, 2000

$176,000,000


        PMCC CALPINE NEW ENGLAND INVESTMENT LLC, a Delaware limited liability
company (herein called the "Owner Lessor", which term includes any successor
person under the Collateral Trust Indenture hereinafter referred to), hereby
promises to pay to State Street Bank and Trust Company of Connecticut, National
Association, in its capacity as pass through trustee of the Tiverton and Rumford
2000 Pass Through Trust (the "Pass Through Trustee"), or its registered assigns,
the principal sum of $176,000,000, which is due and payable in a series of
installments of principal with a final payment date of July 15, 2018, as
provided below, together with interest at the rate of 9.00% per annum on the
principal remaining unpaid from time to time from and including the Issue Date
until paid in full. Interest on the outstanding principal amount under this Note
shall be due and payable in arrears semiannually at the rate specified above,
commencing on July 15, 2001, and on each July 15th and January 15th thereafter
until the principal of this Note is paid in full or made available for payment.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.

        The principal of this Note shall be due and payable in installments on
each of the dates set forth on Schedules 1 hereto. The installment of principal
payable on any such date shall be in an aggregate amount equal to the product of
the Principal Portion set forth on Schedule 1 multiplied by the percentage set
forth on Schedule 1 under the column headed "Principal Amount Payable" for such
date unless the Principal Portion has been prepaid; provided, that the final
installment of principal shall be equal to the then unpaid principal balance of
this Note.



                                        4
<PAGE>   76

        Capitalized terms used in this Note that are not otherwise defined
herein shall have the meanings ascribed thereto in the Indenture of Trust,
Mortgage and Security Agreement dated as of December 19, 2000 (the "Collateral
Trust Indenture"), between the Owner Lessor and State Street Bank and Trust
Company of Connecticut, National Association, as trustee (the "Indenture
Trustee").

        Interest (computed on the basis of a 360-day year of twelve 30-day
months) on any overdue principal and premium, if any, and (to the extent
permitted by Applicable Law) any overdue interest shall be paid, on demand, from
the due date thereof at the Overdue Rate for the period during which any such
principal, premium or interest shall be overdue.

        In the event any date on which a payment is due under this Note is not a
Business Day, then payment thereof shall be made on the next succeeding Business
Day with the same force and effect as if made on the date on which such payment
was due.

        Except as otherwise specifically provided in the Collateral Trust
Indenture and in the Participation Agreement, all payments of principal,
premium, if any, and interest on this Note, and all payments of any other
amounts due hereunder or under the Collateral Trust Indenture shall be made only
from the Indenture Estate, and the Indenture Trustee shall have no obligation
for the payment thereof except to the extent that the Indenture Trustee shall
have sufficient income or proceeds from the Indenture Estate to make such
payments in accordance with the terms of Section 3 of the Collateral Trust
Indenture. The holder hereof, by its acceptance of this Note, agrees that it
will look solely to the income and proceeds from the Indenture Estate to the
extent available for distribution to the holder hereof, as herein provided, and
that, none of the Owner Participant, the Owner Lessor or the Indenture Trustee
is or shall be personally liable to the holder hereof for any amounts payable
under this Note or under the Collateral Trust Indenture, or, except as expressly
provided in the Collateral Trust Indenture or, in the case of the Owner
Participant and the Owner Lessor, the Participation Agreement for any
performance to be rendered under the Collateral Trust Indenture or any Assigned
Document or for any liability under the Collateral Trust Indenture or any
Assigned Document.

        The principal of and premium, if any, and interest on this Note shall be
paid by the Indenture Trustee, without any presentment or surrender of this
Note, except that, in the case of the final payment in respect of this Note,
this Note shall be surrendered to the Indenture Trustee, by mailing a check for
the amount then due and payable, in New York Clearing House funds, to the
Noteholder, at the last address of the Noteholder appearing on the Note
Register, or by whichever of the following methods specified by notice from the
Noteholder to the Indenture Trustee: (a) by crediting the amount to be
distributed to the Noteholder to an account maintained by the Noteholder with
the Indenture Trustee, (b) by making such payment to the Noteholder in
immediately available funds at the Indenture Trustee Office, or (c) by
transferring such amount in immediately available funds for the account of the
Noteholder to the banking institution having bank wire transfer facilities as
shall be specified by the Noteholder, such transfer to be subject to telephonic
confirmation of payment. All payments due with respect to this Note shall be
made (i) as soon as practicable prior to the close of business on the date the
amounts to be



                                        5
<PAGE>   77

distributed by the Indenture Trustee are actually received by the Indenture
Trustee if such amounts are received by 12:00 noon, New York City time, on a
Business Day or (ii) on the next succeeding Business Day if received after such
time or if received on any day other than a Business Day. Prior to due
presentment for registration of transfer of this Note, the Owner Lessor and the
Indenture Trustee may deem and treat the Person in whose name this Note is
registered on the Note Register as the absolute owner and holder of this Note
for the purpose of receiving payment of all amounts payable with respect to this
Note and for all other purposes, and neither the Owner Lessor nor the Indenture
Trustee shall be affected by any notice to the contrary. All payments made on
this Note in accordance with the provisions of this paragraph shall be valid and
effective to satisfy and discharge the liability on this Note to the extent of
the sums so paid and neither the Indenture Trustee nor the Owner Lessor shall
have any liability in respect of such payment.

        The holder hereof, by its acceptance of this Note, agrees that each
payment received by it hereunder shall be applied in the manner set forth in
Section 2.7 of the Collateral Trust Indenture, which provides that each payment
on the Note shall be applied as follows: first, to the payment of accrued
interest (including interest on overdue principal and, to the extent permitted
by Applicable Law, overdue interest) on this Note to the date of such payment;
second, to the payment of the principal amount of, and premium, if any, on this
Note then due (including any overdue installments of principal) thereunder; and
third, to the extent permitted by Section 2.10 of the Collateral Trust
Indenture, the balance, if any, remaining thereafter, to the payment of the
principal amount of, and premium, if any, on this Note.

        This Note is the Note referred to in the Collateral Trust Indenture as
the "Lessor Note". The Collateral Trust Indenture permits the issuance of
additional notes ("Additional Lessor Notes"), as provided in Section 2.12 of the
Collateral Trust Indenture, and the several Notes may be for varying principal
amounts and may have different maturity dates, interest rates, redemption
provisions and other terms. The properties of the Owner Lessor included in the
Indenture Estate are pledged or mortgaged to the Indenture Trustee to the extent
provided in the Collateral Trust Indenture as security for the payment of the
principal of and premium, if any, and interest on this Note and all other Notes
issued and outstanding from time to time under the Collateral Trust Indenture.

        Reference is hereby made to the Collateral Trust Indenture for a
statement of the rights of the holder of, and the nature and extent of the
security for, this Note and of the rights of, and the nature and extent of the
security for, the holders of the other Notes and of certain rights of the Owner
Lessor and the Owner Participant, as well as for a statement of the terms and
conditions of the trust created by the Collateral Trust Indenture, to all of
which terms and conditions the holder hereof agrees by its acceptance of this
Note.

        This Note is subject to redemption, in whole or in part as provided in
the Collateral Trust Indenture, as follows: (x) in the case of redemptions under
the circumstances set forth in Section 2.10(a) of the Collateral Trust
Indenture, at a price



                                        6
<PAGE>   78

equal to the principal amount of this Note being redeemed together with accrued
interest on such principal amount to the Redemption Date, and (y) in the case of
redemptions under the circumstances set forth in Sections 2.10(d) of the
Collateral Trust Indenture, at a price equal to the principal amount of this
Note then outstanding together with accrued interest on such principal amount to
the Redemption Date, plus the Make-Whole Premium, if any; provided, however,
that no such redemption shall be made until notice thereof is given by the
Indenture Trustee to the holder hereof as provided in the Collateral Trust
Indenture.

        In case either (i) a Regulatory Event of Loss under the Facility Lease
shall occur or (ii) the Facility Lease shall have been terminated pursuant to
Section 13.1 thereof where the Facility Lessee purchases the Undivided Interest
from the Owner Lessor, the obligations of the Owner Lessor under this Note may,
subject to the conditions set forth in Section 2.10(b) of the Collateral Trust
Indenture, be assumed in whole by the Facility Lessee in which case the Owner
Lessor shall be released and discharged from all such obligations. In connection
with such an assumption, the holder of this Note may be required to exchange
this Note for a new Note evidencing such assumption.

        In case a Collateral Trust Indenture Event of Default shall occur and be
continuing, the unpaid balance of the principal of this Note together with all
accrued but unpaid interest thereon may, subject to certain rights of the Owner
Lessor and the Owner Participant contained or referred to in the Collateral
Trust Indenture, be declared or may become due and payable in the manner and
with the effect provided in the Collateral Trust Indenture.

        There shall be maintained at the Indenture Trustee Office a register for
the purpose of registering transfers and exchanges of Notes in the manner
provided in the Collateral Trust Indenture. The transfer of this Note is
registrable, as provided in the Collateral Trust Indenture, upon surrender of
this Note for registration of transfer duly accompanied by a written instrument
of transfer duly executed by or on behalf of the registered holder hereof,
together with the amount of any applicable transfer taxes.

        It is expressly understood and agreed by the holder of this Note that
(a) this Note is executed and delivered by General Foods Credit Corporation, not
individually or personally but solely as the managing member ("Managing
Member"), of PMCC Calpine NEIM LLC, the Owner Participant and the sole managing
member of the Owner Lessor, in the exercise of the powers and authority
conferred and vested in it pursuant thereto, (b) each of the undertakings and
agreements in this Note made on the part of the Owner Lessor is made and
intended not as personal undertakings and agreements by the Managing Member but
is made and intended for the purpose for binding only the Owner Lessor, (c)
nothing contained in this Note shall be construed as creating any liability on
the Managing Member individually or personally, to perform any covenant either
expressed or implied contained in this Note, all such liability, if any, being
expressly waived by the holder of this Note or by any Person claiming by,
through or under such holder, and (d) under no circumstances shall the Managing
Member, be personally liable for the payment of any indebtedness or expenses of
the Owner Lessor or be liable for the



                                        7
<PAGE>   79

breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Owner Lessor under this Note.

        This Note shall be governed by the laws of the State of New York.



                                        8
<PAGE>   80

        IN WITNESS WHEREOF, the Owner Lessor has caused this Note to be duly
executed as of the date hereof.

                                    PMCC CALPINE NEW ENGLAND
                                    INVESTMENT LLC,
                                    a Delaware limited liability company,

                                      By:  PMCC Calpine NEIM LLC,
                                           a Delaware limited liability company,
                                                                 Managing Member

                                      By:  General Foods Credit Corporation,
                                           a Delaware corporation,
                                           Managing Member



                                      By:
                                         ---------------------------------------
                                      Name:
                                      Title:



<PAGE>   81

        This is the Lessor Note referred to in the within-mentioned Collateral
Trust Indenture duly executed as of the date hereof.


                                         STATESTREET BANK AND TRUST
                                             COMPANY OF CONNECTICUT,
                                             NATIONAL ASSOCIATION,
                                             not in its individual capacity, but
                                             solely as the Indenture Trustee



                                      By:
                                         ---------------------------------------
                                         Name:
                                         Title:



<PAGE>   82

                             FORM OF TRANSFER NOTICE


        FOR VALUE RECEIVED the undersigned registered holder hereby sell(s)
assign(s) and transfer(s) unto


Insert Taxpayer Identification No.

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

----------------------------------
(Please print or typewrite name and address including zip code of assignee)

----------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing

----------------------------------
attorney to transfer said Note on the books of the Issuer with full power of
substitution in the premises.


Date:
      ----------------------       ---------------------------------------------
                                    (Signature of Transferor)

                                    NOTE: The signature to this assignment must
                                    correspond with the name as written upon the
                                    face of the within-mentioned instrument in
                                    every particular, without alteration or any
                                    change whatsoever.



<PAGE>   83

                                   SCHEDULE 1
                                     TO NOTE


                       Schedule Of Principal Amortization

                         Principal Portion: $176,000,000

<TABLE>
<CAPTION>
                                        Principal Amount Payable
     Payment Date                       (% of Principal Portion)
-----------------------------      ---------------------------------------
<S>                                <C>
Dec 19 2000                                                     0.00000000
Jul 15 2001                                                     0.00000000
Jan 15 2002                                                     0.00000000
Jul 15 2002                                                     0.00000000
Jan 15 2003                                                     0.00000000
Jul 15 2003                                                     0.00000000
Jan 15 2004                                                     0.00000000
Jul 15 2004                                                     0.66256831
Jan 15 2005                                                     0.00000000
Jul 15 2005                                                     0.00000000
Jan 15 2006                                                     0.00000000
Jul 15 2006                                                     2.96557377
Jan 15 2007                                                     0.00000000
Jul 15 2007                                                     2.48633880
Jan 15 2008                                                     1.95765027
Jul 15 2008                                                     0.00000000
Jan 15 2009                                                     2.54617486
Jul 15 2009                                                     0.00000000
Jan 15 2010                                                    49.18032787
Jul 15 2010                                                     0.00000000
Jan 15 2011                                                    13.74617486
Jul 15 2011                                                     0.00000000
Jan 15 2012                                                     7.85655738
Jul 15 2012                                                     0.00000000
Jan 15 2013                                                     3.75792350
Jul 15 2013                                                     0.00000000
Jan 15 2014                                                     4.21038251
Jul 15 2014                                                     0.00000000
Jan 15 2015                                                     4.10983607
Jul 15 2015                                                     0.00000000
Jan 15 2016                                                     5.10737705
Jul 15 2016                                                     0.00000000
Jan 15 2017                                                     0.86639344
Jul 15 2017                                                     0.00000000
Jan 15 2018                                                     0.00000000
Jul 15 2018                                                     0.54672131
</TABLE>



                                       B-1
<PAGE>   84

                                                                       EXHIBIT C
                                                                              TO
                                                                 LEASE INDENTURE


                      FORM OF CERTIFICATE OF AUTHENTICATION

                              Authentication Order



                                                               December 19, 2000


State Street Bank and Trust Company of Connecticut, National Association
225 Asylum Street
Goodwin Square
Hartford, Connecticut 06103

Re:  Preparation and Registration of Lessor Notes

Ladies and Gentlemen:

        Reference is made to the $366,000,000 in aggregate principal amount of
the 9.00% Pass Through Certificates due July 15, 2018 (the "Pass Through
Certificates") of the Tiverton and Rumford 2000 Pass Through Trust representing
undivided beneficial interests in $366,000,000 aggregate principal amount of
secured lease obligation notes (the "Lessor Notes") of PMCC Calpine New England
Investment LLC, a Delaware limited liability company (the "Owner Lessor"),
issued pursuant to the Indenture of Trust, Mortgage and Security Agreement,
dated as of December 19, 2000, between the Owner Lessor and State Street Bank
and Trust Company of Connecticut, National Association, as Indenture Trustee,
comprising $190,000,000 aggregate principal amount of Lessor Notes relating to
the Tiverton Generating Station and $176,000,000 aggregate principal amount of
Lessor Notes relating to the Rumford Generating Station.

        You are hereby directed to have the Lessor Notes prepared and registered
in the name of State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee (the "Pass Through Trustee") under the Pass
Through Trust Agreement, dated as of December 19, 2000, among Tiverton Power
Associates Limited Partnership, a Rhode Island limited partnership, Rumford
Power Associates Limited Partnership, a Maine limited partnership, and the Pass
Through Trustee, and to have the Lessor Notes delivered to the Pass Through
Trustee at 9:00 a.m., Eastern Standard Time, on December 19, 2000.



                            [CONTINUED ON NEXT PAGE]



                                       C-1
<PAGE>   85

                                            Very truly yours,

                                            PMCC CALPINE NEW ENGLAND
                                            INVESTMENT LLC

                                            By  PMCC Calpine NEIM LLC,
                                                its Sole Member



                                                By:
                                                   -----------------------------
                                                   Name:
                                                   Title:



                                        2
<PAGE>   86

                                                                     EXHIBIT D-1
                                                                              TO
                                                                 LEASE INDENTURE


                        DESCRIPTION OF TIVERTON FACILITY
                                  ATTACHMENT 2

                            REAL PROPERTY DESCRIPTION

        The Transferred Property is composed of all of Seller's right, title and
interest in, to and under the following property (excluding, in any event, the
Excluded Property):

        That certain approximately 265-megawatt net nameplate capacity gas-fired
combined cycle electric generating facility (known also as the "Tiverton
Facility") together with all structures or improvements, all alterations thereto
or replacements thereof, and all other fixtures, attachments, appliances,
equipment, machinery and other articles (hereinafter collectively referred to as
the "Transferred Property"), in each case located on the land situated in
Tiverton, Rhode Island., as described more particularly in Exhibit A attached
hereto (the "Tiverton Facility Site").

        The Transferred Property shall include, but not be limited to, the
following principal components of the Tiverton Facility:

        1.  One Combustion Turbine -- General Electric Model PG7241 (Serial No.
            297273)

        2.  One Combustion Turbine Generator -- General Electric Model 7FH2
            (Serial No. 337X705)

        3.  One Steam Turbine -- General Electric Model A-10 (Serial No.
            270T429)

        4.  One Steam Turbine Generator -- General Electric 7A6 (Serial No.
            290T429)

        5.  One Air Cooled Condenser -- GEA Power Cooling Systems, Inc. (Serial
            No. 98-306)

        6.  One Heat Recovery Steam Generator -- Nooter-Eriksen three pressure
            level with reheater, contains a selective catalytic reduction for
            NOx reduction. Nooter-Erikson Job No. 988730

        The Transferred Property shall include such improvements located on the
easements appurtenant to the Tiverton Facility Site to the extent such property
is owned by Seller.



                                       D-1
<PAGE>   87

                                  ATTACHMENT 2

                                excluded property

The property described below constitutes "Excluded Property":



                                        2
<PAGE>   88

THE FOLLOWING EQUIPMENT LOCATED ON, AT OR NEAR THE TIVERTON FACILITY SITE:

        CTG TRANSFORMER - FERRANTI-PACKARD TYPE OA/FA/FA (17 kV:115kV RATING)
SERIAL NO. CL 19343-10102

        STG TRANSFORMER - FERRANTI-PACKARD TYPE OA/FA/FA (13.6kV:115kV RATING)
SERIAL NO. CL 19344-10101

        AUXILIARY TRANSFORMER - WAUKESHA ELECTRIC SYSTEM CLASS OA/FFA (18kV:4160
VOLT RATING) SERIAL NO. 0951014R1259

        ALTERNATE SOURCE TRANSFORMER - VIRGINIA TRANSFORMER - CLASS OA/OA/FFA
(12kV:480 VOLT RATING) SERIAL NO. 4411500A076-9465A

THE FOLLOWING BUILDINGS LOCATED ON THE TIVERTON FACILITY SITE:

        ADMINISTRATION AND OPERATIONS BUILDING

THE FOLLOWING TANGIBLE PROPERTY ASSOCIATED WITH THE TIVERTON FACILITY:

        ANY AND ALL BOOKS AND RECORDS

THE TANGIBLE EQUIPMENT ASSOCIATED WITH THE TIVERTON FACILITY WHICH IS ORDINARILY
AND CUSTOMARILY REPLACED DURING THE LIFE OF THE FACILITY INCLUDING, BUT NOT
LIMITED TO:

        INVENTORIES

        SPARE PARTS

        VEHICLES

        MAINTENANCE EQUIPMENT

        OFFICE EQUIPMENT AND SUPPLIES

        COMPUTER EQUIPMENT AND SOFTWARE

        LABORATORY EQUIPMENT

        SAFETY EQUIPMENT

THE FOLLOWING INTANGIBLE PROPERTY ASSOCIATED WITH THE TIVERTON FACILITY
INCLUDING, BUT NOT LIMITED TO:

        BANK ACCOUNTS

        ACCOUNTING INTANGIBLES

        INTELLECTUAL PROPERTY



                                        3
<PAGE>   89

        CONTRACTS

        GOVERNMENT PERMITS



                                        4
<PAGE>   90

                                                                     EXHIBIT D-2
                                                                              TO
                                                                 LEASE INDENTURE


                         DESCRIPTION OF RUMFORD FACILITY


        That certain approximately 265-megawatt net nameplate capacity gas-fired
combined cycle electric generating facility (known also as the "Rumford
Facility") located at the westerly end of Industrial Park Road, and commonly
known as Lots 7, 8 and appurtenant easements thereto as shown on the Plan of
Rumford Industrial Park, together with all structures or improvements, all
alterations thereto or replacements thereof, and all other fixtures,
attachments, appliances, equipment, machinery and other articles, in each case
located on the land, or on the easements appurtenant to the land, situated in
the Town of Rumford, County of Oxford, State of Maine.



                                        5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12.5
<SEQUENCE>17
<FILENAME>f70293ex4-12_5.txt
<DESCRIPTION>EXHIBIT 4.12.5
<TEXT>

<PAGE>   1
                                                                  EXHIBIT 4.12.5



                                                                  EXECUTION COPY


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



               CALPINE GUARANTY AND PAYMENT AGREEMENT (TIVERTON)



                          Dated as of December 19, 2000



                                      among



                              CALPINE CORPORATION,

                                  as Guarantor,

                                       and

            PMCC Calpine New England Investment LLC, as Owner Lessor,



                  PMCC Calpine NEIM LLC, as Owner Participant,



          STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
                                  ASSOCIATION,
       not in its individual capacity but solely as Indenture Trustee, and

          STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
                                  ASSOCIATION,
       not in its individual capacity but solely as Pass Through Trustee,



                                as Beneficiaries



                           CALPINE NEW ENGLAND PROJECT



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

<PAGE>   2

EXHIBITS

Exhibit A      Equity Portion of Termination Value

Exhibit B      Debt Portion of Termination Value



                                       1

<PAGE>   3

                CALPINE GUARANTY AND PAYMENT AGREEMENT (TIVERTON)

               This CALPINE GUARANTY AND PAYMENT AGREEMENT (TIVERTON), dated as
of December 19, 2000 (the "Guaranty"), is entered into by and among Calpine
Corporation, a Delaware corporation, as guarantor (the "Guarantor"), PMCC
CALPINE NEW ENGLAND INVESTMENT LLC, a Delaware limited liability company, as
Owner Lessor, PMCC CALPINE NEIM LLC, a Delaware limited liability company, as
Owner Participant, STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION, not in its individual capacity but solely as Indenture Trustee and
STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, not in
its individual capacity but solely as Pass Through Trustee, and is issued by the
Guarantor in favor of the Beneficiaries (as defined in Section 4 below).

                                   WITNESSETH:

               WHEREAS, Tiverton Power Associates Limited Partnership (the
"Tiverton Lessee") is an indirect wholly-owned subsidiary of the Guarantor;

               WHEREAS, the Tiverton Lessee is a party to the Participation
Agreement dated as of December 19, 2000 (the "Participation Agreement"), among
the Tiverton Lessee, Rumford Power Associates Limited Partnership, PMCC Calpine
New England Investment LLC, as Owner Lessor, the Guarantor, PMCC Calpine NEIM
LLC, as Owner Participant, State Street Bank and Trust Company of Connecticut,
N.A., not in its individual capacity, except as expressly provided in the
Participation Agreement, but solely as Indenture Trustee and State Street Bank
and Trust Company of Connecticut, N.A., not in its individual capacity, except
as expressly provided in the Participation Agreement, but solely as Pass Through
Trustee;

               WHEREAS, the Tiverton Lessee and the Owner Lessor are entering
into the Tiverton Facility Lease, to be dated as of December 19, 2000 (as
amended, modified or supplemented from time to time pursuant to Section 14.24 of
the Participation Agreement, the "Tiverton Facility Lease"), providing for the
Owner Lessor's leasing of the Tiverton Facility to the Tiverton Lessee as
contemplated therein;

               WHEREAS, the Guarantor will obtain benefits as a result of the
Tiverton Lessee entering into the Tiverton Facility Lease and the other
transactions contemplated by the Participation Agreement; and

               WHEREAS, pursuant to Section 4.2 of the Participation Agreement,
this Guaranty is required to be provided by the Guarantor.

               NOW, THEREFORE, in consideration of the foregoing premises, the
mutual agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Guarantor
agrees as follows:



                                       1
<PAGE>   4

SECTION 1. DEFINITIONS

               (a) Capitalized terms used in this Guaranty, including the
recitals, and not otherwise defined herein shall have the respective meanings
set forth on Appendix A to the Participation Agreement, provided that if a term
that is defined in this Guaranty (the "Guaranty Definition") includes in such
definition a term that is defined in Appendix A to the Participation Agreement
(the "Appendix A Definition"), and the Appendix A Definition in turn includes in
such definition a term that is defined both in this Guaranty and in Appendix A
to the Participation Agreement (the "Embedded Definition"), then for purposes of
the Appendix A Definition as it is used in the Guaranty Definition and for
purposes of the Guaranty Definition, the Embedded Definition shall be used as
defined in this Guaranty and not as defined in Appendix A to the Participation
Agreement. Except as otherwise provided in the previous sentence, the Rules of
Interpretation set forth in Appendix A to the Participation Agreement shall
apply to the terms used in this Guaranty and specifically defined herein.

               (b) As used in this Guaranty, the following terms shall have the
respective meanings assigned thereto as follows:

                      "GAAP" means generally accepted accounting principals in
the United States of America as in effect and, to the extent optional, adopted
by the Guarantor, on the date of the Guaranty, consistently applied.

                      "Indebtedness" of any Person means, without duplication,
(i) the principal in respect of indebtedness of such Person for money borrowed
and; (ii) all Capitalized Lease Obligations of such Person; (iii) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) and (ii) above) entered into in the ordinary course
of business of such Person to the extent such letters of credit are not drawn
upon or, if and to the extent drawn upon, such drawing is reimbursed no later
than the tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (iv) all obligations
of the type referred to in clauses (i) through (iii) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise; and (v) all obligations of the type referred to in clauses (i)
through (iv) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation on any date of determination being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured. The amount of Indebtedness of any Person at any date shall be, with
respect to unconditional obligations, the outstanding balance at such date of
all such obligations as described above and, with respect to any contingent
obligations at such date, the maximum liability determined by such Person's
board of directors, in good faith, as, in light of the facts and circumstances
existing at the time, reasonably likely to be Incurred upon the occurrence of
the contingency giving rise to such obligation.



                                       2
<PAGE>   5

                      "Lien" means any mortgage, lien, pledge, charge, or other
security interest or encumbrance of any kind (including any conditional sale or
other title retention agreement and any lease in the nature thereof).

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

                      "Subsidiary" means, as applied to any Person, any
corporation, partnership, trust, association or other business entity of which
an aggregate of at least 50% of the outstanding Voting Shares or an equivalent
controlling interest therein, of such Person is, at the time, directly or
indirectly, owned by such Person and/or one or more Subsidiaries of such Person.

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


SECTION 2. GUARANTEED AND PAYMENT OBLIGATIONS

               Section 2.1. (a) The Guarantor hereby unconditionally and
irrevocably guarantees to the Beneficiaries (except that the obligations
referred to in clauses (1), (2) and (5)(A) (relating to clause (1) and clause
(2) amounts) are for the benefit only of the Owner Lessor and the Indenture
Trustee (as assignee of the Owner Lessor), as their interests may appear), as
primary obligor and not merely as a surety, the due, punctual and full payment
(when and as the same may become due and payable), and, as applicable,
performance by the Tiverton Lessee of all of the Tiverton Lessee's obligations
under the Tiverton Operative Documents to which it is a party if the same shall
not be performed when due pursuant to the Tiverton Operative Documents,
including, without limitation, but without duplication, (1) the Tiverton
Lessee's obligation to make Periodic Rent, Supplemental Rent and other payments
(in accordance with the terms of the Tiverton Operative Documents) to the Owner
Lessor, (2) the Tiverton Lessee's obligation to pay Termination Value (and
amounts computed by reference thereto) to the Owner Lessor and all other amounts
owed under the Operative Documents under and in accordance with the Tiverton
Facility Lease, (3) without duplication of the preceding clause (2), the
Tiverton Lessee's obligation to pay the Equity Portion of Periodic Rent and the
Equity Portion of Termination Value to the Owner Lessor, (4) the Tiverton
Lessee's obligation to make indemnity payments in accordance with the terms of
the Participation Agreement and the Tax Indemnity Agreement, (5) the Tiverton
Lessee's obligation, pursuant to Section 3.3 of the Tiverton Facility Lease, to
pay as Supplemental Rent an amount equal to (A) interest at the applicable
Overdue Rate on any amount under clauses (1), (2), (3), (4) and 5(B) of this
Section 2.1(a), not paid when due and (B) any Make-Whole Amount payable by the
Owner Lessor to the Certificateholders pursuant to the Participation Agreement,
the Tiverton Facility Lease or any other Tiverton Operative



                                       3
<PAGE>   6

Document to which the Tiverton Lessee is a party and (6) the Tiverton Lessee's
obligation to make any and all other payments, and perform all other covenants
and agreements, under and in accordance with the terms of the Tiverton Operative
Documents.

               (b) The Guarantor agrees that upon the occurrence and during the
continuance of a Lease Event of Default, it (1) shall pay to the Owner Lessor
the Equity Portion of Periodic Rent and the Equity Portion of Termination Value
as set forth in Exhibit A hereto, upon written demand by the Owner Lessor, such
demand to be at the times permitted by, and otherwise subject to, the provisions
of Section 5.6 of the Collateral Trust Indenture (so long as the Collateral
Trust Indenture is in effect at such time), and (2) shall pay to the Indenture
Trustee (as assignee of the Owner Lessor), upon written demand by the Indenture
Trustee (as assignee of the Owner Lessor), all other amounts constituting
Termination Value as set forth on Exhibit B hereto and Periodic Rent. Such
payment obligation shall be effective without reference to or requirement for
valuation of the Owner Lessor's Interest or any other security held by any
Person for performance of the Tiverton Lessee's obligations under the Tiverton
Facility Lease or any other Operative Documents. The Guarantor agrees that it
shall make such payment notwithstanding the fact that, pursuant to Section 17.1
of the Tiverton Facility Lease, such amounts might not otherwise be payable by
the Lessee. The Guarantor's obligations in this Section 2.1(b) are direct and
primary obligations (and not obligations of a guarantor or surety) of the
Guarantor to the Owner Lessor and the Indenture Trustee (as assignee of the
Owner Lessor), which shall not be affected in any way by the provisions of
Section 2.1(a) above or any payments under any other Operative Documents of any
amounts until the Owner Lessor and the Indenture Trustee (as assignee of the
Owner Lessor) have received full payment of such amounts.

               (c) The Guarantor acknowledges that notwithstanding the
provisions of the second sentence of Section 8.13 hereof (i) as and to the
extent provided in Section 5.6 of the Collateral Trust Indenture (A) upon the
occurrence and during the continuation of a Lease Event of Default, the
Indenture Trustee and the Owner Lessor may proceed against the Guarantor for the
payment of the Termination Value (including without limitation all amounts the
Guarantor is obligated to pay under Section 2.1(b) hereof under the
circumstances specified therein), (B) upon the occurrence and during the
continuation of a Lease Event of Default and the lapse of a period of 180 days
after the declaration thereof, the Owner Lessor shall have the right to claim
for and be paid to an account designated by it the amounts referred to in clause
(3) of paragraph (a) of this Section 2.1 and clause (1) of paragraph (b) of this
Section 2.1 (without duplication) (together with Overdue Interest on such
amounts) and (C) only the Owner Lessor is entitled to compromise or settle any
claim to the amounts referred to in clause (B) above; and unless so compromised
or settled by the Owner Lessor, such claim shall survive until such claim shall
be paid to the Owner Lessor in full; and (ii) payments made to the Indenture
Trustee under this Guaranty with respect to the Debt Portion of Termination
Value and the Equity Portion of Termination Value shall first be applied to
satisfy the indebtedness evidenced by the Lessor Notes before being applied to
satisfy any claim in respect of the amounts and Overdue Interest referred to in
the preceding clause (B).



                                       4
<PAGE>   7

               (d) Notwithstanding anything herein or in the Collateral Trust
Indenture to the contrary, in the event that an Indenture Event of Default that
is attributable to a Lease Event of Default has occurred and is continuing and
the Indenture Trustee (as assignee of the Owner Trustee) forecloses upon and
sells, assigns or otherwise transfers, its interest in this Guaranty pursuant to
the provisions of the Collateral Trust Indenture, the Guarantor shall remain
obligated hereunder to pay to the Owner Lessor an amount equal to the amounts
referred to in Section 2.1(a)(3) and Section 2.1(b)(1) (but without
duplication). Any purchaser, assignee or other transferee of the Indenture
Trustee's interest in this Guaranty shall have a claim pursuant to Section
2.1(a)(1) and (2) and Section 2.1(b)(2) of the Guaranty for the Debt Portion of
Termination Value (Tiverton) and the Debt Portion of Periodic Rent (Tiverton),
but not a claim for the Equity Portion of Termination Value (Tiverton) and the
Equity Portion of Periodic Rent (Tiverton).

               Section 2.2. In the case of any failure by the Tiverton Lessee to
perform and observe any term, provision or condition referred to in Section
2.1(a) when due pursuant to the Operative Documents, the Guarantor agrees to
cause such performance or observance to be done, and in the case of any failure
by the Tiverton Lessee to make such payment as and when the same shall become
due and payable (by acceleration or otherwise), the Guarantor hereby agrees to
make such payment (and, in addition, such further amounts, if any, as shall be
sufficient to cover the costs and expenses of collection hereunder) as and when
such payment is due and payable.

               All obligations and indebtedness set forth in Section 2.1 above,
this Section 2.2, and in Section 8.15 below are referred to in this Guaranty as
the "Obligations (Tiverton)."

               Section 2.3. The obligations of the Guarantor contained herein
are direct, independent, and primary obligations of the Guarantor and are
absolute, present, unconditional and continuing obligations and are not
conditioned in any way upon the institution of suit or the taking of any other
action or any attempt to enforce performance of or compliance with the
obligations, covenants or undertakings (including any payment obligations) of
the Tiverton Lessee and shall constitute a guaranty of, and agreement with
respect to, payment and performance and not a guaranty of collection, binding
upon the Guarantor and its successors and assigns and shall remain in full force
and effect and irrevocable without regard to the genuineness, validity, legality
or enforceability of the Participation Agreement, the Tiverton Facility Lease,
the Tax Indemnity Agreement or any other agreement (including any other Tiverton
Operative Document) or the lack of power or authority of the Tiverton Lessee to
enter into any of the Participation Agreement, the Tiverton Facility Lease, the
Tax Indemnity Agreement or any other agreement (including any other Tiverton
Operative Document) to which the Tiverton Lessee is a party, or any
substitution, release or exchange of any other guaranty of, or agreement with
respect to, or any other security for, any of the Obligations (Tiverton)
(including any settlement, compromise or other adjustment with respect to the
Obligations (Tiverton)) or any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor and shall not be subject to any right of set-off, recoupment or
counterclaim and is in no way



                                       5
<PAGE>   8

conditioned or contingent upon any attempt to collect from the Tiverton Lessee
or any other entity or to perfect or enforce any security or upon any other
condition or contingency or upon any other action, occurrence or circumstance
whatsoever. Without limiting the generality of the foregoing, the Guarantor
shall have no right to terminate this Guaranty, or to be released, relieved or
discharged from its obligations hereunder, other than upon full payment and
satisfaction and performance of all of the Obligations (Tiverton) (subject to
Section 8.14 hereof), and such obligations shall be neither affected nor
diminished for any other reason whatsoever, including (i) any amendment or
supplement to or modification of any of the Participation Agreement, the
Tiverton Facility Lease, the Tax Indemnity Agreement or any other agreement
(including any other Tiverton Operative Document) to which the Tiverton Lessee
is a party, any release, extension or renewal of the Tiverton Lessee's
obligations under any of the Participation Agreement, the Tiverton Facility
Lease, the Tax Indemnity Agreement or any other agreement (including any other
Tiverton Operative Document) to which the Tiverton Lessee is a party or by which
it is bound, including, without limitation, any actions taken by the Indenture
Trustee pursuant to the Collateral Trust Indenture, or any subletting,
assignment or transfer of the Tiverton Lessee's or any Beneficiary's interest in
the Participation Agreement, the Tiverton Facility Lease or any other Tiverton
Operative Document in accordance with the terms thereof, (ii) any bankruptcy,
insolvency, readjustment, composition, liquidation or similar proceeding with
respect to the Tiverton Lessee, Owner Lessor, Owner Participant or any other
Person, including, without limitation, termination of the Tiverton Facility
Lease and the operation of Section 502(b)(6) of the Bankruptcy Code in
connection therewith, (iii) any furnishing or acceptance of additional security
or any exchange, substitution, surrender or release of any security, (iv) any
waiver, consent or other action or inaction or any exercise or nonexercise of
any right, remedy or power with respect to the Obligations (Tiverton) (including
any settlement, compromise or other adjustment with respect to the Obligations
(Tiverton)) or any of the Participation Agreement, the Tiverton Facility Lease,
the Tax Indemnity Agreement or any other agreement (including any Tiverton
Operative Document) to which the Tiverton Lessee is a party, (v) without
limiting Section 3.6(b) hereof, any merger or consolidation of the Tiverton
Lessee or the Guarantor into or with any other Person, or any sale, assignment,
conveyance, lease, transfer or other disposition of all or substantially all of
the assets or properties of the Tiverton Lessee or the Guarantor, or any change
in the structure of the Tiverton Lessee or in the ownership of the Tiverton
Lessee by the Guarantor, (vi) any default, misrepresentation, negligence,
misconduct or other action or inaction of any kind by any Beneficiary, the
Indenture Trustee or any other Person under or in connection with any Tiverton
Operative Document or any other agreement relating to this Guaranty, (vii) any
action or inaction by any Beneficiary as contemplated in Section 5 of this
Guaranty; (viii) any invalidity, irregularity or unenforceability of all or part
of the Obligations (Tiverton) or of any security therefor; (ix) any change in
the manner, place, timing or schedule of payment or performance of, or in any
other term of, all or any of the Obligations (Tiverton); (x) whether the
Guarantor is related or unrelated to the Tiverton Lessee, (xi) the assignment by
the Owner Lessor of its rights and interests hereunder, under the Tiverton
Facility Lease or under any other Tiverton Operative Document in accordance with
the Tiverton Operative Documents (or the genuineness, validity, legality or



                                       6
<PAGE>   9

enforceability of the obligations of the Owner Lessor under the Collateral Trust
Indenture) and (xii) any other circumstance whatsoever.

SECTION 3. GUARANTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS

               Section 3.1. The Guarantor represents and warrants, as of the
date hereof:

               (i) The Guarantor is duly organized, validly existing and in good
        standing under the laws of the State of Delaware and has full power,
        authority and the legal right to execute, deliver and perform the terms
        of this Guaranty and each Operative Document to which it is a party
        (together, the "Calpine Documents").

               (ii) The execution, delivery and performance by the Guarantor of
        the Calpine Documents have been duly authorized by all necessary
        corporate action. The Calpine Documents constitute legal, valid and
        binding obligations of the Guarantor enforceable against the Guarantor
        in accordance with their respective terms, except as such enforcement
        may be affected by applicable bankruptcy, insolvency, moratorium and
        other similar laws affecting creditors' rights generally and by general
        principles of equity.

               (iii) The execution, delivery and performance of the Calpine
        Documents will not (a) contravene any provision of law, rule or
        regulation to which the Guarantor is subject or any judgment, decree or
        order applicable to the Guarantor, (b) conflict or be inconsistent with
        or result in any breach of any terms, covenants, conditions or
        provisions of, or constitute a default under, or result in the creation
        or imposition of (or the obligation to create or impose) any Lien or
        other encumbrance upon any of the property or assets of the Guarantor
        pursuant to the terms of any agreement or other instrument to which the
        Guarantor is a party or by which it or its property is bound or to which
        it or its property may be subject, in each case the violation of which
        would have a material adverse effect on the business, operations,
        prospects, properties or assets, or in the condition, financial or
        otherwise, of the Guarantor, or (c) violate or contravene any provision
        of the articles of incorporation or by-laws of the Guarantor.

               (iv) No pending or, to the knowledge of the Guarantor, threatened
        action, suit, investigation or proceedings against the Guarantor before
        any Governmental Entity exists which, if determined adversely to the
        Guarantor, would materially adversely affect the business, operations,
        prospects, properties or assets, or in its condition, financial or
        otherwise, or the Guarantor's ability to perform its obligations under
        the Calpine Documents.

               (v) No consent from, authorization or approval or other action
        by, and no notice to or filing with, any Person is required for the
        execution, delivery and



                                       7
<PAGE>   10

        performance by the Guarantor of the Calpine Documents except those which
        have been given and remain in full force and effect.

               (vi) The Tiverton Lessee is an indirect, wholly owned subsidiary
        of the Guarantor.

               (vii) The Guarantor is not an "investment company" or a company
        controlled by an "investment company" within the meaning of the
        Investment Company Act of 1940.

               (viii) The Guarantor is not in default with respect to any
        judgment, order, writ, injunction, decree, award, rule or regulation of
        any court, arbitrator or governmental department, commission, board,
        bureau, agency or instrumentality, domestic or foreign, which, either,
        separately or in the aggregate, would result in any material adverse
        change in any of its businesses, operations, prospects or assets, or in
        its condition, financial or otherwise, or its ability to perform its
        obligations under the Calpine Documents.

               (ix) The Guarantor is not a party to any agreement or instrument,
        or subject to any corporate restriction or any judgment, order, writ,
        injunction, decree, award, rule or regulation, which materially
        adversely affects, or in the future may materially adversely affect, its
        business, operations, prospects, properties or assets, or conditions,
        financial or otherwise, or its ability to perform its obligations the
        Calpine Documents.

               (x) The audited financial statements of the Guarantor and its
        Consolidated Subsidiaries, as at December 31, 1999, reported on by
        Arthur Andersen LLP, copies of which have been delivered to the
        Indenture Trustee, the Pass Through Trustee, the Certificateholders and
        the Owner Participant, are true, complete and correct and fairly present
        the financial condition of the Guarantor and its Consolidated
        Subsidiaries as of the date thereof. The financial statements have been
        prepared in accordance with GAAP. The Guarantor and its Consolidated
        Subsidiaries do not have any material liabilities, direct or contingent,
        except (a) as are disclosed in such financial statements or (b) as arise
        under the Operative Documents. There has been no material adverse change
        in the financial condition of the Guarantor and its Consolidated
        Subsidiaries since the date of the audited financial statements referred
        to above.

               (xi) All factual information relating to the Guarantor (taken as
        a whole) heretofore or contemporaneously furnished by or on behalf of
        the Guarantor in writing to the Owner Lessor, the Owner Participant, the
        Indenture Trustee, the Pass Through Trustee or the Certificateholders
        (including, without limitation, all such information contained herein,
        in the Participation Agreement and in any preliminary or final offering
        circular distributed in accordance with the terms of the Tiverton
        Operative Documents) for purposes of or in connection with the Calpine
        Documents or any transaction contemplated therein is true and accurate
        in all material respects on the date as of which such information is
        dated or



                                       8
<PAGE>   11

        certified and not incomplete by omitting to state any fact necessary to
        make such information relating to the Guarantor (taken as a whole) not
        misleading in any material respect at such time in light of the
        circumstances under which such information was provided; provided, that
        no representation or warranty is made with regard to (i) any projections
        or other forward-looking statements provided by or on behalf of the
        Guarantor, or (ii) the descriptions of the Tiverton Operative Documents
        or the tax consequences to beneficial owners of Certificates; provided,
        however, each of the Beneficiaries acknowledges and agrees that (i)
        Calpine has heretofore provided to the Appraiser, solely in order to
        assist the Appraiser in connection with the preparation of the appraisal
        to be delivered by the Appraiser to certain of the Transaction Parties
        at the Closing, certain (1) general market information, (2) information
        about the Maine and Rhode Island energy markets and (3) information
        passed along from other Persons and (ii) that neither of the Facility
        Lessees makes any representation or warranty whatsoever with respect to
        the information described in clause (i) above except to the extent
        expressly set forth in Section 4(b) of the Tax Indemnity Agreement.

               (xii) The Guarantor is in compliance with all applicable
        statutes, regulations and orders of, and all applicable restrictions
        imposed by, all governmental bodies, domestic or foreign, in respect of
        the conduct of its business and the ownership of its property (including
        applicable statutes, regulations, orders and restrictions relating to
        environmental standards and controls), except such noncompliance as
        would not, in the aggregate, have a material adverse effect on the
        business, operations, property, assets or condition (financial or
        otherwise) of the Guarantor, or the Guarantor's ability to perform its
        obligations under the Calpine Documents.

               (xiii) The Guarantor has filed all tax returns and reports
        required by law to have been filed by it and has paid all taxes and
        governmental charges thereby shown to be owing (other than any such
        taxes or charges which are being diligently contested in good faith by
        appropriate proceedings and for which adequate reserves in accordance
        with GAAP shall have been set aside on its books), except such
        non-filing or non-payment, as the case may be, as would not, in the
        aggregate, have a material adverse effect on the business, operations,
        property, assets or condition (financial or otherwise) of the Guarantor.

               (xiv) No default has occurred under this Guaranty, which default
        would reasonably be expected to result in a material adverse effect on
        the business, operations, assets or condition (financial or otherwise)
        of the Guarantor.

               (xv) In accordance with Section 8.12 hereof and Section 14.04 of
        the Participation Agreement, the Guarantor has validly submitted to the
        jurisdiction of the Supreme Court of the State of New York, New York
        County and the United States District Court for the Southern District of
        New York.



                                       9
<PAGE>   12

               Section 3.2. The Guarantor covenants and agrees that on and after
the date hereof and until this Guaranty is terminated pursuant to the terms
hereof the Guarantor shall:

               (a) file with the Owner Participant and the Indenture Trustee,
within 15 days after the filing with the SEC, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Guarantor is required to file with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act. In the event the Guarantor is at any time no longer subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, it
shall file with the Owner Participant, and for so long as the Certificates
remain outstanding, the Indenture Trustee and the Pass Through Trustee, within
15 days after the Guarantor would have been required to file such documents with
the SEC, copies of the annual reports and of the information, documents and
other reports which the Guarantor would have been required to file with the SEC
if the Guarantor had continued to be subject to such Sections 13 or 15(d).
Delivery of such reports, information and documents to the Owner Participant,
the Indenture Trustee and the Pass Through Trustee is for informational purposes
only and their receipt of the same shall not constitute constructive notice of
any information contained therein or determinable from information contained
therein, including the Guarantor's compliance with any of its covenants
hereunder (as to which the Owner Participant, the Indenture Trustee and the Pass
Through Trustee are entitled to rely exclusively on Officers' Certificates);

               (b) furnish to the Beneficiaries, promptly upon the Guarantor
obtaining Actual Knowledge of any action, suit or proceeding pending or
threatened against the Guarantor before any court or before any governmental
department, commission or agency or any arbitrator, which in the Guarantor's
good faith opinion would reasonably be likely to result in a material adverse
effect on the business, operations, property, assets or condition (financial or
otherwise) of the Guarantor, a certificate of a senior officer specifying the
nature of such action, suit or proceeding and the proposed response of the
Guarantor thereto;

               (c) furnish to the Beneficiaries, as soon as possible and in any
event within three days after the Guarantor obtains Actual Knowledge of default
by the Guarantor of any of its material obligations under this Guaranty, a
statement of an authorized officer of the Guarantor setting forth details of
such default and the action which the Guarantor has taken and proposes to take
with respect thereto. Notwithstanding the foregoing provision in this clause
(c), the Guarantor shall, within 120 days after the close of each fiscal year of
the Guarantor in which Certificates are outstanding hereunder, file with the
Owner Participant, and if the Certificates are outstanding during any part of
such fiscal year, the Indenture Trustee and the Pass Through Trustee, an
Officer's Certificate, provided that one Officer executing the same shall be the
principal executive officer, the principal financial officer or the principal
accounting officer of the Guarantor, covering the period from the date hereof to
the end of the fiscal year in which this Guaranty was executed and delivered by
the Guarantor, in the case of the first such certificate, and covering the
preceding fiscal year in the case of each subsequent certificate, and stating
whether or not, to the Actual Knowledge of each



                                       10
<PAGE>   13

such executing Officer, the Guarantor has complied with and performed and
fulfilled all covenants on its part contained in this Guaranty and is not in
Default in the performance or observance of any of the terms or provisions
contained in this Guaranty, and, if any such signer has obtained Actual
Knowledge of any Default by the Guarantor in the performance, observance or
fulfillment of any such covenant, terms or provision specifying each such
Default and the nature thereof; and

               (d) promptly furnish to the Owner Participant, the Owner Lessor,
the Indenture Trustee or the Pass Through Trustee such other information as the
Owner Lessor, Owner Participant, the Indenture Trustee and the Pass Through
Trustee may from time to time reasonably request with respect to the Guarantor.

        So long as the Indenture Trustee is also serving as the Pass Through
Trustee, delivery to the Indenture Trustee shall satisfy the Guarantor's
obligation to furnish information to the Pass Through Trustee under this Section
3.2.

               Section 3.3. The Guarantor covenants and agrees that it will not
transfer or assign or cause to be transferred or assigned the Ownership Interest
in the Tiverton Lessee to any other Person, without the prior written consent of
the Owner Lessor, the Owner Participant and, so long as the Lien of the
Collateral Trust Indenture has not been terminated or discharged, the Indenture
Trustee and the Pass Through Trustee (it being agreed and understood that a
consolidation with or merger of the Guarantor into, or a sale by the Guarantor
of all or substantially all of its assets to, another Person in accordance with
Section 3.6 hereof shall not be deemed to be a transfer or assignment of the
Ownership Interest in the Tiverton Lessee for the purposes of this Section),
except as permitted in this Section 3.3 or in Section 8.4 hereof.
Notwithstanding the foregoing, and subject to Section 8.4 below, so long as this
Guaranty remains in full force and effect, the Guarantor may transfer a portion
of the Ownership Interest in the Tiverton Lessee (provided that following such
transfer the Guarantor shall continue to own at least a majority of the
Ownership Interest in the Tiverton Lessee, as well as at least a majority of the
Ownership Interest in the Rumford Lessee) without the consent of the Owner
Lessor, the Owner Participant, the Indenture Trustee, the Pass Through Trustee
or any other Transaction Party if the following conditions have been satisfied:

               (i) the Owner Lessor, the Owner Participant and, so long as the
        Lien of the Collateral Trust Indenture shall not have been terminated or
        discharged, the Indenture Trustee and the Pass Through Trustee shall
        have received an Opinion of Counsel to the effect that all regulatory
        approvals required in connection with such transfer have been obtained;

               (ii) all the obligations of the Tiverton Lessee under the
        Tiverton Operative Documents shall remain in full force and effect, the
        Guarantor shall reaffirm in writing all of its obligations hereunder in
        a manner reasonably satisfactory to the Owner Participant, such
        obligations of the Guarantor shall remain in full force and effect;



                                       11
<PAGE>   14

               (iii) no Significant Lease Default or Lease Event of Default
        shall have occurred and be continuing at the time of or immediately
        following such transfer;

               (iv) the transfer shall not subject the Tiverton Lessee, the
        Rumford Lessee, the Owner Participant, the Owner Lessor, the Indenture
        Trustee, the Pass Through Trustee or any Certificateholder to regulation
        under PUHCA or state laws and regulations regarding the rate and
        financial or organizational regulation of electric utilities in the
        affected party's reasonable opinion, nor result in a Regulatory Event of
        Loss; and

               (v) the Tiverton Lessee shall have paid, at no after-tax cost to
        such parties, all reasonable and documented out-of-pocket expenses
        (including reasonable attorneys' fees and expenses) of the Owner Lessor,
        the Owner Participant, the Indenture Trustee, the Lease Indenture
        Company and the Pass Through Trustee in connection with such assignment.

               Section 3.4. Subject to Section 4, the Guarantor shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction unless (i) the Guarantor or such Restricted Subsidiary would be
entitled to create a Lien on such property securing Indebtedness in an amount
equal to the Attributable Debt with respect to such transaction without equally
and ratably securing the Obligations (Tiverton) pursuant to Section 3.5 or (ii)
the net proceeds of such sale are at least equal to the fair value (as
determined by the Board of Directors) of such property or asset and the
Guarantor or such Restricted Subsidiary shall apply or cause to be applied an
amount in cash equal to the net proceeds of such sale to the retirement, within
180 days of the effective date of any such arrangement, of Indebtedness of the
Guarantor or any Restricted Subsidiary; provided, however, that in addition to
the transactions permitted pursuant to the foregoing clauses (i) and (ii), the
Guarantor or any Restricted Subsidiary may enter into a Sale/Leaseback
Transaction as long as the sum of (x) the Attributable Debt with respect to such
Sale/Leaseback Transaction and all other Sale/Leaseback Transactions entered
into pursuant to this proviso plus (y) the amount of outstanding Indebtedness
secured by Liens Incurred pursuant to the final proviso to Section 3.5 does not
exceed 15% of Consolidated Net Tangible Assets as determined based on the
consolidated balance sheet of the Guarantor as of the end of the most recent
fiscal quarter for which financial statements are available; and provided,
further, that a Restricted Subsidiary may enter into a Sale/Leaseback
Transaction with respect to property or assets owned by such Restricted
Subsidiary, the proceeds of which are used to explore, drill, develop,
construct, purchase, repair, improve or add to property or assets of any
Restricted Subsidiary, or to repay (within 365 days of the commencement of full
commercial operation of any such property) Indebtedness Incurred to explore,
drill, develop, construct, purchase, repair, improve or add to property or
assets of any Restricted Subsidiary.

               Section 3.5. Subject to Section 4, the Guarantor shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, incur any
Lien on any of its properties or assets (including Capital Stock), whether owned
at the date hereof or thereafter acquired, in each case to secure Indebtedness
of the Guarantor or any



                                       12
<PAGE>   15

Restricted Subsidiary, other than (a)(1) Liens incurred by the Guarantor or any
Restricted Subsidiary securing Indebtedness Incurred by the Guarantor or such
Restricted Subsidiary, as the case may be, to finance the exploration, drilling,
development, construction or purchase of or by, or repairs, improvements or
additions to, property or assets of the Guarantor or such Restricted Subsidiary,
as the case may be, which Liens may include Liens on the Capital Stock of such
Restricted Subsidiary or (2) Liens incurred by any Restricted Subsidiary that
does not own, directly or indirectly, at the time of such original incurrence of
such Lien under this clause (2) any operating properties or assets, securing
Indebtedness Incurred to finance the exploration, drilling, development,
construction or purchase of or by, or repairs, improvements or additions to,
property or assets of any Restricted Subsidiary that does not, directly or
indirectly, own any operating properties or assets at the time of such original
incurrence of such Lien, which Liens may include Liens on the Capital Stock of
one or more Restricted Subsidiaries that do not, directly or indirectly, own any
operating properties or assets at the time of such original incurrence of such
Lien, provided, however, that the Indebtedness secured by any such Lien may not
be issued more than 365 days after the later of the exploration, drilling,
development, completion of construction, purchase, repair, improvement, addition
or commencement of full commercial operation of the property or assets being so
financed; (b) Liens existing on the date hereof (other than Liens relating to
Indebtedness or other obligations being repaid or Liens that are otherwise
extinguished with the proceeds of the offering of the Certificates); (c) Liens
on property, assets or shares of stock of a Person at the time such Person
becomes a Subsidiary; provided, however, that any such Lien may not extend to
any other property or assets owned by the Guarantor or any Restricted
Subsidiary; (d) Liens on property or assets at the time the Guarantor or a
Subsidiary acquires the property or asset, including any acquisition by means of
a merger or consolidation with or into the Guarantor or a Subsidiary; provided,
however, that such Liens are not incurred in connection with, or in
contemplation of, such merger or consolidation; and provided, further, that the
Lien may not extend to any other property or asset owned by the Guarantor or any
Restricted Subsidiary; (e) Liens securing Indebtedness or other obligations of a
Subsidiary owing to the Guarantor or a Restricted Subsidiary or of the Guarantor
owing to a Subsidiary; (f) Liens incurred on assets that are the subject of a
Capitalized Lease Obligation to which the Guarantor or a Subsidiary is a party,
which shall include, Liens on the stock or other ownership interest in one or
more Restricted Subsidiaries leasing such assets; (g) Liens to secure any
refinancing, refunding, extension, renewal or replacement (or successive
refinancings, refundings, extensions, renewals or replacements) as a whole, or
in part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (a), (b), (c), (d) and (f), provided, however, that (x) such new Lien
shall be limited to all or part of the same property or assets that secured the
original Lien (plus repairs, improvements or additions to such property or
assets and Liens on the stock or other ownership interest in one or more
Restricted Subsidiaries beneficially owning such property or assets) and (y) the
amount of the Indebtedness secured by such Lien at such time (or, if the amount
that may be realized in respect of such Lien is limited, by contract or
otherwise, such limited lesser amount) is not increased (other than by an amount
necessary to pay fees and expenses, including premiums, related to the
refinancing, refunding, extension, renewal or replacement of such Indebtedness);
and (h) Liens by which the Obligations (Tiverton) are



                                       13
<PAGE>   16

secured equally and ratably with other Indebtedness pursuant to this Section
3.5; in any such case without effectively providing that the Obligations
(Tiverton) shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured; provided,
however, that the Guarantor or a Restricted Subsidiary may Incur other Liens to
secure outstanding Indebtedness as long as the sum of (x) the lesser of (A) the
amount of outstanding Indebtedness secured by Liens Incurred pursuant to this
proviso (or, if the amount that may be realized in respect of such Lien is
limited, by contract or otherwise, such limited lesser amount) and (B) the fair
value (as determined by the Board of Directors) of the property securing such
item of Indebtedness, plus (y) the Attributable Debt with respect to all
Sale/Leaseback Transactions entered into pursuant to the first proviso to
Section 3.4 does not exceed 15% of Consolidated Net Tangible Assets as
determined based on the Consolidated balance sheet of the Guarantor as of the
end of the most recent fiscal quarter for which financial statements are
available.

               Section 3.6. (a) The Guarantor covenants and agrees that it shall
not consolidate or merge with or into any other Person, or sell, assign, convey,
lease, transfer or otherwise dispose of, all or substantially all of its
properties or assets to any Person or Persons in one or a series of
transactions, unless immediately after giving effect to such transaction,

               (i) no Significant Lease Default or Lease Event of Default shall
        have occurred and be continuing;

               (ii) either (A) the Guarantor shall be the continuing Person, or
        (B) the Person (if other than the Guarantor) formed by such
        consolidation or into which the Guarantor is merged or to which the
        properties and assets of the Guarantor are sold, assigned, conveyed,
        transferred, disposed of or leased as aforesaid shall be an entity
        organized and existing under the laws of the United States or any State
        thereof or the District of Columbia and shall execute and deliver to the
        Owner Participant, the Owner Lessor and, so long as the Lien of the
        Collateral Trust Indenture shall not have been terminated or discharged,
        the Indenture Trustee and the Pass Through Trustee, a Guarantor's
        Assignment and Assumption Agreement; and

               (iii) each of the Owner Participant, the Owner Lessor and, so
        long as the Lien of the Collateral Trust Indenture shall not have been
        terminated or discharged, the Indenture Trustee and the Pass Through
        Trustee shall have received an Officer's Certificate of the Guarantor,
        the surviving entity or the transferee, as the case may be, in form and
        substance reasonably satisfactory to each of such parties, stating that
        the proposed merger, consolidation, assignment, conveyance, transfer,
        disposition, lease or sale, and the Guarantor Assignment and Assumption
        Agreement complies with the terms of this Section 3(a) and, as to legal
        matters, an Opinion of Counsel; and

               (iv) In addition to the conditions set forth in clauses (i)
        through (iii) above, the Guarantor, subject to Section 4, will not
        consummate any such



                                       14
<PAGE>   17

        consolidation, merger or sale of all or substantially all of its
        properties or assets unless the long-term unsecured debt of the
        resulting, surviving or succeeding entity shall have a credit rating
        assigned by the Rating Agencies that is not less than the lower of (x)
        the credit rating of the long-term unsecured debt of the Guarantor
        assigned by the Rating Agencies immediately prior to such transaction
        and (y) a credit rating of the long-term unsecured debt of the
        resulting, surviving or succeeding entity assigned by the Rating
        Agencies that is Investment Grade; provided however, the foregoing
        credit rating condition set forth in this paragraph may be waived by the
        Owner Participant in its sole discretion, and provided further, that if
        such credit rating condition is not otherwise satisfied, or waived by
        the Owner Participant, the Guarantor, the surviving entity or the
        transferee, as the case may be, may provide (and maintain in accordance
        with the provisions of Section 5.46(vi)(b) through (k) of the
        Participation Agreement (with appropriate conforming changes)) in the
        alternative, either (A) a Qualifying Letter of Credit from a Qualifying
        Letter of Credit Bank with at least an A rating from S&P and A2 rating
        from Moody's covering the Equity Portion of Termination Value from time
        to time throughout the Lease Term, or (B) if the long-term unsecured
        debt of the surviving entity or the transferee, as the case may be, has
        a credit rating assigned by the Rating Agencies at least equal to that
        of Calpine at Closing, a Qualifying Letter of Credit from a Qualifying
        Letter of Credit Bank with at least an A rating from S&P and A2 from
        Moody's covering fifty percent (50%) of the Equity Portion of
        Termination Value from time to time throughout the Lease Term or (C)
        alternative or additional credit support arrangements which result in
        the satisfaction of the rating condition in either clause (x) or clause
        (y) above, provided that such arrangements contemplated in this
        sub-clause (C) are satisfactory to the Owner Participant and result in
        the satisfaction of such rating condition.

               (b) Upon the consummation of such transaction described in
Section 3.6(a), the resulting, surviving or succeeding entity, if other than the
Guarantor, shall succeed to, and be substituted for, and may exercise every
right and power and shall perform every obligation of, the Guarantor under this
Guaranty and each other Calpine Document, and from and after the effective date
and time of the consummation of such transfer, the Guarantor shall be released
from all obligations accruing hereunder other than those accruing prior to such
effective date and time.

               Section 3.7. The Guarantor shall, together with each payment it
makes hereunder, provide a written notice to each Beneficiary or Beneficiaries
which are the intended recipients of such payment of the amount payable to each
such Beneficiary and the Tiverton Operative Document(s) with respect to which
such payment is being made.

SECTION 4. BENEFICIARIES; TERMINATION OF CERTAIN COVENANTS

               The Owner Participant, the Owner Lessor, the Trust Company (but
only to the extent indemnified under the Participation Agreement) and, so long
as the Lien of the Collateral Trust Indenture has not been terminated or
discharged, the Indenture Trustee and the Lease Indenture Company, and (but only
to the extent expressly referred to



                                       15
<PAGE>   18

herein, and with respect to Section 3.2(a) hereof and with respect to the
obligations of the Tiverton Lessee under the Participation Agreement) the Pass
Through Trustee (for the benefit of the Certificateholders) and the Pass Through
Company, in each case, together with their respective permitted successors and
assigns (and with respect to clause (ii) below, the other related Persons
referred to therein), are each beneficiaries of this Guaranty (each a
"Beneficiary" or, together, the "Beneficiaries"); provided that, notwithstanding
the foregoing or any other provision of this Guaranty, (i) the Owner Participant
shall be the sole and exclusive beneficiary of, and shall have the sole right to
enforce, (A) clause (iv) of Section 3.6(a) hereof, (B) clause (4) of Section
2.1(a) hereof to the extent relating to the Tiverton Lessee's indemnity
obligation under the Tax Indemnity Agreement, (ii) to the extent that the
Tiverton Lessee is obligated to indemnify a particular Beneficiary (or any
Affiliate, agent director, officer, or employee thereof) in accordance with
Section 9 of the Participation Agreement, then such Beneficiary (or such
Affiliate, agent, director, officer or employee) shall be the sole and exclusive
beneficiary of, and shall have the sole right to enforce, the Guarantor's
guaranty of, and agreement with respect to, such indemnification obligation
hereunder, (iii) the Owner Lessor shall be the sole and exclusive beneficiary
of, and shall have the sole right to enforce clause (B) of Section 2.1(c) hereof
and the fourth sentence of Section 2.1(b) hereof, and (iv) the Indenture
Trustee, the Lease Indenture Company, the Pass Through Trustee and the Pass
Through Company shall be the sole and exclusive beneficiaries of the provisions
of Section 3.4 and Section 3.5 hereof; provided however, with respect to this
clause (iii), once the Certificates shall have been paid in full, the covenants
set forth in Section 3.4 and Section 3.5 hereof shall, subject to the
immediately following sentence, immediately and without any further action
terminate and be of no further force or effect. Any amendment, waiver or
modification of or supplement to Section 3.4 or Section 3.5 which is consented
to by the Indenture Trustee shall be binding upon the Owner Lessor and the Owner
Participant. Notwithstanding the foregoing or anything herein or in any of the
Tiverton Operative Documents to the contrary, if the Owner Lessor shall have
issued additional Lease Debt at the request of the Tiverton Lessee in accordance
with Section 11 of the Participation Agreement prior to, simultaneously with, or
after payment in full of the Certificates and such new Lease Debt is outstanding
on or after the date the Certificates are paid in full, the covenants set forth
in Section 3.4 and Section 3.5 shall, to the extent required by the terms of
such new Lease Debt, remain in effect or thereafter become effective if not then
in effect, but shall be for the sole and exclusive benefit of, and enforceable
solely by, the holder of such new Lease Debt. Upon repayment of such new Lease
Debt, or compliance with the terms thereof, the covenants set forth in Section
3.4 and Section 3.5 shall immediately and without further action terminate and
be of no further force and effect. Notwithstanding any of the preceding
provisions, a breach of Sections 3.4 or 3.5 under this Guaranty at such time as
such breach shall have become an "Event of Default" under Section 7.1 shall
constitute a Lease Event of Default under the circumstances provided in, and to
the extent set forth in, the Tiverton Facility Lease.

SECTION 5. BENEFICIARIES' RIGHTS

               Each Beneficiary may at any time and from time to time without
the consent of, or notice to the Guarantor, without incurring responsibility to
the Guarantor



                                       16
<PAGE>   19

and without impairing or releasing the obligations of the Guarantor hereunder,
upon or without any terms or conditions and in whole or in part:

               (a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the Obligations
(Tiverton) due to it, any security therefor, or any liability incurred directly
or indirectly in respect thereof, and, subject to clause (d) below, the guaranty
and agreement herein made shall apply to the Obligations (Tiverton) due to it as
so changed, extended, renewed or altered;

               (b) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, the Obligations
(Tiverton) or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof due to it, and/or any offset
thereagainst due to it;

               (c) exercise or refrain from exercising any rights against the
Tiverton Lessee or others or otherwise act or refrain from acting;

               (d) settle or compromise any of the Obligations (Tiverton) due to
it, any security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Tiverton Lessee to its creditors other
than the Guarantor; provided that any settlement or compromise with respect to,
or other reduction (by operation of law or negotiation) of, any of the
Obligations (Tiverton) (or amounts underlying such Obligations (Tiverton)) due
to it (whether occurring before or after the occurrence of a Lease Event of
Default) shall not alter the amount of the original Obligations (Tiverton) due
to it guaranteed hereby and the Guarantor acknowledges and agrees that its
obligations hereunder shall be for the full amount of the Obligations (Tiverton)
due to it without giving effect to any such settlement, compromise or other
reduction;

               (e) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of the Tiverton Lessee to such Beneficiary
regardless of what liabilities or liabilities of the Tiverton Lessee remain
unpaid;

               (f) consent to or waive any breach of, or any act, omission or
default under, the Participation Agreement or the Tiverton Facility Lease, or
otherwise amend, modify or supplement the Participation Agreement or the
Tiverton Facility Lease or any of such other instruments or agreements; and/or

               (g) act or fail to act in any manner referred to in this Guaranty
which may deprive the Guarantor of its right to subrogation against the Tiverton
Lessee to recover full indemnity for any payments made pursuant to this
Guaranty.

Anything herein to the contrary notwithstanding, any exercise of rights or
remedies by any Beneficiary hereunder or under any other Tiverton Operative
Document, or the failure or any Beneficiary to exercise any rights or remedies
hereunder in accordance with the provisions hereof or under any other Tiverton
Operative Document, shall not in



                                       17
<PAGE>   20

any way adversely affect the ability of any other Beneficiary to exercise its
rights or remedies hereunder.

SECTION 6. SURVIVAL OF GUARANTY AND PAYMENT AGREEMENT (TIVERTON)

               Notwithstanding anything to the contrary herein, this Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time any of the amounts paid to any of the Beneficiaries, in whole or in part,
is required to be repaid upon the insolvency, bankruptcy, dissolution,
liquidation, or reorganization of the Guarantor or the Tiverton Lessee or any
other Person, or as a result of the appointment of a custodian, interviewer,
receiver, trustee, or other officer with similar powers with respect to the
Guarantor or the Tiverton Lessee or any other Person or any substantial part of
the property of the Guarantor or the Tiverton Lessee or such other Person, all
as if such payments had not been made.

SECTION 7. DEFAULTS; REMEDIES; SUBROGATION

               Section 7.1. Defaults. The following events shall constitute an
"Event of Default" hereunder (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any Governmental Entity):

               (a) the Guarantor or the Tiverton Lessee under the Tiverton
Facility Lease shall fail to make any payment with respect to Periodic Rent or
Termination Value (including the Equity Portion of Termination Value or Debt
Portion of Termination Value) when due and payable under such Tiverton Facility
Lease or this Guaranty within five (5) days after the same shall become due
thereunder; or

               (b) the Guarantor or the Tiverton Lessee shall fail to make any
other amount payable under any Tiverton Operative Document after the same shall
become due thereunder and such failure shall have continued from a period of ten
(10) Business Days after receipt by the Tiverton Lessee and the Guarantor of
written notice of such failure by the Tiverton Lessee and/or the Guarantor, as
applicable;

               (c) The Guarantor shall fail to comply with its covenants set
forth in Section 3.3 (transfer of Lessee ownership), 3.6 (Guarantor merger) or
8.4 (assignment of Guaranty) of this Guaranty.

               (d) the Guarantor shall fail to perform or observe any covenant,
obligation or agreement to be performed or observed by it under any Calpine
Document (other than any covenant, obligation or agreement referred to in
clauses (a) or (b) of this Section 7.1) in any material respect, which shall
continue unremedied for (1) with respect to the Guarantor's guaranty of, and
agreement with respect to, any nonmonetary obligation, covenant or agreement of
the Tiverton Lessee under any of the Tiverton Operative Documents, 30 days after
receipt by the Guarantor of written notice thereof from the Owner Participant,
the Owner Lessor, the Indenture Trustee or the Pass Through



                                       18
<PAGE>   21

Trustee; provided, however, if such condition cannot be remedied within such
30-day period, then the period within which to remedy such condition shall be
extended up to an additional 180 days, so long as the Guarantor diligently
pursues such remedy and such condition is reasonably capable of being remedied
within such additional 180-day period, and (2) with respect to any other
obligation, covenant or agreement hereunder, 30 days after receipt by the
Guarantor of written notice thereof;

               (e) there shall have occurred either (i) a default by the
Guarantor or any Restricted Subsidiary under any instrument or instruments under
which there is or may be secured or evidenced any Indebtedness of the Guarantor
or any Restricted Subsidiary of the Guarantor (other than the Obligations
(Tiverton)) having an outstanding principal amount of $50,000,000 (or its
foreign currency equivalent) or more individually or in the aggregate that has
caused the holders thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity, unless such declaration has been rescinded within
30 days or (ii) a default by the Guarantor or any Restricted Subsidiary in the
payment when due of any portion of the principal under any such instrument or
instruments, and such unpaid portion exceeds $50,000,000 (or its foreign
currency equivalent) individually or in the aggregate and is not paid, or such
default is not cured or waived, within any grace period applicable thereto,
unless such Indebtedness is discharged within 30 days of the Guarantor or a
Restricted Subsidiary becoming aware of such default;

               (f) the Guarantor or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:

                      (i)    commences a voluntary case;

                      (ii)   consents to the entry of an order for relief
                             against it in an involuntary case;

                      (iii)  consents to the appointment of a Custodian of it or
                             for all or substantially all of its property;

                      (iv)   makes a general assignment for the benefit of its
                             creditors; or

                      (v)    admits in writing its inability to generally pay
                             its debts as such debts become due;

               or takes any comparable action under any foreign laws relating to
insolvency;

               (g) an involuntary case or other proceeding shall be commenced
against the Guarantor or any Significant Subsidiary seeking (i) liquidation,
reorganization or other relief with respect to it or its debts under Title 11 of
the Bankruptcy Code or any bankruptcy, insolvency or other similar law now or
hereafter in effect, or (ii) the appointment of a trustee, receiver, liquidator,
custodian or other similar official with respect to it or any substantial part
of its property or (iii) the winding-up or liquidation of



                                       19
<PAGE>   22

the Guarantor or such Significant Subsidiary; and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days;

               (h) any representation or warranty made by the Guarantor herein
shall prove to have been incorrect in any material respect when made or
misleading in any material respect when made because of the omission to state a
material fact and such incorrect or misleading representation is and continues
to be material and unremedied for a period of 30 days after receipt by the
Guarantor of written notice thereof; provided, however, that if such condition
cannot be remedied within such 30-day period, then the period within which to
remedy such condition shall be extended up to an additional 60 days, so long as
the Guarantor diligently pursues such remedy and such condition is reasonably
capable of being remedied within such additional 60-day period.

        The grace periods set forth in Section 7.1(a) and (b) above shall not
affect in any way the right hereunder of any Beneficiary entitled to a payment
of any amount payable to it, or performance of any obligation, by the Tiverton
Lessee under any Tiverton Operative Document to demand prompt payment thereof,
or performance thereof, by the Guarantor immediately upon any failure of the
Tiverton Lessee to pay or perform the same when it has become due (and, for the
avoidance of doubt, without regard to the existence of any cure or grace period
before such failure by the Tiverton Lessee becomes a Lease Event of Default);
provided, however, notwithstanding the foregoing, no Lease Event of Default
under Section 16(m) and no remedies under the Tiverton Facility Lease may be
exercised until a Calpine Guaranty Event of Default has occurred and is
continuing.

               Section 7.2. Remedies. Subject to the last paragraph of Section
7.1, each Beneficiary shall be entitled to (a) all rights and remedies to which
it may be entitled hereunder or at law, in equity or by statute and may proceed
by appropriate court action to enforce the terms hereof and to recover damages
for the breach hereof. Each and every remedy of the Beneficiaries shall, to the
extent permitted by law, be cumulative and shall be in addition to any other
remedy now or hereafter existing at law or in equity. At the option of each
Beneficiary and upon notice to the Guarantor, the Guarantor may be joined in any
action or proceeding commenced by such Beneficiary against the Tiverton Lessee
in respect of any Obligations (Tiverton) and recovery may be had against the
Guarantor in such action or proceeding or in any independent action or
proceeding against the Guarantor, without any requirement such Beneficiary first
assert, prosecute or exhaust any remedy or claim against the Tiverton Lessee.
Notwithstanding any of the foregoing, if an Event of Default specified in clause
(e) or (f) of Section 7.1 with respect to the Guarantor occurs, all monetary
Obligations (Tiverton) shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Owner
Participant, the Owner Lessor, the Indenture Trustee or the Pass Through
Trustee.

               Section 7.3. Subrogation. The Guarantor will not exercise any
rights that it may acquire by way of subrogation under this Guaranty, by any
payment made hereunder or thereunder or otherwise, until all of the Obligations
(Tiverton) and all other obligations of the Tiverton Lessee and the Guarantor
owing to any of the Beneficiaries (or any other party) under the Tiverton
Operative Documents shall have been paid in full.



                                       20
<PAGE>   23

If any amount shall be paid to the Guarantor on account of such subrogation
rights at any time when all of the Obligations (Tiverton) and such other
obligations shall not have been paid in full, such amount shall be held in trust
for the benefit of the Beneficiary to whom such Obligation (Tiverton) or other
obligation is payable and shall forthwith be paid to such Beneficiary to be
credited and applied to such Obligation (Tiverton) or other obligation, whether
matured or unmatured, in accordance with the terms of the Tiverton Operative
Document under which such Obligation (Tiverton) or other obligation arose. If
(i) the Guarantor shall make payment to any Beneficiary of all or any part of
the Obligations (Tiverton) or other obligations and (ii) all the Obligations
(Tiverton) and such other obligations shall be paid and performed in full, such
Beneficiary will, at the Guarantor's request and expense, execute and deliver to
the Guarantor appropriate documents, without recourse, subject to Section 6
hereof, necessary to evidence the transfer by subrogation to the Guarantor of an
interest in the Obligations (Tiverton) and such other obligations resulting from
such payment by the Guarantor.

               Section 7.4. Waiver of Demands, Notices, Etc.

               (a) Without limiting the last sentence of Section 7.1, the
Guarantor hereby unconditionally waives (i) notice of any of the matters
referred to in the second sentence of Section 2.3 hereof; (ii) all notices which
may be required by statute, rule of law or otherwise, now or hereafter in
effect, to preserve any rights against the Guarantor hereunder, including,
without limitation, any demand, proof or notice of non-payment of any Obligation
(Tiverton); (iii) any right to the enforcement, assertion or exercise of any
right, remedy, power or privilege under or in respect of the Tiverton Facility
Lease (or under or in respect of any other agreement including any Tiverton
Operative Document); (iv) notice of acceptance of this Guaranty, demand,
protest, presentment, notice of default and any requirement of diligence; (v)
any requirement to exhaust any remedies or to mitigate any damages resulting
from default by the Tiverton Lessee or any Person under the Tiverton Facility
Lease (or under any other agreement including any Tiverton Operative Document);
and (vi) any other circumstance whatsoever which might otherwise constitute a
legal or equitable discharge, release or defense of a guarantor or surety, or
which might otherwise limit recourse against the Guarantor, other than
satisfaction in full of the Obligations (Tiverton).

               (b) This Guaranty is a continuing one and all of the Obligations
(Tiverton) shall be conclusively presumed to have been created in reliance
hereon. No failure or delay on the part of any Beneficiary in exercising any
right, power or privilege hereunder and no course of dealing among the
Guarantor, any Beneficiary or the Tiverton Lessee shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights, powers and remedies
herein expressly provided are cumulative and not exclusive of any rights, powers
or remedies which the Beneficiary would otherwise have. No notice to or demand
on the Guarantor in any case shall entitle the Guarantor to any other further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of any Beneficiary to any other or further action in any circumstances
without notice or demand.



                                       21
<PAGE>   24

               (c) If a claim is ever made upon any Beneficiary for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Obligations (Tiverton) and any of the Beneficiaries repays all or part of
said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such Beneficiary or any of its
property or (b) any settlement or compromise of any such claim effected by such
Beneficiary with any such claimant (including the Tiverton Lessee), then and in
such event the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon it, notwithstanding any
revocation hereof or the cancellation of the Tiverton Facility Lease or other
instrument evidencing any liability of the Tiverton Lessee, and the Guarantor
shall be and remain liable to the aforesaid Beneficiaries hereunder for the
amount so repaid by or recovered from such Beneficiary to the same extent as if
such amount had never originally been received by any such Beneficiary.

               Section 7.5. Costs and Expenses. The Guarantor agrees to pay on
an After-Tax Basis any and all reasonable costs and expenses (including
reasonable legal fees) incurred by any Beneficiary in enforcing its rights under
this Guaranty.

               Section 7.6. Survival of Remedies and Subrogation Rights. The
provisions of this Section 7 shall survive the term of this Guaranty and the
payment in full of the Obligations (Tiverton) and the termination of the
Tiverton Operative Documents.

SECTION 8. MISCELLANEOUS

               Section 8.1. Amendments and Waivers. No term, covenant, agreement
or condition of this Guaranty may be terminated, amended or compliance therewith
waived (either generally or in a particular instance, retroactively or
prospectively) except by an instrument or instruments in writing executed by the
Guarantor and consented to by the Beneficiaries.

               Section 8.2. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all communications and notices provided for
herein shall be in writing or by a telecommunications device capable of creating
a written record, and any such notice shall become effective (a) upon personal
delivery thereof, including, without limitation, by overnight mail or courier
service, (b) in the case of notice by United States mail, certified or
registered, postage prepaid, return receipt requested, upon receipt thereof, or
(c) in the case of notice by such a telecommunications device, upon transmission
thereof, provided such transmission is promptly confirmed by either of the
methods set forth in clauses (a) or (b) above, in each case addressed to the
Guarantor hereto at its address set forth below or at such other address as such
party may from time to time designate by written notice:

        Calpine Corporation
        50 West San Fernando Street, 5th Floor
        San Jose, CA  95113



                                       22
<PAGE>   25

        Facsimile No.:  (408) 975-4648
        Telephone No.:  (408) 995-5115
        Attention:  General Counsel

               Section 8.3. Survival. Except as expressly set forth herein, the
warranties and covenants made by the Guarantor shall not survive the expiration
or termination of this Guaranty.

               Section 8.4. Assignment and Assumption. (a) Except as provided in
clause (b) below, this Guaranty may not be assigned by the Guarantor to, or
assumed by, any successor to or assign of the Guarantor (it being understood and
agreed that a consolidation with or merger of the Guarantor into, or the sale of
all or substantially all of its assets to, another Person in accordance with
Section 3.6 shall not be deemed such an assignment or assumption for the
purposes hereof) without the prior written consent of the Beneficiaries, nor may
the Guarantor transfer or assign a majority (or more) of (i) the Ownership
Interest in the Tiverton Lessee or (ii) the Ownership Interest in the Rumford
Lessee.

               (b) Notwithstanding any of the foregoing in this Section 8.4, the
Guarantor may transfer a majority (or more) of its Ownership Interest in the
Tiverton Lessee to a single third party, provided that the Guarantor assigns
this Guaranty to such third party (whereupon the Guarantor shall be released
from all obligations under this Guaranty in connection with such transfer) upon
satisfaction of the following conditions:

               (i) unless the Owner Participant shall have consented to such
        assignment, such transferee, or a party which unconditionally guarantees
        such transferee's obligations under the Operative Documents assigned to
        such transferee (A) shall have significant experience owning or
        operating gas-fired electric generating facilities in the United Sates
        and (B) shall have a tangible net worth of at least $1 billion after
        giving effect to such transfer;

               (ii) the requirements set forth in Section 3.3(i), (iii), (iv)
        and (v) of this Guaranty have been satisfied and, immediately after
        giving effect to such transfer, the transferee shall own (A) at least a
        majority of the Ownership Interest of the Tiverton Lessee and (B) at
        least a majority of the Ownership Interest of the Rumford Lessee;

               (iii) such transfer occurs (i) subsequent to the tenth year of
        the Facility Lease Term of the Tiverton Lessee and the Rumford Lessee
        and (ii) when the aggregate principal amount of the Tiverton Notes is
        less than $50 million and the aggregate principal amount of the Rumford
        Notes is less than $50 million;

               (iv) neither the transferee nor any Affiliate of the transferee
        shall be involved in any material litigation with the Owner Participant;

               (v) the Rating Agencies shall have confirmed that after giving
        effect to such transfer, the Certificates (if then outstanding) and the
        transferee (or a party



                                       23
<PAGE>   26

        which guarantees such transferee's obligations under the Operative
        Documents assigned to such transferee) shall be rated at least
        Investment Grade (and not be on negative credit watch) by the Rating
        Agencies;

               (vi) all the obligations of the Tiverton Lessee under the
        Tiverton Operative Documents shall remain in full force and effect, the
        transferee shall assume all the obligations of the Guarantor under the
        Operative Documents pursuant to the Guarantor's Assignment and
        Assumption Agreement and such Operative Documents as so assumed shall
        remain in full force and effect, and any guaranty of such transferee's
        obligations pursuant to this Section 8.4 shall be in a form satisfactory
        to the Owner Participant (it being acknowledged and agreed that any such
        guaranty which shall be in form and substance substantially similar to
        this Guaranty shall be deemed to be satisfactory to the Owner
        Participant); and

               (vii) the Owner Participant, the Owner Lessor and, so long as the
        Lien on the Collateral Trust Indenture shall not have been terminated or
        discharged, the Indenture Trustee and the Pass Through Trustee shall
        have received an Opinion of Counsel as to the satisfaction of the
        conditions set forth in clause (vi) of this Section 8.4(b).

               Section 8.5. Governing Law. This Guaranty shall be in all
respects governed by and construed in accordance with the laws of the State of
New York, including all matters of construction, validity and performance
(without giving effect to the conflicts of laws provisions, other than New York
General Obligations Law Section 5-1401).

               Section 8.6. Severability. Any provision of this Guaranty that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

               Section 8.7. Headings. The headings of the sections of this
Guaranty are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions hereof.

               Section 8.8. Further Assurances. The Guarantor will promptly and
duly execute and deliver such further documents as may be reasonably requested
by the Owner Lessor, all as may be reasonably necessary to affirm the
Guarantor's obligations under this Guaranty.

               Section 8.9. Effectiveness of Guaranty. This Guaranty has been
dated as of the date first above written for convenience only. This Guaranty
shall be effective on the date of execution and delivery by the Guarantor.



                                       24
<PAGE>   27

               Section 8.10. Acknowledgment by the Guarantor. The Guarantor
acknowledges that an executed (or conformed) copy of the Participation
Agreement, the Tiverton Facility Lease and the other Operative Documents have
been made available to its principal executive officers and such officers are
familiar with the contents thereof.

               Section 8.11. Tolling. Any acknowledgement or new promise,
whether by payment of principal or interest or otherwise and whether by the
Tiverton Lessee or others (including the Guarantor), with respect to any of the
Obligations (Tiverton) shall, if the statute of limitations in favor of the
Guarantor against any Beneficiary shall have commenced to run, toll the running
of such statute of limitations, and if the period of such statute of limitations
shall have expired, prevent the operation of such statute of limitations.

               Section 8.12. Consent to Jurisdiction; Waiver of Trail by Jury;
Process Agent.

               (a) The Guarantor (i) hereby irrevocably submits to the
nonexclusive jurisdiction of the Supreme Court of the State of New York, New
York County (without prejudice to the right of the Guarantor to remove to the
United States District Court for the Southern District of New York) and to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York for the purposes of any suit, action or other proceeding
arising out of this Guaranty, the Tiverton Facility Lease, the other Tiverton
Operative Documents, or the subject matter hereof or thereof or any of the
transactions contemplated hereby or thereby brought by any of the Beneficiaries
hereunder or their successors or assigns; (ii) hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in such New York State court, or in such federal court; and (iii) to the extent
permitted by Applicable Law, hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, or otherwise, in any such suit, action
or proceeding any claim that it is not personally subject to the jurisdiction of
the above-named courts, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Guaranty, the other Tiverton Operative Documents, or the subject
matter hereof or thereof may not be enforced in or by such court.

               (b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR
HEREBY IRREVOCABLY WAIVES THE RIGHT TO DEMAND A TRIAL BY JURY, IN ANY SUCH SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF THIS GUARANTY, THE OTHER TIVERTON
OPERATIVE DOCUMENTS, OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY BROUGHT BY ANY OF THE BENEFICIARIES
HEREUNDER OR THEIR SUCCESSORS OR ASSIGNS.

               (c) By the execution and delivery of this Guaranty, the Guarantor
designates, appoints and empowers National Registered Agent, Inc., 440 9th
Avenue, 5th Floor, New York, NY 10001 as its authorized agent to receive for and
on its behalf service of any summons, complaint or other legal process in any
such action, suit or



                                       25
<PAGE>   28

proceeding in the State of New York for so long as any obligation of the
Guarantor shall remain outstanding hereunder or under any of the other Tiverton
Operative Documents. The Guarantor shall grant an irrevocable power of attorney
to National Registered Agent, Inc. in respect of such appointment and shall
maintain such power of attorney in full force and effect for so long as any
obligation of the Guarantor shall remain outstanding hereunder or under any of
the Tiverton Operative Documents.

               Section 8.13. Agreement for Benefit of Parties Hereto. Nothing in
this Guaranty, express or implied, is intended or shall be construed to confer
upon, or to give to, any person other than the parties hereto and their
respective successors and assigns, any right, remedy or claim under or by reason
of this Guaranty or any covenant, condition or stipulation hereof; and the
covenants, stipulations and agreements contained in this Guaranty are and shall
be for the sole and exclusive benefit of the parties hereto and their respective
successors and assigns. The Guarantor acknowledges that certain of the rights of
the Owner Lessor hereunder have been or shall be assigned to and may be enforced
by the Indenture Trustee pursuant to the terms of the Collateral Trust Indenture
(excluding, among other things, rights to Excepted Payments), the Guarantor
hereby consents to such assignment and the Guarantor agrees to render
performance of such assigned obligations directly to the Indenture Trustee (as
assignee of the Owner Lessor). The Guarantor agrees to make all payments which
have been so assigned owing to the Owner Lessor under this Guaranty directly to
the account of the Indenture Trustee to be specified to the Guarantor in
writing, or to such other account specified in writing from time to time by the
Indenture Trustee.

               Section 8.14. Termination of Guaranty. Upon the full payment and
satisfaction of the Obligations (Tiverton) and all of the Guarantor's
obligations hereunder, this Guaranty shall terminate and shall be of no further
effect. Nevertheless, this Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time, any payment, or any part
thereof, of any of the Obligations (Tiverton) is rescinded or must otherwise be
returned by any Beneficiary upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Tiverton Lessee or otherwise, all as though
such payment had not been made.

               Section 8.15. Additional Obligations (Tiverton). Upon the
assumption by the Tiverton Lessee of the Tiverton Notes in connection with a
termination of the Tiverton Lease, as permitted therein, the obligation of the
Tiverton Lessee to pay principal of, and Make-Whole Amount if any, and interest
on the Tiverton Notes, and amounts payable by it to the Indenture Trustee under
the Collateral Trust Indenture, shall thereupon become Obligations (Tiverton)
for all purposes of this Guaranty, and the Guarantor shall therefor execute and
deliver to the Indenture Trustee such further guaranties, instruments and
documents as the Indenture Trustee may reasonably request in order to more fully
effectuate the Guarantor's unconditional guaranty of such additional Obligations
(Tiverton).

               Section 8.16. Miscellaneous Provisions.



                                       26
<PAGE>   29

               (a) The provisions of Section 2 of this Guaranty are subject to
the provisions of Section 14.25 of the Participation Agreement.

               (b) When determining the amount of unpaid Equity Portion of
Termination Value to be paid by the Guarantor under Section 2 of this Guaranty,
the correct amount thereof shall be the applicable amount of Equity Portion of
Termination Value (as set forth in Exhibit A hereto) for the date of the demand
for payment or if the amount of Equity Portion of Termination Value is not set
forth for such date on Exhibit A hereto, the Equity Portion of Termination Value
shall be determined by interpolation between the values set forth on Exhibit A
for the date next preceding the date of the demand and the date next succeeding
the date of the demand on a straight-line basis assuming thirty day months.

               (c) The payment obligations of the Guarantor hereunder shall rank
pari passu with all other senior unsecured indebtedness of the Guarantor for
borrowed money.

                           [No more text on this page]



                                       27
<PAGE>   30

               IN WITNESS WHEREOF, the parties have caused this Guaranty to be
duly executed and delivered on the day and year first above written.


                                        CALPINE CORPORATION,
                                        as Guarantor



                                        By: /s/ ERIC PRYOR
                                           -------------------------------------
                                             Name: Eric Pryor
                                             Title: Authorized Agent



                                        PMCC CALPINE NEW ENGLAND INVESTMENT LLC,
                                        a Delaware limited liability company


                                        By: PMCC Calpine NEIM LLC, a Delaware
                                        limited liability company, its managing
                                        member


                                        By: General Foods Credit Corporation, a
                                        Delaware corporation, its managing
                                        member




                                        By: /s/ ILLEGIBLE
                                           -------------------------------------
                                             Name:
                                             Title:
                                             Date:

                                        PMCC CALPINE NEIM LLC


                                        By: General Foods Credit Corporation,
                                        its managing member



                                        By: /s/ ILLEGIBLE
                                           -------------------------------------
                                             Name:
                                             Title:
                                             Date:



                                       28
<PAGE>   31

                                        STATE STREET BANK AND TRUST COMPANY OF
                                        CONNECTICUT, N.A.,
                                        not in its individual capacity but
                                        solely as Indenture Trustee



                                        By: /s/ MARK HENSON
                                           -------------------------------------
                                             Name: Mark Henson
                                             Title: Assistant Vice President



                                        STATE STREET BANK AND TRUST COMPANY OF
                                        CONNECTICUT, N.A.,
                                        not in its individual capacity but
                                        solely as Pass Through Trustee



                                        By: /s/ MARK HENSON
                                           -------------------------------------
                                             Name: Mark Henson
                                             Title: Assistant Vice President




                                       29
<PAGE>   32
                                                                     EXHIBIT A


                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                                                EQUITY PORTION OF
               DATE                             TERMINATION VALUE
             --------                           -----------------
           <S>                                  <C>
           Jan 15 2001                             22.86727903
           Feb 15 2001                             23.16421293
           Mar 15 2001                             23.46383134
           Apr 15 2001                             23.10615619
           May 15 2001                             23.36914584
           Jun 15 2001                             23.65646772
           Jul 15 2001                             23.91345533
           Aug 15 2001                              24.1947209
           Sep 15 2001                             24.47852933
           Oct 15 2001                             24.73197173
           Nov 15 2001                             25.00966004
           Dec 15 2001                             25.28985886
           Jan 15 2002                             25.53965903
           Feb 15 2002                             25.81367217
           Mar 15 2002                             26.09016261
           Apr 15 2002                             26.36915273
           May 15 2002                             26.62548058
           Jun 15 2002                             26.90091551
           Jul 15 2002                             27.15365603
           Aug 15 2002                             27.42547124
           Sep 15 2002                             27.69974388
           Oct 15 2002                             27.95131156
           Nov 15 2002                             28.22194334
           Dec 15 2002                             28.49502185
           Jan 15 2003                             28.74538461
           Feb 15 2003                             29.01480057
           Mar 15 2003                             29.28665226
           Apr 15 2003                             29.56096171
           May 15 2003                              29.8144664
           Jun 15 2003                             30.08578613
           Jul 15 2003                             30.33627408
           Aug 15 2003                             30.60454978
           Sep 15 2003                             30.87525091
           Oct 15 2003                             31.12511466
           Nov 15 2003                             31.39276053
           Dec 15 2003                             31.66282613
           Jan 15 2004                             31.91204861
           Feb 15 2004                              32.1790474
           Mar 15 2004                             32.44846007
           Apr 15 2004                             32.72030845
           May 15 2004                             32.97310042
           Jun 15 2004                             33.24252057
           Jul 15 2004                             33.49286238
           Aug 15 2004                             33.75981022
</TABLE>
<PAGE>   33
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                       EQUITY PORTION OF
   DATE                                TERMINATION VALUE
-----------                            -----------------
<S>                                    <C>
Sep 15 2004                               34.02917147
Oct 15 2004                               34.27945384
Nov 15 2004                               34.54634171
Dec 15 2004                               34.81564245
Jan 15 2005                               35.06586376
Feb 15 2005                               35.33269001
Mar 15 2005                               35.60192859
Apr 15 2005                               35.87360129
May 15 2005                               36.12756406
Jun 15 2005                                36.3972669
Jul 15 2005                               36.64924199
Aug 15 2005                               34.13337148
Sep 15 2005                               34.36494529
Oct 15 2005                               34.57844664
Nov 15 2005                               34.80732225
Dec 15 2005                               35.03826708
Jan 15 2006                               35.25113377
Feb 15 2006                               35.40632527
Mar 15 2006                               35.63561248
Apr 15 2006                               35.86697263
May 15 2006                                36.0814393
Jun 15 2006                               36.31050169
Jul 15 2006                               36.52264982
Aug 15 2006                               36.49798373
Sep 15 2006                               36.72327543
Oct 15 2006                               36.93161879
Nov 15 2006                                37.1545025
Dec 15 2006                               37.37940126
Jan 15 2007                               37.58734812
Feb 15 2007                               37.80983176
Mar 15 2007                               38.03432682
Apr 15 2007                                38.2608515
May 15 2007                               38.47186527
Jun 15 2007                               38.69649268
Jul 15 2007                               38.90559204
Aug 15 2007                               38.18178711
Sep 15 2007                               38.39339011
Oct 15 2007                                38.5893473
Nov 15 2007                               38.79878201
Dec 15 2007                               39.01011018
Jan 15 2008                               39.20579005
Feb 15 2008                               38.54841156
Mar 15 2008                               38.74745863
Apr 15 2008                               38.94830524
</TABLE>
<PAGE>   34

                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                EQUITY PORTION OF
            DATE                                TERMINATION VALUE
         -----------                             -----------------
         <S>                                    <C>
         May 15 2008                               39.13345615
         Jun 15 2008                               39.33195532
         Jul 15 2008                               39.51473756
         Aug 15 2008                               38.93009454
         Sep 15 2008                               39.11716566
         Oct 15 2008                               39.28841654
         Nov 15 2008                               39.47289001
         Dec 15 2008                               39.65903125
         Jan 15 2009                               39.82934386
         Feb 15 2009                               39.30833934
         Mar 15 2009                               39.48376974
         Apr 15 2009                               39.66078617
         May 15 2009                               39.82171299
         Jun 15 2009                               39.99588803
         Jul 15 2009                               40.15394777
         Aug 15 2009                               39.70416791
         Sep 15 2009                               39.86839875
         Oct 15 2009                               40.01642437
         Nov 15 2009                               40.17758158
         Dec 15 2009                               40.34019578
         Jan 15 2010                               40.48659015
         Feb 15 2010                               40.09199974
         Mar 15 2010                               40.24528052
         Apr 15 2010                               40.39994707
         May 15 2010                                 40.542426
         Jun 15 2010                               40.69525033
         Jul 15 2010                               40.83587038
         Aug 15 2010                               40.49720557
         Sep 15 2010                               40.64273933
         Oct 15 2010                               40.77600289
         Nov 15 2010                               40.91952855
         Dec 15 2010                                41.0643518
         Jan 15 2011                               41.19689843
         Feb 15 2011                               40.89858604
         Mar 15 2011                               41.03657129
         Apr 15 2011                               41.17580403
         May 15 2011                               41.30928769
         Jun 15 2011                               41.44865005
         Jul 15 2011                                41.5822645
         Aug 15 2011                               41.31761384
         Sep 15 2011                               41.45277319
         Oct 15 2011                               41.58214662
         Nov 15 2011                               41.71736159
         Dec 15 2011                               41.85379902
</TABLE>

<PAGE>   35
                                                                       EXHIBIT A


                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


<TABLE>
<CAPTION>
                                                      EQUITY PORTION OF
  DATE                                                TERMINATION VALUE
-----------                                           -----------------
<S>                                                   <C>
Jan 15 2012                                              41.98446209
Feb 15 2012                                               41.7467369
Mar 15 2012                                              41.87930533
Apr 15 2012                                              42.01307228
May 15 2012                                              42.14316682
Jun 15 2012                                              42.27769203
Jul 15 2012                                              42.40855168
Aug 15 2012                                              42.19726689
Sep 15 2012                                              42.32898826
Oct 15 2012                                              42.45701873
Nov 15 2012                                               42.5894612
Dec 15 2012                                              42.72310106
Jan 15 2013                                              42.85306736
Feb 15 2013                                              42.66394861
Mar 15 2013                                              42.79507982
Apr 15 2013                                              42.92739655
May 15 2013                                              43.05697072
Jun 15 2013                                              43.19034222
Jul 15 2013                                              43.32098069
Aug 15 2013                                              43.15476649
Sep 15 2013                                              43.28626422
Oct 15 2013                                              43.41501199
Nov 15 2013                                              43.54754961
Dec 15 2013                                              43.68128547
Jan 15 2014                                              43.81229161
Feb 15 2014                                               43.6652604
Mar 15 2014                                              43.79739295
Apr 15 2014                                              43.93072009
May 15 2014                                              44.06235973
Jun 15 2014                                              44.19711808
Jul 15 2014                                              44.33020187
Aug 15 2014                                              44.20246009
Sep 15 2014                                              44.33625218
Oct 15 2014                                              44.46836097
Nov 15 2014                                              44.60359272
Dec 15 2014                                              44.74004706
Jan 15 2015                                              44.87484218
Feb 15 2015                                              44.76331529
Mar 15 2015                                               44.8990504
Apr 15 2015                                              45.03601266
May 15 2015                                              45.17244451
Jun 15 2015                                              45.31128892
Jul 15 2015                                              45.44961993
Aug 15 2015                                              45.35377511
</TABLE>

<PAGE>   36
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
    DATE                                          TERMINATION VALUE
-----------                                       -----------------
<S>                                                  <C>
Sep 15 2015                                          45.49253219
Oct 15 2015                                           45.6307751
Nov 15 2015                                          45.77144693
Dec 15 2015                                          45.91339055
Jan 15 2016                                          46.05484878
Feb 15 2016                                          46.19876502
Mar 15 2016                                          46.34398238
Apr 15 2016                                          46.49051261
May 15 2016                                          46.63795681
Jun 15 2016                                          46.78700787
Jul 15 2016                                          46.93699569
Aug 15 2016                                          47.08853706
Sep 15 2016                                          47.24152443
Oct 15 2016                                          47.39548415
Nov 15 2016                                          47.55110963
Dec 15 2016                                          47.70814209
Jan 15 2017                                          47.86618347
Feb 15 2017                                          48.02592751
Mar 15 2017                                          48.18711577
Apr 15 2017                                           48.3497613
May 15 2017                                          48.51423139
Jun 15 2017                                          48.67995234
Jul 15 2017                                          48.84752565
Aug 15 2017                                          45.25639495
Sep 15 2017                                           45.3747099
Oct 15 2017                                          45.49444863
Nov 15 2017                                          45.61503382
Dec 15 2017                                          45.73670919
Jan 15 2018                                          45.85983871
Feb 15 2018                                          45.98384535
Mar 15 2018                                           46.1089731
Apr 15 2018                                          46.23523211
May 15 2018                                          46.36326247
Jun 15 2018                                          46.49203041
Jul 15 2018                                          46.62259238
Aug 15 2018                                          43.04798413
Sep 15 2018                                          43.12917845
Oct 15 2018                                          43.21173671
Nov 15 2018                                          43.29462144
Dec 15 2018                                          43.37825551
Jan 15 2019                                          43.46327558
Feb 15 2019                                          43.54864437
Mar 15 2019                                          43.63478497
Apr 15 2019                                          43.72170435
</TABLE>
<PAGE>   37
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                    EQUITY PORTION OF
                 DATE                               TERMINATION VALUE
              -----------                           -----------------
<S>                                                 <C>
              May 15 2019                               43.81025006
              Jun 15 2019                               43.89903595
              Jul 15 2019                               43.98946505
              Aug 15 2019                               39.52431233
              Sep 15 2019                                39.5527346
              Oct 15 2019                               39.58225435
              Nov 15 2019                               39.61148063
              Dec 15 2019                               39.64097114
              Jan 15 2020                               39.67156879
              Feb 15 2020                               39.70188272
              Mar 15 2020                               39.73247071
              Apr 15 2020                               39.76333524
              May 15 2020                               39.80379041
              Jun 15 2020                               39.83840359
              Jul 15 2020                               39.88264131
              Aug 15 2020                               35.43622633
              Sep 15 2020                               35.43622633
              Oct 15 2020                               35.43622633
              Nov 15 2020                               35.43622633
              Dec 15 2020                               35.43622633
              Jan 15 2021                               35.43622633
              Feb 15 2021                               35.43622633
              Mar 15 2021                               35.43622633
              Apr 15 2021                               35.43622633
              May 15 2021                               35.43622633
              Jun 15 2021                               35.43622633
              Jul 15 2021                               35.43622633
              Aug 15 2021                               31.50180011
              Sep 15 2021                                31.5018001
              Oct 15 2021                                31.5018001
              Nov 15 2021                                31.5018001
              Dec 15 2021                                31.5018001
              Jan 15 2022                                31.5018001
              Feb 15 2022                               31.50180011
              Mar 15 2022                               31.50180011
              Apr 15 2022                               31.50180011
              May 15 2022                               31.50180011
              Jun 15 2022                               31.50180011
              Jul 15 2022                               31.50180011
              Aug 15 2022                               27.56737388
              Sep 15 2022                               27.56737388
              Oct 15 2022                               27.56737388
              Nov 15 2022                               27.56737388
              Dec 15 2022                               27.56737388
</TABLE>
<PAGE>   38
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                          EQUITY PORTION OF
    DATE                  TERMINATION VALUE
------------              -----------------
<S>                       <C>
Jan 15 2023                     27.56737388
Feb 15 2023                     27.56737388
Mar 15 2023                     27.56737388
Apr 15 2023                     27.56737388
May 15 2023                     27.56737388
Jun 15 2023                     27.56737388
Jul 15 2023                     27.56737388
Aug 15 2023                     23.63294765
Sep 15 2023                     23.63294765
Oct 15 2023                     23.63294765
Nov 15 2023                     23.63294765
Dec 15 2023                     23.63294765
Jan 15 2024                     23.63294765
Feb 15 2024                     23.63294765
Mar 15 2024                     23.63294765
Apr 15 2024                     23.63294765
May 15 2024                     23.63294765
Jun 15 2024                     23.63294765
Jul 15 2024                     23.63294765
Aug 15 2024                     19.69852142
Sep 15 2024                     19.69852142
Oct 15 2024                     19.69852142
Nov 15 2024                     19.69852142
Dec 15 2024                     19.69852142
Jan 15 2025                     19.69852142
Feb 15 2025                     19.69852142
Mar 15 2025                     19.69852142
Apr 15 2025                     19.69852142
May 15 2025                     19.69852142
Jun 15 2025                     19.69852142
Jul 15 2025                     19.69852142
Aug 15 2025                     15.76409519
Sep 15 2025                     15.76409519
Oct 15 2025                     15.76409519
Nov 15 2025                     15.76409519
Dec 15 2025                     15.76409519
Jan 15 2026                     15.76409519
Feb 15 2026                     15.75863071
Mar 15 2026                     15.75863071
Apr 15 2026                     15.75863071
May 15 2026                     15.75863071
Jun 15 2026                     15.75863071
Jul 15 2026                     15.75863071
Aug 15 2026                     15.75316623
</TABLE>
<PAGE>   39
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


                              EQUITY PORTION OF
    DATE                      TERMINATION VALUE
-----------                   -----------------
Sep 15 2026                      15.75316623
Oct 15 2026                      15.75316623
Nov 15 2026                      15.75316623
Dec 15 2026                      15.75316623
Jan 15 2027                      15.75316623
Feb 15 2027                      15.74770174
Mar 15 2027                      15.74770174
Apr 15 2027                      15.74770174
May 15 2027                      15.74770174
Jun 15 2027                      15.74770174
Jul 15 2027                      15.74770174
Aug 15 2027                      15.74223726
Sep 15 2027                      15.74223726
Oct 15 2027                      15.74223726
Nov 15 2027                      15.74223726
Dec 15 2027                      15.74223726
Jan 15 2028                      15.74223726
Feb 15 2028                      15.73677278
Mar 15 2028                      15.73677278
Apr 15 2028                      15.73677278
May 15 2028                      15.73677278
Jun 15 2028                      15.73677278
Jul 15 2028                      15.73677278
Aug 15 2028                       15.7313083
Sep 15 2028                       15.7313083
Oct 15 2028                       15.7313083
Nov 15 2028                       15.7313083
Dec 15 2028                       15.7313083
Jan 15 2029                       15.7313083
Feb 15 2029                      15.72584382
Mar 15 2029                      15.72584382
Apr 15 2029                      15.72584382
May 15 2029                      15.72584382
Jun 15 2029                      15.72584382
Jul 15 2029                      15.72584382
Aug 15 2029                      15.72037934
Sep 15 2029                      15.72037934
Oct 15 2029                      15.72037934
Nov 15 2029                      15.72037934
Dec 15 2029                      15.72037934
Jan 15 2030                      15.72037934
Feb 15 2030                      15.71491486
Mar 15 2030                      15.71491486
Apr 15 2030                      15.71491486


<PAGE>   40
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                         EQUITY PORTION OF
     DATE                TERMINATION VALUE
---------------          -----------------
<S>                      <C>
 May 15 2030               15.71491486
 Jun 15 2030               15.71491486
 Jul 15 2030               15.71491486
 Aug 15 2030               15.70945038
 Sep 15 2030               15.70945038
 Oct 15 2030               15.70945038
 Nov 15 2030               15.70945038
 Dec 15 2030               15.70945038
 Jan 15 2031               15.70945038
 Feb 15 2031                15.7039859
 Mar 15 2031                15.7039859
 Apr 15 2031                15.7039859
 May 15 2031                15.7039859
 Jun 15 2031                15.7039859
 Jul 15 2031                15.7039859
 Aug 15 2031               15.69852142
 Sep 15 2031               15.69852142
 Oct 15 2031               15.69852142
 Nov 15 2031               15.69852142
 Dec 15 2031               15.69852142
 Jan 15 2032               15.69852142
 Feb 15 2032               15.69305694
 Mar 15 2032               15.69305694
 Apr 15 2032               15.69305694
 May 15 2032               15.69305694
 Jun 15 2032               15.69305694
 Jul 15 2032               15.69305694
 Aug 15 2032               15.68759245
 Sep 15 2032               15.68759245
 Oct 15 2032               15.70309329
 Nov 15 2032               15.70840038
 Dec 15 2032               15.71375544
 Jan 15 2033               15.74005831
 Feb 15 2033               15.74697125
 Mar 15 2033               15.75961412
 Apr 15 2033               15.77237129
 May 15 2033               15.80753044
 Jun 15 2033                15.8281497
 Jul 15 2033               15.87124201
 Aug 15 2033               15.89417135
 Sep 15 2033               15.92297542
 Oct 15 2033               15.97432654
 Nov 15 2033               16.01128416
 Dec 15 2033                16.0485759
</TABLE>




<PAGE>   41
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                          EQUITY PORTION OF
    DATE                  TERMINATION VALUE
------------              -----------------
<S>                       <C>
Jan 15 2034                     16.10849143
Feb 15 2034                     16.14839608
Mar 15 2034                     16.19432894
Apr 15 2034                     16.24067706
May 15 2034                     16.31120946
Jun 15 2034                     16.36653602
Jul 15 2034                     16.44612804
Aug 15 2034                     16.50490132
Sep 15 2034                      16.5698734
Oct 15 2034                     16.65919812
Nov 15 2034                     16.73348691
Dec 15 2034                     16.80844733
Jan 15 2035                      16.9078507
Feb 15 2035                     16.98661445
Mar 15 2035                     17.07175772
Apr 15 2035                     17.15767076
May 15 2035                     17.26970174
Jun 15 2035                     17.36585142
Jul 15 2035                     17.48821159
Aug 15 2035                     17.58908905
Sep 15 2035                     17.69654595
Oct 15 2035                     17.83031557
Nov 15 2035                     17.94840042
Dec 15 2035                     18.06755285
Jan 15 2036                     18.21312374
Feb 15 2036                     18.33742173
Mar 15 2036                     18.46851093
Apr 15 2036                     18.60078527
May 15 2036                     18.83544727
Jun 15 2036                     19.00476962
Jul 15 2036                     19.27681453
Aug 15 2036                     19.47816297
Sep 15 2036                     19.68699918
Oct 15 2036                     19.99891523
Nov 15 2036                     20.24619004
Dec 15 2036                     20.49570042
Dec 19 2036                     20.00546448
</TABLE>
<PAGE>   42
                                                                       EXHIBIT B


                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                DEBT PORTION OF
            DATE                TERMINATION VALUE
         ------------          -----------------
         <S>                   <C>
          Jan 15 2001              80.52000000
          Feb 15 2001              81.12000000
          Mar 15 2001              81.72000000
          Apr 15 2001              82.32000000
          May 15 2001              82.92000000
          Jun 15 2001              83.52000000
          Jul 15 2001              84.12000000
          Aug 15 2001              80.60000000
          Sep 15 2001              81.20000000
          Oct 15 2001              81.80000000
          Nov 15 2001              82.40000000
          Dec 15 2001              83.00000000

          Jan 15 2002              83.60000000
          Feb 15 2002              80.60000000
          Mar 15 2002              81.20000000
          Apr 15 2002              81.80000000
          May 15 2002              82.40000000
          Jun 15 2002              83.00000000
          Jul 15 2002              83.60000000
          Aug 15 2002              80.60000000
          Sep 15 2002              81.20000000
          Oct 15 2002              81.80000000
          Nov 15 2002              82.40000000
          Dec 15 2002              83.00000000

          Jan 15 2003              83.60000000
          Feb 15 2003              80.60000000
          Mar 15 2003              81.20000000
          Apr 15 2003              81.80000000
          May 15 2003              82.40000000
          Jun 15 2003              83.00000000
          Jul 15 2003              83.60000000
          Aug 15 2003              80.60000000
          Sep 15 2003              81.20000000
          Oct 15 2003              81.80000000
          Nov 15 2003              82.40000000
          Dec 15 2003              83.00000000

          Jan 15 2004              83.60000000
          Feb 15 2004              80.60000000
          Mar 15 2004              81.20000000
          Apr 15 2004              81.80000000
          May 15 2004              82.40000000
          Jun 15 2004              83.00000000
          Jul 15 2004              83.60000000
          Aug 15 2004              80.06596995
</TABLE>
<PAGE>   43
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                     DEBT PORTION
    DATE                                          TERMINATION VALUE
-----------                                       -----------------
<S>                                                  <C>
Sep 15 2004                                          80.66199454
Oct 15 2004                                          81.25801913
Nov 15 2004                                          81.85404372
Dec 15 2004                                          82.45006831

Jan 15 2005                                          83.04609290
Feb 15 2005                                          80.06596995
Mar 15 2005                                          80.66199454
Apr 15 2005                                          81.25801913
May 15 2005                                          81.85404372
Jun 15 2005                                          82.45006831
Jul 15 2005                                          83.04609290
Aug 15 2005                                          80.06596995
Sep 15 2005                                          80.66199454
Oct 15 2005                                          81.25801913
Nov 15 2005                                          81.85404372
Dec 15 2005                                          82.45006831

Jan 15 2006                                          83.04609290
Feb 15 2006                                          80.06596995
Mar 15 2006                                          80.66199454
Apr 15 2006                                          81.25801913
May 15 2006                                          81.85404372
Jun 15 2006                                          82.45006831
Jul 15 2006                                          83.04609290
Aug 15 2006                                          77.67571749
Sep 15 2006                                          78.25394863
Oct 15 2006                                          78.83217978
Nov 15 2006                                          79.41041093
Dec 15 2006                                          79.98864208

Jan 15 2007                                          80.56687322
Feb 15 2007                                          77.67571749
Mar 15 2007                                          78.25394863
Apr 15 2007                                          78.83217978
May 15 2007                                          79.41041093
Jun 15 2007                                          79.98864208
Jul 15 2007                                          80.56687322
Aug 15 2007                                          75.67172842
Sep 15 2007                                          76.23504153
Oct 15 2007                                          76.79835464
Nov 15 2007                                          77.36166776
Dec 15 2007                                          77.92498087

Jan 15 2008                                          78.48829399
Feb 15 2008                                          74.09386230
Mar 15 2008                                          74.64542951
Apr 15 2008                                          75.19699672
</TABLE>
<PAGE>   44
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                        DEBT PORTION OF
   DATE                                TERMINATION VALUE
-----------                            -----------------
<S>                                    <C>
May 15 2008                               75.74856393
Jun 15 2008                               76.30013115
Jul 15 2008                               76.85169836
Aug 15 2008                               74.09386230
Sep 15 2008                               74.64542951
Oct 15 2008                               75.19699672
Nov 15 2008                               75.74856393
Dec 15 2008                               76.30013115
Jan 15 2009                               76.85169836
Feb 15 2009                               72.04164536
Mar 15 2009                               72.57793552
Apr 15 2009                               73.11422568
May 15 2009                               73.65051585
Jun 15 2009                               74.18680601
Jul 15 2009                               74.72309617
Aug 15 2009                               72.04164536
Sep 15 2009                               72.57793552
Oct 15 2009                               73.11422568
Nov 15 2009                               73.65051585
Dec 15 2009                               74.18680601
Jan 15 2010                               74.72309617
Feb 15 2010                               32.40230109
Mar 15 2010                               32.64350929
Apr 15 2010                               32.88471749
May 15 2010                               33.12592568
Jun 15 2010                               33.36713388
Jul 15 2010                               33.60834208
Aug 15 2010                               32.40230109
Sep 15 2010                               32.64350929
Oct 15 2010                               32.88471749
Nov 15 2010                               33.12592568
Dec 15 2010                               33.36713388
Jan 15 2011                               33.60834208
Feb 15 2011                               21.32288415
Mar 15 2011                               21.48161530
Apr 15 2011                               21.64034645
May 15 2011                               21.79907760
Jun 15 2011                               21.95780874
Jul 15 2011                               22.11653989
Aug 15 2011                               21.32288415
Sep 15 2011                               21.48161530
Oct 15 2011                               21.64034645
Nov 15 2011                               21.79907760
Dec 15 2011                               21.95780874
</TABLE>
<PAGE>   45
                                                                       EXHIBIT B

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                    EQUITY PORTION OF
                 DATE                               TERMINATION VALUE
              -----------                           -----------------
<S>                                                 <C>
              Jan 15 2012                               22.11653989
              Feb 15 2012                               14.99049891
              Mar 15 2012                               15.10209071
              Apr 15 2012                               15.21368251
              May 15 2012                               15.32527432
              Jun 15 2012                               15.43686612
              Jul 15 2012                               15.54845792
              Aug 15 2012                               14.99049891
              Sep 15 2012                               15.10209071
              Oct 15 2012                               15.21368251
              Nov 15 2012                               15.32527432
              Dec 15 2012                               15.43686612
              Jan 15 2013                               15.54845792
              Feb 15 2013                               11.96161257
              Mar 15 2013                               12.05065683
              Apr 15 2013                               12.13970109
              May 15 2013                               12.22874536
              Jun 15 2013                               12.31778962
              Jul 15 2013                               12.40683388
              Aug 15 2013                               11.96161257
              Sep 15 2013                               12.05065683
              Oct 15 2013                               12.13970109
              Nov 15 2013                               12.22874536
              Dec 15 2013                               12.31778962
              Jan 15 2014                               12.40683388
              Feb 15 2014                                8.56804426
              Mar 15 2014                                8.63182623
              Apr 15 2014                                8.69560820
              May 15 2014                                8.75939016
              Jun 15 2014                                8.82317213
              Jul 15 2014                                8.88695410
              Aug 15 2014                                8.56804426
              Sep 15 2014                                8.63182623
              Oct 15 2014                                8.69560820
              Nov 15 2014                                8.75939016
              Dec 15 2014                                8.82317213
              Jan 15 2015                                8.88695410
              Feb 15 2015                                5.25551639
              Mar 15 2015                                5.29463934
              Apr 15 2015                                5.33376230
              May 15 2015                                5.37288525
              Jun 15 2015                                5.41200820
              Jul 15 2015                                5.45113115
              Aug 15 2015                                5.25551639
</TABLE>
<PAGE>   46
                                                                       EXHIBIT B


                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


<TABLE>
<CAPTION>
                                                      DEBT PORTION OF
  DATE                                               TERMINATION VALUE
-----------                                          -----------------
<S>                                                  <C>
Sep 15 2015                                              5.29463934
Oct 15 2015                                              5.33376230
Nov 15 2015                                              5.37288525
Dec 15 2015                                              5.41200820
Jan 15 2016                                              5.45113115
Feb 15 2016                                              1.13897049
Mar 15 2016                                              1.14744918
Apr 15 2016                                              1.15592787
May 15 2016                                              1.16440656
Jun 15 2016                                              1.17288525
Jul 15 2016                                              1.18136393
Aug 15 2016                                              1.13897049
Sep 15 2016                                              1.14744918
Oct 15 2016                                              1.15592787
Nov 15 2016                                              1.16440656
Dec 15 2016                                              1.17288525
Jan 15 2017                                              1.18136393
Feb 15 2017                                              0.44065738
Mar 15 2017                                              0.44393770
Apr 15 2017                                              0.44721803
May 15 2017                                              0.45049836
Jun 15 2017                                              0.45377869
Jul 15 2017                                              0.45705902
Aug 15 2017                                              0.44065738
Sep 15 2017                                              0.44393770
Oct 15 2017                                              0.44721803
Nov 15 2017                                              0.45049836
Dec 15 2017                                              0.45377869
Jan 15 2018                                              0.45705902
Feb 15 2018                                              0.44065738
Mar 15 2018                                              0.44393770
Apr 15 2018                                              0.44721803
May 15 2018                                              0.45049836
Jun 15 2018                                              0.45377869
Jul 15 2018                                              0.45705902
Aug 15 2018                                              0.00000000
Sep 15 2018                                              0.00000000
Oct 15 2018                                              0.00000000
Nov 15 2018                                              0.00000000
Dec 15 2018                                              0.00000000
Jan 15 2019                                              0.00000000
Feb 15 2019                                              0.00000000
Mar 15 2019                                              0.00000000
Apr 15 2019                                              0.00000000
</TABLE>




<PAGE>   47
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                          DEBT PORTION OF
     DATE                TERMINATION VALUE
---------------          -----------------
<S>                      <C>
 May 15 2019                 0.00000000
 Jun 15 2019                 0.00000000
 Jul 15 2019                 0.00000000
 Aug 15 2019                 0.00000000
 Sep 15 2019                 0.00000000
 Oct 15 2019                 0.00000000
 Nov 15 2019                 0.00000000
 Dec 15 2019                 0.00000000
 Jan 15 2020                 0.00000000
 Feb 15 2020                 0.00000000
 Mar 15 2020                 0.00000000
 Apr 15 2020                 0.00000000
 May 15 2020                 0.00000000
 Jun 15 2020                 0.00000000
 Jul 15 2020                 0.00000000
 Aug 15 2020                 0.00000000
 Sep 15 2020                 0.00000000
 Oct 15 2020                 0.00000000
 Nov 15 2020                 0.00000000
 Dec 15 2020                 0.00000000
 Jan 15 2021                 0.00000000
 Feb 15 2021                 0.00000000
 Mar 15 2021                 0.00000000
 Apr 15 2021                 0.00000000
 May 15 2021                 0.00000000
 Jun 15 2021                 0.00000000
 Jul 15 2021                 0.00000000
 Aug 15 2021                 0.00000000
 Sep 15 2021                 0.00000000
 Oct 15 2021                 0.00000000
 Nov 15 2021                 0.00000000
 Dec 15 2021                 0.00000000
 Jan 15 2022                 0.00000000
 Feb 15 2022                 0.00000000
 Mar 15 2022                 0.00000000
 Apr 15 2022                 0.00000000
 May 15 2022                 0.00000000
 Jun 15 2022                 0.00000000
 Jul 15 2022                 0.00000000
 Aug 15 2022                 0.00000000
 Sep 15 2022                 0.00000000
 Oct 15 2022                 0.00000000
 Nov 15 2022                 0.00000000
 Dec 15 2022                 0.00000000
</TABLE>


<PAGE>   48

                                                                       EXHIBIT B


                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


<TABLE>
<CAPTION>
                                                       DEBT PORTION OF
               DATE                                   TERMINATION VALUE
          ----------------                            -----------------
<S>                                                   <C>
            Jan 15 2023                                      0.00000000
            Feb 15 2023                                      0.00000000
            Mar 15 2023                                      0.00000000
            Apr 15 2023                                      0.00000000
            May 15 2023                                      0.00000000
            Jun 15 2023                                      0.00000000
            Jul 15 2023                                      0.00000000
            Aug 15 2023                                      0.00000000
            Sep 15 2023                                      0.00000000
            Oct 15 2023                                      0.00000000
            Nov 15 2023                                      0.00000000
            Dec 15 2023                                      0.00000000
            Jan 15 2024                                      0.00000000
            Feb 15 2024                                      0.00000000
            Mar 15 2024                                      0.00000000
            Apr 15 2024                                      0.00000000
            May 15 2024                                      0.00000000
            Jun 15 2024                                      0.00000000
            Jul 15 2024                                      0.00000000
            Aug 15 2024                                      0.00000000
            Sep 15 2024                                      0.00000000
            Oct 15 2024                                      0.00000000
            Nov 15 2024                                      0.00000000
            Dec 15 2024                                      0.00000000
            Jan 15 2025                                      0.00000000
            Feb 15 2025                                      0.00000000
            Mar 15 2025                                      0.00000000
            Apr 15 2025                                      0.00000000
            May 15 2025                                      0.00000000
            Jun 15 2025                                      0.00000000
            Jul 15 2025                                      0.00000000
            Aug 15 2025                                      0.00000000
            Sep 15 2025                                      0.00000000
            Oct 15 2025                                      0.00000000
            Nov 15 2025                                      0.00000000
            Dec 15 2025                                      0.00000000
            Jan 15 2026                                      0.00000000
            Feb 15 2026                                      0.00000000
            Mar 15 2026                                      0.00000000
            Apr 15 2026                                      0.00000000
            May 15 2026                                      0.00000000
            Jun 15 2026                                      0.00000000
            Jul 15 2026                                      0.00000000
            Aug 15 2026                                      0.00000000
</TABLE>

<PAGE>   49
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                           DEBT PORTION OF
    DATE                  TERMINATION VALUE
------------              -----------------
<S>                       <C>
Sep 15 2026                      0.00000000
Oct 15 2026                      0.00000000
Nov 15 2026                      0.00000000
Dec 15 2026                      0.00000000
Jan 15 2027                      0.00000000
Feb 15 2027                      0.00000000
Mar 15 2027                      0.00000000
Apr 15 2027                      0.00000000
May 15 2027                      0.00000000
Jun 15 2027                      0.00000000
Jul 15 2027                      0.00000000
Aug 15 2027                      0.00000000
Sep 15 2027                      0.00000000
Oct 15 2027                      0.00000000
Nov 15 2027                      0.00000000
Dec 15 2027                      0.00000000
Jan 15 2028                      0.00000000
Feb 15 2028                      0.00000000
Mar 15 2028                      0.00000000
Apr 15 2028                      0.00000000
May 15 2028                      0.00000000
Jun 15 2028                      0.00000000
Jul 15 2028                      0.00000000
Aug 15 2028                      0.00000000
Sep 15 2028                      0.00000000
Oct 15 2028                      0.00000000
Nov 15 2028                      0.00000000
Dec 15 2028                      0.00000000
Jan 15 2029                      0.00000000
Feb 15 2029                      0.00000000
Mar 15 2029                      0.00000000
Apr 15 2029                      0.00000000
May 15 2029                      0.00000000
Jun 15 2029                      0.00000000
Jul 15 2029                      0.00000000
Aug 15 2029                      0.00000000
Sep 15 2029                      0.00000000
Oct 15 2029                      0.00000000
Nov 15 2029                      0.00000000
Dec 15 2029                      0.00000000
Jan 15 2030                      0.00000000
Feb 15 2030                      0.00000000
Mar 15 2030                      0.00000000
Apr 15 2030                      0.00000000
</TABLE>
<PAGE>   50
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                    DEBT PORTION OF
   DATE                            TERMINATION VALUE
-----------                        -----------------
<S>                                <C>
May 15 2030                            0.00000000
Jun 15 2030                            0.00000000
Jul 15 2030                            0.00000000
Aug 15 2030                            0.00000000
Sep 15 2030                            0.00000000
Oct 15 2030                            0.00000000
Nov 15 2030                            0.00000000
Dec 15 2030                            0.00000000
Jan 15 2031                            0.00000000
Feb 15 2031                            0.00000000
Mar 15 2031                            0.00000000
Apr 15 2031                            0.00000000
May 15 2031                            0.00000000
Jun 15 2031                            0.00000000
Jul 15 2031                            0.00000000
Aug 15 2031                            0.00000000
Sep 15 2031                            0.00000000
Oct 15 2031                            0.00000000
Nov 15 2031                            0.00000000
Dec 15 2031                            0.00000000
Jan 15 2032                            0.00000000
Feb 15 2032                            0.00000000
Mar 15 2032                            0.00000000
Apr 15 2032                            0.00000000
May 15 2032                            0.00000000
Jun 15 2032                            0.00000000
Jul 15 2032                            0.00000000
Aug 15 2032                            0.00000000
Sep 15 2032                            0.00000000
Oct 15 2032                            0.00000000
Nov 15 2032                            0.00000000
Dec 15 2032                            0.00000000
Jan 15 2033                            0.00000000
Feb 15 2033                            0.00000000
Mar 15 2033                            0.00000000
Apr 15 2033                            0.00000000
May 15 2033                            0.00000000
Jun 15 2033                            0.00000000
Jul 15 2033                            0.00000000
Aug 15 2033                            0.00000000
Sep 15 2033                            0.00000000
Oct 15 2033                            0.00000000
Nov 15 2033                            0.00000000
Dec 15 2033                            0.00000000
</TABLE>
<PAGE>   51
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                   DEBT PORTION OF
    DATE                                          TERMINATION VALUE
-----------                                       -----------------
<S>                                                  <C>
Jan 15 2034                                          0.00000000
Feb 15 2034                                          0.00000000
Mar 15 2034                                          0.00000000
Apr 15 2034                                          0.00000000
May 15 2034                                          0.00000000
Jun 15 2034                                          0.00000000
Jul 15 2034                                          0.00000000
Aug 15 2034                                          0.00000000
Sep 15 2034                                          0.00000000
Oct 15 2034                                          0.00000000
Nov 15 2034                                          0.00000000
Dec 15 2034                                          0.00000000
Jan 15 2035                                          0.00000000
Feb 15 2035                                          0.00000000
Mar 15 2035                                          0.00000000
Apr 15 2035                                          0.00000000
May 15 2035                                          0.00000000
Jun 15 2035                                          0.00000000
Jul 15 2035                                          0.00000000
Aug 15 2035                                          0.00000000
Sep 15 2035                                          0.00000000
Oct 15 2035                                          0.00000000
Nov 15 2035                                          0.00000000
Dec 15 2035                                          0.00000000
Jan 15 2036                                          0.00000000
Feb 15 2036                                          0.00000000
Mar 15 2036                                          0.00000000
Apr 15 2036                                          0.00000000
May 15 2036                                          0.00000000
Jun 15 2036                                          0.00000000
Jul 15 2036                                          0.00000000
Aug 15 2036                                          0.00000000
Sep 15 2036                                          0.00000000
Oct 15 2036                                          0.00000000
Nov 15 2036                                          0.00000000
Dec 15 2036                                          0.00000000
Dec 19 2036                                          0.00000000
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12.6
<SEQUENCE>18
<FILENAME>f70293ex4-12_6.txt
<DESCRIPTION>EXHIBIT 4.12.6
<TEXT>

<PAGE>   1
                                                                  EXHIBIT 4.12.6



                                                                  EXECUTION COPY


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


                CALPINE GUARANTY AND PAYMENT AGREEMENT (RUMFORD)




                          Dated as of December 19, 2000



                                      among



                              CALPINE CORPORATION,

                                  as Guarantor,

                                       and

            PMCC Calpine New England Investment LLC, as Owner Lessor,



                  PMCC Calpine NEIM LLC, as Owner Participant,



          STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
                                  ASSOCIATION,
      not in its individual capacity but solely as Indenture Trustee, and

          STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
                                  ASSOCIATION,
       not in its individual capacity but solely as Pass Through Trustee,

                                as Beneficiaries



                           CALPINE NEW ENGLAND PROJECT



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

<PAGE>   2

EXHIBITS

Exhibit A      Equity Portion of Termination Value

Exhibit B      Debt Portion of Termination Value



                                       1
<PAGE>   3

                CALPINE GUARANTY AND PAYMENT AGREEMENT (RUMFORD)

               This CALPINE GUARANTY AND PAYMENT AGREEMENT (RUMFORD), dated as
of December 19, 2000 (the "Guaranty"), is entered into by and among Calpine
Corporation, a Delaware corporation, as guarantor (the "Guarantor"), PMCC
CALPINE NEW ENGLAND INVESTMENT LLC, a Delaware limited liability company, as
Owner Lessor, PMCC CALPINE NEIM LLC, a Delaware limited liability company, as
Owner Participant, STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION, not in its individual capacity but solely as Indenture Trustee and
STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, not in
its individual capacity but solely as Pass Through Trustee, and is issued by the
Guarantor in favor of the Beneficiaries (as defined in Section 4 below).

                                   WITNESSETH:

               WHEREAS, Rumford Power Associates Limited Partnership (the
"Rumford Lessee") is an indirect wholly-owned subsidiary of the Guarantor;

               WHEREAS, the Rumford Lessee is a party to the Participation
Agreement dated as of December 19, 2000 (the "Participation Agreement"), among
the Rumford Lessee, Rumford Power Associates Limited Partnership, PMCC Calpine
New England Investment LLC, as Owner Lessor, the Guarantor, PMCC Calpine NEIM
LLC, as Owner Participant, State Street Bank and Trust Company of Connecticut,
N.A., not in its individual capacity, except as expressly provided in the
Participation Agreement, but solely as Indenture Trustee and State Street Bank
and Trust Company of Connecticut, N.A., not in its individual capacity, except
as expressly provided in the Participation Agreement, but solely as Pass Through
Trustee;

               WHEREAS, the Rumford Lessee and the Owner Lessor are entering
into the Rumford Facility Lease, to be dated as of December 19, 2000 (as
amended, modified or supplemented from time to time pursuant to Section 14.24 of
the Participation Agreement, the "Rumford Facility Lease"), providing for the
Owner Lessor's leasing of the Rumford Facility to the Rumford Lessee as
contemplated therein;

               WHEREAS, the Guarantor will obtain benefits as a result of the
Rumford Lessee entering into the Rumford Facility Lease and the other
transactions contemplated by the Participation Agreement; and

               WHEREAS, pursuant to Section 4.2 of the Participation Agreement,
this Guaranty is required to be provided by the Guarantor.

               NOW, THEREFORE, in consideration of the foregoing premises, the
mutual agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Guarantor
agrees as follows:



                                       1
<PAGE>   4

SECTION 1. DEFINITIONS

               (a) Capitalized terms used in this Guaranty, including the
recitals, and not otherwise defined herein shall have the respective meanings
set forth on Appendix A to the Participation Agreement, provided that if a term
that is defined in this Guaranty (the "Guaranty Definition") includes in such
definition a term that is defined in Appendix A to the Participation Agreement
(the "Appendix A Definition"), and the Appendix A Definition in turn includes in
such definition a term that is defined both in this Guaranty and in Appendix A
to the Participation Agreement (the "Embedded Definition"), then for purposes of
the Appendix A Definition as it is used in the Guaranty Definition and for
purposes of the Guaranty Definition, the Embedded Definition shall be used as
defined in this Guaranty and not as defined in Appendix A to the Participation
Agreement. Except as otherwise provided in the previous sentence, the Rules of
Interpretation set forth in Appendix A to the Participation Agreement shall
apply to the terms used in this Guaranty and specifically defined herein.

               (b) As used in this Guaranty, the following terms shall have the
respective meanings assigned thereto as follows:

                      "GAAP" means generally accepted accounting principals in
the United States of America as in effect and, to the extent optional, adopted
by the Guarantor, on the date of the Guaranty, consistently applied.

                      "Indebtedness" of any Person means, without duplication,
(i) the principal in respect of indebtedness of such Person for money borrowed
and; (ii) all Capitalized Lease Obligations of such Person; (iii) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) and (ii) above) entered into in the ordinary course
of business of such Person to the extent such letters of credit are not drawn
upon or, if and to the extent drawn upon, such drawing is reimbursed no later
than the tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (iv) all obligations
of the type referred to in clauses (i) through (iii) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise; and (v) all obligations of the type referred to in clauses (i)
through (iv) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation on any date of determination being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured. The amount of Indebtedness of any Person at any date shall be, with
respect to unconditional obligations, the outstanding balance at such date of
all such obligations as described above and, with respect to any contingent
obligations at such date, the maximum liability determined by such Person's
board of directors, in good faith, as, in light of the facts and circumstances
existing at the time, reasonably likely to be Incurred upon the occurrence of
the contingency giving rise to such obligation.



                                       2
<PAGE>   5

                      "Lien" means any mortgage, lien, pledge, charge, or other
security interest or encumbrance of any kind (including any conditional sale or
other title retention agreement and any lease in the nature thereof).

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

                      "Subsidiary" means, as applied to any Person, any
corporation, partnership, trust, association or other business entity of which
an aggregate of at least 50% of the outstanding Voting Shares or an equivalent
controlling interest therein, of such Person is, at the time, directly or
indirectly, owned by such Person and/or one or more Subsidiaries of such Person.

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


SECTION 2. GUARANTEED AND PAYMENT OBLIGATIONS

               Section 2.1. (a) The Guarantor hereby unconditionally and
irrevocably guarantees to the Beneficiaries (except that the obligations
referred to in clauses (1), (2) and (5)(A) (relating to clause (1) and clause
(2) amounts) are for the benefit only of the Owner Lessor and the Indenture
Trustee (as assignee of the Owner Lessor), as their interests may appear), as
primary obligor and not merely as a surety, the due, punctual and full payment
(when and as the same may become due and payable), and, as applicable,
performance by the Rumford Lessee of all of the Rumford Lessee's obligations
under the Rumford Operative Documents to which it is a party if the same shall
not be performed when due pursuant to the Rumford Operative Documents,
including, without limitation, but without duplication, (1) the Rumford Lessee's
obligation to make Periodic Rent, Supplemental Rent and other payments (in
accordance with the terms of the Rumford Operative Documents) to the Owner
Lessor, (2) the Rumford Lessee's obligation to pay Termination Value (and
amounts computed by reference thereto) to the Owner Lessor and all other amounts
owed under the Operative Documents under and in accordance with the Rumford
Facility Lease, (3) without duplication of the preceding clause (2), the Rumford
Lessee's obligation to pay the Equity Portion of Periodic Rent and the Equity
Portion of Termination Value to the Owner Lessor, (4) the Rumford Lessee's
obligation to make indemnity payments in accordance with the terms of the
Participation Agreement and the Tax Indemnity Agreement, (5) the Rumford
Lessee's obligation, pursuant to Section 3.3 of the Rumford Facility Lease, to
pay as Supplemental Rent an amount equal to (A) interest at the applicable
Overdue Rate on any amount under clauses (1), (2), (3), (4) and 5(B) of this
Section 2.1(a), not paid when due and (B) any Make-Whole Amount payable by the
Owner Lessor to the Certificateholders pursuant to the Participation Agreement,
the



                                       3
<PAGE>   6

Rumford Facility Lease or any other Rumford Operative Document to which the
Rumford Lessee is a party and (6) the Rumford Lessee's obligation to make any
and all other payments, and perform all other covenants and agreements, under
and in accordance with the terms of the Rumford Operative Documents.

               (b) The Guarantor agrees that upon the occurrence and during the
continuance of a Lease Event of Default, it (1) shall pay to the Owner Lessor
the Equity Portion of Periodic Rent and the Equity Portion of Termination Value
as set forth in Exhibit A hereto, upon written demand by the Owner Lessor, such
demand to be at the times permitted by, and otherwise subject to, the provisions
of Section 5.6 of the Collateral Trust Indenture (so long as the Collateral
Trust Indenture is in effect at such time), and (2) shall pay to the Indenture
Trustee (as assignee of the Owner Lessor), upon written demand by the Indenture
Trustee (as assignee of the Owner Lessor), all other amounts constituting
Termination Value as set forth on Exhibit B hereto and Periodic Rent. Such
payment obligation shall be effective without reference to or requirement for
valuation of the Owner Lessor's Interest or any other security held by any
Person for performance of the Rumford Lessee's obligations under the Rumford
Facility Lease or any other Operative Documents. The Guarantor agrees that it
shall make such payment notwithstanding the fact that, pursuant to Section 17.1
of the Rumford Facility Lease, such amounts might not otherwise be payable by
the Lessee. The Guarantor's obligations in this Section 2.1(b) are direct and
primary obligations (and not obligations of a guarantor or surety) of the
Guarantor to the Owner Lessor and the Indenture Trustee (as assignee of the
Owner Lessor), which shall not be affected in any way by the provisions of
Section 2.1(a) above or any payments under any other Operative Documents of any
amounts until the Owner Lessor and the Indenture Trustee (as assignee of the
Owner Lessor) have received full payment of such amounts.

               (c) The Guarantor acknowledges that notwithstanding the
provisions of the second sentence of Section 8.13 hereof (i) as and to the
extent provided in Section 5.6 of the Collateral Trust Indenture (A) upon the
occurrence and during the continuation of a Lease Event of Default, the
Indenture Trustee and the Owner Lessor may proceed against the Guarantor for the
payment of the Termination Value (including without limitation all amounts the
Guarantor is obligated to pay under Section 2.1(b) hereof under the
circumstances specified therein), (B) upon the occurrence and during the
continuation of a Lease Event of Default and the lapse of a period of 180 days
after the declaration thereof, the Owner Lessor shall have the right to claim
for and be paid to an account designated by it the amounts referred to in clause
(3) of paragraph (a) of this Section 2.1 and clause (1) of paragraph (b) of this
Section 2.1 (without duplication) (together with Overdue Interest on such
amounts) and (C) only the Owner Lessor is entitled to compromise or settle any
claim to the amounts referred to in clause (B) above; and unless so compromised
or settled by the Owner Lessor, such claim shall survive until such claim shall
be paid to the Owner Lessor in full; and (ii) payments made to the Indenture
Trustee under this Guaranty with respect to the Debt Portion of Termination
Value and the Equity Portion of Termination Value shall first be applied to
satisfy the indebtedness evidenced by the Lessor Notes before being applied to
satisfy any claim in respect of the amounts and Overdue Interest referred to in
the preceding clause (B).



                                       4
<PAGE>   7

               (d) Notwithstanding anything herein or in the Collateral Trust
Indenture to the contrary, in the event that an Indenture Event of Default that
is attributable to a Lease Event of Default has occurred and is continuing and
the Indenture Trustee (as assignee of the Owner Trustee) forecloses upon and
sells, assigns or otherwise transfers, its interest in this Guaranty pursuant to
the provisions of the Collateral Trust Indenture, the Guarantor shall remain
obligated hereunder to pay to the Owner Lessor an amount equal to the amounts
referred to in Section 2.1(a)(3) and Section 2.1(b)(1) (but without
duplication). Any purchaser, assignee or other transferee of the Indenture
Trustee's interest in this Guaranty shall have a claim pursuant to Section
2.1(a)(1) and (2) and Section 2.1(b)(2) of the Guaranty for the Debt Portion of
Termination Value (Rumford) and the Debt Portion of Periodic Rent (Rumford), but
not a claim for the Equity Portion of Termination Value (Rumford) and the Equity
Portion of Periodic Rent (Rumford).

               Section 2.2. In the case of any failure by the Rumford Lessee to
perform and observe any term, provision or condition referred to in Section
2.1(a) when due pursuant to the Operative Documents, the Guarantor agrees to
cause such performance or observance to be done, and in the case of any failure
by the Rumford Lessee to make such payment as and when the same shall become due
and payable (by acceleration or otherwise), the Guarantor hereby agrees to make
such payment (and, in addition, such further amounts, if any, as shall be
sufficient to cover the costs and expenses of collection hereunder) as and when
such payment is due and payable.

               All obligations and indebtedness set forth in Section 2.1 above,
this Section 2.2, and in Section 8.15 below are referred to in this Guaranty as
the "Obligations (Rumford)."

               Section 2.3. The obligations of the Guarantor contained herein
are direct, independent, and primary obligations of the Guarantor and are
absolute, present, unconditional and continuing obligations and are not
conditioned in any way upon the institution of suit or the taking of any other
action or any attempt to enforce performance of or compliance with the
obligations, covenants or undertakings (including any payment obligations) of
the Rumford Lessee and shall constitute a guaranty of, and agreement with
respect to, payment and performance and not a guaranty of collection, binding
upon the Guarantor and its successors and assigns and shall remain in full force
and effect and irrevocable without regard to the genuineness, validity, legality
or enforceability of the Participation Agreement, the Rumford Facility Lease,
the Tax Indemnity Agreement or any other agreement (including any other Rumford
Operative Document) or the lack of power or authority of the Rumford Lessee to
enter into any of the Participation Agreement, the Rumford Facility Lease, the
Tax Indemnity Agreement or any other agreement (including any other Rumford
Operative Document) to which the Rumford Lessee is a party, or any substitution,
release or exchange of any other guaranty of, or agreement with respect to, or
any other security for, any of the Obligations (Rumford) (including any
settlement, compromise or other adjustment with respect to the Obligations
(Rumford)) or any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a surety or guarantor and shall not
be subject to any right of set-off, recoupment or counterclaim and is in no way



                                       5
<PAGE>   8

conditioned or contingent upon any attempt to collect from the Rumford Lessee or
any other entity or to perfect or enforce any security or upon any other
condition or contingency or upon any other action, occurrence or circumstance
whatsoever. Without limiting the generality of the foregoing, the Guarantor
shall have no right to terminate this Guaranty, or to be released, relieved or
discharged from its obligations hereunder, other than upon full payment and
satisfaction and performance of all of the Obligations (Rumford) (subject to
Section 8.14 hereof), and such obligations shall be neither affected nor
diminished for any other reason whatsoever, including (i) any amendment or
supplement to or modification of any of the Participation Agreement, the Rumford
Facility Lease, the Tax Indemnity Agreement or any other agreement (including
any other Rumford Operative Document) to which the Rumford Lessee is a party,
any release, extension or renewal of the Rumford Lessee's obligations under any
of the Participation Agreement, the Rumford Facility Lease, the Tax Indemnity
Agreement or any other agreement (including any other Rumford Operative
Document) to which the Rumford Lessee is a party or by which it is bound,
including, without limitation, any actions taken by the Indenture Trustee
pursuant to the Collateral Trust Indenture, or any subletting, assignment or
transfer of the Rumford Lessee's or any Beneficiary's interest in the
Participation Agreement, the Rumford Facility Lease or any other Rumford
Operative Document in accordance with the terms thereof, (ii) any bankruptcy,
insolvency, readjustment, composition, liquidation or similar proceeding with
respect to the Rumford Lessee, Owner Lessor, Owner Participant or any other
Person, including, without limitation, termination of the Rumford Facility Lease
and the operation of Section 502(b)(6) of the Bankruptcy Code in connection
therewith, (iii) any furnishing or acceptance of additional security or any
exchange, substitution, surrender or release of any security, (iv) any waiver,
consent or other action or inaction or any exercise or nonexercise of any right,
remedy or power with respect to the Obligations (Rumford) (including any
settlement, compromise or other adjustment with respect to the Obligations
(Rumford)) or any of the Participation Agreement, the Rumford Facility Lease,
the Tax Indemnity Agreement or any other agreement (including any Rumford
Operative Document) to which the Rumford Lessee is a party, (v) without limiting
Section 3.6(b) hereof, any merger or consolidation of the Rumford Lessee or the
Guarantor into or with any other Person, or any sale, assignment, conveyance,
lease, transfer or other disposition of all or substantially all of the assets
or properties of the Rumford Lessee or the Guarantor, or any change in the
structure of the Rumford Lessee or in the ownership of the Rumford Lessee by the
Guarantor, (vi) any default, misrepresentation, negligence, misconduct or other
action or inaction of any kind by any Beneficiary, the Indenture Trustee or any
other Person under or in connection with any Rumford Operative Document or any
other agreement relating to this Guaranty, (vii) any action or inaction by any
Beneficiary as contemplated in Section 5 of this Guaranty; (viii) any
invalidity, irregularity or unenforceability of all or part of the Obligations
(Rumford) or of any security therefor; (ix) any change in the manner, place,
timing or schedule of payment or performance of, or in any other term of, all or
any of the Obligations (Rumford); (x) whether the Guarantor is related or
unrelated to the Rumford Lessee, (xi) the assignment by the Owner Lessor of its
rights and interests hereunder, under the Rumford Facility Lease or under any
other Rumford Operative Document in accordance with the Rumford Operative
Documents (or the genuineness, validity, legality or



                                       6
<PAGE>   9

enforceability of the obligations of the Owner Lessor under the Collateral Trust
Indenture) and (xii) any other circumstance whatsoever.

SECTION 3. GUARANTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS

               Section 3.1. The Guarantor represents and warrants, as of the
date hereof:

               (i) The Guarantor is duly organized, validly existing and in good
        standing under the laws of the State of Delaware and has full power,
        authority and the legal right to execute, deliver and perform the terms
        of this Guaranty and each Operative Document to which it is a party
        (together, the "Calpine Documents").

               (ii) The execution, delivery and performance by the Guarantor of
        the Calpine Documents have been duly authorized by all necessary
        corporate action. The Calpine Documents constitute legal, valid and
        binding obligations of the Guarantor enforceable against the Guarantor
        in accordance with their respective terms, except as such enforcement
        may be affected by applicable bankruptcy, insolvency, moratorium and
        other similar laws affecting creditors' rights generally and by general
        principles of equity.

               (iii) The execution, delivery and performance of the Calpine
        Documents will not (a) contravene any provision of law, rule or
        regulation to which the Guarantor is subject or any judgment, decree or
        order applicable to the Guarantor, (b) conflict or be inconsistent with
        or result in any breach of any terms, covenants, conditions or
        provisions of, or constitute a default under, or result in the creation
        or imposition of (or the obligation to create or impose) any Lien or
        other encumbrance upon any of the property or assets of the Guarantor
        pursuant to the terms of any agreement or other instrument to which the
        Guarantor is a party or by which it or its property is bound or to which
        it or its property may be subject, in each case the violation of which
        would have a material adverse effect on the business, operations,
        prospects, properties or assets, or in the condition, financial or
        otherwise, of the Guarantor, or (c) violate or contravene any provision
        of the articles of incorporation or by-laws of the Guarantor.

               (iv) No pending or, to the knowledge of the Guarantor, threatened
        action, suit, investigation or proceedings against the Guarantor before
        any Governmental Entity exists which, if determined adversely to the
        Guarantor, would materially adversely affect the business, operations,
        prospects, properties or assets, or in its condition, financial or
        otherwise, or the Guarantor's ability to perform its obligations under
        the Calpine Documents.

               (v) No consent from, authorization or approval or other action
        by, and no notice to or filing with, any Person is required for the
        execution, delivery and



                                       7
<PAGE>   10

        performance by the Guarantor of the Calpine Documents except those which
        have been given and remain in full force and effect.

               (vi) The Rumford Lessee is an indirect, wholly owned subsidiary
        of the Guarantor.

               (vii) The Guarantor is not an "investment company" or a company
        controlled by an "investment company" within the meaning of the
        Investment Company Act of 1940.

               (viii) The Guarantor is not in default with respect to any
        judgment, order, writ, injunction, decree, award, rule or regulation of
        any court, arbitrator or governmental department, commission, board,
        bureau, agency or instrumentality, domestic or foreign, which, either,
        separately or in the aggregate, would result in any material adverse
        change in any of its businesses, operations, prospects or assets, or in
        its condition, financial or otherwise, or its ability to perform its
        obligations under the Calpine Documents.

               (ix) The Guarantor is not a party to any agreement or instrument,
        or subject to any corporate restriction or any judgment, order, writ,
        injunction, decree, award, rule or regulation, which materially
        adversely affects, or in the future may materially adversely affect, its
        business, operations, prospects, properties or assets, or conditions,
        financial or otherwise, or its ability to perform its obligations the
        Calpine Documents.

               (x) The audited financial statements of the Guarantor and its
        Consolidated Subsidiaries, as at December 31, 1999, reported on by
        Arthur Andersen LLP, copies of which have been delivered to the
        Indenture Trustee, the Pass Through Trustee, the Certificateholders and
        the Owner Participant, are true, complete and correct and fairly present
        the financial condition of the Guarantor and its Consolidated
        Subsidiaries as of the date thereof. The financial statements have been
        prepared in accordance with GAAP. The Guarantor and its Consolidated
        Subsidiaries do not have any material liabilities, direct or contingent,
        except (a) as are disclosed in such financial statements or (b) as arise
        under the Operative Documents. There has been no material adverse change
        in the financial condition of the Guarantor and its Consolidated
        Subsidiaries since the date of the audited financial statements referred
        to above.

               (xi) All factual information relating to the Guarantor (taken as
        a whole) heretofore or contemporaneously furnished by or on behalf of
        the Guarantor in writing to the Owner Lessor, the Owner Participant, the
        Indenture Trustee, the Pass Through Trustee or the Certificateholders
        (including, without limitation, all such information contained herein,
        in the Participation Agreement and in any preliminary or final offering
        circular distributed in accordance with the terms of the Rumford
        Operative Documents) for purposes of or in connection with the Calpine
        Documents or any transaction contemplated therein is true and accurate
        in all material respects on the date as of which such information is
        dated or



                                       8
<PAGE>   11

        certified and not incomplete by omitting to state any fact necessary to
        make such information relating to the Guarantor (taken as a whole) not
        misleading in any material respect at such time in light of the
        circumstances under which such information was provided; provided, that
        no representation or warranty is made with regard to (i) any projections
        or other forward-looking statements provided by or on behalf of the
        Guarantor, or (ii) the descriptions of the Rumford Operative Documents
        or the tax consequences to beneficial owners of Certificates; provided,
        however, each of the Beneficiaries acknowledges and agrees that (i)
        Calpine has heretofore provided to the Appraiser, solely in order to
        assist the Appraiser in connection with the preparation of the appraisal
        to be delivered by the Appraiser to certain of the Transaction Parties
        at the Closing, certain (1) general market information, (2) information
        about the Maine and Rhode Island energy markets and (3) information
        passed along from other Persons and (ii) that neither of the Facility
        Lessees makes any representation or warranty whatsoever with respect to
        the information described in clause (i) above except to the extent
        expressly set forth in Section 4(b) of the Tax Indemnity Agreement.

               (xii) The Guarantor is in compliance with all applicable
        statutes, regulations and orders of, and all applicable restrictions
        imposed by, all governmental bodies, domestic or foreign, in respect of
        the conduct of its business and the ownership of its property (including
        applicable statutes, regulations, orders and restrictions relating to
        environmental standards and controls), except such noncompliance as
        would not, in the aggregate, have a material adverse effect on the
        business, operations, property, assets or condition (financial or
        otherwise) of the Guarantor, or the Guarantor's ability to perform its
        obligations under the Calpine Documents.

               (xiii) The Guarantor has filed all tax returns and reports
        required by law to have been filed by it and has paid all taxes and
        governmental charges thereby shown to be owing (other than any such
        taxes or charges which are being diligently contested in good faith by
        appropriate proceedings and for which adequate reserves in accordance
        with GAAP shall have been set aside on its books), except such
        non-filing or non-payment, as the case may be, as would not, in the
        aggregate, have a material adverse effect on the business, operations,
        property, assets or condition (financial or otherwise) of the Guarantor.

               (xiv) No default has occurred under this Guaranty, which default
        would reasonably be expected to result in a material adverse effect on
        the business, operations, assets or condition (financial or otherwise)
        of the Guarantor.

               (xv) In accordance with Section 8.12 hereof and Section 14.04 of
        the Participation Agreement, the Guarantor has validly submitted to the
        jurisdiction of the Supreme Court of the State of New York, New York
        County and the United States District Court for the Southern District of
        New York.



                                       9
<PAGE>   12

               Section 3.2. The Guarantor covenants and agrees that on and after
the date hereof and until this Guaranty is terminated pursuant to the terms
hereof the Guarantor shall:

               (a) file with the Owner Participant and the Indenture Trustee,
within 15 days after the filing with the SEC, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Guarantor is required to file with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act. In the event the Guarantor is at any time no longer subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, it
shall file with the Owner Participant, and for so long as the Certificates
remain outstanding, the Indenture Trustee and the Pass Through Trustee, within
15 days after the Guarantor would have been required to file such documents with
the SEC, copies of the annual reports and of the information, documents and
other reports which the Guarantor would have been required to file with the SEC
if the Guarantor had continued to be subject to such Sections 13 or 15(d).
Delivery of such reports, information and documents to the Owner Participant,
the Indenture Trustee and the Pass Through Trustee is for informational purposes
only and their receipt of the same shall not constitute constructive notice of
any information contained therein or determinable from information contained
therein, including the Guarantor's compliance with any of its covenants
hereunder (as to which the Owner Participant, the Indenture Trustee and the Pass
Through Trustee are entitled to rely exclusively on Officers' Certificates);

               (b) furnish to the Beneficiaries, promptly upon the Guarantor
obtaining Actual Knowledge of any action, suit or proceeding pending or
threatened against the Guarantor before any court or before any governmental
department, commission or agency or any arbitrator, which in the Guarantor's
good faith opinion would reasonably be likely to result in a material adverse
effect on the business, operations, property, assets or condition (financial or
otherwise) of the Guarantor, a certificate of a senior officer specifying the
nature of such action, suit or proceeding and the proposed response of the
Guarantor thereto;

               (c) furnish to the Beneficiaries, as soon as possible and in any
event within three days after the Guarantor obtains Actual Knowledge of default
by the Guarantor of any of its material obligations under this Guaranty, a
statement of an authorized officer of the Guarantor setting forth details of
such default and the action which the Guarantor has taken and proposes to take
with respect thereto. Notwithstanding the foregoing provision in this clause
(c), the Guarantor shall, within 120 days after the close of each fiscal year of
the Guarantor in which Certificates are outstanding hereunder, file with the
Owner Participant, and if the Certificates are outstanding during any part of
such fiscal year, the Indenture Trustee and the Pass Through Trustee, an
Officer's Certificate, provided that one Officer executing the same shall be the
principal executive officer, the principal financial officer or the principal
accounting officer of the Guarantor, covering the period from the date hereof to
the end of the fiscal year in which this Guaranty was executed and delivered by
the Guarantor, in the case of the first such certificate, and covering the
preceding fiscal year in the case of each subsequent certificate, and stating
whether or not, to the Actual Knowledge of each



                                       10
<PAGE>   13

such executing Officer, the Guarantor has complied with and performed and
fulfilled all covenants on its part contained in this Guaranty and is not in
Default in the performance or observance of any of the terms or provisions
contained in this Guaranty, and, if any such signer has obtained Actual
Knowledge of any Default by the Guarantor in the performance, observance or
fulfillment of any such covenant, terms or provision specifying each such
Default and the nature thereof; and

               (d) promptly furnish to the Owner Participant, the Owner Lessor,
the Indenture Trustee or the Pass Through Trustee such other information as the
Owner Lessor, Owner Participant, the Indenture Trustee and the Pass Through
Trustee may from time to time reasonably request with respect to the Guarantor.

        So long as the Indenture Trustee is also serving as the Pass Through
Trustee, delivery to the Indenture Trustee shall satisfy the Guarantor's
obligation to furnish information to the Pass Through Trustee under this Section
3.2

               Section 3.3. The Guarantor covenants and agrees that it will not
transfer or assign or cause to be transferred or assigned the Ownership Interest
in the Rumford Lessee to any other Person, without the prior written consent of
the Owner Lessor, the Owner Participant and, so long as the Lien of the
Collateral Trust Indenture has not been terminated or discharged, the Indenture
Trustee and the Pass Through Trustee (it being agreed and understood that a
consolidation with or merger of the Guarantor into, or a sale by the Guarantor
of all or substantially all of its assets to, another Person in accordance with
Section 3.6 hereof shall not be deemed to be a transfer or assignment of the
Ownership Interest in the Rumford Lessee for the purposes of this Section),
except as permitted in this Section 3.3 or in Section 8.4 hereof.
Notwithstanding the foregoing, and subject to Section 8.4 below, so long as this
Guaranty remains in full force and effect, the Guarantor may transfer a portion
of the Ownership Interest in the Rumford Lessee (provided that following such
transfer the Guarantor shall continue to own at least a majority of the
Ownership Interest in the Rumford Lessee, as well as at least a majority of the
Ownership Interest in the Rumford Lessee) without the consent of the Owner
Lessor, the Owner Participant, the Indenture Trustee, the Pass Through Trustee
or any other Transaction Party if the following conditions have been satisfied:

               (i) the Owner Lessor, the Owner Participant and, so long as the
        Lien of the Collateral Trust Indenture shall not have been terminated or
        discharged, the Indenture Trustee and the Pass Through Trustee shall
        have received an Opinion of Counsel to the effect that all regulatory
        approvals required in connection with such transfer have been obtained;

               (ii) all the obligations of the Rumford Lessee under the Rumford
        Operative Documents shall remain in full force and effect, the Guarantor
        shall reaffirm in writing all of its obligations hereunder in a manner
        reasonably satisfactory to the Owner Participant, such obligations of
        the Guarantor shall remain in full force and effect;



                                       11
<PAGE>   14

               (iii) no Significant Lease Default or Lease Event of Default
        shall have occurred and be continuing at the time of or immediately
        following such transfer;

               (iv) the transfer shall not subject the Rumford Lessee, the
        Rumford Lessee, the Owner Participant, the Owner Lessor, the Indenture
        Trustee, the Pass Through Trustee or any Certificateholder to regulation
        under PUHCA or state laws and regulations regarding the rate and
        financial or organizational regulation of electric utilities in the
        affected party's reasonable opinion, nor result in a Regulatory Event of
        Loss; and

               (v) the Rumford Lessee shall have paid, at no after-tax cost to
        such parties, all reasonable and documented out-of-pocket expenses
        (including reasonable attorneys' fees and expenses) of the Owner Lessor,
        the Owner Participant, the Indenture Trustee, the Lease Indenture
        Company and the Pass Through Trustee in connection with such assignment.

               Section 3.4. Subject to Section 4, the Guarantor shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction unless (i) the Guarantor or such Restricted Subsidiary would be
entitled to create a Lien on such property securing Indebtedness in an amount
equal to the Attributable Debt with respect to such transaction without equally
and ratably securing the Obligations (Rumford) pursuant to Section 3.5 or (ii)
the net proceeds of such sale are at least equal to the fair value (as
determined by the Board of Directors) of such property or asset and the
Guarantor or such Restricted Subsidiary shall apply or cause to be applied an
amount in cash equal to the net proceeds of such sale to the retirement, within
180 days of the effective date of any such arrangement, of Indebtedness of the
Guarantor or any Restricted Subsidiary; provided, however, that in addition to
the transactions permitted pursuant to the foregoing clauses (i) and (ii), the
Guarantor or any Restricted Subsidiary may enter into a Sale/Leaseback
Transaction as long as the sum of (x) the Attributable Debt with respect to such
Sale/Leaseback Transaction and all other Sale/Leaseback Transactions entered
into pursuant to this proviso plus (y) the amount of outstanding Indebtedness
secured by Liens Incurred pursuant to the final proviso to Section 3.5 does not
exceed 15% of Consolidated Net Tangible Assets as determined based on the
consolidated balance sheet of the Guarantor as of the end of the most recent
fiscal quarter for which financial statements are available; and provided,
further, that a Restricted Subsidiary may enter into a Sale/Leaseback
Transaction with respect to property or assets owned by such Restricted
Subsidiary, the proceeds of which are used to explore, drill, develop,
construct, purchase, repair, improve or add to property or assets of any
Restricted Subsidiary, or to repay (within 365 days of the commencement of full
commercial operation of any such property) Indebtedness Incurred to explore,
drill, develop, construct, purchase, repair, improve or add to property or
assets of any Restricted Subsidiary.

               Section 3.5. Subject to Section 4, the Guarantor shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, incur any
Lien on any of its properties or assets (including Capital Stock), whether owned
at the date hereof or thereafter acquired, in each case to secure Indebtedness
of the Guarantor or any



                                       12
<PAGE>   15

Restricted Subsidiary, other than (a)(1) Liens incurred by the Guarantor or any
Restricted Subsidiary securing Indebtedness Incurred by the Guarantor or such
Restricted Subsidiary, as the case may be, to finance the exploration, drilling,
development, construction or purchase of or by, or repairs, improvements or
additions to, property or assets of the Guarantor or such Restricted Subsidiary,
as the case may be, which Liens may include Liens on the Capital Stock of such
Restricted Subsidiary or (2) Liens incurred by any Restricted Subsidiary that
does not own, directly or indirectly, at the time of such original incurrence of
such Lien under this clause (2) any operating properties or assets, securing
Indebtedness Incurred to finance the exploration, drilling, development,
construction or purchase of or by, or repairs, improvements or additions to,
property or assets of any Restricted Subsidiary that does not, directly or
indirectly, own any operating properties or assets at the time of such original
incurrence of such Lien, which Liens may include Liens on the Capital Stock of
one or more Restricted Subsidiaries that do not, directly or indirectly, own any
operating properties or assets at the time of such original incurrence of such
Lien, provided, however, that the Indebtedness secured by any such Lien may not
be issued more than 365 days after the later of the exploration, drilling,
development, completion of construction, purchase, repair, improvement, addition
or commencement of full commercial operation of the property or assets being so
financed; (b) Liens existing on the date hereof (other than Liens relating to
Indebtedness or other obligations being repaid or Liens that are otherwise
extinguished with the proceeds of the offering of the Certificates); (c) Liens
on property, assets or shares of stock of a Person at the time such Person
becomes a Subsidiary; provided, however, that any such Lien may not extend to
any other property or assets owned by the Guarantor or any Restricted
Subsidiary; (d) Liens on property or assets at the time the Guarantor or a
Subsidiary acquires the property or asset, including any acquisition by means of
a merger or consolidation with or into the Guarantor or a Subsidiary; provided,
however, that such Liens are not incurred in connection with, or in
contemplation of, such merger or consolidation; and provided, further, that the
Lien may not extend to any other property or asset owned by the Guarantor or any
Restricted Subsidiary; (e) Liens securing Indebtedness or other obligations of a
Subsidiary owing to the Guarantor or a Restricted Subsidiary or of the Guarantor
owing to a Subsidiary; (f) Liens incurred on assets that are the subject of a
Capitalized Lease Obligation to which the Guarantor or a Subsidiary is a party,
which shall include, Liens on the stock or other ownership interest in one or
more Restricted Subsidiaries leasing such assets; (g) Liens to secure any
refinancing, refunding, extension, renewal or replacement (or successive
refinancings, refundings, extensions, renewals or replacements) as a whole, or
in part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (a), (b), (c), (d) and (f), provided, however, that (x) such new Lien
shall be limited to all or part of the same property or assets that secured the
original Lien (plus repairs, improvements or additions to such property or
assets and Liens on the stock or other ownership interest in one or more
Restricted Subsidiaries beneficially owning such property or assets) and (y) the
amount of the Indebtedness secured by such Lien at such time (or, if the amount
that may be realized in respect of such Lien is limited, by contract or
otherwise, such limited lesser amount) is not increased (other than by an amount
necessary to pay fees and expenses, including premiums, related to the
refinancing, refunding, extension, renewal or replacement of such Indebtedness);
and (h) Liens by which the Obligations (Rumford)



                                       13
<PAGE>   16

are secured equally and ratably with other Indebtedness pursuant to this Section
3.5; in any such case without effectively providing that the Obligations
(Rumford) shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured; provided,
however, that the Guarantor or a Restricted Subsidiary may Incur other Liens to
secure outstanding Indebtedness as long as the sum of (x) the lesser of (A) the
amount of outstanding Indebtedness secured by Liens Incurred pursuant to this
proviso (or, if the amount that may be realized in respect of such Lien is
limited, by contract or otherwise, such limited lesser amount) and (B) the fair
value (as determined by the Board of Directors) of the property securing such
item of Indebtedness, plus (y) the Attributable Debt with respect to all
Sale/Leaseback Transactions entered into pursuant to the first proviso to
Section 3.4 does not exceed 15% of Consolidated Net Tangible Assets as
determined based on the Consolidated balance sheet of the Guarantor as of the
end of the most recent fiscal quarter for which financial statements are
available.

               Section 3.6. (a) The Guarantor covenants and agrees that it shall
not consolidate or merge with or into any other Person, or sell, assign, convey,
lease, transfer or otherwise dispose of, all or substantially all of its
properties or assets to any Person or Persons in one or a series of
transactions, unless immediately after giving effect to such transaction,

               (i) no Significant Lease Default or Lease Event of Default shall
        have occurred and be continuing;

               (ii) either (A) the Guarantor shall be the continuing Person, or
        (B) the Person (if other than the Guarantor) formed by such
        consolidation or into which the Guarantor is merged or to which the
        properties and assets of the Guarantor are sold, assigned, conveyed,
        transferred, disposed of or leased as aforesaid shall be an entity
        organized and existing under the laws of the United States or any State
        thereof or the District of Columbia and shall execute and deliver to the
        Owner Participant, the Owner Lessor and, so long as the Lien of the
        Collateral Trust Indenture shall not have been terminated or discharged,
        the Indenture Trustee and the Pass Through Trustee, a Guarantor's
        Assignment and Assumption Agreement; and

               (iii) each of the Owner Participant, the Owner Lessor and, so
        long as the Lien of the Collateral Trust Indenture shall not have been
        terminated or discharged, the Indenture Trustee and the Pass Through
        Trustee shall have received an Officer's Certificate of the Guarantor,
        the surviving entity or the transferee, as the case may be, in form and
        substance reasonably satisfactory to each of such parties, stating that
        the proposed merger, consolidation, assignment, conveyance, transfer,
        disposition, lease or sale, and the Guarantor Assignment and Assumption
        Agreement complies with the terms of this Section 3(a) and, as to legal
        matters, an Opinion of Counsel; and

               (iv) In addition to the conditions set forth in clauses (i)
        through (iii) above, the Guarantor, subject to Section 4, will not
        consummate any such



                                       14
<PAGE>   17

        consolidation, merger or sale of all or substantially all of its
        properties or assets unless the long-term unsecured debt of the
        resulting, surviving or succeeding entity shall have a credit rating
        assigned by the Rating Agencies that is not less than the lower of (x)
        the credit rating of the long-term unsecured debt of the Guarantor
        assigned by the Rating Agencies immediately prior to such transaction
        and (y) a credit rating of the long-term unsecured debt of the
        resulting, surviving or succeeding entity assigned by the Rating
        Agencies that is Investment Grade; provided however, the foregoing
        credit rating condition set forth in this paragraph may be waived by the
        Owner Participant in its sole discretion, and provided further, that if
        such credit rating condition is not otherwise satisfied, or waived by
        the Owner Participant, the Guarantor, the surviving entity or the
        transferee, as the case may be, may provide (and maintain in accordance
        with the provisions of Section 5.46(vi)(b) through (k) of the
        Participation Agreement (with appropriate conforming changes)) in the
        alternative, either (A) a Qualifying Letter of Credit from a Qualifying
        Letter of Credit Bank with at least an A rating from S&P and A2 rating
        from Moody's covering the Equity Portion of Termination Value from time
        to time throughout the Lease Term, or (B) if the long-term unsecured
        debt of the surviving entity or the transferee, as the case may be, has
        a credit rating assigned by the Rating Agencies at least equal to that
        of Calpine at Closing, a Qualifying Letter of Credit from a Qualifying
        Letter of Credit Bank with at least an A rating from S&P and A2 from
        Moody's covering fifty percent (50%) of the Equity Portion of
        Termination Value from time to time throughout the Lease Term or (C)
        alternative or additional credit support arrangements which result in
        the satisfaction of the rating condition in either clause (x) or clause
        (y) above, provided that such arrangements contemplated in this
        sub-clause (C) are satisfactory to the Owner Participant and result in
        the satisfaction of such rating condition.

               (b) Upon the consummation of such transaction described in
Section 3.6(a), the resulting, surviving or succeeding entity, if other than the
Guarantor, shall succeed to, and be substituted for, and may exercise every
right and power and shall perform every obligation of, the Guarantor under this
Guaranty and each other Calpine Document, and from and after the effective date
and time of the consummation of such transfer, the Guarantor shall be released
from all obligations accruing hereunder other than those accruing prior to such
effective date and time.

               Section 3.7. The Guarantor shall, together with each payment it
makes hereunder, provide a written notice to each Beneficiary or Beneficiaries
which are the intended recipients of such payment of the amount payable to each
such Beneficiary and the Rumford Operative Document(s) with respect to which
such payment is being made.

SECTION 4. BENEFICIARIES; TERMINATION OF CERTAIN COVENANTS

               The Owner Participant, the Owner Lessor, the Trust Company (but
only to the extent indemnified under the Participation Agreement) and, so long
as the Lien of the Collateral Trust Indenture has not been terminated or
discharged, the Indenture Trustee and the Lease Indenture Company, and (but only
to the extent expressly referred to



                                       15
<PAGE>   18

herein, and with respect to Section 3.2(a) hereof and with respect to the
obligations of the Rumford Lessee under the Participation Agreement) the Pass
Through Trustee (for the benefit of the Certificateholders) and the Pass Through
Company, in each case, together with their respective permitted successors and
assigns (and with respect to clause (ii) below, the other related Persons
referred to therein), are each beneficiaries of this Guaranty (each a
"Beneficiary" or, together, the "Beneficiaries"); provided that, notwithstanding
the foregoing or any other provision of this Guaranty, (i) the Owner Participant
shall be the sole and exclusive beneficiary of, and shall have the sole right to
enforce, (A) clause (iv) of Section 3.6(a) hereof, (B) clause (4) of Section
2.1(a) hereof to the extent relating to the Rumford Lessee's indemnity
obligation under the Tax Indemnity Agreement, (ii) to the extent that the
Rumford Lessee is obligated to indemnify a particular Beneficiary (or any
Affiliate, agent director, officer, or employee thereof) in accordance with
Section 9 of the Participation Agreement, then such Beneficiary (or such
Affiliate, agent, director, officer or employee) shall be the sole and exclusive
beneficiary of, and shall have the sole right to enforce, the Guarantor's
guaranty of, and agreement with respect to, such indemnification obligation
hereunder, (iii) the Owner Lessor shall be the sole and exclusive beneficiary
of, and shall have the sole right to enforce clause (B) of Section 2.1(c) hereof
and the fourth sentence of Section 2.1(b) hereof, and (iv) the Indenture
Trustee, the Lease Indenture Company, the Pass Through Trustee and the Pass
Through Company shall be the sole and exclusive beneficiaries of the provisions
of Section 3.4 and Section 3.5 hereof; provided however, with respect to this
clause (iii), once the Certificates shall have been paid in full, the covenants
set forth in Section 3.4 and Section 3.5 hereof shall, subject to the
immediately following sentence, immediately and without any further action
terminate and be of no further force or effect. Any amendment, waiver or
modification of or supplement to Section 3.4 or Section 3.5 which is consented
to by the Indenture Trustee shall be binding upon the Owner Lessor and the Owner
Participant. Notwithstanding the foregoing or anything herein or in any of the
Rumford Operative Documents to the contrary, if the Owner Lessor shall have
issued additional Lease Debt at the request of the Rumford Lessee in accordance
with Section 11 of the Participation Agreement prior to, simultaneously with, or
after payment in full of the Certificates and such new Lease Debt is outstanding
on or after the date the Certificates are paid in full, the covenants set forth
in Section 3.4 and Section 3.5 shall, to the extent required by the terms of
such new Lease Debt, remain in effect or thereafter become effective if not then
in effect, but shall be for the sole and exclusive benefit of, and enforceable
solely by, the holder of such new Lease Debt. Upon repayment of such new Lease
Debt, or compliance with the terms thereof, the covenants set forth in Section
3.4 and Section 3.5 shall immediately and without further action terminate and
be of no further force and effect. Notwithstanding any of the preceding
provisions, a breach of Sections 3.4 or 3.5 under this Guaranty at such time as
such breach shall have become an "Event of Default" under Section 7.1 shall
constitute a Lease Event of Default under the circumstances provided in, and to
the extent set forth in, the Rumford Facility Lease.

SECTION 5. BENEFICIARIES' RIGHTS

               Each Beneficiary may at any time and from time to time without
the consent of, or notice to the Guarantor, without incurring responsibility to
the Guarantor



                                       16
<PAGE>   19

and without impairing or releasing the obligations of the Guarantor hereunder,
upon or without any terms or conditions and in whole or in part:

               (a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the Obligations
(Rumford) due to it, any security therefor, or any liability incurred directly
or indirectly in respect thereof, and, subject to clause (d) below, the guaranty
and agreement herein made shall apply to the Obligations (Rumford) due to it as
so changed, extended, renewed or altered;

               (b) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, the Obligations (Rumford)
or any liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof due to it, and/or any offset
thereagainst due to it;

               (c) exercise or refrain from exercising any rights against the
Rumford Lessee or others or otherwise act or refrain from acting;

               (d) settle or compromise any of the Obligations (Rumford) due to
it, any security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Rumford Lessee to its creditors other than
the Guarantor; provided that any settlement or compromise with respect to, or
other reduction (by operation of law or negotiation) of, any of the Obligations
(Rumford) (or amounts underlying such Obligations (Rumford)) due to it (whether
occurring before or after the occurrence of a Lease Event of Default) shall not
alter the amount of the original Obligations (Rumford) due to it guaranteed
hereby and the Guarantor acknowledges and agrees that its obligations hereunder
shall be for the full amount of the Obligations (Rumford) due to it without
giving effect to any such settlement, compromise or other reduction;

               (e) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of the Rumford Lessee to such Beneficiary
regardless of what liabilities or liabilities of the Rumford Lessee remain
unpaid;

               (f) consent to or waive any breach of, or any act, omission or
default under, the Participation Agreement or the Rumford Facility Lease, or
otherwise amend, modify or supplement the Participation Agreement or the Rumford
Facility Lease or any of such other instruments or agreements; and/or

               (g) act or fail to act in any manner referred to in this Guaranty
which may deprive the Guarantor of its right to subrogation against the Rumford
Lessee to recover full indemnity for any payments made pursuant to this
Guaranty.

Anything herein to the contrary notwithstanding, any exercise of rights or
remedies by any Beneficiary hereunder or under any other Rumford Operative
Document, or the failure or any Beneficiary to exercise any rights or remedies
hereunder in accordance with the provisions hereof or under any other Rumford
Operative Document, shall not in



                                       17
<PAGE>   20

any way adversely affect the ability of any other Beneficiary to exercise its
rights or remedies hereunder.

SECTION 6. SURVIVAL OF GUARANTY AND PAYMENT AGREEMENT (RUMFORD)

               Notwithstanding anything to the contrary herein, this Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time any of the amounts paid to any of the Beneficiaries, in whole or in part,
is required to be repaid upon the insolvency, bankruptcy, dissolution,
liquidation, or reorganization of the Guarantor or the Rumford Lessee or any
other Person, or as a result of the appointment of a custodian, interviewer,
receiver, trustee, or other officer with similar powers with respect to the
Guarantor or the Rumford Lessee or any other Person or any substantial part of
the property of the Guarantor or the Rumford Lessee or such other Person, all as
if such payments had not been made.

SECTION 7. DEFAULTS; REMEDIES; SUBROGATION

               Section 7.1. Defaults. The following events shall constitute an
"Event of Default" hereunder (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any Governmental Entity):

               (a) the Guarantor or the Rumford Lessee under the Rumford
Facility Lease shall fail to make any payment with respect to Periodic Rent or
Termination Value (including the Equity Portion of Termination Value or Debt
Portion of Termination Value) when due and payable under such Rumford Facility
Lease or this Guaranty within five (5) days after the same shall become due
thereunder; or

               (b) the Guarantor or the Rumford Lessee shall fail to make any
other amount payable under any Rumford Operative Document after the same shall
become due thereunder and such failure shall have continued from a period of ten
(10) Business Days after receipt by the Rumford Lessee and the Guarantor of
written notice of such failure by the Rumford Lessee and/or the Guarantor, as
applicable;

               (c) The Guarantor shall fail to comply with its covenants set
forth in Section 3.3 (transfer of Lessee ownership), 3.6 (Guarantor merger) or
8.4 (assignment of Guaranty) of this Guaranty.

               (d) the Guarantor shall fail to perform or observe any covenant,
obligation or agreement to be performed or observed by it under any Calpine
Document (other than any covenant, obligation or agreement referred to in
clauses (a) or (b) of this Section 7.1) in any material respect, which shall
continue unremedied for (1) with respect to the Guarantor's guaranty of, and
agreement with respect to, any nonmonetary obligation, covenant or agreement of
the Rumford Lessee under any of the Rumford Operative Documents, 30 days after
receipt by the Guarantor of written notice thereof from the Owner Participant,
the Owner Lessor, the Indenture Trustee or the Pass Through



                                       18
<PAGE>   21

Trustee; provided, however, if such condition cannot be remedied within such
30-day period, then the period within which to remedy such condition shall be
extended up to an additional 180 days, so long as the Guarantor diligently
pursues such remedy and such condition is reasonably capable of being remedied
within such additional 180-day period, and (2) with respect to any other
obligation, covenant or agreement hereunder, 30 days after receipt by the
Guarantor of written notice thereof;

               (e) there shall have occurred either (i) a default by the
Guarantor or any Restricted Subsidiary under any instrument or instruments under
which there is or may be secured or evidenced any Indebtedness of the Guarantor
or any Restricted Subsidiary of the Guarantor (other than the Obligations
(Rumford)) having an outstanding principal amount of $50,000,000 (or its foreign
currency equivalent) or more individually or in the aggregate that has caused
the holders thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity, unless such declaration has been rescinded within 30 days
or (ii) a default by the Guarantor or any Restricted Subsidiary in the payment
when due of any portion of the principal under any such instrument or
instruments, and such unpaid portion exceeds $50,000,000 (or its foreign
currency equivalent) individually or in the aggregate and is not paid, or such
default is not cured or waived, within any grace period applicable thereto,
unless such Indebtedness is discharged within 30 days of the Guarantor or a
Restricted Subsidiary becoming aware of such default;

               (f) the Guarantor or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:

                      (i)    commences a voluntary case;

                      (ii)   consents to the entry of an order for relief
                             against it in an involuntary case;

                      (iii)  consents to the appointment of a Custodian of it or
                             for all or substantially all of its property;

                      (iv)   makes a general assignment for the benefit of its
                             creditors; or

                      (v)    admits in writing its inability to generally pay
                             its debts as such debts become due;

               or takes any comparable action under any foreign laws relating to
insolvency;

               (g) an involuntary case or other proceeding shall be commenced
against the Guarantor or any Significant Subsidiary seeking (i) liquidation,
reorganization or other relief with respect to it or its debts under Title 11 of
the Bankruptcy Code or any bankruptcy, insolvency or other similar law now or
hereafter in effect, or (ii) the appointment of a trustee, receiver, liquidator,
custodian or other similar official with respect to it or any substantial part
of its property or (iii) the winding-up or liquidation of



                                       19
<PAGE>   22

the Guarantor or such Significant Subsidiary; and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days;

               (h) any representation or warranty made by the Guarantor herein
shall prove to have been incorrect in any material respect when made or
misleading in any material respect when made because of the omission to state a
material fact and such incorrect or misleading representation is and continues
to be material and unremedied for a period of 30 days after receipt by the
Guarantor of written notice thereof; provided, however, that if such condition
cannot be remedied within such 30-day period, then the period within which to
remedy such condition shall be extended up to an additional 60 days, so long as
the Guarantor diligently pursues such remedy and such condition is reasonably
capable of being remedied within such additional 60-day period.

        The grace periods set forth in Section 7.1(a) and (b) above shall not
affect in any way the right hereunder of any Beneficiary entitled to a payment
of any amount payable to it, or performance of any obligation, by the Rumford
Lessee under any Rumford Operative Document to demand prompt payment thereof, or
performance thereof, by the Guarantor immediately upon any failure of the
Rumford Lessee to pay or perform the same when it has become due (and, for the
avoidance of doubt, without regard to the existence of any cure or grace period
before such failure by the Rumford Lessee becomes a Lease Event of Default);
provided, however, notwithstanding the foregoing, no Lease Event of Default
under Section 16(m) and no remedies under the Rumford Facility Lease may be
exercised until a Calpine Guaranty Event of Default has occurred and is
continuing.

               Section 7.2. Remedies. Subject to the last paragraph of Section
7.1, each Beneficiary shall be entitled to (a) all rights and remedies to which
it may be entitled hereunder or at law, in equity or by statute and may proceed
by appropriate court action to enforce the terms hereof and to recover damages
for the breach hereof. Each and every remedy of the Beneficiaries shall, to the
extent permitted by law, be cumulative and shall be in addition to any other
remedy now or hereafter existing at law or in equity. At the option of each
Beneficiary and upon notice to the Guarantor, the Guarantor may be joined in any
action or proceeding commenced by such Beneficiary against the Rumford Lessee in
respect of any Obligations (Rumford) and recovery may be had against the
Guarantor in such action or proceeding or in any independent action or
proceeding against the Guarantor, without any requirement such Beneficiary first
assert, prosecute or exhaust any remedy or claim against the Rumford Lessee.
Notwithstanding any of the foregoing, if an Event of Default specified in clause
(e) or (f) of Section 7.1 with respect to the Guarantor occurs, all monetary
Obligations (Rumford) shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Owner Participant, the
Owner Lessor, the Indenture Trustee or the Pass Through Trustee.

               Section 7.3. Subrogation. The Guarantor will not exercise any
rights that it may acquire by way of subrogation under this Guaranty, by any
payment made hereunder or thereunder or otherwise, until all of the Obligations
(Rumford) and all other obligations of the Rumford Lessee and the Guarantor
owing to any of the Beneficiaries (or any other party) under the Rumford
Operative Documents shall have been paid in full.



                                       20
<PAGE>   23

If any amount shall be paid to the Guarantor on account of such subrogation
rights at any time when all of the Obligations (Rumford) and such other
obligations shall not have been paid in full, such amount shall be held in trust
for the benefit of the Beneficiary to whom such Obligation (Rumford) or other
obligation is payable and shall forthwith be paid to such Beneficiary to be
credited and applied to such Obligation (Rumford) or other obligation, whether
matured or unmatured, in accordance with the terms of the Rumford Operative
Document under which such Obligation (Rumford) or other obligation arose. If (i)
the Guarantor shall make payment to any Beneficiary of all or any part of the
Obligations (Rumford) or other obligations and (ii) all the Obligations
(Rumford) and such other obligations shall be paid and performed in full, such
Beneficiary will, at the Guarantor's request and expense, execute and deliver to
the Guarantor appropriate documents, without recourse, subject to Section 6
hereof, necessary to evidence the transfer by subrogation to the Guarantor of an
interest in the Obligations (Rumford) and such other obligations resulting from
such payment by the Guarantor.

               Section 7.4. Waiver of Demands, Notices, Etc.

               (a) Without limiting the last sentence of Section 7.1, the
Guarantor hereby unconditionally waives (i) notice of any of the matters
referred to in the second sentence of Section 2.3 hereof; (ii) all notices which
may be required by statute, rule of law or otherwise, now or hereafter in
effect, to preserve any rights against the Guarantor hereunder, including,
without limitation, any demand, proof or notice of non-payment of any Obligation
(Rumford); (iii) any right to the enforcement, assertion or exercise of any
right, remedy, power or privilege under or in respect of the Rumford Facility
Lease (or under or in respect of any other agreement including any Rumford
Operative Document); (iv) notice of acceptance of this Guaranty, demand,
protest, presentment, notice of default and any requirement of diligence; (v)
any requirement to exhaust any remedies or to mitigate any damages resulting
from default by the Rumford Lessee or any Person under the Rumford Facility
Lease (or under any other agreement including any Rumford Operative Document);
and (vi) any other circumstance whatsoever which might otherwise constitute a
legal or equitable discharge, release or defense of a guarantor or surety, or
which might otherwise limit recourse against the Guarantor, other than
satisfaction in full of the Obligations (Rumford).

               (b) This Guaranty is a continuing one and all of the Obligations
(Rumford) shall be conclusively presumed to have been created in reliance
hereon. No failure or delay on the part of any Beneficiary in exercising any
right, power or privilege hereunder and no course of dealing among the
Guarantor, any Beneficiary or the Rumford Lessee shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights, powers and remedies
herein expressly provided are cumulative and not exclusive of any rights, powers
or remedies which the Beneficiary would otherwise have. No notice to or demand
on the Guarantor in any case shall entitle the Guarantor to any other further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of any Beneficiary to any other or further action in any circumstances
without notice or demand.



                                       21
<PAGE>   24

               (c) If a claim is ever made upon any Beneficiary for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Obligations (Rumford) and any of the Beneficiaries repays all or part of
said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such Beneficiary or any of its
property or (b) any settlement or compromise of any such claim effected by such
Beneficiary with any such claimant (including the Rumford Lessee), then and in
such event the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon it, notwithstanding any
revocation hereof or the cancellation of the Rumford Facility Lease or other
instrument evidencing any liability of the Rumford Lessee, and the Guarantor
shall be and remain liable to the aforesaid Beneficiaries hereunder for the
amount so repaid by or recovered from such Beneficiary to the same extent as if
such amount had never originally been received by any such Beneficiary.

               Section 7.5. Costs and Expenses. The Guarantor agrees to pay on
an After-Tax Basis any and all reasonable costs and expenses (including
reasonable legal fees) incurred by any Beneficiary in enforcing its rights under
this Guaranty.

               Section 7.6. Survival of Remedies and Subrogation Rights. The
provisions of this Section 7 shall survive the term of this Guaranty and the
payment in full of the Obligations (Rumford) and the termination of the Rumford
Operative Documents.

SECTION 8. MISCELLANEOUS

               Section 8.1. Amendments and Waivers. No term, covenant, agreement
or condition of this Guaranty may be terminated, amended or compliance therewith
waived (either generally or in a particular instance, retroactively or
prospectively) except by an instrument or instruments in writing executed by the
Guarantor and consented to by the Beneficiaries.

               Section 8.2. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all communications and notices provided for
herein shall be in writing or by a telecommunications device capable of creating
a written record, and any such notice shall become effective (a) upon personal
delivery thereof, including, without limitation, by overnight mail or courier
service, (b) in the case of notice by United States mail, certified or
registered, postage prepaid, return receipt requested, upon receipt thereof, or
(c) in the case of notice by such a telecommunications device, upon transmission
thereof, provided such transmission is promptly confirmed by either of the
methods set forth in clauses (a) or (b) above, in each case addressed to the
Guarantor hereto at its address set forth below or at such other address as such
party may from time to time designate by written notice:

        Calpine Corporation
        50 West San Fernando Street, 5th Floor
        San Jose, CA  95113



                                       22
<PAGE>   25

        Facsimile No.:  (408) 975-4648
        Telephone No.:  (408) 995-5115
        Attention:  General Counsel

               Section 8.3. Survival. Except as expressly set forth herein, the
warranties and covenants made by the Guarantor shall not survive the expiration
or termination of this Guaranty.

               Section 8.4. Assignment and Assumption. (a) Except as provided in
clause (b) below, this Guaranty may not be assigned by the Guarantor to, or
assumed by, any successor to or assign of the Guarantor (it being understood and
agreed that a consolidation with or merger of the Guarantor into, or the sale of
all or substantially all of its assets to, another Person in accordance with
Section 3.6 shall not be deemed such an assignment or assumption for the
purposes hereof) without the prior written consent of the Beneficiaries, nor may
the Guarantor transfer or assign a majority (or more) of (i) the Ownership
Interest in the Rumford Lessee or (ii) the Ownership Interest in the Rumford
Lessee.

               (b) Notwithstanding any of the foregoing in this Section 8.4, the
Guarantor may transfer a majority (or more) of its Ownership Interest in the
Rumford Lessee to a single third party, provided that the Guarantor assigns this
Guaranty to such third party (whereupon the Guarantor shall be released from all
obligations under this Guaranty in connection with such transfer) upon
satisfaction of the following conditions:

               (i) unless the Owner Participant shall have consented to such
        assignment, such transferee, or a party which unconditionally guarantees
        such transferee's obligations under the Operative Documents assigned to
        such transferee (A) shall have significant experience owning or
        operating gas-fired electric generating facilities in the United Sates
        and (B) shall have a tangible net worth of at least $1 billion after
        giving effect to such transfer;

               (ii) the requirements set forth in Section 3.3(i), (iii), (iv)
        and (v) of this Guaranty have been satisfied and, immediately after
        giving effect to such transfer, the transferee shall own (A) at least a
        majority of the Ownership Interest of the Rumford Lessee and (B) at
        least a majority of the Ownership Interest of the Rumford Lessee;

               (iii) such transfer occurs (i) subsequent to the tenth year of
        the Facility Lease Term of the Rumford Lessee and the Rumford Lessee and
        (ii) when the aggregate principal amount of the Rumford Notes is less
        than $50 million and the aggregate principal amount of the Rumford Notes
        is less than $50 million;

               (iv) neither the transferee nor any Affiliate of the transferee
        shall be involved in any material litigation with the Owner Participant;

               (v) the Rating Agencies shall have confirmed that after giving
        effect to such transfer, the Certificates (if then outstanding) and the
        transferee (or a party



                                       23
<PAGE>   26

        which guarantees such transferee's obligations under the Operative
        Documents assigned to such transferee) shall be rated at least
        Investment Grade (and not be on negative credit watch) by the Rating
        Agencies;

               (vi) all the obligations of the Rumford Lessee under the Rumford
        Operative Documents shall remain in full force and effect, the
        transferee shall assume all the obligations of the Guarantor under the
        Operative Documents pursuant to the Guarantor's Assignment and
        Assumption Agreement and such Operative Documents as so assumed shall
        remain in full force and effect, and any guaranty of such transferee's
        obligations pursuant to this Section 8.4 shall be in a form satisfactory
        to the Owner Participant (it being acknowledged and agreed that any such
        guaranty which shall be in form and substance substantially similar to
        this Guaranty shall be deemed to be satisfactory to the Owner
        Participant); and

               (vii) the Owner Participant, the Owner Lessor and, so long as the
        Lien on the Collateral Trust Indenture shall not have been terminated or
        discharged, the Indenture Trustee and the Pass Through Trustee shall
        have received an Opinion of Counsel as to the satisfaction of the
        conditions set forth in clause (vi) of this Section 8.4(b).

               Section 8.5. Governing Law. This Guaranty shall be in all
respects governed by and construed in accordance with the laws of the State of
New York, including all matters of construction, validity and performance
(without giving effect to the conflicts of laws provisions, other than New York
General Obligations Law Section 5-1401).

               Section 8.6. Severability. Any provision of this Guaranty that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

               Section 8.7. Headings. The headings of the sections of this
Guaranty are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions hereof.

               Section 8.8. Further Assurances. The Guarantor will promptly and
duly execute and deliver such further documents as may be reasonably requested
by the Owner Lessor, all as may be reasonably necessary to affirm the
Guarantor's obligations under this Guaranty.

               Section 8.9. Effectiveness of Guaranty. This Guaranty has been
dated as of the date first above written for convenience only. This Guaranty
shall be effective on the date of execution and delivery by the Guarantor.



                                       24
<PAGE>   27

               Section 8.10. Acknowledgment by the Guarantor. The Guarantor
acknowledges that an executed (or conformed) copy of the Participation
Agreement, the Rumford Facility Lease and the other Operative Documents have
been made available to its principal executive officers and such officers are
familiar with the contents thereof.

               Section 8.11. Tolling. Any acknowledgement or new promise,
whether by payment of principal or interest or otherwise and whether by the
Rumford Lessee or others (including the Guarantor), with respect to any of the
Obligations (Rumford) shall, if the statute of limitations in favor of the
Guarantor against any Beneficiary shall have commenced to run, toll the running
of such statute of limitations, and if the period of such statute of limitations
shall have expired, prevent the operation of such statute of limitations.

               Section 8.12. Consent to Jurisdiction; Waiver of Trail by Jury;
Process Agent.

               (a) The Guarantor (i) hereby irrevocably submits to the
nonexclusive jurisdiction of the Supreme Court of the State of New York, New
York County (without prejudice to the right of the Guarantor to remove to the
United States District Court for the Southern District of New York) and to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York for the purposes of any suit, action or other proceeding
arising out of this Guaranty, the Rumford Facility Lease, the other Rumford
Operative Documents, or the subject matter hereof or thereof or any of the
transactions contemplated hereby or thereby brought by any of the Beneficiaries
hereunder or their successors or assigns; (ii) hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in such New York State court, or in such federal court; and (iii) to the extent
permitted by Applicable Law, hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, or otherwise, in any such suit, action
or proceeding any claim that it is not personally subject to the jurisdiction of
the above-named courts, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Guaranty, the other Rumford Operative Documents, or the subject
matter hereof or thereof may not be enforced in or by such court.

               (b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR
HEREBY IRREVOCABLY WAIVES THE RIGHT TO DEMAND A TRIAL BY JURY, IN ANY SUCH SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF THIS GUARANTY, THE OTHER RUMFORD
OPERATIVE DOCUMENTS, OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY BROUGHT BY ANY OF THE BENEFICIARIES
HEREUNDER OR THEIR SUCCESSORS OR ASSIGNS.

               (c) By the execution and delivery of this Guaranty, the Guarantor
designates, appoints and empowers National Registered Agent, Inc., 440 9th
Avenue, 5th Floor, New York, NY 10001 as its authorized agent to receive for and
on its behalf service of any summons, complaint or other legal process in any
such action, suit or



                                       25
<PAGE>   28

proceeding in the State of New York for so long as any obligation of the
Guarantor shall remain outstanding hereunder or under any of the other Rumford
Operative Documents. The Guarantor shall grant an irrevocable power of attorney
to National Registered Agent, Inc. in respect of such appointment and shall
maintain such power of attorney in full force and effect for so long as any
obligation of the Guarantor shall remain outstanding hereunder or under any of
the Rumford Operative Documents.

               Section 8.13. Agreement for Benefit of Parties Hereto. Nothing in
this Guaranty, express or implied, is intended or shall be construed to confer
upon, or to give to, any person other than the parties hereto and their
respective successors and assigns, any right, remedy or claim under or by reason
of this Guaranty or any covenant, condition or stipulation hereof; and the
covenants, stipulations and agreements contained in this Guaranty are and shall
be for the sole and exclusive benefit of the parties hereto and their respective
successors and assigns. The Guarantor acknowledges that certain of the rights of
the Owner Lessor hereunder have been or shall be assigned to and may be enforced
by the Indenture Trustee pursuant to the terms of the Collateral Trust Indenture
(excluding, among other things, rights to Excepted Payments), the Guarantor
hereby consents to such assignment and the Guarantor agrees to render
performance of such assigned obligations directly to the Indenture Trustee (as
assignee of the Owner Lessor). The Guarantor agrees to make all payments which
have been so assigned owing to the Owner Lessor under this Guaranty directly to
the account of the Indenture Trustee to be specified to the Guarantor in
writing, or to such other account specified in writing from time to time by the
Indenture Trustee.

               Section 8.14. Termination of Guaranty. Upon the full payment and
satisfaction of the Obligations (Rumford) and all of the Guarantor's obligations
hereunder, this Guaranty shall terminate and shall be of no further effect.
Nevertheless, this Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time, any payment, or any part thereof, of any of the
Obligations (Rumford) is rescinded or must otherwise be returned by any
Beneficiary upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Rumford Lessee or otherwise, all as though such payment
had not been made.

               Section 8.15. Additional Obligations (Rumford). Upon the
assumption by the Rumford Lessee of the Rumford Notes in connection with a
termination of the Rumford Lease, as permitted therein, the obligation of the
Rumford Lessee to pay principal of, and Make-Whole Amount if any, and interest
on the Rumford Notes, and amounts payable by it to the Indenture Trustee under
the Collateral Trust Indenture, shall thereupon become Obligations (Rumford) for
all purposes of this Guaranty, and the Guarantor shall therefor execute and
deliver to the Indenture Trustee such further guaranties, instruments and
documents as the Indenture Trustee may reasonably request in order to more fully
effectuate the Guarantor's unconditional guaranty of such additional Obligations
(Rumford).

               Section 8.16. Miscellaneous Provisions.



                                       26
<PAGE>   29

               (a) The provisions of Section 2 of this Guaranty are subject to
the provisions of Section 14.25 of the Participation Agreement.

               (b) When determining the amount of unpaid Equity Portion of
Termination Value to be paid by the Guarantor under Section 2 of this Guaranty,
the correct amount thereof shall be the applicable amount of Equity Portion of
Termination Value (as set forth in Exhibit A hereto) for the date of the demand
for payment or if the amount of Equity Portion of Termination Value is not set
forth for such date on Exhibit A hereto, the Equity Portion of Termination Value
shall be determined by interpolation between the values set forth on Exhibit A
for the date next preceding the date of the demand and the date next succeeding
the date of the demand on a straight-line basis assuming thirty day months.

               (c) The payment obligations of the Guarantor hereunder shall rank
pari passu with all other senior unsecured indebtedness of the Guarantor for
borrowed money.

                           [No more text on this page]



                                       27
<PAGE>   30

               IN WITNESS WHEREOF, the parties have caused this Guaranty to be
duly executed and delivered on the day and year first above written.

                                        CALPINE CORPORATION,
                                        as Guarantor


                                        By: /s/ ERIC PRYOR
                                           -------------------------------------
                                           Name: Eric Pryor
                                           Title: Authorized Agent




                                        PMCC CALPINE NEW ENGLAND INVESTMENT LLC,
                                        a Delaware limited liability company

                                        By: PMCC Calpine NEIM LLC, a Delaware
                                        limited liability company, its managing
                                        member

                                        By: General Foods Credit Corporation, a
                                        Delaware corporation, its managing
                                        member




                                        By: /s/ ANIL BHATIA
                                           -------------------------------------
                                           Name:
                                           Title:
                                           Date:




                                        PMCC CALPINE NEIM LLC

                                        By: General Foods Credit Corporation,
                                        its managing member



                                        By: /s/ ANIL BHATIA
                                           -------------------------------------
                                           Name:
                                           Title:
                                           Date:



                                       28
<PAGE>   31

                                        STATE STREET BANK AND TRUST COMPANY
                                        OF CONNECTICUT, N.A.,
                                        not in its individual capacity but
                                        solely as Indenture Trustee


                                        By: /s/ MARK HENSON
                                           -------------------------------------
                                           Name: Mark Henson
                                           Title: Assistant Vice President


                                        STATE STREET BANK AND TRUST COMPANY
                                        OF CONNECTICUT, N.A.,
                                        not in its individual capacity but
                                        solely as Pass Through Trustee


                                        By: /s/ MARK HENSON
                                           -------------------------------------
                                           Name: Mark Henson
                                           Title: Assistant Vice President



                                       29
<PAGE>   32
                                                                     EXHIBIT A


                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                                                EQUITY PORTION OF
               DATE                             TERMINATION VALUE
             --------                           -----------------
           <S>                                  <C>
           Jan 15 2001                             22.86727903
           Feb 15 2001                             23.16421293
           Mar 15 2001                             23.46383134
           Apr 15 2001                             23.10615619
           May 15 2001                             23.36914584
           Jun 15 2001                             23.65646772
           Jul 15 2001                             23.91345533
           Aug 15 2001                              24.1947209
           Sep 15 2001                             24.47852933
           Oct 15 2001                             24.73197173
           Nov 15 2001                             25.00966004
           Dec 15 2001                             25.28985886
           Jan 15 2002                             25.53965903
           Feb 15 2002                             25.81367217
           Mar 15 2002                             26.09016261
           Apr 15 2002                             26.36915273
           May 15 2002                             26.62548058
           Jun 15 2002                             26.90091551
           Jul 15 2002                             27.15365603
           Aug 15 2002                             27.42547124
           Sep 15 2002                             27.69974388
           Oct 15 2002                             27.95131156
           Nov 15 2002                             28.22194334
           Dec 15 2002                             28.49502185
           Jan 15 2003                             28.74538461
           Feb 15 2003                             29.01480057
           Mar 15 2003                             29.28665226
           Apr 15 2003                             29.56096171
           May 15 2003                              29.8144664
           Jun 15 2003                             30.08578613
           Jul 15 2003                             30.33627408
           Aug 15 2003                             30.60454978
           Sep 15 2003                             30.87525091
           Oct 15 2003                             31.12511466
           Nov 15 2003                             31.39276053
           Dec 15 2003                             31.66282613
           Jan 15 2004                             31.91204861
           Feb 15 2004                              32.1790474
           Mar 15 2004                             32.44846007
           Apr 15 2004                             32.72030845
           May 15 2004                             32.97310042
           Jun 15 2004                             33.24252057
           Jul 15 2004                             33.49286238
           Aug 15 2004                             33.75981022
</TABLE>
<PAGE>   33
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                       EQUITY PORTION OF
   DATE                                TERMINATION VALUE
-----------                            -----------------
<S>                                    <C>
Sep 15 2004                               34.02917147
Oct 15 2004                               34.27945384
Nov 15 2004                               34.54634171
Dec 15 2004                               34.81564245
Jan 15 2005                               35.06586376
Feb 15 2005                               35.33269001
Mar 15 2005                               35.60192859
Apr 15 2005                               35.87360129
May 15 2005                               36.12756406
Jun 15 2005                                36.3972669
Jul 15 2005                               36.64924199
Aug 15 2005                               34.13337148
Sep 15 2005                               34.36494529
Oct 15 2005                               34.57844664
Nov 15 2005                               34.80732225
Dec 15 2005                               35.03826708
Jan 15 2006                               35.25113377
Feb 15 2006                               35.40632527
Mar 15 2006                               35.63561248
Apr 15 2006                               35.86697263
May 15 2006                                36.0814393
Jun 15 2006                               36.31050169
Jul 15 2006                               36.52264982
Aug 15 2006                               36.49798373
Sep 15 2006                               36.72327543
Oct 15 2006                               36.93161879
Nov 15 2006                                37.1545025
Dec 15 2006                               37.37940126
Jan 15 2007                               37.58734812
Feb 15 2007                               37.80983176
Mar 15 2007                               38.03432682
Apr 15 2007                                38.2608515
May 15 2007                               38.47186527
Jun 15 2007                               38.69649268
Jul 15 2007                               38.90559204
Aug 15 2007                               38.18178711
Sep 15 2007                               38.39339011
Oct 15 2007                                38.5893473
Nov 15 2007                               38.79878201
Dec 15 2007                               39.01011018
Jan 15 2008                               39.20579005
Feb 15 2008                               38.54841156
Mar 15 2008                               38.74745863
Apr 15 2008                               38.94830524
</TABLE>
<PAGE>   34

                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                EQUITY PORTION OF
            DATE                                TERMINATION VALUE
         -----------                             -----------------
         <S>                                    <C>
         May 15 2008                               39.13345615
         Jun 15 2008                               39.33195532
         Jul 15 2008                               39.51473756
         Aug 15 2008                               38.93009454
         Sep 15 2008                               39.11716566
         Oct 15 2008                               39.28841654
         Nov 15 2008                               39.47289001
         Dec 15 2008                               39.65903125
         Jan 15 2009                               39.82934386
         Feb 15 2009                               39.30833934
         Mar 15 2009                               39.48376974
         Apr 15 2009                               39.66078617
         May 15 2009                               39.82171299
         Jun 15 2009                               39.99588803
         Jul 15 2009                               40.15394777
         Aug 15 2009                               39.70416791
         Sep 15 2009                               39.86839875
         Oct 15 2009                               40.01642437
         Nov 15 2009                               40.17758158
         Dec 15 2009                               40.34019578
         Jan 15 2010                               40.48659015
         Feb 15 2010                               40.09199974
         Mar 15 2010                               40.24528052
         Apr 15 2010                               40.39994707
         May 15 2010                                 40.542426
         Jun 15 2010                               40.69525033
         Jul 15 2010                               40.83587038
         Aug 15 2010                               40.49720557
         Sep 15 2010                               40.64273933
         Oct 15 2010                               40.77600289
         Nov 15 2010                               40.91952855
         Dec 15 2010                                41.0643518
         Jan 15 2011                               41.19689843
         Feb 15 2011                               40.89858604
         Mar 15 2011                               41.03657129
         Apr 15 2011                               41.17580403
         May 15 2011                               41.30928769
         Jun 15 2011                               41.44865005
         Jul 15 2011                                41.5822645
         Aug 15 2011                               41.31761384
         Sep 15 2011                               41.45277319
         Oct 15 2011                               41.58214662
         Nov 15 2011                               41.71736159
         Dec 15 2011                               41.85379902
</TABLE>

<PAGE>   35
                                                                       EXHIBIT A


                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


<TABLE>
<CAPTION>
                                                      EQUITY PORTION OF
  DATE                                                TERMINATION VALUE
-----------                                           -----------------
<S>                                                   <C>
Jan 15 2012                                              41.98446209
Feb 15 2012                                               41.7467369
Mar 15 2012                                              41.87930533
Apr 15 2012                                              42.01307228
May 15 2012                                              42.14316682
Jun 15 2012                                              42.27769203
Jul 15 2012                                              42.40855168
Aug 15 2012                                              42.19726689
Sep 15 2012                                              42.32898826
Oct 15 2012                                              42.45701673
Nov 15 2012                                               42.5894812
Dec 15 2012                                              42.72310106
Jan 15 2013                                              42.85306736
Feb 15 2013                                              42.66394861
Mar 15 2013                                              42.79507982
Apr 15 2013                                              42.92739655
May 15 2013                                              43.05697072
Jun 15 2013                                              43.19034222
Jul 15 2013                                              43.32098069
Aug 15 2013                                              43.15476649
Sep 15 2013                                              43.28626422
Oct 15 2013                                              43.41501199
Nov 15 2013                                              43.54754961
Dec 15 2013                                              43.68128547
Jan 15 2014                                              43.81229161
Feb 15 2014                                               43.6652604
Mar 15 2014                                              43.79739295
Apr 15 2014                                              43.93072009
May 15 2014                                              44.06235973
Jun 15 2014                                              44.19711808
Jul 15 2014                                              44.33020187
Aug 15 2014                                              44.20246009
Sep 15 2014                                              44.33625218
Oct 15 2014                                              44.46836097
Nov 15 2014                                              44.60359272
Dec 15 2014                                              44.74004706
Jan 15 2015                                              44.87484218
Feb 15 2015                                              44.76331529
Mar 15 2015                                               44.8990504
Apr 15 2015                                              45.03601266
May 15 2015                                              45.17244451
Jun 15 2015                                              45.31128892
Jul 15 2015                                              45.44961993
Aug 15 2015                                              45.35377511
</TABLE>

<PAGE>   36
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
    DATE                                          TERMINATION VALUE
-----------                                       -----------------
<S>                                                  <C>
Sep 15 2015                                          45.49253219
Oct 15 2015                                           45.6307751
Nov 15 2015                                          45.77144693
Dec 15 2015                                          45.91339055
Jan 15 2016                                          46.05484878
Feb 15 2016                                          46.19876502
Mar 15 2016                                          46.34398238
Apr 15 2016                                          46.49051261
May 15 2016                                          46.63795681
Jun 15 2016                                          46.78700787
Jul 15 2016                                          46.93699569
Aug 15 2016                                          47.08853706
Sep 15 2016                                          47.24152443
Oct 15 2016                                          47.39548415
Nov 15 2016                                          47.55110963
Dec 15 2016                                          47.70814209
Jan 15 2017                                          47.86618347
Feb 15 2017                                          48.02592751
Mar 15 2017                                          48.18711577
Apr 15 2017                                           48.3497613
May 15 2017                                          48.51423139
Jun 15 2017                                          48.67995234
Jul 15 2017                                          48.84752565
Aug 15 2017                                          45.25639495
Sep 15 2017                                           45.3747099
Oct 15 2017                                          45.49444863
Nov 15 2017                                          45.61503382
Dec 15 2017                                          45.73670919
Jan 15 2018                                          45.85983871
Feb 15 2018                                          45.98384535
Mar 15 2018                                           46.1089731
Apr 15 2018                                          46.23523211
May 15 2018                                          46.36326247
Jun 15 2018                                          46.49203041
Jul 15 2018                                          46.62259238
Aug 15 2018                                          43.04798413
Sep 15 2018                                          43.12917845
Oct 15 2018                                          43.21173671
Nov 15 2018                                          43.29462144
Dec 15 2018                                          43.37825551
Jan 15 2019                                          43.46327558
Feb 15 2019                                          43.54864437
Mar 15 2019                                          43.63478497
Apr 15 2019                                          43.72170435
</TABLE>
<PAGE>   37
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                    EQUITY PORTION OF
                 DATE                               TERMINATION VALUE
              -----------                           -----------------
<S>                                                 <C>
              May 15 2019                               43.81025006
              Jun 15 2019                               43.89903595
              Jul 15 2019                               43.98946505
              Aug 15 2019                               39.52431233
              Sep 15 2019                                39.5527346
              Oct 15 2019                               39.58225435
              Nov 15 2019                               39.61148063
              Dec 15 2019                               39.64097114
              Jan 15 2020                               39.67156879
              Feb 15 2020                               39.70188272
              Mar 15 2020                               39.73247071
              Apr 15 2020                               39.76333524
              May 15 2020                               39.80379041
              Jun 15 2020                               39.83840359
              Jul 15 2020                               39.88264131
              Aug 15 2020                               35.43622633
              Sep 15 2020                               35.43622633
              Oct 15 2020                               35.43622633
              Nov 15 2020                               35.43622633
              Dec 15 2020                               35.43622633
              Jan 15 2021                               35.43622633
              Feb 15 2021                               35.43622633
              Mar 15 2021                               35.43622633
              Apr 15 2021                               35.43622633
              May 15 2021                               35.43622633
              Jun 15 2021                               35.43622633
              Jul 15 2021                               35.43622633
              Aug 15 2021                               31.50180011
              Sep 15 2021                                31.5018001
              Oct 15 2021                                31.5018001
              Nov 15 2021                                31.5018001
              Dec 15 2021                                31.5018001
              Jan 15 2022                                31.5018001
              Feb 15 2022                               31.50180011
              Mar 15 2022                               31.50180011
              Apr 15 2022                               31.50180011
              May 15 2022                               31.50180011
              Jun 15 2022                               31.50180011
              Jul 15 2022                               31.50180011
              Aug 15 2022                               27.56737388
              Sep 15 2022                               27.56737388
              Oct 15 2022                               27.56737388
              Nov 15 2022                               27.56737388
              Dec 15 2022                               27.56737388
</TABLE>
<PAGE>   38
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                          EQUITY PORTION OF
    DATE                  TERMINATION VALUE
------------              -----------------
<S>                       <C>
Jan 15 2023                     27.56737388
Feb 15 2023                     27.56737388
Mar 15 2023                     27.56737388
Apr 15 2023                     27.56737388
May 15 2023                     27.56737388
Jun 15 2023                     27.56737388
Jul 15 2023                     27.56737388
Aug 15 2023                     23.63294765
Sep 15 2023                     23.63294765
Oct 15 2023                     23.63294765
Nov 15 2023                     23.63294765
Dec 15 2023                     23.63294765
Jan 15 2024                     23.63294765
Feb 15 2024                     23.63294765
Mar 15 2024                     23.63294765
Apr 15 2024                     23.63294765
May 15 2024                     23.63294765
Jun 15 2024                     23.63294765
Jul 15 2024                     23.63294765
Aug 15 2024                     19.69852142
Sep 15 2024                     19.69852142
Oct 15 2024                     19.69852142
Nov 15 2024                     19.69852142
Dec 15 2024                     19.69852142
Jan 15 2025                     19.69852142
Feb 15 2025                     19.69852142
Mar 15 2025                     19.69852142
Apr 15 2025                     19.69852142
May 15 2025                     19.69852142
Jun 15 2025                     19.69852142
Jul 15 2025                     19.69852142
Aug 15 2025                     15.76409519
Sep 15 2025                     15.76409519
Oct 15 2025                     15.76409519
Nov 15 2025                     15.76409519
Dec 15 2025                     15.76409519
Jan 15 2026                     15.76409519
Feb 15 2026                     15.75863071
Mar 15 2026                     15.75863071
Apr 15 2026                     15.75863071
May 15 2026                     15.75863071
Jun 15 2026                     15.75863071
Jul 15 2026                     15.75863071
Aug 15 2026                     15.75316623
</TABLE>
<PAGE>   39
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


                              EQUITY PORTION OF
    DATE                      TERMINATION VALUE
-----------                   -----------------
Sep 15 2026                      15.75316623
Oct 15 2026                      15.75316623
Nov 15 2026                      15.75316623
Dec 15 2026                      15.75316623
Jan 15 2027                      15.75316623
Feb 15 2027                      15.74770174
Mar 15 2027                      15.74770174
Apr 15 2027                      15.74770174
May 15 2027                      15.74770174
Jun 15 2027                      15.74770174
Jul 15 2027                      15.74770174
Aug 15 2027                      15.74223726
Sep 15 2027                      15.74223726
Oct 15 2027                      15.74223726
Nov 15 2027                      15.74223726
Dec 15 2027                      15.74223726
Jan 15 2028                      15.74223726
Feb 15 2028                      15.73677278
Mar 15 2028                      15.73677278
Apr 15 2028                      15.73677278
May 15 2028                      15.73677278
Jun 15 2028                      15.73677278
Jul 15 2028                      15.73677278
Aug 15 2028                       15.7313083
Sep 15 2028                       15.7313083
Oct 15 2028                       15.7313083
Nov 15 2028                       15.7313083
Dec 15 2028                       15.7313083
Jan 15 2029                       15.7313083
Feb 15 2029                      15.72584382
Mar 15 2029                      15.72584382
Apr 15 2029                      15.72584382
May 15 2029                      15.72584382
Jun 15 2029                      15.72584382
Jul 15 2029                      15.72584382
Aug 15 2029                      15.72037934
Sep 15 2029                      15.72037934
Oct 15 2029                      15.72037934
Nov 15 2029                      15.72037934
Dec 15 2029                      15.72037934
Jan 15 2030                      15.72037934
Feb 15 2030                      15.71491486
Mar 15 2030                      15.71491486
Apr 15 2030                      15.71491486


<PAGE>   40
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                         EQUITY PORTION OF
     DATE                TERMINATION VALUE
---------------          -----------------
<S>                      <C>
 May 15 2030               15.71491486
 Jun 15 2030               15.71491486
 Jul 15 2030               15.71491486
 Aug 15 2030               15.70945038
 Sep 15 2030               15.70945038
 Oct 15 2030               15.70945038
 Nov 15 2030               15.70945038
 Dec 15 2030               15.70945038
 Jan 15 2031               15.70945038
 Feb 15 2031                15.7039859
 Mar 15 2031                15.7039859
 Apr 15 2031                15.7039859
 May 15 2031                15.7039859
 Jun 15 2031                15.7039859
 Jul 15 2031                15.7039859
 Aug 15 2031               15.69852142
 Sep 15 2031               15.69852142
 Oct 15 2031               15.69852142
 Nov 15 2031               15.69852142
 Dec 15 2031               15.69852142
 Jan 15 2032               15.69852142
 Feb 15 2032               15.69305694
 Mar 15 2032               15.69305694
 Apr 15 2032               15.69305694
 May 15 2032               15.69305694
 Jun 15 2032               15.69305694
 Jul 15 2032               15.69305694
 Aug 15 2032               15.68759245
 Sep 15 2032               15.68759245
 Oct 15 2032               15.70309329
 Nov 15 2032               15.70840038
 Dec 15 2032               15.71375544
 Jan 15 2033               15.74005831
 Feb 15 2033               15.74697125
 Mar 15 2033               15.75961412
 Apr 15 2033               15.77237129
 May 15 2033               15.80753044
 Jun 15 2033                15.8281497
 Jul 15 2033               15.87124201
 Aug 15 2033               15.89417135
 Sep 15 2033               15.92297542
 Oct 15 2033               15.97432654
 Nov 15 2033               16.01128416
 Dec 15 2033                16.0485759
</TABLE>




<PAGE>   41
                                                                       EXHIBIT A

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                          EQUITY PORTION OF
    DATE                  TERMINATION VALUE
------------              -----------------
<S>                       <C>
Jan 15 2034                     16.10849143
Feb 15 2034                     16.14839608
Mar 15 2034                     16.19432894
Apr 15 2034                     16.24067706
May 15 2034                     16.31120946
Jun 15 2034                     16.36653602
Jul 15 2034                     16.44612804
Aug 15 2034                     16.50490132
Sep 15 2034                      16.5698734
Oct 15 2034                     16.65919812
Nov 15 2034                     16.73348691
Dec 15 2034                     16.80844733
Jan 15 2035                      16.9078507
Feb 15 2035                     16.98661445
Mar 15 2035                     17.07175772
Apr 15 2035                     17.15767076
May 15 2035                     17.26970174
Jun 15 2035                     17.36585142
Jul 15 2035                     17.48821159
Aug 15 2035                     17.58908905
Sep 15 2035                     17.69654595
Oct 15 2035                     17.83031557
Nov 15 2035                     17.94840042
Dec 15 2035                     18.06755285
Jan 15 2036                     18.21312374
Feb 15 2036                     18.33742173
Mar 15 2036                     18.46851093
Apr 15 2036                     18.60078527
May 15 2036                     18.83544727
Jun 15 2036                     19.00476962
Jul 15 2036                     19.27681453
Aug 15 2036                     19.47816297
Sep 15 2036                     19.68699918
Oct 15 2036                     19.99891523
Nov 15 2036                     20.24619004
Dec 15 2036                     20.49570042
Dec 19 2036                     20.00546448
</TABLE>
<PAGE>   42
                                                                       EXHIBIT B


                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                DEBT PORTION OF
            DATE                TERMINATION VALUE
         ------------          -----------------
         <S>                   <C>
          Jan 15 2001              80.52000000
          Feb 15 2001              81.12000000
          Mar 15 2001              81.72000000
          Apr 15 2001              82.32000000
          May 15 2001              82.92000000
          Jun 15 2001              83.52000000
          Jul 15 2001              84.12000000
          Aug 15 2001              80.60000000
          Sep 15 2001              81.20000000
          Oct 15 2001              81.80000000
          Nov 15 2001              82.40000000
          Dec 15 2001              83.00000000
          Jan 15 2002              83.60000000
          Feb 15 2002              80.60000000
          Mar 15 2002              81.20000000
          Apr 15 2002              81.80000000
          May 15 2002              82.40000000
          Jun 15 2002              83.00000000
          Jul 15 2002              83.60000000
          Aug 15 2002              80.60000000
          Sep 15 2002              81.20000000
          Oct 15 2002              81.80000000
          Nov 15 2002              82.40000000
          Dec 15 2002              83.00000000
          Jan 15 2003              83.60000000
          Feb 15 2003              80.60000000
          Mar 15 2003              81.20000000
          Apr 15 2003              81.80000000
          May 15 2003              82.40000000
          Jun 15 2003              83.00000000
          Jul 15 2003              83.60000000
          Aug 15 2003              80.60000000
          Sep 15 2003              81.20000000
          Oct 15 2003              81.80000000
          Nov 15 2003              82.40000000
          Dec 15 2003              83.00000000
          Jan 15 2004              83.60000000
          Feb 15 2004              80.60000000
          Mar 15 2004              81.20000000
          Apr 15 2004              81.80000000
          May 15 2004              82.40000000
          Jun 15 2004              83.00000000
          Jul 15 2004              83.60000000
          Aug 15 2004              80.06596995
</TABLE>
<PAGE>   43
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                     DEBT PORTION
    DATE                                          TERMINATION VALUE
-----------                                       -----------------
<S>                                                  <C>
Sep 15 2004                                          80.66199454
Oct 15 2004                                          81.25801913
Nov 15 2004                                          81.85404372
Dec 15 2004                                          82.45006831
Jan 15 2005                                          83.04609290
Feb 15 2005                                          80.06596995
Mar 15 2005                                          80.66199454
Apr 15 2005                                          81.25801913
May 15 2005                                          81.85404372
Jun 15 2005                                          82.45006831
Jul 15 2005                                          83.04609290
Aug 15 2005                                          80.06596995
Sep 15 2005                                          80.66199454
Oct 15 2005                                          81.25801913
Nov 15 2005                                          81.85404372
Dec 15 2005                                          82.45006831
Jan 15 2006                                          83.04609290
Feb 15 2006                                          80.06596995
Mar 15 2006                                          80.66199454
Apr 15 2006                                          81.25801913
May 15 2006                                          81.85404372
Jun 15 2006                                          82.45006831
Jul 15 2006                                          83.04609290
Aug 15 2006                                          77.67571749
Sep 15 2006                                          78.25394863
Oct 15 2006                                          78.83217978
Nov 15 2006                                          79.41041093
Dec 15 2006                                          79.98864208
Jan 15 2007                                          80.56687322
Feb 15 2007                                          77.67571749
Mar 15 2007                                          78.25394863
Apr 15 2007                                          78.83217978
May 15 2007                                          79.41041093
Jun 15 2007                                          79.98864208
Jul 15 2007                                          80.56687322
Aug 15 2007                                          75.67172842
Sep 15 2007                                          76.23504153
Oct 15 2007                                          76.79835464
Nov 15 2007                                          77.36166776
Dec 15 2007                                          77.92498087
Jan 15 2008                                          78.48829399
Feb 15 2008                                          74.09386230
Mar 15 2008                                          74.64542951
Apr 15 2008                                          75.19699672
</TABLE>
<PAGE>   44
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                        DEBT PORTION OF
   DATE                                TERMINATION VALUE
-----------                            -----------------
<S>                                    <C>
May 15 2008                               75.74856393
Jun 15 2008                               76.30013115
Jul 15 2008                               76.85169836
Aug 15 2008                               74.09386230
Sep 15 2008                               74.64542951
Oct 15 2008                               75.19699672
Nov 15 2008                               75.74856393
Dec 15 2008                               76.30013115
Jan 15 2009                               76.85169836
Feb 15 2009                               72.04164536
Mar 15 2009                               72.57793552
Apr 15 2009                               73.11422568
May 15 2009                               73.65051585
Jun 15 2009                               74.18680601
Jul 15 2009                               74.72309617
Aug 15 2009                               72.04164536
Sep 15 2009                               72.57793552
Oct 15 2009                               73.11422568
Nov 15 2009                               73.65051585
Dec 15 2009                               74.18680601
Jan 15 2010                               74.72309617
Feb 15 2010                               32.40230109
Mar 15 2010                               32.64350929
Apr 15 2010                               32.88471749
May 15 2010                               33.12592568
Jun 15 2010                               33.36713388
Jul 15 2010                               33.60834208
Aug 15 2010                               32.40230109
Sep 15 2010                               32.64350929
Oct 15 2010                               32.88471749
Nov 15 2010                               33.12592568
Dec 15 2010                               33.36713388
Jan 15 2011                               33.60834208
Feb 15 2011                               21.32288415
Mar 15 2011                               21.48161530
Apr 15 2011                               21.64034645
May 15 2011                               21.79907760
Jun 15 2011                               21.95780874
Jul 15 2011                               22.11653989
Aug 15 2011                               21.32288415
Sep 15 2011                               21.48161530
Oct 15 2011                               21.64034645
Nov 15 2011                               21.79907760
Dec 15 2011                               21.95780874
</TABLE>
<PAGE>   45
                                                                       EXHIBIT B

                      EQUITY PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                    EQUITY PORTION OF
                 DATE                               TERMINATION VALUE
              -----------                           -----------------
<S>                                                 <C>
              Jan 15 2012                               22.11653989
              Feb 15 2012                               14.99049891
              Mar 15 2012                               15.10209071
              Apr 15 2012                               15.21368251
              May 15 2012                               15.32527432
              Jun 15 2012                               15.43686612
              Jul 15 2012                               15.54845792
              Aug 15 2012                               14.99049891
              Sep 15 2012                               15.10209071
              Oct 15 2012                               15.21368251
              Nov 15 2012                               15.32527432
              Dec 15 2012                               15.43686612
              Jan 15 2013                               15.54845792
              Feb 15 2013                               11.96161257
              Mar 15 2013                               12.05065683
              Apr 15 2013                               12.13970109
              May 15 2013                               12.22874536
              Jun 15 2013                               12.31778962
              Jul 15 2013                               12.40683388
              Aug 15 2013                               11.96161257
              Sep 15 2013                               12.05065683
              Oct 15 2013                               12.13970109
              Nov 15 2013                               12.22874536
              Dec 15 2013                               12.31778962
              Jan 15 2014                               12.40683388
              Feb 15 2014                                8.56804426
              Mar 15 2014                                8.63182623
              Apr 15 2014                                8.69560820
              May 15 2014                                8.75939016
              Jun 15 2014                                8.82317213
              Jul 15 2014                                8.88695410
              Aug 15 2014                                8.56804426
              Sep 15 2014                                8.63182623
              Oct 15 2014                                8.69560820
              Nov 15 2014                                8.75939016
              Dec 15 2014                                8.82317213
              Jan 15 2015                                8.88695410
              Feb 15 2015                                5.25551639
              Mar 15 2015                                5.29463934
              Apr 15 2015                                5.33376230
              May 15 2015                                5.37288525
              Jun 15 2015                                5.41200820
              Jul 15 2015                                5.45113115
              Aug 15 2015                                5.25551639
</TABLE>
<PAGE>   46
                                                                       EXHIBIT B


                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


<TABLE>
<CAPTION>
                                                      DEBT PORTION OF
  DATE                                               TERMINATION VALUE
-----------                                          -----------------
<S>                                                  <C>
Sep 15 2015                                              5.29463934
Oct 15 2015                                              5.33376230
Nov 15 2015                                              5.37288525
Dec 15 2015                                              5.41200820
Jan 15 2016                                              5.45113115
Feb 15 2016                                              1.13897049
Mar 15 2016                                              1.14744918
Apr 15 2016                                              1.15592787
May 15 2016                                              1.16440656
Jun 15 2016                                              1.17288525
Jul 15 2016                                              1.18136393
Aug 15 2016                                              1.13897049
Sep 15 2016                                              1.14744918
Oct 15 2016                                              1.15592787
Nov 15 2016                                              1.16440656
Dec 15 2016                                              1.17288525
Jan 15 2017                                              1.18136393
Feb 15 2017                                              0.44065738
Mar 15 2017                                              0.44393770
Apr 15 2017                                              0.44721803
May 15 2017                                              0.45049836
Jun 15 2017                                              0.45377869
Jul 15 2017                                              0.45705902
Aug 15 2017                                              0.44065738
Sep 15 2017                                              0.44393770
Oct 15 2017                                              0.44721803
Nov 15 2017                                              0.45049836
Dec 15 2017                                              0.45377869
Jan 15 2018                                              0.45705902
Feb 15 2018                                              0.44065738
Mar 15 2018                                              0.44393770
Apr 15 2018                                              0.44721803
May 15 2018                                              0.45049836
Jun 15 2018                                              0.45377869
Jul 15 2018                                              0.45705902
Aug 15 2018                                              0.00000000
Sep 15 2018                                              0.00000000
Oct 15 2018                                              0.00000000
Nov 15 2018                                              0.00000000
Dec 15 2018                                              0.00000000
Jan 15 2019                                              0.00000000
Feb 15 2019                                              0.00000000
Mar 15 2019                                              0.00000000
Apr 15 2019                                              0.00000000
</TABLE>




<PAGE>   47
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                          DEBT PORTION OF
     DATE                TERMINATION VALUE
---------------          -----------------
<S>                      <C>
 May 15 2019                 0.00000000
 Jun 15 2019                 0.00000000
 Jul 15 2019                 0.00000000
 Aug 15 2019                 0.00000000
 Sep 15 2019                 0.00000000
 Oct 15 2019                 0.00000000
 Nov 15 2019                 0.00000000
 Dec 15 2019                 0.00000000
 Jan 15 2020                 0.00000000
 Feb 15 2020                 0.00000000
 Mar 15 2020                 0.00000000
 Apr 15 2020                 0.00000000
 May 15 2020                 0.00000000
 Jun 15 2020                 0.00000000
 Jul 15 2020                 0.00000000
 Aug 15 2020                 0.00000000
 Sep 15 2020                 0.00000000
 Oct 15 2020                 0.00000000
 Nov 15 2020                 0.00000000
 Dec 15 2020                 0.00000000
 Jan 15 2021                 0.00000000
 Feb 15 2021                 0.00000000
 Mar 15 2021                 0.00000000
 Apr 15 2021                 0.00000000
 May 15 2021                 0.00000000
 Jun 15 2021                 0.00000000
 Jul 15 2021                 0.00000000
 Aug 15 2021                 0.00000000
 Sep 15 2021                 0.00000000
 Oct 15 2021                 0.00000000
 Nov 15 2021                 0.00000000
 Dec 15 2021                 0.00000000
 Jan 15 2022                 0.00000000
 Feb 15 2022                 0.00000000
 Mar 15 2022                 0.00000000
 Apr 15 2022                 0.00000000
 May 15 2022                 0.00000000
 Jun 15 2022                 0.00000000
 Jul 15 2022                 0.00000000
 Aug 15 2022                 0.00000000
 Sep 15 2022                 0.00000000
 Oct 15 2022                 0.00000000
 Nov 15 2022                 0.00000000
 Dec 15 2022                 0.00000000
</TABLE>


<PAGE>   48

                                                                       EXHIBIT B


                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE


<TABLE>
<CAPTION>
                                                       DEBT PORTION OF
               DATE                                   TERMINATION VALUE
          ----------------                            -----------------
<S>                                                   <C>
            Jan 15 2023                                      0.00000000
            Feb 15 2023                                      0.00000000
            Mar 15 2023                                      0.00000000
            Apr 15 2023                                      0.00000000
            May 15 2023                                      0.00000000
            Jun 15 2023                                      0.00000000
            Jul 15 2023                                      0.00000000
            Aug 15 2023                                      0.00000000
            Sep 15 2023                                      0.00000000
            Oct 15 2023                                      0.00000000
            Nov 15 2023                                      0.00000000
            Dec 15 2023                                      0.00000000
            Jan 15 2024                                      0.00000000
            Feb 15 2024                                      0.00000000
            Mar 15 2024                                      0.00000000
            Apr 15 2024                                      0.00000000
            May 15 2024                                      0.00000000
            Jun 15 2024                                      0.00000000
            Jul 15 2024                                      0.00000000
            Aug 15 2024                                      0.00000000
            Sep 15 2024                                      0.00000000
            Oct 15 2024                                      0.00000000
            Nov 15 2024                                      0.00000000
            Dec 15 2024                                      0.00000000
            Jan 15 2025                                      0.00000000
            Feb 15 2025                                      0.00000000
            Mar 15 2025                                      0.00000000
            Apr 15 2025                                      0.00000000
            May 15 2025                                      0.00000000
            Jun 15 2025                                      0.00000000
            Jul 15 2025                                      0.00000000
            Aug 15 2025                                      0.00000000
            Sep 15 2025                                      0.00000000
            Oct 15 2025                                      0.00000000
            Nov 15 2025                                      0.00000000
            Dec 15 2025                                      0.00000000
            Jan 15 2026                                      0.00000000
            Feb 15 2026                                      0.00000000
            Mar 15 2026                                      0.00000000
            Apr 15 2026                                      0.00000000
            May 15 2026                                      0.00000000
            Jun 15 2026                                      0.00000000
            Jul 15 2026                                      0.00000000
            Aug 15 2026                                      0.00000000
</TABLE>

<PAGE>   49
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>

                           DEBT PORTION OF
    DATE                  TERMINATION VALUE
------------              -----------------
<S>                       <C>
Sep 15 2026                      0.00000000
Oct 15 2026                      0.00000000
Nov 15 2026                      0.00000000
Dec 15 2026                      0.00000000
Jan 15 2027                      0.00000000
Feb 15 2027                      0.00000000
Mar 15 2027                      0.00000000
Apr 15 2027                      0.00000000
May 15 2027                      0.00000000
Jun 15 2027                      0.00000000
Jul 15 2027                      0.00000000
Aug 15 2027                      0.00000000
Sep 15 2027                      0.00000000
Oct 15 2027                      0.00000000
Nov 15 2027                      0.00000000
Dec 15 2027                      0.00000000
Jan 15 2028                      0.00000000
Feb 15 2028                      0.00000000
Mar 15 2028                      0.00000000
Apr 15 2028                      0.00000000
May 15 2028                      0.00000000
Jun 15 2028                      0.00000000
Jul 15 2028                      0.00000000
Aug 15 2028                      0.00000000
Sep 15 2028                      0.00000000
Oct 15 2028                      0.00000000
Nov 15 2028                      0.00000000
Dec 15 2028                      0.00000000
Jan 15 2029                      0.00000000
Feb 15 2029                      0.00000000
Mar 15 2029                      0.00000000
Apr 15 2029                      0.00000000
May 15 2029                      0.00000000
Jun 15 2029                      0.00000000
Jul 15 2029                      0.00000000
Aug 15 2029                      0.00000000
Sep 15 2029                      0.00000000
Oct 15 2029                      0.00000000
Nov 15 2029                      0.00000000
Dec 15 2029                      0.00000000
Jan 15 2030                      0.00000000
Feb 15 2030                      0.00000000
Mar 15 2030                      0.00000000
Apr 15 2030                      0.00000000
</TABLE>
<PAGE>   50
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                    DEBT PORTION OF
   DATE                            TERMINATION VALUE
-----------                        -----------------
<S>                                <C>
May 15 2030                            0.00000000
Jun 15 2030                            0.00000000
Jul 15 2030                            0.00000000
Aug 15 2030                            0.00000000
Sep 15 2030                            0.00000000
Oct 15 2030                            0.00000000
Nov 15 2030                            0.00000000
Dec 15 2030                            0.00000000
Jan 15 2031                            0.00000000
Feb 15 2031                            0.00000000
Mar 15 2031                            0.00000000
Apr 15 2031                            0.00000000
May 15 2031                            0.00000000
Jun 15 2031                            0.00000000
Jul 15 2031                            0.00000000
Aug 15 2031                            0.00000000
Sep 15 2031                            0.00000000
Oct 15 2031                            0.00000000
Nov 15 2031                            0.00000000
Dec 15 2031                            0.00000000
Jan 15 2032                            0.00000000
Feb 15 2032                            0.00000000
Mar 15 2032                            0.00000000
Apr 15 2032                            0.00000000
May 15 2032                            0.00000000
Jun 15 2032                            0.00000000
Jul 15 2032                            0.00000000
Aug 15 2032                            0.00000000
Sep 15 2032                            0.00000000
Oct 15 2032                            0.00000000
Nov 15 2032                            0.00000000
Dec 15 2032                            0.00000000
Jan 15 2033                            0.00000000
Feb 15 2033                            0.00000000
Mar 15 2033                            0.00000000
Apr 15 2033                            0.00000000
May 15 2033                            0.00000000
Jun 15 2033                            0.00000000
Jul 15 2033                            0.00000000
Aug 15 2033                            0.00000000
Sep 15 2033                            0.00000000
Oct 15 2033                            0.00000000
Nov 15 2033                            0.00000000
Dec 15 2033                            0.00000000
</TABLE>
<PAGE>   51
                                                                       EXHIBIT B

                       DEBT PORTION OF TERMINATION VALUE

                   EXPRESSED AS PERCENTAGE OF PURCHASE PRICE

<TABLE>
<CAPTION>
                                                   DEBT PORTION OF
    DATE                                          TERMINATION VALUE
-----------                                       -----------------
<S>                                                  <C>
Jan 15 2034                                          0.00000000
Feb 15 2034                                          0.00000000
Mar 15 2034                                          0.00000000
Apr 15 2034                                          0.00000000
May 15 2034                                          0.00000000
Jun 15 2034                                          0.00000000
Jul 15 2034                                          0.00000000
Aug 15 2034                                          0.00000000
Sep 15 2034                                          0.00000000
Oct 15 2034                                          0.00000000
Nov 15 2034                                          0.00000000
Dec 15 2034                                          0.00000000
Jan 15 2035                                          0.00000000
Feb 15 2035                                          0.00000000
Mar 15 2035                                          0.00000000
Apr 15 2035                                          0.00000000
May 15 2035                                          0.00000000
Jun 15 2035                                          0.00000000
Jul 15 2035                                          0.00000000
Aug 15 2035                                          0.00000000
Sep 15 2035                                          0.00000000
Oct 15 2035                                          0.00000000
Nov 15 2035                                          0.00000000
Dec 15 2035                                          0.00000000
Jan 15 2036                                          0.00000000
Feb 15 2036                                          0.00000000
Mar 15 2036                                          0.00000000
Apr 15 2036                                          0.00000000
May 15 2036                                          0.00000000
Jun 15 2036                                          0.00000000
Jul 15 2036                                          0.00000000
Aug 15 2036                                          0.00000000
Sep 15 2036                                          0.00000000
Oct 15 2036                                          0.00000000
Nov 15 2036                                          0.00000000
Dec 15 2036                                          0.00000000
Dec 19 2036                                          0.00000000
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2.2
<SEQUENCE>19
<FILENAME>f70293ex10-2_2.txt
<DESCRIPTION>EXHIBIT 10.2.2
<TEXT>

<PAGE>   1
                                                                  Exhibit 10.2.2

                                CREDIT AGREEMENT

                                      among

                  CALPINE CONSTRUCTION FINANCE COMPANY II, LLC
                      a Delaware limited liability company
                                   (Borrower)

                                       and

                                               CREDIT SUISSE FIRST BOSTON,
    THE BANK OF NOVA SCOTIA                  ACTING THROUGH ITS NEW YORK BRANCH
     (Lead Arranger, Co-Syndication               (Lead Arranger and
        Agent and Bookrunner)                    Administrative Agent)


                                       and

                         BANC OF AMERICA SECURITIES LLC
                       (Arranger and Co-Syndication Agent)

                                       and

                             ING (U.S.) CAPITAL LLC
                       (Arranger and Co-Syndication Agent)

                                       and

                       BAYERISCHE LANDESBANK GIROZENTRALE
                 (Arranger, Co-Documentation Agent and LC Bank)

                                       and

                            CIBC WORLD MARKETS CORP.
                      (Arranger and Co-Documentation Agent)

                                       and

              DRESDNER KLEINWORT BENSON NORTH AMERICA SERVICES LLC
                      (Arranger and Co-Documentation Agent)

                                       and

                            TD SECURITIES (USA) INC.
                      (Arranger and Co-Documentation Agent)

                                       and

                            THE BANKS PARTIES HERETO
<PAGE>   2
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                    PAGE
<S>                                                                                                              <C>
ARTICLE 1. DEFINITIONS..........................................................................................     1

         1.1      Definitions...................................................................................     1
         1.2      Rules of Interpretation.......................................................................     1

ARTICLE 2. THE CREDIT FACILITIES................................................................................     1

         2.1      Loans.........................................................................................     1
                  2.1.1    Loan Facility........................................................................     1
                  2.1.2    Turbine Purchase Loan Facility.......................................................     3
                  2.1.3    Interest Provisions Relating to Loans................................................     4
                  2.1.4    Promissory Notes.....................................................................     5
                  2.1.5    Loan Funding.........................................................................     6
                  2.1.6    Conversion of Loans..................................................................     6
                  2.1.7    Prepayments..........................................................................     7
         2.2      Letter of Credit Facilities...................................................................     7
                  2.2.1    Issuance of the Letters of Credit....................................................     7
                  2.2.2    Availability.........................................................................     8
                  2.2.3    Notice of LC Activity................................................................     8
                  2.2.4    Reimbursement........................................................................     8
                  2.2.5    Reimbursement Obligation Absolute....................................................     9
                  2.2.6    Reduction and Reinstatement of Stated Amount.........................................    10
                  2.2.7    Bank Participation...................................................................    10
                  2.2.8    Commercial Practices.................................................................    11
                  2.2.9    Term of Letters of Credit............................................................    11
         2.3      Total Commitments.............................................................................    12
                  2.3.1    Loan Commitment......................................................................    12
                  2.3.2    Turbine Purchase Loan Commitment.....................................................    12
                  2.3.3    Letter of Credit Commitment..........................................................    12
                  2.3.4    Reductions and Cancellations.........................................................    12
                  2.3.5    Turbine Purchase Loan Conversion to Construction Loans...............................    12
         2.4      Fees..........................................................................................    13
                  2.4.1    Fee Letter...........................................................................    13
                  2.4.2    Loan Commitment Fees.................................................................    13
                  2.4.3    Activation Fees......................................................................    13
         2.5      Letter of Credit Fees.........................................................................    13
         2.6      Other Payment Terms...........................................................................    14
                  2.6.1    Place and Manner.....................................................................    14
                  2.6.2    Date.................................................................................    14
                  2.6.3    Late Payments........................................................................    14
                  2.6.4    Net of Taxes, Etc....................................................................    14
                  2.6.5    Application of Payments..............................................................    16
                  2.6.6    Failure to Pay Administrative Agent..................................................    16
</TABLE>

                                       i
<PAGE>   3
<TABLE>
<S>                                                                                                              <C>
                  2.6.7    Withholding Exemption Certificates...................................................    16
         2.7      Pro Rata Treatment............................................................................    17
                  2.7.1    Borrowings, Commitment Reductions, Etc...............................................    17
                  2.7.2    Sharing of Payments, Etc.............................................................    17
         2.8      Change of Circumstances.......................................................................    18
                  2.8.1    Inability to Determine Rates.........................................................    18
                  2.8.2    Illegality...........................................................................    18
                  2.8.3    Increased Costs......................................................................    19
                  2.8.4    Capital Requirements.................................................................    19
                  2.8.5    Notice; Participating Banks' Rights..................................................    20
         2.9      Funding Losses................................................................................    20
         2.10     Alternate Office; Minimization of Costs.......................................................    20
         2.11     Extension of Loan Maturity Date...............................................................    21

ARTICLE 3. CONDITIONS PRECEDENT.................................................................................    23

         3.1      Conditions Precedent to the Closing Date......................................................    23
                  3.1.1    Resolutions..........................................................................    23
                  3.1.2    Incumbency...........................................................................    23
                  3.1.3    Formation Documents..................................................................    23
                  3.1.4    Good Standing Certificates...........................................................    23
                  3.1.5    Satisfactory Proceedings.............................................................    24
                  3.1.6    Credit Documents.....................................................................    24
                  3.1.7    Certificates of Borrower.............................................................    24
                  3.1.8    Legal Opinions.......................................................................    24
                  3.1.9    No Change in Tax Laws................................................................    24
                  3.1.10   Absence of Litigation................................................................    25
                  3.1.11   Payment of Filing Fees...............................................................    25
                  3.1.12   Insurance............................................................................    25
                  3.1.13   UCC Reports..........................................................................    25
                  3.1.14   Project Budgets......................................................................    25
                  3.1.15   Project Schedules....................................................................    25
                  3.1.16   Base Case Project Projections........................................................    26
                  3.1.17   No Material Adverse Change...........................................................    26
                  3.1.18   Establishment of Accounts............................................................    26
                  3.1.19   Representations and Warranties.......................................................    26
                  3.1.20   Payment of Bank and Consultants Fees.................................................    26
                  3.1.21   Certificate of Independent Engineer..................................................    26
                  3.1.22   Acquisition Closing..................................................................    26
                  3.1.23   Initial Contributions................................................................    26
         3.2      Conditions Precedent to the Initial Funding of the Initial Projects...........................    26
                  3.2.1    Borrower Equity......................................................................    27
                  3.2.2    Resolutions..........................................................................    27
                  3.2.3    Incumbency...........................................................................    27
                  3.2.4    Formation Documents..................................................................    27
                  3.2.5    Good Standing Certificates...........................................................    27
                  3.2.6    Satisfactory Proceedings.............................................................    28
</TABLE>

                                       ii
<PAGE>   4
<TABLE>
<S>                                                                                                              <C>
                  3.2.7    Operative Documents..................................................................    28
                  3.2.8    Certificate of Borrower..............................................................    30
                  3.2.9    Legal Opinions.......................................................................    30
                  3.2.10   Certificate of Insurance Consultant..................................................    30
                  3.2.11   Insurance............................................................................    30
                  3.2.12   Certificate of the Independent Engineer..............................................    31
                  3.2.13   Reports of the Environmental Consultant..............................................    31
                  3.2.14   Certificate of the Fuel Consultant...................................................    31
                  3.2.15   Certificate of Power Marketing Consultant............................................    32
                  3.2.16   Power Marketing Plan.................................................................    32
                  3.2.17   Fuel Plan............................................................................    32
                  3.2.18   Schedule of Applicable Permits and Applicable Third Party Permits....................    32
                  3.2.19   No Change in Tax Laws................................................................    33
                  3.2.20   Absence of Litigation................................................................    33
                  3.2.21   Payment of Filing Fees...............................................................    33
                  3.2.22   Financial Statements.................................................................    34
                  3.2.23   UCC Reports..........................................................................    34
                  3.2.24   Base Case Project Projections........................................................    34
                  3.2.25   Project Schedules; Project Budgets...................................................    34
                  3.2.26   No Material Adverse Change...........................................................    35
                  3.2.27   Real Estate Rights;  A.L.T.A. Surveys................................................    35
                  3.2.28   Title Policies.......................................................................    35
                  3.2.29   Regulatory Status....................................................................    36
                  3.2.30   Notice to Proceed....................................................................    36
                  3.2.31   Representations and Warranties.......................................................    36
                  3.2.32   Utilities............................................................................    36
                  3.2.33   Calpine Compliance...................................................................    36
                  3.2.34   Calpine Guaranties...................................................................    37
                  3.2.35   Updated Exhibits.....................................................................    37
                  3.2.36   Calpine Corporation Credit Rating....................................................    37
                  3.2.37   Delta Energy Center Project Requirements.............................................    37
         3.3      Conditions Precedent to the Initial Funding of the Subsequent Projects........................    37
                  3.3.1    Borrower Equity......................................................................    37
                  3.3.2    Joint Venture Projects...............................................................    37
                  3.3.3    Resolutions..........................................................................    38
                  3.3.4    Incumbency...........................................................................    38
                  3.3.5    Formation Documents..................................................................    38
                  3.3.6    Good Standing Certificates...........................................................    38
                  3.3.7    Satisfactory Proceedings.............................................................    39
                  3.3.8    Operative Documents..................................................................    39
                  3.3.9    Certificate of Borrower..............................................................    41
                  3.3.10   Legal Opinions.......................................................................    41
                  3.3.11   Certificate of Insurance Consultant..................................................    42
                  3.3.12   Insurance............................................................................    42
                  3.3.13   Certificate of the Independent Engineer..............................................    42
</TABLE>

                                      iii
<PAGE>   5
<TABLE>
<S>                                                                                                              <C>
                  3.3.14   Reports of the Environmental Consultant..............................................    42
                  3.3.15   Certificate of the Fuel Consultant...................................................    43
                  3.3.16   Certificate of Power Marketing Consultant............................................    43
                  3.3.17   Power Marketing Plan.................................................................    43
                  3.3.18   Fuel Plan............................................................................    43
                  3.3.19   Schedule of Applicable Permits and Applicable Third Party Permits....................    44
                  3.3.20   No Change in Tax Laws................................................................    45
                  3.3.21   Absence of Litigation................................................................    45
                  3.3.22   Payment of Filing Fees...............................................................    45
                  3.3.23   Financial Statements.................................................................    45
                  3.3.24   UCC Reports..........................................................................    45
                  3.3.25   Project Budgets......................................................................    46
                  3.3.26   Project Schedule.....................................................................    46
                  3.3.27   Base Case Project Projections........................................................    46
                  3.3.28   No Material Adverse Change...........................................................    46
                  3.3.29   Real Estate Rights;  A.L.T.A. Surveys................................................    46
                  3.3.30   Title Policies.......................................................................    47
                  3.3.31   Regulatory Status....................................................................    48
                  3.3.32   Notice to Proceed....................................................................    48
                  3.3.33   Representations and Warranties.......................................................    48
                  3.3.34   Utilities............................................................................    48
                  3.3.35   Calpine Compliance...................................................................    48
                  3.3.36   Calpine Guaranties...................................................................    48
                  3.3.37   Updated Exhibits.....................................................................    49
                  3.3.38   Diversification Requirements.........................................................    49
                  3.3.39   Calpine Corporation Credit Rating....................................................    49
                  3.3.40   Initial Projects Satisfaction of Conditions Precedent to Initial Funding.............    49
                  3.3.41   Modified Conditions Precedent to Initial Funding.....................................    49
         3.4      Conditions Precedent to Each Construction Credit Event........................................    50
                  3.4.1    Monthly Drawdown Frequency...........................................................    50
                  3.4.2    Notice of Construction Borrowing.....................................................    50
                  3.4.3    Construction Drawdown Certificate and Engineer's Certificate.........................    50
                  3.4.4    Amount...............................................................................    50
                  3.4.5    Title Policy Endorsement.............................................................    50
                  3.4.6    Lien Releases........................................................................    51
                  3.4.7    Applicable Permits...................................................................    51
                  3.4.8    Equity Contributions.................................................................    51
                  3.4.9    Additional Documentation.............................................................    51
                  3.4.10   Acceptable Work; No Liens............................................................    52
                  3.4.11   Casualty.............................................................................    52
                  3.4.12   Absence of Litigation................................................................    52
                  3.4.13   Insurance............................................................................    52
                  3.4.14   Available Construction Funds.........................................................    52
                  3.4.15   Representations and Warranties.......................................................    52
</TABLE>

                                       iv
<PAGE>   6
<TABLE>
<S>                                                                                                              <C>
                  3.4.16   No Event of Default or Inchoate Default..............................................    53
                  3.4.17   Operative Documents, Applicable Permits and Applicable Third Party Permits in Effect.    53
                  3.4.18   No Material Adverse Effect...........................................................    53
                  3.4.19   Third Party Funding..................................................................    53
                  3.4.20   Debt to Capitalization Ratio.........................................................    53
                  3.4.21   Interest Coverage Ratio..............................................................    53
                  3.4.22   Funded Projects......................................................................    53
         3.5      Conditions Precedent to the Initial Funding of the Turbines...................................    54
                  3.5.1    Borrower Equity......................................................................    54
                  3.5.2    Resolutions..........................................................................    54
                  3.5.3    Incumbency...........................................................................    54
                  3.5.4    Formation Documents..................................................................    54
                  3.5.5    Good Standing Certificates...........................................................    54
                  3.5.6    Satisfactory Proceedings.............................................................    55
                  3.5.7    Operative Documents..................................................................    55
                  3.5.8    Certificate of Borrower..............................................................    56
                  3.5.9    Legal Opinions.......................................................................    56
                  3.5.10   Insurance............................................................................    56
                  3.5.11   Certificate of the Independent Engineer..............................................    57
                  3.5.12   No Change in Tax Laws................................................................    57
                  3.5.13   Absence of Litigation................................................................    57
                  3.5.14   Payment of Filing Fees...............................................................    57
                  3.5.15   Financial Statements.................................................................    57
                  3.5.16   UCC Reports..........................................................................    57
                  3.5.17   No Material Adverse Change...........................................................    58
                  3.5.18   Representations and Warranties.......................................................    58
                  3.5.19   Calpine Compliance...................................................................    58
                  3.5.20   Calpine Guaranties...................................................................    58
                  3.5.21   Calpine Corporation Credit Rating....................................................    58
         3.6      Conditions Precedent to Each Turbine Purchase Credit Event....................................    58
                  3.6.1    Monthly Drawdown Frequency...........................................................    58
                  3.6.2    Notice of Turbine Purchase Borrowing.................................................    58
                  3.6.3    Turbine Purchase Drawdown Certificate and Engineer's Certificate.....................    58
                  3.6.4    Amount...............................................................................    58
                  3.6.5    Equity Contributions.................................................................    59
                  3.6.6    Insurance............................................................................    59
                  3.6.7    Available Construction Funds.........................................................    59
                  3.6.8    Representations and Warranties.......................................................    59
                  3.6.9    No Event of Default or Inchoate Default..............................................    59
                  3.6.10   Credit Documents and Turbine Purchase Contract in Effect.............................    59
                  3.6.11   No Material Adverse Effect...........................................................    59
                  3.6.12   Debt to Capitalization Ratio.........................................................    59
                  3.6.13   Funded Projects......................................................................    59
         3.7      Conditions Precedent to Final Completion......................................................    60
                  3.7.1    Notice of Completion.................................................................    60
</TABLE>

                                       v
<PAGE>   7
<TABLE>
<S>                                                                                                              <C>
                  3.7.2    Completion...........................................................................    60
                  3.7.3    Annual Budget........................................................................    60
                  3.7.4    Insurance............................................................................    60
                  3.7.5    Applicable Permits and Applicable Third Party Permits................................    60
                  3.7.6    Real Estate Rights; A.L.T.A. Surveys.................................................    61
                  3.7.7    Title Policy.........................................................................    61
                  3.7.8    Operating Plans......................................................................    62
                  3.7.9    Affiliated Party Deeds of Trust......................................................    62
                  3.7.10   Equipment Maintenance Agreements.....................................................    62
         3.8      Conditions Precedent to the Issuance of Letters of Credit.....................................    62
                  3.8.1    Representations and Warranties.......................................................    63
                  3.8.2    No Event of Default or Inchoate Default..............................................    63
                  3.8.3    Operative Documents, Applicable Permits and Applicable Third Party Permits in Effect.    63
                  3.8.4    No Material Adverse Effect...........................................................    63
                  3.8.5    Interest Coverage Ratio..............................................................    63
                  3.8.6    Project Satisfaction of Conditions Precedent to Initial Funding......................    63
                  3.8.7    Debt to Capitalization Ratio.........................................................    63
                  3.8.8    Funded Projects......................................................................    63
         3.9      Failure of Conditions Precedent to be Satisfied for a Particular Project......................    64
         3.10     Funding of Equity.............................................................................    64
         3.11     No Approval of Work...........................................................................    66
         3.12     Waiver of Funding; Adjustment of Drawdown Requests............................................    66
         3.13     Ability of Technical Committee to Defer Satisfaction of Conditions Precedent to Initial
                  Funding for Projects Five Through Twelve......................................................    66

ARTICLE 4. REPRESENTATIONS AND WARRANTIES.......................................................................    67

         4.1      Organization..................................................................................    67
         4.2      Authorization; No Conflict....................................................................    68
         4.3      Enforceability................................................................................    68
         4.4      Compliance with Law...........................................................................    68
         4.5      Business, Debt, Contracts, Joint Ventures Etc.................................................    68
         4.6      Adverse Change................................................................................    69
         4.7      Investment Company Act, Etc...................................................................    69
         4.8      ERISA.........................................................................................    69
         4.9      Permits.......................................................................................    70
         4.10     Qualifying Facility/Exempt Wholesale Generator................................................    71
         4.11     Hazardous Substance...........................................................................    71
         4.12     Litigation....................................................................................    71
         4.13     Labor Disputes and Acts of God................................................................    72
         4.14     Project Documents and Turbine Purchase Contracts..............................................    72
         4.15     Disclosure....................................................................................    72
         4.16     Private Offering by Borrower..................................................................    73
         4.17     Taxes.........................................................................................    73
         4.18     Governmental Regulation.......................................................................    73
         4.19     Regulation U, Etc.............................................................................    73
</TABLE>

                                       vi
<PAGE>   8
<TABLE>
<S>                                                                                                              <C>
         4.20     Project Budgets; Projections..................................................................    73
         4.21     Financial Statements..........................................................................    74
         4.22     Existing Defaults.............................................................................    74
         4.23     No Default....................................................................................    74
         4.24     Offices, Location of Collateral...............................................................    74
         4.25     Title and Liens...............................................................................    75
         4.26     Trademarks....................................................................................    76
         4.27     Collateral....................................................................................    76
         4.28     Sufficiency of Project Documents..............................................................    77
         4.29     Utilities.....................................................................................    77
         4.30     Roads/Transmission Line.......................................................................    78
         4.31     Proper Subdivision............................................................................    78
         4.32     Flood Zone Disclosure.........................................................................    78
         4.33     Acquisition of Real Property..................................................................    78

ARTICLE 5. COVENANTS OF BORROWER................................................................................    78

         5.1      Use of Proceeds and Revenues..................................................................    78
                  5.1.1    Proceeds.............................................................................    78
                  5.1.2    Revenues.............................................................................    79
         5.2      Payment.......................................................................................    79
                  5.2.1    Credit Documents.....................................................................    79
                  5.2.2    Project Documents and Turbine Purchase Contracts.....................................    79
         5.3      Warranty of Title.............................................................................    79
         5.4      Notices.......................................................................................    80
         5.5      Financial Statements..........................................................................    82
         5.6      Books, Records, Access........................................................................    83
         5.7      Compliance with Laws, Instruments, Etc........................................................    83
         5.8      Reports.......................................................................................    83
         5.9      Existence, Conduct of Business, Properties, Etc...............................................    85
         5.10     Four-Quarter Portfolio Interest Coverage Ratio; Maximum Debt to Capitalization Ratio..........    85
         5.11     Indemnification...............................................................................    86
         5.12     Qualifying Facility/Exempt Wholesale Generator................................................    88
         5.13     Construction of Each Project..................................................................    89
         5.14     Completion....................................................................................    89
         5.15     Operation of Projects and Annual Operating Budget.............................................    89
         5.16     Preservation of Rights; Further Assurances....................................................    90
         5.17     Project Equity................................................................................    91
                  5.17.1   (a)..................................................................................    92
         5.18     Maintenance of Insurance......................................................................    92
         5.19     Taxes and Other Government Charges............................................................    92
         5.20     Event of Eminent Domain.......................................................................    93
         5.21     Power Marketing Plan; Fuel Plan...............................................................    93
         5.22     Utility Charges...............................................................................    93
         5.23     Revenue Payment to Borrower...................................................................    93
         5.24     Initial Project Deeds of Trust and Equipment Finance Company Collateral Documents.............    94
</TABLE>

                                      vii
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<TABLE>
<S>                                                                                                              <C>
         5.25     Funded Projects...............................................................................    94

ARTICLE 6. NEGATIVE COVENANTS...................................................................................    94

         6.1      Contingent Liabilities........................................................................    94
         6.2      Limitations on Liens..........................................................................    95
         6.3      Indebtedness..................................................................................    95
         6.4      Sale or Lease of Assets.......................................................................    95
         6.5      Changes.......................................................................................   102
         6.6      Distributions.................................................................................   102
         6.7      Investments...................................................................................   103
         6.8      Transactions With Affiliates..................................................................   103
         6.9      Regulations...................................................................................   104
         6.10     ERISA.........................................................................................   104
         6.11     Partnerships, Etc.............................................................................   104
         6.12     Dissolution...................................................................................   104
         6.13     Amendments; Change Orders; Completion.........................................................   104
         6.14     Compliance with Operative Documents...........................................................   107
         6.15     Name and Location; Fiscal Year................................................................   107
         6.16     Use of Project Sites..........................................................................   107
         6.17     Assignment....................................................................................   107
         6.18     Abandonment of Project or Turbine.............................................................   107
         6.19     Hazardous Substance...........................................................................   107
         6.20     Additional Project Documents..................................................................   107
         6.21     Project Budget Amendments.....................................................................   108
         6.22     Loan Proceeds; Project Revenues...............................................................   108
         6.23     Acquisition of Real Property..................................................................   108
         6.24     Accounts......................................................................................   108

ARTICLE 7. APPLICATION OF FUNDS.................................................................................   109

         7.1      Construction Account..........................................................................   109
                  7.1.1    Establishment of Account.............................................................   109
                  7.1.2    Disbursements from Construction Account..............................................   109
                  7.1.3    Rights of Administrative Agent.......................................................   110
         7.2      Revenue Account...............................................................................   111
                  7.2.1    Establishment of Account; Priority of Payments.......................................   111
                  7.2.2    O&M Costs............................................................................   112
                  7.2.3    Subordinated O&M Costs...............................................................   113
                  7.2.4    Mandatory Prepayment.................................................................   113
         7.3      Operating Account.............................................................................   113
                  7.3.1    Establishment of Account.............................................................   114
                  7.3.2    Funding..............................................................................   114
                  7.3.3    Withdrawals..........................................................................   114
                  7.3.4    Security Interest....................................................................   114
         7.4      Loss Proceeds Account.........................................................................   114
</TABLE>

                                      viii
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<TABLE>
<S>                                                                                                              <C>
         7.5      Application of Insurance Proceeds.............................................................   114
                  7.5.1    General..............................................................................   115
                  7.5.2    Delay in Start Up and Business Interruption Insurance................................   115
                  7.5.3    Applications; Mandatory Prepayments..................................................   115
                  7.5.4    Proceeds Less than $1,000,000........................................................   117
                  7.5.5    Proceeds in Excess of $1,000,000, Not in Excess of $10,000,000.......................   117
                  7.5.6    Proceeds in Excess of $10,000,000....................................................   117
                  7.5.7    Repair and Restoration Procedures....................................................   117
                  7.5.8    Excess Insurance Proceeds............................................................   118
                  7.5.9    Turbine Insurance Proceeds...........................................................   118
                  7.5.10   Events of Default....................................................................   118
         7.6      Application of Eminent Domain Proceeds........................................................   118
         7.7      Application of Certain Damages Payments; Mandatory Prepayments................................   118
                  7.7.1    Contractor...........................................................................   118
                  7.7.2    Power Purchasers.....................................................................   119
                  7.7.3    Other................................................................................   119
         7.8      Working Capital Reserve Account...............................................................   119
                  7.8.1    Establishment of Account.............................................................   119
                  7.8.2    Funding..............................................................................   119
                  7.8.3    Withdrawals..........................................................................   120
                  7.8.4    Earnings.............................................................................   120
         7.9      Security Interest in Proceeds and Accounts....................................................   120
         7.10     Permitted Investments.........................................................................   121
         7.11     Earnings on Accounts..........................................................................   121
         7.12     Dominion and Control..........................................................................   121
         7.13     Termination of Commitments....................................................................   121
         7.14     Flow of Funds Between Portfolio Entities......................................................   121

ARTICLE 8. EVENTS OF DEFAULT; REMEDIES..........................................................................   123

         8.1      Events of Default.............................................................................   123
                  8.1.1    Failure to Make Payments.............................................................   123
                  8.1.2    Judgments............................................................................   123
                  8.1.3    Misstatements; Omissions.............................................................   123
                  8.1.4    Bankruptcy; Insolvency...............................................................   123
                  8.1.5    Debt Cross Default...................................................................   124
                  8.1.6    ERISA................................................................................   124
                  8.1.7    Breach of Terms of Agreement.........................................................   125
                  8.1.8    Loss of Qualifying Facility or Eligible Facility Status..............................   126
                  8.1.9    Abandonment..........................................................................   126
                  8.1.10   Security.............................................................................   127
                  8.1.11   Loss of Control......................................................................   127
                  8.1.12   Loss of or Failure to Obtain Applicable Permits or Applicable Third Party Permits....   127
                  8.1.13   Loss of Collateral...................................................................   128
                  8.1.14   Non-Fundamental Defaults.............................................................   128
         8.2      Remedies......................................................................................   128
</TABLE>

                                       ix
<PAGE>   11
<TABLE>
<S>                                                                                                              <C>
                  8.2.1    No Further Loans or Letters of Credit................................................   128
                  8.2.2    Cash Collateralization of Letters of Credit..........................................   128
                  8.2.3    Prepayment of Loans..................................................................   129
                  8.2.4    Cure by Administrative Agent.........................................................   129
                  8.2.5    Acceleration.........................................................................   129
                  8.2.6    Cash Collateral......................................................................   129
                  8.2.7    Possession of Projects and Turbines..................................................   129
                  8.2.8    Remedies Under Credit Documents......................................................   129

ARTICLE 9. SCOPE OF LIABILITY...................................................................................   130


ARTICLE 10. ADMINISTRATIVE AGENT; SUBSTITUTION; TECHNICAL COMMITTEE.............................................   131

         10.1     Appointment, Powers and Immunities............................................................   131
         10.2     Reliance by Administrative Agent..............................................................   132
         10.3     Non-Reliance..................................................................................   132
         10.4     Defaults......................................................................................   132
         10.5     Indemnification...............................................................................   132
         10.6     Successor Administrative Agent................................................................   133
         10.7     Authorization.................................................................................   134
         10.8     Administrative Agent, Technical Committee, Bookrunner, Arrangers, Co-Syndication Agents and
                  Co-Documentation Agents.......................................................................   134
         10.9     Amendments; Waivers...........................................................................   134
         10.10    Withholding Tax...............................................................................   135
         10.11    General Provisions as to Payments.............................................................   136
         10.12    Substitution of Bank..........................................................................   136
         10.13    Participation.................................................................................   136
         10.14    Transfer of Commitment........................................................................   137
         10.15    Laws..........................................................................................   138
         10.16    Assignability to Federal Reserve Bank.........................................................   138
         10.17    Technical Committee...........................................................................   139
         10.18    Notices to Technical Committee and Banks......................................................   139

ARTICLE 11. INDEPENDENT CONSULTANTS.............................................................................   139

         11.1     Removal and Fees..............................................................................   139
         11.2     Duties........................................................................................   139
         11.3     Independent Consultants' Certificates.........................................................   140
         11.4     Certification of Dates........................................................................   140

ARTICLE 12. MISCELLANEOUS.......................................................................................   140

         12.1     Addresses.....................................................................................   140
         12.2     Additional Security; Right to Set-Off.........................................................   142
         12.3     Delay and Waiver..............................................................................   142
         12.4     Costs, Expenses and Attorneys' Fees; Syndication..............................................   142
</TABLE>

                                       x
<PAGE>   12
<TABLE>
<S>                                                                                                              <C>
         12.5     Entire Agreement..............................................................................   143
         12.6     Governing Law.................................................................................   144
         12.7     Severability..................................................................................   144
         12.8     Headings......................................................................................   144
         12.9     Accounting Terms..............................................................................   144
         12.10    Additional Financing..........................................................................   144
         12.11    No Partnership, Etc...........................................................................   144
         12.12    Deed of Trust/Collateral Documents............................................................   144
         12.13    Limitation on Liability.......................................................................   144
         12.14    Waiver of Jury Trial..........................................................................   145
         12.15    Consent to Jurisdiction.......................................................................   145
         12.16    Usury.........................................................................................   145
         12.17    Knowledge and Attribution.....................................................................   146
         12.18    Successors and Assigns........................................................................   146
         12.19    Counterparts..................................................................................   146
</TABLE>

                                       xi
<PAGE>   13
INDEX OF EXHIBITS AND SCHEDULES
<TABLE>
<S>                <C>
Exhibit A          Definitions and Rules of Interpretation

                   NOTES
Exhibit B          Form of Note

                   LOAN DISBURSEMENT PROCEDURES
Exhibit C-1        Form of Notice of Construction Borrowing
Exhibit C-2        Form of Notice of Turbine Purchase Borrowing
Exhibit C-3        Form of Confirmation of Interest Period Selection
Exhibit C-4        Form of Notice of Conversion of Loan Type
Exhibit C-5        Form of Notice of LC Activity
Exhibit C-6        Form of Construction Drawdown Certificate
Exhibit C-7        Form of Engineer's Construction Certificate
Exhibit C-8        Form of Turbine Purchase Drawdown Certificate
Exhibit C-9        Form of Engineer's Turbine Purchase Certificate
Exhibit C-10       Form of Disbursement Requisition
Exhibit C-11       Form of Reserve Account Disbursement Requisition

                   EQUITY AND SECURITY-RELATED DOCUMENTS
Exhibit D-1        Form of Depositary Agreement
Exhibit D-2A       Form of Affiliated Party Agreement Guaranty
Exhibit D-2B       Form of Project Completion Guaranty
Exhibit D-2C       Form of Turbine Purchase Guaranty
Exhibit D-2D       Form of Project Owner Guaranty
Exhibit D-3        Form of Deed of Trust
Exhibit D-4A       Form of Borrower Security Agreement
Exhibit D-4B       Form of Project/Turbine Owner Security Agreement
Exhibit D-4C       Development Company Security Agreement
Exhibit D-4D       Form of CCFC II Equipment Finance Company Security Agreement
Exhibit D-4E       Form of Equipment Finance Company Security Agreement
Exhibit D-5        INTENTIONALLY OMITTED
Exhibit D-6        Schedule of Security Filings
Exhibit D-7        Form of Debt Subordination Agreement
Exhibit D-8        Form of Affiliated Subordination Agreement
Exhibit D-9        Form of Pledge Agreement (Pledged Equity Interests)
Exhibit D-10       Form of Portfolio Entity Note

                   CONSENTS
Exhibit E-1        Form of Consent for Contracting Party

                   CLOSING CERTIFICATES
Exhibit F-1        Form of Borrower's Closing Certificate
Exhibit F-2        Form of Borrower's Project Funding Certificate
Exhibit F-3        Form of Borrower's Turbine Funding Certificate
</TABLE>

                                      xii
<PAGE>   14
<TABLE>
<S>                <C>
Exhibit F-4        Form of Insurance Consultant's Certificate
Exhibit F-5        Form of Independent Engineer's Closing Certificate
Exhibit F-6        Form of Independent Engineer's Project Funding Certificate
Exhibit F-7        Form of Independent Engineer's Turbine Funding Certificate
Exhibit F-8        Form of Fuel Consultant's Certificate
Exhibit F-9        Form of Power Marketing Consultant's Certificate

                   PROJECT DESCRIPTION EXHIBITS
Exhibit G-1        Description of Initial Projects
Exhibit G-2        Description of Subsequent Projects
Exhibit G-3        Description of Turbines
Exhibit G-4        Project Budgets
Appendix G-4A      Los Medanos Energy Center Project Budget
Appendix G-4B      Baytown Energy Center Project Budget
Appendix G-4C      Carville Project Budget
Appendix G-4D      Panda Oneta Power Project Budget
Appendix G-4E      Santa Rosa-Phase I Project Budget
Appendix G-4F      Delta Energy Center Project Budget
Appendix G-4G      Freestone Energy Center Project Budget
Appendix G-4H      Broad River-Phase II Project Budget
Appendix G-4I      Channel Project Budget
Appendix G-4J      Corpus-Phase I Project Budget
Appendix G-4K      Solutia Project Budget
Appendix G-4L      Morgan Energy Center-Amoco Project Budget
Appendix G-4M      Borrower Budget for Non-Project Allocated Costs
Exhibit G-5        Initial Project Scheduled Completion Dates
Exhibit G-6        Base Case Project Projections
Exhibit G-7        Pending Litigation
Exhibit G-8        Hazardous Substances Disclosure
Exhibit G-9        Form of Power Marketing Plan
Exhibit G-10       Form of Fuel Plan

                   OTHER
Exhibit H          Banks/Lending Offices
Exhibit I          Annual Insurance Consultant's Certificate
Exhibit J-1        Form of Withholding Certificate (Treaty)
Exhibit J-2        Form of Withholding Certificate (Effectively Connected)
Exhibit K          Insurance Requirements
Exhibit L          Assignment Agreement
Schedule 1         Required Contribution Percentage
Schedule 3.2       Initial Project Funding Specifics
Schedule 3.3.41    Modified Conditions Precedent to Initial Funding
Schedule 4.24      Chief Executive Offices of Portfolio Entities
</TABLE>

                                      xiii
<PAGE>   15
                  THIS CREDIT AGREEMENT (this "Agreement") dated as of October
16, 2000, is entered into among CALPINE CONSTRUCTION FINANCE COMPANY II, LLC, a
Delaware limited liability company, as Borrower, CREDIT SUISSE FIRST BOSTON,
acting through its New York Branch, as Lead Arranger and Administrative Agent,
THE BANK OF NOVA SCOTIA, as Lead Arranger, Co-Syndication Agent and Bookrunner,
BANC OF AMERICA SECURITIES LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
CAPITAL LLC, as Arranger and Co-Syndication Agent, BAYERISCHE LANDESBANK
GIROZENTRALE, as Arranger, Co-Documentation Agent, and LC Bank, CIBC WORLD
MARKETS CORP., as Arranger and Co-Documentation Agent, DRESDNER KLEINWORT BENSON
NORTH AMERICA SERVICES LLC, as Arranger and Co-Documentation Agent, TD
SECURITIES (USA) INC., as Arranger and Co-Documentation Agent, and the financial
institutions listed on Exhibit H hereto (the "Banks").

                  In consideration of the agreements herein and in the other
Credit Documents and in reliance upon the representations and warranties set
forth herein and therein, the parties agree as follows:

                                   ARTICLE 1.
                                   DEFINITIONS

     1.1 Definitions. Except as otherwise expressly provided, capitalized terms
used in this Agreement and its exhibits shall have the meanings given in Exhibit
A.

     1.2 Rules of Interpretation. Except as otherwise expressly provided, the
rules of interpretation set forth in Exhibit A shall apply to this Agreement and
the other Credit Documents.

                                   ARTICLE 2.
                              THE CREDIT FACILITIES

     2.1 Loans.


          2.1.1 Loan Facility.

                  (a) Availability. Subject to the terms and conditions set
forth in this Agreement, each Bank severally agrees to advance to Borrower from
time to time during the Loan Availability Period such loans as Borrower may
request under this Section 2.1.1 (individually, a "Construction Loan" and
collectively the "Construction Loans"), in an aggregate principal amount which,
when added to such Bank's Proportionate Share of the aggregate principal amount
of all Turbine Purchase Loans then outstanding, such Bank's Proportionate Share
of the Aggregate LC Stated Amount and all outstanding Reimbursement Obligations
owed such Bank, does not exceed such Bank's Loan Commitment. Subject to the
terms hereof (including without limitation the conditions to drawdowns set forth
in Article 3), Borrower may borrow, repay and reborrow the Construction Loans
from time to time during the Loan Availability Period.

                  (b) Notice of Construction Borrowing. Borrower shall request
Construction Loans by delivering to Administrative Agent a written notice in the
form of
<PAGE>   16
Exhibit C-1, appropriately completed (a "Notice of Construction Borrowing"),
which specifies, among other things:

                         (i) The principal portion of the requested Borrowing
which will bear interest as provided in (1) Section 2.1.1(c)(i) (individually, a
"Base Rate Construction Loan") and/or (2) Section 2.1.1(c)(ii) (individually, a
"LIBOR Construction Loan");

                         (ii) The amount of the requested Borrowing, which (A)
shall be in the minimum amount of $1,000,000 and (B) when added to all other
Construction Loans then outstanding shall not exceed the Total Loan Commitment,
minus the sum of (x) the aggregate principal amount of all Turbine Purchase
Loans then outstanding plus (y) the aggregate Stated Amount of all Letters of
Credit then outstanding plus (z) the aggregate amount of all Reimbursement
Obligations then outstanding;

                         (iii) The date of the requested Borrowing, which shall
be a Banking Day;

                         (iv) If the requested Borrowing is to consist of LIBOR
Construction Loans, the initial Interest Periods selected by Borrower for such
Construction Loans; and

                         (v) The Project(s) to which such Borrowing relates.

                  Borrower shall give each Notice of Construction Borrowing
relating to Construction Loans to Administrative Agent so as to provide the
Minimum Notice Period applicable to Loans of the Type requested. Any Notice of
Construction Borrowing may be modified or revoked by Borrower through the
Banking Day prior to the Minimum Notice Period, and shall thereafter be
irrevocable.

                  (c) Construction Loan Interest. Borrower shall pay interest on
the unpaid principal amount of each Construction Loan from the date of such
Construction Loan until the maturity or prepayment thereof at the following
rates per annum:

                         (i) With respect to the principal portion of such
Construction Loan which is, and during such periods as such Construction Loan
is, a Base Rate Construction Loan, at a rate per annum equal to the Base Rate
plus the Applicable Margin, such rate to change from time to time as the Base
Rate shall change; and

                         (ii) With respect to the principal portion of such
Construction Loan which is, and during such portion of such periods as such
Construction Loan is, a LIBOR Construction Loan, at a rate per annum, at all
times during each Interest Period for such LIBOR Construction Loan, equal to the
LIBO Rate for such Interest Period plus the Applicable Margin.

                  (d) Construction Loan Principal Payments. Borrower shall repay
to Administrative Agent, for the account of each Bank, in full on the Loan
Maturity Date the unpaid principal amount of all Construction Loans made by such
Bank.


                                       2
<PAGE>   17
          2.1.2 Turbine Purchase Loan Facility.

                  (a) Availability. Subject to the terms and conditions set
forth in this Agreement, each Bank severally agrees to advance to Borrower from
time to time during the Loan Availability Period such loans as Borrower may
request under this Section 2.1.2 (individually, a "Turbine Purchase Loan" and
collectively the "Turbine Purchase Loans"). Subject to the terms hereof
(including without limitation the conditions to drawdowns set forth in Article
3), Borrower may borrow, repay and reborrow the Turbine Purchase Loans from time
to time during the Loan Availability Period.

                  (b) Notice of Turbine Purchase Borrowing. Borrower shall
request Turbine Purchase Loans by delivering to Administrative Agent a written
notice in the form of Exhibit C-2, appropriately completed (a "Notice of Turbine
Purchase Borrowing"), which specifies, among other things:

                         (i) The principal portion of the requested Borrowing
which will bear interest as provided in (1) Section 2.1.2(c)(i) (individually, a
"Base Rate Turbine Purchase Loan") and/or (2) Section 2.1.2(c)(ii)
(individually, a "LIBOR Turbine Purchase Loan");

                         (ii) The amount of the requested Borrowing, which (A)
shall be in the minimum amount of $1,000,000 and (B) when added to all other
Turbine Purchase Loans then outstanding shall not exceed the lesser of (I) Total
Turbine Purchase Loan Commitment and (II) an amount equal to the excess, if any,
of (x) the amount of the Total Loan Commitment at such time over (y) the
aggregate principal amount of all Loans then outstanding plus the Aggregate LC
Stated Amount and all outstanding Reimbursement Obligations;

                         (iii) The date of the requested Borrowing, which shall
be a Banking Day;

                         (iv) If the requested Borrowing is to consist of LIBOR
Turbine Purchase Loans, the initial Interest Periods selected by Borrower for
such Turbine Purchase Loans; and

                         (v) The Turbine(s) to which such Borrowing relates.

                  Borrower shall give each Notice of Turbine Purchase Borrowing
relating to Turbine Purchase Loans to Administrative Agent so as to provide the
Minimum Notice Period applicable to Loans of the Type requested. Any Notice of
Turbine Purchase Borrowing may be modified or revoked by Borrower through the
Banking Day prior to the Minimum Notice Period, and shall thereafter be
irrevocable.

                  (c) Turbine Purchase Loan Interest. Borrower shall pay
interest on the unpaid principal amount of each Turbine Purchase Loan from the
date of such Turbine Purchase Loan until the maturity or prepayment thereof at
the following rates per annum:

                         (i) With respect to the principal portion of such
Turbine Purchase Loan which is, and during such periods as such Turbine Purchase
Loan is, a Base Rate

                                       3
<PAGE>   18
Turbine Purchase Loan, at a rate per annum equal to the rate of interest per
annum then applicable to Base Rate Construction Loans pursuant to Section
2.1.1(c)(i); and

                         (ii) With respect to the principal portion of such
Turbine Purchase Loan which is, and during such portion of such periods as such
Turbine Purchase is, a LIBOR Turbine Purchase Loan, at a rate per annum, at all
times during each Interest Period for such LIBOR Turbine Purchase Loan, equal to
the rate of interest per annum then applicable to LIBOR Construction Loans
pursuant to Section 2.1.1(c)(ii).

                  (d) Turbine Purchase Loan Principal Payments. Borrower shall
repay to Administrative Agent, for the account of each Bank, in full on the Loan
Maturity Date the unpaid principal amount of all Turbine Purchase Loans made by
such Bank.

          2.1.3 Interest Provisions Relating to Loans.

                  (a) Interest Payment Dates. Borrower shall pay accrued
interest on the unpaid principal amount of each Loan (i) in the case of each
Base Rate Loan, on the last Banking Day of each calendar quarter, (ii) in the
case of each LIBOR Loan, on the last day of each Interest Period related to such
LIBOR Loan and, if such Interest Period is longer than three months, every three
months after the date of such LIBOR Loan and (iii) in all cases, upon prepayment
(to the extent thereof and including any optional prepayments or Mandatory
Prepayments), upon conversion from one Type of Loan to another Type, and on the
Loan Maturity Date.

                  (b) LIBOR Loan Interest Periods.


                         (i) The initial and subsequent Interest Periods for
LIBOR Loans shall be a maximum of one month during the six month period
immediately following the Closing Date; provided that Administrative Agent may
otherwise approve, in its sole discretion, a longer Interest Period which is
requested by Borrower and otherwise complies with the following provisions of
this Section 2.1.3(b)(i). Thereafter, each subsequent Interest Period (including
any Interest Period referenced in the proviso of the first sentence of this
Section 2.1.3(b)) selected by Borrower for all LIBOR Loans shall be one, two,
three, six or, if made available by Administrative Agent, 12 months or such
other period as close to three months as is practicable to enable Borrower to
limit the number of LIBOR Loans as required by this Section 2.1.3(b)(i) or to
comply with clauses (C), (D) or (F) of the next sentence. Notwithstanding
anything to the contrary in either of the two preceding sentences, (A) any
Interest Period which would otherwise end on a day which is not a Banking Day
shall be extended to the next succeeding Banking Day unless such next Banking
Day falls in another calendar month, in which case such Interest Period shall
end on the immediately preceding Banking Day; (B) any Interest Period which
begins on the last Banking Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Banking Day of a calendar month; (C)
Borrower may not select Interest Periods which would leave a greater principal
amount of Loans subject to Interest Periods ending after a date upon which Loans
are or may be required to be repaid than principal amount of Loans scheduled to
be outstanding after such date; (D) any Interest Period for a Loan which would
otherwise end after the Loan Maturity Date shall end on the Loan

                                       4
<PAGE>   19
Maturity Date; (E) LIBOR Loans for each Interest Period shall be in the amount
of at least $100,000; and (F) Borrower may not at any time have outstanding more
than twelve different Interest Periods relating to LIBOR Loans.

                         (ii) Borrower may contact Administrative Agent at any
time prior to the end of an Interest Period, for a quotation of Interest Rates
in effect at such time for given Interest Periods and Administrative Agent shall
promptly provide such quotation. Borrower may select an Interest Period
telephonically within the time periods specified in Section 2.1.6, which
selection shall be irrevocable on and after the applicable Minimum Notice
Period. Borrower shall confirm such telephonic notice to Administrative Agent by
telecopy on the day such notice is given (in substantially the form of Exhibit
C-3, a "Confirmation of Interest Period Selection"). Borrower shall promptly
deliver to Administrative Agent the original of the Confirmation of Interest
Period Selection initially delivered by telecopy. If Borrower fails to notify
Administrative Agent of the next Interest Period for any LIBOR Loans in
accordance with this Section 2.1.3(b), such Loans shall automatically convert to
Base Rate Loans on the last day of the current Interest Period therefor.
Administrative Agent shall as soon as practicable (and, in any case, within two
Banking Days after delivery of the Confirmation of Interest Period Selection)
notify Borrower of each determination of the Interest Rate applicable to each
Loan.

                  (c) Interest Account and Interest Computations. Borrower
authorizes Administrative Agent to record in an account or accounts maintained
by Administrative Agent on its books (i) the interest rates applicable to all
Loans and the effective dates of all changes thereto, (ii) the Interest Period
for each LIBOR Loan, (iii) the date and amount of each principal and interest
payment on each Loan and (iv) such other information as Administrative Agent may
determine is necessary for the computation of interest payable by Borrower
hereunder. Borrower agrees that all computations by Administrative Agent of
interest shall be conclusive in the absence of manifest error. All computations
of interest on Base Rate Loans shall be based upon a year of 365 or 366 days and
the actual days elapsed, and shall be adjusted in accordance with any changes in
the Base Rate to take effect on the beginning of the day of such change in the
Base Rate. All computations of interest on LIBOR Loans shall be based upon a
year of 360 days and the actual days elapsed.

         2.1.4 Promissory Notes. The obligation of Borrower to repay the Loans
made by each Bank and to pay interest thereon at the rates provided herein shall
be evidenced by promissory notes in the form of Exhibit B (individually, a
"Note"), each payable to the order of such Bank and in the principal amount of
such Bank's Loan Commitment. Borrower authorizes each Bank to record on the
schedule annexed to such Bank's Note, the date and amount of each Loan made by
such Bank, and each payment or prepayment of principal thereunder and agrees
that all such notations shall constitute prima facie evidence of the matters
noted. Borrower further authorizes each Bank to attach to and make a part of
such Bank's Note continuations of the schedule attached thereto as necessary. No
failure to make any such notations, nor any errors in making any such notations,
shall affect the validity of Borrower's obligations to repay the full unpaid
principal amount of the Loans or the duties of Borrower hereunder or thereunder.


                                       5
<PAGE>   20
         2.1.5 Loan Funding.

                  (a) Notice. Each Notice of Borrowing shall be delivered by
Borrower to Administrative Agent in accordance with Section 12.1. Administrative
Agent shall promptly notify each Bank of the contents of each Notice of
Borrowing.

                  (b) Pro Rata Loans. All Loans shall be made on a pro rata
basis by the Banks in accordance with their respective Proportionate Shares of
such Loans, with each Borrowing to consist of a Loan by each Bank equal to such
Bank's Proportionate Share of such Borrowing.

                  (c) Bank Funding. Each Bank shall, before 12:00 noon on the
date of each Borrowing, make available to Administrative Agent at its office
specified in Section 12.1, in same day funds, such Bank's Proportionate Share of
such Borrowing. The failure of any Bank to make the Loan to be made by it as
part of any Borrowing shall not relieve any other Bank of its obligation
hereunder to make its Loan on the date of such Borrowing. No Bank shall be
responsible for the failure of any other Bank to make the Loan to be made by
such other Bank on the date of any Borrowing.

                  (d) Construction Account. No later than 2:00 p.m. on the date
specified in each Notice of Borrowing, if the applicable conditions precedent
listed in Article 3 have been satisfied and to the extent Administrative Agent
shall have received the appropriate funds from the Banks, Administrative Agent
will make available the Loans requested in such Notice of Borrowing (or so much
thereof as the Banks shall have approved pursuant to this Agreement) in Dollars
and in immediately available funds, at Administrative Agent's New York Branch,
and shall deposit such Loans into the Construction Account.

         2.1.6 Conversion of Loans. Borrower may convert Loans from one Type of
Loans to another Type; provided, however, that (i) any conversion of LIBOR Loans
into Base Rate Loans shall be made on, and only on, the first day after the last
day of an Interest Period for such LIBOR Loans and (ii) Loans shall be converted
only in amounts of $1,000,000 or more. Borrower shall request such a conversion
by a written notice to Administrative Agent in the form of Exhibit C-4,
appropriately completed (a "Notice of Conversion of Loan Type"), which
specifies:

                  (a) The Loans, or portion thereof, which are to be converted;

                  (b) The Type into which such Loans, or portion thereof, are to
be converted;

                  (c) If such Loans are to be converted into LIBOR Loans, the
initial Interest Period selected by Borrower for such Loans in accordance with
Section 2.1.3(b); and

                  (d) The date of the requested conversion, which shall be a
Banking Day.

Borrower shall so deliver each Notice of Conversion of Loan Type so as to
provide at least the applicable Minimum Notice Period. Any Notice of Conversion
of Loan Type may be modified or revoked by Borrower through the Banking Day
prior to the Minimum Notice Period, and shall

                                       6
<PAGE>   21
thereafter be irrevocable. Each Notice of Conversion of Loan Type shall be
delivered by first-class mail or telecopy to Administrative Agent at the office
or to the telecopy number and during the hours specified in Section 12.1;
provided, however, that Borrower shall promptly deliver to Administrative Agent
the original of any Notice of Conversion of Loan Type initially delivered by
telecopy. Administrative Agent shall promptly notify each Bank of the contents
of each Notice of Conversion of Loan Type.

         2.1.7 Prepayments.

                  (a) Terms of All Prepayments. Upon the prepayment of any Loan
(whether such prepayment is an optional prepayment under Section 2.1.7(b) or a
Mandatory Prepayment), Borrower shall pay to Administrative Agent for the
account of the Bank which made such Loan, as applicable, (i) all accrued
interest to the date of such prepayment on the amount prepaid, (ii) all accrued
fees to the date of such prepayment of the amount being prepaid, and (iii) if
such prepayment is the prepayment of a LIBOR Loan on a day other than the last
day of an Interest Period for such LIBOR Loan, all Liquidation Costs incurred by
such Bank as a result of such prepayment. Notwithstanding the foregoing,
Borrower shall have the right, by giving five Banking Days' notice to
Administrative Agent, in lieu of prepaying a LIBOR Loan on a day other than the
last day of an Interest Period for such LIBOR Loan, to deposit or cause
Administrative Agent to deposit, into an account to be held by Depositary Agent
(which account shall be subjected to the Lien of the Collateral Documents in a
manner satisfactory to Administrative Agent) an amount equal to the LIBOR Loans
to be prepaid. Such funds shall be held in such account until the expiration of
the Interest Period applicable to the LIBOR Loan to be prepaid at which time the
amount deposited in such account shall be used to prepay such LIBOR Loan and any
interest accrued on such amount shall be deposited in the Revenue Account. The
deposit of amounts into such account shall not constitute a prepayment of Loans
and all Loans to be prepaid using the proceeds from such account shall continue
to accrue interest at the then applicable interest rate for such Loans until
actually prepaid. All amounts in such account shall only be invested in
Permitted Investments as directed by and at the expense and risk of Borrower.
Borrower may reborrow the principal amount of any Loan which is prepaid.

                  (b) Optional Prepayments. Subject to Section 2.1.7(a),
Borrower may, at its option and without penalty, upon five Banking Days' notice
to Administrative Agent, prepay any Loans in whole or in part in minimum amounts
of $5,000,000 or an incremental multiple of $1,000,000 in excess thereof.

                  (c) Mandatory Prepayments. Borrower shall prepay (or cause to
be prepaid) Loans to the extent required by Section 3.13, 6.4, 7.2.1(9), 7.2.4,
7.5, 7.6, or 7.7 of this Agreement, or any other provision of this Agreement
which requires prepayment of Loans (such prepayment, "Mandatory Prepayment").

     2.2 Letter of Credit Facilities.

         2.2.1 Issuance of the Letters of Credit. Subject to the terms and
conditions set forth in this Agreement, LC Bank shall, during the Loan
Availability Period, on each Banking Day specified in a Notice of LC Activity
described in Section 2.2.3, issue, extend or increase the

                                       7
<PAGE>   22
Stated Amount (as applicable), for the account of Borrower, of the Letter(s) of
Credit to which such Notice of LC Activity relates, and deliver each such Letter
of Credit (or a notice of extension or increase in the Stated Amount thereof) to
the applicable LC Beneficiary. Subject to Section 2.2.6(b), LC Bank shall not
modify the conditions for draws or terms of availability for any Letter of
Credit issued and outstanding hereunder without Borrower's consent.

         2.2.2 Availability. LC Bank shall, subject to the terms and conditions
of the Agreement, at the request and for the account of Borrower, make Letter(s)
of Credit available to Borrower and/or the Project Owners solely to enable the
Project Owners to provide security for their obligations under Project
Documents. No Letter of Credit shall be issued, renewed, replaced or extended by
LC Bank until such time (or a reasonable period before such time) as required
under the Project Document pursuant to which such Letter of Credit is being
issued. The expiration date of each Letter of Credit shall be on or prior to the
scheduled Loan Maturity Date.

         2.2.3 Notice of LC Activity. Borrower shall request the issuance,
extension or increase in the Stated Amount of any Letter of Credit by delivering
to Administrative Agent and LC Bank an irrevocable written notice in the form of
Exhibit C-5, appropriately completed (a "Notice of LC Activity"), which
specifies, among other things:

                  (a) The particulars of the Letter of Credit to be issued or
the specific Letter of Credit to be extended or the Stated Amount of which is to
be increased;

                  (b) The Project to which such Letter of Credit relates;

                  (c) The issue date and expiration date of the Letter of Credit
to be issued or extended (neither of which shall in any event be later than the
scheduled Loan Maturity Date);

                  (d) The Stated Amount of such Letter of Credit which, together
with the Aggregate LC Stated Amount and all outstanding Reimbursement
Obligations, shall not exceed the lesser of (i) Total Letter of Credit
Commitment and (ii) an amount equal to the excess, if any, of (A) the amount of
the Total Loan Commitment at such time over (B) the aggregate principal amount
of all Loans then outstanding plus the Aggregate LC Stated Amount and all
outstanding Reimbursement Obligations; and

                  (e) The Available Construction Funds which, after taking into
effect the issuance of such Letter of Credit, will be equal to or exceed the
remaining Project Costs for the Initial Projects and the Funded Subsequent
Projects.

Borrower shall give the Notice of LC Activity to Administrative Agent and LC
Bank at least five Banking Days before the requested date of issuance of any
Letter of Credit, and at least five Banking Days before the requested date of
extension, or increase in the Stated Amount, thereof. Any Notice of LC Activity,
once given by Borrower, may not be modified or revoked without the prior consent
of the LC Bank.

         2.2.4 Reimbursement. LC Bank shall notify Borrower of any Drawing
Payment under any Letter of Credit within one Banking Day after the date that
such Drawing Payment is made (the date such Drawing Payment is made, the
"Drawing Date"); provided, however, that

                                       8
<PAGE>   23
LC Bank's failure to provide such notification shall not relieve Borrower of its
Reimbursement Obligation (it being understood, however, that LC Bank shall not
be excused from any liability it may have to Borrower as a result of such
failure to provide the required notice). No later than 11:00 a.m. on the fifth
Banking Day after the Drawing Date, Borrower shall make or cause to be made to
LC Bank a Reimbursement Payment in an amount equal to the sum of (a) the full
amount of such Drawing Payment and (b) interest thereon for each day or portion
thereof until such Reimbursement Payment is made at a rate equal to (i) from the
Drawing Date through the fifth Banking Day following the Drawing Date, the LIBO
Rate plus the Applicable Margin then applicable to LIBOR Loans and (ii)
thereafter, the Default Rate; provided, however, that such Reimbursement Payment
shall be for the benefit of each Bank (in proportion to its Proportionate Share
of the Total Letter of Credit Commitment) to the extent that, prior to the time
such Reimbursement Payment is made, such Bank has, pursuant to Section 2.2.7,
paid LC Bank its respective Proportionate Share of the Drawing Payment made by
LC Bank. If a Reimbursement Payment is made in the full amount of such Drawing
Payment by 3:00 p.m. on the applicable Drawing Date, no interest shall be
payable on such Drawing Payment.

         2.2.5 Reimbursement Obligation Absolute. The Reimbursement Obligation
of Borrower for each Drawing Payment shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under and without regard to any circumstances, including, (a) any
lack of validity or enforceability of any of the Operative Documents, (b) any
amendment or waiver of or any consent to departure from all or any terms of any
of the Operative Documents, (c) the existence of any claim, setoff, defense or
other right which Borrower may have at any time against any LC Beneficiary or
any transferee of any Letter of Credit (or any Persons for whom any such LC
Beneficiary or transferee may be acting), LC Bank, Administrative Agent, any
Bank or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or in the other Operative Documents, or in any
unrelated transaction, (d) any breach of contract or dispute among or between
Borrower, LC Bank, Administrative Agent, any Bank, or any other Person, (e) any
demand, statement, certificate, draft or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect,
(f) payment by LC Bank under any Letter of Credit against presentation of any
demand, statement, certificate, draft or other document which does not comply
with the terms of such Letter of Credit, (g) any non-application or
misapplication by an LC Beneficiary of the proceeds of any Drawing Payment under
a Letter of Credit or any other act or omission of an LC Beneficiary in
connection with a Letter of Credit, (h) any extension of time for or delay,
renewal or compromise of or other indulgence or modification to the Drawing
Payment granted or agreed to by LC Bank, Administrative Agent or any Bank, with
or without notice to or approval by Borrower, (i) any failure to preserve or
protect any Collateral, any failure to perfect or preserve the perfection of any
Lien thereon, or the release of any of the Collateral securing the performance
or observance of the terms of this Agreement or any of the other Operative
Documents, or (j) any other circumstances or happenings whatsoever relating to
Borrower, such Reimbursement Obligation or any Project, whether or not similar
to any of the foregoing, including the failure of Borrower to occupy or use any
Project in the manner contemplated by the Operative Documents or otherwise, any
defect in title, design, operation, merchantability, fitness or condition of any
Project or in the suitability of any Project for Borrower's purposes or needs,
any failure of consideration, destruction of or damage to any Project, any
commercial frustration of purpose, the taking by condemnation of title to or the
use

                                       9
<PAGE>   24
of all or any part of any Project, any Regulatory Change, any failure of an LC
Beneficiary or any other Person to perform or observe any agreement, whether
express or implied, or any duty, liability or obligation arising out of or in
connection with the Operative Documents to which each is a party; provided,
however, that nothing in this Section 2.2.5 shall relieve LC Bank,
Administrative Agent or any Bank from liability for its gross negligence or
willful misconduct or breach of this Agreement.

         2.2.6 Reduction and Reinstatement of Stated Amount.

                  (a) The Stated Amount of each Letter of Credit shall be
reduced by the amount of Drawing Payments made in respect thereof.
Notwithstanding anything to the contrary contained in this Section 2.2, once so
reduced, the Stated Amount of any Letter of Credit shall not be reinstated
except (i) upon the prior written consent of Administrative Agent, LC Bank and
the Required Banks or (ii) upon payment by Borrower of the Reimbursement
Obligation corresponding to such Drawing Payment and satisfaction of the
conditions for an increase in the Stated Amount of a Letter of Credit set forth
in Section 2.2.3 and Article 3.

                  (b) Upon the occurrence and during the continuation of an
Event of Default under Section 8.1.4 or at such time as, pursuant to the terms
hereof, Administrative Agent and the Banks have accelerated the Obligations,
Administrative Agent (acting at the direction of the LC Bank or the Required
Banks) shall be entitled to cancel all outstanding Letters of Credit any time at
least 15 days after delivery to the LC Beneficiary of each Letter of Credit that
will be canceled a written notice of such intent to cancel, whereupon the LC
Beneficiary shall be entitled to draw upon the applicable Letter of Credit in
accordance with its terms.

         2.2.7 Bank Participation. Each Bank severally agrees to participate
with LC Bank in the extension of credit arising from the issuance of the Letters
of Credit in an amount equal to such Bank's Proportionate Share of the Stated
Amount of each Letter of Credit, and the issuance of a Letter of Credit shall be
deemed a confirmation to LC Bank of such participation in such amount. After
written notification by LC Bank to Administrative Agent at any time after LC
Bank has received notice of or request for any Drawing Payment, Administrative
Agent may request the Banks to pay to Administrative Agent on behalf of LC Bank
their respective Proportionate Shares of all or any portion of such Drawing
Payment made or to be made by LC Bank under any Letter of Credit by contacting
each Bank telephonically (promptly confirmed in writing), and specifying the
amount of such Drawing Payment (as set forth in LC Bank's written notification
of Administrative Agent of the same), such Bank's Proportionate Share thereof,
and the date on which such Drawing Payment is to be made or was made (as set
forth in LC Bank's written notification of Administrative Agent of the same);
provided, however, that Administrative Agent shall not request the Banks to make
any payment under this Section 2.2.7 in connection with any portion of a Drawing
Payment for which LC Bank has been reimbursed through a Reimbursement Payment by
Borrower (unless such Reimbursement Payment has been thereafter recovered by
Borrower). Upon receipt of any such request for payment from Administrative
Agent, each Bank shall pay to Administrative Agent such Bank's Proportionate
Share of the unreimbursed portion of such Drawing Payment, together with
interest thereon at a per annum rate equal to the Federal Funds Rate, as in
effect from time to time, from the date of such Drawing Payment to the date on
which such Bank makes payment, and Administrative

                                       10
<PAGE>   25
Agent shall promptly thereafter pay to LC Bank all amounts so received. Each
Bank's obligation to make each such payment to Administrative Agent shall be
absolute, unconditional and irrevocable and shall not be affected by any
circumstance whatsoever, including the occurrence or continuance of any Inchoate
Default or Event of Default, or the failure of any other Bank to make any
payment under this Section 2.2.7, and each Bank further agrees that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever. If any Reimbursement Payment is made to Administrative Agent or LC
Bank, Administrative Agent or LC Bank, as applicable, shall pay to each Bank
which has paid its Proportionate Share of the Drawing Payment such Bank's
Proportionate Share of the Reimbursement Payment and shall, in the case of
Administrative Agent, pay to LC Bank and, in the case of LC Bank, retain, the
balance of such Reimbursement Payment.

         2.2.8 Commercial Practices. Borrower assumes all risks of the acts or
omissions of any LC Beneficiary or transferee of any Letter of Credit with
respect to the use of such Letter of Credit. Borrower agrees that neither LC
Bank, Administrative Agent nor any Bank (nor any of their respective directors,
officers or employees) shall be liable or responsible for: (a) the use which may
be made of any Letter of Credit or for any acts or omissions of any LC
Beneficiary or transferee in connection therewith; (b) any reference which may
be made to this Agreement or to any Letter of Credit in any agreements,
instruments or other documents; (c) the validity, sufficiency or genuineness of
documents other than the Letters of Credit, or of any endorsement(s) thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged or any statement therein prove to be
untrue or inaccurate in any respect whatsoever; (d) payment by LC Bank against
presentation of documents which do not strictly comply with the terms of the
applicable Letter of Credit, including failure of any documents to bear any
reference or adequate reference to such Letter of Credit; or (e) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except only that LC Bank shall be liable to Borrower for acts or
events described in clauses (a) through (e) above, to the extent, but only to
the extent, of any direct damages, as opposed to indirect, special or
consequential damages, suffered by Borrower which Borrower proves were caused by
(i) LC Bank's willful misconduct or gross negligence in determining whether a
drawing made under the applicable Letter of Credit complies with the terms and
conditions therefor stated in such Letter of Credit or (ii) LC Bank's willful
failure to pay under any Letter of Credit after a drawing by the respective LC
Beneficiary strictly complying with the terms and conditions of the applicable
Letter of Credit. Without limiting the foregoing, LC Bank may accept any
document that appears on its face to be in order, without responsibility for
further investigation. Borrower hereby waives any right to object to any payment
made under a Letter of Credit with regard to a drawing that is in the form
provided in such Letter of Credit but which varies with respect to punctuation
(except punctuation with respect to any Dollar amount specified therein),
capitalization, spelling or similar matters of form.

         2.2.9 Term of Letters of Credit. Unless terminated earlier in
accordance with its terms, or extended pursuant to Section 2.2.3, each Letter of
Credit shall terminate on the earlier to occur of (a) 12:01 a.m., on the
Expiration Date stated therein (which shall be no later than the earlier of the
Loan Maturity Date and 15 days following the scheduled expiration of the letter
of credit obligations under the Project Document in connection with which such
Letter of Credit is to be issued) and (b) cancellation of such Letter of Credit
pursuant to Section 2.2.6(b).


                                       11
<PAGE>   26
     2.3 Total Commitments.


         2.3.1 Loan Commitment. The aggregate principal amount of all Loans
outstanding at any time or times shall not exceed $2,500,000,000 or, if such
amount is reduced by Borrower pursuant to Section 2.3.4, such lower amount (such
amount, so reduced from time to time, the "Total Loan Commitment"), minus the
sum of (i) the aggregate Stated Amount of all Letters of Credit then outstanding
plus (ii) the aggregate amount of all Reimbursement Obligations then
outstanding.

         2.3.2 Turbine Purchase Loan Commitment. The aggregate principal amount
of all Turbine Purchase Loans outstanding at any time or times shall not exceed
$500,000,000 or, if such amount is reduced by Borrower pursuant to Section
2.3.4, such lower amount (such amount, as so reduced from time to time, the
"Total Turbine Purchase Loan Commitment").

         2.3.3 Letter of Credit Commitment. The aggregate Stated Amount of all
Letters of Credit from time to time outstanding and all outstanding
Reimbursement Obligations thereunder shall not exceed $200,000,000, or, if such
amount is reduced by Borrower pursuant to Section 2.3.4, such lower amount (such
amount, as so reduced from time to time, the "Total Letter of Credit
Commitment").

         2.3.4 Reductions and Cancellations. Borrower may, from time to time
upon five Banking Days written notice to Administrative Agent, permanently
reduce, by an amount of $10,000,000 or an integral multiple of $1,000,000 in
excess thereof or cancel in its entirety the Total Loan Commitment, the Total
Turbine Purchase Loan Commitment and/or the Total Letter of Credit Commitment.
Notwithstanding the foregoing, Borrower may not reduce or cancel the Total Loan
Commitment, the Total Turbine Purchase Loan Commitment and/or the Total Letter
of Credit Commitment if, after giving effect to such reduction or cancellation,
(a) the sum of the aggregate principal amount of all Loans then outstanding and
the Aggregate LC Stated Amount together with all outstanding Reimbursement
Obligations would exceed the Total Loan Commitment, (b) the Available
Construction Funds would not, in the reasonable judgment of the Technical
Committee and the Independent Engineer, be equal to or exceed remaining Project
Costs for all Initial Projects and Funded Subsequent Projects, or (c) such
reduction or cancellation would cause a violation of any other provision of this
Agreement, the other Credit Documents, any Project Documents, any Turbine
Purchase Contracts or have a Material Adverse Effect on Borrower, any Project
Owner, any Initial Project or any Funded Subsequent Project. Borrower shall pay
to Administrative Agent any Commitment Fees then due upon any cancellation and,
from the effective date of any reduction, the Commitment Fees shall be computed
on the basis of the Available Loan Commitment, as so reduced. Once reduced or
canceled, none of the Total Loan Commitment may be increased or reinstated. Any
reductions in the Total Loan Commitment, the Total Turbine Purchase Loan
Commitment or the Total Letter of Credit Commitment pursuant to this Section
2.3.4 shall be applied ratably to each Bank's respective Commitments in
accordance with Section 2.7.1.

         2.3.5 Turbine Purchase Loan Conversion to Construction Loans. In the
event a Project satisfies the conditions precedent to initial funding pursuant
to Section 3.2 or 3.3, as the case may be, and prior to such initial funding the
Turbines assigned to such Project (as set forth in Exhibit G-3), if any, were
Funded Turbines, the Turbine Purchase Loans associated with such

                                       12
<PAGE>   27
Funded Turbines shall be automatically converted for all purposes hereof into
Construction Loans and shall cease to be considered outstanding Turbine Purchase
Loans, including for purposes of Section 2.3.2, in each case as of the Funding
Date with respect to such Project.

     2.4 Fees.


         2.4.1 Fee Letter. Borrower shall pay to the Lead Arrangers, Arrangers
and Administrative Agent solely for the Lead Arrangers', Arrangers' and
Administrative Agent's respective accounts the fees described in that certain
letter from Borrower to the Lead Arrangers, Arrangers and Administrative Agent
dated the Closing Date.

         2.4.2 Loan Commitment Fees. On the last Banking Day in each calendar
quarter (where all or any portion of such calendar quarter occurs on or after
the Closing Date and prior to the Loan Maturity Date) and on the Loan Maturity
Date (or, if the Total Loan Commitment is canceled prior to such date, on the
date of such cancellation), Borrower shall pay to Administrative Agent, for the
benefit of the Banks, accruing from the Closing Date or the first day of such
quarter, as the case may be, a commitment fee (the "Commitment Fee") for such
quarter (or portion thereof) then ending equal to the product of (a) 0.50% times
(b) the daily average Available Loan Commitment for such quarter (or portion
thereof) times (c) a fraction, the numerator of which is the number of days in
such quarter (or portion thereof) and the denominator of which is the number of
days in that calendar year (365 or 366, as the case may be).

         2.4.3 Activation Fees. Concurrently with the first Borrowing in respect
of each Subsequent Project or Substituted Initial Project that becomes a Funded
Project, Borrower shall pay to Administrative Agent, for the benefit of the
Banks, an activation fee (the "Activation Fee") equal to the product of (a)
0.25% times (b) the total amount of Project Costs in respect of such Project
less any Contributions by Calpine previously applied to pay Project Costs for
such Project as reflected in such Project's Project Budget.

     2.5 Letter of Credit Fees.


         2.5.1 On the last Banking Day in each calendar quarter commencing on or
after the Closing Date and through the Loan Maturity Date, on the Expiration
Date of each Letter of Credit and on the Loan Maturity Date, Borrower shall pay
to Administrative Agent for the benefit of the Banks, accruing from the date of
issuance of such Letter of Credit, a Letter of Credit fee (the "Letter of Credit
Fee") for such quarter (or portion thereof in the case of payment on the
Expiration Date of a Letter of Credit or on the Loan Maturity Date) then ending
at the rates per annum described below and computed in the following manner: The
Letter of Credit Fee in respect of each Letter of Credit shall be equal to the
product of (a) the Applicable Margin with respect to LIBOR Loans applicable at
such time, times (b) the daily average Stated Amount of each such Letter of
Credit for such quarter (or portion thereof in the case of payment on the
Expiration Date of a Letter of Credit or on the Loan Maturity Date) times (c) a
fraction, the numerator of which is the number of days in such quarter (or
portion thereof in the case of payment on the Expiration Date of a Letter of
Credit or on the Loan Maturity Date) and the denominator of which is 360.


                                       13
<PAGE>   28
         2.5.2 Borrower shall pay to LC Bank solely for LC Bank's account the
issuing and paying fee and LC Bank's usual and customary charges (or such
charges as LC Bank and Borrower may agree) for the opening of any Letter of
Credit, for the negotiation of any drafts paid pursuant to any Letter of Credit
and for any wire transfers, all as described in that certain letter from
Borrower to LC Bank dated the Closing Date.

     2.6 Other Payment Terms.


         2.6.1 Place and Manner. Borrower shall make all payments due to each
Bank or Administrative Agent hereunder to Administrative Agent, for the account
of such Bank, to The Bank of New York, Federal Reserve Bank of New York
ABA#021000018, for further credit to account #8900410825 CSFB Project Finance
Fund Clearing Account; Reference: Calpine Construction Finance Company II, in
lawful money of the United States and in immediately available funds not later
than 12:00 noon on the date on which such payment is due. Any payment made after
such time on any day shall be deemed received on the Banking Day after such
payment is received. Administrative Agent shall disburse to each Bank each such
payment received by Administrative Agent for such Bank, such disbursement to
occur on the day such payment is received if received by 12:00 noon or if
otherwise reasonably possible, otherwise on the next Banking Day.

         2.6.2 Date. Whenever any payment due hereunder shall fall due on a day
other than a Banking Day, such payment shall be made on the next succeeding
Banking Day (except in the case of any payment relating to a LIBOR Loan where
such next succeeding Banking Day is in the next calendar month, in which case
such payment shall be made on the next preceding Banking Day), and such
extension of time shall be included in the computation of interest or fees, as
the case may be.

         2.6.3 Late Payments. If any amounts required to be paid by Borrower
under this Agreement or the other Credit Documents (including principal or
interest payable on any Loan, and any fees or other amounts otherwise payable to
Administrative Agent or any Bank) remain unpaid after such amounts are due,
Borrower shall pay interest on the aggregate, unpaid balance of such amounts
from the date due until those amounts are paid in full at a per annum rate equal
to the Default Rate.

         2.6.4 Net of Taxes, Etc.

                  (a) Taxes. Subject to each Bank's compliance with Section
2.6.7, any and all payments to or for the benefit of Administrative Agent or any
Bank by Borrower hereunder or under any other Credit Document shall be made free
and clear of and without deduction, setoff or counterclaim of any kind
whatsoever and in such amounts as may be necessary in order that all such
payments, after deduction for or on account of any present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto (excluding income and franchise taxes, which include taxes
imposed on or measured by the net income or capital of Administrative Agent or
such Bank by any jurisdiction or any political subdivision or taxing authority
thereof or therein solely as a result of a connection between such Bank and such
jurisdiction or political subdivision, other than a connection resulting solely
from executing, delivering or performing its obligations or receiving a payment
under, or enforcing, this

                                       14
<PAGE>   29
Agreement or any Note) (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"), shall be equal to the amounts otherwise specified to be paid under
this Agreement and the other Credit Documents. If Borrower shall be required by
law to withhold or deduct any Taxes from or in respect of any sum payable
hereunder or under any other Credit Document to Administrative Agent or any
Bank, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.6.4, Administrative Agent or such Bank
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law. If Borrower shall make any
payment under this Section 2.6.4 to or for the benefit of Administrative Agent
or any Bank with respect to Taxes and if Administrative Agent or such Bank shall
claim any credit or deduction for such Taxes against any other taxes payable by
Administrative Agent or such Bank to any taxing jurisdiction then Administrative
Agent or such Bank shall pay to Borrower an amount equal to the amount by which
such other taxes are actually reduced; provided that the aggregate amount
payable by Administrative Agent or such Bank pursuant to this sentence shall not
exceed the aggregate amount previously paid by Borrower with respect to such
Taxes. In addition, Borrower agrees to pay any present or future stamp,
recording or documentary taxes and any other excise or property taxes, charges
or similar levies (not including income or franchise taxes) that arise under the
laws of the United States of America, the State of New York or any other state
or jurisdiction where a Project is located from any payment made hereunder or
under any other Credit Document or from the execution or delivery or otherwise
with respect to this Agreement or any other Credit Document (hereinafter
referred to as "Other Taxes").

                  (b) Indemnity. Borrower shall indemnify each Bank for the full
amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.6.4 paid by any Bank,
or any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted; provided that Borrower shall not be obligated to indemnify
any Bank for any penalties, interest or expenses relating to Taxes or Other
Taxes arising from the indemnitee's gross negligence or willful misconduct. Each
Bank agrees to give written notice to Borrower of the assertion of any claim
against such Bank relating to such Taxes or Other Taxes as promptly as is
practicable after being notified of such assertion, and in no event later than
180 days after the principal officer of such Bank responsible for administering
this Agreement obtains knowledge thereof; provided that any Bank's failure to
notify Borrower of such assertion within such 180 days period shall not relieve
Borrower of its obligation under this Section 2.6.4 with respect to Taxes or
Other Taxes arising prior to the end of such period, but shall relieve Borrower
of its obligations under this Section 2.6.4 with respect to Taxes or Other Taxes
between the end of such period and such time as Borrower receives notice from
such Bank as provided herein. Payments by Borrower pursuant to this
indemnification shall be made within 30 days from the date such Bank makes
written demand therefor (submitted through Administrative Agent), which demand
shall be accompanied by a certificate describing in reasonable detail the basis
thereof. Each Bank agrees to repay to Borrower any refund (including that
portion of any interest that was included as part of such refund with respect to
Taxes or Other Taxes paid by Borrower pursuant to this Section 2.6.4) received
by such Bank for Taxes or Other Taxes that were paid by Borrower pursuant to
this Section 2.6.4 and to contest, with the

                                       15
<PAGE>   30
approval and participation of and at the expense of Borrower, any such Taxes or
Other Taxes which such Bank or Borrower reasonably believes not to have been
properly assessed.

                  (c) Notice. Within 30 days after the date of any payment of
Taxes by Borrower, Borrower shall furnish to Administrative Agent, at its
address referred to in Section 12.1, the original or a certified copy of a
receipt evidencing payment thereof. Borrower shall compensate each Bank for all
reasonable losses and expenses sustained by such Bank as a result of any failure
by Borrower to so furnish such copy of such receipt.

                  (d) Survival of Obligations. The obligations of Borrower under
this Section 2.6.4 shall survive the termination of this Agreement and the
repayment of the Obligations.

         2.6.5 Application of Payments. Payments made under this Agreement or
the other Credit Documents and other amounts received by Administrative Agent
and the Banks under this Agreement or the other Credit Documents shall first be
applied to any fees, costs, charges or expenses payable to Administrative Agent
or the other Banks hereunder or under the other Credit Documents, next to any
accrued but unpaid interest then due and owing, and then to outstanding
principal then due and owing or otherwise to be prepaid; provided, with respect
to payments applied to accrued but unpaid interest then due and owing or
outstanding principal then due and owing or otherwise to be prepaid, such
payments shall be applied to such debt associated with or attributable to
Projects in the order of the respective dates of Operation of such Projects or,
if all Loans associated with or attributable to Projects which have achieved
Operation have been paid, then, at Borrower's election, pro rata as to all such
debt, to such debt associated with or attributable to Turbines or to such debt
associated with or attributable to Projects (in the case of payments of such
debt associated with or attributable to Projects, such payment shall be applied
in order of the respective anticipated dates of Commercial Operation of such
Projects, as set forth in such Projects' Project Schedules).

         2.6.6 Failure to Pay Administrative Agent. Unless Administrative Agent
shall have received notice from Borrower at least two Banking Days prior to the
date on which any payment is due to the Banks hereunder that Borrower will not
make such payment in full, Administrative Agent may assume that Borrower has
made such payment in full to Administrative Agent on such date and
Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent Borrower shall not have so made such payment in
full to Administrative Agent, such Bank shall repay to Administrative Agent
forthwith upon demand such amount distributed to such Bank, together with
interest thereon, for each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to Administrative Agent, at the
Federal Funds Rate for the first five days after such date, and subsequent
thereto at the Base Rate. A certificate of Administrative Agent submitted to any
Bank with respect to any amounts owing by such Bank under this Section 2.6.6
shall be conclusive in the absence of manifest error.

         2.6.7 Withholding Exemption Certificates. Administrative Agent on the
Closing Date and each Bank upon becoming a Bank hereunder including any entity
to which any Bank grants a participation, or otherwise transfers its interest in
this Agreement, agree that they

                                       16
<PAGE>   31
will deliver to Borrower and Administrative Agent (and Administrative Agent
agrees that it will deliver to Borrower) either (a) a statement that it is
formed under the laws of the United States of America or a state thereof or (b)
if it is not so formed, a letter in the form of Exhibit J-1 or Exhibit J-2, as
appropriate, or other documentation reasonably acceptable to Borrower and
Administrative Agent and two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor applicable form, as the case may
be, certifying in each case that such Bank is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes. Each Bank which delivers to Borrower and Administrative Agent a
Form 1001 or 4224 pursuant to the preceding sentence further undertakes to
deliver to Borrower and Administrative Agent further copies of the said letter
and Form 1001 or 4224, or successor applicable forms, or other manner of
certification or procedure, as the case may be, on or before the date that any
such letter or form expires or becomes obsolete or within a reasonable time
after gaining knowledge of the occurrence of any event requiring a change in the
most recent letter and forms previously delivered by it to Borrower, and such
extensions or renewals thereof as may reasonably be requested by Borrower,
certifying in the case of a Form 1001 or 4224 that such Bank is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes, unless in any such cases an event (including
any change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent a Bank from duly completing and delivering
any such letter or form with respect to it and such Bank advises Borrower that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax, and in the case of Form W-8 or W-9,
establishing an exemption from United States backup withholding tax. Borrower
shall not be obligated, however, to pay any additional amounts in respect of
United States Federal income tax pursuant to Section 2.6.4 (or make an
indemnification payment pursuant to Section 2.6.4) to any Bank (including any
entity to which any Bank sells, assigns, grants a participation in, or otherwise
transfers its rights under this Agreement) if the obligation to pay such
additional amounts (or such indemnification) would not have arisen but for a
failure of such Bank to comply with its obligations under this Section 2.6.7.

     2.7 Pro Rata Treatment.

         2.7.1 Borrowings, Commitment Reductions, Etc. Except as otherwise
provided herein, (a) each Borrowing and each reduction of the Total Loan
Commitment, the Total Turbine Purchase Loan Commitment or the Total Letter of
Credit Commitment shall be made or allocated among the Banks pro rata according
to their respective Proportionate Shares of such Loans or Commitments, as the
case may be, (b) each payment of principal of and interest on Loans shall be
made or shared among the Banks holding such Loans pro rata according to the
respective unpaid principal amounts of such Loans held by such Banks and (c)
each payment of Commitment Fees and Letter of Credit Fees shall be shared among
the Banks pro rata according to (i) their respective Proportionate Shares of the
Commitments to which such fees apply and (ii) in the case of each Bank which
becomes a Bank hereunder after the date hereof, the date upon which such Bank so
became a Bank.

         2.7.2 Sharing of Payments, Etc. If any Bank shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of Loans owed to it, in excess of its ratable share of
payments on account of such Loans obtained

                                       17
<PAGE>   32
by all Banks entitled to such payments, such Bank shall forthwith purchase from
the other Banks such participation in the Loans, as the case may be, as shall be
necessary to cause such purchasing Bank to share the excess payment ratably with
each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Bank, such purchase from
such Bank shall be rescinded and each other Bank shall repay to the purchasing
Bank the purchase price to the extent of such recovery together with an amount
equal to such other Bank's ratable share (according to the proportion of (a) the
amount of such other Bank's required repayment to (b) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered.
Borrower agrees that any Bank so purchasing a participation from another Bank
pursuant to this Section 2.7.2 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of setoff) with respect
to such participation as fully as if such Bank were the direct creditor of
Borrower in the amount of such participation.

     2.8 Change of Circumstances.


         2.8.1 Inability to Determine Rates. If, on or before the first day of
any Interest Period for any LIBOR Loans, (a) Administrative Agent determines
that the LIBO Rate for such Interest Period cannot be adequately and reasonably
determined due to the unavailability of funds in or other circumstances
affecting the London interbank market, or (b) Banks holding aggregate
Proportionate Shares of 33-1/3% or more of the Total Loan Commitment shall
advise Administrative Agent that (i) the rates of interest for such LIBOR Loans
do not adequately and fairly reflect the cost to such Banks of making or
maintaining such Loans or (ii) deposits in Dollars in the London interbank
market are not available to such Banks (as conclusively certified by each such
Bank in good faith in writing to Administrative Agent and to Borrower) in the
ordinary course of business in sufficient amounts to make and/or maintain their
LIBOR Loans, Administrative Agent shall immediately give notice of such
condition to Borrower. After the giving of any such notice and until
Administrative Agent shall otherwise notify Borrower that the circumstances
giving rise to such condition no longer exist, Borrower's right to request the
making of or conversion to, and the Banks' obligations to make or convert to
LIBOR Loans shall be suspended. Any LIBOR Loans outstanding at the commencement
of any such suspension shall be converted at the end of the then current
Interest Period for such Loans into Base Rate Loans unless such suspension has
then ended.

         2.8.2 Illegality. If, after the date of this Agreement, the adoption of
any Governmental Rule, any change in any Governmental Rule or the application or
requirements thereof (whether such change occurs in accordance with the terms of
such Governmental Rule as enacted, as a result of amendment, or otherwise), any
change in the interpretation or administration of any Governmental Rule by any
Governmental Authority, or compliance by any Bank or Borrower with any request
or directive (whether or not having the force of law) of any Governmental
Authority (a "Change of Law") shall make it unlawful or impossible for any Bank
to make or maintain any LIBOR Loan, such Bank shall immediately notify
Administrative Agent and Borrower of such Change of Law. Upon receipt of such
notice, (a) Borrower's right to request the making of or conversion to, and the
Bank's obligations to make or convert to, LIBOR Loans shall be suspended for so
long as such condition shall exist, and (b) Borrower shall, at the request of
such Bank, either (i) pursuant to Section 2.1.6, convert any then outstanding
LIBOR Loans into Base Rate Loans at the end of the current Interest Periods for
such Loans, or

                                       18
<PAGE>   33
(ii) immediately repay pursuant to Section 2.1.7 or convert LIBOR Loans of the
affected Type into Base Rate Loans if such Bank shall notify Borrower that such
Bank may not lawfully continue to fund and maintain such Loans. Any conversion
or prepayment of LIBOR Loans made pursuant to the preceding sentence prior to
the last day of an Interest Period for such Loans shall be deemed a prepayment
thereof for purposes of Section 2.9.

         2.8.3 Increased Costs. If, after the date of this Agreement, any Change
of Law:

                  (a) Shall subject any Bank to any tax, duty or other charge
with respect to any LIBOR Loan or Commitment, or shall change the basis of
taxation of payments by Borrower to any Bank on such a Loan or with respect to
any Commitment (except for Taxes, Other Taxes or changes in the rate of taxation
on the overall net income of any Bank); or

                  (b) Shall impose, modify or hold applicable any reserve,
special deposit or similar requirement (without duplication of any reserve
requirement included within the applicable Interest Rate through the definition
of "Reserve Requirement") against assets held by, deposits or other liabilities
in or for the account of, advances or loans by, or any other acquisition of
funds by any Bank for any LIBOR Loan; or

                  (c) Shall impose on any Bank any other condition directly
related to any LIBOR Loan or Commitment;

and the effect of any of the foregoing is to increase the cost to such Bank of
making, issuing, creating, renewing, participating in (subject to the
limitations in Section 10.13) or maintaining any such LIBOR Loan or Commitment
or to reduce any amount receivable by such Bank hereunder; then Borrower shall
from time to time, upon demand by such Bank, pay to such Bank additional amounts
sufficient to reimburse such Bank for such increased costs or to compensate such
Bank for such reduced amounts. A certificate setting forth in reasonable detail
the amount of such increased costs or reduced amounts and the basis for
determination of such amount, submitted by such Bank to Borrower, shall, in the
absence of manifest error, be conclusive and binding on Borrower for purposes of
this Agreement.

         2.8.4 Capital Requirements. If any Bank determines that (a) any Change
of Law after the date of this Agreement increases the amount of capital required
or expected to be maintained by such Bank (or the Lending Office of such Bank)
or any Person controlling such Bank (a "Capital Adequacy Requirement") and (b)
the amount of capital maintained by such Bank or such Person which is
attributable to or based upon the Loans, the Commitments or this Agreement must
be increased as a result of such Capital Adequacy Requirement (taking into
account such Bank's or such Person's policies with respect to capital adequacy),
Borrower shall pay to Administrative Agent on behalf of such Bank or such
Person, upon demand of Administrative Agent on behalf of such Bank or such
Person, such amounts as such Bank or such Person shall reasonably determine are
necessary to compensate such Bank or such Person for the increased costs to such
Bank or such Person of such increased capital. A certificate of such Bank or
such Person, setting forth in reasonable detail the computation of any such
increased costs, delivered to Borrower by Administrative Agent on behalf of such
Bank or such Person shall, in the absence of manifest error, be conclusive and
binding on Borrower for purposes of this Agreement.


                                       19
<PAGE>   34
         2.8.5 Notice; Participating Banks' Rights. Each Bank will notify
Borrower of any event occurring after the date of this Agreement that will
entitle such Bank to compensation pursuant to this Section 2.8, as promptly as
practicable, and in no event later than 90 days after the principal officer of
such Bank responsible for administering this Agreement obtains knowledge
thereof; provided that any Bank's failure to notify Borrower within such 90 day
period shall not relieve Borrower of its obligation under this Section 2.8.5
with respect to claims arising prior to the end of such period, but shall
relieve Borrower of its obligations under this Section 2.8.5 with respect to the
time between the end of such period and such time as Borrower receives notice
from the indemnitee as provided herein. No Person purchasing from a Bank a
participation in any Commitment (as opposed to an assignment) shall be entitled
to any payment from or on behalf of Borrower pursuant to Section 2.8.3 or
Section 2.8.4 which would be in excess of the applicable proportionate amount
(based on the portion of the Commitment in which such Person is participating)
which would then be payable to such Bank if such Bank had not sold a
participation in that portion of the Commitment.

     2.9 Funding Losses. If Borrower shall (a) repay or prepay any LIBOR Loans
on any day other than the last day of an Interest Period for such Loans (whether
an optional prepayment or a Mandatory Prepayment), (b) fail to borrow any LIBOR
Loans in accordance with a Notice of Borrowing delivered to Administrative Agent
(whether as a result of the failure to satisfy any applicable conditions or
otherwise), (c) fail to convert any Loans into LIBOR Loans in accordance with a
Notice of Conversion of Loan Type delivered to Administrative Agent (whether as
a result of the failure to satisfy any applicable conditions or otherwise), (d)
fail to continue a LIBOR Loan in accordance with a Confirmation of Interest
Period Selection delivered to Administrative Agent or (e) fail to make any
prepayment in accordance with any notice of prepayment delivered to
Administrative Agent; Borrower shall, upon demand by any Bank, reimburse such
Bank for all costs and losses incurred by such Bank as a result of such
repayment, prepayment or failure ("Liquidation Costs"). Borrower understands
that such costs and losses may include losses incurred by a Bank as a result of
funding and other contracts entered into by such Bank to fund LIBOR Loans. Each
Bank demanding payment under this Section 2.9 shall deliver to Borrower a
certificate setting forth in reasonable detail the basis for and the amount of
costs and losses for which demand is made. Such a certificate so delivered to
Borrower shall, in the absence of manifest error, be conclusive and binding as
to the amount of such loss for purposes of this Agreement.

     2.10 Alternate Office; Minimization of Costs.

         2.10.1 To the extent reasonably possible, each Bank shall designate an
alternative Lending Office with respect to its LIBOR Loans and otherwise take
any reasonable actions to reduce any liability of Borrower to any Bank under
Section 2.6.4, 2.8.3 or 2.8.4, or to avoid the unavailability of any Type of
Loans under Section 2.8.2 so long as such Bank, in its sole discretion, does not
determine that such designation is disadvantageous to such Bank.

         2.10.2 If and with respect to each occasion that a Bank either makes a
demand for compensation pursuant to Section 2.6.4, 2.6.7, 2.8.3 or 2.8.4 or is
unable to fund LIBOR Loans pursuant to Section 2.8.2 or such Bank wrongfully
fails to fund a Loan, Borrower may, upon at least five Banking Days' prior
irrevocable written notice to each of such Bank and Administrative Agent, in
whole permanently replace the Commitment of such Bank; provided

                                       20
<PAGE>   35
that Borrower shall replace such Commitment with the Commitment of a commercial
bank reasonably satisfactory to the Lead Arrangers. Such replacement Bank shall
upon the effective date of replacement purchase the Obligations owed to such
replaced Bank for the aggregate amount thereof and shall thereupon for all
purposes become a "Bank" hereunder. Such notice from Borrower shall specify an
effective date for the replacement of such Bank's Commitment, which date shall
not be later than the tenth day after the day such notice is given. On the
effective date of any replacement of such Bank's Commitment pursuant to this
Section 2.10.2, Borrower shall pay to Administrative Agent for the account of
such Bank (a) any fees due to such Bank to the date of such replacement; (b)
accrued interest on the principal amount of outstanding Loans held by such Bank
to the date of such replacement, and (c) the amount or amounts requested by such
Bank pursuant to each of Sections 2.6.4, 2.6.7, 2.8.3 and 2.8.4, as applicable.
Borrower will remain liable to such replaced Bank for any Liquidation Costs that
such Bank may sustain or incur as a consequence of repayment of such Bank's
Loans (unless such Bank has defaulted on its obligation to fund a Loan
hereunder). Upon the effective date of repayment of any Bank's Loans and
termination of such Bank's Commitment pursuant to this Section 2.10.2, such Bank
shall cease to be a Bank hereunder. No such termination of any such Bank's
Commitment and the purchase of such Bank's Loans pursuant to this Section 2.10.2
shall affect (i) any liability or obligation of Borrower or any other Bank to
such terminated Bank which accrued on or prior to the date of such termination
or (ii) such terminated Bank's rights hereunder in respect of any such liability
or obligation.

         2.10.3 Any Bank may designate a Lending Office other than that set
forth on Exhibit H and may assign all of its interests under the Credit
Documents, and its Notes, to such Lending Office; provided that such designation
and assignment do not at the time of such designation and assignment increase
the reasonably foreseeable liability of Borrower under Sections 2.6.4, 2.8.3, or
2.8.4 or make an Interest Rate option unavailable pursuant to Section 2.8.2.

     2.11 Extension of Loan Maturity Date.

         2.11.1 Borrower may, not earlier than 730 days and not later than 365
days prior to the initial Date Certain, request Administrative Agent to request
that the Banks agree to an extension of the initial Date Certain for an
additional period not to exceed one year from the date of the initial Date
Certain upon the terms and conditions of this Section 2.11.

         2.11.2 Upon receipt of any such request from Borrower, Administrative
Agent shall promptly notify each Bank of such request. Each Bank shall notify
Administrative Agent not later than 45 days after receiving notice of the
extension request from Administrative Agent if, in its sole discretion, it
agrees to extend its Commitment (or any portion thereof) for such additional
requested period. Each such notice from a Bank which agrees to extend such
Commitment (each, a "Renewing Bank") shall specify (i) all or that portion of
its Commitment which it is willing to extend and (ii) the amount of any
additional Commitment it would be willing to assume (with respect to any
Renewing Bank, an "Additional Commitment"). Any Bank which fails to deliver such
notice to Administrative Agent shall be deemed to have declined to renew its
Commitment for such additional requested period. Each Commitment (or portion
thereof) which is not renewed is hereinafter referred to as a "Declined
Commitment" and collectively, the "Declined Commitments." After receipt of such
notices, Administrative Agent

                                       21
<PAGE>   36
shall allocate the Declined Commitments (if any) among each Renewing Bank pro
rata according to the respective amounts of their Additional Commitments
(provided that in no event shall any such Renewing Bank be allocated an amount
in excess of its Additional Commitment). On the first Business Day after the
60th day following the notice issued by Administrative Agent to the Banks of the
extension request, Administrative Agent shall advise Borrower in writing (a
"Renewal Notice"), with a copy to each of the Banks, of the affirmative
responses which it has received from the Renewing Banks and the respective
amounts of the Commitments of each Renewing Bank.

         2.11.3 Subject to the following sentence, if the aggregate amount of
the Additional Commitments is less than 100% of the aggregate of the Declined
Commitments then in effect, the initial Date Certain shall only be extended if,
(i) on or before the initial Date Certain Borrower repays in accordance with
Section 2.1.7 (and subject to Section 2.3.4) the Loans outstanding comprising
Declined Commitments not being assumed pursuant to Section 2.11.4, if any, and
(ii) the Available Construction Funds, after giving effect to such repayment,
equal or exceed the remaining Project Costs of all Initial Projects and Funded
Subsequent Projects. Notwithstanding the foregoing, if the aggregate amount of
the Additional Commitments is less than 100% of the aggregate of the Declined
Commitments, Borrower may replace any Bank to the extent of such Bank's Declined
Commitment, with another commercial bank or banks reasonably satisfactory to the
Lead Arrangers and the LC Bank (a "Replacement Bank"). Borrower shall notify
Administrative Agent (who shall promptly forward such notice to the Banks), no
later than 180 days prior to the initial Loan Maturity Date, whether it will
prepay the Loans comprising the Declined Commitments in accordance with Section
2.1.7 and/or replace Banks to the extent of such Banks' Declined Commitments as
described in the preceding sentences. Each Bank whose outstanding Loans have
been repaid in full and who has been paid all other amounts due to it hereunder
shall cease to be a Bank hereunder and shall cancel and return to Borrower any
Notes held by such Bank.

         2.11.4 If the aggregate amount of the Additional Commitments (including
the Commitments provided by any Replacement Banks) is equal to or greater than
100% of the aggregate of the Commitments of all Banks then in effect, the
following shall occur:

                  (a) the initial Date Certain shall be extended as requested by
Borrower;

                  (b) Borrower shall repay any Loans (and all fees and other
Obligations due in respect of such Loans) it has elected to repay pursuant to
Section 2.11.3;

                  (c) the Banks (including the Replacement Banks, if any) shall
enter into such assignment and assumption agreements reasonably acceptable to
Administrative Agent as may be necessary to transfer any Banks' Declined
Commitments to Banks (and Replacement Banks) extending Additional Commitments,
such assignment and assumption agreements to become effective on the initial
Date Certain (before giving effect to any extension thereof);

                  (d) on the initial Date Certain (prior to giving effect to any
extension thereof) each Replacement Bank shall for all purposes become a "Bank"
hereunder;


                                       22
<PAGE>   37
                  (e) Borrower shall, if applicable, execute and deliver to each
Bank a new Note to reflect such Bank's new Commitment (after giving effect to
such Bank's Additional Commitment or Declined Commitment) and each Bank
receiving such new Note shall cancel and return to Borrower the pre-existing
Note held by such Bank; and

                  (f) each Bank whose outstanding Loans have been repaid in full
and who has been paid all other amounts due to it hereunder shall cease to be a
Bank hereunder and shall cancel and return to Borrower any Notes held by such
Bank.

                                   ARTICLE 3.
                              CONDITIONS PRECEDENT

     3.1 Conditions Precedent to the Closing Date. The occurrence of the Closing
Date is subject to the prior satisfaction of each of the following conditions
(unless waived in writing by Administrative Agent with the consent of all
Banks):

         3.1.1 Resolutions. Delivery to the Lead Arrangers of a copy of one or
more resolutions or other authorizations of each of the Portfolio Entities
(other than those with respect to the Delta Energy Center Project), the Member
and Calpine, certified by the appropriate officers of each such entity as being
in full force and effect on the Closing Date, authorizing, as applicable, the
Borrowings herein provided for and the execution, delivery and performance of
this Agreement and the other Credit Documents and any instruments or agreements
required hereunder or thereunder to which such entity is a party.

         3.1.2 Incumbency. Delivery to the Lead Arrangers of a certificate
satisfactory in form and substance to the Lead Arrangers from each of the
Portfolio Entities (other than those with respect to the Delta Energy Center
Project), the Member and Calpine, signed by the appropriate authorized officer
of each such entity and dated the Closing Date, as to the incumbency of the
natural persons authorized to execute and deliver this Agreement and the other
Credit Documents and any instruments or agreements required hereunder or
thereunder to which such entity is a party.

         3.1.3 Formation Documents. Delivery to the Lead Arrangers of (a) a copy
of the Limited Liability Company Agreement, certified by an officer of Borrower
or the secretary or an assistant secretary of the Member as being true, correct
and complete on the Closing Date, and any related agreements or certificates
filed in accordance with applicable state law, (b) copies of the articles of
incorporation or certificate of incorporation or charter or other state
certified constituent documents of each of the Portfolio Entities (other than
those with respect to the Delta Energy Center Project), the Member and Calpine,
certified by the secretary of state of the state of formation, and (c) copies of
the Bylaws or other comparable constituent documents of each such Portfolio
Entity, the Member and Calpine, certified by its secretary or an assistant
secretary.

         3.1.4 Good Standing Certificates. (a) With respect to each of the
Project Owners (other than the Delta Energy Center Project Owner), delivery to
the Lead Arrangers of certificates issued by the secretary of state of the state
in which such Project Owner's Initial Project is located and, if other than such
state, the state of formation of such Project Owner and

                                       23
<PAGE>   38
(b) with respect to each of the Portfolio Entities other than such Project
Owners, the Member and Calpine, delivery to the Lead Arrangers of certificates
issued by the secretary of state of the state of formation of such Persons, in
each case certifying that such Person is in good standing and is qualified to do
business in, and has paid all franchise taxes or similar taxes due to, such
states.

         3.1.5 Satisfactory Proceedings. All corporate, partnership and legal
proceedings and all instruments in connection with the transactions contemplated
by this Agreement shall be satisfactory in form and substance to the Lead
Arrangers, and the Lead Arrangers shall have received all information and copies
of all documents, including records of corporate or partnership or limited
liability company proceedings and copies of any approval by any Governmental
Authority required in connection with any transaction herein contemplated (with
respect to the Initial Projects and Turbines), which the Lead Arrangers may
reasonably have requested in connection herewith, such documents where
appropriate to be certified by proper corporate or partnership officers or
Governmental Authorities.

         3.1.6 Credit Documents. Delivery to the Lead Arrangers of executed
originals of each Credit Document (except for the Consents and financing
statements recorded as fixture filings) relating to Collateral comprising the
Initial Contribution and the Turbines assigned to the Initial Projects (as set
forth on Exhibit G-3), the Project Completion Guaranty and the Turbine Purchase
Guaranty. All actions shall have been taken to provide the Banks with a valid
and perfected first priority Lien on the personal property Collateral
attributable to the Initial Contribution and the Turbines assigned to the
Initial Projects (as set forth on Exhibit G-3) (other than the Turbines assigned
to the Delta Energy Center Project (as set forth on Exhibit G-3)), including,
without limitation, the execution, delivery and filing of UCC-1 financing
statements with appropriate secretaries of state and/or other filing offices and
the delivery of the Pledged Equity Interests of each of the Portfolio Entities
(other than with respect to the Delta Energy Center Project) in accordance with
the Pledge Agreements (Pledged Equity Interests), and the delivery of the
Portfolio Entity Notes pursuant to the Borrower Security Agreement, the
Development Company Security Agreement and the CCFC II Equipment Finance Company
Security Agreement. All the documents specified above shall be in form and
substance satisfactory to the Lead Arrangers and shall have been duly
authorized, executed and delivered by the parties thereto.

         3.1.7 Certificates of Borrower. The Lead Arrangers shall have received
a certificate, dated as of the Closing Date, signed by a Responsible Officer of
Borrower, in substantially the form of Exhibit F-1.

         3.1.8 Legal Opinions. Delivery to the Lead Arrangers of legal opinions
of counsel to the Portfolio Entities (other than those with respect to the Delta
Energy Center Project) and their respective Affiliates that are party to any
Credit Documents addressing such Credit Documents, in each case in form and
substance satisfactory to the Lead Arrangers.

         3.1.9 No Change in Tax Laws. No change shall have occurred, since the
date upon which this Agreement was executed and delivered, in any law or
regulation or interpretation thereof that would subject any Bank to any material
unreimbursed Tax or Other Tax.


                                       24
<PAGE>   39
         3.1.10 Absence of Litigation. (a) No action, suit, proceeding or
investigation shall have been instituted or threatened against any Portfolio
Entity and (b) except for the applicability of the FPA solely by reason of a
Project Owner being an Exempt Wholesale Generator, no order, judgment or decree
shall have been issued or proposed to be issued by any Governmental Authority
that, as a result of the construction, ownership, leasing or operation of the
Initial Projects, the sale of electricity or steam therefrom or the entering
into of any Operative Document or any transaction contemplated hereby or
thereby, would cause or deem the Banks, any Portfolio Entity or any Affiliate of
any of them to be subject to, or not exempted from, regulation under the FPA or
PUHCA or under state laws and regulations respecting the rates or the financial
or organizational regulation of electric utilities.

         3.1.11 Payment of Filing Fees. All amounts required to be paid to or
deposited with the Lead Arrangers, and all taxes, fees and other costs payable
in connection with the execution, delivery, recordation and filing of the
documents and instruments referred to in this Section 3.1, shall have been paid
in full or, as approved by the Lead Arrangers, provided for.

         3.1.12 Insurance. Insurance with respect to each Initial Project to
which Initial Contributions are attributable complying with Exhibit K shall be
in full force and effect and Administrative Agent on behalf of the Banks shall
have received certificates of insurance, identifying underwriters, type of
insurance, insurance limits and policy terms, listing the special provisions
required as set forth in Exhibit K and describing the insurance obtained, each
signed by the insurer or a broker authorized to bind the applicable insurer in
form and substance satisfactory to the Lead Arrangers.

         3.1.13 UCC Reports. The Lead Arrangers shall have received a UCC report
of a date reasonably close to the Closing Date for each of the jurisdictions in
which the UCC-1 financing statements are intended to be filed in respect of the
Collateral attributable to the Initial Contribution or with respect to the
Turbines assigned to the Initial Projects (as set forth on Exhibit G-3), showing
that upon due filing (assuming such filing or recordation occurred on the date
of such respective reports), the security interests created under the Collateral
Documents with respect to such Collateral will be prior to all other financing
statements, or other security documents wherein the security interest is
perfected by filing in respect of such Collateral.

         3.1.14 Project Budgets. Borrower shall have furnished to the Lead
Arrangers budgets in substantially the form of Appendices G-4A through G-4M for
all anticipated costs to be incurred in connection with the construction and
start-up of each of the Initial Projects, including in such budgets all
construction and non-construction costs, and including all interest, taxes and
other carrying costs, non-allocated costs of Borrower or the relevant Project
Owner, and such other information as the Lead Arrangers may require, together
with a balanced statement of sources (including an allocation between Loan
proceeds and Contributions) and uses of proceeds (and any other funds necessary
to complete each of the Initial Projects), broken down as to separate
construction phases and components, which budgets shall be satisfactory to the
Lead Arrangers.

         3.1.15 Project Schedules. Borrower shall have furnished to the Lead
Arrangers a schedule of the scheduled Completion Dates for each Initial Project
in substantially the form of Exhibit G-5.


                                       25
<PAGE>   40
         3.1.16 Base Case Project Projections. Borrower shall have furnished to
the Lead Arrangers the Base Case Project Projections of operating expenses and
cash flow for the Initial Projects in substantially the form of Exhibit G-6 and
in form and substance satisfactory to the Lead Arrangers. Such Base Case Project
Projections shall show a minimum projected annual Four-Quarter Portfolio
Interest Coverage Ratio of no less than [*] to 1.0.

         3.1.17 No Material Adverse Change. Since July 31, 2000, in the
reasonable judgment of the Lead Arrangers, there shall not have occurred any
change in the Project Budgets or Base Case Project Projections with respect to
the Initial Projects, in the economics or feasibility of constructing and/or
operating the Initial Projects or in the economics or feasibility of purchasing
the Turbines assigned to the Initial Projects (as set forth on Exhibit G-3)
which could reasonably be expected to have a Material Adverse Effect on
Borrower.

         3.1.18 Establishment of Accounts. The Accounts required under Article 7
shall have been established to the satisfaction of the Lead Arrangers.

         3.1.19 Representations and Warranties. Each representation and warranty
of the Member, Calpine and the Portfolio Entities under the Credit Documents
shall be true and correct in all material respects.

         3.1.20 Payment of Bank and Consultants Fees. Borrower shall have paid
all outstanding amounts due and owing to (i) the Banks under any fee letters and
(ii) the Banks' attorneys and consultants including, without limitation, the
Independent Consultants, for all services rendered and billed prior to the
Closing Date.

         3.1.21 Certificate of Independent Engineer. Delivery to Administrative
Agent on behalf of the Banks of the Independent Engineer's certificate with
respect to the Initial Projects, in substantially the form of Exhibit F-5, with
the Independent Engineer's report with respect to the Initial Projects attached
thereto, confirming, in form and substance satisfactory to the Lead Arrangers,
the feasibility of the Initial Projects.

         3.1.22 Acquisition Closing. The Acquisitions shall have been (or shall
contemporaneously with the Closing Date be) consummated.

         3.1.23 Initial Contributions. Delivery to Administrative Agent on
behalf of the Banks of documentation or other evidence, in each case in form and
substance satisfactory to the Lead Arrangers, confirming that Calpine has made
Contributions to pay Costs with respect to the Initial Projects and the Turbines
assigned thereto (as set forth on Exhibit G-3) (other than Contributions to pay
(a) Costs associated with the acquisition or lease of real property rights that
are not subject to the lien of the Collateral Documents and (b) Costs with
respect to the Delta Energy Center Project, the Carville Project, the Santa Rosa
- Phase I Project, the Broad River - Phase II Project or the Corpus - Phase I
Project and, in each case, the Turbines assigned thereto (as set forth on
Exhibit G-3)) in an amount equal to [*] prior to the Closing Date.

     3.2 Conditions Precedent to the Initial Funding of the Initial Projects.
Except as provided in Schedule 3.2, the obligation of the Banks to make the
initial Construction Loans and/or issue the initial Letter of Credit with
respect to a particular Initial Project is subject to the prior satisfaction of
each of the following conditions:


                                       26
<PAGE>   41
         3.2.1 Borrower Equity. Contributions required pursuant to Section
5.17.1 and 5.17.2 hereof shall have been funded and applied in accordance with
Section 5.1.

         3.2.2 Resolutions. Delivery to Administrative Agent on behalf of the
Banks of (a) a copy of one or more resolutions or other authorizations of the
relevant Project Owner, the relevant Equipment Finance Company (if any) and each
of the Affiliated Major Project Participants and with respect to such Initial
Project, certified by the appropriate officers of each such entity as being in
full force and effect on the Funding Date, authorizing, as applicable, the
execution, delivery and performance of the Operative Documents with respect to
such Initial Project and any instruments or agreements required hereunder or
thereunder to which such entity is a party, or (b) in so far as any of the
materials delivered pursuant to Section 3.1.1 are sufficient (in the reasonable
discretion of the Technical Committee) to satisfy the requirements set forth in
this Section 3.2.2, Borrower shall deliver a certificate by the appropriate
officers that the matters delivered under Section 3.1.1 remain in full force and
effect as of the Funding Date.

         3.2.3 Incumbency. Delivery to Administrative Agent on behalf of the
Banks of (a) a certificate satisfactory in form and substance to the Technical
Committee, from the relevant Project Owner, the relevant Equipment Finance
Company (if any) and each of the Affiliated Major Project Participants with
respect to such Initial Project, signed by the appropriate authorized officer of
each such entity and dated the Funding Date, as to the incumbency of the natural
persons authorized to execute and deliver the Operative Documents with respect
to such Initial Project and any instruments or agreements required hereunder or
thereunder to which such entity is a party, or (b) in so far as any of the
materials delivered pursuant to Section 3.1.2 are sufficient (in the reasonable
discretion of the Technical Committee) to satisfy the requirements set forth in
this Section 3.2.3, Borrower shall deliver a certificate by the appropriate
officers that the matters delivered under Section 3.1.2 remain in full force and
effect as of the Funding Date.

         3.2.4 Formation Documents. Delivery to Administrative Agent on behalf
of the Banks of (a) copies of the articles of incorporation or certificate of
incorporation or charter or other state certified constituent documents of the
relevant Project Owner, the relevant Equipment Finance Company (if any) and each
other Major Project Participant with respect to such Initial Project, certified,
if requested by the Technical Committee, by the secretary of state of the state
of formation, except, with respect to any Major Project Participant other than
such Project Owner or such Equipment Finance Company, where such Major Project
Participant is not the type of entity for which such state certified constituent
documents are reasonably available, and (b) copies of the Bylaws or other
comparable constituent documents of the relevant Project Owner, the relevant
Equipment Finance Company (if any) and the Affiliated Major Project Participants
with respect to such Initial Project, certified by its secretary or an assistant
secretary, or (c) in so far as any of the materials delivered pursuant to
Section 3.1.3 are sufficient (in the reasonable discretion of the Technical
Committee) to satisfy the requirements set forth in this Section 3.2.4(a) or
(b), Borrower shall deliver a certificate by the appropriate officers that the
matters delivered under Section 3.1.3 remain in full force and effect as of the
Funding Date.

         3.2.5 Good Standing Certificates. For the relevant Project Owner, the
relevant Equipment Finance Company (if any) and each other Major Project
Participant with respect to such Initial Project, delivery to Administrative
Agent on behalf of the Banks of certificates issued by the secretary of state of
the state where such Initial Project is located and, if other than

                                       27
<PAGE>   42
such state, the state of formation of such Major Project Participant certifying
that such Major Project Participant is in good standing and is qualified to do
business in, and has paid all franchise taxes or similar taxes due to, such
states, except, with respect to any Major Project Participant other than such
Project Owner and such Equipment Finance Company, where such Major Project
Participant is not required to qualify to do business in such state in order to
perform its obligations under any Project Document with respect to such Initial
Project to which it is a party or where such Major Project Participant is not
the type of entity for which a good standing certificates is available.

         3.2.6 Satisfactory Proceedings. All corporate, partnership and legal
proceedings and all instruments in connection with the transactions contemplated
by this Agreement with respect to such Initial Project shall be satisfactory in
form and substance to the Technical Committee, and Administrative Agent on
behalf of the Banks shall have received all information and copies of all
documents, including records of corporate or partnership proceedings and copies
of any approval by any Governmental Authority required in connection with any
transaction herein contemplated (with respect to such Initial Project), which
the Technical Committee may reasonably have requested in connection herewith,
such documents where appropriate to be certified by proper corporate or
partnership officers or Governmental Authorities.

         3.2.7 Operative Documents.

                  (a) Delivery to Administrative Agent on behalf of the Banks of
executed originals of:

                         (i) Amendments, supplements or modifications to each of
the Collateral Documents with respect to such Initial Project and, if not
previously delivered to Administrative Agent, the Deed of Trust with respect to
such Initial Project (or additional Collateral Documents (including, if
applicable, an Equipment Finance Company Security Agreement executed by a
relevant Equipment Finance Company in favor of Administrative Agent if
reasonably requested by the Technical Committee) considered necessary by the
Technical Committee to ensure that all rights and assets related to such Initial
Project, including all real property and personal property comprising such
Initial Project, have been pledged to Administrative Agent and the Banks;
provided, however, that if one or more Projects have previously achieved
Operation, such Liens, to the extent not previously created pursuant to Sections
3.1, 5.16 or 5.24 or otherwise in accordance with this Agreement prior to such
Projects achieving Operation, shall not secure outstanding Loans attributable to
Projects that have achieved Operation.

                         (ii) Consents to assignment in substantially the form
of Exhibit E-1 or otherwise in form and substance reasonably satisfactory to the
Technical Committee from the counterparties to each Major Project Document
(Major Gas Supply Contracts, Major Power Purchase Agreements and Major Gas
Transportation Agreements only to the extent then in existence), electric
transmission and interconnection agreements and material water supply agreements
in respect of such Initial Project delivered pursuant to Section 3.2.7(d).


                                       28
<PAGE>   43
                         (iii) Affiliated Subordination Agreements substantially
in the form of Exhibit D-8 or otherwise in form and substance reasonably
satisfactory to the Technical Committee (or, if applicable, amendments to
existing Affiliated Subordination Agreements) executed by each Affiliate of
Calpine (other than the relevant Project Owner and Equipment Finance Company, if
any) entering into Project Documents with respect to such Initial Project
considered necessary by the Technical Committee to subordinate certain O&M Costs
that the relevant Project Owner may incur pursuant to such Project Documents to
the Obligations. Such O&M Costs shall only include amounts payable to such
Affiliate which do not represent reimbursement of costs payable to third parties
not Affiliates of Calpine and shall be subordinated to the Obligations to the
extent satisfactory to the Technical Committee.

                  (b) Subject to the proviso to Section 3.2.7(a)(i), all actions
shall have been taken to provide the Banks with a valid and perfected first
priority Lien on the Collateral in respect of such Initial Project (except as
otherwise approved by the Technical Committee, including all personal property
comprising such Initial Project) including, without limitation, to the extent
necessary, the filing of UCC-1, UCC-2 or UCC-3 financing statements, as
applicable, with respect to such Collateral with the Secretary of State and/or
other appropriate filing office in the state in which such Initial Project is
located, in the state of formation of the relevant Project Owner and Equipment
Finance Company, if any, or the state in which such Project Owner's and
Equipment Finance Company's, if any, principal place of business is located and
the execution, delivery and recordation of the Deed of Trust and fixture filings
with respect to such Initial Project.

                  (c) Delivery to Administrative Agent on behalf of the Banks of
a certified list of and true and correct copies of each Project Document with
respect to such Initial Project then in effect, and, in each case, any
supplements or amendments thereto and all of which Project Documents shall be
certified by a Responsible Officer of Borrower as being true, complete and
correct and in full force and effect on the Funding Date pursuant to the
certificates delivered as provided in the this Section 3.2, which certificates
shall state that neither the relevant Project Owner nor, to Borrower's
knowledge, any other party to any such Project Document is or, but for the
passage of time or giving of notice or both will be, in breach of any material
obligation thereunder, and that all conditions precedent to the performance of
the parties under such Project Documents then required to have been performed
have been satisfied.

                  (d) All the Major Project Documents (other than Major Gas
Supply Contracts (other than Gas Supply Contracts with Affiliates of Borrower)
and Major Power Purchase Agreements), electric transmission and interconnection
agreements and material water supply agreements with respect to such Initial
Project shall be in form and substance reasonably satisfactory to the Technical
Committee and shall have been duly authorized, executed and delivered by the
parties thereto.

                  (e) Delivery to Administrative Agent of (i) all shared use
agreements and/or joint ownership agreements reasonably requested by the
Technical Committee evidencing the relevant Project Owner's interests, rights
and obligations with respect to any shared facilities incorporated into or used
with respect to such Initial Project and (ii) all intercreditor agreements
and/or non-disturbance agreements reasonably requested by the Technical
Committee establishing the relative rights and remedies between Administrative
Agent on behalf of the

                                       29
<PAGE>   44
Banks and any other Persons with interests in any such shared facilities or
other properties incorporated into or used with respect to such Initial Project,
in each case in form and substance satisfactory to the Technical Committee.

                  (f) In the event one or more Equipment Leases are associated
with such Initial Project, the equipment leasing structure implemented pursuant
to such Equipment Lease(s) shall not, in the Technical Committee's reasonable
opinion, affect in any adverse manner (i) such Initial Project's Project
Revenues available for payments under Waterfall Levels 2, 3 and 4 or (ii) the
Lien imposed by the Collateral Documents in favor of Administrative Agent on the
Collateral with respect to such Initial Project, in each case as compared to
such Initial Project assuming the equipment held by the associated Equipment
Finance Company and leased to the relevant Project Owner pursuant to such
Equipment Lease(s) (and the Project Documents related thereto) were held
directly by such Project Owner.

         3.2.8 Certificate of Borrower. Administrative Agent on behalf of the
Banks shall have received a certificate, dated as of the Funding Date, signed by
a Responsible Officer of Borrower, in substantially the form of Exhibit F-2.

         3.2.9 Legal Opinions. Without duplication of any legal opinions of
counsel delivered to Administrative Agent pursuant to Section 3.1.8, delivery to
Administrative Agent on behalf of the Banks of legal opinions of counsel to the
relevant Portfolio Entities, Affiliates of Calpine that are party to Operative
Documents relating to such Initial Project, each Major Project Participant
designated by the Technical Committee that is a party to a Major Project
Document delivered pursuant to Section 3.2.7(d), and each counterparty
designated by the Technical Committee to a material water supply agreement
delivered pursuant to Section 3.2.7(d) with respect to such Initial Project, in
each case in form and substance satisfactory to the Technical Committee.

         3.2.10 Certificate of Insurance Consultant. Delivery to Administrative
Agent on behalf of the Banks of the Insurance Consultant's certificate with
respect to such Initial Project, in substantially the form of Exhibit F-4, with
the Insurance Consultant's report with respect to such Initial Project,
confirming the adequacy of the insurance described on Exhibit K or otherwise in
form and substance satisfactory to the Technical Committee, attached thereto.

         3.2.11 Insurance. Insurance with respect to such Initial Project
complying with Exhibit K (as the same may be modified to include such Initial
Project) shall be in full force and effect and Administrative Agent on behalf of
the Banks shall have received (a) a certificate from Borrower's insurance
broker(s), dated as of the Funding Date and identifying underwriters, type of
insurance, insurance limits and policy terms, listing the special provisions
required as set forth in Exhibit K, describing the insurance obtained and
stating that such insurance is in full force and effect and that all premiums
due thereon have been paid and that, in the opinion of such broker(s), such
insurance complies with Exhibit K, and (b) certified copies of all policies
evidencing such insurance (or a binder, commitment or certificates signed by the
insurer or a broker authorized to bind the insurer), in form and substance
satisfactory to the Technical Committee.


                                       30
<PAGE>   45
         3.2.12 Certificate of the Independent Engineer. Delivery to
Administrative Agent on behalf of the Banks of the Independent Engineer's
certificate with respect to such Initial Project, in substantially the form of
Exhibit F-6, with the Independent Engineer's report with respect to such Initial
Project attached thereto, confirming, in form and substance satisfactory to (a)
in the case of the Projects One Through Four, the Required Banks, and (b) in the
case of all other Initial Projects, the Technical Committee, that the revenue
assumptions approved by the Power Marketing Consultant in its report delivered
to Administrative Agent on behalf of the Banks pursuant to Section 3.2.15 and
fuel price assumptions approved by the Fuel Consultant in its report delivered
to Administrative Agent on behalf of the Banks pursuant to Section 3.2.14 have
been properly incorporated into the Base Case Project Projections and that the
Project Schedule with respect to such Initial Project is consistent with the
applicable Project Budget, and the Required Banks or the Technical Committee, as
the case may be (as determined pursuant to clauses (a) and (b) above), shall be
satisfied that the projected O&M Costs and the projected performance (including
output, heat rate, environmental and Permit compliance, and availability,
individually or taken as a whole) of such Initial Project as reflected in the
Base Case Project Projections delivered to Administrative Agent on behalf of the
Banks as contemplated in Section 3.2.24 hereof and the design and other
technical aspects of such Initial Project are reasonable and achievable in a
manner consistent with the applicable Project Budget and Project Schedule.

         3.2.13 Reports of the Environmental Consultant. Delivery to
Administrative Agent on behalf of the Banks of (a) Borrower's Environmental
Consultant's Phase I reports with respect to such Initial Project along with the
corresponding reliance letter from such Environmental Consultant, confirming
that no Hazardous Substances were found in, on or under the Site of such Initial
Project or (b) if Hazardous Substances were found in, on or under such real
property pursuant to such Phase I environmental report or such report otherwise
indicates that a Phase II environmental review is warranted, (i) a Phase II
environmental report with respect to such real property along with a
corresponding reliance letter from Environmental Consultant, confirming, in form
and substance satisfactory to Administrative Agent, either (A) that no Hazardous
Substances were found in, on or under such real property or (B) matters
otherwise satisfactory to the Technical Committee or (ii) an environmental
indemnity agreement in form and substance satisfactory to the Technical
Committee pursuant to which an indemnitor satisfactory to Administrative Agent
indemnifies the Portfolio Entities and the Banks from any and all damages or
other liabilities relating to or arising from Hazardous Substances then in, on
or under such real property or otherwise caused by or attributable to such
indemnitor.

         3.2.14 Certificate of the Fuel Consultant. Delivery to Administrative
Agent on behalf of the Banks of the Fuel Consultant's certificate with respect
to such Initial Project, in substantially the form of Exhibit F-8, with the Fuel
Consultant's report with respect to such Initial Project attached thereto,
confirming, in form and substance satisfactory to the Technical Committee that
there is sufficient fuel available to such Initial Project to operate such
Project in the manner contemplated by, and in accordance with the fuel price
assumptions incorporated in the Base Case Project Projections delivered to
Administrative Agent on behalf of the Banks as contemplated in Section 3.2.24
and that the Fuel Plan delivered to Administrative Agent on behalf of the Banks
as contemplated in Section 3.2.17 for such Initial Project constitutes a
reasonable plan for the supply and transportation of fuel for such Initial
Project under existing

                                       31
<PAGE>   46
and expected market conditions affecting such Initial Project and consistent
with the intended operation thereof.

         3.2.15 Certificate of Power Marketing Consultant. Delivery to
Administrative Agent on behalf of the Banks of a Power Marketing Consultant's
certificate with respect to such Initial Project, in substantially the form of
Exhibit F-9, with a Power Marketing Consultant's report with respect to such
Initial Project attached thereto, confirming, in form and substance satisfactory
to the Technical Committee, that the revenue assumptions incorporated in the
Base Case Project Projections delivered to Administrative Agent on behalf of the
Banks as contemplated in Section 3.2.24 are reasonable in light of existing and
expected market conditions affecting such Initial Project.

         3.2.16 Power Marketing Plan. Delivery to Administrative Agent on behalf
of the Banks of a plan with respect to power marketing setting forth Borrower's
good faith assessment of the projected sales of power with respect to such
Initial Project, which plan shall not in any way be construed to modify or limit
Borrower's rights and obligations set forth herein, substantially in the form of
Exhibit G-9 and otherwise satisfactory in form and substance to the Technical
Committee and the Power Marketing Consultant.

         3.2.17 Fuel Plan. Delivery to Administrative Agent on behalf of the
Banks of a plan with respect to fuel setting forth Borrower's good faith
assessment of such Initial Project's projected fuel consumption needs and fuel
supply and transportation strategy, which plan shall not in any way be construed
to modify or limit Borrower's rights and obligations set forth herein,
substantially in the form of Exhibit G-10 and otherwise satisfactory in form and
substance to the Technical Committee and the Fuel Consultant.

         3.2.18 Schedule of Applicable Permits and Applicable Third Party
Permits. Delivery to Administrative Agent of the schedule(s) of Permits required
to construct, own and operate such Initial Project or required to be obtained by
any Person that is party to any Project Document with respect to such Initial
Project in order to perform its obligations thereunder (a "Permit Schedule")
satisfactory in form and substance to the Technical Committee, together with (i)
copies of each Applicable Permit and Applicable Third Party Permit listed on
Parts I(A) and I(B) of such Permit Schedule, each satisfactory in form and
substance to the Technical Committee, and (ii) legal opinions of counsel to the
Portfolio Entities with respect to the matters described in the next two
sentences in form and substance satisfactory to the Technical Committee. The
relevant Project Owner (or such other Person responsible for constructing and
operating such Initial Project) shall have duly obtained or been assigned, and
there shall be in full force and effect in the relevant Project Owner's (or such
other Person responsible for constructing and operating such Initial Project)
name, and not subject to any current legal proceeding or to any unsatisfied
condition that could reasonably be expected to allow material modification or
revocation of, and all applicable appeal periods shall have expired with respect
to, the Applicable Permits for such Initial Project set forth on Parts I(A) and
I(B) of such Permit Schedule, constituting in the Technical Committee's
reasonable opinion all of the Applicable Permits for such Initial Project as of
the Funding Date. Each Major Project Participant with respect to which
responsibility for an Applicable Third Party Permit is indicated in Part I(B) of
such Permit Schedule shall have duly obtained or been assigned such Applicable
Third Party Permit and there shall be in full force and effect in such Person's
name, and not subject to any

                                       32
<PAGE>   47
current legal proceeding or to any unsatisfied condition that could reasonably
be expected to allow material modification or revocation of, and all applicable
appeal periods shall have expired with respect to, each Applicable Third Party
Permit for such Project set forth on Part I(B) of such Project Schedule,
constituting in the Technical Committee's reasonable opinion all of the
Applicable Third Party Permits for such Initial Project as of the Funding Date.
Part II(A) of such Permit Schedule shall list all other Permits required by the
relevant Project Owner or other Person responsible for constructing and
operating such Initial Project to construct, own and operate such Initial
Project as contemplated by the Operative Documents. Part II(B) of such Permit
Schedule shall list all other material Permits required by any other Major
Project Participant with respect to such Initial Project to perform its
obligations under the Operative Documents with respect to such Initial Project
to which it is a party. The Permits listed in Parts II(A) and II(B) of such
Permit Schedule shall either (a) in the Technical Committee's reasonable
opinion, be timely obtainable at a cost consistent with the applicable Project
Budget without material difficulty or delay prior to the time the relevant
Project Owner or the applicable other Major Project Participant, as applicable,
requires such Permits, or (b) there shall exist alternative solutions (the
expected cost of which is reflected in the applicable Project Budget) reasonably
satisfactory to the Independent Engineer which would eliminate the need for such
Permit. Except as disclosed in such Permit Schedule, the Permits listed in Parts
I(A) and I(B) of such Permit Schedule shall not be subject to any restriction,
condition, limitation or other provision that could reasonably be expected to
have a Material Adverse Effect on such Initial Project or result in such Initial
Project being operated in a manner not substantially as assumed in the Base Cost
Project Projections.

         3.2.19 No Change in Tax Laws. No change shall have occurred, since the
date upon which this Agreement was executed and delivered, in any law or
regulation or interpretation thereof that would subject any Bank to any material
unreimbursed Tax or Other Tax.

         3.2.20 Absence of Litigation. (a) No action, suit, proceeding or
investigation shall have been instituted or threatened against any Portfolio
Entity in respect of such Initial Project which could reasonably be expected to
have a Material Adverse Effect on Borrower or such Initial Project, and (b)
except for the applicability of the FPA solely by reason of the relevant Project
Owner being an Exempt Wholesale Generator, no order, judgment or decree shall
have been issued or proposed to be issued by any Governmental Authority that, as
a result of the construction, ownership, leasing or operation of such Initial
Project, the sale of electricity or steam therefrom or the entering into of any
Operative Document with respect to such Initial Project or any transaction
contemplated hereby or thereby, would cause or deem the Banks, any Portfolio
Entity or any Affiliate of any of them to be subject to, or not exempted from,
regulation under the FPA or PUHCA or under state laws and regulations respecting
the rates or the financial or organizational regulation of electric utilities.

         3.2.21 Payment of Filing Fees. All amounts required to be paid to or
deposited with the Banks (including the Activation Fee with respect to a
Substituted Initial Project) in respect of such Initial Project, and all taxes,
fees and other costs payable in connection with the execution, delivery,
recordation and filing of the documents and instruments referred to in this
Section 3.2, shall have been paid in full or, as approved by the Technical
Committee, provided for.


                                       33
<PAGE>   48
         3.2.22 Financial Statements. Administrative Agent on behalf of the
Banks shall have received the most recent annual financial statements (audited
if available) or Form 10-K and most recent quarterly financial statements or
Form 10-Q from Borrower, the relevant Project Owner and the relevant Equipment
Finance Company, if any, and, in the case of the first Initial Project to become
a Funded Project, each of the other Portfolio Entities (other than those with
respect to the Delta Energy Center Project, such financial statements to be
provided on or before the Funding Date of such Project) and, to the extent
reasonably obtainable, each other Major Project Participant with respect to such
Initial Project (or their respective parent entities), together (in the case of
such Project Owner, such Equipment Finance Company and the Affiliated Major
Project Participants with respect to such Initial Project and, in the case of
the first Initial Project to become a Funded Project, each of the other
Portfolio Entities (other than those with respect to the Delta Energy Center
Project, such financial statements to be provided on or before the Funding Date
of such Project)) with certificates from the appropriate Responsible Officer
thereof, stating that no material adverse change in the consolidated assets,
liabilities, operations or financial condition of such Person has occurred from
those set forth in the most recent financial statements or the balance sheet, as
the case may be, provided to Administrative Agent on behalf of the Banks.

         3.2.23 UCC Reports. Administrative Agent on behalf of the Banks shall
have received a UCC report of a date reasonably close to the Funding Date for
each of the jurisdictions in which any UCC-1 financing statements or amendments
thereto are intended to be filed in respect of the Collateral with respect to
such Initial Project, showing that upon due filing (assuming such filing or
recordation occurred on the date of such respective reports), the security
interests created under the Collateral Documents with respect to such Initial
Project will be prior to all other financing statements or other security
documents wherein the security interest is perfected by filing in respect of
such Collateral.

         3.2.24 Base Case Project Projections. Borrower shall have furnished to
Administrative Agent on behalf of the Banks the combined Base Case Project
Projections of operating expenses and cash flow for such Initial Project and all
other Funded Projects showing, for each year in such projections, a projected
annual Four-Quarter Portfolio Interest Coverage Ratio equal to or exceeding 90%
of the projected annual Four-Quarter Portfolio Interest Coverage Ratio reflected
in the Base Case Project Projections delivered with respect to such Projects
pursuant to Section 3.1.16 and, if applicable, Section 3.3.27 (which ratio shall
be supported by the projections set forth in the Independent Consultant's
reports delivered pursuant to this Section 3.2 and, if applicable, Section 3.3
with respect to such Projects) in substantially the form (including the duration
thereof) of those projections delivered pursuant to Section 3.1.16 and otherwise
in form and substance satisfactory to the Technical Committee.

         3.2.25 Project Schedules; Project Budgets. Borrower shall have
furnished to Administrative Agent (a) a detailed project schedule for such
Initial Project, which project schedule shall be in form and substance
satisfactory to the Technical Committee and the Independent Engineer, and (b) a
Project Budget for such Initial Project, updated from the applicable budget
submitted for such Project pursuant to Section 3.1.14, and otherwise in form and
substance reasonably satisfactory to the Technical Committee.


                                       34
<PAGE>   49
         3.2.26 No Material Adverse Change. No event or circumstance having a
Material Adverse Effect with respect to Borrower has occurred since the Closing
Date, and, with respect to such Initial Project, no event or circumstance having
a Material Adverse Effect with respect to such Initial Project shall have
occurred.

         3.2.27 Real Estate Rights; A.L.T.A. Surveys. The Technical Committee
shall (a) be satisfied that the relevant Project Owner (or other Person who
holds direct ownership interests in such Initial Project) shall have obtained
all real estate rights necessary for construction and operation of such Initial
Project other than (i) such rights as can be obtained through eminent domain
proceedings or (ii) rights, the procurement of which, in the Technical
Committee's reasonable judgment, is not subject to the discretion of any third
party, and in the case of either clause (i) or (ii) above, the Technical
Committee shall be satisfied that any rights which have not been obtained can be
obtained without material difficulty or delay by the time they are needed, and
(b) have received A.L.T.A. surveys of the Site and, unless not required by the
Technical Committee, the Easements with respect to such Initial Project in
existence on the Funding Date, satisfactory in form and substance to the
Technical Committee and the Title Insurer, reasonably current and certified to
the Technical Committee by a licensed surveyor satisfactory to the Technical
Committee, showing (i) as to such Site, the exact location and dimensions
thereof, including the location of all means of access thereto and all easements
relating thereto and showing the perimeter within which all foundations are or
are to be located; (ii) as to such Easements in existence on the Funding Date,
the exact location and dimensions thereof, including the location of all means
of access thereto, and all improvements or other encroachments in or on such
Easements in existence on the Funding Date; (iii) the existing utility
facilities servicing such Initial Project (including water, electricity, gas,
telephone, sanitary sewer and storm water distribution and detention
facilities); (iv) that such existing improvements do not encroach or interfere
with adjacent property or existing easements or other rights (whether on, above
or below ground), and that there are no gaps, gores, projections, protrusions or
other survey defects; (v) whether such Site or any portion thereof is located in
a special earthquake or flood hazard zone; and (vi) that there are no other
matters that could reasonably be expected to be disclosed by a survey
constituting a defect in title other than Permitted Encumbrances with respect to
such Initial Project; provided, however, that the matters described in clauses
(ii) and (v) of this subsection (b) may be shown by separate maps, surveys or
other information reasonably satisfactory to the Technical Committee.

         3.2.28 Title Policies. Borrower shall have delivered to Administrative
Agent on behalf of the Banks a lender's A.L.T.A. policy of title insurance
(with, in the case of Easements with respect to which A.L.T.A. surveys were not
required by the Technical Committee pursuant to Section 3.2.27, appropriate
survey exceptions), together with such endorsements as are required by the
Technical Committee (without a mechanics' or materialmen's exception included in
such title policy, except where applicable Governmental Rules prevent the
deletion of such exception), or commitment to issue such policy, dated as of the
Funding Date (x) in an amount equal to 50% of the aggregate amount of Project
Costs set forth in the Project Budget for such Initial Project (or such other
amount as is reasonably acceptable to the Technical Committee) and (y) with such
reinsurance as is satisfactory to the Technical Committee, issued by the Title
Insurer in form and substance satisfactory to the Technical Committee, insuring
(or agreeing to insure) that:


                                       35
<PAGE>   50
                  (a) the relevant Project Owner has a good, marketable and
insurable fee or leasehold title to or right to control, occupy and use the Site
and the Easements with respect to such Initial Project, free and clear of liens,
encumbrances or other exceptions to title except Permitted Liens described in
clause (a), (b) or (e) of the definition thereof, those permitted pursuant to
this Section 3.2.28 and those satisfactory to the Technical Committee and
specified on such policy; and

                  (b) the Deed of Trust with respect to such Initial Project is
(or will be when recorded) a valid first lien on the Mortgaged Property with
respect to such Initial Project, free and clear of all liens, encumbrances and
exceptions to title whatsoever, other than those encumbrances permitted pursuant
to Section 3.2.28(a).

         3.2.29 Regulatory Status. Such Initial Project shall (a) have complied
with the requirements of 18 C.F.R. Section 292.207 required to be complied with
as of the Funding Date and delivered to Administrative Agent, in form and
substance satisfactory to the Technical Committee, either (i) a certificate of
FERC certifying such Initial Project as a Qualifying Facility, or (ii)
documentation evidencing the self-certification of such Initial Project as a
Qualifying Facility and a legal opinion of counsel to the Portfolio Entities
with respect to the effectiveness of such documentation to qualify such Initial
Project as a Qualifying Facility or (b) be or be capable of becoming an Eligible
Facility, and Administrative Agent shall have received a legal opinion of
counsel to the Portfolio Entities in form and substance satisfactory to the
Technical Committee to the effect that there exists no reasonable basis for FERC
to deny an application filed by the Project Owner of such Initial Project
pursuant to Section 5.12 for Exempt Wholesale Generator status.

         3.2.30 Notice to Proceed. The Prime Contractor with respect to such
Initial Project shall have been given an unconditional notice to proceed or
otherwise been unconditionally directed to begin performance under the Prime
Construction Contract to which it is a party on or prior to the Funding Date.

         3.2.31 Representations and Warranties. Each representation and warranty
of Borrower, the Portfolio Entities with respect to such Initial Project, the
Member, Calpine and the Non-Affiliated Parents with respect to such Initial
Project, if any, and under the Credit Documents and each representation and
warranty of Borrower, the relevant Project Owner and the relevant Equipment
Finance Company, if any, under the other Operative Documents, in each case with
respect to itself or such Initial Project, shall be true and correct in all
material respects as if made on the Funding Date, unless such representation or
warranty expressly relates solely to another time.

         3.2.32 Utilities. Administrative Agent on behalf of the Banks has
received evidence acceptable to the Technical Committee that all necessary gas
and electrical interconnections and utility services are either contracted for,
or will be readily available on reasonable economic terms, at such Initial
Project.

         3.2.33 Calpine Compliance. No "event of default" (as defined therein)
under any agreement or instrument documenting or evidencing any of Calpine's
Debt obligations that are greater than $10,000,000 shall have occurred and be
continuing.


                                       36
<PAGE>   51
         3.2.34 Calpine Guaranties. Calpine shall have executed (a) an
acknowledgement, in form and substance satisfactory to the Technical Committee,
that such Initial Project shall be included with the obligations undertaken
pursuant to the Project Completion Guaranty and (b) (i) in the case of each
Person party to a Project Document that is directly or indirectly more than 50%
owned by Calpine (other than the relevant Project Owner and Equipment Finance
Company, if any), an Affiliated Party Agreement Guaranty in respect of each
Project Document (guarantying 100% of such Person's obligations under each such
Project Document) entered into between the relevant Project Owner and such
Person for such Initial Project or (ii) in the case of each Person party to a
Project Document that is directly or indirectly 50% owned by Calpine (other than
the relevant Project Owner and Equipment Finance Company, if any), an Affiliated
Party Agreement Guaranty in respect of each Project Document (guarantying at
least Calpine's percentage ownership interest of such Person's obligations under
each such Project Document) entered into between the relevant Project Owner and
such Person for such Initial Project; provided, in the case of clause (b)(ii) of
this Section 3.2.34, Borrower shall also deliver to Administrative Agent a
guaranty agreement in favor of the relevant Project Owner in respect of each
such Project Document, executed by a guarantor satisfactory to the Technical
Committee and in form and substance satisfactory to the Technical Committee,
guarantying those obligations of such Person under each such Project Document
not otherwise addressed in the relevant Affiliated Party Agreement Guaranty
delivered pursuant to such clause.

         3.2.35 Updated Exhibits. Borrower shall have delivered to
Administrative Agent a supplement to Exhibit K reflecting any additional or
revised insurance policies or coverages required by the Insurance Consultant to
account for such Initial Project, in each case reasonably satisfactory to the
Technical Committee.

         3.2.36 Calpine Corporation Credit Rating. Calpine shall be rated at
least Ba2 by Moody's and BB by S&P.

         3.2.37 Delta Energy Center Project Requirements. In the event such
Initial Project is the Delta Energy Center Project, delivery to Administrative
Agent on behalf of the Banks, without duplication of any of the requirements set
forth in this Section 3.2, of the items set forth in Sections 3.1.1, 3.1.2,
3.1.3, 3.1.4, 3.1.6 and 3.1.8 with respect to the Portfolio Entities and the
Non-Affiliated Parent related to the Delta Energy Center Project.

     3.3 Conditions Precedent to the Initial Funding of the Subsequent Projects.
Subject to Section 3.3.41, the obligation of the Banks to make the initial
Construction Loans with respect to a particular Subsequent Project is subject to
the prior satisfaction of each of the following conditions:

         3.3.1 Borrower Equity. Contributions required pursuant to Section
5.17.1 and 5.17.2 hereof shall have been funded and applied in accordance with
Section 5.1.

         3.3.2 Joint Venture Projects. In the case of a Subsequent Project that
is only partially owned by the relevant Project Owner, (a) Administrative Agent
on behalf of the Banks shall have received all joint venture, joint tenancy,
joint operating or other documents relating to the joint ownership, operation or
governance of such Subsequent Project (collectively, the "Joint Venture
Agreement"), in form and substance satisfactory to the Technical Committee,
including

                                       37
<PAGE>   52
provisions (i) requiring all parties to the Joint Venture Agreement (the "Joint
Venturers") to fund their respective obligations in connection with the
development, construction and operation of such Subsequent Project, providing
reasonable remedies for a Joint Venturer's failure to fund, and permitting the
relevant Project Owner to fund such obligations if any of the Joint Venturers
fail to do so, (ii) permitting the relevant Project Owner to grant a Lien on its
interest in such Subsequent Project in favor of the Banks pursuant to this
Agreement, and (iii) prohibiting any of the other Joint Venturers from granting
a Lien on or otherwise encumbering the relevant Project Owner's interest in such
Subsequent Project and (b) if required by applicable law, such Joint Venture
Agreement or the relative rights of the Joint Venturers in such Subsequent
Project (or a memorandum thereof) shall have been recorded or filed, as
applicable, in the appropriate public records in order to give third parties
notice of such Joint Venture Agreement.

         3.3.3 Resolutions. Delivery to Administrative Agent on behalf of the
Banks of a copy of one or more resolutions or other authorizations of the
relevant Project Owner, the relevant Equipment Finance Company (if any) and all
other Portfolio Entities with respect to such Subsequent Project and each
Affiliated Major Project Participant with respect to such Subsequent Project,
certified by the appropriate officers of each such entity as being in full force
and effect on the Funding Date, authorizing, as applicable, the execution,
delivery and performance of the Operative Documents with respect to such
Subsequent Project and any instruments or agreements required hereunder or
thereunder to which such entity is a party.

         3.3.4 Incumbency. Delivery to Administrative Agent on behalf of the
Banks of a certificate satisfactory in form and substance to the Technical
Committee, from the relevant Project Owner, the relevant Equipment Finance
Company (if any) and all other Portfolio Entities with respect to such
Subsequent Project and each Affiliated Major Project Participant with respect to
such Subsequent Project, signed by the appropriate authorized officer of each
such entity and dated the Funding Date, as to the incumbency of the natural
persons authorized to execute and deliver the Operative Documents with respect
to such Subsequent Project and any instruments or agreements required hereunder
or thereunder to which such entity is a party.

         3.3.5 Formation Documents. Delivery to Administrative Agent on behalf
of the Banks of (a) copies of the articles of incorporation or certificate of
incorporation or charter or other state certified constituent documents of the
relevant Project Owner, the relevant Equipment Finance Company (if any) and all
other Portfolio Entities with respect to such Subsequent Project, each other
Major Project Participant with respect to such Subsequent Project and each
Non-Affiliated Parent with respect to such Subsequent Project, if any,
certified, if requested by the Technical Committee, by the secretary of state of
the state of formation, except, with respect to any Major Project Participant
other than such Project Owner or such Equipment Finance Company or other
Portfolio Entities, where such Major Project Participant is not the type of
entity for which such state certified constituent documents are reasonably
available, and (b) copies of the Bylaws or other comparable constituent
documents of the relevant Project Owner, the relevant Equipment Finance Company
(if any) and all other Portfolio Entities with respect to such Subsequent
Project and each Affiliated Major Project Participant with respect to such
Subsequent Project, certified by its secretary or an assistant secretary.

         3.3.6 Good Standing Certificates. (a) For the relevant Project Owner,
the relevant Equipment Finance Company (if any) and each other Major Project
Participant with

                                       38
<PAGE>   53
respect to such Subsequent Project, delivery to Administrative Agent on behalf
of the Banks of certificates issued by the secretary of state of the state where
such Subsequent Project is located and, if other than such state, the state of
formation of such Major Project Participant, and (b) with respect to each
Portfolio Entity with respect to such Subsequent Project (other than the
relevant Project Owner and Equipment Finance Company, if any) and each
Non-Affiliated Parent with respect to such Subsequent Project, if any, delivery
to the Lead Arrangers of certificates issued by the secretary of state of the
state of formation of such Persons, in each case certifying that such Person is
in good standing and is qualified to do business in, and has paid all franchise
taxes or similar taxes due to, such states, except, with respect to any Major
Project Participant other than such Project Owner, such Equipment Finance
Company or other Portfolio Entities, where such Major Project Participant is not
required to qualify to do business in such state in order to perform its
obligations under any Project Document with respect to such Subsequent Project
to which it is a party or where such Major Project Participant is not the type
of entity for which a good standing certificate is available.

         3.3.7 Satisfactory Proceedings. All corporate, partnership and legal
proceedings and all instruments in connection with the transactions contemplated
by this Agreement with respect to such Subsequent Project shall be satisfactory
in form and substance to the Technical Committee, and Administrative Agent on
behalf of the Banks shall have received all information and copies of all
documents, including records of corporate or partnership proceedings and copies
of any approval by any Governmental Authority required in connection with any
transaction herein contemplated (with respect to such Subsequent Project), which
the Technical Committee may reasonably have requested in connection herewith,
such documents where appropriate to be certified by proper corporate or
partnership officers or Governmental Authorities.

         3.3.8 Operative Documents.

                  (a) Delivery to Administrative Agent on behalf of the Banks of
executed originals of:

                         (i) Amendments, supplements or modifications to each of
the Collateral Documents with respect to such Subsequent Project (or additional
Collateral Documents if reasonably requested by the Technical Committee,
including a Project Owner Guaranty and a Project/Turbine Owner Security
Agreement executed by the Project Owner with respect to such Subsequent Project,
an Equipment Finance Company Security Agreement executed by the Equipment
Finance Company with respect to such Subsequent Project, if applicable, and
Pledge Agreements (Pledged Equity Interests) executed by each Portfolio Entity
with respect to such Subsequent Project (other than the relevant Project Owner
and Equipment Finance Company, if any) and the Non-Affiliated Parents with
respect to such Subsequent Project, if any) considered necessary by the
Technical Committee to ensure that all rights and assets related to such
Subsequent Project, including all real property and personal property comprising
such Subsequent Project and all rights of the relevant Project Owner under any
Joint Venture Agreement relating to such Subsequent Project, have been pledged
to Administrative Agent and the Banks; provided, however, as set forth in the
relevant Project/Turbine Owner Security Agreement, Equipment Finance Company
Security Agreement, Pledge Agreement(s) (Pledged Equity Interests) and Deed of
Trust, the Lien on the Collateral comprising such

                                       39
<PAGE>   54
Subsequent Project and the ownership interests in the relevant Portfolio
Entities shall not secure those Obligations relating to or arising from Projects
that have achieved Operation prior to the Funding Date.

                         (ii) Consents to assignment in substantially the form
of Exhibit E-1 or otherwise in form and substance reasonably satisfactory to the
Technical Committee from the counterparties to each Major Project Document
(Major Gas Supply Contracts, Major Power Purchase Agreements and Major Gas
Transportation Agreements only to the extent then in existence), electric
transmission and interconnection agreements and material water supply agreements
in respect of such Subsequent Project delivered pursuant to Section 3.3.8(d).

                         (iii) Affiliated Subordination Agreements substantially
in the form of Exhibit D-8 or otherwise in form and substance reasonably
satisfactory to the Technical Committee (or, if applicable, amendments to
existing Affiliated Subordination Agreements) executed by each Affiliate of
Calpine (other than the relevant Project Owner and Equipment Finance Company, if
any) entering into Project Documents with respect to such Subsequent Project
considered necessary by the Technical Committee to subordinate certain O&M Costs
that the relevant Project Owner may incur pursuant to such Project Documents to
the Obligations. Such O&M Costs shall only include amounts payable to such
Affiliate which do not represent reimbursement of costs payable to third parties
not Affiliates of Calpine and shall be subordinated to the Obligations to the
same extent as O&M Costs are subordinated to the Obligations in the
corresponding documents furnished by Borrower pursuant to Section 3.2.8 or
otherwise to the extent satisfactory to the Technical Committee.

                  (b) Borrower shall have delivered to Administrative Agent the
federal employer number and all other information requested by Administrative
Agent with respect to the Portfolio Entities and the Non-Affiliated Parents, if
any, with respect to such Subsequent Project and all actions shall have been
taken to provide the Banks with a valid and perfected first priority Lien on the
Collateral in respect of such Subsequent Project (except as otherwise approved
by the Technical Committee, including all personal property comprising such
Subsequent Project) including, without limitation, to the extent necessary, the
execution, delivery and recordation of the Deed of Trust and fixture filings
with respect to such Subsequent Project in the appropriate locations, the filing
of UCC-1, UCC-2 or UCC-3 financing statements, as applicable, with respect to
such Collateral with the Secretary of State and/or other appropriate filing
office in the states in which such Subsequent Project is located, the states of
formation of the relevant Portfolio Entities or Non-Affiliated Parents or the
states in which such Portfolio Entities' or Non-Affiliated Parents' principal
places of business are located, the delivery of the Pledged Equity Interests of
the Portfolio Entities with respect to such Subsequent Project in accordance
with the relevant Pledge Agreements (Pledged Equity Interests) and the delivery
of a Portfolio Entity Note executed by the relevant Project Owner and Equipment
Finance Company, if any.

                  (c) Delivery to Administrative Agent on behalf of the Banks of
a certified list of, and true and correct copies of, each Project Document with
respect to such Subsequent Project then in effect, and, in each case, any
supplements or amendments thereto, and all of which Project Documents shall be
certified by a Responsible Officer of Borrower as being true, complete and
correct and in full force and effect on the Funding Date pursuant to the
certificates

                                       40
<PAGE>   55
delivered as provided in this Section 3.3, which certificates shall state that
neither the relevant Project Owner nor, to Borrower's knowledge, any other party
to any such Project Document is or, but for the passage of time or giving of
notice or both will be, in breach of any material obligation thereunder, and
that all conditions precedent to the performance of the parties under such
Project Documents then required to have been performed have been satisfied.

                  (d) All the Major Project Documents (other than Major Gas
Supply Contracts (other than Gas Supply Contracts with Affiliates of Borrower)
and Major Power Purchase Agreements), electric transmission and interconnection
agreements and material water supply agreements with respect to such Subsequent
Project shall be substantially similar to the corresponding documents furnished
by Borrower pursuant to Section 3.2.7 (to the extent there are such
corresponding documents) with counterparties reasonably acceptable to the
Technical Committee and conforming changes to address the specifics of such
Subsequent Project or otherwise in form and substance reasonably satisfactory to
the Technical Committee, shall have been duly authorized, executed and delivered
by the parties thereto.

                  (e) Delivery to Administrative Agent of (i) all shared use
agreements and/or joint ownership agreements reasonably requested by the
Technical Committee evidencing the relevant Project Owner's interests, rights
and obligations with respect to any shared facilities incorporated into or used
with respect to such Subsequent Project, (ii) all intercreditor agreements
and/or non-disturbance agreements reasonably requested by the Technical
Committee establishing the relative rights and remedies between Administrative
Agent on behalf of the Banks and any other Persons with interests in any such
shared facilities or other properties incorporated into or used with respect to
such Subsequent Project and (iii) in the case of a Subsequent Project where the
relevant Project Owner is directly or indirectly partially owned by Borrower,
all joint venture, joint operating or other documents relating to the joint
ownership or joint governance of such Project Owner between the Portfolio
Entities and the Non-Affiliated Parents with respect to such Subsequent Project,
in each case in form and substance satisfactory to the Technical Committee.

                  (f) In the event one or more Equipment Leases are associated
with such Subsequent Project, the equipment leasing structure implemented
pursuant to such Equipment Lease(s) shall not, in the Technical Committee's
reasonable opinion, affect in any adverse manner (i) such Subsequent Project's
Project Revenues available for payments under Waterfall Levels 2, 3 and 4 or
(ii) the Lien imposed by the Collateral Documents in favor of Administrative
Agent on the Collateral with respect to such Subsequent Project, in each case as
compared to such Subsequent Project assuming the equipment held by the
associated Equipment Finance Company and leased to the relevant Project Owner
pursuant to such Equipment Lease(s) (and the Project Documents related thereto)
were held directly by such Project Owner.

         3.3.9 Certificate of Borrower. Administrative Agent on behalf of the
Banks shall have received a certificate, dated as of the Funding Date, signed by
a Responsible Officer of Borrower, in substantially the form of Exhibit F-2.

         3.3.10 Legal Opinions. Delivery to Administrative Agent on behalf of
the Banks of legal opinions of counsel to the relevant Portfolio Entities,
Affiliates of Calpine that are party to Operative Documents relating to such
Subsequent Project, the Non-Affiliated Parents with

                                       41
<PAGE>   56
respect to such Subsequent Project, if any, and each Major Project Participant
designated by the Technical Committee that is a party to a Major Project
Document delivered pursuant to Section 3.3.8(d) and each counterparty designated
by the Technical Committee to a material water supply agreement delivered
pursuant to Section 3.3.8(d) with respect to such Subsequent Project,
substantially similar to the corresponding opinions furnished by Borrower
pursuant to Section 3.1.8 or 3.2.9, as the case may be, with conforming changes
to address the specifics of such Subsequent Project or otherwise in form and
substance satisfactory to the Technical Committee.

         3.3.11 Certificate of Insurance Consultant. Delivery to Administrative
Agent on behalf of the Banks of the Insurance Consultant's certificate with
respect to such Project, in substantially the form of Exhibit F-4, with the
Insurance Consultant's report with respect to such Subsequent Project,
confirming the adequacy of the insurance described on Exhibit K or otherwise in
form and substance satisfactory to the Technical Committee, attached thereto.

         3.3.12 Insurance. Insurance with respect to such Subsequent Project
complying with Exhibit K (as the same may be modified to include such Subsequent
Project) shall be in full force and effect and Administrative Agent on behalf of
the Banks shall have received (a) a certificate from Borrower's insurance
broker(s), dated as of the Funding Date and identifying underwriters, type of
insurance, insurance limits and policy terms, listing the special provisions
required as set forth in Exhibit K, describing the insurance obtained and
stating that such insurance is in full force and effect and that all premiums
due thereon have been paid and that, in the opinion of such broker(s), such
insurance complies with Exhibit K, and (b) certified copies of all policies
evidencing such insurance (or a binder, commitment or certificates signed by the
insurer or a broker authorized to bind the insurer), in form and substance
satisfactory to the Technical Committee.

         3.3.13 Certificate of the Independent Engineer. Delivery to
Administrative Agent on behalf of the Banks of the Independent Engineer's
certificate with respect to such Subsequent Project, in substantially the form
of Exhibit F-6, with the Independent Engineer's report with respect to such
Subsequent Project attached thereto, confirming, in form and substance
satisfactory to the Technical Committee, that the revenue assumptions approved
by the Power Marketing Consultant in its report delivered to Administrative
Agent on behalf of the Banks pursuant to Section 3.3.16 and fuel price
assumptions approved by the Fuel Consultant in its report delivered to
Administrative Agent on behalf of the Banks pursuant to Section 3.3.15 have been
properly incorporated into the Base Case Project Projections and that the
Project Schedule with respect to such Subsequent Project is consistent with the
applicable Project Budget, and the Technical Committee shall be satisfied that
the projected O&M Costs and the projected performance (including output, heat
rate, environmental and Permit compliance, and availability, individually or
taken as a whole) of such Subsequent Project as reflected in the Base Case
Project Projections delivered to Administrative Agent on behalf of the Banks as
contemplated in Section 3.3.27 hereof and the design and other technical aspects
of, such Subsequent Project, are reasonable and achievable in a manner
consistent with the applicable Project Budget and Project Schedule.

         3.3.14 Reports of the Environmental Consultant. Delivery to
Administrative Agent on behalf of the Banks of (a) Borrower's Environmental
Consultant's Phase I reports with

                                       42
<PAGE>   57
respect to such Subsequent Project, along with the corresponding reliance
letters from such Environmental Consultant, confirming that no Hazardous
Substances were found in, on or under the Site of such Subsequent Project or (b)
if Hazardous Substances were found in, on or under such real property pursuant
to such Phase I environmental report, or such report otherwise indicates that a
Phase II environmental review is warranted, (i) a Phase II environmental report
with respect to such real property along with a corresponding reliance letter
from Environmental Consultant, confirming in form and substance satisfactory to
Administrative Agent, either (A) that no Hazardous Substances were found in, on
or under such real property or (B) matters otherwise satisfactory to the
Technical Committee or (ii) an environmental indemnity agreement in form and
substance satisfactory to the Technical Committee pursuant to which an
indemnitor satisfactory to Administrative Agent indemnifies the Portfolio
Entities and the Banks from any and all damages or other liabilities relating to
or arising from Hazardous Substances then in, on or under such real property or
otherwise caused by or attributable to such indemnitor.

         3.3.15 Certificate of the Fuel Consultant. Delivery to Administrative
Agent on behalf of the Banks of the Fuel Consultant's certificate with respect
to such Subsequent Project, in substantially the form of Exhibit F-8, with the
Fuel Consultant's report with respect to such Subsequent Project attached
thereto, confirming, in form and substance satisfactory to the Technical
Committee that there is sufficient fuel available to such Subsequent Project to
operate such Subsequent Project in the manner contemplated by, and in accordance
with the fuel price assumptions incorporated in the Base Case Project
Projections delivered to Administrative Agent on behalf of the Banks as
contemplated in Section 3.3.27 and that the Fuel Plan delivered to
Administrative Agent on behalf of the Banks as contemplated in Section 3.3.18
for such Subsequent Project constitutes a reasonable plan for the supply and
transportation of fuel for such Project under existing and expected market
conditions affecting such Subsequent Project and consistent with the intended
operation thereof.

         3.3.16 Certificate of Power Marketing Consultant. Delivery to
Administrative Agent on behalf of the Banks of a Power Marketing Consultant's
certificate with respect to such Subsequent Project, in substantially the form
of Exhibit F-9, with a Power Marketing Consultant's report with respect to such
Subsequent Project attached thereto, confirming, in form and substance
satisfactory to the Technical Committee, that the revenue assumptions
incorporated in the Base Case Project Projections delivered to Administrative
Agent on behalf of the Banks as contemplated in Section 3.3.27 are reasonable in
light of existing and expected market conditions affecting such Subsequent
Project.

         3.3.17 Power Marketing Plan. Delivery to Administrative Agent on behalf
of the Banks of a plan with respect to power marketing setting forth Borrower's
good faith assessment of the projected sales of power with respect to such
Subsequent Project, which plan shall not in any way be construed to modify or
limit Borrower's rights and obligations set forth herein, substantially in the
form of the Power Marketing Plans furnished by Borrower pursuant to Section
3.2.16 and with such additional changes satisfactory in form and substance to
the Technical Committee as may be appropriate under the circumstances.

         3.3.18 Fuel Plan. Delivery to Administrative Agent on behalf of the
Banks of a plan with respect to fuel setting forth Borrower's good faith
assessment of such Subsequent Project's projected fuel consumption needs and
fuel supply and transportation strategy, which

                                       43
<PAGE>   58
plan shall not in any way be construed to modify or limit Borrower's rights and
obligations set forth herein, substantially in the form of the Fuel Plans
delivered furnished by Borrower pursuant to Section 3.2.17 and with such
additional changes satisfactory in form and substance to the Technical Committee
and the Fuel Consultant as may be appropriate under the circumstances.

         3.3.19 Schedule of Applicable Permits and Applicable Third Party
Permits. Delivery to Administrative Agent of the Permit Schedule with respect to
such Subsequent Project, substantially similar to the Permit Schedules furnished
by Borrower pursuant to Section 3.2.18 with conforming changes to address the
specifics of such Subsequent Project and otherwise satisfactory in form and
substance to the Technical Committee, together with (i) copies of each
Applicable Permit and Applicable Third Party Permit listed on Parts I(A) and
I(B) of such Permit Schedule, each satisfactory in form and substance to the
Technical Committee, and (ii) legal opinions of counsel to the Portfolio
Entities with respect to the matters described in the next two sentences,
substantially similar to the corresponding opinions furnished by Borrower
pursuant to Section 3.2.18 with conforming changes to address the specifics of
such Subsequent Project or otherwise in form and substance satisfactory to the
Technical Committee. The relevant Project Owner (or such other Person
responsible for constructing and operating such Subsequent Project) shall have
duly obtained or been assigned, either by itself or jointly with its Joint
Venturers (if applicable), and there shall be in full force and effect in the
relevant Project Owner's (or such other Person responsible for constructing and
operating such Subsequent Project) name, either by itself or jointly with its
Joint Venturers (if applicable), and not subject to any current legal proceeding
or to any unsatisfied condition that could reasonably be expected to allow
material modification or revocation of, and all applicable appeal periods shall
have expired with respect to, the Applicable Permits for such Subsequent Project
set forth on Parts I(A) and I(B) of such Permit Schedule, constituting in the
Technical Committee's reasonable opinion all of the Applicable Permits for such
Subsequent Project as of the Funding Date. Each Major Project Participant with
respect to which responsibility for an Applicable Third Party Permit is
indicated in Part I(B) of such Permit Schedule shall have duly obtained or been
assigned such Applicable Third Party Permit and there shall be in full force and
effect in such Person's name, and not subject to any current legal proceeding or
to any unsatisfied condition that could reasonably be expected to allow material
modification or revocation of, and all applicable appeal periods shall have
expired with respect to, each Applicable Third Party Permit for such Project set
forth on Part I(B) of such Permit Schedule, constituting in the Technical
Committee's reasonable opinion all of the Applicable Third Party Permits for
such Subsequent Project as of the Funding Date. Part II(A) of such Permit
Schedule shall list all other Permits required by the relevant Project Owner (or
such Project Owner and its Joint Venturers, if applicable) or other Person
responsible for constructing and operating such Subsequent Project to construct,
own and operate such Subsequent Project as contemplated by the Operative
Documents. Part II(B) of such Project Schedule shall list all other material
Permits required by any other Major Project Participant with respect to such
Subsequent Project to perform its obligations under the Operative Documents with
respect to such Subsequent Project to which it is a party. The Permits listed in
Parts II(A) and II(B) of such Permit Schedule shall either (a) in the Technical
Committee's reasonable opinion, be timely obtainable at a cost consistent with
the applicable Project Budget without material difficulty or delay prior to the
time the relevant Project Owner (or such Project Owner and its Joint Venturers,
if applicable) or the applicable other Major Project Participant, as applicable,
requires such Permits, or (b) there shall exist alternative solutions (the
expected cost of which is reflected in the applicable Project Budget) reasonably


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<PAGE>   59
satisfactory to the Independent Engineer which would eliminate the need for such
Permit(s). Except as disclosed in such Permit Schedule, the Permits listed in
Parts I(A) and I(B) of such Permit Schedule shall not be subject to any
restriction, condition, limitation or other provision that could reasonably be
expected to have a Material Adverse Effect on such Subsequent Project or result
in such Subsequent Project being operated in a manner not substantially as
assumed in the Base Cost Project Projections.

         3.3.20 No Change in Tax Laws. No change shall have occurred, since the
date upon which this Agreement was executed and delivered, in any law or
regulation or interpretation thereof that would subject any Bank to any material
unreimbursed Tax or Other Tax.

         3.3.21 Absence of Litigation. (a) No action, suit, proceeding or
investigation shall have been instituted or threatened against any Portfolio
Entity in respect of such Subsequent Project which could reasonably be expected
to have a Material Adverse Effect on Borrower or such Subsequent Project, and
(b) except for the applicability of the FPA solely by reason of the relevant
Project Owner being an Exempt Wholesale Generator, no order, judgment or decree
shall have been issued or proposed to be issued by any Governmental Authority
that, as a result of the construction, ownership, leasing or operation of such
Subsequent Project, the sale of electricity or steam therefrom or the entering
into of any Operative Document with respect to such Subsequent Project or any
transaction contemplated hereby or thereby, would cause or deem the Banks, any
Portfolio Entity or any Affiliate of any of them to be subject to, or not
exempted from, regulation under the FPA or PUHCA or under state laws and
regulations respecting the rates or the financial or organizational regulation
of electric utilities.

         3.3.22 Payment of Filing Fees. All amounts required to be paid to or
deposited with the Banks (including the Activation Fee) in respect of such
Subsequent Project, and all taxes, fees and other costs payable in connection
with the execution, delivery, recordation and filing of the documents and
instruments referred to in this Section 3.3, shall have been paid in full or, as
approved by the Technical Committee, provided for.

         3.3.23 Financial Statements. Administrative Agent on behalf of the
Banks shall have received the most recent annual financial statements (audited
if available) or Form 10-K and most recent quarterly financial statements or
Form 10-Q from Borrower and each of the relevant Portfolio Entities and, to the
extent reasonably obtainable, Non-Affiliated Parents with respect to such
Subsequent Project and, to the extent reasonably obtainable, each other Major
Project Participant with respect to such Subsequent Project (or their respective
parent entities), together (in the case of such Portfolio Entities and the
Affiliated Major Project Participants with respect to such Subsequent Project)
with certificates from the appropriate Responsible Officer thereof, stating that
no material adverse change in the consolidated assets, liabilities, operations
or financial condition of such Person has occurred from those set forth in the
most recent financial statements or the balance sheet, as the case may be,
provided to Administrative Agent on behalf of the Banks.

         3.3.24 UCC Reports. Administrative Agent on behalf of the Banks shall
have received a UCC report of a date reasonably close to the Funding Date for
each of the jurisdictions in which any UCC-1 financing statements or amendments
thereto are intended to be

                                       45
<PAGE>   60
filed in respect of the Collateral with respect to such Subsequent Project,
showing that upon due filing (assuming such filing or recordation occurred on
the date of such respective reports), the security interests created under the
Collateral Documents with respect to such Subsequent Project will be prior to
all other financing statements or other security documents wherein the security
interest is perfected by filing in respect of such Collateral.

         3.3.25 Project Budgets. Borrower shall have furnished Administrative
Agent on behalf of the Banks a budget for such Subsequent Project and, if
applicable, a revised budget for Borrower in substantially the form of the
Project Budgets delivered pursuant to Section 3.1.14 but with such changes as
are required to address the specifics of such Subsequent Project for all
anticipated costs to be incurred in connection with the construction and
start-up of such Subsequent Project, including in such budgets all construction
and non-construction costs, and including all interest, taxes and other carrying
costs, and such other information as the Technical Committee may require,
together with a balanced statement of sources (including an allocation between
Construction Loan proceeds and Contributions) and uses of proceeds (and any
other funds necessary to complete such Subsequent Project), broken down as to
separate construction phases and components, which project budgets shall be in
form and substance satisfactory to the Technical Committee.

         3.3.26 Project Schedule. Borrower shall have furnished Administrative
Agent a project schedule with respect to such Subsequent Project in
substantially the form of the Project Schedules delivered pursuant to Section
3.2.25 but with such changes as are required to address the specifics of such
Subsequent Project and showing a guaranteed completion date for such Subsequent
Project that is on or before the Loan Maturity Date and which is otherwise in
form and substance satisfactory to the Technical Committee and the Independent
Engineer.

         3.3.27 Base Case Project Projections. Borrower shall have furnished to
Administrative Agent on behalf of the Banks the combined Base Case Project
Projections of operating expenses and cash flow for all Funded Initial Projects
and Funded Subsequent Projects (including such Subsequent Project) showing, for
each year in such projections, a projected annual Four-Quarter Portfolio
Interest Coverage Ratio equal to or exceeding [*] to 1.00 (which ratio shall
be supported by the projections set forth in the Independent Consultant's
reports delivered pursuant to Section 3.2 and this Section 3.3 with respect to
such Projects) in substantially the form (including the duration thereof) of
those projections delivered pursuant to Section 3.1.16 and otherwise in form and
substance satisfactory to the Technical Committee.

         3.3.28 No Material Adverse Change. No event or circumstance having a
Material Adverse Effect with respect to Borrower has occurred since the Closing
Date, and, with respect to such Subsequent Project, no event or circumstance
having a Material Adverse Effect with respect to such Subsequent Project shall
have occurred.

         3.3.29 Real Estate Rights; A.L.T.A. Surveys. Administrative Agent on
behalf of the Banks shall (a) be satisfied that the relevant Project Owner (or
other Person who holds direct ownership interests in such Subsequent Project)
shall have obtained all real estate rights necessary for construction and
operation of such Subsequent Project other than (i) such rights as can be
obtained through eminent domain proceedings or (ii) rights, the procurement of
which, in the Technical Committee's reasonable judgment, is not subject to the
discretion of any third

                                       46
<PAGE>   61
party, and in the case of either clause (i) or (ii) above, the Technical
Committee shall be satisfied that any rights which have not been obtained can be
obtained without material difficulty or delay by the time they are needed, and
(b) have received A.L.T.A. surveys of the Site and, unless not required by the
Technical Committee, the Easements with respect to such Subsequent Project in
existence on the Funding Date, satisfactory in form and substance to the
Technical Committee and the Title Insurer, reasonably current and certified to
the Technical Committee by a licensed surveyor satisfactory to the Technical
Committee, showing (i) as to such Site, the exact location and dimensions
thereof, including the location of all means of access thereto and all easements
relating thereto and showing the perimeter within which all foundations are or
are to be located; (ii) as to such Easements in existence on the Funding Date,
the exact location and dimensions thereof, including the location of all means
of access thereto, and all improvements or other encroachments in or on such
Easements in existence on the Funding Date; (iii) the existing utility
facilities servicing such Subsequent Project (including water, electricity, gas,
telephone, sanitary sewer and storm water distribution and detention
facilities); (iv) that such existing improvements do not encroach or interfere
with adjacent property or existing easements or other rights (whether on, above
or below ground), and that there are no gaps, gores, projections, protrusions or
other survey defects; (v) whether such Site or any portion thereof is located in
a special earthquake or flood hazard zone; and (vi) that there are no other
matters that could reasonably be expected to be disclosed by a survey
constituting a defect in title other than Permitted Encumbrances with respect to
such Subsequent Project; provided, however, that the matters described in
clauses (ii) and (v) of this subsection (b) may be shown by separate maps,
surveys or other information reasonably satisfactory to the Technical Committee.

         3.3.30 Title Policies. Borrower shall have delivered to Administrative
Agent on behalf of the Banks a lender's A.L.T.A. policy of title insurance
(with, in the case of Easements with respect to which A.L.T.A. surveys were not
required by the Technical Committee pursuant to Section 3.3.29, appropriate
survey exceptions), together with such endorsements as are required by the
Technical Committee (without a mechanics' or materialmen's exception included in
such title policy, except where applicable Governmental Rules prevent the
deletion of such exception), or commitment to issue such policy, dated as of the
Funding Date (x) in an amount equal to 50% of the aggregate amount of Project
Costs set forth in the Project Budget for such Subsequent Project (or such other
amount as is reasonably acceptable to the Technical Committee) and (y) with such
reinsurance as is satisfactory to the Technical Committee, issued by the Title
Insurer in form and substance satisfactory to the Technical Committee, insuring
(or agreeing to insure) that:

                  (a) the relevant Project Owner has a good, marketable and
insurable fee or leasehold title to or right to control, occupy and use the Site
and the Easements with respect to such Subsequent Project, free and clear of
liens, encumbrances or other exceptions to title except Permitted Liens
described in clause (a), (b) or (e) of the definition thereof, those otherwise
permitted pursuant to this Section 3.3.30 and those satisfactory to the
Technical Committee and specified on such policy; and

                  (b) the Deed of Trust with respect to such Subsequent Project
is (or will be when recorded) a valid first lien on the Mortgaged Property with
respect to such Subsequent Project, free and clear of all liens, encumbrances
and exceptions to title whatsoever, other than those encumbrances permitted
pursuant to Section 3.3.30(a).


                                       47
<PAGE>   62
         3.3.31 Regulatory Status. Such Subsequent Project shall (a) have
complied with the requirements of 18 C.F.R. Section 292.207 required to be
complied with as of the Funding Date and delivered to Administrative Agent on
behalf of the Banks, in form and substance satisfactory to the Technical
Committee, either (i) a certificate of FERC certifying such Subsequent Project
as a Qualifying Facility, or (ii) documentation evidencing the
self-certification of such Subsequent Project as a Qualifying Facility and a
legal opinion of counsel to the Portfolio Entities with respect to the
effectiveness of such documentation to qualify such Subsequent Project as a
Qualifying Facility or (b) be or be capable of becoming an Eligible Facility,
and (x) if the relevant Project Owner has previously filed an application with
FERC for a determination that such Project Owner is an Exempt Wholesale
Generator, Borrower shall have delivered to the Technical Committee a copy of an
additional or supplemental application regarding Exempt Wholesale Generator with
respect to such Subsequent Project filed by such Project Owner with FERC and (y)
the Technical Committee shall have received a legal opinion of counsel to the
Portfolio Entities in form and substance satisfactory to the Technical Committee
to the effect that (i) if FERC has previously determined that such Project Owner
is an Exempt Wholesale Generator, such Subsequent Project will not adversely
impact such Project Owner's status as an Exempt Wholesale Generator or (ii) if
FERC has not yet determined that such Project Owner is an Exempt Wholesale
Generator, there exists no reasonable basis for FERC to deny an application
filed by such Project Owner pursuant to Section 5.12 for Exempt Wholesale
Generator status.

         3.3.32 Notice to Proceed. The Prime Contractor with respect to such
Subsequent Project shall have been given an unconditional notice to proceed or
otherwise been unconditionally directed to begin performance under the Prime
Construction Contract to which it is a party, on or prior to the Funding Date.

         3.3.33 Representations and Warranties. Each representation and warranty
of Borrower, the Portfolio Entities with respect to such Subsequent Project, the
Member, Calpine and the Non-Affiliated Parents with respect to such Subsequent
Project, if any, under the Credit Documents and each representation and warranty
of Borrower, the relevant Project Owner and the relevant Equipment Finance
Company, if any, under the other Operative Documents, in each case with respect
to itself or such Subsequent Project, shall be true and correct in all material
respects as if made on the Funding Date, unless such representation or warranty
expressly relates solely to another time.

         3.3.34 Utilities. Administrative Agent on behalf of the Banks has
received evidence acceptable to the Technical Committee that all necessary gas
and electrical interconnections and utility services are either contracted for,
or will be readily available on reasonable economic terms, at such Subsequent
Project.

         3.3.35 Calpine Compliance. No "event of default" (as defined therein)
that are greater than $10,000,000 under any agreement or instrument documenting
or evidencing any of Calpine's Debt obligations shall have occurred and be
continuing.

         3.3.36 Calpine Guaranties. Calpine shall have executed (a) an
acknowledgement, in form and substance satisfactory to the Technical Committee,
that such Subsequent Project shall be included with the obligations undertaken
pursuant to the Project Completion Guaranty

                                       48
<PAGE>   63
and (b) (i) in the case of each Person party to a Project Document that is
directly or indirectly more than 50% owned by Calpine (other than the relevant
Project Owner and Equipment Finance Company, if any), an Affiliated Party
Agreement Guaranty in respect of each Project Document (guarantying 100% of such
Person's obligations under each such Project Document) entered into between the
relevant Project Owner and such Person for such Subsequent Project or (ii) in
the case of each Person party to a Project Document that is directly or
indirectly 50% owned by Calpine (other than the relevant Project Owner and
Equipment Finance Company, if any), an Affiliated Party Agreement Guaranty in
respect of each Project Document (guarantying at least Calpine's percentage
ownership interest of such Person's obligations under each such Project
Document) entered into between the relevant Project Owner and such Person for
such Subsequent Project; provided, in the case of clause (b)(ii) of this Section
3.3.36, Borrower shall also deliver to Administrative Agent a guaranty agreement
in favor of the relevant Project Owner in respect of each such Project Document,
executed by a guarantor satisfactory to the Technical Committee and in form and
substance satisfactory to the Technical Committee, guarantying those obligations
of such Person under each such Project Document not otherwise addressed in the
Affiliated Party Agreement Guaranty delivered pursuant to such clause.

         3.3.37 Updated Exhibits. Borrower shall have delivered to
Administrative Agent supplements to (a) Exhibit G-8 (Hazardous Substances)
referencing the environmental reports in respect of such Subsequent Project that
were delivered to Administrative Agent on behalf of the Banks pursuant to
Section 3.3.14, (b) Exhibit D-6 reflecting the filings and recordings required
to be made to perfect security interests in the Collateral in respect of such
Subsequent Project, and (c) Exhibit K reflecting any additional or revised
insurance policies or coverages required by the Insurance Consultant to account
for such Subsequent Project, in each case reasonably satisfactory to the
Technical Committee.

         3.3.38 Diversification Requirements. Such Subsequent Project satisfies
the Diversification Requirements.

         3.3.39 Calpine Corporation Credit Rating. Calpine shall be rated at
least Ba2 by Moody's and BB by S&P.

         3.3.40 Initial Projects Satisfaction of Conditions Precedent to Initial
Funding. Each Initial Project shall be a Funded Project; provided, however, one
Subsequent Project shall be permitted to become a Funded Project prior to the
time all Initial Projects have become Funded Projects so long as (a) at least
six Initial Projects have become Funded Projects prior to the Funding Date with
respect to such Subsequent Project, (b) Borrower owns 100% of the equity
interests of the Project Owner with respect to such Subsequent Project and (c)
the Project Owner with respect to such Subsequent Project owns 100% of such
Subsequent Project.

         3.3.41 Modified Conditions Precedent to Initial Funding.
Notwithstanding anything to the contrary contained in this Section 3.3, the
obligation of the Banks to make the initial Construction Loans with respect to a
particular Subsequent Project at any time when at least 12 Projects are Funded
Projects and at least five Projects have achieved Commercial Operation, each of
such Projects having become Funded Projects pursuant to either Section 3.2 or
3.3 (other than this Section 3.3.41), shall be subject only to the prior
satisfaction of those conditions set forth in Section 3.4 and Schedule 3.3.41.


                                       49
<PAGE>   64
     3.4 Conditions Precedent to Each Construction Credit Event. The obligation
of the Banks to make each Construction Loan (including the initial Construction
Loans for each Initial Project and each Subsequent Project) (a "Construction
Credit Event"), is subject to the prior satisfaction of each of the following
conditions:

         3.4.1 Monthly Drawdown Frequency. Construction Loans shall be made no
more frequently than two times per month.

         3.4.2 Notice of Construction Borrowing. Borrower shall have delivered a
Notice of Construction Borrowing to Administrative Agent in accordance with the
procedures specified in Section 2.1.

         3.4.3 Construction Drawdown Certificate and Engineer's Certificate. (i)
At least 8 Banking Days prior to each Construction Credit Event, Borrower shall
have provided Administrative Agent with a certificate, dated the date of the
proposed occurrence of such Construction Credit Event and signed by Borrower,
substantially in the form of Exhibit C-6, in respect of each Project for which a
disbursement of funds are being requested and (ii) at least four Banking Days
prior to each Construction Credit Event, the Independent Engineer shall have
provided Administrative Agent with a certificate of the Independent Engineer,
substantially in the form of Exhibit C-7. Such certificates shall certify, among
other things, that (A) the aggregate amount of Project Costs for each Project
(not including financing fees and interest expenses allocated to such Project
but not reflected in such Project's Project Budget delivered pursuant to Section
3.1 or 3.3, as the case may be, and other expenses not allocable to a particular
Project) for which the disbursement of funds is being requested is not projected
to exceed 110% of the anticipated aggregate amount of Project Costs for such
Project as set forth in such Project's Project Budget delivered pursuant to
Section 3.1 or 3.3, as the case may be, and (B) the aggregate amount of Project
Costs for all Initial Projects and Funded Subsequent Projects then under
construction is not projected to exceed 105% of the anticipated aggregate amount
of Project Costs for all such Projects as set forth in the respective Project
Budgets delivered pursuant to Section 3.1 or 3.3, as the case may be; provided,
however, that if the condition described in clause (A) above is not satisfied
with respect to a particular Project for which funds are being requested but (x)
the Independent Engineer confirms that the cost overruns with respect to such
Project are not reasonably likely to exceed a specific amount and (y) the
condition described in clause (B) is satisfied and will continue to be satisfied
after giving effect to any further anticipated overruns with respect to the
Project experiencing such overruns, then the Banks will not unreasonably
withhold their consent to waive the condition described in clause (A) above.

         3.4.4 Amount. Construction Loans shall be in such amounts as shall
ensure that uncommitted funds remaining in the Construction Account (other than
those in Turbine Purchase Sub-Accounts) shall be disbursed to the greatest
extent possible, given the requirements of Section 2.1.1(b)(ii).

         3.4.5 Title Policy Endorsement. Borrower shall provide, or
Administrative Agent shall be adequately assured that the Title Insurer is
committed at the time of each Construction Credit Event to issue to
Administrative Agent a date-down endorsement of the relevant Title Policies, if
any, to the date of such Construction Credit Event, insuring or

                                       50
<PAGE>   65
otherwise establishing to the satisfaction of Administrative Agent the
continuing first priority of the relevant Deeds of Trust (subject only to
relevant Permitted Encumbrances and Permitted Liens described in clause (a), (b)
or (c) of the definition thereof) and otherwise in form and substance reasonably
satisfactory to Administrative Agent.

         3.4.6 Lien Releases. If requested by Administrative Agent and subject
to Borrower's right to contest liens as described in the definition of
"Permitted Liens," Borrower shall have delivered to Administrative Agent duly
executed acknowledgments of payments and releases of mechanics' and
materialmen's liens, in form satisfactory to Administrative Agent, from each
relevant Major Contractor and Major Subcontractors thereof for all work,
services and materials, including equipment and fixtures of all kinds, done,
previously performed or furnished for the construction of the relevant Project,
and in respect of which Borrower has requested payment; provided, however, that
such releases may be conditioned upon receipt of payment with respect to work,
services and materials to be paid for with the proceeds of the requested
Construction Loan or other Borrowing pursuant to this Section 3.4.

         3.4.7 Applicable Permits. Except as disclosed in the Permit Schedule
applicable to the relevant Project, if any, all Applicable Permits and
Applicable Third Party Permits (as of the date of the Construction Credit Event)
with respect to the construction and, if applicable, operation of the relevant
Project required to have been obtained by the relevant Project Owner (or such
Project Owner and its Joint Venturers, if applicable) or any other applicable
Major Project Participant by the date of such Construction Credit Event from any
Governmental Authority shall have been issued and be in full force and effect
and not subject to current legal proceedings or to any unsatisfied conditions
that could reasonably be expect to allow material modification or revocation,
and all applicable appeal periods with respect thereto shall have expired. With
respect to any Permits not yet obtained and, if the relevant Project has an
associated Permit Schedule, listed in Part II(A) or II(B) of the applicable
Permit Schedule, either (a) in the Technical Committee's reasonable opinion,
such Permit will be timely obtainable at a cost consistent with the applicable
Project Budget without material difficulty or delay prior to the time the
relevant Project Owner (or such Project Owner and its Joint Venturers, if
applicable) or the applicable other Major Project Participant, as applicable,
requires such Permit, or (b) there shall exist alternate solutions (the expected
cost of which is reflected in the applicable Project Budget) reasonably
satisfactory to the Independent Engineer which would eliminate the need for such
Permit. Except as disclosed in the applicable Permit Schedule, if any, such
Permits which have been obtained by the relevant Project Owner (or such Project
Owner and its Joint Venturers, if applicable) or any applicable Major Project
Participant shall not be subject to any restriction, condition, limitation or
other provision that could reasonably be expected to have a Material Adverse
Effect with respect to Borrower or such Project.

         3.4.8 Equity Contributions. Borrower shall be in compliance with
Section 5.17.

         3.4.9 Additional Documentation. With respect to Additional Major
Project Documents and Applicable Permits with respect to the relevant Project
entered into or obtained, transferred or required (whether because of the status
of the construction or operation of the relevant Project or otherwise) since the
date of the most recent Construction Credit Event, in furtherance of, among
other things, the Lien on such Project and related Collateral granted on the
Closing Date or the relevant Funding Date, as the case may be, there shall be
redelivery of such

                                       51
<PAGE>   66
matters as are described in Sections 3.2.2 through 3.2.5 and 3.2.7 or Sections
3.3.3 through 3.3.6 and 3.3.8, as the case may be, to the extent applicable to
such Additional Project Documents or Applicable Permits and, if reasonably
requested by Administrative Agent, Sections 3.2.9 and 3.2.22 or Sections 3.3.10
and 3.3.23, as the case may be, from the counterparty to such Additional Project
Document.

         3.4.10 Acceptable Work; No Liens. All work that has been done on the
relevant Project shall have been done in a good and workmanlike manner and in
accordance with the Construction Contracts and Prudent Utility Practices and
there shall not have been filed with or served upon any Portfolio Entity with
respect to such Project or any part thereof notice of any Lien, claim of Lien or
attachment upon or claim affecting the right to receive payment of any of the
monies payable to any of the Persons named on such request which has not been
released by payment or bonding or otherwise or which will not be released with
the payment of such obligation out of such Construction Loan or other Borrowing
pursuant to this Section 3.4, other than Permitted Liens.

         3.4.11 Casualty. If at the time of any Credit Event, any Project for
which a disbursement of funds is being requested shall have been materially
injured or damaged by flood, fire or other casualty, Administrative Agent shall
have received insurance proceeds or money or other assurances sufficient in the
reasonable judgment of Administrative Agent and the Independent Engineer to
assure restoration and Completion of such Project prior to the Loan Maturity
Date and each of the conditions set forth in Section 7.5.3 has been satisfied.

         3.4.12 Absence of Litigation. No action, suit, proceeding or
investigation shall have been instituted against any Portfolio Entity or the
relevant Project which could reasonably be expected to have a Material Adverse
Effect on Borrower or the Project with respect to which a Construction Loan is
being requested, except as approved by Administrative Agent with the consent of
the Required Banks.

         3.4.13 Insurance. Insurance complying with the requirements of Section
5.18 shall be in effect, and upon the request of Administrative Agent evidence
thereof shall be provided to Administrative Agent.

         3.4.14 Available Construction Funds. After taking into consideration
the Construction Loans being requested, Available Construction Funds shall not
be less than the aggregate unpaid amount of Project Costs required to cause the
Completion Date of all Initial Projects and Funded Subsequent Projects that have
not achieved Completion to occur in accordance with all Legal Requirements and
the Construction Contracts prior to the guaranteed completion date with respect
to each such Project set therefor in such Project's Project Schedule and to pay
or provide for all anticipated non-construction Project Costs as to each such
Project, all as set forth in the Project Budgets.

         3.4.15 Representations and Warranties. Each representation and warranty
of the Member, Calpine and the Non-Affiliated Parents with respect to the
Project for which Construction Loans are being requested, if any, under the
Credit Documents and each representation and warranty of the Portfolio Entities
under the Operative Documents, in each case with respect to itself or a Project
for which Construction Loans are being requested, shall be

                                       52
<PAGE>   67
true and correct in all material respects as if made on such date, unless such
representation or warranty expressly relates solely to another time.

         3.4.16 No Event of Default or Inchoate Default. No Event of Default or
Inchoate Default, no Non-Fundamental Project Default or Non-Fundamental Project
Inchoate Default in respect of the Project for which funds are being requested
and, to the extent Section 3.9(b) does not otherwise permit Borrowings, no other
Non-Fundamental Project Default or Non-Fundamental Project Inchoate Default has
occurred and is continuing or will result from such Construction Credit Event.

         3.4.17 Operative Documents, Applicable Permits and Applicable Third
Party Permits in Effect. Each Credit Document, Major Project Document (other
than Major Gas Supply Contracts, Major Power Purchase Agreements and Major Gas
Transportation Agreements not then in existence), electric transmission and
interconnection agreement, material water supply agreement, Additional Major
Project Document, Applicable Permit (except as provided in Section 3.4.7) and
Applicable Third Party Permit (except as provided in Section 3.4.7) related to
the Project for which Construction Loans are then being requested remains in
full force and effect in accordance with its terms and no material defaults have
occurred thereunder.

         3.4.18 No Material Adverse Effect. No event or circumstance having a
Material Adverse Effect with respect to Borrower has occurred since the Closing
Date (except as is no longer continuing), and no event or circumstance having a
Material Adverse Effect with respect to the Project for which a disbursement of
funds is being requested has occurred since the Closing Date (except as is no
longer continuing).

         3.4.19 Third Party Funding. For Projects which are not wholly-owned by
the relevant Project Owner, each Person (other than such Project Owner) who has
an ownership interest in such Project, has funded its pro rata share of all
Project Costs incurred through such date to such Project or any other Person
(including such Project Owner) has funded such costs on such Person's behalf.

         3.4.20 Debt to Capitalization Ratio. Borrower's Debt to Capitalization
Ratio shall be no more than the Maximum Debt to Capitalization Ratio.

         3.4.21 Interest Coverage Ratio. From and after the first day of the
second calendar quarter following the Final Completion of the first Project to
achieve Final Completion, Borrower's Four-Quarter Portfolio Interest Coverage
Ratio as of the most recent calendar quarter shall (a) until such time as the
fourth Project achieves Final Completion, equal the lesser of (i) [*] to 1.00
or (ii) 90% of the projected annual Four-Quarter Portfolio Interest Coverage
Ratio for such period reflected in the Base Case Project Projections delivered
with respect to the relevant Projects pursuant to Section 3.1 or 3.3, as the
case may be, and (b) thereafter, equal or exceed [*] to 1.00.

         3.4.22 Funded Projects. In the event such Construction Credit Event
occurs after the second anniversary of the Closing Date, all Initial Projects
shall be Funded Projects.


                                       53
<PAGE>   68
     3.5 Conditions Precedent to the Initial Funding of the Turbines. The
obligation of the Banks to make the initial Turbine Purchase Loans with respect
to a particular Turbine is subject to the prior satisfaction of each of the
following conditions:

         3.5.1 Borrower Equity. Contributions required pursuant to Section
5.17.1 and 5.17.2 hereof shall have been funded and applied in accordance with
Section 5.1.

         3.5.2 Resolutions. Delivery to Administrative Agent on behalf of the
Banks of (a) a copy of one or more resolutions or other authorizations of the
Turbine Owner which owns such Turbine and any Intermediate Parent with respect
to such Turbine Owner, certified by the appropriate officers of each such entity
as being in full force and effect on the Turbine Funding Date, authorizing the
execution, delivery and performance of the Turbine Purchase Contract and any
other Operative Documents with respect to the purchase of such Turbine, and any
instruments or agreements required hereunder or thereunder to which such entity
is a party, or (b) in so far as any of the materials delivered pursuant to
Section 3.1.1 are sufficient (in the reasonable discretion of the Technical
Committee) to satisfy the requirements set forth in this Section 3.5.2, Borrower
shall deliver a certificate by the appropriate officers that the matters
delivered under Section 3.1.1 remain in full force and effect as of the Turbine
Funding Date.

         3.5.3 Incumbency. Delivery to Administrative Agent on behalf of the
Banks of (a) a certificate satisfactory in form and substance to the Technical
Committee, from the Turbine Owner which owns such Turbine and any Intermediate
Parent with respect to such Turbine Owner, signed by the appropriate authorized
officer of each such entity and dated the Turbine Funding Date, as to the
incumbency of the natural persons authorized to execute and deliver the Turbine
Purchase Contract and any other Operative Documents with respect to such
Turbine, as applicable, and any instruments or agreements required hereunder or
thereunder to which such entity is a party, or (b) in so far as any of the
materials delivered pursuant to Section 3.1.2 are sufficient (in the reasonable
discretion of the Technical Committee) to satisfy the requirements set forth in
this Section 3.5.3, Borrower shall deliver a certificate by the appropriate
officers that the matters delivered under Section 3.1.2 remain in full force and
effect as of the Turbine Funding Date.

         3.5.4 Formation Documents. Delivery to Administrative Agent on behalf
of the Banks of (a) copies of the articles of incorporation or certificate of
incorporation or charter or other state certified constituent documents of the
Turbine Owner which owns such Turbine, any Intermediate Parent with respect to
such Turbine Owner and the Turbine Purchase Contractor with respect to such
Turbine, certified, if requested by the Technical Committee, by the secretary of
state of the state of formation, and (b) (i) copies of the Bylaws or other
comparable constituent documents of such Turbine Owner and other Portfolio
Entities, certified by its secretary or an assistant secretary, or (ii) in so
far as any of the materials delivered pursuant to Section 3.1.3 are sufficient
(in the reasonable discretion of the Technical Committee) to satisfy the
requirements set forth in this Section 3.5.4(b)(i), Borrower shall deliver a
certificate by the appropriate officers that the matters delivered under Section
3.1.3 remain in full force and effect as of the Turbine Funding Date.

         3.5.5 Good Standing Certificates. For the Turbine Owner which owns such
Turbine, any Intermediate Parent with respect to such Turbine Owner and the
Turbine Purchase

                                       54
<PAGE>   69
Contractor with respect to such Turbine, delivery to Administrative Agent on
behalf of the Banks of certificates issued by the secretary of state of the
state of formation of such entity certifying that such entity is in good
standing and is qualified to do business in, and has paid all franchise taxes or
similar taxes due to, such state.

         3.5.6 Satisfactory Proceedings. All corporate, partnership and legal
proceedings and all instruments in connection with the transactions contemplated
by this Agreement with respect to such Turbine shall be satisfactory in form and
substance to the Technical Committee, and Administrative Agent on behalf of the
Banks shall have received all information and copies of all documents, including
records of corporate or partnership proceedings and copies of any approval by
any Governmental Authority required in connection with any transaction herein
contemplated (with respect to such Turbine), which the Technical Committee may
reasonably have requested in connection herewith, such documents where
appropriate to be certified by proper corporate or partnership officers or
Governmental Authorities.

         3.5.7 Operative Documents.

                  (a) Delivery to Administrative Agent on behalf of the Banks of
executed originals of:

                         (i) Amendments, supplements or modifications to each of
the Collateral Documents with respect to such Turbine (or additional Collateral
Documents if reasonably requested by the Technical Committee, including, if not
previously delivered pursuant to Section 3.1, a Project/Turbine Owner Security
Agreement executed by the Turbine Owner with respect to such Turbine and Pledge
Agreements (Pledged Equity Interests) executed by each Portfolio Entity with
respect to such Turbine (other than the relevant Turbine Owner)) considered
necessary by the Technical Committee to ensure that all rights and assets
related to such Turbine under the relevant Turbine Purchase Contract have been
pledged to Administrative Agent and the Banks; provided, however, as set forth
in the relevant Project/Turbine Owner Security Agreement and Pledge Agreements
(Pledged Equity Interests), the Lien on the Collateral comprising such Turbine
and the ownership interests in the relevant Portfolio Entities shall not secure
those Obligations relating to or arising from Projects that have achieved
Operation prior to the Turbine Funding Date.

                         (ii) A Consent to assignment in substantially the form
of Exhibit E-1 or otherwise in form and substance reasonably satisfactory to the
Technical Committee from the relevant Turbine Purchase Contractor and, if a
guaranty or other credit support document executed by Persons other than Calpine
with respect to such Turbine exists as of the expected Funding Date for such
Turbine, from such guarantors or other credit support providers, as applicable.

                  (b) Unless previously delivered pursuant to Section 3.1,
Borrower shall have delivered to Administrative Agent the federal employer
number and all other information requested by Administrative Agent with respect
to the Turbine Owner and any Intermediate Parent with respect to such Turbine
Owner, and all actions shall have been taken to provide the Banks with a valid
and perfected first priority Lien on the Collateral with respect to the relevant
Turbine Owner's interest in such Turbine and the relevant Turbine Purchase
Contract including,

                                       55
<PAGE>   70
without limitation, to the extent necessary, the execution, delivery and filing
of UCC-1, UCC-2 or UCC-3 financing statements, as applicable, with respect to
such Collateral with the Secretary of State and/or other appropriate filing
office in the states of formation of the relevant Turbine Owner or other
Portfolio Entity or the states in which such Turbine Owner's or other Portfolio
Entities' principal places of business are located, the delivery of the Pledged
Equity Interests of the Portfolio Entities with respect to such Turbine in
accordance with the relevant Pledge Agreements (Pledged Equity Interests) and
the delivery of a Portfolio Entity Note executed by such Turbine Owner).

                  (c) Delivery to Administrative Agent on behalf of the Banks of
true and correct copies of the Turbine Purchase Contract and, if any guaranty or
other credit support document executed by Persons other than Calpine with
respect to such Turbine exists as of the expected Funding Date for such Turbine,
delivery of all such guaranty agreements or other credit support documents, and
any supplements or amendments thereto and which Turbine Purchase Contract shall
be certified by a Responsible Officer of Borrower as being true, complete and
correct and in full force and effect on the Turbine Funding Date pursuant to the
certificates delivered as provided in this Section 3.5, which certificates shall
state that neither such Turbine Owner nor, to Borrower's knowledge, the relevant
Turbine Purchase Contractor is or, but for the passage of time or giving of
notice or both will be, in breach of any material obligation thereunder, and
that all conditions precedent to the performance of the parties under such
Turbine Purchase Contract then required to have been performed have been
satisfied.

                  (d) The relevant Turbine Purchase Contract shall be in form
and substance reasonably satisfactory to the Technical Committee and shall have
been duly authorized, executed and delivered by the parties thereto. The
counterparty to the relevant Turbine Contract (other than the applicable Project
Owner) shall be a Turbine Purchase Contractor. All guaranty agreements and other
credit support documents delivered pursuant to Section 3.5.7(c) shall be in form
and substance satisfactory to the Technical Committee and shall have been duly
authorized, executed and delivered by the Party thereto.

         3.5.8 Certificate of Borrower. Administrative Agent on behalf of the
Banks shall have received a certificate, dated as of the Turbine Funding Date,
signed by a Responsible Officer of the Borrower, certifying that such Turbine
has been assigned to a Project, is owned by a Turbine Owner, such Turbine's
Turbine Delivery Date and otherwise in substantially the form of Exhibit F-3.

         3.5.9 Legal Opinions. Unless previously delivered pursuant to Section
3.1, delivery to Administrative Agent on behalf of the Banks of legal opinions
of counsel to the Turbine Owner which owns such Turbine, any Intermediate Parent
with respect to such Turbine Owner and, to the extent required by the Technical
Committee, the relevant Turbine Purchase Contractor and all other Persons party
to a guaranty agreement or credit support document delivered pursuant to Section
3.5.7(c), in each case in form and substance satisfactory to the Technical
Committee.

         3.5.10 Insurance. Insurance with respect to such Turbine complying with
Exhibit K (as the same may be modified to include such Turbine) shall be in full
force and effect and Administrative Agent on behalf of the Banks shall have
received (a) a certificate from

                                       56
<PAGE>   71
Borrower's insurance broker(s), dated as of the Turbine Funding Date and
identifying underwriters, type of insurance, insurance limits and policy terms,
listing the special provisions required as set forth in Exhibit K, describing
the insurance obtained and stating that such insurance is in full force and
effect and that all premiums due thereon have been paid and that, in the opinion
of such broker(s), such insurance complies with Exhibit K, and (b) certified
copies of all policies evidencing such insurance (or a binder, commitment or
certificates signed by the insurer or a broker authorized to bind the insurer),
in form and substance satisfactory to the Technical Committee.

         3.5.11 Certificate of the Independent Engineer. Delivery to
Administrative Agent on behalf of the Banks of the Independent Engineer's
certificate with respect to such Turbine, in substantially the form of Exhibit
F-7, with the Independent Engineer's report with respect to such Turbine,
confirming, in form and substance satisfactory to the Technical Committee, that
the technology and size of such Turbine is appropriate for the Project to which
it has been assigned.

         3.5.12 No Change in Tax Laws. No change shall have occurred, since the
date upon which this Agreement was executed and delivered, in any law or
regulation or interpretation thereof that would subject any Bank to any material
unreimbursed Tax or Other Tax.

         3.5.13 Absence of Litigation. No action, suit, proceeding or
investigation shall have been instituted or threatened against the Turbine Owner
or any Intermediate Parent with respect to such Turbine Owner which could
reasonably be expected to have a Material Adverse Effect on Borrower.

         3.5.14 Payment of Filing Fees. All amounts required to be paid to or
deposited with the Banks in respect of such Turbine, and all taxes, fees and
other costs payable in connection with the execution, delivery, recordation and
filing of the documents and instruments referred to in this Section 3.5, shall
have been paid in full or, as approved by the Technical Committee, provided for.

         3.5.15 Financial Statements. Administrative Agent on behalf of the
Banks shall have received the most recent annual financial statements (audited
if available) or Form 10-K and most recent quarterly financial statements or
Form 10-Q from the Turbine Purchase Contractor with respect to such Turbine (or
its respective parent entity).

         3.5.16 UCC Reports. Administrative Agent on behalf of the Banks shall
have received a UCC report of a date reasonably close to the Turbine Funding
Date for each of the jurisdictions in which any UCC-1 financing statements or
amendments thereto are intended to be filed in respect of such Turbine, showing
that upon due filing (assuming such filing or recordation occurred on the date
of such respective reports), the security interests created under the Collateral
Documents with respect to such Turbine will be prior to all other financing
statements or other security documents wherein the security interest is
perfected by filing in respect of such Turbine.


                                       57
<PAGE>   72
         3.5.17 No Material Adverse Change. No event or circumstance having a
Material Adverse Effect with respect to Borrower has occurred since the Closing
Date.

         3.5.18 Representations and Warranties. Each representation and warranty
of the Member, Calpine and the Portfolio Entities with respect to such Turbine
under the Credit Documents and each representation and warranty of Borrower and
the Turbine Owner which owns such Turbine under the Operative Documents, in each
case with respect to itself and such Turbine, shall be true and correct in all
material respects as if made on such date, unless such representation or
warranty expressly relates solely to another time.

         3.5.19 Calpine Compliance. No "event of default" (as defined therein)
under any agreement or instrument documenting or evidencing any of Calpine's
Debt obligations that are greater than $10,000,000 shall have occurred and be
continuing.

         3.5.20 Calpine Guaranties. Calpine shall have executed an
acknowledgment, in form and substance satisfactory to the Technical Committee,
that such Turbine shall be included with the obligations undertaken pursuant to
the Turbine Purchase Guaranty.

         3.5.21 Calpine Corporation Credit Rating. Calpine shall be rated at
least Ba2 by Moody's and BB by S&P.

     3.6 Conditions Precedent to Each Turbine Purchase Credit Event. The
obligation of the Banks to make each Turbine Purchase Loan (including the
initial Turbine Purchase Loans for each Turbine) (a "Turbine Purchase Credit
Event"), is subject to the prior satisfaction of each of the following
conditions:

         3.6.1 Monthly Drawdown Frequency. Turbine Purchase Loans shall be made
no more frequently than two times per month.

         3.6.2 Notice of Turbine Purchase Borrowing. Borrower shall have
delivered a Notice of Turbine Purchase Borrowing to Administrative Agent in
accordance with the procedures specified in Section 2.1.

         3.6.3 Turbine Purchase Drawdown Certificate and Engineer's Certificate.
(i) At least 8 Banking Days prior to each Turbine Purchase Credit Event,
Borrower shall have provided Administrative Agent with a certificate, dated the
date of the proposed occurrence of such Turbine Purchase Credit Event and signed
by Borrower, substantially in the form of Exhibit C-8, in respect of each
Turbine for which a disbursement of funds are being requested and (ii) at least
four Banking Days prior to each Turbine Purchase Credit Event, the Independent
Engineer shall have provided Administrative Agent with a certificate of the
Independent Engineer, substantially in the form of Exhibit C-9. Such
certificates shall certify that the payments to the Turbine Purchase Contractor
with respect to the relevant Turbine (including payments made from and after
October 1, 2000) for which Turbine Loans are being requested have been made.

         3.6.4 Amount. Turbine Purchase Loans may include reimbursement of
Turbine Costs paid by Borrower or an Affiliate of Borrower on or after October
1, 2000 and shall be in such amounts as shall ensure that uncommitted funds
remaining in the Turbine Purchase Sub-

                                       58
<PAGE>   73
Account shall be disbursed to the greatest extent possible, given the
requirements of Section 2.1.2(b)(ii).

         3.6.5 Equity Contributions. Borrower shall be in compliance with
Section 5.17.

         3.6.6 Insurance. Insurance complying with the requirements of Section
5.18 with respect to such Turbine shall be in effect, and upon the request of
Administrative Agent evidence thereof shall be provided to Administrative Agent.

         3.6.7 Available Construction Funds. After taking into consideration the
Turbine Purchase Loans being requested, Available Construction Funds shall not
be less than the aggregate unpaid amount of Project Costs required to cause the
Completion Date of all Initial Projects and Funded Subsequent Projects that have
not achieved Completion to occur in accordance with all Legal Requirements and
the Construction Contracts prior to the guaranteed completion date with respect
to each such Project set therefor in such Project's Project Schedule and to pay
or provide for all anticipated non-construction Project Costs as to each such
Project, all as set forth in the Project Budgets.

         3.6.8 Representations and Warranties. Each representation and warranty
of the Member, Calpine and the Portfolio Entities with respect to such Turbine
under the Credit Documents and each representation and warranty of the Turbine
Owner which owns such Turbine under the Operative Documents, in each case with
respect to itself and a Turbine for which Turbine Purchase Loans are being
requested, shall be true and correct in all material respects as if made on such
date, unless such representation or warranty expressly relates solely to another
time.

         3.6.9 No Event of Default or Inchoate Default. No Event of Default or
Inchoate Default has occurred and is continuing or will result from such Turbine
Purchase Credit Event.

         3.6.10 Credit Documents and Turbine Purchase Contract in Effect. Each
Credit Document and the Turbine Purchase Contract related to the Turbine for
which Turbine Purchase Loans are then being requested remains in full force and
effect in accordance with its terms and no material defaults have occurred
thereunder.

         3.6.11 No Material Adverse Effect. No event or circumstance having a
Material Adverse Effect with respect to Borrower has occurred since the Closing
Date (except as is no longer continuing).

         3.6.12 Debt to Capitalization Ratio. Borrowers' Debt to Capitalization
Ratio shall be no more than the Maximum Debt to Capitalization Ratio.

         3.6.13 Funded Projects.

                  (a) In the event such Turbine Purchase Credit Event occurs
after the first anniversary of the Closing Date, at least ten Initial Projects
shall be Funded Projects.


                                       59
<PAGE>   74
                  (b) In the event such Turbine Purchase Credit Event occurs
after the second anniversary of the Closing Date, at least two Subsequent
Projects and all Initial Projects shall be Funded Projects.

     3.7 Conditions Precedent to Final Completion. Final Completion with respect
to a Project shall not occur until the following conditions shall have been
satisfied:

         3.7.1 Notice of Completion. Delivery to Administrative Agent, in form
and substance satisfactory to Administrative Agent, of evidence that all work
with respect to such Project requiring inspection by municipal and other
Governmental Authorities having jurisdiction has been duly inspected and
approved by such authorities, that the relevant Project Owner (or other Person
that directly owns such Project) has duly recorded a notice of completion for
such Project, that all parties performing such work have been or will be paid
for such work, and that no mechanics' and/or materialmen's liens or application
therefor have been filed and all applicable filing periods for any such
mechanics' and/or materialmen's liens have expired; provided, however, that in
the event Borrower delivers to Administrative Agent either (i) a policy of title
insurance or endorsement thereto, in form and substance satisfactory to
Administrative Agent, insuring against loss arising by reason of any mechanics'
or materialmen's lien gaining priority over the relevant Deed of Trust (except
where applicable Governmental Rules prevent the insurance against such a loss)
or (ii) a bond, in form and substance satisfactory to Administrative Agent, in
the amount of all payments owed to any contractor, subcontractor or any other
person as to whom the filing periods for mechanics' and materialmen's liens have
not expired, and covering the relevant Project Owner's liability to such
contractors, subcontractors or other persons, Administrative Agent shall waive
the applicable filing periods referred to herein.

         3.7.2 Completion. Completion with respect to such Project shall have
occurred and Administrative Agent shall have received a certification by
Construction Manager for such Project and by Borrower and the Independent
Engineer to such effect.

         3.7.3 Annual Budget. Administrative Agent shall have received the
Annual Operating Budget with respect to such Project as required under Section
5.15.2 for the calendar year containing the date of Final Completion. In the
event that such Annual Operating Budget does not, in Administrative Agent's
opinion, properly reflect the operation of such Project during such calendar
year as a result of the actual date of Final Completion being different from the
date anticipated therefor and set forth in such Annual Operating Budget,
Administrative Agent shall have received an amendment to such Annual Operating
Budget properly reflecting the actual date of Final Completion.

         3.7.4 Insurance. Insurance complying with the requirements of Section
5.18 shall be in effect, and upon the request of Administrative Agent, evidence
thereof shall be provided to Administrative Agent.

         3.7.5 Applicable Permits and Applicable Third Party Permits. The
relevant Project Owner shall have obtained or caused to be obtained and
delivered to Administrative Agent all Applicable Permits with respect to such
Project, satisfactory in form and substance to Administrative Agent, together
with copies of each such Applicable Permit and a certificate of

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<PAGE>   75
an authorized officer of Borrower certifying that all such Applicable Permits
have been obtained. Each Major Project Participant with respect to such Project
shall have obtained or caused to be obtained all Applicable Third Party Permits
applicable to such Person with respect to such Project, satisfactory in form and
substance to Borrower and Administrative Agent, and Borrower shall have
delivered or cause to be delivered to Administrative Agent copies or other
evidence of each such Applicable Third Party Permit and a certificate of an
authorized officer of Borrower certifying that all such Applicable Third Party
Permits have been obtained. All such Applicable Permits and Applicable Third
Party Permits shall be in full force and effect, not subject to any then current
legal proceeding or to any unsatisfied condition that could reasonably be
expected to allow material modification or revocation, and all applicable appeal
periods with respect thereto shall have expired.

         3.7.6 Real Estate Rights; A.L.T.A. Surveys. Administrative Agent shall
have received as-built A.L.T.A. surveys of the Site and the Easements with
respect to such Project (or such other documentation acceptable to
Administrative Agent), reasonably satisfactory in form and substance to
Administrative Agent and the Title Insurer, certified to Administrative Agent as
to completeness and accuracy as of not more than four weeks prior to Final
Completion by a licensed surveyor reasonably satisfactory to Administrative
Agent, showing (a) as to such Site, the exact location and dimensions thereof,
including the location of all means of access thereto and all easements relating
thereto and showing the perimeter within which all foundations are located; (b)
as to such Easements, the exact location and dimensions thereof, including the
location of all means of access thereto, and all improvements or other
encroachments in or on such Easements; (c) the location and dimensions of all
improvements, fences or encroachments located in or on such Site or such
Easements; (d) that the location of such Project does not encroach on or
interfere with adjacent property or existing easements or other rights (whether
on, above or below ground), and that there are no gaps, gores, projections,
protrusions or other survey defects; (e) whether such Site or any portion
thereof is located in a special earthquake or flood hazard zone; and (f) that
there are no other matters that could reasonably be expected to be disclosed by
a survey constituting a defect in title other than relevant Permitted
Encumbrances; provided, however, that the matters described in clauses (b) and
(e) may be shown by separate maps, surveys or other information reasonably
satisfactory to Administrative Agent.

         3.7.7 Title Policy. Administrative Agent shall have received (a) a
lender's A.L.T.A. policy of title insurance, together with such endorsements as
are reasonably required by Administrative Agent and are obtainable in the state
where such Project is located at reasonable costs, in the amount of an aggregate
principal amount reasonably satisfactory to Administrative Agent, not to exceed
the amount of the Title Policies delivered pursuant to Section 3.2.28, 3.3.30 or
3.3.41, as applicable, with respect to such Project, issued by the Title
Insurer, in form and substance and with such reinsurance as is reasonably
satisfactory to Administrative Agent, and insuring Administrative Agent as to
all matters described in Section 3.2.28, 3.3.30 or 3.3.41, as the case may be,
the continued first priority of the Lien on the relevant Mortgaged Property
evidenced by the relevant Deed of Trust (without a mechanics' and materialmen's
exception included in such title policy, except where applicable Governmental
Rules prevent the deletion of such exception) and as to such other matters as
Administrative Agent may reasonably request, and containing only relevant
Permitted Encumbrances, such Permitted Liens (other than Permitted Liens
described in clauses (a) and (b) of the definition thereof) as are junior and
subordinate to the relevant Deed of Trust and any other exceptions relating to
the boundaries of

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<PAGE>   76
the relevant Site, encroachments and matters disclosed or discoverable by a
survey or inspection as are acceptable to Administrative Agent in its sole
discretion or (b) an endorsement to the A.L.T.A. Policy delivered to
Administrative Agent pursuant to Section 3.2.27, 3.3.29 or 3.3.41, as the case
may be, reasonably satisfactory to Administrative Agent reflecting the items
referred to above.

         3.7.8 Operating Plans. Borrower shall have provided to Administrative
Agent a plan setting forth such Project's procedures for operating the Project,
fuel procurement and power marketing in form and substance reasonably
satisfactory to Administrative Agent.

         3.7.9 Affiliated Party Deeds of Trust. Borrower shall have delivered to
Administrative Agent either (a) a deed of trust in form and substance
satisfactory to Administrative Agent executed by each Affiliate of Calpine
(other than the relevant Project Owner) that is party to an agreement with
respect to such Project and owns or otherwise holds an interest in any real
property related to the operation of such Project, if any, in favor of such
Project Owner and securing either (i) in the case such agreement is entered into
between such Affiliate and such Project Owner, such Affiliate's obligations to
such Project Owner under such agreement or (ii) in the case such agreement is
entered into between such Affiliate and a Person other than such Project Owner,
such Affiliate's obligations to such Project Owner under a guaranty executed by
such Affiliate in favor of such Project Owner evidencing such Affiliate's
guaranty (for the benefit of such Project Owner) of its obligations to the
relevant Person under such agreement (such guaranty to be delivered to
Administrative Agent concurrently with the delivery of such deed of trust and in
form and substance satisfactory to Administrative Agent) or (b) in the case such
agreement is entered into between such Affiliate and a Person other than such
Project Owner, such documents, agreements and other instruments in form and
substance satisfactory to Administrative Agent (other than those specified in
clause (a)(ii) above) pursuant to which such Affiliate's ownership interests in
such real property are pledged to such Project Owner (whether by collateral
assignment or otherwise) as security for such Person's obligations to such
Project Owner under a Project Document related to such agreement and, in each
such case, such amendments, supplements or modifications to each of the
Collateral Documents with respect to such Project (or additional Collateral
Documents if reasonably requested by Administrative Agent) considered necessary
by Administrative Agent to ensure that all of such Project Owner's rights under
such deed of trust, guaranty and/or other documentation, as the case may be, are
subject to the Lien of the Collateral Documents.

         3.7.10 Equipment Maintenance Agreements. In the event an Equipment
Finance Company has entered into any maintenance or other service agreements
associated with or related to any equipment leased or to be leased by such
Equipment Finance Company to the Project Owner with respect to such Project, if
reasonably requested by the Technical Committee such agreements shall be
assigned or otherwise transferred by such Equipment Finance Company to such
Project Owner and any related Consents shall be amended accordingly.

     3.8 Conditions Precedent to the Issuance of Letters of Credit. The
obligation of the LC Bank to issue, extend or increase the Stated Amount of any
Letter of Credit (an "LC Action") is subject to the prior satisfaction of each
of the following conditions:


                                       62
<PAGE>   77
         3.8.1 Representations and Warranties. Each representation and warranty
of the Member, Calpine and the Non-Affiliated Parents with respect to the
Project for which Construction Loans are being requested, if any, under the
Credit Documents and each representation and warranty of the Portfolio Entities
under the Operative Documents, in each case with respect to itself and the
Project for which the issuance, extension or increase in Stated Amount of a
Letter of Credit is being requested, shall be true and correct in all material
respects as if made on such date, unless such representation or warranty
expressly relates solely to another time.

         3.8.2 No Event of Default or Inchoate Default. No Event of Default or
Inchoate Default has occurred and is continuing or will result from such LC
Action and no Non-Fundamental Project Default or Non-Fundamental Project
Inchoate Default in respect of the Project for which the issuance, extension or
increase in Stated Amount of a Letter of Credit is requested has occurred and is
continuing or will result from such LC Action.

         3.8.3 Operative Documents, Applicable Permits and Applicable Third
Party Permits in Effect. Each Credit Document, Project Document, Additional
Project Document, Applicable Permit and Applicable Third Party Permit related to
the Project for which Letters of Credit are then being requested remains in full
force and effect in accordance with its terms and no material defaults have
occurred thereunder.

         3.8.4 No Material Adverse Effect. No event or circumstance having a
Material Adverse Effect with respect to Borrower has occurred since the Closing
Date (except as is no longer continuing) and no event or circumstance having a
Material Adverse Effect with respect to the Project in respect of which the LC
Bank is being requested to issue, extend or increase the stated Amount of a
Letter of Credit has occurred since the Closing Date (except as is no longer
continuing).

         3.8.5 Interest Coverage Ratio. From and after the first day of the
second calendar quarter following Final Completion of the first Project to
achieve Final Completion, Borrower's Four-Quarter Portfolio Interest Coverage
Ratio as of the most recent calendar quarter shall (a) to and including such
time as the fourth Project achieves Final Completion, equal the lesser of (i)
[*] to 1.00 or (ii) 90% of the projected annual Four-Quarter Portfolio Interest
Coverage Ratio reflected in the Base Case Project Projections delivered with
respect to the relevant Projects pursuant to Section 3.1 or 3.3, as the case may
be, and (b) thereafter, equal or exceed [*] to 1.00.

         3.8.6 Project Satisfaction of Conditions Precedent to Initial Funding.
The Project in respect of which the LC Bank is being requested to issue, extend
or increase the stated Amount of a Letter of Credit shall be a Funded Project.

         3.8.7 Debt to Capitalization Ratio. Borrower's Debt to Capitalization
Ratio shall be no more than the Maximum Debt to Capitalization Ratio.

         3.8.8 Funded Projects. In the event such LC Action occurs after the
second anniversary of the Closing Date, each Initial Project shall be a Funded
Project.


                                       63
<PAGE>   78
     3.9 Failure of Conditions Precedent to be Satisfied for a Particular
Project.

                  (a) In the event that Borrower requests a Borrowing with
respect to more than one Project, and the applicable conditions set forth in
this Article 3 for such Borrowing have not been satisfied for one or more of
such Projects, then such Borrowing shall be permitted to occur for the Projects
in respect of which all applicable conditions have been satisfied, unless (i)
the failure of any condition to be satisfied with respect to any Project has the
effect of causing an Event of Default or Inchoate Default to occur under this
Agreement, in which case the requested Borrowing shall not be permitted to occur
until such time as the Event of Default or Inchoate Default has been cured and
the applicable conditions have been satisfied, or (ii) a Non-Fundamental Project
Default or Non-Fundamental Project Inchoate Default has occurred and is
continuing with respect to any Project, as the case may be, in which case the
provisions of Section 3.9(b) shall apply.

                  (b) In the event that a Non-Fundamental Project Default or
Non-Fundamental Project Inchoate Default has occurred and is continuing with
respect to a given Project but the conditions to the requested Borrowing in
respect of a different Project are otherwise satisfied, then:

                         (i) In the event that (A) the Four-Quarter Portfolio
Interest Coverage Ratio yields a minimum projected ratio of no less than [*] to
1.00 through the same term of the Base Case Project Projections delivered
pursuant to Sections 3.1 and, if applicable, 3.3, and (B) the Debt to
Capitalization Ratio yields maximum projected ratios that are no higher than the
Maximum Debt to Capitalization Ratio at any time through the Loan Maturity Date,
then Borrower shall be permitted to obtain the requested Borrowing for a Project
with respect to which no Non-Fundamental Project Default or Non-Fundamental
Project Inchoate Default has occurred and is continuing and which otherwise
satisfied the required conditions of this Article 3.

                         (ii) In the event that (A) the Four-Quarter Portfolio
Interest Coverage Ratio yields a minimum projected ratio of less than [*] to
1.00 through the same term of the Base Case Project Projections delivered
pursuant to Sections 3.1 and, if applicable, 3.3, or (B) the Debt to
Capitalization Ratio yields maximum projected ratios that are higher than the
Maximum Debt to Capitalization Ratio at any time through the Loan Maturity Date,
then Borrower shall not be permitted to obtain the requested Borrowing with
respect to any Project unless and until such time as (x) the Four-Quarter
Portfolio Interest Coverage Ratio and the Debt to Capitalization Ratio meet the
thresholds specified above or (y) the Non-Fundamental Project Default or
Non-Fundamental Project Inchoate Default, is no longer continuing and, in each
case, the applicable conditions in this Article 3 have been satisfied.

     3.10 Funding of Equity.


                  (a) Notwithstanding any other provision of this Agreement to
the contrary, Borrower shall have the right to, at any time, make a Contribution
into the Construction Account or any sub-account therein and have such funds
applied to the payments of Costs in accordance with Section 7.1.2 so long as (i)
at least 10 Banking Days prior to the requested disbursement of funds from the
Construction Account, Borrower shall have provided Administrative Agent with a
certificate, dated the date of the proposed disbursement and signed by Borrower,
substantially in the form of Exhibit C-6 or C-8, as the case may be, in respect
of the Project or Turbine for which the disbursement is being requested and (ii)
at least 4 Banking Days prior to the date of the requested disbursement of funds
from the Construction Account, the Independent Engineer shall have provided
Administrative Agent with

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<PAGE>   79
a certificate, substantially in the form of Exhibit C-7 or C-9, as the case may
be, relating to such disbursement; provided, however, that in the case of a
Project (rather than a Turbine) such certificates need not certify as to whether
the amount of Project Costs incurred by the Project for which the disbursement
is being requested are in excess of the amounts set forth in the corresponding
Project Budget, and the funds deposited by Borrower into the Construction
Account with respect to Projects shall be released regardless of whether or not
the requested disbursement is in excess of the amounts set forth in the
corresponding Project Budget; provided, further, that until the funding of the
initial Loans with respect to a given Project or Turbine, funds deposited by
Borrower into the Construction Account with respect to such Project or Turbine
shall be released notwithstanding failure to satisfy the conditions set forth in
(i) Sections 3.2, 3.3, 3.4.5, 3.4.7, 3.4.8, 3.4.9, 3.4.11, 3.4.12, 3.4.14,
3.4.15, 3.4.17, 3.4.18 (as it relates to such Project), 3.4.19, 3.4.20 and
3.4.22 with respect to such Project, or (ii) Sections 3.5, 3.6.5, 3.6.7, 3.6.8,
3.6.10, 3.6.11 (as it relates to such Turbine), and 3.6.12 (with respect to such
Turbine).

                  (b) In the event that Borrower makes a Contribution with
respect to a Project as contemplated in paragraph (a) above or otherwise with
respect to a Project which is in excess of the Base Equity and Additional
Borrower Equity which Borrower is required to contribute or cause to be
contributed under this Agreement, then Borrower shall, at any time (i) except as
set forth in the last sentence of this Section 3.10(b), after all Initial
Projects have become Funded Projects, (ii) prior to the Completion of the
Project for which such funds were contributed, (iii) when no Non-Fundamental
Project Default, Non-Fundamental Project Inchoate Default, Event of Default or
Inchoate Default has occurred and is continuing, (iv) so long as Borrower's
Four-Quarter Portfolio Interest Coverage Ratio as of the end of the most recent
calendar quarter equaled or exceeded [*] to 1.00, and (v) so long as Borrower's
Debt to Capitalization Ratio as of the end of the most recent calendar quarter
were no higher than the Applicable Debt to Capitalization Ratio then in effect,
obtain reimbursement of or repayment of, as the case may be, such Contributions
described in paragraph (a) above through Loans by satisfying the conditions set
forth in Section 3.4 with respect to such Project; provided, however, that the
difference between (x) the aggregate amount of Contributions by Borrower to the
Funded Projects less (y) the sum of the amount of the requested reimbursement or
repayment, as the case may be, plus the aggregate amount of all prior
reimbursements and repayments shall be no less than (z) [*] plus the
Contributions required pursuant to Section 5.17.1. Notwithstanding clause (i) of
this Section 3.10(b) but so long as the other conditions set forth in this
Section 3.10(b) are satisfied (including without limitation the satisfaction of
the conditions set forth in Section 3.4), on the Funding Date for the Los
Medanos Energy Center Project, Borrower shall be entitled to obtain
reimbursement for (x) any Project Costs with respect to the Los Medanos Energy
Center Project paid by Calpine from September 1, 2000 through the Funding Date
for such Project, and (y) the amount of any and all fees and costs paid to the
Lead Arrangers, the Arrangers, Administrative Agent, LC Bank or the Banks by or
on behalf of Borrower on the Closing Date.


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     3.11 No Approval of Work. Neither the making of any Loan nor the issuance
of any Letter of Credit hereunder shall be deemed an approval or acceptance by
Administrative Agent or the Banks of any work, labor, supplies, materials or
equipment furnished or supplied with respect to any of the Projects or Turbines.

     3.12 Waiver of Funding; Adjustment of Drawdown Requests. Subject to Section
10.9, notwithstanding the foregoing, the Required Banks, without waiving any of
the Banks' rights hereunder, shall have the right to effect a Construction
Credit Event, Turbine Purchase Credit Event or LC Action hereunder without full
compliance by Borrower with the conditions described in this Article 3. In the
event Administrative Agent determines that an item or items listed in a Drawdown
Certificate as a Cost is not properly included in such Drawdown Certificate,
Administrative Agent, in consultation with the Independent Engineer, may in its
reasonable discretion cause to be made a Loan or Loans in the amount requested
in such Drawdown Certificate less the amount of such item or items or may reduce
the amount of Loans made pursuant to any subsequent Drawdown Certificate. In the
event that Borrower prevails in any dispute as to whether such Costs were
properly included in such Drawdown Certificate, Loans in the amount requested
but not initially made shall forthwith be made.

     3.13 Ability of Technical Committee to Defer Satisfaction of Conditions
Precedent to Initial Funding for Projects Five Through Twelve. The Technical
Committee (and not the Required Banks), without deferring any of the Banks'
other rights hereunder, or waiving any of the Banks' rights hereunder, shall
have the ability to defer Borrower's required satisfaction of any condition
precedent set forth in Sections 3.2 or 3.3, as the case may be, and to effect a
Construction Credit Event under Sections 3.2 or 3.3, as the case may be, with
respect to any of Projects Five Through Twelve without satisfaction by Borrower
of the condition(s) so deferred; provided that (a) in the reasonable opinion of
the Technical Committee, the deferral of Borrower's satisfaction of such
condition(s) precedent is not reasonably likely to have a Material Adverse
Effect on Borrower, (b) if such deferred condition(s) precedent is not satisfied
or waived by the Required Banks by the earlier of (i) one year after the Funding
Date with respect to the applicable Project and (ii) the scheduled Completion
Date of such Project (as set forth in such Project's Project Schedule), then
Borrower's ability to borrow Construction Loans with respect to such Project
shall be suspended until such condition has been satisfied or waived by the
Required Banks and (c) if such condition is not satisfied or waived by the
Required Banks by the scheduled Completion Date of such Project (as set forth in
such Project's Project Schedule), Borrower shall calculate Borrower's Debt to
Capitalization Ratio and promptly make or cause to be made Contributions so that
Borrower's Debt to Capitalization Ratio does not exceed the Applicable Debt to
Capitalization Ratio then in effect; provided, however, Borrower may, at its
option, prepay all Loans attributable to such Project (with amounts other than
amounts in any Account or otherwise constituting Collateral), in which event
Administrative Agent thereafter shall execute and deliver to Borrower such
documents and instruments, including UCC-3 termination statements, as reasonably
may be necessary to release the Liens granted to the Banks in the relevant
Project and/or equity interests with respect to the relevant Portfolio Entities
with respect to such Project (including the Lien on cash flows from such
Project).


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<PAGE>   81
                                   ARTICLE 4.
                         REPRESENTATIONS AND WARRANTIES

                  Borrower makes the following representations and warranties to
and in favor of the Lead Arrangers, Administrative Agent, LC Bank and the other
Banks as of the Closing Date and as of the date of each Construction Credit
Event, Turbine Purchase Credit Event and LC Action, in each case to the extent
set forth in Article 3. All of these representations and warranties shall
survive the Closing Date, the issuance of any Letters of Credit and the making
of the Loans:

     4.1 Organization.

         4.1.1 Borrower is a limited liability company duly constituted, validly
existing and in good standing under the laws of the State of Delaware and is
duly qualified, authorized to do business and in good standing in each other
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary. Borrower has all requisite power
and authority to own or hold under lease and operate the property it purports to
own or hold under lease and to carry on its business as now being conducted and
as now proposed to be conducted. On the Closing Date, Member is the sole member
of Borrower.

         4.1.2 Member (a) is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with all requisite
corporate power and authority under the laws of the State of Delaware to enter
into the Limited Liability Company Agreement and, as the sole member of the
Borrower, to perform its obligations thereunder and to consummate the
transactions contemplated thereby, (b) is duly qualified, authorized to do
business and in good standing in each other jurisdiction where the character of
its properties or the nature of its activities makes such qualification
necessary, (c) has the corporate power (i) to carry on its business as now being
conducted and as proposed to be conducted by it, (ii) to execute, deliver and
perform each Operative Document to which it is a party, in its individual
capacity, and (iii) to take all action as may be necessary to consummate the
transactions contemplated thereunder and (d) has the power and authority under
the Limited Liability Company Agreement to execute and deliver, on behalf of
Borrower, each Operative Document to which Borrower is a party.

         4.1.3 Each of the Portfolio Entities (other than Borrower and the
Corporate Portfolio Entities) with respect to the Initial Projects and Funded
Subsequent Projects is a limited partnership or limited liability company, as
the case may be, and each of the Corporate Portfolio Entities is a corporation,
in each case duly organized, validly existing and in good standing under the
laws of the State of Delaware (except for Freestone Power Generation, LP and
Calpine Power Equipment LP, such Portfolio Entities being validly existing and
in good standing under the laws of the State of Texas) and is duly qualified,
authorized to do business and in good standing in the states where the character
of its properties or the nature of its activities makes such qualification
necessary including, in respect to a Project Owner and an Equipment Finance
Company party to an Equipment Lease, the state where the respective Project is
located. Each such Portfolio Entity has all requisite partnership, company or
corporate, as the case may be, power and authority to own or hold under lease
and operate the property it purports to own or hold under lease and to carry on
its business as now being conducted and as now proposed to be

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<PAGE>   82
conducted and to execute, deliver and perform each Operative Document to which
it is a party. Each such Portfolio Entity is directly or indirectly a
wholly-owned Subsidiary of Borrower, except in the case of Project Owners with
respect to Subsequent Projects where such Project Owners are at least directly
or indirectly 50% owned by Borrower and the Delta Energy Center Project Owner.

     4.2 Authorization; No Conflict. Each Portfolio Entity has duly authorized,
executed and delivered, or has been properly assigned, each Operative Document
to which such Portfolio Entity is a party and neither such Portfolio Entity's
execution and delivery thereof nor its consummation of the transactions
contemplated thereby nor its compliance with the terms thereof (a) does or will
contravene the constituent documents or any other Legal Requirement applicable
to or binding on such Portfolio Entity or any of its properties, (b) does or
will contravene or result in any breach of or constitute any default under, or
result in or require the creation of any Lien (other than Permitted Liens) upon
any of its properties under, any agreement or instrument to which such Portfolio
Entity is a party or by which it or any of its properties may be bound or
affected or (c) does or will require the consent or approval of any Person which
has not already been obtained.

     4.3 Enforceability. Each of the Operative Documents to which each Portfolio
Entity is a party is a legal, valid and binding obligation of such Portfolio
Entity enforceable against such Portfolio Entity in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting the enforcement of creditors' rights or by the effect of general
equitable principles. None of the Operative Documents to which a Portfolio
Entity is a party has been amended or modified except in accordance with this
Agreement.

     4.4 Compliance with Law. There are no violations by any Portfolio Entity,
the Member or, to Borrower's knowledge, Calpine, of any Legal Requirement which
could reasonably be expected to have a Material Adverse Effect on Borrower or
any Initial Project or Funded Subsequent Project. Except as otherwise have been
delivered to Administrative Agent, no notices of violation of any Legal
Requirement relating to any Initial Project or Funded Subsequent Project or
related Site or any Turbine assigned to an Initial Project (as set forth on
Exhibit G-3) or Funded Turbine have been issued, entered or received by any
Portfolio Entity, the Member or, to Borrower's knowledge, Calpine.

     4.5 Business, Debt, Contracts, Joint Ventures Etc.

         4.5.1 Neither the Member nor any Portfolio Entity has conducted any
business other than the business contemplated by the Operative Documents, has
any outstanding Debt or other material liabilities other than pursuant to or
allowed by the Operative Documents. None of such Persons is party to or bound by
any material contract other than the Operative Documents to which it is a party.

         4.5.2 No Portfolio Entity is (a) a general partner or a limited partner
in any general or limited partnership or a member in any limited liability
company or (b) a joint venturer in any joint venture, except, (i) Borrower, (ii)
Intermediate Parents, (iii) in the case of Project Owners with respect to
Subsequent Projects where either (A) such Project Owners are at

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<PAGE>   83
least directly or indirectly 50% owned by Borrower or (B) such Subsequent
Projects are at least 50% owned by the respective Project Owners, or (iv) the
Delta Energy Center Project Owner.

         4.5.3 Neither any Portfolio Entity nor the Member has any subsidiaries
other than Portfolio Entities.

         4.5.4 No Portfolio Entity has any properties or assets other than as
permitted by the Credit Documents.

     4.6 Adverse Change.


         4.6.1 With respect to each Initial Project and Funded Subsequent
Project, to the best of Borrower's knowledge, there has occurred no material
adverse change in the Project Budget, Project Schedule (with respect to the
Initial Projects, if delivered) or Base Case Project Projections, in the
economics or feasibility of constructing and/or operating such Project, or in
the financial condition, business or property of any Major Project Participant,
or any other event or circumstance which is reasonably likely to have a Material
Adverse Effect on Borrower or such Project (a) as of the Closing Date, since
July 31, 2000 and (b) after the Closing Date, except as disclosed to
Administrative Agent in writing at the time the representation in this Section
4.6 is being made, since such Project's Funding Date).

         4.6.2 With respect to each Funded Turbine, to the best of Borrower's
knowledge, there has occurred no material adverse change in the economics or
feasibility of procuring or owning such Turbine, or in the financial condition,
business or property of the Turbine Purchase Contractor with respect to such
Turbine, or any other event or circumstance which is reasonably likely to have a
Material Adverse Effect on Borrower, except as disclosed to Administrative Agent
in writing at the time the representation in this Section 4.6 is being made,
since such Turbine's Turbine Funding Date.

     4.7 Investment Company Act, Etc. Neither any Portfolio Entity nor the
Member is an investment company or a company controlled by an investment
company, within the meaning of the Investment Company Act of 1940, and neither
any Portfolio Entity nor the Member is or has been determined by the Securities
and Exchange Commission or any other Governmental Authority to be subject to, or
not exempt from, regulation under PUHCA or the FPA (other than as provided by
PURPA or as an Exempt Wholesale Generator).

     4.8 ERISA. Either (a) there are no ERISA Plans for any Portfolio Entity or
any member of the Controlled Group or (b) each Portfolio Entity and each member
of the Controlled Group have fulfilled their obligations (if any) under the
minimum funding standards of ERISA and the Code for each ERISA Plan, each ERISA
Plan is in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and neither any Portfolio Entity nor any
Controlled Group member has incurred any liability to the PBGC or any ERISA Plan
under Title IV of ERISA (other than liability for premiums due in the ordinary
course). None of any Portfolio Entity's assets constitute assets of an employee
benefit plan within the meaning of 29 CFR Section 2510.3-101.


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<PAGE>   84
     4.9 Permits. With respect to each Funded Project in the case of Sections
4.9.1 and 4.9.2, and with respect to each Turbine assigned to any Initial
Project (as set forth on Exhibit G-3) and each Funded Turbine in the case of
Section 4.9.3:

         4.9.1 There are no Permits under existing law as such Project is
designed that are or will become Applicable Permits other than the Applicable
Permits described in the applicable Permit Schedule. Except as disclosed
therein, each Applicable Permit listed in Part I(A) of the applicable Permit
Schedule is in full force and effect and is not subject to any current legal
proceeding or to any unsatisfied condition that could reasonably be expected to
have a Material Adverse Effect on Borrower or such Project, and all applicable
appeal periods with respect thereto have expired. Each Permit listed in Part
II(A) of the applicable Permit Schedule is either (a) timely obtainable at a
cost consistent with the applicable Project Budget prior to the time the
applicable Project Owner requires such Permit and is of a type that is routinely
granted upon application and that would not normally be obtained before
contemplated by Borrower or the relevant Project Owner or (b) able to be
eliminated as an Applicable Permit through the implementation of alternative
solutions at a cost consistent with the applicable Project Budget. No fact or
circumstance exists, to Borrower's knowledge, which indicates that any Permit
identified in Part II(A) of the applicable Permit Schedule shall not be timely
obtainable at a cost consistent with the applicable Project Budget without
material difficulty or delay by the relevant Project Owner before it becomes an
Applicable Permit. Each Project Owner with respect to an Initial Project or
Funded Subsequent Project is in compliance in all material respects with all
Applicable Permits.

         4.9.2 There are no Permits under existing law as such Project is
designed that are or will become Applicable Third Party Permits other than the
Applicable Third Party Permits described in the applicable Permit Schedule
(other than those, the failure of which to obtain could not reasonably be
expected to have a Material Adverse Effect on Borrower or such Project). Except
as disclosed therein, each Applicable Third Party Permit listed in Part I(B) of
the applicable Permit Schedule is in full force and effect and is not subject to
current legal proceeding or to any unsatisfied condition that could reasonably
be expected to have a Material Adverse Effect on Borrower or such Project, and
all applicable appeal periods with respect thereto have expired. No fact or
circumstance exists, to Borrower's knowledge, which indicates that any Permit
identified in Part II(B) of the applicable Permit Schedule shall not be timely
obtainable at a cost consistent with the applicable Project Budget without
material difficulty or delay by the applicable Major Project Participant before
it becomes an Applicable Third Party Permit. To the best knowledge of Borrower,
each Major Project Participant is in compliance in all material respects with
its respective Applicable Third Party Permits, each other Major Project
Participant possesses all licenses, franchises, patents, copyrights, trademarks
and trade names, or rights thereto necessary to perform its duties under the
Operative Documents to which it is a party, and such Person is not in violation
of any valid rights of others with respect to any of the foregoing which could
reasonably be expected to have a Material Adverse Effect on Borrower or such
Project.

         4.9.3 To the best knowledge of Borrower, each Turbine Purchase
Contractor possesses all licenses, franchises, patents, copyrights, trademarks
and trade names, or rights thereto necessary to perform its duties under the
Turbine Purchase Contract to which it is a party, and such Turbine Purchase
Contractor is not in violation of any valid rights of others with

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<PAGE>   85
respect to any of the foregoing which could reasonably be expected to have a
Material Adverse Effect on Borrower.

     4.10 Qualifying Facility/Exempt Wholesale Generator. Each Initial Project
and Funded Subsequent Project, upon Completion of such Project, will be a
Qualifying Facility or an Eligible Facility and, from and after the commencement
of commercial operations of each Project that is an Eligible Facility, the
respective Project Owner will be an Exempt Wholesale Generator.

     4.11 Hazardous Substance.

         4.11.1 Except as set forth in Exhibit G-8: (a) neither any Portfolio
Entity nor the Member nor Calpine (the "Subject Companies"), with respect to the
Sites, Improvements or other Mortgaged Properties owned or leased by a Portfolio
Entity, is or has in the past been in violation of any Hazardous Substance Law
which violation could reasonably be expected to result in a material liability
to any of the Subject Companies or their respective properties and assets or in
an inability of any Portfolio Entity to perform its obligations under the
Operative Documents; (b) none of the Subject Companies nor, to the best
knowledge of the Member and Borrower, any third party has used, released,
discharged, generated, manufactured, produced, stored, or disposed of in, on,
under, or about the Sites, Improvements or other Mortgaged Properties owned or
leased by any Portfolio Entity, or transported thereto or therefrom, any
Hazardous Substances that could reasonably be expected to subject the Banks to
liability or the Subject Companies to liability, under any Hazardous Substance
Law; (c) there are no underground tanks, whether operative or temporarily or
permanently closed, located on the Sites, Improvements or other Mortgaged
Properties owned or leased by any Portfolio Entity; (d) there are no Hazardous
Substances used, stored or present at, on or, to the best knowledge of the
Member and Borrower, near the Sites, Improvements or other Mortgaged Properties
owned or leased by any Portfolio Entity, except in compliance with Hazardous
Substance Laws and other Legal Requirements or as disclosed in the Environmental
Reports; and (e) to the best knowledge of the Member and Borrower, there neither
is nor has been any condition, circumstance, action, activity or event that
could reasonably be expected to be a material violation by the Subject Companies
of any Hazardous Substance Law, or to result in liability to the Banks or
material liability to the Subject Companies under any Hazardous Substance Law.

         4.11.2 Except as set forth on Exhibit G-7 or Exhibit G-8, there is no
pending or, to the best knowledge of Borrower, threatened, action or proceeding
by any Governmental Authority (including, without limitation, the U.S.
Environmental Protection Agency) or any non-governmental third party with
respect to the presence or Release of Hazardous Substances in, on, from or to
the Sites, Improvements or other Mortgaged Properties owned or leased by any
Portfolio Entity.

         4.11.3 Neither the Member nor Borrower nor Calpine has knowledge of any
past or existing violations of any Hazardous Substances Laws by any Person
relating in any way to the Sites, Improvements or other Mortgaged Properties
owned or leased by any Portfolio Entity.

     4.12 Litigation. Except as set forth on Exhibit G-7 there are no pending
or, to the best knowledge of Borrower, threatened actions or proceedings of any
kind, including actions or

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proceedings of or before any Governmental Authority, to which any Portfolio
Entity, the Member, Calpine, or, to the best knowledge of Borrower, any other
Major Project Participant, Turbine Purchase Contractor or Project is a party or
is subject, or by which any of them or any of their properties or a Project or
Turbine are bound, which if adversely determined to or against any Portfolio
Entity, any other Major Project Participant or a Project or Turbine could
reasonably be expected to have a Material Adverse Effect on any Initial Project,
Funded Subsequent Project or Borrower.

     4.13 Labor Disputes and Acts of God. Neither the business nor the
properties of any Portfolio Entity, the Member, Calpine, or, to the best
knowledge of Borrower, any other Major Project Participant or Turbine Purchase
Contractor are affected by any fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy, or other casualty (whether or not covered by insurance), which
could reasonably be expected to have a Material Adverse Effect on any Initial
Project, Funded Subsequent Project or Borrower.

     4.14 Project Documents and Turbine Purchase Contracts.

         4.14.1 Copies of all of the Project Documents and Turbine Purchase
Contracts in effect with respect to the Funded Projects and the Funded Turbines,
as the case may be, as of such date have been delivered to Administrative Agent
by Borrower. Except as has been previously disclosed in writing to
Administrative Agent, as of the date of delivery of such Project Documents or
Turbine Purchase Contracts none of such Project Documents or Turbine Purchase
Contracts has been amended, modified or terminated.

         4.14.2 To Borrower's knowledge, the representations and warranties of
the Major Project Participants contained in the Operative Documents relating to
the Initial Projects, the Funded Subsequent Projects, the Turbines assigned to
Initial Projects (as set forth on Exhibit G-3) and the Funded Turbines, as the
case may be, other than this Agreement are true and correct.

     4.15 Disclosure. Neither this Agreement nor any certificate or other
documentation furnished to Administrative Agent, or to any consultant submitting
a report to Administrative Agent, by or, to the knowledge of Borrower, on behalf
of any Portfolio Entity in connection with the transactions contemplated by this
Agreement, the other Project Documents or Turbine Purchase Contracts or the
design, description, testing or operation of a Project or a Turbine, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading under the circumstances in which they were made at the time such
statements are made. As of the Closing Date, there is no fact known to Borrower
which has had or could reasonably be expected to have a Material Adverse Effect
on Borrower, any Initial Project, or any Funded Subsequent Project which has not
been set forth in this Agreement or in the other documents, certificates and
written statements furnished to Administrative Agent and/or the Independent
Engineer, by or on behalf of Borrower in connection with the transactions
contemplated hereby. The documentation furnished to Administrative Agent and to
the Independent Engineer taken as a whole, including without limitation written
updated or supplemented information, is true and correct in all material


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respects and all such documentation does not omit to state any fact which would
have a Material Adverse Effect on Borrower, any Initial Project or any Funded
Subsequent Project.

     4.16 Private Offering by Borrower. Assuming that the Banks are acquiring
the Notes for investment purposes only, and not for purposes of resale or
distribution thereof except for assignments or participations as provided in
Sections 10.13 and 10.14, no registration of the Notes under the Securities Act
of 1933, as amended, or under the securities laws of the State of New York, or
any other state in which a Project is located is required in connection with the
offering, issuance and sale of the Notes hereunder. Neither Borrower nor anyone
acting on its behalf has taken, or will take, any action which would subject the
issuance or sale of the Notes to Section 5 of the Securities Act of 1933, as
amended.

     4.17 Taxes. The Member and each Portfolio Entity has filed all federal,
state and local tax returns that it is required to file, has paid all taxes it
is required to pay to the extent due (other than those taxes that it is
contesting in good faith and by appropriate proceedings, with adequate,
segregated reserves or other security reasonably acceptable to Administrative
Agent established for such taxes) and, to the extent such taxes are not due, has
established reserves that are adequate for the payment thereof and are required
by GAAP. For federal income tax purposes, each Portfolio Entity other than the
Corporate Portfolio Entities is a partnership or a limited liability company and
not an association taxed as a corporation.

     4.18 Governmental Regulation. Except to the extent that the FPA is
applicable solely by reason of a Portfolio Entity being an Exempt Wholesale
Generator or the owner of a Qualifying Facility, none of any Portfolio Entity,
the Member, Administrative Agent, or the Banks, nor any Affiliate of any of them
will, solely as a result of the construction, ownership, leasing or operation of
any Project or any Turbine, the sale of electricity therefrom or the entering
into any Operative Document or any transaction contemplated hereby or thereby,
be subject to, or not exempt from, regulation under the FPA or PUHCA or under
state laws and regulations respecting the rates or the financial or
organizational regulation of electric utilities. No Portfolio Entity is subject
to regulation under any Governmental Rule as to securities, rates or financial
or organizational matters that would preclude any Loans, or the incurrence by
any Portfolio Entity of any of the Obligations or the execution, delivery and
performance by any Portfolio Entity of the Operative Documents. No Portfolio
Entity will be deemed by any Governmental Authority having jurisdiction to be
subject to financial, organizational or rate regulation as an "electric
utility," "electric corporation," "electrical company," "public utility,"
"public utility holding company" or any similar entity under any existing law,
rule or regulation of any Governmental Authority.

     4.19 Regulation U, Etc. No Portfolio Entity is engaged principally, or as
one of its principal activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (as defined in Regulations T, U
or X of the Federal Reserve Board), and no part of the proceeds of the Loans or
the Project Revenues will be used by a Portfolio Entity to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.

     4.20 Project Budgets; Projections. Borrower has prepared the Project
Budgets and the Base Case Project Projections and is responsible for developing
the assumptions on which the

                                       73
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Project Budget and the Base Case Project Projections are based; and the Project
Budgets and the Base Case Project Projections for the Initial Projects and the
Funded Subsequent Projects (a) are based on reasonable assumptions as to all
legal and factual matters material to the estimates set forth therein, (b) as of
the date delivered are consistent with the provisions of the Project Documents
and (c) indicate that the estimated Project Costs with respect to such Project
will not exceed funds available (including Committed Equity Funds) to pay
Project Costs with respect to such Project. In the reasonable opinion of
Borrower, as of the date delivered the textual material accompanying the Base
Case Project Projections for the Initial Projects and the Funded Subsequent
Projects discloses all information reasonably necessary for an understanding of
the Base Case Project Projections, and does not contain any material
misstatements or omit any information which, in conjunction with other
information given, would be necessary to make such information not materially
misleading.

     4.21 Financial Statements. The financial statements of the Portfolio
Entities, Calpine, the Member and any Affiliated Major Project Participants
delivered pursuant to Sections 3.2.22, 3.3.23, 3.5.15 and 5.5 are true, complete
and correct and fairly present the financial condition of each such Person as of
the date thereof. Such financial statements have been prepared in accordance
with GAAP. Neither the Portfolio Entities, the Member, Calpine or such
Affiliated Major Project Participants has any material liabilities, direct or
contingent, except as has been disclosed in such financial statements.

     4.22 Existing Defaults. No Portfolio Entity is in default under any
material term of any Operative Document relating to the Initial Projects, the
Funded Subsequent Projects, the Turbines assigned to Initial Projects (as set
forth on Exhibit G-3) or the Funded Turbines or any agreement relating to any
obligation of any Portfolio Entity for or with respect to borrowed money, and to
the best of Borrower's knowledge, no other party to any Project Document or
Turbine Purchase Contract is in default thereunder.

     4.23 No Default. No Event of Default, Inchoate Default, Non-Fundamental
Project Default or Non-Fundamental Project Inchoate Default has occurred or is
existing.

     4.24 Offices, Location of Collateral.

         4.24.1 The chief executive office or chief place of business (as such
term is used in Article 9 of the Uniform Commercial Code as in effect in each
state where the Projects are located and the State of New York from time to
time) of Borrower and each Portfolio Entity set forth in Schedule 4.24.
Borrower's federal employer identification number is 77-0555128 and each of the
other Portfolio Entities' federal employer numbers are set forth in Schedule
4.24 or as otherwise delivered to Administrative Agent in connection with the
satisfaction of the requirements for initial funding of Construction Loans or
Turbine Purchase Loans under Section 3.2, 3.3 or 3.5, as the case may be:

         4.24.2 With respect to each Project, all of the tangible Collateral
(other than the Accounts and general intangibles), including the Mortgaged
Properties is, or when installed pursuant to the Project Documents will be,
located on the Site or the Easements or at the address set forth in Section
4.24.1.


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         4.24.3 The location of each Portfolio Entity's books of accounts and
records is set forth in Schedule 4.24.

     4.25 Title and Liens.

                  (a) With respect to the properties and assets attributable to
the Initial Contribution, the Portfolio Entities with respect to such properties
and assets has good, and with respect to real property, marketable and insurable
title to such properties and assets, in each case free and clear of all Liens,
encumbrances or other exceptions to title other than Permitted Liens.

                  (b) With respect to each Funded Project (other than Funded
Subsequent Projects in which the relevant Project Owner holds a partial
undivided ownership interest), the Project Owner and the Equipment Finance
Company (with respect to any equipment subject to an Equipment Lease) with
respect to such Project have good, and with respect to real property, marketable
and insurable title to such Project, and all of the Collateral relating to such
Project, and good, marketable and insurable title to, or as applicable, a
leasehold estate in, the Site and the Easements relating to such Project in
existence as of the date this representation is made (except that title to
certain of the Easements which are licenses may not be insurable), in each case
free and clear of all Liens, encumbrances or other exceptions to title other
than Permitted Liens. With respect to each Funded Turbine, such Turbine is
wholly-owned by a Turbine Owner and such Turbine Owner has good title to such
Turbine, free and clear of all Liens, encumbrances or other exceptions to title
other than Permitted Liens.

                  (c) With respect to each Funded Subsequent Project in which
the relevant Project Owner (subject to the last sentence of clause (b) above)
holds a partial undivided ownership interest, such Project Owner has good, and
with respect to real property, marketable and insurable title to the applicable
undivided portion of such Project, and all of the Collateral relating to such
Project, and good, and with respect to real property, marketable and insurable
title to, or as applicable, a leasehold estate in, the applicable undivided
portion of the Site and the Easements relating to such Project in existence as
of the date this representation is made (except that title to certain of the
Easements which are licenses may not be insurable), in each case free and clear
of all Liens, encumbrances or other exceptions to title other than Permitted
Liens.

                  (d) Subject to clause (c) above, (i) each Project Owner owns
100% of its respective Project, (ii) each Project Owner holds title to only one
Project, (iii) each Funded Turbine is 100% owned by a Turbine Owner that is a
directly or indirectly wholly-owned Subsidiary of Borrower (or, with the consent
of the Required Banks, if the relevant Project Owner is a partially-owned
Subsidiary of Borrower, a partially-owned Subsidiary of Borrower), and (iv) all
equipment leased to a Funded Project pursuant to an Equipment Lease is 100%
owned by an Equipment Finance Company that is a directly or indirectly
wholly-owned Subsidiary of Borrower (or, with the consent of the Required Banks,
if the relevant Project Owner is a partially-owned Subsidiary of Borrower, a
partially-owned Subsidiary of Borrower).

                  (e) The Lien of the Collateral Documents constitutes a valid
lien on all Collateral comprising the Initial Contribution. The Lien of the
Collateral Documents constitutes a first priority perfected security interest in
all the personal property relating to the Initial

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Contribution, subject to no Liens except Permitted Liens described in clauses
(a), (b) and (e) of the definition thereof.

                  (f) The Lien of the Collateral Documents (to the extent then
existing) constitutes a valid lien on all Collateral relating to the Funded
Projects (including any equipment leased to a Project Owner pursuant to an
Equipment Lease) and relevant Turbine Owners' interest in the Funded Turbines.
The Lien of the Collateral Documents (to the extent then existing) constitutes a
valid and subsisting first priority Lien of record on all the Mortgaged
Properties relating to the Initial Projects and the Funded Subsequent Projects
described in the Deeds of Trust and, a first priority perfected security
interest in all the personal property relating to the Funded Projects and the
Funded Turbines described in the Collateral Documents, subject to no Liens
except Permitted Encumbrances and Permitted Liens described in clauses (a), (b)
and (c) of the definition thereof; provided, however, as set forth in the
Project/Turbine Owner Security Agreements, the Lien on the Collateral comprising
each Project or Turbine shall not secure those Obligations relating to or
arising from Projects that have achieved Operation prior to the relevant Funding
Date or Turbine Funding Date, as the case may be.

     4.26 Trademarks. Each Portfolio Entity owns or has the right to use all
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights, which are necessary for the operation of its business. Nothing has come
to the attention of Borrower to the effect that (a) any material product,
process, method, substance, part or other material presently contemplated to be
sold by or employed by any Portfolio Entity in connection with its business will
infringe any patent, trademark, service mark, trade name, copyright, license or
other right owned by any other Person, (b) there is pending or threatened any
claim or litigation against or affecting any Portfolio Entity contesting its
right to sell or use any such product, process, method, substance, part or other
material or (c) there is, or there is pending or proposed, any patent,
invention, device, application or principle or any statute, law, rule,
regulation, standard or code relating to the use of technology or intellectual
property by any Portfolio Entity which could reasonably have a Material Adverse
Effect on Borrower or a Project.

     4.27 Collateral. The security interests granted to Administrative Agent
pursuant to the Collateral Documents in the Collateral related to the Initial
Contribution, the Funded Projects (including equipment leased to a Project Owner
pursuant to an Equipment Lease) and the Funded Turbines (a) constitute as to
personal property included in the Collateral and, with respect to subsequently
acquired personal property included in the Collateral, will constitute, a
perfected security interest under the UCC to the extent a security interest can
be perfected by filing or, in the case of the Accounts, the Portfolio Entity
Notes and the Pledged Equity Interests (the Pledged Equity Interests being
"certificated securities" as defined in Article 8 of the UCC), by possession by
or on behalf of the secured party and (b) are, and, with respect to such
subsequently acquired personal property, will be, as to Collateral related to
the Initial Contribution, the Funded Projects (including equipment leased to a
Project Owner pursuant to an Equipment Lease) and the Funded Turbines perfected
under the UCC as aforesaid, superior and prior to the rights of all third
Persons now existing or hereafter arising whether by way of mortgage, lien,
security interests, encumbrance, assignment or otherwise; provided, however, as
set forth in the Collateral Documents, the Lien on the Collateral comprising
each Project (including equipment leased to a Project Owner pursuant to an
Equipment Lease) or Turbine shall not secure those Obligations relating to or
arising from Projects that have achieved

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Operation prior to the relevant Funding Date or Turbine Funding Date, as the
case may be. Except to the extent possession of portions of such Collateral is
required for perfection, all such action as is necessary has been taken to
establish and perfect Administrative Agent's rights in and to such Collateral to
the extent Administrative Agent's security interest can be perfected by filing,
including any recording, filing, registration, giving of notice or other similar
action. No filing, recordation, re-filing or re-recording other than those
listed on Exhibit D-6 hereto is necessary to perfect and maintain the perfection
of the interest, title or Liens of the Collateral Documents related to the
Initial Contribution, the Funded Projects (including equipment leased to a
Project Owner pursuant to an Equipment Lease) and the Funded Turbines, and all
such filings or recordings will have been made to the extent Administrative
Agent's security interest can be perfected by filing. Each Portfolio Entity has
properly delivered or caused to be delivered to Administrative Agent all such
Collateral that requires perfection of the Lien and security interest described
above by possession.

     4.28 Sufficiency of Project Documents.

         4.28.1 With respect to each Initial Project and Funded Subsequent
Project, other than those that can be reasonably expected to be commercially
available when and as required, the services to be performed, the materials to
be supplied and the real property interests, the Easements and other rights
granted or to be granted pursuant to the Project Documents in effect as of such
date:

                  (a) comprise all of the property interests necessary to secure
any right material to the acquisition, leasing, development, construction,
installation, completion, operation and maintenance of such Project in
accordance with all Legal Requirements and in accordance with the Project
Schedule, all without reference to any proprietary information not owned by the
relevant Project Owner;

                  (b) are sufficient to enable such Project to be located,
constructed and operated on its respective Site and the Easements, respectively;
and

                  (c) provide adequate ingress and egress from the Site for such
Project for any reasonable purpose in connection with the construction and
operation of such Project.

         4.28.2 With respect to each Initial Project and Funded Subsequent
Project, there are no services, materials or rights required for the
construction or operation of such Project in accordance with the Construction
Contracts and the Base Case Project Projections, respectively, other than those
that can reasonably be expected to be commercially available at the Site for
such Project on commercially reasonable terms consistent with the Project Budget
and the Base Case Project Projections, respectively.

     4.29 Utilities. With respect to each Initial Project and Funded Subsequent
Project, all gas and electrical interconnection and utility services necessary
for the construction and the operation of such Project for its intended purposes
are available at such Project or will be so available as and when required upon
commercially reasonable terms consistent with the Project Budget, Project
Schedule and the Base Case Project Projections.


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<PAGE>   92
     4.30 Roads/Transmission Line. With respect to each Initial Project and
Funded Subsequent Project, other than those that can be reasonably expected to
be commercially available when and as required:

         4.30.1 All roads necessary for the construction and full utilization of
such Project for its intended purposes have either been completed or the
necessary rights of way therefor have been acquired.

         4.30.2 All necessary easements, rights of way, licenses, agreements and
other rights for the construction, interconnection and utilization of the
interconnection facilities have been acquired.

     4.31 Proper Subdivision. With respect to each Initial Project and Funded
Subsequent Project, at such time as a Project Owner obtains any title or
leasehold interests therein, the Site for such Project has been properly
subdivided or entitled to exception therefrom, and for all purposes such Site
may be mortgaged, conveyed and otherwise dealt with as separate legal lots or
parcels.

     4.32 Flood Zone Disclosure. With respect to each Initial Project and Funded
Subsequent Project, none of the Collateral in respect of such Project includes
improved real property that is or will be located in an area that has been
identified by the Director of the Federal Emergency Management Agency as an area
having special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968, as amended.

     4.33 Acquisition of Real Property. No Portfolio Entity has acquired or
leased any real property or other interest in real property (excluding the
acquisition (but not the exercise) of any options to acquire any such interests
in real property) except as otherwise permitted pursuant to Section 6.23.

                                   ARTICLE 5.
                              COVENANTS OF BORROWER

                  Borrower covenants and agrees that so long as this Agreement
is in effect, it will, and will cause each other Portfolio Entity to:

     5.1 Use of Proceeds and Revenues.

         5.1.1 Proceeds. Unless otherwise applied by Administrative Agent
pursuant to this Agreement, deposit the proceeds of the Loans advanced for each
Project or Turbine, as the case may be, the Additional Borrower Equity and the
other Contributions made pursuant to Section 3.10(a) in the relevant
Construction Sub-Account, and except to the extent permitted in Section 3.10(b),
(a) hold such proceeds as a trust fund for the payment of Costs of such Project
or Turbine, as the case may be, and (b) use them solely to pay Costs of such
Project or Turbine, as the case may be. Notwithstanding anything to the contrary
contained in this Agreement, Turbine Purchase Loans shall only be used to pay
Turbine Costs associated with Turbines assigned to Unfunded Projects (as set
forth on Exhibit G-3).


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<PAGE>   93
         5.1.2 Revenues. With respect to each Initial Project and Funded
Subsequent Project, unless otherwise applied by Administrative Agent pursuant to
Articles 7 and 8, (a) deposit all Project Revenues received or due any Portfolio
Entity other than Insurance Proceeds, Eminent Domain Proceeds and damage
payments described in Section 7.7 received prior to Completion of such Project
in the relevant Construction Sub-Account for application toward Project Costs
and otherwise for application as set forth in Section 7.1, (b) deposit all
Project Revenues received or due any Portfolio Entity other than Insurance
Proceeds, Eminent Domain Proceeds and damage payments described in Section 7.7
received after Completion of such Project in the Revenue Account for application
solely for the purposes and in the order and manner provided in Section 7.2, and
(c) deposit all Insurance Proceeds, Eminent Domain Proceeds and damage payments
described in Section 7.7 received at any time in the Loss Proceeds Account for
application solely for the purposes, and in the order and manner, provided in
Section 7.5. With respect to each Turbine assigned to an Initial Project (as set
forth on Exhibit G-3) and Funded Turbine, unless otherwise applied by
Administrative Agent pursuant to Articles 7 and 8, deposit all Insurance
Proceeds and damage payments described in Section 7.7 received at any time in
the Loss Proceeds Account for application solely for the purposes, and in the
order and manner, provided in Section 7.5.

     5.2 Payment.

         5.2.1 Credit Documents. Pay all sums due under this Agreement and the
other Credit Documents according to the terms hereof and thereof.

         5.2.2 Project Documents and Turbine Purchase Contracts. With respect to
each Initial Project, Funded Project (including equipment leased to a Project
Owner pursuant to an Equipment Lease), Turbine assigned to an Initial Project
(as set forth on Exhibit G-3) and Funded Turbine, pay all obligations due under
the Project Documents and Turbine Purchase Contracts, howsoever arising, as and
when due and payable, except (a) such as may be contested in good faith or as to
which a bona fide dispute may exist, provided that Administrative Agent is
satisfied in its reasonable discretion that non-payment of such obligation
pending the resolution of such contest or dispute will not in any way endanger
or have a Material Adverse Effect on such Project, the Banks' Liens in the
Collateral, any Portfolio Entity or that provision is made to the satisfaction
of Administrative Agent in its reasonable discretion for the posting of security
(other than the Collateral) for or the bonding of such obligations or the prompt
payment thereof in the event that such obligation is payable and (b) each
Portfolio Entity's trade payables which shall be paid in the ordinary course of
business.

     5.3 Warranty of Title. Maintain (a) with respect to properties and assets
attributable to the Initial Contribution, good and, with respect to real
property, marketable and insurable title to such properties and assets, (b) with
respect to each Funded Project, good, marketable and insurable leasehold or fee
title, as the case may be, to the Site and related Easements (or the applicable
undivided portion thereof), subject only to Permitted Liens, (c) with respect to
each Funded Project (including equipment leased to a Project Owner pursuant to
an Equipment Lease) and Funded Turbine, good title to such Project (including
equipment leased to a Project Owner pursuant to an Equipment Lease), Turbine or
the related Turbine Purchase Contract, as applicable, and (d) good, and with
respect to real property, marketable and insurable title to all of

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its other respective properties and assets (other than properties and assets
disposed of in the ordinary course of business).

     5.4 Notices. Promptly, upon acquiring notice or giving notice, as the case
may be, or obtaining knowledge thereof, give written notice (with copies of any
such underlying notices) to Administrative Agent of:

         5.4.1 Any litigation pending or, to the knowledge of any Portfolio
Entity, threatened against any Portfolio Entity and involving claims against any
Portfolio Entity or any Initial Project, Funded Subsequent Project, Turbine
assigned to an Initial Project (as set forth on Exhibit G-3) or Funded Turbine
in excess of $2,000,000 in the aggregate per calendar year or involving any
injunctive, declaratory or other equitable relief, such notice to include, if
requested by Administrative Agent, copies of all papers filed in such litigation
and to be given monthly if any such papers have been filed since the last notice
given;

         5.4.2 Any dispute or disputes which may exist between any Portfolio
Entity and any Governmental Authority and which involve (a) claims against any
Portfolio Entity which exceed $2,000,000 individually or $10,000,000 in the
aggregate per calendar year, (b) injunctive or declaratory relief, (c)
revocation, modification, failure to renew or the like of any Applicable Permit
or Applicable Third Party Permit relating to an Initial Project or a Funded
Subsequent Project or imposition of additional material conditions with respect
thereto, or (d) any Liens relating to an Initial Project, a Funded Subsequent
Project or a Turbine for taxes due but not paid;

         5.4.3 Any Event of Default, Inchoate Default, Non-Fundamental Project
Default or Non-Fundamental Project Inchoate Default;

         5.4.4 Any casualty, damage or loss, whether or not insured, through
fire, theft, other hazard or casualty, or any act or omission of any Portfolio
Entity, its employees, agents, contractors, consultants or representatives, or
of any other Person if such casualty, damage or loss affects any Portfolio
Entity or any Initial Project, Funded Subsequent Project, Turbine assigned to an
Initial Project (as set forth on Exhibit G-3) or Funded Turbine, in excess of
$500,000 for any one casualty or loss or $5,000,000 in the aggregate in any
policy period;

         5.4.5 Any cancellation or material change in the terms, coverage or
amounts of any insurance described in Exhibit K;

         5.4.6 Any matter which has had, or, in any Portfolio Entity's
reasonable judgment, could reasonably be expected to have, a Material Adverse
Effect on Borrower or any Initial Project or Funded Subsequent Project,
including any PUC or FERC proceedings affecting any Initial Project or Funded
Subsequent Project which if adversely determined, reasonably could be expected
to have a Material Adverse Effect on such Project;

         5.4.7 Any act by any Portfolio Entity to become a surety, guarantor,
endorser or accommodation endorser for a third party other than endorsement of
negotiable instruments for collection purposes;


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         5.4.8 Any intentional withholding of compensation to any Contractor,
any Turbine Purchase Contractor, any engineer or Operator or any other Person
under any Major Construction Contract, any O&M Agreement, any Power Marketing
Agreement or any other construction or operating contract relating to any
Initial Project, Funded Subsequent Project, Turbine assigned to an Initial
Project (as set forth on Exhibit G-3) or Funded Turbine, other than retention
provided by the express terms of any such contracts;

         5.4.9 Any termination or material default or notice thereof (including
any notice of default) under any Project Document relating to an Initial Project
or a Funded Subsequent Project or under any Turbine Purchase Contract relating
to a Turbine assigned to an Initial Project (as set forth on Exhibit G-3) or a
Funded Turbine;

         5.4.10 Any events of force majeure or change orders under any Major
Construction Contract or other Project Documents relating to any Initial Project
or Funded Subsequent Project or under any Turbine Purchase Contract relating to
any Turbine assigned to an Initial Project (as set forth on Exhibit G-3) or
Funded Turbine and, to the extent requested by Administrative Agent, copies of
invoices or statements which are reasonably available to any Portfolio Entity
under such Construction Contract, other Construction Contract or Turbine
Purchase Contract, certified by an authorized representative of Borrower,
together with a copy of any supporting documentation, schedule, data or
affidavit delivered under such Construction Contract, other Construction
Contract or Turbine Purchase Contract, other Project Document or Turbine
Purchase Contract;

         5.4.11 No later than the date upon which the Independent Engineer is
entitled to receive notice pursuant to any Major Construction Contract of the
proposed conduct of the initial Performance Tests under such Construction
Contract, promptly prior to the proposed conduct of any subsequent Performance
Tests pursuant to each such Construction Contract and promptly prior to the
conduct of any performance tests required under any other Project Document,
written notice of such proposed test;

         5.4.12 Any (a) fact, circumstance, condition or occurrence at, on, or
arising from, any Site, Improvements, or other Mortgaged Property that results
in material noncompliance with any Hazardous Substance Law or any Release of
Hazardous Substances on or from such Site, Improvements or other Mortgaged
Property that has resulted or could reasonably be expected to result in personal
injury or material property damage or to have a Material Adverse Effect on a
Project, and (b) pending or, to any Portfolio Entity's knowledge, threatened,
Environmental Claim against any Portfolio Entity or to any Portfolio Entity's
knowledge any of its Affiliates, contractors, lessees or any other Persons,
arising in connection with their occupying or conducting operations on or at any
Project or any related Site, Improvements or other Mortgaged Property;

         5.4.13 Promptly, but in no event later than 30 days if consent of
Administrative Agent or the Banks is required, and 15 days otherwise, prior to
the time any Person will become an equity holder of any Portfolio Entity or the
occurrence of any other change in or transfer of ownership interests in any
Portfolio Entity, any Project or any Turbine notice thereof, which notice shall
identify such Person and such Person's interest in the relevant Portfolio
Entity, Project or Turbine and shall describe, in reasonable detail, such other
change or transfer;


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         5.4.14 Any material notices delivered to or received from, the parties
to the Project Documents relating to an Initial Project or a Funded Subsequent
Project or the parties to a Turbine Purchase Contract relating to a Turbine
assigned to an Initial Project (as set forth on Exhibit G-3) or a Funded
Turbine;

         5.4.15 Initiation of any condemnation proceedings involving any Initial
Project or Funded Subsequent Project or the related Site or material portion
thereof;

         5.4.16 Promptly, but in no event later than 15 days after any Portfolio
Entity has knowledge of the execution and delivery thereof, a copy of each
Additional Project Document relating to an Initial Project or a Funded
Subsequent Project; and

         5.4.17 Promptly, but in no event later than 30 days after the receipt
thereof by any Portfolio Entity, copies of (a) all Applicable Permits relating
to an Initial Project or a Funded Subsequent Project obtained by any Portfolio
Entity or the Member after the Closing Date, (b) any amendment, supplement or
other modification to any Applicable Permits relating to an Initial Project or a
Funded Subsequent Project received by any Portfolio Entity after the Closing
Date and (c) all material notices relating to any Initial Project or Funded
Subsequent Project received by any Portfolio Entity from any Governmental
Authority.

     5.5 Financial Statements.

         5.5.1 Unless Administrative Agent otherwise consents, deliver or cause
to be delivered to Administrative Agent, in form and detail reasonably
satisfactory to Administrative Agent:

                  (a) As soon as practicable and in any event within 45 days
after the end of the first, second and third quarterly accounting periods of its
fiscal year (commencing with the quarter ending September 30, 2000), an
unaudited balance sheet of the Portfolio Entities, the Member, Calpine and each
other Affiliated Major Project Participant as of the last day of such quarterly
period and the related statements of income, cash flows, and partners' capital
(where applicable) for such quarterly period and (in the case of second and
third quarterly periods) for the portion of the fiscal year ending with the last
day of such quarterly period, setting forth in each case in comparative form
corresponding unaudited figures from the preceding fiscal year (such requirement
may be satisfied with respect to any party by delivery of the appropriate Form
10-Q filed with the Securities and Exchange Commission); and

                  (b) As soon as available but no later than 120 days after the
close of each applicable fiscal year, audited (or, if not available with respect
to Persons who are not Calpine Affiliates, unaudited) financial statements of
the Portfolio Entities, the Member, Calpine, each other Affiliated Major Project
Participant, each Major Fuel Supplier and each Major Power Purchaser relating to
an Initial Project or a Funded Subsequent Project, including a statement of
equity, a balance sheet as of the close of such year, an income and expense
statement, reconciliation of capital accounts and a statement of sources and
uses of funds, all prepared in accordance with GAAP and in the case of audited
financial statements, certified by an independent certified public accountant
selected by the Person whose financial statements are being prepared and
satisfactory to Administrative Agent. Such certificate for the Portfolio


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Entities, the Member, Calpine and each Affiliated Major Project Participant
shall not be qualified or limited because of restricted or limited examination
by such accountant of any material portion of the records of the applicable
Person. Such requirement may be satisfied with respect to any party by delivery
of the appropriate Form 10-K filed with the Securities and Exchange Commission.

                  (c) Each time the financial statements are delivered under
Section 5.5.1(a) above for the Portfolio Entities, the Member, Calpine and each
Affiliated Major Project Participant, deliver or cause to be delivered, along
with such financial statements, a certificate signed by a Responsible Officer of
such Person, certifying that such officer has made or caused to be made a review
of the transactions and financial condition of such Person during the relevant
fiscal period and that such review has not, to the best of such Responsible
Officer's knowledge, disclosed the existence of any event or condition which
constitutes an Event of Default or Inchoate Default (or, in the case of the
Portfolio Entities, a Non-Fundamental Project Default or Non-Fundamental Project
Inchoate Default), or if any such event or condition existed or exists, the
nature thereof and the corrective actions that such Person has taken or proposes
to take with respect thereto, and also certifying that such Person is in
compliance with all applicable material provisions of each Credit Document to
which such Person is a party or, if such is not the case, stating the nature of
such non-compliance and the corrective actions which such Person has taken or
proposes to take with respect thereto.

     5.6 Books, Records, Access. Maintain or cause to be maintained adequate
books, accounts and records and prepare all financial statements required
hereunder in accordance with GAAP and in compliance with the regulations of any
Governmental Authority having jurisdiction thereof, and, subject to requirements
of Governmental Rules and safety requirements, after pre-scheduling with the
relevant Operator, permit employees or agents of Administrative Agent and
Independent Engineer at any reasonable times and upon reasonable prior notice to
inspect all of its properties, including the Sites, to examine or audit all of
its books, accounts and records and make copies and memoranda thereof and to
witness all Performance Tests.

     5.7 Compliance with Laws, Instruments, Etc. Promptly comply, or cause
compliance, in all material respects, with all Legal Requirements relating to
the Portfolio Entities, the Initial Projects or the Subsequent Projects,
including Legal Requirements relating to pollution control, environmental
protection, equal employment opportunity or employee benefit plans, ERISA Plans
and employee safety, with respect to the Portfolio Entities and each such
Project or Turbine, and make such alterations to such Projects and Sites and
Turbines as may be required for such compliance.

     5.8 Reports. With respect to each Initial Project and Funded Subsequent
Project and, in the case of Sections 5.8.6, 5.8.7 and 5.8.8, with respect to
each Turbine assigned to an Initial Project (as set forth on Exhibit G-3) and
Funded Turbine:

         5.8.1 Deliver to Administrative Agent on the last Banking Day of each
month (if any) prior to Final Completion of such Project in which no Loan is
made to such Project a certificate of an authorized officer of Borrower as to
the matters required by Section 3.4.3 in respect of such Project, substantially
in the form of the Construction Drawdown Certificate.


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         5.8.2 Until Final Completion of such Project, deliver to Administrative
Agent at such times as Administrative Agent may reasonably request (but not more
frequently than monthly) a report describing in reasonable detail the progress
of the construction of such Project since the last prior report hereunder.

         5.8.3 Within 30 days following the completion of the major foundations
for such Project, provide to Administrative Agent a foundation survey showing
(a) the exact location and dimensions of such foundations, (b) that such
foundations comply with all applicable building and zoning codes and set-back
lines, and (c) that such foundations do not encroach or interfere with existing
property rights.

         5.8.4 From and after the commercial operation date of such Project,
deliver to Administrative Agent within 30 days of the end of each month, a
summary operating report with respect to such Project which shall include, with
respect to the month most recently ended, (a) a monthly and year-to-date
numerical and narrative assessment of (i) such Project's compliance with each
material category in the Annual Operating Budget for such Project, (ii)
electrical production and delivery, (iii) fuel deliveries and use, including
heat rate, (iv) plant and unit availability, including trips and scheduled and
unscheduled outages, (v) cash receipts and disbursements and cash balances,
including distributions to the Member, debt service payments and balances in the
Accounts, (vi) maintenance activity, (vii) staffing changes with respect to
project or construction managers, (viii) casualty losses of value in excess of
$500,000, (ix) replacement of equipment of value in excess of $500,000 and (x)
material disputes with contractors, materialmen, suppliers or others and any
related claims against Borrower; (b) statistical data and reasonably detailed
commentary thereon; and (c) a comparison of year-to-date figures to
corresponding figures provided in the prior year.

         5.8.5 Deliver to Administrative Agent within 60 days of the end of each
year after the Closing Date, a report setting forth a narrative summary
describing and assessing such Project's compliance with all Applicable Permits
and Legal Requirements.

         5.8.6 Provide to Administrative Agent promptly upon request such
reports, statements, lists of property, accounts, budgets, forecasts and other
information concerning such Project or Turbine and, to the extent reasonably
available, the Major Project Participants or Turbine Purchase Contractors, as
the case may be, and at such times as Administrative Agent shall reasonably
require, including such reports and information as are reasonably required by
the Independent Consultants.

         5.8.7 Provide to Administrative Agent promptly upon receipt by any
Portfolio Entity any material notices, information or reports provided by (a)
Power Marketer under any Power Marketing Project Document, (b) any Fuel Supplier
under a Gas Contract, (c) any other purchaser under a Power Purchase Document or
(d) any Turbine Purchase Contractor under a Turbine Purchase Contract.

         5.8.8 Within 30 days of the end of each fiscal year after the Closing
Date, deliver to Administrative Agent a certificate, substantially in the Form
of Exhibit I hereto, and otherwise in form and substance satisfactory to
Administrative Agent in consultation with the

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Insurance Consultant, certifying that the insurance requirements of Exhibit K
have been implemented and are being complied with in all material respects.

     5.9 Existence, Conduct of Business, Properties, Etc. Except as otherwise
expressly permitted under this Agreement, (a) in the case of Borrower, maintain
and preserve its existence as a limited liability company formed under the laws
of the state of Delaware and all material rights, privileges and franchises
necessary or desirable in normal conduct of its business, (b) in the case of
each other Portfolio Entity, maintain and preserve its existence as a
corporation, limited partnership or limited liability company, as the case may
be, formed under the laws of the state of Delaware or, in the case of Freestone
Power Generation, LP or Calpine Power Equipment LP, Texas and all material
rights, privileges and franchises necessary or desirable in normal conduct of
its business, (c) perform (to the extent not excused by force majeure events or
the nonperformance of another party and not subject to a good faith dispute) all
of its contractual obligations under the Project Documents or Turbine Purchase
Contracts, as the case may be, to which it is party or by which it is bound, (d)
maintain all necessary Permits and licenses, including all Applicable Permits,
with respect to its business and each Initial Project and Funded Subsequent
Project and cause all Major Project Participants to maintain all Applicable
Third-Party Permits with respect to each such Project, (e) at or before the time
that any Permit becomes an Applicable Permit with respect to any Initial Project
or Funded Subsequent Project, obtain such Permit, (f) at or before the time that
any Permit required to be obtained by a Major Project Participant becomes an
Applicable Third-Party Permit with respect to any Initial Project or Funded
Subsequent Project, cause the relevant third party to obtain such Permit, (g)
engage only in the business contemplated by the Operative Documents and (h)
perform all of its contractual obligations under the Credit Documents.

     5.10 Four-Quarter Portfolio Interest Coverage Ratio; Maximum Debt to
Capitalization Ratio.

                  (a) As promptly as practicable, but in no event later than 45
days after (a) the last Banking Day of each calendar quarter, calculate and
deliver to Administrative Agent the Four-Quarter Portfolio Interest Coverage
Ratio. Administrative Agent shall notify Borrower in writing of any suggested
corrections, changes or adjustments which should be made to such Four-Quarter
Portfolio Interest Coverage Ratio calculations within 20 days after receipt.
Borrower shall incorporate all such corrections, changes or adjustment as
Administrative Agent reasonably deems appropriate.

                  (b) (i) As promptly as practicable, but in no event later than
two Banking Days after delivery by Borrower of the financial statements of the
Portfolio Entities required to be delivered pursuant to Section 5.5.1 and at
such other times as required under this Agreement, calculate and deliver to
Administrative Agent the Debt to Capitalization Ratio based on the financial
statements so delivered. Administrative Agent shall notify Borrower in writing
of any suggested corrections, changes or adjustments which should be made to
such ratio calculations within five days after receipt. Borrower shall
incorporate all such corrections, changes or adjustments as Administrative Agent
reasonably deems appropriate.

                         (ii) Borrower shall maintain, as of the end of each
calendar quarter (after giving effect to any Construction Credit Event and/or
the Turbine Purchase Credit

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Event as of the end of each such calendar quarter), a Debt to Capitalization
Ratio of no more than the Maximum Debt to Capitalization Ratio.

                  (c) For purposes of this Agreement, Borrower shall calculate
the Four-Quarter Portfolio Interest Coverage Ratio and the Debt to
Capitalization Ratio without taking into account the EBITDA produced by, or the
Contributions with respect to, a Project (i) where a Non-Fundamental Project
Default or Non-Fundamental Project Inchoate Default shall have occurred and be
continuing with respect to such Project, (ii) where, in the case of Projects
Five Through Twelve, a condition precedent deferred in accordance with Section
3.13 shall not have been satisfied or waived by such Project's scheduled
Completion Date (as set forth in such Project's Project Schedule) or (iii) that
is an Unfunded Project.

     5.11 Indemnification.

         5.11.1 Indemnify, defend and hold harmless Administrative Agent and
each Bank, and in their capacities as such, their respective officers,
directors, shareholders, controlling persons, employees, agents and servants
(collectively, the "Indemnitees") from and against and reimburse the Indemnitees
for:

                  (a) any and all claims, obligations, liabilities, losses,
damages, injuries (to person, property, or natural resources), penalties, stamp
or other similar taxes, actions, suits, judgments, costs and expenses (including
reasonable attorney's fees) of whatever kind or nature, whether or not well
founded, meritorious or unmeritorious, demanded, asserted or claimed against any
such Indemnitee (collectively, "Subject Claims") in any way relating to, or
arising out of or in connection with this Agreement, the other Operative
Documents, any Project or any Turbine, except for claims by a Portfolio Entity
against an Indemnitee;

                  (b) any and all Subject Claims arising in connection with the
release or presence of any Hazardous Substances at any Project, whether
foreseeable or unforeseeable, including all costs of removal and disposal of
such Hazardous Substances, all reasonable costs required to be incurred in (i)
determining whether any Project is in compliance and (ii) causing each Project
to be in compliance, with all applicable Legal Requirements, all reasonable
costs associated with claims for damages to persons or property, and reasonable
attorneys' and consultants' fees and court costs; and

                  (c) any and all Subject Claims in any way relating to, or
arising out of or in connection with any claims, suits, liabilities against any
Portfolio Entity, the Member, Calpine or any of their Affiliates.

         5.11.2 The foregoing indemnities shall not apply with respect to an
Indemnitee, to the extent arising as a result of the gross negligence or willful
misconduct of such Indemnitee, but shall continue to apply to other Indemnitees.

         5.11.3 The provisions of this Section 5.11 shall survive foreclosure of
the Collateral Documents and satisfaction or discharge of the Portfolio Entities
obligations hereunder and under the other Credit Documents, and shall be in
addition to any other rights and remedies of the Banks.


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         5.11.4 In case any action, suit or proceeding shall be brought against
any Indemnitee, such Indemnitee shall notify Borrower of the commencement
thereof, and Borrower shall be entitled, at its expense, acting through counsel
reasonably acceptable to such Indemnitee, to participate in, and, to the extent
that Borrower desires, to assume and control the defense thereof. Such
Indemnitee shall be entitled, at its expense, to participate in any action, suit
or proceeding the defense of which has been assumed by Borrower. Notwithstanding
the foregoing, Borrower shall not be entitled to assume and control the defenses
of any such action, suit or proceedings if and to the extent that, in the
reasonable opinion of such Indemnitee and its counsel, such action, suit or
proceeding involves the potential imposition of criminal liability upon such
Indemnitee or a conflict of interest between such Indemnitee and Borrower or
between such Indemnitee and another Indemnitee (unless such conflict of interest
is waived in writing by the affected Indemnitees), and in such event (other than
with respect to disputes between such Indemnitee and another Indemnitee)
Borrower shall pay the reasonable expenses of such Indemnitee in such defense.

         5.11.5 Borrower shall report to such Indemnitee on the status of such
action, suit or proceeding as material developments shall occur and from time to
time as requested by such Indemnitee (but not more frequently than every 60
days). Borrower shall deliver to such Indemnitee a copy of each document filed
or served on any party in such action, suit or proceeding, and each material
document which Borrower possesses relating to such action, suit or proceeding.

         5.11.6 (a) Notwithstanding Borrower's rights hereunder to control
certain actions, suits or proceedings, if any Indemnitee reasonably determines
that failure to compromise or settle any Subject Claim made against such
Indemnitee is reasonably likely to have an imminent and material adverse effect
on such Indemnitee, such Indemnitee shall be entitled (and Borrower shall cause
other relevant Portfolio Entity to agree to the same) to compromise or settle
such Subject Claim.

                (b) Notwithstanding Borrower's rights hereunder to control
certain actions, suits or proceedings, if the Required Banks reasonably
determine that failure to compromise or settle any Subject Claim made against
such Indemnitee is reasonably likely to have an imminent and material adverse
effect on Borrower or any Project, such Indemnitee or the Required Banks, as the
case may be, shall provide Borrower with written notice of a proposed compromise
or settlement of such claim specifying in detail the nature and amount of such
proposed settlement or compromise. Borrower (and any other relevant Portfolio
Entity) shall be deemed to have approved such proposed compromise or settlement
unless, within 30 days after the date Borrower receives such notice of intended
compromise or settlement, Borrower provides such Indemnitee or the Required
Banks, as the case may be, with (i) a written legal analysis from counsel
reasonably acceptable to such Indemnitee or Required Banks, as the case may be,
reasonably concluding that, based on the magnitude of the Subject Claim, the
legal basis for such Subject Claim, and/or the cost of defending such Subject
Claim, the amount of such proposed settlement or compromise is not within a
reasonable range of settlements or compromises for such Subject Claim, and
indicating, based on such factors, such counsel's view as to the appropriate
amount of a reasonable settlement or compromise for such Subject Claim (the
"Settlement Amount"). If the Indemnitee or the Required Banks, as the case may
be, receives such legal analysis required by this Section within such 30-day
period, the Indemnitee

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or the Required Banks, as the case may be, may elect to settle or compromise
such Subject Claim and Borrower shall be responsible for the payment of all
amounts of such compromise or settlement up to 125% of the Settlement Amount,
such Indemnitee shall be responsible for payment of all amounts of such
compromise or settlement in excess of such 125% limit and such compromise or
settlement shall be binding upon Borrower. If Borrower does not provide such
legal analysis within such period, or if such legal analysis is not reasonable,
in the reasonable determination of such Indemnitee or the Required Banks, as the
case may be, such Indemnitee may settle or compromise such Subject Claim (and
Borrower shall cause any other relevant Portfolio Entity to agree to the same)
and shall be fully indemnified by Borrower therefor. Such Indemnitee or the
Required Banks, as the case may be, shall not otherwise settle or compromise any
such Subject Claim other than at its own expense.

         5.11.7 Upon payment of any Subject Claim by Borrower pursuant to this
Section 5.11 or other similar indemnity provisions contained herein to or on
behalf of an Indemnitee, Borrower, without any further action, shall be
subrogated to any and all claims that such Indemnitee may have relating thereto,
and such Indemnitee shall cooperate with Borrower and give such further
assurances as are necessary or advisable to enable Borrower vigorously to pursue
such claims.

         5.11.8 Any amounts payable by Borrower pursuant to this Section 5.11
shall be regularly payable within 30 days after Borrower receives an invoice for
such amounts from any applicable Indemnitee, and if not paid within such 30-day
period shall bear interest at the Default Rate.

         5.11.9 Notwithstanding anything to the contrary set forth herein,
Borrower shall not, in connection with any one legal proceeding or claim, or
separate but related proceedings or claims arising out of the same general
allegations or circumstances, in which the interests of the Indemnitees do not
materially differ, be liable to the Indemnitees (or any of them) under any of
the provisions set forth in this Section 5.11 for the fees and expenses of more
than one separate firm of attorneys (which firm shall be selected by the
affected Indemnitees, or upon failure to so select, by Administrative Agent).

         5.11.10 If, for any reason whatsoever, the indemnification provided
under this Section 5.11 is unavailable to any Indemnitee or is insufficient to
hold it harmless to the extent provided in this Section 5.11, then provided such
payment is not prohibited by or contrary to any applicable Governmental Rule,
Legal Requirement or public policy, Borrower shall contribute to the amount paid
or payable by such Indemnitee as a result of the Subject Claim in such
proportion as is appropriate to reflect the relative economic interests of
Borrower and its Affiliates on the one hand, and such Indemnitee on the other
hand, in the matters contemplated by this Agreement as well as the relative
fault of Borrower (and its Affiliates) and such Indemnitee with respect to such
Subject Claim, and any other relevant equitable considerations.

     5.12 Qualifying Facility/Exempt Wholesale Generator. With respect to each
Project, take or cause to be taken all necessary or appropriate actions (a) so
that such Project will, from and after commercial operations of such Project,
either be a Qualifying Facility or an Eligible Facility until all Obligations
due the Banks under the Credit Documents have been paid in full unless such
Project's failure to be a Qualifying Facility or Eligible Facility, as the case
may be,

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could not reasonably be expected to have a Material Adverse Effect on such
Project, and (b) except to the extent that the FPA is applicable solely by
reason of the relevant Project Owner being the owner of a Qualifying Facility or
an Exempt Wholesale Generator, to maintain such Project Owner's and such
Project's exemptions from regulation under the FPA (unless failure to so
maintain such exemptions could not reasonably be expected to have a Material
Adverse Effect on Borrower or such Project) and PUHCA (except regulations
specifically applicable to an Exempt Wholesale Generator or a Qualifying
Facility) or, if Calpine or its successor or Borrower becomes a registered
holding company under PUHCA, as a subsidiary of such registered holding company.

     5.13 Construction of Each Project. With respect to each Initial Project and
Funded Subsequent Project, cause such Project to be constructed and equipped
substantially in accordance with the Plans and Specifications, Construction
Contracts, other Project Documents, Project Budget and the Project Schedule for
such Project as the same may be amended from time to time pursuant to Section
6.13.

     5.14 Completion. With respect to each Initial Project and Funded Subsequent
Project, achieve Completion and Final Completion of such Project in a timely and
diligent manner in accordance with the Project Schedule, Project Budget,
Construction Contracts and Plans and Specifications of such Project as the same
may be extended and, in the case of Completion, in no event later than the
guaranteed completion date set therefor in such Project's Project Schedule
(which shall be extended as the result of the occurrence of events of force
majeure for additional periods up to an aggregate of 180 days).

     5.15 Operation of Projects and Annual Operating Budget. With respect to
each Initial Project and Funded Subsequent Project:

         5.15.1 (a) Keep such Project, after Completion thereof, or cause the
same to be kept, in good operating condition consistent with Prudent Utility
Practices, all Applicable Permits (and, if applicable, Applicable Third Party
Permits), Legal Requirements and the Operative Documents, and make or cause to
be made all repairs (structural and non-structural, extraordinary or ordinary)
necessary to keep such Project in such condition; and (b) operate such Project,
after Completion thereof, or cause the same to be operated, in a manner
consistent with Prudent Utility Practices and in compliance with the terms of
the Power Purchase Documents so as to assure, to the extent reasonably possible,
the maximum generation of net revenue for such Project consistent with the Power
Purchase Documents.

         5.15.2 On or before 60 days prior to the first day of the month in
which Completion of such Project occurs or is anticipated to occur and 60 days
prior to the first day of each calendar year thereafter, submit to
Administrative Agent a draft operating plan and a budget, detailed by month for
such Project, of anticipated revenues and anticipated expenditures, such budget
to include debt service (if applicable), proposed distributions, maintenance,
repair and operation expenses (including reasonable allowance for
contingencies), Major Maintenance, reserves and all other anticipated O&M Costs
for such Project for the remainder of the calendar year for the first such plan
and budget and for the ensuing calendar year for each other such plan and budget
and, in the case of Major Maintenance in accordance with Section 5.15.3, to the
conclusion of the second full calendar year thereafter (each such annual
operating plan and

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budget with respect to each Project and for all the Projects as a whole, an
"Annual Operating Budget"). Each Annual Operating Budget shall be subject to the
reasonable approval of Administrative Agent and the Independent Engineer.
Failure by Administrative Agent to approve or disapprove such draft Annual
Operating Budget within 30 days after receipt thereof shall be deemed to be an
approval by Administrative Agent of such draft. Borrower shall incorporate
Administrative Agent's suggestions into a final Annual Operating Budget, which,
subject to the provisions of the last sentence of this Section 5.15.2, shall be
prepared no less than 30 days in advance of each fiscal year. The O&M Costs in
each Annual Operating Budget which are subject to escalation limitations in the
Project Documents shall not, absent extraordinary circumstances, be increased by
more than the amounts provided in such Project Documents. Borrower shall
continue to operate and maintain such Project, or cause such Project to be
operated and maintained, within amounts not to exceed 115% of the aggregate
amounts set forth in the applicable Annual Operating Budget; provided, however,
the costs for fuel shall not be limited by the Annual Operating Budget. Pending
approval of any Annual Operating Budget in accordance with the terms of this
Section 5.15.2, Borrower shall continue to operate and maintain such Project, or
cause such Project to be operated and maintained, within the Annual Operating
Budget for such Project then in effect; provided that the amounts specified
therein shall be increased by the amounts specified in the Project Documents.

         5.15.3 Replace the Operator of such Project if such Operator is not
operating such Project in accordance with the provisions hereof or the
applicable O&M Agreement, Power Purchase Documents or any other agreement or
instrument under which the relevant Project Owner holds title, an easement or a
leasehold to the applicable Site, the Easements or the Collateral, and such
failure could reasonably be expected to have a Material Adverse Effect on such
Project, upon receipt of notice from Administrative Agent (after consultation
with Borrower) to the effect that, in the opinion of the Required Banks and the
Independent Engineer, said Operator has failed to perform any material
obligations set forth above; provided, however, that the Operator may have 30
days from Borrower's receipt of notice to cure said failure (or to establish to
the satisfaction of the Required Banks that a failure does not exist); provided,
further, that if such failure cannot be corrected within such 30 days, the
Required Banks will not unreasonably withhold their consent to an extension of
such time if corrective action is promptly instituted by such Operator within
the 30-day period and thereafter diligently pursued until the failure is
corrected and such extension shall not have a Material Adverse Effect on such
Project.

     5.16 Preservation of Rights; Further Assurances.

         5.16.1 Preserve, protect and defend the rights of the Portfolio
Entities under each material Project Document relating to the Initial Projects
and the Funded Subsequent Projects and under each Turbine Purchase Contract
relating to the Turbines assigned to Initial Projects (as set forth on Exhibit
G-3) and the Funded Turbines, including prosecution of suits to enforce any
rights of the Portfolio Entities thereunder and enforcement of any claims with
respect thereto; provided, however, that upon the occurrence and during the
continuance of an Event of Default if Administrative Agent requests that certain
actions be taken and the Portfolio Entities fail to take the requested actions
within five Banking Days and such failure reasonably could be expected to have a
Material Adverse Effect on Borrower, any such Project or any such Turbine,
Administrative Agent may enforce in its own name or in the relevant Portfolio
Entity's name, such rights of any Portfolio Entity.


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         5.16.2 From time to time, execute, acknowledge, record, register,
deliver and/or file all such notices, statements, instruments and other
documents (including any memorandum of lease or other agreement, financing
statement, continuation statement, certificate of title or estoppel
certificate), relating to the Loans stating the interest and charges then due
and any known defaults, and take such other steps as may be necessary or
advisable to render fully valid and enforceable under all applicable laws the
rights, liens and priorities of the Banks with respect to all Collateral and
other security from time to time furnished under this Agreement and the other
Credit Documents or intended to be so furnished, including (x) granting Liens,
subject to no other Liens other than Permitted Liens, in favor of Administrative
Agent, in any Project or portion thereof not part of the Collateral and (y)
causing its partners, members or shareholders, as the case may be, to grant a
first priority Lien to Administrative Agent in all the ownership interests in a
Portfolio Entity, in each case to the extent permitted, without any waivers, and
consistently with the characterization of the Debt incurred and Liens granted
hereunder and under the other Credit Documents, under the Calpine Indenture, in
each case in such form and at such times as shall be satisfactory to
Administrative Agent, and pay all fees and expenses (including reasonable
attorneys' fees) incident to compliance with this Section 5.16.2.

         5.16.3 Subject to Section 6.23, if a Portfolio Entity shall at any time
acquire any real property or leasehold or other interest in real property
related to a Funded Project not covered by the Deeds of Trust, promptly upon
such acquisition (or on the Closing Date if such acquisition occurred prior
thereto) in furtherance of the Lien on the Project and related Collateral
granted on the respective Funding Date execute, deliver and record a supplement
to the applicable Deed of Trust or, if necessary, execute, deliver and record a
new Deed of Trust, satisfactory in form and substance to Administrative Agent,
subjecting the real property or leasehold or other interests so acquired to a
lien and security interest in favor of Administrative Agent and the Banks,
subject only to Permitted Liens and other exceptions to title approved by
Administrative Agent, securing all of the relevant Portfolio Entity's
Obligations under the Credit Documents other than such Obligations relating to
Projects that have achieved Operation prior to the execution of such Deed of
Trust. If requested by Administrative Agent, Borrower shall obtain an
appropriate endorsement or supplement to the applicable Title Policy or procure
a new Title Policy insuring the Lien of the Banks in such additional property,
subject only to Permitted Liens and other exceptions to title approved by
Administrative Agent, and shall obtain subordination and nondisturbance
agreements from applicable third parties to the extent reasonably requested by
Administrative Agent.

         5.16.4 Perform, upon the request of Administrative Agent, such
reasonable acts as may be necessary to carry out the intent of this Agreement
and the other Credit Documents.

         5.16.5 Cause the Pledged Equity Interests to be "certificated
securities" as defined in Article 8 of the UCC and include in each appropriate
Portfolio Entity's constituent documents terms, in each case consistent with
Section 8-103(c) of the UCC, to the effect that the corresponding Pledged Equity
Interests are "securities" (as such term is defined in Article 8 of the UCC)
governed by Article 8 of the UCC.

     5.17 Project Equity.


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         5.17.1 (a) Make or cause to be made Contributions with respect to
Funded Projects in an amount equal to the Required Contribution Percentage of
the aggregate Project Costs in respect to which Borrower has requested Loans at
such time, such Contributions to be made at the time of each Borrowing and (b)
make or cause to be made Contributions with respect to Funded Projects in an
amount equal to any or all income taxes due or owing by Borrower and each other
Portfolio Entity within 10 days after such payment becoming due (all
Contributions pursuant to clauses (a) and (b) above, the "Base Equity").
Borrower may deposit some or all of the Base Equity with Administrative Agent as
provided in Section 3.10. In such event, Administrative Agent shall deposit the
Base Equity into the relevant Construction Sub-Accounts at Administrative
Agent's New York office pursuant to the Depositary Agreement. From time to time
following the deposits of such amounts, Borrower shall have the right to request
that Administrative Agent transfer amounts from the relevant Construction
Sub-Accounts to pay Costs upon the satisfaction of the requirements set forth in
Section 3.10(a).

         5.17.2 At such time, if ever as the Available Construction Funds are
less than the remaining Project Costs to be incurred or paid to achieve Final
Completion of the Initial Projects and the Funded Subsequent Projects, then
promptly thereafter deposit or cause to be deposited with Administrative Agent,
Contributions in an amount equal to all such further Project Costs, such
Contributions to be made on or before the date such Project Costs are due to be
paid ("Additional Borrower Equity"). All such Additional Borrower Equity
proceeds shall be deposited in the relevant Construction Sub-Accounts
established pursuant to Section 7.1 hereof and applied, after satisfaction of
the requirements set forth in Section 3.10(a), to pay Project Costs.

         5.17.3 Upon an acceleration of Loans pursuant to Section 8.2.5,
promptly make or cause to be made Contributions in an amount equal to (x) the
Committed Equity Funds that have not yet been contributed and that would have
otherwise been contributed with respect to all remaining Costs for Funded
Projects and (y) to the extent required by Section 6.4.2(i), an amount equal to
the aggregate remaining progress payments to be made for Funded Turbines at the
time of such acceleration.

     5.18 Maintenance of Insurance. With respect to each Initial Project, Funded
Subsequent Project, Turbines assigned to Initial Projects (as set forth on
Exhibit G-3), without cost to the Banks, maintain or cause to be maintained on
its behalf in effect at all times the types of insurance required pursuant to
Exhibit K, in the amounts and on the terms and conditions specified therein,
with insurance companies rated "A-" or better, with a minimum size rating of
"IX," by Best's Insurance Guide and Key Ratings, (or an equivalent rating by
another nationally recognized insurance rating agency of similar standing if
Best's Insurance Guide and Key Ratings shall no longer be published) or other
insurance companies of recognized responsibility satisfactory to Administrative
Agent.

     5.19 Taxes and Other Government Charges. With respect to each Initial
Project, Funded Subsequent Project, and, to the extent required by the
applicable Turbine Purchase Contract, Turbine assigned to an Initial Project (as
set forth on Exhibit G-3) and Funded Turbine, pay, or cause to be paid, as and
when due and prior to delinquency, all taxes, assessments and governmental
charges of any kind that may at any time be lawfully assessed or levied against
or with respect to any Portfolio Entity, such Project or such Turbine, including
sales and use taxes

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and real estate taxes, all other charges incurred in the operation, maintenance,
use, occupancy and upkeep of such Project or such Turbine, other than utility
charges, and all assessments and charges lawfully made by any Governmental
Authority for public improvements that may be secured by a lien on such Project
or such Turbine. In furtherance of the foregoing, Borrower shall engage a
qualified Person or Persons to confirm each Portfolio Entity's compliance with
all tax laws and regulations and to implement any required programs and
procedures to ensure continued compliance with the same. The Portfolio Entities
may contest in good faith any such taxes, assessments and other charges and, in
such event, may permit the taxes, assessments or other charges so contested to
remain unpaid during any period, including appeals, when the Portfolio Entities
are in good faith contesting the same, so long as (a) reserves reasonably
satisfactory to Administrative Agent have been established in an amount
sufficient to pay any such taxes, assessments or other charges, accrued interest
thereon and potential penalties or other costs relating thereto, or other
adequate provision for the payment thereof shall have been made, (b) enforcement
of the contested tax, assessment or other charge is effectively stayed for the
entire duration of such contest, and (c) any tax, assessment or other charge
determined to be due, together with any interest or penalties thereon, is
immediately paid after resolution of such contest.

     5.20 Event of Eminent Domain. With respect to each Initial Project and
Funded Subsequent Project, if an Event of Eminent Domain shall occur with
respect to any Collateral, (a) promptly upon discovery or receipt of notice of
any such occurrence, provide written notice of the same to Administrative Agent,
(b) diligently pursue all its rights to compensation against the relevant
Governmental Authority in respect of such Event of Eminent Domain, (c) not,
without the written consent of Administrative Agent and the Required Banks,
which consent shall not be unreasonably withheld, compromise or settle any claim
against such Governmental Authority, (d) pay or apply all Eminent Domain
Proceeds in accordance with Section 7.10. Borrower consents and shall cause each
other Portfolio Entity to consent to the participation of Administrative Agent
in any eminent domain proceedings, and Borrower shall from time to time deliver
to Administrative Agent all documents and instruments requested by it to permit
such participation.

     5.21 Power Marketing Plan; Fuel Plan. With respect to each Funded Project,
comply in all material respects with the provisions of the Power Marketing Plan
and Fuel Plan delivered to and approved by the Technical Committee as
contemplated in Article 3.

     5.22 Utility Charges. With respect to each Initial Project and Funded
Subsequent Project, pay, or cause to be paid, as and when due and prior to
delinquency, all utility charges of any kind that may at any time be lawfully
assessed or levied against or with respect to any Portfolio Entity or such
Project.

     5.23 Revenue Payment to Borrower. Use good faith reasonable efforts to
include, or cause to be included, in each Major Project Document or Consent
related thereto entered into after the date hereof, provisions to the effect
that each counterparty will pay all Project Revenues or other payments,
disbursements or distributions due and owing to a Project Owner directly to
Borrower for application in accordance with this Agreement.


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     5.24 Initial Project Deeds of Trust and Equipment Finance Company
Collateral Documents. Within 6 months after the first Funding Date for an
Initial Project (a) execute, deliver to Administrative Agent and record in the
appropriate locations the Deeds of Trust with respect to each Initial Project
(other than those previously executed, delivered to Administrative Agent and
recorded in accordance with Section 3.2.7) and (b)(i) execute and deliver to
Administrative Agent appropriate Collateral Documents with respect to the
Equipment Finance Companies and their Intermediate Parents with respect to the
Initial Projects, including Equipment Finance Company Security Agreements and
Pledge Agreements (Pledged Equity Interests) considered necessary by the
Technical Committee to ensure that all rights and assets of such Portfolio
Entities have been pledged to Administrative Agent and the Banks and (ii) take
all actions necessary to provide the Banks with a valid and perfected first
priority Lien on such Collateral, including without limitation, to the extent
necessary, the filing of UCC-1, UCC-2 or UCC-3 financing statements, as
applicable, with respect to such Collateral with the Secretary of State and/or
other appropriate filing office in the states where the corresponding Initial
Projects are located or the states in which such Portfolio Entities' have been
formed or where their principal places of business are located, as appropriate,
and the execution and delivery of the Portfolio Entity Notes and Pledged Equity
Interests pledged to Administrative Agent pursuant to the Collateral Documents
delivered pursuant to this Section 5.24(b) (in each case, to the extent not
previously executed and delivered to Administrative Agent).

     5.25 Funded Projects.5.25.1 Cause 12 Projects to become Funded Projects.

         5.25.2 In the case of a Substituted Initial Project, cause such
Substituted Initial Project to become a Funded Project (a) if such Substituted
Initial Project's substitution occurs prior to the second anniversary of the
Closing Date, no later than the second anniversary of the Closing Date and (b)
if such Substituted Initial Project's substitution occurs on or after the second
anniversary of the Closing Date, no later than six months after such
substitution; provided, in each case, such Substituted Initial Project's
satisfaction of the applicable conditions precedent to initial funding under
Section 3.2 shall be determined in the same manner as it was (or would have
been) for the Initial Project being replaced by such Substituted Initial
Project.

                                   ARTICLE 6.
                               NEGATIVE COVENANTS

                  Borrower covenants and agrees that so long as this Agreement
is in effect, it will not, and will not allow any other Portfolio Entity to:

     6.1 Contingent Liabilities. Except as provided in this Agreement or the
other Credit Documents, become liable as a surety, guarantor, accommodation
endorser or otherwise, for or upon the obligation of any other Person; provided,
however, that this Section 6.1 shall not be deemed to prohibit (a) the
acquisition of goods, supplies or merchandise in the normal course of business
or normal trade credit; (b) the endorsement of negotiable instruments received
in the normal course of its business; (c) contingent liabilities required under
any Applicable Permit or Operative Document; or (d) joint liabilities incurred
with respect to any partially owned Project or pursuant to a Joint Venture
Agreement.


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     6.2 Limitations on Liens. Create, assume or suffer to exist any Lien,
securing a charge or obligation on any properties or assets attributable to the
Initial Contribution, Funded Project or Funded Turbine or on any related
Collateral, real or personal, whether now owned or hereafter acquired, except
Permitted Liens.

     6.3 Indebtedness. Incur, create, assume or permit to exist any Debt except
Permitted Debt.

     6.4 Sale or Lease of Assets.

         6.4.1 Except as permitted in Section 3.13 and Section 6.4.2 below,
sell, lease, assign, transfer or otherwise dispose of assets, whether now owned
or hereafter acquired except (a) in the ordinary course of its business as
contemplated by the Operative Documents, (b) to the extent that such property is
worn out or no longer useful or usable in connection with the operation of a
relevant Project, and in each case at fair market value, or (c) in the case of a
transfer of 100% of the ownership interests in a Project Owner, a Turbine Owner
or an Equipment Finance Company party to an Equipment Lease with respect to a
Funded Project from a direct or indirect wholly-owned Subsidiary of Borrower to
Borrower or another direct or indirect wholly-owned Subsidiary of Borrower.

         6.4.2 (a) In the event the Non-Affiliated Parent with respect to the
Project Owner of a Designated Project exercises its right to have a Designated
Project refinanced and/or to have Borrower or another applicable Portfolio
Entity transfer its interest in a Designated Project to another subsidiary of
Calpine (other than a Portfolio Entity), Borrower shall be permitted to have
such Designated Project (including the related Project Owner and Pledged Equity
Interests and any related assets) released from the Lien and obligations of the
Collateral Documents and to implement a transfer of such Designated Project
(whether pursuant to a refinancing or otherwise), notwithstanding the existence
of an Event of Default or an Inchoate Default, and the Banks shall consent to
such transfer and release, free and clear of the Liens imposed by the Collateral
Documents, on the conditions that (x) Borrower prepays the Loans (with amounts
other than amounts in any Account or otherwise constituting Collateral) in an
amount equal to the greater of (A) the amount necessary to cause Borrower's Debt
to Capitalization Ratio not to exceed the Applicable Debt to Capitalization
Ratio in effect immediately after such transfer and release of such Designated
Project and (B) the outstanding Loans attributable to such Project and (y) if
such Designated Project is the Delta Energy Center Project or another Initial
Project, Borrower identifies a Substituted Initial Project to replace such
Project (such Substituted Initial Project to satisfy the requirements of the
definition thereof) (in which case such Substituted Initial Project shall be
deemed an Initial Project and Appendixes G-1, G-2 and G-3, as appropriate, shall
be amended to reflect the foregoing and such Substituted Initial Project shall
thereafter be funded with Construction Loans in accordance with Section 5.25.2).
Upon satisfaction of the foregoing conditions, Administrative Agent shall
execute and deliver to Borrower such documents and instruments, including UCC-3
termination statements and deeds of reconveyance, and shall return, cancel and
terminate any applicable Portfolio Entity Note and Project Owner Guaranty and
shall return all related Pledged Equity Interests free and clear of the Liens
imposed by the Collateral Documents, all as may be reasonably necessary to
release the Liens granted to the Banks in such Project and related

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<PAGE>   110
Portfolio Entities, as the case may be (including the Lien on cash flows from
such Project), and to permit such release and transfer of ownership.

                  (b) In the event that the Non-Affiliated Parent with respect
to a Designated Project exercises its right to restructure the ownership
interests in such Designated Project into direct undivided ownership interests
(provided, after such restructuring, (x) such Non-Affiliated Parent owns no more
than a 50% direct undivided ownership interest in such Project and (y) the
remaining direct undivided ownership interest in such Project is held by a
Portfolio Entity that is directly or indirectly wholly-owned by Borrower), then
the relevant Portfolio Entity shall, notwithstanding the existence of an Event
of Default or an Inchoate Default, be permitted to implement such restructuring
and the Banks shall consent to such restructuring on the conditions that:

                         (i) The relevant Portfolio Entity and such
Non-Affiliated Parent enter into a Joint Venture Agreement relating to the joint
ownership and joint operation of such Project, and Borrower delivers or causes
to be delivered documents and instruments similar to those contemplated for
partially owned Projects similar to such Project pursuant to Section 3.3 as will
permit the Banks, to the greatest extent possible, to maintain a first priority
perfected Lien on the remaining Collateral owned by the relevant Project Owner
in respect of such Project (including without limitation any Joint Venture
Agreement described in this clause (i) above) and exercise remedies with respect
to such Collateral (with the benefit of lender protective provisions), including
without limitation, to the extent applicable (A) all necessary amendments to the
relevant Project/Turbine Owner Security Agreement (to include, without
limitation, the Joint Venture Agreement described in this clause (i) above in
the Collateral subject thereto), Deed of Trust, Pledge Agreements (Pledged
Equity Interests) and Project Owner Guaranty, (B) an agreement consenting to the
pledge by the relevant Portfolio Entity of its interest in the Joint Venture
Agreement as contemplated in this clause (i) above and an agreement by such
Non-Affiliated Parent recognizing the Banks as its counterparty in the event
that the Banks shall exercise remedies (including foreclosure) on the Collateral
with respect to such Project, and (C) any other customary lender protective
agreements or provisions, all of which documents and instruments shall be in
form and substance satisfactory to the Technical Committee; and

                         (ii) Borrower uses any and all amounts paid by such
Non-Affiliated Parent for such interest in such Project and, to the extent
necessary, makes additional Contributions to prepay the Loans in an amount equal
to the greater of (A) the amount necessary to cause Borrower's Debt to
Capitalization Ratio not to exceed the Applicable Debt to Capitalization Ratio
then in effect and (B) the net proceeds of such restructuring.

Upon the satisfaction of each of the foregoing conditions, as applicable,
Administrative Agent shall execute and deliver to Borrower, subject to the
provisions of clause (i) above, such documents and instruments, including UCC-3
termination statements, deeds of reconveyance, amendments of Portfolio Entity
Notes and amendments of the applicable Project Owner Guaranty, and shall return
any Pledged Equity Interests owned by such Non-Affiliated Parent, free and clear
of the Liens imposed by the Collateral Documents, all as reasonably may be
necessary to release its Lien on the portion of the Collateral (including
related cash flows) that is intended to be transferred in connection with such
restructuring.


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                  (c) In the event that (x) a Project Document for a Funded
Subsequent Project gives any party thereto (other than a Portfolio Entity) the
unilateral right to acquire an undivided direct ownership interest in the
relevant Project (but not more than a 50% undivided direct ownership interest)
and (y) such party exercises such right, then the relevant Portfolio Entity
shall be permitted to implement such sale to the extent required under the
relevant Project Document and the Banks shall consent to the acquisition of such
Project or interest therein on the conditions that:

                         (i) The relevant Portfolio Entity and such third party
enter into a Joint Venture Agreement relating to the joint ownership and joint
operation of such Project, and Borrower delivers or causes to be delivered
documents and instruments similar to those contemplated for partially owned
Projects similar to such Project pursuant to Section 3.3 as will permit the
Banks, to the greatest extent possible pursuant to the terms of the purchase
option, to maintain a first priority perfected Lien on the remaining Collateral
owned by the relevant Project Owner in respect of such Project (including
without limitation the Joint Venture Agreement described in this clause (i)
above) and exercise remedies with respect to such Collateral (with the benefit
of lender protective provisions), including without limitation, to the extent
applicable (A) all necessary amendments to the relevant Project/Turbine Owner
Security Agreement (to include, without limitation, the Joint Venture Agreement
described in this clause (i) above in the Collateral subject thereto), Deed of
Trust, Pledge Agreements (Pledged Equity Interests) and Project Owner Guaranty,
(B) an agreement consenting to the pledge by the relevant Portfolio Entity of
its interest in the Joint Venture Agreement as contemplated in this clause (i)
above and an agreement by such third party recognizing the Banks as its
counterparty in the event that the Banks shall exercise remedies (including
foreclosure) on the Collateral with respect to such Project, and (C) any other
customary lender protective agreements or provisions, all of which documents and
instruments shall be in form and substance satisfactory to the Technical
Committee; and

                         (ii) Borrower uses the entire amount of the purchase
price paid by such Person for such interest in such Project and, to the extent
necessary, makes additional Contributions to prepay the Loans in an amount equal
to the greater of (A) the book value of the pro rata percentage of such Project
purchased by such Person calculated in accordance with GAAP and (B) the net
proceeds of such sale.

Upon the satisfaction of each of the foregoing conditions, as applicable,
Administrative Agent shall execute and deliver to Borrower, subject to the
provisions of clause (i) above, such documents and instruments, including UCC-3
termination statements, deeds of reconveyance, amendments of Portfolio Entity
Notes and amendments of the applicable Project Owner Guaranty, and shall return
related Pledged Equity Interests, all as reasonably may be necessary to release
its Lien on the portion of the Collateral (including related cash flows) that is
intended to be transferred in connection with such sale.

                  (d) [*]

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<PAGE>   112
                  (e) In the event that (x) a Project Document for a Funded
Subsequent Project or a Substituted Initial Project gives any party thereto the
unilateral right to acquire no more than 33% of the equity interests in the
Project Owner with respect to such Project and (y) such party exercises such
right, then Borrower shall be permitted to implement such sale to the extent
required under the relevant Project Document, notwithstanding the existence of
an Event of Default or Inchoate Default, and the Banks shall consent to
acquisition of such interest, subject to the Liens imposed by the Collateral
Documents, on the conditions that:

                         (i) Such party, in its capacity as a Non-Affiliated
Parent, shall execute and/or deliver to Administrative Agent (A) a Pledge
Agreement (Pledged Equity Interests) and its Pledged Equity Interests with
respect to such Project Owner in accordance therewith, (B) documents and
instruments similar to those contemplated for Non-Affiliated Parents pursuant to
Section 3; and

                         (ii) Borrower uses the entire amount of the purchase
price paid by such Person for such interest in such Project Owner to prepay the
Loans.

Upon the satisfaction of each of the foregoing conditions, Administrative Agent
shall execute and deliver to Borrower such documents and instruments as
reasonably may be necessary to enable such Person to acquire such equity
interests in such Project Owner, subject to the Liens imposed by the Collateral
Documents; provided, however, that in no event shall any such document or
instrument affect or deprive the Banks from having a perfected, first priority
Lien on all of the relevant Project Owner's right, title and interest in and to
such Project (including the cash flows therefrom).

                  (f) Borrower shall be permitted to implement sale-leaseback or
similar tax-related financing with respect to the Oneta Energy Center Project
and two other Projects, on the conditions that (i) at the time of the closing of
such a sale-leaseback or similar tax-related financing, if such Project is an
Initial Project, Borrower identifies a Substituted Initial Project to

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replace such Project (such Substituted Initial Project to satisfy the
requirements of the definition thereof) (in which case such Substituted Initial
Project shall be deemed an Initial Project and Appendixes G-1, G-2 and G-3, as
appropriate, shall be amended to reflect the foregoing and such Substituted
Initial Project shall thereafter be funded with Construction Loans in accordance
with Section 5.25.2), (ii) concurrently with the closing of each sale-leaseback
or similar tax-related financing Borrower uses all of the net proceeds of such
financing and, to the extent necessary, makes additional Contributions to prepay
the Loans in an amount equal to the greater of (A) the book value of the
relevant Project calculated in accordance with GAAP and (B) the net proceeds of
such financing, (iii) no Inchoate Default or Event of Default has occurred and
is continuing, (iv) Borrower's Four-Quarter Portfolio Interest Coverage Ratio as
of the most recent calendar quarter shall equal or exceed [*] to 1.00, and (v)
Borrower's Debt to Capitalization Ratio as of the most recent calendar quarter
shall be no higher than the Maximum Debt to Capitalization Ratio. Upon
satisfaction of each of the foregoing conditions Administrative Agent shall
execute and deliver to Borrower such documents and instruments, including UCC-3
termination statements, deeds of reconveyance, shall return, cancel and
terminate any applicable Portfolio Entity Note and Project Owner Guaranty, and
shall return all related Pledged Equity Interests, free and clear of the Liens
imposed by the Collateral Documents, all as reasonably may be necessary to
release the Liens granted to the Banks in such Project and the related Portfolio
Entities, as the case may be (including the Lien on cash flows from such
Project), and to permit such transfer of ownership.

                  (g) Borrower shall have the right in its sole discretion
without payment of additional consideration or any mandatory prepayment of Loans
to have any Unfunded Subsequent Project transferred to another Person or Persons
(whether by sale of assets or equity), and the Banks shall promptly consent to
the transfer of such Project and/or related Project Owner, as the case may be,
notwithstanding the existence of an Inchoate Default or Event of Default or any
other circumstance or condition whatsoever. Upon receipt of notice from
Borrower, Administrative Agent shall execute and deliver to Borrower such
documents and instruments as may be reasonably necessary to permit such transfer
of ownership.

                  (h) In the event a Project to which a Turbine is assigned (as
set forth in Exhibit G-3) is transferred and/or released pursuant to this
Section 6.4 or if Borrower elects not to proceed with the development of an
Unfunded Subsequent Project, (i) Borrower shall have the right in its discretion
to have such Turbine released from the Liens of the Collateral Documents and to
transfer ownership of such Turbine to another Person or Persons, and the Banks
shall promptly release such Turbine and consent to its transfer to another
Person or Persons upon written notice to Administrative Agent, so long as
Borrower shall prepay the aggregate principal amount of all Turbine Purchase
Loans (if any) made hereunder to pay Turbine Costs related to such Turbine (with
amounts other than amounts in any Account or otherwise constituting Collateral),
(ii) Borrower shall have the right at its discretion, upon written notice to
Administrative Agent, to have such Turbine assigned to another Project, in which
case Exhibit G-3 shall be amended to reflect such assignment, or (iii) subject
to Section 6.4.2(g), Borrower shall have the right at its discretion to make
Contributions to pay Turbine Costs with respect to such Turbine in accordance
with Section 3.10(a) until such time as Borrower selects either clause (i) or
(ii) above with respect to such Turbine, and until such time as Borrower selects
clause (ii) above with respect to such Turbine, if ever, such Turbine will not
be eligible to receive Turbine Purchase Loans for the payment of Turbine Costs
associated thereto. Upon receipt of a notice

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<PAGE>   114
under clause (i) above requesting the release of any such Turbine and compliance
with the conditions thereto, Administrative Agent shall promptly execute and
deliver to Borrower such documents and instruments as may be reasonably
necessary to release such Turbine from the Liens of the Collateral Documents and
to permit such transfer of ownership.

                         (i) (i) In the event the Loans are accelerated pursuant
to Section 8.2.5, at the election of the Required Banks, Borrower shall, or
shall cause Calpine to, make either (A) Contributions in an amount equal to the
aggregate remaining payments to be made under the Turbine Purchase Contracts
with respect to Turbines that have not been assigned to Funded Projects or (B)
all remaining payments under the applicable Turbine Purchase Contracts with
respect to Funded Turbines that have not been assigned to Funded Projects, and
(ii) if on the date that is 30 days prior to the Turbine Delivery Date with
respect to any Turbine, the Project to which such Turbine has been assigned (as
set forth on Exhibit G-3) is not a Funded Project, Borrower shall, or shall
cause Calpine to, make all remaining payments under the applicable Turbine
Purchase Contract with respect to such Turbine (with amounts other than amounts
in any Account or otherwise constituting Collateral), and Borrower and/or the
applicable Portfolio Entities shall grant Administrative Agent a Lien on the
Collateral related to the Unfunded Project to which such Turbine is assigned (as
set forth on Exhibit G-3) securing all outstanding Loans hereunder other than
Loans attributable to Projects which have achieved Operation prior to the date
such Lien is granted; provided, however, that in any such case, Borrower shall
have the right in its discretion to prepay or cause to be prepaid the aggregate
amount of outstanding Turbine Purchase Loans attributable to such Turbine(s)
(with amounts other than amounts in any Account or otherwise constituting
Collateral) and, upon Administrative Agent's receipt of such payment, to have
such Turbine(s) released from the Liens of the Collateral Documents and to
transfer ownership of such Turbine(s) to Calpine. If Borrower exercises the
right in the foregoing proviso, upon prepayment in full of all such Turbine
Purchase Loans, the Banks shall promptly release such Turbine(s) and consent to
the transfer of such Turbine(s) to Calpine, and Administrative Agent shall
promptly execute and deliver to Borrower such documents and instruments as may
be reasonably necessary to release such Turbine(s) from the Liens of the
Collateral Documents and to permit such transfer(s) of ownership.

                  (j) In the event that Borrower is unable, after using
commercially reasonable efforts, to satisfy the conditions precedent for initial
funding for any Initial Project under Section 3.2, and the failure to satisfy
the conditions precedent for initial funding of such Initial Project is not
otherwise waived in accordance with this Agreement, Borrower shall have the
right in its discretion to have such Initial Project and/or related Portfolio
Entities released from the Liens of the Collateral Documents and to transfer
ownership of such Initial Project and/or Portfolio Entities to another Person or
Persons at any time prior to such Initial Project becoming a Funded Project, and
the Banks shall promptly release such Initial Project and/or Portfolio Entities
and consent to its transfer to another Person or Persons on the conditions that:

                         (i) (A) No Inchoate Default or Event of Default has
occurred and is continuing, (B) Borrower's Four-Quarter Portfolio Interest
Coverage Ratio as of the most recent calendar quarter shall equal or exceed [*]
to 1.00 and (C) Borrower's Debt to Capitalization Ratio as of the most recent
calendar quarter shall be no higher than the Maximum Debt to Capitalization
Ratio.


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                         (ii) Unless Borrower has made or caused to be made
Contributions to pay Project Costs for the Initial Projects other than such
Project in an aggregate amount equal to or greater than of $500,000,000, the
properties and assets attributable to such Contributions being subject to the
valid and first priority Lien of the Collateral Documents, Borrower makes
additional Contributions to prepay the Loans in an amount equal to the lesser of
(x) the difference between (A) $500,000,000 and (B) the total amount of
Contributions made or caused to be made to pay Project Costs for Initial
Projects at such time and (y) the total amount of Contributions attributed to
such Project, if any, as of the Closing Date in satisfaction of Section 3.1.23;
and

                         (iii) Borrower identifies a Substituted Initial Project
to replace such Project (such Substituted Initial Project to satisfy the
requirements of the definition thereof).

Upon satisfaction of the foregoing conditions, Administrative Agent shall
execute and deliver to Borrower such documents and instruments, including UCC-3
termination statements and deeds of reconveyance, shall return, cancel and
terminate any applicable Portfolio Entity Note and Project Owner Guaranty, and
shall return all related Pledged Equity Interests, free and clear of the Liens
imposed by the Collateral Documents, all as may be reasonably necessary to
release the Liens granted to the Banks in such Initial Project and/or related
Portfolio Entities, as the case may be (including the Lien on cash flows from
such Initial Project), and to permit such transfer of ownership. Concurrently
with the release and transfer of such Initial Project and/or related Project
Owner, such Substituted Initial Project shall be deemed an Initial Project and
Appendixes G-1, G-2 and G-3, as appropriate, shall be amended to reflect the
foregoing and such Substituted Initial Project shall thereafter be funded with
Construction Loans in accordance with Section 5.25.2.

                  (k) Upon any release of a Project or Turbine from the Lien of
the Collateral Documents as provided herein, such Project or Turbine shall cease
to be an Initial Project, Subsequent Project or Turbine, as applicable, for
purposes of this Agreement and the other Credit Documents.

                  (l) Borrower or the applicable Portfolio Entity shall have the
right to transfer and convey, notwithstanding the existence of an Event of
Default or Inchoate Default and free and clear of all Liens under the Credit
Documents, real estate interests, including Easements, relating to (i) the
transmission or transportation of power, gas, water or other inputs or outputs
to or from a Project, (ii) access to or from the Project, or (iii) the provision
of other services to the Project, to a Governmental Authority, local utility or
similar Person, so long as the Technical Committee is satisfied that the
transmission or transportation of such commodities, access and the provision of
such other services to or from the Project will not be adversely affected as a
result of such conveyance. In the event of such transfer and conveyance,
Administrative Agent shall execute and deliver to Borrower such documents and
instruments, including UCC-3 termination statements and deeds of reconveyance,
as reasonably may be necessary to release such real estate interests and related
portions of the Collateral from the Liens under the Credit Agreement.

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     6.5 Changes. Change the nature of its business or expand its business
beyond the business contemplated in the Operative Documents, including without
limitation purchasing gas with the intention of reselling such gas; provided (a)
each Portfolio Entity shall be directly or indirectly a wholly-owned Subsidiary
of Borrower other than Project Owners with respect to Subsequent Projects which
shall be indirectly or directly at least 50% owned by Borrower, the Delta Energy
Center Project Owner and as otherwise permitted pursuant to Section 6.4.2, (b)
each Project Owner shall hold title to only one Project (or portion thereof),
(c) each Project Owner shall own 100% of its respective Project other than
Project Owners that are directly or indirectly wholly-owned by Borrower and
which own at least an undivided 50% interest in the Delta Energy Center Project,
a Substituted Initial Project or a Subsequent Project, (d) each Turbine is 100%
owned by a Turbine Owner (that is directly or indirectly wholly-owned by
Borrower) and (e) all equipment that is leased to a Funded Project by an
Equipment Finance Company pursuant to an Equipment Lease is 100% owned by such
Equipment Finance Company.

     6.6 Distributions. (a) Subject to Section 7.14 and those distributions made
to Non-Affiliated Parents pursuant to Waterfall Level 7, and except for payments
by the Delta Energy Center Project Owner under the Calpine DEC Credit Agreement
in accordance with the terms thereof, directly or indirectly, make or declare
any distribution (in cash, property or obligation) on, repay any subordinated
indebtedness or make any other payment on account of, any interest in Borrower
or any other Portfolio Entity (including any transfers of any tax benefits)
unless:

                         (i) no Event of Default or Inchoate Default has
occurred and is continuing and such payment or distribution will not result in
an Inchoate Default or Event of Default;

                         (ii) no Non-Fundamental Project Default or
Non-Fundamental Project Inchoate Default has occurred and is continuing with
respect to the Project to which the funds to be distributed are attributable,
such payment or distribution will not result in such Non-Fundamental Project
Default or Non-Fundamental Project Inchoate Default and such Project shall have
achieved Final Completion;

                         (iii) such distribution is made at Waterfall Level 8;

                         (iv) no Material Adverse Effect with respect to
Borrower has occurred and is continuing;

                         (v) the proceeds of such payment or distribution are in
an amount that is not greater than the Deemed Interest due, from time to time,
on the amount of Contributions to Borrower for Funded Projects (other than
Contributions made in connection with the release of Collateral pursuant to
Section 6.4.2) in excess of the difference between (x) the total aggregate
Project Costs for the Initial Projects, as reflected in the Project Budgets
delivered to the Lead Arrangers on the Closing Date pursuant to Section 3.1.14
less (y) [*];


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                         (vi) at the time of such proposed distribution or
payment, all the Initial Projects are Funded Projects; and

                         (vii) Borrower's Four-Quarter Portfolio Interest
Coverage Ratio as of the most recent calendar quarter shall equal or exceed [*]
to 1.00.

                  (b) Notwithstanding anything herein to the contrary, if
Borrower makes Contributions, or causes Contributions to be made, whether before
or after Commercial Operation of any Project, to itself or its Subsidiaries in
order to enable one or more Project Owners to pay amounts due the applicable
Equipment Finance Company pursuant to an Equipment Lease, such payments under
the applicable Equipment Lease shall not be considered Project Revenues, and if
and to the extent that such payments are not used to pay the purchase price for
such equipment to the vendor thereof, and are in excess of all other
Contributions then required to be made in accordance with this Agreement,
Borrower (or the relevant Subsidiaries) shall be entitled to make distributions
equal to the amount of such Contributions, free and clear of the Liens of the
Collateral Documents.

     6.7 Investments. Make any investments (whether by purchase of stocks,
bonds, notes or other securities, loan, extension of credit, advance or
otherwise) other than Permitted Investments and investments in other Portfolio
Entities.

     6.8 Transactions With Affiliates. Except for (a) the Equity Documents, the
Project Documents and the Additional Project Documents approved by
Administrative Agent and/or the Technical Committee, as the case may be,
pursuant to this Agreement and the transactions permitted thereby, (b)
arms-length transactions in the ordinary course of business, (c) transfers of
ownership interests permitted under Section 6.4.1(c) and the related Equipment
Leases, (d) the Calpine DEC Credit Agreement and documents related thereto, and
(e) as otherwise expressly permitted or contemplated by this Agreement and the
other Credit Documents, directly or indirectly enter into any transaction or
series of transactions relating to an Initial Project, a Funded Subsequent
Project, a Turbine assigned to an Initial Project (as set forth on Exhibit G-3)
or a Funded Turbine with or for the benefit of an Affiliate without the prior
written approval of Administrative Agent; provided, Borrower shall, subject to
Sections 3.2 and 3.3 and except in the case of an Equipment Lease, cause (i) any
Affiliate entering into a Project Document with a Project Owner for the supply
of goods or services to any such Project to deliver to Administrative Agent a
duly executed Affiliated Subordination Agreement substantially in the form of
Exhibit D-8 with conforming changes to address the specifics of such Project or
otherwise in form and substance reasonably satisfactory to Administrative Agent
(or, if applicable, amend an existing Affiliated Subordination Agreement) in
order to subordinate O&M Costs, to the extent satisfactory to Administrative
Agent, that a Project Owner may incur pursuant to such Project Document to the
Obligations and (ii) if such Affiliate is a Subsidiary of Calpine, Calpine to
deliver to Administrative Agent (A) if such Affiliate is a Subsidiary of Calpine
that is directly or indirectly more than 50% owned by Calpine, a duly executed
Affiliated Party Agreement Guaranty (or, if applicable, an amendment to an
existing

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Affiliated Party Agreement Guaranty) in order to evidence Calpine's guaranty of
100% of such Affiliate's performance under such Project Document in favor of
such Project Owner or (B) if such Affiliate is a Subsidiary of Calpine that is
directly or indirectly 50% owned by Calpine, a duly executed Affiliated Party
Agreement Guaranty (or, if applicable, an amendment to an existing Affiliated
Party Agreement Guaranty) in order to evidence Calpine's guaranty of at least
Calpine's percentage ownership in such Affiliate's performance under such
Project Document in favor of such Project Owner and a duly executed guaranty
agreement in favor of such Project Owner executed by a guarantor satisfactory to
the Technical Committee and in form and substance satisfactory to the Technical
Committee in order to evidence such guarantor's guaranty of those obligations of
such Affiliate under such Project Document not otherwise addressed in the
relevant Affiliated Party Agreement Guaranty. Notwithstanding the foregoing, in
no event shall (x) any Project Owner enter into any Project Document with
respect to any Project other than such Project Owner's Project, and (y) Borrower
enter into any Project Document.

     6.9 Regulations. Directly or indirectly apply any part of the proceeds of
any Loan or other revenues to the purchasing or carrying of any margin stock
within the meaning of Regulations T, U or X of the Federal Reserve Board, or any
regulations, interpretations or rulings thereunder.

     6.10 ERISA. Establish, maintain, contribute to or become obligated to
contribute to any ERISA Plan or suffer or permit any member of the Controlled
Group to do so.

     6.11 Partnerships, Etc. Become a general or limited partner in any
partnership or a member in any limited liability company (except, in the case of
Borrower and Intermediate Parents, with respect to other Portfolio Entities)
create and hold stock in any subsidiary (except with respect to other Portfolio
Entities) or, except as otherwise expressly permitted by this Agreement, become
a joint venturer in any joint venture.

     6.12 Dissolution. Except as otherwise expressly permitted by this Agreement
or in connection with the acquisition of a Subsequent Project, liquidate or
dissolve, or sell or lease or otherwise transfer or dispose of all or any
substantial part of its property, assets or business or combine, merge or
consolidate with or into any other entity, or change its legal form, or purchase
or otherwise acquire all or substantially all of the assets of any Person.

     6.13 Amendments; Change Orders; Completion.

         6.13.1 Directly or indirectly, amend, modify, supplement or waive, or
permit or consent to the amendment, modification, supplement or waiver
(including any waiver (or refund) of liquidated damages payable by any Major
Contractor under any Major Construction Contract or any Turbine Purchase
Contractor under any Turbine Purchase Contract) of, any of the provisions of, or
give any consent under, (a) any of (i) the Major Project Documents (other than
Major Gas Supply Contracts, Major Gas Transportation Agreements and Major Power
Purchase Agreements) relating to an Initial Project or a Funded Subsequent
Project or (ii) any of the Turbine Purchase Contracts relating to a Turbine
assigned to an Initial Project (as set forth on Exhibit G-3) or a Funded Turbine
without first submitting to Administrative Agent a copy of such proposed
amendment, modification, supplement or waiver and if, in the reasonable judgment
of Administrative Agent, the amendment, modification, supplement or waiver could
reasonably be expected to have a Material Adverse Effect on Borrower or any
Initial Project, Funded Subsequent Project, Turbine assigned to an Initial
Project (as set forth on Exhibit G-3) or Funded Turbine, obtaining the prior
written consent of the Required Banks thereto, which consent shall not be
unreasonably withheld or delayed or (b) any Project Document between

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Borrower or a Project Owner and an Affiliate thereof relating to an Initial
Project or a Funded Subsequent Project (but not including the amendment,
modification, supplement or waiver of any "Transactions" under any Power
Marketing Agreement or Gas Supply Contract between Borrower and such Affiliate)
without obtaining the prior written consent of the Required Banks thereto.

         6.13.2 Without the prior written consent of Administrative Agent direct
or consent to any change order under any of the Major Construction Contracts
relating to an Initial Project or a Funded Subsequent Project or any of the
Turbine Purchase Contracts relating to a Turbine assigned to an Initial Project
(as set forth on Exhibit G-3) or a Funded Turbine if such change order:

                  (a) in the case of a Project, will, individually or together
with all previous change orders, increase or decrease the Project Costs of a
particular Initial Project or Funded Subsequent Project by more than $2,500,000
in the aggregate (exclusive of increases reimbursed by insurance awards,
condemnation awards or contractual damage awards); provided, however,
notwithstanding the foregoing, Borrower or a Project Owner may direct or consent
to any such change order without the prior written consent of Administrative
Agent if such change order will not individually increase the Project Costs of a
particular Initial Project or Funded Subsequent Project by more than $250,000
and such change order, together with all previous change orders, will not
increase the Project Costs of such Initial Project or Funded Subsequent Project
by more than $5,000,000 in the aggregate (in each case, exclusive of increases
reimbursed by insurance awards, condemnation awards or contractual damage
awards);

                  (b) in the case of a Turbine, will, individually or together
with all previous change orders, increase or decrease the Turbine Costs of a
particular Turbine assigned to a Initial Project (as set forth on Exhibit G-3)
or Funded Turbine by more than $1,000,000 in the aggregate (exclusive of
increases reimbursed by insurance awards, condemnation awards or contractual
damage awards);

                  (c) in the case of a Project, is reasonably likely to delay
Completion of any Project beyond the Loan Maturity Date;

                  (d) is reasonably likely to permit or result in any adverse
modification or impair the enforceability of any warranty under any Major
Construction Contract, any Maintenance Contract or any O&M Agreement relating to
an Initial Project or a Funded Subsequent Project or any warranty under any
Turbine Purchase Contract relating to a Turbine assigned to an Initial Project
(as set forth on Exhibit G-3) or a Funded Turbine, in each case if such
modification or impairment could reasonably be expected to have a Material
Adverse Effect on a Project;

                  (e) is reasonably likely, in the opinion of the Independent
Engineer, to impair or reduce the maximum capacity, efficiency, output,
performance, reliability, durability or availability of any Initial Project,
Funded Subsequent Project, Turbine assigned to an Initial Project (as set forth
on Exhibit G-3) or Funded Turbine, or increase O&M Costs associated with any
Initial Project or Funded Subsequent Project, or decrease Project Revenues from
any Initial

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Project or Funded Subsequent Project, in each case after accounting for other
favorable or unfavorable circumstances which may have affected such Project or
Turbine, as the case may be;

                  (f) is not permitted by any Major Project Document relating to
an Initial Project or a Funded Subsequent Project or Turbine Purchase Contract
relative to a Turbine assigned to an Initial Project (as set forth on Exhibit
G-3) or a Funded Project or would (i) materially diminish any obligation of any
Major Project Participant or Turbine Purchase Contractor, as the case may be, or
(ii) materially increase any obligation of any Portfolio Entity thereunder;

                  (g) is likely, in the reasonable opinion of Administrative
Agent, to present a significant risk of the revocation or material modification
of any Applicable Permit or Third Party Permit relating to an Initial Project or
a Funded Subsequent Project or jeopardize any Project's status as a Qualifying
Facility or an Eligible Facility, as the case may be;

                  (h) may cause any Initial Project, Funded Subsequent Project,
Turbine assigned to an Initial Project (as set forth on Exhibit G-3) or Funded
Turbine not to comply or lessen any such Project's or Turbine's ability to
comply with Legal Requirements; or

                  (i) relates to a Major Construction Contract between any
Portfolio Entity and an Affiliate of Borrower.

         6.13.3 Declare "Completion", "Final Construction Completion", "Final
Project Completion" or "Mechanical Completion" (as such terms are defined in the
Construction Contracts) under the Construction Contracts relating to an Initial
Project or a Funded Subsequent Project or declare that the "Acceptance Date" has
occurred or approve the successful completion of the "Acceptance Tests" relating
to an Initial Project or a Funded Subsequent Project (as such terms are defined
in the Construction Contracts) without the written approval of Administrative
Agent acting in consultation with the Independent Engineer, which approval shall
not be unreasonably withheld or delayed.

         6.13.4 Consent, without Administrative Agent's prior approval, to (a)
any action taken by any Contractor or Turbine Purchase Contractor to conform the
equipment or services provided by such Person to the intellectual property
rights of others if such action could reasonably be expected to materially and
adversely affect a Portfolio Entity's continued use of any Initial Project,
Funded Subsequent Project, Turbine assigned to an Initial Project (as set forth
on Exhibit G-3) or Funded Turbine or (b) to the settlement by any Contractor or
Turbine Purchase Contractor of any claim or proceeding which could reasonably be
expected to materially adversely affect a Portfolio Entity's rights relating to
an Initial Project, a Funded Subsequent Project, a Turbine assigned to an
Initial Project (as set forth on Exhibit G-3) or a Funded Turbine.

         6.13.5 Direct any Major Contractor or Turbine Purchase Contractor to
suspend the work being performed under any Construction Contract or any Turbine
Purchase Contract relating to an Initial Project, a Funded Subsequent Project, a
Turbine assigned to an Initial Project (as set forth on Exhibit G-3) or a Funded
Turbine without Administrative Agent's prior consent.


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Wherever Administrative Agent is required to approve or consent to any change
order under this Section 6.13, Administrative Agent shall use good faith efforts
to respond to each change order request as soon as possible and in all events
within 20 days. No change order shall be deemed approved by Administrative Agent
until expressly approved.

     6.14 Compliance with Operative Documents. Do or permit (to the extent
within its control) to be done in, upon or about any Project or Turbine or any
part thereof, or do or permit (to the extent within its control) to be done any
act under the Operative Documents, or omit or refrain from any act under the
Operative Documents, where such act done or permitted to be done, or such
omission of or refraining from action, could reasonably be expected to have a
Material Adverse Effect on Borrower, an Initial Project or a Funded Subsequent
Project.

     6.15 Name and Location; Fiscal Year. Unless waived in writing by
Administrative Agent, change its name, the location of its principal place of
business or its federal employer identification number without notice to
Administrative Agent at least 45 days prior to such change, or change its fiscal
year without Administrative Agent's consent.

     6.16 Use of Project Sites. Use, or permit to be used, any Site owned or
leased by a Portfolio Entity for any purpose other than for the construction,
operation and maintenance of the Project situated thereon as contemplated by the
Operative Documents, without the prior written approval of Administrative Agent.

     6.17 Assignment. Assign its rights hereunder or under any of the other
Credit Documents, under any of the Project Documents relating to an Initial
Project or a Funded Subsequent Project or under a Turbine Purchase Contract
relating to a Turbine assigned to an Initial Project (as set forth on Exhibit
G-3) or a Funded Turbine, to any Person except as permitted under this Agreement
and the other Credit Documents.

     6.18 Abandonment of Project or Turbine. Except as set forth in Section 6.4,
voluntarily cease or abandon the development, construction or operation of any
Initial Project or Funded Subsequent Project or voluntarily cease or abandon the
procurement of any Turbine assigned to an Initial Project (as set forth on
Exhibit G-3) or Funded Turbine.

     6.19 Hazardous Substance. Release, emit or discharge into the environment
any Hazardous Substances in violation of any Hazardous Substance Laws, Legal
Requirements or Applicable Permits.

     6.20 Additional Project Documents. Except as contemplated under the Power
Marketing Plans and Fuel Plans, enter into or become a party to any Project
Document relating to an Initial Project or a Funded Subsequent Project not in
existence or specifically contemplated pursuant to this Agreement (with the form
of such contemplated agreement approved by the Technical Committee) on the
Funding Date with respect to such Project, except (a) with the prior written
consent of Administrative Agent acting at the direction of the Technical
Committee, and (b) if required by Administrative Agent, upon delivery to
Administrative Agent of a Consent from such third party in substantially the
form of Exhibit E-1; provided that the consent of Administrative Agent and the
Technical Committee shall not be required for a Portfolio Entity to enter into
Additional Project Documents (i) with Persons other than Affiliates of Borrower
and

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(ii) pursuant to which such Portfolio Entity will incur obligations or
liabilities with a value of not more than $1,000,000 individually, or $2,000,000
in the aggregate, per year. In the event that the consent of Administrative
Agent is required in connection with a proposed Project Document pursuant to
this Section 6.20, Administrative Agent shall have 20 days from the time at
which it received such proposed Project Document to approve or disapprove such
proposed Project Document. No proposed Project Document shall be deemed approved
by Administrative Agent until expressly approved.

     6.21 Project Budget Amendments. Directly or indirectly, amend, modify,
allocate, re-allocate or supplement or permit or consent to the amendment,
modification, allocation, re-allocation or supplement of, any of the provisions
of any Project Budget relating to an Initial Project or a Funded Subsequent
Project.

     6.22 Loan Proceeds; Project Revenues. Use, pay, transfer, distribute or
dispose of any Loan proceeds in any manner or for any purposes except as
provided in Section 5.1.1 or of any Project Revenues in any manner or for any
purposes except as provided in Sections 5.1.2, 7.1 and 7.2.

     6.23 Acquisition of Real Property. Acquire or lease any real property or
other interest in real property (excluding the acquisition (but not the
exercise) of any options to acquire any such interests in real property and the
acquisition of any Easements) unless (a) Borrower shall have delivered to
Administrative Agent on behalf of the Banks the Environmental Consultant's Phase
I environmental report with respect to such real property along with a
corresponding reliance letter from the Environmental Consultant confirming that
no Hazardous Substances were found in, on or under such real property and that a
Phase II environmental report is not warranted by the findings of such Phase I
environmental report and (b) if Hazardous Substances were found in, on or under
such real property pursuant to such Phase I environmental report or a Phase II
environmental report is warranted by the findings of such Phase I environmental
report, Borrower shall have either (i) delivered to Administrative Agent on
behalf of the Banks a Phase II environmental report with respect to such real
property along with a corresponding reliance letter from the Environmental
Consultant, confirming, in form and substance satisfactory to Administrative
Agent, either (A) that no Hazardous Substances were found in, on or under such
real property or (B) matters otherwise satisfactory to Administrative Agent or
(ii) delivered to Administrative Agent an environmental indemnity agreement in
form and substance satisfactory to Administrative Agent pursuant to which an
indemnitor satisfactory to Administrative Agent indemnifies the Portfolio
Entities and the Banks from any and all damages or other liabilities relating to
or arising from Hazardous Substances then in, on or under such real property or
otherwise caused by or attributable to such indemnitor.

     6.24 Accounts. Maintain, or permit other Portfolio Entities to maintain,
any bank accounts other than the Accounts.


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                                   ARTICLE 7.
                              APPLICATION OF FUNDS

     7.1 Construction Account.

         7.1.1 Establishment of Account. On or prior to the Closing Date,
Borrower and Administrative Agent shall establish the Construction Account at
the Depositary Agent's New York office and within the Construction Account a
sub-account for each Initial Project (other than Substituted Initial Projects).
On or prior to the initial funding of Construction Loans in respect of a
Substituted Initial Project or a Subsequent Project, Borrower and Administrative
Agent shall establish a sub-account within the Construction Account for such
Project and, on or prior to the initial funding of Turbine Purchase Loans in
respect of a Turbine, Borrower and Administrative Agent shall establish a
sub-account within the Construction Account for such Turbine (a "Turbine
Purchase Sub-Account" and, each sub-account established pursuant to the two
preceding sentences, a "Construction Sub-Account"). Subject to the satisfaction
(or waiver) of the applicable provisions of Article 3 in respect of the
applicable Project or Turbine, as the case may be, there shall be deposited into
each Construction Sub-Account the proceeds of all Loans made hereunder in
respect of the corresponding Project or, in the case of each Turbine Purchase
Sub-Account, the corresponding Turbine, and all amounts required to be deposited
in such Construction Sub-Account pursuant to Sections 3.10(a), 5.1.2 and 5.17.

         7.1.2 Disbursements from Construction Account. Amounts shall be
disbursed from each Construction Sub-Account from time to time as provided in
this Section 7.1. Borrower shall have the right to cause Administrative Agent
(a) to disburse amounts from the Construction Sub-Account for the corresponding
Project to the accounts of each of the Contractors performing work on such
Project for amounts due and owing to such Contractors under the Construction
Contracts, or to any other materialmen, subcontractors, Administrative Agent or
any other Person performing work on such Project in payment of amounts due and
owing to such parties in respect of such Project in accordance with a duly
completed Construction Drawdown Certificate, (b) to transfer up to $250,000 in
any month from the Construction Sub-Account with respect to a Project to the
Operating Account with respect to such Project to pay specified amounts of less
than $50,000, individually, (c) to maintain up to $100,000 in any Operating
Account by transferring amounts from the corresponding Construction Sub-Account
to pay unspecified amounts (the expenditure of which shall be identified, and
substantiated to the reasonable satisfaction of Administrative Agent in the
immediately subsequent Construction Drawdown Certificate), (d) to disburse
amounts from the Turbine Purchase Sub-Account for the corresponding Turbine to
the account of the Turbine Purchase Contractor performing work with respect to
such Turbine in payment for amounts due and owing to such Turbine Purchase
Contractor under the Turbine Purchase Contract in accordance with a duly
completed Turbine Purchase Drawdown Certificate, and (e) to transfer amounts (i)
from the Construction Sub-Account for the corresponding Project to the Operating
Account with respect to such Project for payment by Borrower of amounts due and
owing to Contractors under the Construction Contracts or to any other
materialmen, subcontractors or other Persons performing work on such Project of
amounts due and owing to such parties in respect of such Project in accordance
with a duly completed Construction Drawdown Certificate and (ii) from the
Turbine Purchase Sub-Account for the corresponding Turbine to the Operating
Account for payment by Borrower of amounts due and owing to the Turbine Purchase
Contractor

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performing work with respect to such Turbine for amounts due and owing to such
Turbine Purchase Contractor under the Turbine Purchase Contract in accordance
with a duly completed Turbine Purchase Drawdown Certificate. Borrower agrees
that, where Administrative Agent has not transferred such amounts to the
relevant Operating Account pursuant to clause (e) above, Administrative Agent
may transfer any or all of a Loan and other sums in the applicable Construction
Sub-Account directly into the account of any Contractor or Turbine Purchase
Contractor, as the case may be, for amounts due and owing to such Person under
the relevant Construction Contract or Turbine Purchase Contract, as the case may
be, or any other materialmen or subcontractors in payment of amounts due and
owing to such parties in respect of the applicable Project or Turbine without
further authorization from Borrower; provided, however, that if Borrower has
notified Administrative Agent that it is contesting a claim for payment by any
such Person or a subcontractor or materialmen in accordance with the
requirements of this Agreement and the definition of "Permitted Liens,"
Administrative Agent will not, except as described in the proviso to the next
sentence, be entitled to pay any amount being contested. Borrower hereby
constitutes and appoints Administrative Agent its true and lawful
attorney-in-fact to make such direct payments and this power of attorney shall
be deemed to be a power coupled with an interest and shall be irrevocable;
provided that, except upon the occurrence and continuation of an Event of
Default or a Non-Fundamental Project Default with respect to the relevant
Project, Administrative Agent shall not exercise its rights under this power of
attorney except to make payments (a) as directed by Borrower or (b) which
Administrative Agent reasonably believes, if not promptly made, are reasonably
likely to have a Material Adverse Effect on the applicable Project. No further
direction or authorization from Borrower shall be necessary to warrant or permit
Administrative Agent to make such direct Loans in accordance with the foregoing
sentence, and all such direct Loans shall satisfy pro tanto the obligations of
Administrative Agent and the Banks hereunder, and shall be secured by the
Collateral Documents as fully as if made directly to Borrower, regardless of the
disposition thereof by any Contractor, Turbine Purchase Contractor, or any other
subcontractors, materialmen, laborers or other parties. Upon Completion of a
Project, any amounts remaining in the applicable Construction Sub-Account in
excess of amounts necessary to pay for "punchlist" items for such Project shall,
at Borrower's option, (i) be transferred to the Construction Sub-Account for
another Project, (ii) be transferred to the relevant sub-account of the Revenue
Account, and/or (iii) be applied to prepay Loans. Upon Final Completion of a
Project, any amounts remaining in the Construction Sub-Account for such Project
shall be transferred to the relevant sub-account of the Revenue Account. At any
time when there exists no remaining Turbine Costs for a Funded Turbine, any
amounts remaining in the corresponding Turbine Purchase Sub-Account shall, at
Borrower's option, (i) be transferred to the Construction Sub-Account for
another Turbine, (ii) be transferred to the Construction Sub-Account for a
Project, and/or (iii) be applied to prepay Loans; provided, in the case of
clause (ii) of this sentence, the Turbine Purchase Loans corresponding to such
transferred amounts shall be deemed Construction Loans in the manner set forth
in Section 2.3.5.

         7.1.3 Rights of Administrative Agent. Administrative Agent will have
the right, but not the obligation, to (a) supply any missing endorsements of
Borrower, refuse any item for deposit except as required by the terms of this
Agreement, and pay and charge items payable by Administrative Agent pursuant to
Section 7.1.2 in any order convenient to Administrative Agent; (b) refuse to
honor any check drawn on the Construction Account or any sub-account therein
which is not consistent with this Agreement, or which has been improperly filled
out or

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endorsed; (c) create and charge to the Construction Account or the applicable
Construction Sub-Account overdrafts and all applicable charges; (d) remit copies
of checks and other items with statements instead of the originals which may be
retained by Administrative Agent; and (e) pay fees, interest and other charges
owing by Borrower.

     7.2 Revenue Account.

         7.2.1 Establishment of Account; Priority of Payments. On or prior to
the Closing Date, Borrower and Administrative Agent shall establish the Revenue
Account at the Depositary Agent's New York office and within the Revenue Account
a sub-account for each Initial Project (other than Substituted Initial
Projects). On or prior to the initial funding of Construction Loans in respect
of a Substituted Initial Project or a Subsequent Project, Borrower and
Administrative Agent shall establish a sub-account within the Revenue Account
for such Project. There shall be deposited into the Revenue Account the amounts
specified in Section 5.1.2 and the applicable portion of withdrawals from time
to time from the Working Capital Reserve Account pursuant to Section 7.8.3. So
long as no Event of Default has occurred and is continuing, or will occur upon
giving effect to the application described below, funds in the Revenue Account
shall be applied at the following times and in the following order of priority
by disbursement or internal account transfer by the Depositary Agent, (a) on
Administrative Agent's volition with respect to Waterfall Levels 1 through 6 and
8 or if Administrative Agent reasonably believes that failure to make any such
payment could reasonably be expected to have a Material Adverse Effect with
respect to Borrower or a Project, or (b) pursuant to a disbursement requisition
executed by Borrower, directly to the Person entitled thereto, in each case at
the following times, commencing on the date funds are first deposited in the
Revenue Account, and in the following order of priority (each, a "Waterfall
Level"):

                  (1) from time to time, provided that Administrative Agent has
timely received and approved a Disbursement Requisition delivered pursuant to
Section 7.2.2, amounts in the Revenue Account shall be transferred to a
Project's Operating Account for payment of Senior O&M Costs incurred with
respect to such Project in an amount determined pursuant to Section 7.2.2 below;

                  (2) as and when due under the terms of this Agreement, from
the Revenue Account to the payment of all fees, costs, charges and any other
amounts due and payable to Administrative Agent, LC Bank and the Banks in
connection with this Agreement and the other Credit Documents;

                  (3) as and when due, on a pro rata basis among the Banks, from
the Revenue Account to the payment of interest on the Loans and on Reimbursement
Obligations;

                  (4) as and when due, from the Revenue Account, to repayment of
the Reimbursement Obligations incurred in connection with Letters of Credit;

                  (5) on the last Banking Day of each calendar quarter, as and
to the extent requested by Borrower, from the Revenue Account to the Working
Capital Reserve Account as required by Section 7.8;


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                  (6) on the last Banking Day of each calendar quarter, in the
event that the conditions to distributions set forth in Section 6.6 have been
satisfied, provided that Administrative Agent has timely received and approved a
Disbursement Requisition delivered pursuant to Section 7.2.2, and as and to the
extent requested by Borrower from the Revenue Account to the payment of
Subordinated O&M Costs in an amount determined pursuant to Section 7.2.3 below;

                  (7) on the last Banking Day of each calendar quarter, (a) with
respect to any Non-Affiliated Parent, for payment to such Non-Affiliated Parent
in an amount equal to such Non-Affiliated Parent's percentage interest in the
net Project Revenues from such Project remaining after payment of the amounts
described in clauses (1) through (6) with respect to such Project and other
amounts which Borrower certifies are properly chargeable to such Non-Affiliated
Parent's interest and (b) in the event that the conditions to distributions set
forth in Section 6.6 have been satisfied, for payment of obligations owed to
Persons that are not Affiliates of Borrower and which obligations have been
approved by the Technical Committee in its sole discretion;

                  (8) on the last Banking Day of each calendar quarter, in the
event that the conditions to distributions set forth in Section 6.6 have been
satisfied, for payment to Borrower or distribution by Borrower in amounts
described in and for application in accordance with Section 6.6;

                  (9) on the last Banking Day of each calendar quarter, on a pro
rata basis among the Banks, to the prepayment of principal amounts of the Loans
outstanding; and

                  (10) on the last Banking Day of each calendar quarter,
provided no Loans are then outstanding, to Borrower.

To the extent reasonably practicable, funds in the various sub-accounts of the
Revenue Account shall be applied at each Waterfall Level to costs, payments or
other uses as described in such Waterfall Level related or attributable to the
Project to which such sub-account relates; provided, if funds in any such
sub-account are insufficient for such application, Borrower or Administrative
Agent may apply funds in other sub-accounts of the Revenue Account to such
application; provided further, however, that the Lien of the Collateral
Documents on the Project Revenues from a particular Project shall not secure
Obligations relating to or arising from Projects that had achieved Operation
prior to the date such Lien was granted to Administrative Agent on behalf of the
Banks pursuant to the Credit Documents.

         7.2.2 O&M Costs. Sums shall be transferred to the Operating Accounts
for the payment of Senior O&M Costs as provided in this Section 7.2.2. On or
before the fifth Banking Day prior to the last Banking Day of each month during
which Borrower desires to transfer sums to the Operating Account for the
corresponding Project for the payment of Senior O&M Costs incurred in respect of
the corresponding Project, Borrower shall submit to Administrative Agent a
certificate in the form of Exhibit C-10 detailing the amounts to be so
transferred ("Disbursement Requisition"), which amounts shall not exceed the
Senior O&M Costs incurred in respect of the corresponding Project which have
become, or are anticipated to become, due and payable during such month.
Administrative Agent shall review such Disbursement

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Requisition within five Banking Days following receipt thereof, and shall
transfer the amounts specified therein to the applicable Operating Account for
application in accordance with Waterfall Level 1 to the extent that such
expenditures are in accordance with the terms of the applicable Annual Operating
Budget and this Agreement, as such budget may be exceeded pursuant to the terms
hereof. Notwithstanding anything in this Section 7.2.2 to the contrary, the
transfers to, and expenditures from, the Revenue Account or a sub-account
therein for Senior O&M Costs (other than O&M Costs incurred in an emergency and
fuel costs and netting any O&M Costs consisting of payments under Equipment
Leases against the corresponding Project Revenues resulting from such payments)
payable pursuant to Waterfall Level 1 shall not, without Administrative Agent's
consent, exceed 115% of the aggregate amounts specified in such Annual Operating
Budget. Borrower shall promptly pay or cause to be paid all Senior O&M Costs in
excess of the amounts permitted under the preceding sentence by Contributions of
additional funds; provided, however, that if Administrative Agent subsequently
approves a variation in such Annual Operating Budget which would have allowed
the payment of such excess Senior O&M Costs, Borrower shall be entitled to
recover any such Senior O&M Costs previously paid by Contributions of additional
funds at Waterfall Level 1. Each Disbursement Requisition shall reflect a
reduction in the Senior O&M Costs for which Borrower requests that funds be
transferred to the Operating Account during such month for any amounts which
remain, or are expected to remain, in the applicable Operating Account at the
end of any month as a result of a previous Disbursement Requisition.

         7.2.3 Subordinated O&M Costs. On or before the fifth Banking Day prior
to the end of each calendar quarter on which Borrower desires to make payments
of Subordinated O&M Costs, Borrower shall include in the Disbursement
Requisition submitted pursuant to Section 7.2.2 on such date the amounts to be
so paid, which amounts shall not exceed the Subordinated O&M Costs which have
become due and payable. Administrative Agent shall review such Disbursement
Requisition within five Banking Days following receipt thereof, and, to the
extent funds exist in the Revenue Account after application of amounts in such
account to Waterfall Levels 1 through 5, make payment of the Subordinated O&M
Costs specified therein in accordance with Section 7.2.1 to the designated payee
thereof to the extent that such expenditures are in accordance with the terms of
the relevant Annual Operating Budget.

         7.2.4 Mandatory Prepayment.

                  (a) If on the last Banking Day of any calendar quarter, an
Event of Default shall exist, Borrower shall use all amounts, if any, in the
Revenue Account and all sub-accounts thereof at such time after application of
amounts in such account to Waterfall Levels 1 through 5 (i) to prepay the Loans
(and the Reimbursement Obligations, pro rata), and (ii) upon repayment in full
of the Loans and the Reimbursement Obligations, to repay all other Obligations
of Borrower to the Banks, as designated by Administrative Agent and the Required
Banks.

                  (b) Nothing in this Section 7.2.4 shall limit in any manner
the rights and remedies of Administrative Agent and the Banks upon and during
the continuation of an Event of Default under this Agreement.

     7.3 Operating Account.


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         7.3.1 Establishment of Account. On or prior to the Funding Date for a
Project, the relevant Project Owner and Administrative Agent shall establish at
a mutually acceptable financial institution an account entitled "[RELEVANT]
Project -- Operating Account" (each, an "Operating Account" and collectively,
the "Operating Accounts").

         7.3.2 Funding. From time to time, in accordance with Section 7.1.2 or
the provisions of the Waterfall Levels, Borrower shall cause to be transferred
to the Operating Accounts the amounts specified in Sections 7.1.2, 7.2.1 and
7.2.2, as the case may be.

         7.3.3 Withdrawals. The relevant Project Owner shall be entitled to
withdraw amounts from an Operating Account (a) to pay Project Costs for the
corresponding Project in accordance with Section 7.1.2 or (b) to pay Senior O&M
Costs for the corresponding Project which have become due and payable in respect
of such Project in accordance with the Disbursement Requisition in which such
Senior O&M Costs were described. Amounts transferred to an Operating Account for
the payment of Project Costs which are not, for any reason, applied to the
payment of Project Costs pursuant to the Construction Drawdown Certificate
pursuant to which such amounts were transferred, shall be retained in such
Operating Account for application to the following month's Project Costs in
accordance with Section 7.1.2. Amounts transferred to an Operating Account for
the payment of Senior O&M Costs which are not, for any reason, applied to the
payment of Senior O&M Costs in accordance with the Disbursement Requisition
pursuant to which such amounts were transferred, shall be retained in such
Operating Account for application to the following month's Senior O&M Costs in
accordance with Section 7.2.2.

         7.3.4 Security Interest. Each Operating Account shall be established in
a state in which the Uniform Commercial Code as adopted in such state governs
the creation, perfection and priority of security interests in "Deposit
Accounts" (as defined in such Uniform Commercial Code), and each Operating
Account shall be maintained as a "Deposit Account" in accordance with such
Uniform Commercial Code. The relevant Project Owner shall execute and deliver
such documents and instruments as Administrative Agent shall reasonably request
in order to grant Administrative Agent a perfected first priority Lien in each
Operating Account.

     7.4 Loss Proceeds Account. On or prior to the Closing Date, Borrower and
Administrative Agent shall establish at the Depositary Agent's New York Office
the Loss Proceeds Account, and within the Loss Proceeds Account a sub-account
for each Initial Project (other than Substituted Initial Projects). On or prior
to the initial funding of Construction Loans in respect of a Substituted Initial
Project or a Subsequent Project, Borrower and Administrative Agent shall
establish a sub-account within the Loss Proceeds Account for such Project.
Except where a Project Document for a Funded Project that is not directly or
indirectly wholly-owned by Borrower may, with the approval of the Technical
Committee, direct otherwise, all Insurance Proceeds, Eminent Domain Proceeds and
damage payments described in Section 7.7 shall be deposited in the appropriate
subaccount in the Loss Proceeds Account and applied (a) as specified in Sections
7.5 through 7.7 and (b) if no such application is specified, to the prepayment
of the Loans, and thereafter to payment of all other Obligations of Borrower.

     7.5 Application of Insurance Proceeds.


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         7.5.1 General. Borrower shall notify Administrative Agent of casualties
as provided in Section 5.4.4 and any other casualty as to which Insurance
Proceeds have been made available. Borrower shall keep Administrative Agent
timely apprised of insurance claim proceedings. All amounts and proceeds
(including instruments) in respect of the proceeds of any insurance policy
required to be maintained by a Portfolio Entity hereunder (including the pro
rata portion of such amounts received under any policy maintained by a Joint
Venture) ("Insurance Proceeds") shall be applied as provided in this Section 7.5
except where a Project Document for a Funded Project that is not directly or
indirectly wholly-owned by Borrower may, with the approval of the Technical
Committee, direct otherwise. Except where a Project Document for a Funded
Project that is not directly or indirectly wholly-owned by a Borrower may, with
the approval of the Technical Committee, direct otherwise, and except as set
forth in Section 7.5.9, all Insurance Proceeds (or, in the case of a Project
that is not wholly-owned by a Portfolio Entity, such Portfolio Entity's share of
such Insurance Proceeds) shall be paid by the insurers directly to
Administrative Agent (as loss payee or additional insured as provided in Exhibit
K). If any Insurance Proceeds required to be paid to Administrative Agent
pursuant to the preceding sentence are paid directly to any Portfolio Entity,
Calpine or any other Person with respect to any Project or Turbine by any
insurer, such Insurance Proceeds shall be received only in trust for
Administrative Agent, shall be segregated from other funds of the Portfolio
Entities, Calpine or such other Person, as the case may be, and Borrower shall
cause such amounts to be forthwith paid over to Administrative Agent in the same
form as received (with any necessary endorsement). To the fullest extent that it
effectively may do so under applicable law, Administrative Agent shall apply all
such Insurance Proceeds in accordance with the provisions of this Section 7.5.

         7.5.2 Delay in Start Up and Business Interruption Insurance. Any delay
in start up Insurance Proceeds received by Administrative Agent or any Portfolio
Entity (i) prior to Completion of the Project to which such Insurance Proceeds
relate shall be deposited into the Construction Sub-Account for such Project for
application in accordance with Section 7.1 and (ii) on or after Completion of
the Project to which such Insurance Proceeds relate shall be deposited into the
Revenue Account for application in accordance with Section 7.2.

         7.5.3 Applications; Mandatory Prepayments. All Insurance Proceeds
(other than those described in Sections 7.5.2, 7.5.4 and 7.5.9) and all Eminent
Domain Proceeds shall be applied (a) to the prepayment of Loans and
Reimbursement Obligations, pro rata, and (b) to the payment of all other
Obligations of Borrower, unless, with respect to a Project, each of the
following conditions are satisfied or waived by Administrative Agent, or the
Required Banks, as required pursuant to Section 7.5.5 or 7.5.6, in which event
such amounts shall be applied to the repair or restoration of the Project to
which such Insurance Proceeds or Eminent Domain Proceeds relate in accordance
with the terms of such subsections:

                  (a) such damage or destruction does not constitute the
destruction of all or substantially all of the man-made portion of the Project
to which such Insurance Proceeds or Eminent Domain Proceeds relate;

                  (b) neither a Non-Fundamental Project Default or a
Non-Fundamental Project Inchoate Default with respect to the damaged or
destroyed Project nor an Inchoate Default or an Event of Default has occurred
and is continuing and after giving effect to any


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proposed repair and restoration, such damage or destruction or proposed repair
and restoration will not result in a Non-Fundamental Project Default or
Non-Fundamental Project Inchoate Default with respect to such Project or an
Event of Default or an Inchoate Default;

                  (c) Borrower and the Independent Engineer certify, and
Administrative Agent (with, if applicable, the consent of the Required Banks)
determines in its reasonable judgment, that repair or restoration of the Project
to which such Insurance Proceeds or Eminent Domain Proceeds relate is
technically and economically feasible within a twelve-month period and that a
sufficient amount of funds is or will be available to Borrower and the relevant
Project Owner and, if applicable, the Joint Venturer to make repairs and
restorations; provided, however, that if such Project is not wholly-owned by a
Project Owner, then the Joint Venture Agreement shall, unless otherwise approved
by the Technical Committee, require the other Persons owning an interest in such
Project to use their share of Insurance Proceeds or Eminent Domain Proceeds for
the repair or restoration of such Project;

                  (d) Borrower certifies, and Administrative Agent (with, if
applicable, the consent of the Required Banks) determines in its reasonable
judgment, that a sufficient amount of funds is or will be available to Borrower
to make all payments of Debt Service which will become due during, if any, and
following repair period and to maintain the Four-Quarter Portfolio Interest
Coverage Ratios set forth in the Base Case Project Projections, unless the
Required Banks agree otherwise;

                  (e) if such damage or destruction occurs prior to the
Completion of a Project, such repair or restoration will not adversely affect,
in the reasonable judgment of Administrative Agent in consultation with the
Independent Engineer, achievement of Completion in accordance with the terms and
conditions of this Agreement and the other Credit Documents;

                  (f) no Permit is necessary to proceed with the repair and
restoration of the Project to which such Insurance Proceeds or Eminent Domain
Proceeds relate and no material amendment to the Project Documents, or, except
with the consent of the Required Banks, this Agreement or any of the Credit
Documents, and no other instrument is necessary for the purpose of effecting the
repairs or restorations of the Project to which such Insurance Proceeds or
Eminent Domain Proceeds relate or subjecting the repairs or restorations to the
Liens of the applicable Collateral Documents and maintaining the priority of
such Liens or, if any of the above is necessary, Borrower will be able to obtain
the same as and when required;

                  (g) Administrative Agent shall receive an opinion of counsel
acceptable to Administrative Agent opining as to the Permits described in
paragraph (f) above, and an opinion to the effect that such repairs or
restoration (to the extent constituting Collateral) will be subject to the Liens
of the applicable Collateral Documents at the same level of priority as the
other Collateral; and

                  (h) Administrative Agent shall receive such additional title
insurance, title insurance endorsements, mechanic's lien waivers, certificates,
opinions or other matters as it may reasonably request as necessary or
appropriate in connection with such repairs or restoration


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of the Project to which such Insurance Proceeds or Eminent Domain Proceeds
relate or to preserve or protect the Banks' interests hereunder and in the
applicable Collateral.

         7.5.4 Proceeds Less than $1,000,000. If there shall occur any damage or
destruction of a Project with respect to which Insurance Proceeds received by
the Portfolio Entities for any single loss not in excess of $1,000,000 are
payable, such Insurance Proceeds received by the Portfolio Entities shall be
held by Administrative Agent in the Loss Proceeds Account and released by
Administrative Agent to Borrower in accordance with Section 7.5.7.

         7.5.5 Proceeds in Excess of $1,000,000, Not in Excess of $10,000,000.
Provided that the conditions set forth in Section 7.5.3 have been waived by
Administrative Agent and the Independent Engineer, or have been acknowledged by
such Persons as having been satisfied, if there shall occur any damage or
destruction of a Project with respect to which Insurance Proceeds received by
the Portfolio Entities for any single loss in excess of $1,000,000, but not in
excess of $10,000,000, are payable, such Insurance Proceeds received by the
Portfolio Entities shall be held by Administrative Agent in the Loss Proceeds
Account and released by Administrative Agent to Borrower in accordance with
Section 7.5.7.

         7.5.6 Proceeds in Excess of $10,000,000. Provided that the conditions
set forth in Section 7.5.3 have been waived by Administrative Agent, the
Required Banks and the Independent Engineer, or have been acknowledged by such
Persons as having been satisfied, if there shall occur any damage or destruction
of a Project with respect to which Insurance Proceeds for any single loss in
excess of $10,000,000 are payable, such Insurance Proceeds shall be held by
Administrative Agent in the Loss Proceeds Account and released by Administrative
Agent to Borrower in accordance with Section 7.5.7.

         7.5.7 Repair and Restoration Procedures. Amounts which are to be
applied to repair or restoration of a Project pursuant to this Section 7.5 shall
be disbursed by Administrative Agent from the Loss Proceeds Account in
accordance with the following procedures:

                  (a) Borrower shall cause any repairs or restoration to be
commenced and completed promptly and diligently either using Insurance Proceeds
as contemplated in paragraph (b) below or, to the extent such proceeds are not,
or have not yet been made, available, using Borrower's funds;

                  (b) From time to time (after Administrative Agent or the
Required Banks, if applicable, shall have duly approved the making of such
repairs or restoration), Administrative Agent's authorization of release of
Insurance Proceeds for application toward such repairs or restoration shall be
conditioned upon Borrower's written request and the presentation to
Administrative Agent of all documents, certificates and information with respect
to such Insurance Proceeds which would be required in order to obtain a Loan
under this Agreement, including a certificate from Borrower (i) describing in
reasonable detail the nature of the repairs or restoration to be effected with
such release, (ii) stating the cost of such repairs or restoration and the
specific amount requested to be paid over to or upon the order of Borrower and
that such amount is requested to pay the cost thereof, (iii) stating that the
aggregate amount requested by Borrower in respect of such repairs or restoration
(when added to any other Insurance Proceeds received by the Portfolio Entities
or otherwise made available to a Project in respect of such


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damage or destruction) does not exceed the cost of such repairs or restoration
and that a sufficient amount of funds is or will be available to the Portfolio
Entities to complete the applicable Project, and (iv) stating that neither a
Non-Fundamental Project Inchoate Default with respect to the damaged or
destroyed Project nor an Inchoate Default has occurred and is continuing other
than a Non-Fundamental Project Default with respect to such Project or an Event
of Default resulting solely from such damage or destruction.

         7.5.8 Excess Insurance Proceeds. If, after Insurance Proceeds have been
applied to the repair or restoration of a Project as provided in Sections 7.5.4,
7.5.5 or 7.5.6, the Banks in consultation with the Independent Consultants
determine that such Project will be able to operate at a level enabling Borrower
to satisfy its obligations hereunder as well as before the damage or
destruction, any excess Insurance Proceeds shall be paid into the Revenue
Account. In the event that the Banks in consultation with the Independent
Engineer determine otherwise, such excess Insurance Proceeds shall be applied
(a) to the prepayment of Loans and Reimbursement Obligations, pro rata, and (b)
to the payment of all other Obligations of Borrower.

         7.5.9 Turbine Insurance Proceeds. Any Insurance Proceeds related to
Turbines shall be distributed directly to Borrower, provided that, with respect
to a Funded Turbine, Borrower pays to Administrative Agent the aggregate amount
of the Turbine Purchase Loans then outstanding with respect to such Turbine.
Upon satisfaction of the foregoing condition, Administrative Agent shall execute
and deliver to Borrower such documents and instruments as may be reasonably
necessary to release such Turbine from the Liens of the Collateral Documents and
to permit such transfer of ownership.

         7.5.10 Events of Default. If a Non-Fundamental Project Default with
respect to the damaged or destroyed Project or an Event of Default shall have
occurred and be continuing, then any provisions of this Sections 7.5 to the
contrary notwithstanding, the Insurance Proceeds (including any Permitted
Investments made with such proceeds, which shall be liquidated in such manner as
the Banks shall deem reasonable and prudent under the circumstances) may be
applied by Administrative Agent (a) to curing such Non-Fundamental Project
Default or Event of Default, and any Insurance Proceeds remaining thereafter
shall be applied as provided in this Section 7.5 or (b) if such Non-Fundamental
Project Default or Event of Default cannot be cured, toward payment of all other
Obligations of Borrower, in connection with exercise of the Banks' remedies
pursuant to Article 8.

      7.6 Application of Eminent Domain Proceeds. All amounts and proceeds
(including instruments) received in respect of any Event of Eminent Domain
("Eminent Domain Proceeds") shall be subject to the same treatment as Insurance
Proceeds as provided in Section 7.5.

      7.7 Application of Certain Damages Payments; Mandatory Prepayments.

         7.7.1 Contractor. All delay related liquidated damages (or, in the case
of a Project that is not wholly-owned by a Portfolio Entity, such Portfolio
Entity's share of such liquidated damages) shall (a) if received prior to
Completion of the Project in respect of which they were received, be deposited
in the Construction Account and applied pursuant to Section 7.1 or (b) if
received after Completion of such Project, be deposited in the Revenue Account
and applied pursuant to Section 7.2.1. All performance related liquidated
damages (or, in the case of


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a Project that is not wholly-owned by a Portfolio Entity, such Portfolio
Entity's share of such liquidated damages), including all payments in lieu of
performance related liquidated damages payable by Calpine pursuant to clause
(vii) of the definition of "Completion", shall be applied be applied first to
the prepayment of Loans and Reimbursement Obligations, pro rata, in accordance
with Section 2.1.7 and thereafter to all other Obligations of Borrower.

         7.7.2 Power Purchasers. All damage payments made by Power Marketer or
any other purchaser of the power generated by a Project in satisfaction of such
party's obligations under its purchase agreement (or, in the case of a Project
that is not wholly-owned by a Portfolio Entity, such Portfolio Entity's share of
such damage payments,) shall (a) to the extent such damages are intended to
replace lost revenues, be deposited in the Revenue Account for application as
provided in Section 7.2, and (b) otherwise, applied to (i) the prepayment of
Loans and the Reimbursement Obligations, pro rata, and (ii) to the extent that
all such Loans and Reimbursement Obligations, as applicable, have been prepaid,
applied to the other Obligations of Borrower.

         7.7.3 Other. Except as otherwise expressly permitted under this
Agreement, including this Section 7.7, Borrower shall apply the proceeds of any
other surety, performance or similar bonds and any other liquidated or other
damages paid in respect of damage payments or performance payments by (a) any
contractors or subcontractors or other Persons involved in the construction and
operation of a Project or (b) any Turbine Purchase Contractors with respect to
Turbines (or in the case of a Project or a Turbine that is not wholly-owned by a
Portfolio Entity, such Portfolio Entity's share of such proceeds), to the
prepayment of the Loans and Reimbursement Obligations, pro rata, and thereafter
to the Obligations of Borrower or, with the prior written consent of
Administrative Agent acting in consultation with the Independent Engineer, to
such other application in relation to a Project or a Turbine as Borrower may
request.

      7.8 Working Capital Reserve Account.

         7.8.1 Establishment of Account. On or prior to the Closing Date,
Borrower and Administrative Agent shall establish the Working Capital Reserve
Account at the Depositary Agent's New York office and within the Working Capital
Reserve Account a sub-account for each Initial Project (other than Substituted
Initial Projects). On or prior to the initial funding of Construction Loans in
respect of a Substituted Initial Project or a Subsequent Project, Borrower and
Administrative Agent shall establish a sub-account within the Working Capital
Reserve Account for such Project.

         7.8.2 Funding. On the last Banking Day of each calendar quarter,
Borrower shall cause such portion as Borrower may direct of the amounts then in
the Revenue Account in excess of the amounts applied through Waterfall Level 4
to be deposited into the Working Capital Reserve Account, until the amounts
deposited therein equal the Working Capital Reserve Requirement; provided, if
the applicable Project's Project Budget approved by the Lead Arrangers or the
Technical Committee, as the case may be, pursuant to Article 3 contains initial
working capital as an approved Project Cost, such amounts up to the Working
Capital Reserve Requirement shall be deposited into the Working Capital Reserve
Account on the Completion Date with respect to such Project.


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         7.8.3 Withdrawals. Borrower shall be entitled to submit a duly executed
Reserve Account Disbursement Requisition in substantially the form of Exhibit
C-11 (a "Reserve Account Disbursement Requisition") in order to withdraw amounts
from the Working Capital Reserve Account, including for deposit into the Revenue
Account, to pay all Senior O&M Costs (a) that have become due and payable for
any Initial Project or Funded Subsequent Project, (b) for which insufficient
amounts are available in the Revenue Account or applicable Operating Account and
(c) which, unless Administrative Agent consents, do not, together with all
Senior O&M Costs previously paid during the same calendar year with respect to
such Project, exceed 115% of the amounts of Senior O&M Costs (other than fuel
costs) specified for such Project in the applicable Annual Operating Budget for
such calendar year, or as otherwise approved by Administrative Agent and the
Independent Engineer. To the extent reasonably practicable, funds in the various
sub-accounts of the Working Capital Reserve Account shall be applied to costs,
payments or other uses as described in this Section 7.8 related or attributable
to the Project to which such sub-account relates; provided, if funds in any such
sub-account are insufficient for such application, Borrower or Administrative
Agent may apply funds in other sub-accounts of the Working Capital Reserve
Account to such application.

         7.8.4 Earnings. All earnings on monies in the Working Capital Reserve
Account shall accrue to the Working Capital Reserve Account up to the Working
Capital Reserve Requirement and shall thereafter be deposited in the Revenue
Account.

      7.9 Security Interest in Proceeds and Accounts. Borrower hereby pledges,
assigns and transfers to Administrative Agent on behalf of the Banks and grants
to Depositary Agent on behalf of the Banks a security interest in and to all of
its right, title and interest in and to all Insurance Proceeds and Eminent
Domain Proceeds (to the extent permitted under the Calpine Indenture)
(collectively, "Proceeds"), Accounts, Sub-Accounts and contents of Accounts and
Sub-Accounts, as security for the Loans and the full and faithful performance of
all of Borrower's obligations hereunder and under the other Credit Documents.
Borrower shall not have any rights or powers with respect to any Account except
to have funds on deposit therein applied or distributed in accordance with this
Agreement. Administrative Agent is hereby authorized to reduce to cash any
Permitted Investment (without regard to maturity) in order to make any
application required by any section of this Article 7 or otherwise pursuant to
the Credit Documents. Upon the occurrence and during the continuance of an Event
of Default, Administrative Agent shall have all rights and powers with respect
to Proceeds, the Accounts and the contents of the Accounts as it has with
respect to any other Collateral and may apply such amounts to the payment of
interest, principal, fees, costs, charges or other amounts due or payable to
Administrative Agent or the Banks with respect to the Loans in such order as the
Required Banks may elect in their sole discretion. If such Event of Default
occurs and is continuing, until such time as the Required Banks so elect to
exercise such rights and powers, amounts in the Revenue Account shall continue
to be applied by Administrative Agent to the payment categories specified in
Waterfall Levels 1 (to the extent of actual Senior O&M Costs payable to third
parties that are not Affiliates of Borrower) and 2 through 5 and Level 9, and,
to the extent that Administrative Agent, as directed by the Required Banks
acting in their sole discretion, so elects Waterfall Levels 6, 7, 8 and 10.
Borrower shall not have any rights or powers with respect to such amounts except
as expressly provided in this Article 7.


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      7.10 Permitted Investments. All amounts held by Borrower and/or
Administrative Agent in the Accounts or as Insurance Proceeds or Eminent Domain
Proceeds shall only be invested in Permitted Investments as provided in the
Depositary Agreement. Borrower shall not hold funds in any accounts other than
the Accounts; provided that the relevant Project Owners shall be permitted to
maintain the Operating Accounts in accordance with Section 7.3.

      7.11 Earnings on Accounts. Except as otherwise expressly provided herein,
including with respect to the Revenue Account and the Operating Accounts, all
earnings on funds in any Account maintained hereunder shall, on the last day of
each calendar quarter, be deposited in the Revenue Account.

      7.12 Dominion and Control. Each of the Accounts and the amounts held
thereunder (including Permitted Investments therein) shall at all times be under
the exclusive dominion and control of the Depositary Agent.

      7.13 Termination of Commitments. Upon repayment in full of all Obligations
and expiration or irrevocable termination of all Commitments, Administrative
Agent shall disburse any amounts on deposit in the Accounts to Borrower, or, if
applicable, as directed by a court of competent jurisdiction.

      7.14 Flow of Funds Between Portfolio Entities.

                  (a) On or prior to the Closing Date each of the Project Owners
with respect to the Initial Projects, each of the Turbine Owners with respect to
the Turbines assigned to the Initial Projects (as set forth on Exhibit G-3) and
each Equipment Finance Company (to the extent in existence on the Closing Date)
(in each case, other than such Persons with respect to the Delta Energy Center
Project) shall execute and deliver to Development Company or CCFC II Equipment
Finance Company, as the case may be, a Portfolio Entity Note and, to the extent
not executed and delivered pursuant to the foregoing, on or prior to the initial
funding of Construction Loans in respect of each Funded Project and Turbine
Purchase Loans in respect of each Funded Turbine, the relevant Project Owner,
Turbine Owner, or Equipment Finance Company, as the case may be, shall execute
and deliver to Development Company or CCFC II Equipment Finance Company, as
applicable, a Portfolio Entity Note. On or prior to the Closing Date Development
Company and CCFC II Equipment Finance Company shall execute and deliver to
Borrower a Portfolio Entity Note. The Portfolio Entity Notes which, in
accordance with this Agreement, shall be pledged by Borrower, Development
Company and CCFC II Equipment Finance Company to Administrative Agent pursuant
to the Borrower Security Agreement, the Development Company Security Agreement
and the CCFC II Equipment Finance Company Security Agreement, respectively,
shall evidence the loans made by Borrower to Development Company and CCFC II
Equipment Finance Company, respectively, and CCFC II Equipment Finance Company
and Development Company to the other Portfolio Entities, respectively, in
accordance with Section 7.14(b). In the event that (i) the ownership of a Funded
Turbine or a Turbine assigned to an Initial Project or a Funded Subsequent
Project is transferred from a Turbine Owner to an Equipment Finance Company or
from a Turbine Owner or an Equipment Finance Company to the relevant Project
Owner, (ii) the ownership of a Turbine Owner or an Equipment Finance Company is
transferred from Development Company to CCFC II Equipment Finance Company, or
vice versa, or (iii) the ownership of an Equipment Finance


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Company, a Turbine Owner or a Project Owner is transferred from Development
Company or CCFC II Equipment Finance Company to Borrower or CCFC II Equipment
Finance Holdings Company, the Portfolio Entity Note executed by the Portfolio
Entity whose ownership or assets are transferred may likewise be transferred to
the direct or indirect parent of the Portfolio Entity to whom such assets or
ownership is transferred, subject in all cases to the pledge of such Portfolio
Entity Notes in favor of Administrative Agent, such that the Portfolio Entity
Note executed by each Portfolio Entity shall run to the benefit of the parent of
such Portfolio Entity after giving effect to such transfer. In connection with
any such transfer, Borrower and each relevant Portfolio Entity shall execute and
deliver such amendments to the Collateral Documents or additional Collateral
Documents as the Technical Committee considers necessary to preserve the Banks'
Lien on the Portfolio Entity Notes and any related Collateral.

                  (b) All proceeds of Loans, Contributions and any other amounts
utilized by Borrower with respect to the Projects or the Turbines in accordance
with this Agreement, including amounts disbursed from the Accounts in accordance
with this Article 7, shall constitute, depending on the purpose for which such
payments or other distributions are made, either (i) consecutive loans
consisting first of a loan by Borrower to Development Company and then a loan by
Development Company to the relevant Project Owner, Turbine Owner or Equipment
Finance Company or (ii) consecutive loans consisting first of a loan by Borrower
to CCFC II Equipment Finance Company (or CCFC II Equipment Finance Holdings
Company, if applicable) and then a loan by CCFC II Equipment Finance Company (or
CCFC II Equipment Finance Holdings Company, if applicable) to the relevant
Turbine Owner or Equipment Finance Company, in each case such loans to be
evidenced by the relevant Portfolio Entity Notes as set forth in Section 7.14(a)
above.

                  (c) Borrower shall use its good faith reasonable efforts to
cause all Project Revenues, Insurance Proceeds, Eminent Domain Proceeds, damage
payments (including delay or performance liquidated damage payments) and any
other amounts due any Portfolio Entity to be paid or otherwise delivered by such
Persons making such payment or delivery directly to Borrower for deposit in the
Accounts as required pursuant to this Agreement. Upon the receipt of such
amounts by Borrower, such amounts shall be deemed consecutive repayments of
amounts due and owing first from the relevant Portfolio Entity to Development
Company or CCFC II Equipment Finance Company (or a subsequent holder of the
Portfolio Entity Note, if applicable), as the case may be, and then from
Development Company or CCFC II Equipment Finance Company (or a subsequent holder
of the Portfolio Entity Note, if applicable), as the case may be, to Borrower,
in each case under the corresponding Portfolio Entity Note; provided, to the
extent no amounts are due and owing under such Portfolio Entity Notes such
amounts shall be deemed distributions to Development Company, CCFC II Equipment
Finance Company, CCFC II Equipment Finance Holdings Company, or Borrower, as the
case may be, with respect to its ownership interest in the Portfolio Entity
making such distribution.

                  (d) If any amounts described in Sections 7.14(b) and (c) above
are paid directly to or received directly by any Portfolio Entity, such amounts
shall be received only in trust for Administrative Agent, shall be segregated
from other funds of such Portfolio Entities, and Borrower shall cause such
amounts to be forthwith paid over to (i) in the case of clause (b) above, the
Person to which such amounts are due and owing and (ii) in the case of clause
(c)


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above, Administrative Agent for application in accordance with this Agreement,
in each case in the same form as received (with any necessary endorsement).

                  (e) Other than with respect to the Operating Accounts held by
the relevant Portfolio Entities, no Portfolio Entity, other than Borrower, shall
have any right, power or interest with respect to the Accounts, Sub-Accounts and
contents of Accounts and Sub-Accounts and no such Portfolio Entity shall hold
funds in any accounts.

                                   ARTICLE 8.
                           EVENTS OF DEFAULT; REMEDIES

      8.1 Events of Default. The occurrence of any of the following events shall
constitute an event of default ("Events of Default") hereunder:

         8.1.1 Failure to Make Payments. Borrower shall fail to pay, in
accordance with the terms of this Agreement, (a) any principal on any Loan, or
any Reimbursement Obligation, on the date that such sum is due, (b) any interest
on any Loan or on any Reimbursement Obligation or any scheduled fee, cost,
charge or sum due hereunder or under the other Credit Documents, within three
days after the date that such sum is due, or (c) any other fee, cost, charge or
other sum due under this Agreement within five days after written notice that
such sum is due and has not been paid.

         8.1.2 Judgments. A final judgment or judgments shall be entered against
(i) Calpine in the amount of $25,000,000 or more individually or in the
aggregate or (ii) any Portfolio Entity or the Member in the amount of $1,000,000
or more individually or in the aggregate (other than, in the case of both
clauses (i) and (ii) above, (a) a judgment which is fully covered by insurance
or discharged within 30 days after its entry, or (b) a judgment, the execution
of which is effectively stayed within 30 days after its entry but only for 30
days after the date on which such stay is terminated or expires) or, in the case
of both clauses (i) and (ii) above, which if left unstayed could reasonably be
expected to have a Material Adverse Effect on Borrower.

         8.1.3 Misstatements; Omissions. Any financial statement,
representation, warranty or certificate made or prepared by, under the control
of or on behalf of any Portfolio Entity and furnished to Administrative Agent,
the Lead Arrangers, the Technical Committee or any Bank pursuant to this
Agreement, or in any separate statement or document to be delivered to
Administrative Agent or any Bank hereunder or under any other Credit Document,
shall contain an untrue or misleading statement of a material fact or shall fail
to state a material fact necessary to make the statements therein not misleading
as of the date made, in either case, which could reasonably be expected to
result in a Material Adverse Effect on Borrower.

         8.1.4 Bankruptcy; Insolvency. Any of the Portfolio Entities, the
Member, Calpine, any Construction Manager (so long as such Construction Manager
has outstanding or unperformed obligations under any Construction Management
Agreement), any Operator, any Project Manager, any Joint Venturer, Power
Marketer or any other purchaser of capacity or energy from a Project (so long as
Power Marketer or such other purchaser, as the case may be, has outstanding or
unperformed obligations under the Power Purchase Documents to which it is


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party and such party's Bankruptcy Event could reasonably be expected to have a
Material Adverse Effect on Borrower), any Fuel Supplier (so long as such party's
Bankruptcy Event could reasonably be expected to have a Material Adverse Effect
on Borrower) or any Turbine Purchase Contractor, Major Contractor, Major Gas
Transporter or counterparty to any electrical transmission or interconnection
agreement or material water supply agreement (so long as such Turbine Purchase
Contractor, Major Contractor, Major Gas Transporter or counterparty has
outstanding or unperformed obligations under the Turbine Purchase Contract,
Major Construction Contract, Major Gas Transportation Agreement or other
agreement to which it is a party and such party's Bankruptcy Event could
reasonably be expected to have a Material Adverse Effect on Borrower) shall
become subject to a Bankruptcy Event; provided that, solely with respect to a
Bankruptcy Event affecting any entity other than the Portfolio Entities, the
Member and Calpine, no Event of Default shall occur as a result of such
Bankruptcy Event if the applicable Portfolio Entity obtains a Replacement
Obligor (or, in the case of the occurrence of a Bankruptcy Event with respect to
a Joint Venturer, if such Portfolio Entity or another Person acquired such
Person's interest in such Project or Turbine, as the case may be) for the
affected party within 90 days thereafter and such Bankruptcy Event has not had
and does not have prior to so obtaining such Replacement Obligor (or purchaser
of the Joint Venturer's interest), a Material Adverse Effect on Borrower.

         8.1.5 Debt Cross Default. Except with respect to debt evidenced by the
Portfolio Entity Notes, any Portfolio Entity, Calpine or any other Calpine
Affiliate other than a Calpine Sole Purpose Entity shall default for a period
beyond any applicable grace period (a) in the payment of any principal, interest
or other amount due under any agreement involving the borrowing of money or the
advance of credit and the outstanding amount or amounts payable under all such
agreements equals or exceeds $1,000,000 in the aggregate (or, in the case of
Calpine only, $10,000,000 in the aggregate), or (b) in the payment of any amount
or performance of any obligation due under any guarantee or other agreement if
in either case, pursuant to such default, the holder of the obligation concerned
has the right to accelerate the maturity of an indebtedness evidenced thereby
which equals or exceeds $1,000,000 (or, in the case of Calpine only, $10,000,000
in the aggregate). For purposes of this Section, the term "Calpine Sole Purpose
Entity" shall mean a Calpine Affiliate (i) whose sole purpose is the ownership
and maintenance of a power project (other than a Project) that has been financed
on a non-recourse basis and (ii) that is not directly connected to a Project or
responsible for actions materially and directly affecting a Project.

         8.1.6 ERISA. If any Portfolio Entity or any member of the Controlled
Group should establish, maintain, contribute to or become obligated to
contribute to any ERISA Plan and (a) a reportable event (under Section 4043(b)
or (c) of ERISA for which notice to the PBGC is not waived) shall have occurred
with respect to any ERISA Plan and, within 30 days after the reporting of such
reportable event to Administrative Agent by Borrower (or Administrative Agent
otherwise obtaining knowledge of such event) and the furnishing of such
information as Administrative Agent may reasonably request with respect thereto,
Administrative Agent shall have notified Borrower in writing that (i)
Administrative Agent has made a determination that, on the basis of such
reportable event, there are reasonable grounds for the termination of such ERISA
Plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such ERISA Plan and (ii) as a result
thereof, an Event of Default exists hereunder; or (b) a trustee shall be
appointed by a United States District Court to administer any


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ERISA Plan; or (c) the PBGC shall institute proceedings to terminate any ERISA
Plan; or (d) a complete or partial withdrawal by any Portfolio Entity or any
member of the Controlled Group from any Multiemployer Plan shall have occurred,
or any Multiemployer Plan shall enter reorganization status, become insolvent,
or terminate (or notify Borrower or any member of the Controlled Group of its
intent to terminate) under Section 4041A of ERISA and, within 30 days after the
reporting of any such occurrence to Administrative Agent by Borrower (or
Administrative Agent otherwise obtaining knowledge of such event) and the
furnishing of such information as Administrative Agent may reasonably request
with respect thereto, Administrative Agent shall have notified Borrower in
writing that Administrative Agent has made a determination that, on the basis of
such occurrence, an Event of Default exists hereunder; provided that any of the
events described in this Section 8.1.6 shall involve (A) one or more ERISA Plans
that are single-employer plans (as defined in Section 4001(a)(15) of ERISA) and
under which the aggregate gross amount of unfunded benefit liabilities (as
defined in Section 4001(a)(16) of ERISA), including vested unfunded liabilities
which arise or might arise as the result of the termination of such ERISA Plans,
and/or (B) one or more Multiemployer Plans to which the aggregate liabilities of
the Portfolio Entity and all members of the Controlled Group, shall exceed
$1,000,000.

         8.1.7 Breach of Terms of Agreement.

                  (a) Borrower or the relevant Project Owner under its
respective Project Owner Guaranty shall fail to perform or observe any of the
covenants (in the case of the relevant Project Owner, as if such covenants were
fully set forth and incorporated in its respective Project Owner Guaranty) set
forth in Section 5.1, 5.9(a), 5.9(g), 5.10, 5.11, 5.17, 5.18, 5.24, or Article 6
(other than Section 6.7, 6.8, 6.14, 6.15, 6.20, 6.23 or 6.24).

                  (b) Borrower or the relevant Project Owner under its
respective Project Owner Guaranty shall fail to perform or observe any of the
covenants (in the case of the relevant Project Owner, as if such covenants were
fully set forth and incorporated in its respective Project Owner Guaranty) set
forth in Section 5.4 (unless the event with respect to which notice is required
to be given relates to one or more specific Projects), 5.5 (unless the party
whose financial statements were not properly delivered is not a Calpine
Affiliate), 5.6 (unless the books, accounts or records in question specifically
relate to one or more Projects), 5.7 (unless the failure to comply with the
Legal Requirement in question specifically relates to one or more Projects),
5.12, 5.16.2, 5.16.4, 5.19, 5.20, 5.24, 6.7, 6.8, 6.15, 6.19, or any other
covenant to be observed or performed by it hereunder or any other Credit
Document not otherwise specifically provided for in Section 8.1.7(a), elsewhere
in this Article 8 or in the definition of the term "Non-Fundamental Project
Default" and such failure shall continue unremedied for a period of 30 days
after Borrower becomes aware thereof or receives written notice thereof from
Administrative Agent provided, however, that, if (i) such failure cannot be
cured within such 30 day period, (ii) such failure is susceptible of cure, (iii)
a Portfolio Entity is proceeding with diligence and in good faith to cure such
failure, (iv) the existence of such failure has not had and cannot after
considering the nature of the cure be reasonably expected to have a Material
Adverse Effect on Borrower and (v) Administrative Agent shall have received an
officer's certificate signed by a Responsible Officer of Borrower to the effect
of clauses (i), (ii), (iii) and (iv) above and stating what action the relevant
Portfolio Entity is taking to cure such failure, then such 30 day cure


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period shall be extended to such date, not to exceed a total of 90 days, as
shall be necessary for such Portfolio Entity diligently to cure such failure.

                  (c) Any Non-Affiliated Parent, Portfolio Entity, the Member or
Calpine shall be in breach of, or in default under, its respective Pledge
Agreement (Pledged Equity Interests), Project/Turbine Owner Security Agreement ,
CCFC II Equipment Finance Company Security Agreement, Equipment Finance Company
Security Agreement, Development Company Security Agreement or any other Credit
Document to which it is a party and such failure shall continue unremedied for a
period of 30 days after any such Person becomes aware thereof or receives
written notice thereof from Administrative Agent provided, however, that, if (i)
such failure cannot be cured within such 30 day period, (ii) such failure is
susceptible of cure, (iii) such Person is proceeding with diligence and in good
faith to cure such failure, (iv) the existence of such failure has not had and
cannot after considering the nature of the cure be reasonably expected to have a
Material Adverse Effect on Borrower and (v) Administrative Agent shall have
received an officer's certificate signed by a Responsible Officer of the
relevant Person to the effect of clauses (i), (ii), (iii) and (iv) above and
stating what action the relevant Person is taking to cure such failure, then
such 30 day cure period shall be extended to such date, not to exceed a total of
90 days, as shall be necessary for such Person diligently to cure such failure.

                  (d) Calpine shall be in breach of, or in default under, the
Project Completion Guaranty or the Turbine Purchase Guaranty.

         8.1.8 Loss of Qualifying Facility or Eligible Facility Status.

                  (a) If loss of Qualifying Facility or Eligible Facility status
of a Project could reasonably be expected to have a Material Adverse Effect on
Borrower (i) FERC shall have issued an order determining that any Project has
ceased to be a Qualifying Facility or Eligible Facility, as the case may be, or
(ii) any Project shall have failed to meet the criteria for a Qualifying
Facility or Eligible Facility, as the case may be, and, subject to cure rights
equivalent to those set forth in clause (a)(i) of the definition of
"Non-Fundamental Project Default", shall have failed to obtain a waiver from
FERC on account thereof within six months after the end of any calendar year in
which Borrower knows or should reasonably have known that it has failed to meet
such criteria.

                  (b) Any Portfolio Entity or the Member shall lose the
exemption from regulation under PUHCA.

         8.1.9 Abandonment.

                  (a) At any time prior to the Completion of any Initial Project
(except an Initial Project that has been replaced by a Substituted Initial
Project) or Funded Subsequent Project, a Portfolio Entity shall announce that it
is abandoning such Project or such Project shall be abandoned or work thereon
shall cease for a period of more than 30 consecutive days for any reason (which
period (i) shall be measured from the first occurrence of a work stoppage and
continuing until work of a substantial nature is resumed and thereafter
diligently continued, and (ii) shall not include delays caused by any event of
"force majeure" (as defined in the relevant Project Document) or default by a
Major Project Participant (other than a Portfolio Entity or its


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Affiliates) under the Construction Contracts) or any Project shall not be
constructed substantially in accordance with the Plans and Specifications
(except as to changes therein approved by Administrative Agent).

                  (b) At any time following the Completion of any Initial
Project or Funded Subsequent Project, a Portfolio Entity shall announce that it
is abandoning such Project or such Project shall be abandoned or operation
thereof shall cease for a period of more than 30 consecutive days for any reason
(other than force majeure).

         8.1.10 Security. Any of the Collateral Documents, once executed and
delivered, shall, except as the result of the acts or omissions of
Administrative Agent or the Banks, fail to provide the Banks the Liens, first
priority security interest, rights, titles, interest, remedies permitted by law,
powers or privileges intended to be created thereby or cease to be in full force
and effect with respect to Collateral relating to the Initial Projects, the
Funded Subsequent Projects and the Turbines assigned to the Initial Projects (as
set forth in Exhibit G-3) and the Funded Turbines, or the first priority or
validity thereof or the applicability thereof to the Loans, the Notes, the
Reimbursement Obligations or any other obligations purported to be secured or
guaranteed thereby or any part thereof shall be disaffirmed by or on behalf of
Calpine, the Member or any Portfolio Entity.

         8.1.11 Loss of Control. (a) Calpine shall cease to indirectly own 100%
of the ownership interests in Borrower, (b) the Member shall cease to directly
own 100% of the membership interests in the Borrower, (c) except for (i)
Designated Projects, (ii) Project Owners approved pursuant to Section 3.3 which
are at least directly or indirectly 50% owned by Borrower, and (iii) as
otherwise permitted pursuant to Section 6.4.2, Borrower shall cease to directly
own 100% of the ownership interests in each of the other Portfolio Entities, or
(c) except for (i) Projects approved pursuant to Section 3.3 which are at least
50% owned by a Project Owner, or (ii) as otherwise permitted pursuant to Section
6.4.2, a Project Owner shall cease to directly own or, with respect to Turbines
and other equipment leased pursuant to Equipment Leases, lease 100% of its
respective Project.

         8.1.12 Loss of or Failure to Obtain Applicable Permits or Applicable
Third Party Permits.

                  (a) The relevant Portfolio Entity shall fail to obtain any
Permit on or before the date that such Permit becomes an Applicable Permit with
respect to an Initial Project or a Funded Subsequent Project, or any Major
Project Participant shall fail to obtain any Permit on or before the date that
such Permit becomes an Applicable Third Party Permit with respect to an Initial
Project or a Funded Subsequent Project, and such failure could reasonably be
expected to have a Material Adverse Effect on Borrower or the Projects, taken as
a whole.

                  (b) Any Applicable Permit necessary for operation of any
Initial Project or Funded Subsequent Project shall be materially modified (other
than modifications contemplated in a Project Document requested by a Portfolio
Entity and approved in writing in advance of such modification by Administrative
Agent acting at the direction of the Required Banks which approval shall not be
unreasonably withheld), revoked, canceled or not renewed by the issuing agency
or other Governmental Authority having jurisdiction and within 30 days
thereafter


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Borrower is not able to demonstrate to the reasonable satisfaction of the
Required Banks that such modification or loss of such Permit reasonably could
not be expected to have a Material Adverse Effect on Borrower.

                  (c) Any Third Party Permit necessary for performance by the
applicable Major Project Participant with respect to an Initial Project or a
Funded Subsequent Project, shall be materially modified, revoked, canceled or
not renewed by the issuing agency or other Governmental Authority having
jurisdiction and within 90 days thereafter (i) Borrower is not able to
demonstrate to the reasonable satisfaction of the Required Banks that such
modification or loss of such Third Party Permit will not have a Material Adverse
Effect on Borrower or (ii) a Portfolio Entity is not able to obtain a
Replacement Obligor for such Major Project Participant, where prior to a
Portfolio Entity obtaining such Replacement Obligor such breach or default has
not had and could not reasonably be expected to have, a Material Adverse Effect
on Borrower.

         8.1.13 Loss of Collateral. Any substantial portion of any Portfolio
Entity's property relating to an Initial Project, Funded Subsequent Project or
Turbine is seized or appropriated without fair value being paid therefor so as
to allow replacement of such property and/or prepayment of Loans and to allow
the Portfolio Entities in Administrative Agent's reasonable judgment to continue
satisfying its obligations hereunder and under the other Operative Documents.

         8.1.14 Non-Fundamental Defaults. A Non-Fundamental Project Default has
occurred, is continuing, and could reasonably be expected to have a Material
Adverse Effect with respect to Borrower.

      8.2 Remedies. Upon the occurrence and during the continuation of an Event
of Default, but subject to Section 1(a) of the Project Completion Guaranty,
Administrative Agent, LC Bank and the Banks may, at the election of the Required
Banks, without further notice of default, presentment or demand for payment,
protest or notice of non-payment or dishonor, or other notices or demands of any
kind, all such notices and demands being waived, exercise any or all of the
following rights and remedies, in any combination or order that the Required
Banks may elect, in addition to such other rights or remedies as the Banks may
have hereunder, including without limitation, such rights and remedies under
Section 5.17.3, under the Collateral Documents or at law or in equity:

         8.2.1 No Further Loans or Letters of Credit. Cancel all commitments,
refuse, and Administrative Agent, LC Bank and the Banks shall not be obligated,
to continue any Loans, make any additional Loans, issue, renew, extend or
increase the Stated Amount of any Letter of Credit, or make any payments, or
permit the making of payments, from any Account or any Proceeds or other funds
held by Administrative Agent under the Credit Documents or on behalf of
Borrower.

         8.2.2 Cash Collateralization of Letters of Credit. Maintain in the
Accounts for payment of any Reimbursement Obligations or interest thereon
arising in connection with any outstanding Letter of Credit an amount of cash
equal to the Stated Amount of each such Letter of Credit (plus accrued interest
on the amounts in such Accounts).


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         8.2.3 Prepayment of Loans. Cause the Loans to be prepaid as set forth
in Section 7.2.4.

         8.2.4 Cure by Administrative Agent. Without any obligation to do so,
make disbursements or Loans to or on behalf of Borrower to cure any Event of
Default hereunder and to cure any default and render any performance under any
Project Documents or Turbine Purchase Contracts as the Required Banks in their
sole discretion may consider necessary or appropriate, whether to preserve and
protect the Collateral or the Banks' interests therein or for any other reason,
and all sums so expended, together with interest on such total amount at the
Default Rate (but in no event shall the rate exceed the maximum lawful rate),
shall be repaid by Borrower to Administrative Agent on demand and shall be
secured by the Credit Documents, notwithstanding that such expenditures may,
together with amounts advanced under this Agreement, exceed the aggregate amount
of the Total Loan Commitment, Total Turbine Purchase Loan Commitment and Total
Letter of Credit Commitment.

         8.2.5 Acceleration. Declare and make all sums of accrued and
outstanding principal and accrued but unpaid interest remaining under this
Agreement together with all unpaid fees, costs (including Liquidation Costs and
charges due hereunder or under any other Credit Document), immediately due and
payable and require Borrower immediately, without presentment, demand, protest
or other notice of any kind, all of which Borrower hereby expressly waives, to
pay Administrative Agent or the Banks an amount in immediately available funds
equal to the aggregate amount of any outstanding Reimbursement Obligations,
provided that in the event of an Event of Default occurring under Section 8.1.4
with respect to Borrower, all such amounts shall become immediately due and
payable without further act of Administrative Agent or the Banks.

         8.2.6 Cash Collateral. Apply or execute upon any amounts on deposit in
any Account or any Proceeds or any other monies of Borrower on deposit with
Administrative Agent or any Bank in the manner provided in the Uniform
Commercial Code and other relevant statutes and decisions and interpretations
thereunder with respect to cash collateral.

         8.2.7 Possession of Projects and Turbines. Enter into possession of any
Project or Turbine and perform any and all work and labor necessary to complete
such Project or Turbine substantially according to the Plans and Specifications
or to operate and maintain such Project or Turbine, and all sums expended by
Administrative Agent in so doing, together with interest on such total amount at
the Default Rate, shall be repaid by Borrower to Administrative Agent upon
demand and shall be secured by the Credit Documents to the extent provided
herein, notwithstanding that such expenditures may, together with amounts
advanced under this Agreement, exceed the aggregate amount of the Total Loan
Commitment, Total Turbine Purchase Loan Commitment and Total Letter of Credit
Commitment.

         8.2.8 Remedies Under Credit Documents. Exercise any and all rights and
remedies available to it under any of the Credit Documents, including judicial
or non-judicial foreclosure or public or private sale of any of the Collateral
pursuant to the Collateral Documents.


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                                   ARTICLE 9.
                               SCOPE OF LIABILITY

         Except as set forth in this Article 9, notwithstanding anything in the
Credit Agreement or the other Credit Documents to the contrary, the Banks shall
have no claims with respect to the transactions contemplated by the Operative
Documents against the Portfolio Entities, the Member, Calpine or any of their
respective Affiliates (other than the Portfolio Entities), shareholders,
officers, directors or employees (collectively the "Nonrecourse Persons"), and
the Banks' recourse against the Portfolio Entities shall be limited to the
Collateral, the Projects, the Turbines and the equipment and assets owned by the
Equipment Finance Companies (and all portions thereof and rights or
appurtenances thereto), all Project Revenues, all Proceeds, and all income or
revenues of the foregoing as and to the extent provided herein and in the
Collateral Documents; provided that (a) the foregoing provision of this Article
9 shall not constitute a waiver, release or discharge of any of the
indebtedness, or of any of the terms, covenants, conditions, or provisions of
this Agreement, any other Security Document or Credit Document and the same
shall continue (but without personal liability to the Nonrecourse Person or to
the Portfolio Entities except as provided herein and therein) until fully paid,
discharged, observed, or performed; (b) the foregoing provision of this Article
9 shall not limit or restrict the right of Administrative Agent and/or the Banks
(or any assignee, beneficiary or successor to any of them) to name the Portfolio
Entities or any other Person as a defendant in any action or suit for a judicial
foreclosure or for the exercise of any other remedy under or with respect to
this Agreement or any other Security Document or Credit Document, or for
injunction or specific performance, so long as no judgment in the nature of a
deficiency judgment shall be enforced against any Nonrecourse Person, and
recourse to the Portfolio Entities shall be limited as provided above, except as
set forth in this Article 9, (c) the foregoing provision of this Article 9 shall
not in any way limit or restrict any right or remedy of Administrative Agent
and/or the Banks (or any assignee or beneficiary thereof or successor thereto)
with respect to, and each of the Nonrecourse Persons and the Portfolio Entities
shall remain fully liable to the extent that it would otherwise be liable for
its own actions with respect to, any fraud (which shall not include innocent or
negligent misrepresentation), willful misrepresentation, or misappropriation of
Project Revenues, Proceeds or any other earnings, revenues, rents, issues,
profits or proceeds from or of the Collateral that should or would have been
paid as provided herein or paid or delivered to Administrative Agent or any Bank
(or any assignee or beneficiary thereof or successor thereto) towards any
payment required under this Agreement or any other Credit Document; (d) the
foregoing provision of this Article 9 shall not affect or diminish or constitute
a waiver, release or discharge of any specific written obligation, covenant, or
agreement in respect of any Project or Turbine made by any of the Nonrecourse
Persons or any security granted by the Nonrecourse Persons in support of the
obligations of such persons under any Equity Document or as security for the
obligations of the Portfolio Entities; and (e) nothing contained herein shall
limit the liability of (i) any Person who is a party to any Project Document or
Turbine Purchase Contract or has issued any certificate or other statement in
connection therewith with respect to such liability as may arise by reason of
the terms and conditions of such Project Document or Turbine Purchase Contract
(but subject to any limitation of liability in such Project Document or Turbine
Purchase Contract), certificate or statement, or (ii) any Person rendering a
legal opinion pursuant to this Agreement, in each case under this clause (e)
relating solely to such liability of such Person as may arise under such
referenced agreement, instrument or opinion. The limitations on recourse set
forth in this Article 9 shall survive the termination of this Agreement


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and the full payment and performance of the Obligations hereunder and under the
other Operative Documents.

                                  ARTICLE 10.
             ADMINISTRATIVE AGENT; SUBSTITUTION; TECHNICAL COMMITTEE

      10.1 Appointment, Powers and Immunities.

         10.1.1 Each Bank hereby appoints and authorizes Administrative Agent to
act as its agent hereunder and under the other Credit Documents with such powers
as are expressly delegated to Administrative Agent by the terms of this
Agreement and the other Credit Documents, together with such other powers as are
reasonably incidental thereto. Administrative Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement or in any
other Credit Document, or be a trustee or a fiduciary for any Bank.
Notwithstanding anything to the contrary contained herein Administrative Agent
shall not be required to take any action which is contrary to this Agreement or
any other Credit Documents or any Legal Requirement or exposes Administrative
Agent to any liability. Each of Administrative Agent, the Banks and any of their
respective Affiliates shall not be responsible to any other Bank for any
recitals, statements, representations or warranties made by the Member, any
Portfolio Entity or its Affiliates contained in this Agreement or in any
certificate or other document referred to or provided for in, or received by
Administrative Agent, or any Bank under this Agreement, for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, the
Notes or any other document referred to or provided for herein or for any
failure by the Member, any Portfolio Entity or its Affiliates to perform their
respective obligations hereunder or thereunder. Administrative Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.

         10.1.2 Administrative Agent and its respective directors, officers,
employees or agents shall not be responsible for any action taken or omitted to
be taken by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, except for its or their own gross negligence
or willful misconduct. Without limiting the generality of the foregoing,
Administrative Agent (a) may treat the payee of any Note as the holder thereof
until Administrative Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to Administrative Agent;
(b) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by them in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Bank for
any statements, warranties or representations made in or in connection with any
Project Document, Turbine Purchase Contract or Credit Document; (d) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of any Operative Document on the part
of any party thereto or to inspect the property (including the books and
records) of any Portfolio Entity or any other Person; and (e) shall not be
responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Operative Document or
any other instrument or document furnished pursuant hereto. Except as otherwise
provided under this Agreement, Administrative Agent shall take such action with
respect to the Credit Documents as shall be directed by the Required Banks.


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      10.2 Reliance by Administrative Agent. Administrative Agent shall be
entitled to rely upon any certificate, notice or other document (including any
cable, telegram, telecopy or telex) believed by it to be genuine and correct and
to have been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel, independent accountants and other
experts selected by Administrative Agent. As to any other matters not expressly
provided for by this Agreement, Administrative Agent shall not be required to
take any action or exercise any discretion, but shall be required to act or to
refrain from acting upon instructions of the Required Banks or, where expressly
provided, the Required Banks (except that Administrative Agent shall not be
required to take any action which exposes Administrative Agent to personal
liability or which is contrary to this Agreement, any other Credit Document or
any Legal Requirement) and shall in all cases be fully protected in acting, or
in refraining from acting, hereunder or under any other Credit Document in
accordance with the instructions of the Required Banks (or, where so expressly
stated, the Required Banks), and such instructions of the Required Banks (or
Required Banks, where applicable) and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks.

      10.3 Non-Reliance. Each Bank represents that it has, independently and
without reliance on Administrative Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of the financial condition and affairs of the Portfolio Entities and decision to
enter into this Agreement and agrees that it will, independently and without
reliance upon Administrative Agent, or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own appraisals and decisions in taking or not taking action under this
Agreement. Each of Administrative Agent and any Bank shall not be required to
keep informed as to the performance or observance by the Member, any Portfolio
Entity or its Affiliates under this Agreement or any other document referred to
or provided for herein or to make inquiry of, or to inspect the properties or
books of the Member, any Portfolio Entity or its Affiliates.

      10.4 Defaults. Administrative Agent shall not be deemed to have knowledge
or notice of the occurrence of any Inchoate Default, Event of Default,
Non-Fundamental Project Default or Non-Fundamental Project Inchoate Default
unless Administrative Agent has received a notice from a Bank or Borrower,
referring to this Agreement, describing such Inchoate Default, Event of Default,
Non-Fundamental Project Default or Non-Fundamental Project Inchoate Default and
indicating that such notice is a notice of default. If Administrative Agent
receives such a notice of the occurrence of an Inchoate Default, Event of
Default, Non-Fundamental Project Default or Non-Fundamental Project Inchoate
Default Administrative Agent shall give notice thereof to the Banks and
Borrower. Administrative Agent shall take such action with respect to any
Inchoate Default or Event of Default as is provided in Article 8 or if not
provided for in Article 8, as Administrative Agent shall be reasonably directed
by the Required Banks; provided, however, unless and until Administrative Agent
shall have received such directions, Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Inchoate Default or Event of Default as it shall deem advisable in the
best interest of the Banks.

      10.5 Indemnification. Without limiting the Obligations of Borrower
hereunder, each Bank agrees to indemnify Administrative Agent and its officers,
directors, shareholders, controlling persons, employees, agents and servants,
ratably in accordance with their


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Proportionate Shares for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may at any time be imposed on, incurred by or
asserted against Administrative Agent or any such Person in any way relating to
or arising out of this Agreement or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or the
enforcement of any of the terms hereof or thereof or of any such other
documents; provided, however, that no Bank shall be liable for any of the
foregoing to the extent they arise from Administrative Agent's or any such
Person's gross negligence or willful misconduct. Administrative Agent of any
such Person shall be fully justified in refusing to take or to continue to take
any action hereunder unless it shall first be indemnified to its satisfaction by
the Banks against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. Without limitation of
the foregoing, each Bank agrees to reimburse Administrative Agent and any such
Person promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by Administrative Agent or any such Person in
connection with the preparation, execution, administration or enforcement of, or
legal advice in respect of rights or responsibilities under, the Operative
Documents, to the extent that Administrative Agent or any such Person is not
reimbursed for such expenses by Borrower.

      10.6 Successor Administrative Agent. Administrative Agent acknowledges
that its current intention is to remain Administrative Agent hereunder.
Nevertheless, Administrative Agent may resign at any time by giving written
notice thereof to the Banks and Borrower. Administrative Agent may be removed
involuntarily only for a material breach of its duties and obligations hereunder
or under the other Credit Documents or for gross negligence or willful
misconduct in connection with the performance of its duties hereunder or under
the other Credit Documents and then only upon the affirmative vote of the
Required Banks (excluding Administrative Agent from such vote and Administrative
Agent's Proportionate Share of the Commitment from the amounts used to determine
the portion of the Commitment necessary to constitute the required Proportionate
Share of the remaining Banks). Upon any such resignation or removal, the
Required Banks shall have the right, with the consent of Borrower (such consent
not to be unreasonably withheld or delayed) to appoint a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed by the Required Banks, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Banks' removal of the retiring Administrative Agent, the
retiring Administrative Agent may, on behalf of the Banks, with the consent of
Borrower (such consent not to be unreasonably withheld or delayed), appoint a
successor Administrative Agent, which shall be a Bank, if any Bank shall be
willing to serve, and otherwise shall be a commercial bank having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Administrative Agent under the Operative Documents by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations as Administrative Agent only
under the Credit Documents. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article 10 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under the Operative Documents.


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      10.7 Authorization. Administrative Agent is hereby authorized by the Banks
to execute, deliver and perform each of the Credit Documents to which
Administrative Agent is or is intended to be a party and each Bank agrees to be
bound by all of the agreements of Administrative Agent contained in the Credit
Documents. Administrative Agent is further authorized by the Banks to release
liens on property that the Portfolio Entities permitted to sell or transfer
pursuant to the terms of this Agreement, the other Credit Documents or the
Operative Documents, and to enter into agreements supplemental hereto for the
purpose of curing any formal defect, inconsistency, omission or ambiguity in
this Agreement or any Credit Document to which it is a party.

      10.8 Administrative Agent, Technical Committee, Bookrunner, Arrangers,
Co-Syndication Agents and Co-Documentation Agents. With respect to its
Commitment, the Loans made by it and any Note issued to it, each of the
financial institutions acting as Administrative Agent or as members of the
Technical Committee shall have the same rights and powers under the Operative
Documents as any other Bank and may exercise the same as though it were not
Administrative Agent or a member of the Technical Committee, as the case may be.
The term "Bank" or "Banks" shall, unless otherwise expressly indicated, include
Administrative Agent and members of the Technical Committee, in each case in
their individual capacity. The financial institutions acting as Administrative
Agent and members of the Technical Committee and their Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with Borrower or any other Person, without any
duty to account therefor to the Banks. The parties acknowledge and agree that
the Bookrunner, Arrangers, Co-Syndication Agents and the Co-Documentation Agents
shall not, in such capacities (but not in their capacities as Banks), have any
rights, responsibilities, duties, obligations (including any fiduciary
obligations) or liability hereunder.

      10.9 Amendments; Waivers. Subject to the provisions of this Section 10.9,
unless otherwise specified in this Agreement or another Credit Document, the
Required Banks (or Administrative Agent with the consent in writing of the
Required Banks) and Borrower may enter into agreements supplemental hereto for
the purpose of adding, modifying or waiving any provisions to the Credit
Documents or changing in any manner the rights of the Banks or Borrower
hereunder or waiving any Inchoate Default or Event of Default; provided,
however, that no such supplemental agreement shall, without the consent of all
of the Banks:

                           (i) Modify Section 2.1.1(d), 2.1.2(d), 2.7, 2.8, 2.9,
5.1, 5.17, 6.17, 6.22, 7.1 through 7.14, 8.1.10, 10.1, 10.13, 10.14 or 10.17;

                           (ii) Increase the amount of the Commitment of any
Bank hereunder; or

                           (iii) Reduce the percentage specified in the
definition of Required Banks; or

                           (iv) Permit Borrower to assign its rights under this
Agreement except as provided in Section 6.17, or permit a transfer of ownership
of a Portfolio Entity, a Project or a Turbine except as provided in Section
8.1.11, or


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                          (v) Amend this Section 10.9; or

                          (vi) Release any Collateral from the Lien of any of
the Collateral Documents, except as permitted in Section 6.4, or allow release
of any funds from any Account otherwise than in accordance with the terms
hereof; or

                          (vii) Extend the maturity of any Loan or any of the
Notes or reduce the principal amount thereof, or reduce the rate or change the
time of payment of interest due on any Loan or any Notes; or

                          (viii) Extend the Loan Maturity Date; or

                          (ix) Reduce the amount or extend the payment date for
any amount due under Article 2, whether principal, interest, fees or other
amounts; or

                          (x) Reduce or change the time of payment of any fee
due or payable hereunder; or

                          (xi) Terminate the Project Completion Guaranty or the
Turbine Purchase Guaranty except in accordance with its terms; or

                          (xii) Subordinate the Loans to any other Indebtedness.

Any proposed action to be taken by the Required Banks under the Credit
Documents, including, without limitation, supplemental agreements with Borrower
adding, modifying or waiving any provisions to the Credit Documents or changing
in any manner the rights of the Banks or Borrower hereunder or waiving any
Inchoate Default or Event of Default under this Section 10.9 or Section 3.12,
shall be deemed so taken by the Required Banks unless, after the Banks have
received from Administrative Agent and/or Borrower notice of such proposed
action together with all other documentation and other information reasonably
necessary for the Banks' consideration of such proposed action, Banks having
Proportionate Shares exceeding 33.33% at the time of such notice notify
Administrative Agent of such Banks' disapproval of such proposed action by the
Determination Date.

      10.10 Withholding Tax.

         10.10.1 Administrative Agent may withhold from any interest payment to
any Bank an amount equivalent to any applicable withholding tax. If the forms or
other documentation required by Section 2.6 are not delivered to Administrative
Agent, then Administrative Agent may withhold from any interest payment to any
Bank not providing such forms or other documentation, an amount equivalent to
the applicable withholding tax.

         10.10.2 If the Internal Revenue Service or any authority of the United
States or other jurisdiction asserts a claim that Administrative Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered, was not properly executed, or
because such Bank failed to notify Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Bank shall indemnify
Administrative


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Agent fully for all amounts paid, directly or indirectly, by Administrative
Agent as tax or otherwise, including penalties and interest, together with all
expenses incurred, including legal expenses, allocated staff costs, and any out
of pocket expenses.

         10.10.3 If any Bank sells, assigns, grants participation in, or
otherwise transfers its rights under this Agreement, the purchaser, assignee,
participant or transferee, as applicable, shall comply and be bound by the terms
of Sections 2.6.7, 10.10.1 and 10.10.2 as though it were such Bank.

      10.11 General Provisions as to Payments. Administrative Agent shall
promptly distribute to each Bank, subject to the terms of the assignment and
assumption agreement between Administrative Agent and such Bank, its pro rata
share of each payment of principal and interest payable to the Banks on the
Loans and of fees hereunder received by Administrative Agent for the account of
the Banks and of any other amounts owing under the Loans. The payments made for
the account of each Bank shall be made, and distributed to it, for the account
of (a) its domestic lending office in the case of payments of principal of, and
interest on, its Base Rate Loans, (b) its domestic or foreign lending office, as
each Bank may designate in writing to Administrative Agent, in the case of LIBOR
Loans, and (c) its domestic lending office, or such other lending office as it
may designate for the purpose from time to time, in the case of payments of fees
and other amounts payable hereunder. Banks shall have the right to alter
designated domestic lending offices upon notice to Administrative Agent and
Borrower.

      10.12 Substitution of Bank. Should any Bank fail to make a Loan in
violation of its obligations under this Agreement (a "Non-Advancing Bank"),
Administrative Agent shall (a) in its sole discretion fund the Loan on behalf of
the Non-Advancing Bank or (b) cooperate with Borrower or any other Bank to find
another Person that shall be acceptable to Administrative Agent and that shall
be willing to assume the Non-Advancing Bank's obligations under this Agreement
(including the obligation to make the Loan which the Non-Advancing Bank failed
to make but without assuming any liability for damages for failing to have made
such Loan or any previously required Loan). Subject to the provisions of the
next following sentence, such Person shall be substituted for the Non-Advancing
Bank hereunder upon execution and delivery to Administrative Agent of an
agreement acceptable to Administrative Agent by such Person assuming the
Non-Advancing Bank's obligations under this Agreement, and all interest and fees
which would otherwise have been payable to the Non-Advancing Bank shall
thereafter be payable to such Person. Nothing in (and no action taken pursuant
to) this Section 10.12 shall relieve the Non-Advancing Bank from any liability
it might have to Borrower or to the other Banks as a result of its failure to
make any Loan.

      10.13 Participation.

         10.13.1 Nothing herein provided shall prevent any Bank from selling a
participation in one or more of its Commitments (and Loans made and Letters of
Credit issued thereunder); provided that (a) no such sale of a participation
shall alter such Bank's or Borrower's obligations hereunder, (b) any agreement
pursuant to which any Bank may grant a participation in its rights with respect
to its Commitment (Letters of Credit and Loans) shall provide that, with respect
to such Commitment (Letters of Credit and Loans), subject to the following
proviso, such Bank shall retain the sole right and responsibility to exercise
the rights of


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such Bank, and enforce the obligations of Borrower relating to such Commitment
(Letters of Credit and Loans), including the right to approve any amendment,
modification or waiver of any provision of this Agreement or any other Bank
Document and the right to take action to have the Notes declared due and payable
pursuant to Article 8; provided, however, that such agreement may provide that
the participant may have rights to approve or disapprove decreases in
Commitments, interest rates or fees, lengthening of maturity of any Loans,
extend the payment date for any amount due under Article 2 hereof or release of
any material Collateral. No recipient of a participation in any Commitment or
Loans of any Bank shall have any rights under this Agreement or shall be
entitled to any reimbursement for Taxes, Other Taxes increased costs or reserve
requirements under Sections 2.6 or 2.8 or any other indemnity or payment rights
against Borrower (but shall be permitted to receive from the Bank granting such
participation a proportionate amount which would have been payable to the Bank
from whom such Person acquired its participation).

         10.13.2 Notwithstanding anything to the contrary contained herein, any
Bank (a "Granting Bank") may grant to a special purpose funding vehicle (a
"SPC"), identified as such in writing from time to time by the Granting Bank to
Administrative Agent and Borrower, the option to provide to Borrower all or any
part of any Loan that such Granting Bank would otherwise be obligated to make to
Borrower pursuant to this Agreement; provided that (i) nothing herein shall
constitute a commitment by any SPC to make any Loan, (ii) if an SPC elects not
to exercise such option or otherwise fails to provide all or any part of such
Loan, the Granting Bank shall be obligated to make such Loan pursuant to the
terms hereof. The making of a Loan by an SPC hereunder shall utilize the
Commitment of the Granting Bank to the same extent, and as if, such Loan were
made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be
liable for any indemnity or similar payment obligation under this Agreement (all
liability for which shall remain with the Granting Bank). In furtherance of the
foregoing, each party hereto hereby agrees (which agreement shall survive the
termination of this Agreement) that, prior to the date that is one year and one
day after the payment in full of all outstanding commercial paper or other
senior indebtedness of any SPC, it will not institute against, or join any other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any state thereof. In addition, notwithstanding anything to the
contrary contained in this Section 10.13, any SPC may (i) with notice to, but
without the prior written consent of, Borrower and Administrative Agent and
without paying any processing fee therefor, assign all or a portion of its
interests in any Loans to the Granting Bank or to any financial institutions
(consented to by Borrower and Administrative Agent) providing liquidity and/or
credit support to or for the account of such SPC to support the funding or
maintenance of Loans and (ii) disclose on a confidential basis any non-public
information relating to its Loans to any rating agency, commercial paper dealer
or provider of any surety, guarantee or credit or liquidity enhancement to such
SPC. This section may not be amended without the written consent of the SPC.

      10.14 Transfer of Commitment. Notwithstanding anything else herein to the
contrary, any Bank, after receiving Borrower's prior written consent as to the
identity of the assignee, which consent shall not be unreasonably withheld or
delayed or, so long as an Event of Default has occurred and is continuing,
required, may from time to time, at its option, sell, assign, transfer,
negotiate or otherwise dispose of a portion of one or more of its Commitments
(and Loans made and Letters of Credit issued thereunder) (including the Bank's
interest in this


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Agreement and the other Credit Documents) to any bank or other lending
institution which in such assigning Bank's judgment is reasonably capable of
performing the obligations of a Bank hereunder and reasonably experienced in
project financing; provided, however, that no Bank (including any assignee of
any Bank) may assign any portion of its Commitment (including Loans and Letters
of Credit) of less than $10,000,000 (unless to another Bank) and provided,
further, that assignments of any rights or obligations under any Letter of
Credit shall require the consent of the LC Bank; provided, further, that any
Bank may assign all or any portion of its Commitments to an Affiliate of such
Bank. In the event of any such assignment, (a) the assigning Bank's
Proportionate Share shall be reduced and its obligations hereunder released by
the amount of the Proportionate Share assigned to the new lender, (b) the
parties to such assignment shall execute and deliver to Administrative Agent an
Assignment Agreement evidencing such sale, assignment, transfer or other
disposition substantially in the form of Exhibit L or otherwise satisfactory to
Administrative Agent together with an assignment fee payable to Administrative
Agent of $3,500 (provided such assignment fee shall not be required with respect
to the initial syndication of the Lead Arrangers' and Arrangers' Commitments)
and any other related documentation reasonably requested by Administrative
Agent, including without limitation such withholding tax certificates as may be
appropriate pursuant to Section 2.6.7, (c) at the assigning Bank's option,
Borrower shall execute and deliver to such new lender new Notes in the forms
attached hereto as Exhibit B in a principal amount equal to such new lender's
Commitment, and Borrower shall execute and exchange with the assigning Bank a
replacement note for any Note in an amount equal to the Commitment retained by
the Bank, if any and (d) Administrative Agent may amend Exhibit H attached
hereto to reflect the Proportionate Shares of the Banks following such
assignment. Thereafter, such new lender shall be deemed to be a Bank and shall
have all of the rights and duties of a Bank (except as otherwise provided in
this Article 10), in accordance with its Proportionate Share, under each of the
Credit Documents.

      10.15 Laws. Notwithstanding the foregoing provisions of this Article 10,
no sale, assignment, transfer, negotiation or other disposition of the interests
of any Bank hereunder or under the other Credit Documents shall be allowed if it
would require registration under the federal Securities Act of 1933, as then
amended, any other federal securities laws or regulations or the securities laws
or regulations of any applicable jurisdiction. Borrower shall, from time to time
at the request and expense of Administrative Agent, execute and deliver to
Administrative Agent, or to such party or parties as Administrative Agent may
designate, any and all further instruments as may in the opinion of
Administrative Agent be reasonably necessary or advisable to give full force and
effect to such disposition.

      10.16 Assignability to Federal Reserve Bank. Notwithstanding any other
provision contained in this Agreement or any other Credit Document to the
contrary, any Bank may assign all or any portion of the Loans or Notes held by
it to any Federal Reserve Bank or the United States Treasury as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any Operating Circular issued by such Federal Reserve Bank,
provided that any payment in respect of such assigned Loans or Notes made by
Borrower to or for the account of the assigning and/or pledging Bank in
accordance with the terms of this Agreement shall satisfy Borrower's obligations
hereunder in respect of such assigned Loans or Notes to the extent of such
payment. No such assignment shall release the assigning Bank from its
obligations hereunder.


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      10.17 Technical Committee. Each Bank hereby appoints and authorizes each
of Banc of America Securities LLC, Credit Suisse First Boston, TD Securities
(USA) Inc. and The Bank of Nova Scotia to act as its technical committee
hereunder and under the other Credit Documents (the "Technical Committee") with
such powers as are expressly delegated to the Technical Committee by the terms
of this Agreement and the other Credit Documents, together with such other
powers as are reasonably incidental thereto. The Technical Committee shall not
have any duties or responsibilities except those expressly set forth in this
Agreement or in any other Credit Document, or be a trustee or a fiduciary for
any Bank. Notwithstanding anything to the contrary contained herein the
Technical Committee shall not be required to take any action which is contrary
to this Agreement or any other Credit Documents or any Legal Requirement or
exposes the Technical Committee to any liability. All decisions and
determinations to be made by the Technical Committee hereunder and under the
other Credit Documents shall be made by unanimous consent of its members.
Borrower and each Bank hereby agrees that the protective provisions set forth in
Section 5.11 and Sections 10.1 through 10.5 shall apply to and protect, mutatis
mutandis, each member of the Technical Committee and all determinations,
decisions, actions or inactions taken or omitted to be taken by the Technical
Committee. In the event that any member of the Technical Committee at any time
reduces its Commitment to less than $10,000,000, ceases to be a Bank hereunder
or otherwise resigns from the Technical Committee, the remaining members of the
Technical Committee shall appoint a Bank as a successor member to the Technical
Committee; provided (i) such Bank shall be a Bank with one of the five largest
Commitments at such time among the Banks who are not then members of the
Technical Committee and (ii) Borrower does not reasonably disapprove of such
Bank within two Banking Days of receipt of notice of such Bank's appointment to
the Technical Committee.

      10.18 Notices to Technical Committee and Banks. Administrative Agent
promptly shall deliver all material documents, instruments and notices that it
receives hereunder and under the other Operative Documents to the Technical
Committee and to each Bank that is not a member of the Technical Committee.

                                  ARTICLE 11.
                             INDEPENDENT CONSULTANTS

      11.1 Removal and Fees. Administrative Agent, in its reasonable discretion,
may remove from time to time, any one or more of the Independent Consultants
and, after consulting with Borrower as to an appropriate Person, appoint
replacements as Administrative Agent may choose. Notice of any replacement
Independent Consultant shall be given by Administrative Agent to Borrower, the
Banks and to the Independent Consultant being replaced. All reasonable fees and
expenses of the Independent Consultants (whether the original ones or
replacements) shall be paid by Borrower.

      11.2 Duties. Each Independent Consultant shall be contractually obligated
to Administrative Agent to carry out the activities required of it in this
Agreement and as otherwise requested by Administrative Agent and shall be
responsible solely to Administrative Agent. Borrower acknowledges that it will
not have any cause of action or claim against any Independent Consultant
resulting from any decision made or not made, any action taken or not taken or
any advice given by such Independent Consultant in the due performance in good
faith


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of its duties to Administrative Agent, except to the extent arising from such
Independent Consultant's gross negligence or willful misconduct.

      11.3 Independent Consultants' Certificates.

         11.3.1 Until the receipt by Administrative Agent of certificates
satisfactory to Administrative Agent from each Independent Consultant whom
Administrative Agent considers necessary or appropriate certifying Final
Completion, Borrower shall provide such documents and information to the
Independent Consultants as any of the Independent Consultants may reasonably
consider necessary in order for the Independent Consultants to deliver to
Administrative Agent the following certificates:

                  (a) all certificates to be delivered pursuant to Article 3, if
any, or, if no Loan has taken place in any month, certificates delivered at the
end of the month as to the matters required by Exhibit C-11; and

                  (b) monthly after the Closing Date, a full report and status
of the progress of each Initial Project and Funded Subsequent Project to that
date, a complete assessment of Project Costs to Final Completion of such
Projects and such other information and certification as Administrative Agent
may reasonably require from time to time.

         11.3.2 Following Final Completion of each Project, Borrower shall
provide such documents and information to the Independent Consultants (subject
to the execution by such Independent Consultants of confidentiality agreements
reasonably acceptable to Administrative Agent and Borrower) as they may
reasonably consider necessary in order for the Independent Consultants to
deliver annually to Administrative Agent a certificate setting forth a full
report on the status of such Project and such other information and
certification as Administrative Agent may reasonably require from time to time.

      11.4 Certification of Dates. Administrative Agent will request that the
Independent Consultants act diligently in the issuance of all certificates
required to be delivered by the Independent Consultants hereunder, if their
issuance is appropriate. Borrower shall provide the Independent Consultants with
reasonable notice of the expected occurrence of any such dates or events.

                                   ARTICLE 12.
                                  MISCELLANEOUS

      12.1 Addresses. Any communications between the parties hereto or notices
provided herein to be given may be given to the following addresses:

If to Administrative Agent:      Credit Suisse First Boston, New York Branch
                                 Eleven Madison Avenue
                                 New York, New York  10010-3629
                                 Attn:  Portfolio Management
                                 Telephone No.:  (212) 325-9126
                                 Telecopy No.:  (212) 325-8321


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If to Borrower:                  Calpine Construction Finance Company II, LLC
                                 50 West San Fernando Street
                                 San Jose, California 95113
                                 Attn:  General Counsel
                                 Telephone No.: (408) 995-5115
                                 Telecopy No.: (408) 995-0505

                 and             6700 Koll Center Parkway, Suite 200
                                 Pleasanton, California 94566
                                 Attn:  Corporate Asset Management
                                 Telephone No.: (925) 600-2000
                                 Telecopy No.: (925) 600-8926

If to the Technical Committee:   The Bank of Nova Scotia
                                 One Liberty Plaza, 25th Floor
                                 New York, New York 10006
                                 Attn: Scott Heyer
                                 Telephone No.: (212) 225-5622
                                 Telecopy No.: (212) 225-5090

                                 Credit Suisse First Boston, New York Branch
                                 Eleven Madison Avenue
                                 New York, New York  10010-3629
                                 Attn:  Portfolio Management
                                 Telephone No.: (212) 325-9126
                                 Telecopy No.: (212) 325-8321

                                 Banc of America Securities LLC
                                 600 Montgomery, Ninth Floor
                                 San Francisco, California  94104
                                 Attn:  Raymond Gagne
                                 Telephone No.: (415) 627-2109
                                 Telecopy No.: (415) 627-2734

                                 TD Securities (USA) Inc.
                                 31 West 52nd Street
                                 New York, New York 10019
                                 Attn: Deborah Gravinese
                                 Telephone No.:  (212) 827-7777
                                 Telecopy No.: (212) 827-7778

         All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be considered as properly given (a) if
delivered in person, (b) if sent by overnight delivery service (including
Federal Express, UPS, ETA, Emery, DHL, AirBorne and other similar overnight
delivery services), (c) in the event overnight delivery services are not readily
available, if mailed by first class United States Mail, postage prepaid,
registered or certified with return receipt requested or (d) if sent by prepaid
telegram, or by telecopy or other


                                      141
<PAGE>   156
electronic means (including electronic mail) confirmed by telephone. Notice so
given shall be effective upon receipt by the addressee, except that
communication or notice so transmitted by telecopy or other direct electronic
means shall be deemed to have been validly and effectively given on the day (if
a Banking Day and, if not, on the next following Banking Day) on which it is
transmitted if transmitted before 4:00 p.m., recipient's time, and if
transmitted after that time, on the next following Banking Day; provided,
however, that if any notice is tendered to an addressee and the delivery thereof
is refused by such addressee, such notice shall be effective upon such tender.
Any party shall have the right to change its address for notice hereunder to any
other location within the continental United States by giving of 30 days' notice
to the other parties in the manner set forth hereinabove.

      12.2 Additional Security; Right to Set-Off. Any deposits or other sums at
any time credited or due from Banks and any Project Revenues, securities or
other property of Borrower in the possession of Administrative Agent may at all
times be treated as collateral security for the payment of the Loans and the
Notes and all other obligations of Borrower to Banks under this Agreement and
the other Credit Documents, and Borrower hereby pledges to Administrative Agent
for the benefit of the Banks and grants Administrative Agent a security interest
in and to all such deposits, sums, securities or other property. Regardless of
the adequacy of any other collateral, Administrative Agent and only
Administrative Agent, may execute or realize on the Banks' security interest in
any such deposits or other sums credited by or due from Banks to Borrower, may
apply any such deposits or other sums to or set them off against Borrower's
obligations to Banks under the Notes and this Agreement at any time after the
occurrence and during the continuance of any Event of Default.

      12.3 Delay and Waiver. No delay or omission to exercise any right, power
or remedy accruing to the Banks upon the occurrence of any Event of Default or
Inchoate Default or any breach or default of the Portfolio Entities under this
Agreement or any other Credit Document shall impair any such right, power or
remedy of the Banks, nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring, nor shall any waiver of any single Event of
Default, Inchoate Default or other breach or default be deemed a waiver of any
other Event of Default, Inchoate Default or other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Administrative Agent and/or the Banks of any Event of
Default, Inchoate Default or other breach or default under this Agreement or any
other Credit Document, or any waiver on the part of Administrative Agent and/or
the Banks of any provision or condition of this Agreement or any other Credit
Document, must be in writing and shall be effective only to the extent in such
writing specifically set forth. All remedies, either under this Agreement or any
other Credit Document or by law or otherwise afforded to Administrative Agent,
LC Bank and the Banks, shall be cumulative and not alternative.

      12.4  Costs, Expenses and Attorneys' Fees; Syndication.

         12.4.1 Borrower will pay to Administrative Agent, Lead Arrangers,
Arrangers, Co-Syndication Agents and Co-Documentation Agents all of its
reasonable costs and expenses in connection with the preparation, negotiation,
closing and administering this Agreement and the documents contemplated hereby
and any participation or syndication of the Loans or this


                                      142
<PAGE>   157
Agreement, including the reasonable fees, expenses and disbursements of Latham &
Watkins and other associated local attorneys retained by such Persons in
connection with the preparation of such documents and any amendments hereof or
thereof, or the preparation, negotiation, closing, administration, enforcement,
participation or syndication of the Loans or this Agreement, the reasonable
fees, expenses and disbursements of the Independent Consultants and any other
engineering, insurance and construction consultants to Administrative Agent,
Lead Arrangers, Arrangers, Co-Syndication Agents and Co-Documentation Agents
incurred in connection with this Agreement or the Loans subsequent to the
Closing Date, and the travel and out-of-pocket costs incurred by such Persons
following the Closing Date, and Borrower further agrees to pay Administrative
Agent, Lead Arrangers, Arrangers, Co-Syndication Agents and Co-Documentation
Agents the out-of-pocket costs and travel costs incurred by such Persons in
connection with syndication of the Loans or this Agreement; provided, however,
Borrower shall not be required to pay advertising costs of any of the Banks or
the fees of the Banks' attorneys, other than Latham & Watkins and associated
local counsel or the fees and costs of any engineers or consultants other than
the Independent Engineer and the Independent Consultant engaged by
Administrative Agent. Borrower will reimburse Administrative Agent, Lead
Arrangers, Arrangers, Co-Syndication Agents and Co-Documentation Agents for all
costs and expenses, including reasonable attorneys' fees, expended or incurred
by such Persons in enforcing this Agreement or the other Credit Documents in
connection with an Event of Default or Inchoate Default, in actions for
declaratory relief in any way related to this Agreement or in collecting any sum
which becomes due such Persons on the Notes or under the Credit Documents.

         12.4.2 In connection with syndication of the Loans and Commitments, an
information package containing certain relevant information concerning Borrower,
the Projects, the Turbines and the other Project and Turbine participants has
been provided to potential Banks and participants. Borrower agrees to cooperate
and to cause the Member and Calpine to cooperate in the syndication of the Loans
and Commitments in all respects reasonably requested by Administrative Agent,
Lead Arrangers, Arrangers, Co-Syndication Agents and Co-Documentation Agents,
including participation in bank meetings held in connection with such
syndication, and to provide, for inclusion in any additional package, all
information which such Persons may request from it or which such Persons or
Borrower may consider material to a lender or participant, or necessary or
appropriate for accurate and complete disclosure. Upon request of Administrative
Agent, Lead Arrangers, Arrangers, Co-Syndication Agents and Co-Documentation
Agents, Borrower shall represent to such Persons, and indemnify such Persons for
claims relating to, the accuracy and completeness of such disclosure, upon terms
acceptable to such Persons.

      12.5 Entire Agreement. This Agreement and any agreement, document or
instrument attached hereto or referred to herein integrate all the terms and
conditions mentioned herein or incidental hereto and supersede all oral
negotiations and prior writings in respect to the subject matter hereof. In the
event of any conflict between the terms, conditions and provisions of this
Agreement and any such agreement, document or instrument, the terms, conditions
and provisions of this Agreement shall prevail. This Agreement and the other
Credit Documents may only be amended or modified by an instrument in writing
signed by Borrower, Administrative Agent and any other parties to such
agreements.


                                      143
<PAGE>   158
      12.6 Governing Law. This Agreement, and any instrument or agreement
required hereunder (to the extent not otherwise expressly provided for therein),
shall be governed by, and construed under, the laws of the State of New York,
without reference to conflicts of laws (other than Section 5-1401 of the New
York General Obligations Law).

      12.7 Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

      12.8 Headings. Paragraph headings have been inserted in this Agreement as
a matter of convenience for reference only and it is agreed that such paragraph
headings are not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.

      12.9 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and practices consistent with
those applied in the preparation of the financial statements submitted by
Borrower to Administrative Agent, and all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles and
practices.

      12.10 Additional Financing.  The parties hereto acknowledge that the Banks
have made no agreement or commitment to provide any financing except as set
forth herein.

      12.11 No Partnership, Etc. The Banks and Borrower intend that the
relationship between them shall be solely that of creditor and debtor. Nothing
contained in this Agreement, the Notes or in any of the other Credit Documents
shall be deemed or construed to create a partnership, tenancy-in-common, joint
tenancy, joint venture or co-ownership by or between the Banks, Borrower or any
other Person. The Banks shall not be in any way responsible or liable for the
debts, losses, obligations or duties of the Portfolio Entities or any other
Person with respect to any Project, Turbine or otherwise. All obligations to pay
real property or other taxes, assessments, insurance premiums, and all other
fees and charges arising from the ownership, operation or occupancy of any
Project or Turbine and to perform all obligations and other agreements and
contracts relating to any Project or Turbine shall be the sole responsibility of
the Portfolio Entities.

      12.12 Deed of Trust/Collateral Documents. The Loans are or will be secured
in part by the Deeds of Trust encumbering certain properties associated with the
Projects in such Projects' respective states. Reference is hereby made to the
Deeds of Trust and the other Collateral Documents for the provisions, among
others, relating to the nature and extent of the security provided thereunder,
the rights, duties and obligations of the Portfolio Entities and the rights of
Administrative Agent and the Banks with respect to such security.

      12.13 Limitation on Liability. No claim shall be made by any Portfolio
Entity, the Member, Calpine or any of their Affiliates, against the Banks or any
of their Affiliates, directors, employees, attorneys or agents for any special,
indirect, consequential or punitive damages in respect of any breach or wrongful
conduct (whether or not the claim therefor is based on contract, tort or duty
imposed by law), in connection with, arising out of or in any way related to the
transactions contemplated by this Agreement or the other Operative Documents or
any act or


                                      144
<PAGE>   159
omission or event occurring in connection therewith except to the extent that
any such claims are caused by the willful misconduct of the Banks; and Borrower
hereby waives, releases and agrees not to sue upon any such claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.

      12.14 Waiver of Jury Trial. THE BANKS AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OR
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS
OF THE BANKS OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANKS
TO ENTER INTO THIS AGREEMENT.

      12.15 Consent to Jurisdiction. The Banks and Borrower agree that any legal
action or proceeding by or against Borrower or with respect to or arising out of
this Agreement, the Notes, or any other Credit Document may be brought in or
removed to the courts of the State of New York, in and for the County of New
York, or of the United States of America for the Southern District of New York,
as Administrative Agent may elect. By execution and delivery of the Agreement,
the Banks and Borrower accept, for themselves and in respect of their property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Banks and Borrower irrevocably consent to the service of process out of any of
the aforementioned courts in any manner permitted by law. Nothing herein shall
affect the right of Administrative Agent to bring legal action or proceedings in
any other competent jurisdiction, including judicial or non-judicial foreclosure
of the Deed of Trust. Notwithstanding the foregoing, service of process shall
not be deemed served or mailed to Administrative Agent or the Banks until a copy
of all matters to be served have be mailed to Latham & Watkins, 701 B Street,
Suite 2100, San Diego, California 92101, Attn: Andrew Singer or such other
Person as Administrative Agent or the Banks may hereafter designate by notice
given pursuant to Section 12.1. The Banks and Borrower further agree that the
aforesaid courts of the State of New York and of the United States of America
shall have exclusive jurisdiction with respect to any claim or counterclaim of
Borrower based upon the assertion that the rate of interest charged by the Banks
on or under this Agreement, the Loans and/or the other Credit Documents is
usurious. The Banks and Borrower hereby waive any right to stay or dismiss any
action or proceeding under or in connection with any or all of any Project,
Turbine, this Agreement or any other Credit Document brought before the
foregoing courts on the basis of forum non-conveniens.

      12.16 Usury. Nothing contained in this Agreement or the Notes shall be
deemed to require the payment of interest or other charges by Borrower or any
other Person in excess of the amount which the holders of the Notes may lawfully
charge under any applicable usury laws. In the event that the holders of the
Notes shall collect moneys which are deemed to constitute interest which would
increase the effective interest rate to a rate in excess of that permitted to be
charged by applicable law, all such sums deemed to constitute interest in excess
of the legal rate shall, upon such determination, at the option of the holder of
the Notes, be returned to Borrower or credited against the principal balance of
the Notes then outstanding.


                                      145
<PAGE>   160
      12.17 Knowledge and Attribution. References in this Agreement and the
other Credit Documents to the "knowledge," "best knowledge" or facts and
circumstances "known to" Borrower, and all like references, mean facts or
circumstances of which a Responsible Officer of a Portfolio Entity or the Member
has actual knowledge after due inquiry.

      12.18 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Borrower may not assign or otherwise transfer any of its
rights under this Agreement except as provided in Section 6.17, and the Banks
may not assign or otherwise transfer any of their rights under this Agreement
except as provided in Article 10.

      12.19 Counterparts. This Agreement may be executed in one or more
duplicate counterparts and when signed by all of the parties listed below shall
constitute a single binding agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                      146
<PAGE>   161
         IN WITNESS WHEREOF, the parties have caused this Credit Agreement to be
duly executed by their officers or partners thereunto duly authorized as of the
day and year first above written.

                           CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                           a Delaware limited liability company

                           By:  Calpine CCFC II Holdings, Inc., a Delaware
                           corporation, its sole member.


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           THE BANK OF NOVA SCOTIA
                           as Lead Arranger, Co-Syndication Agent, Bookrunner
                           and Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH as Lead
                           Arranger, Administrative Agent and Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                                      147
<PAGE>   162
                           BANC OF AMERICA SECURITIES LLC,
                           as Arranger and Co-Syndication Agent


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           BANK OF AMERICA, N.A.,
                           as Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           ING (U.S.) CAPITAL LLC,
                           as Arranger, Co-Syndication Agent and Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           BAYERISCHE LANDESBANK GIROZENTRALE,
                           as Arranger, Co-Documentation Agent, LC Bank and Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                                      148
<PAGE>   163
                           CIBC WORLD MARKETS CORP.,
                           as Arranger and Co-Documentation Agent


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           CIBC, INC.,
                           as Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------

                           DRESDNER KLEINWORT BENSON NORTH AMERICA SERVICES LLC,
                           as Arranger and Co-Documentation Agent


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           DRESDNER BANK AG, NEW YORK AND
                           GRAND CAYMAN BRANCHES,
                           as Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                                      149
<PAGE>   164
                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           TD SECURITIES (USA) INC.,
                           as Arranger and Co-Documentation Agent


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                           TORONTO DOMINION (TEXAS) INC.,
                           as Bank


                           By:
                               ----------------------------------------------
                               Name:
                                      ---------------------------------------
                               Title:
                                       --------------------------------------


                                      150

<PAGE>   165
                                                                       EXHIBIT A
                                                             to Credit Agreement

                                   DEFINITIONS

            "Accounts" means the Construction Account, the Revenue Account, the
Operating Accounts, the Working Capital Reserve Account and the Loss Proceeds
Account, including any sub-accounts within such accounts.

            "Acquisitions" means the purchase by Calpine or a Subsidiary thereof
of (a) all of the outstanding ownership interests of Polsky Energy Corporation
and (b) all right, title and interest in and to the assets comprising the Oneta
Energy Center Project.

            "Activation Fee" has the meaning set forth in Section 2.4.3 of the
Credit Agreement.

            "Additional Borrower Equity" has the meaning given in Section 5.17.2
of the Credit Agreement.

            "Additional Commitment" has the meaning given in Section 2.11.2 of
the Credit Agreement.

            "Additional Major Project Document" means an Additional Project
Document that is a Major Project Document.

            "Additional Project Documents" means any material contracts or
agreements related to the construction, testing, maintenance, repair, operation
or use of one or more of the Projects entered into by a Project Owner or an
Equipment Finance Company and any other Person, or assigned to a Project Owner
or an Equipment Finance Company, subsequent to the Funding Date of a particular
Project. Without in any way limiting the foregoing, all such contracts and
agreements providing for the payment by a Project Owner or an Equipment Finance
Company of $1,000,000 or more, or the provision to a Project Owner or an
Equipment Finance Company of $1,000,000 in value of goods or services, entered
into by or assigned to a Project Owner or an Equipment Finance Company after the
Funding Date for the respective Project shall be deemed to constitute an
Additional Project Document.

            "Administrative Agent" means Credit Suisse First Boston, New York
Branch, acting in its capacity as administrative agent for the Banks under the
Credit Agreement, or its successor appointed pursuant to the terms of the Credit
Agreement.

            "Affiliate" of a specified Person means any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the Person specified, or who holds
or beneficially owns 10% or more of the equity interest in the Person specified
or 10% or more of any class of voting securities of the Person specified. When
used with respect to Borrower, "Affiliate" shall include the Member, Calpine and
any Affiliate of the Member or Calpine (other than the Portfolio Entities).



                                       1
<PAGE>   166
            "Affiliated Major Project Participant" means Calpine and each Major
Project Participant (other than the Portfolio Entities) that is an Affiliate of
Calpine.

            "Affiliated Party Agreement Guaranty" means, collectively, for each
Project, the contract or agreement approved by the Technical Committee in
accordance with Section 3.2 or 3.3, as the case may be, of the Credit Agreement
or as otherwise required thereby entered into by Calpine in favor of the Project
Owner with respect to such Project guarantying in whole or in part the
obligations of Subsidiaries of Calpine (other than Equipment Finance Companies)
pursuant to Project Documents to which such Subsidiaries are party.

            "Affiliated Subordination Agreement" means, collectively, for each
Affiliate of Borrower (other than Equipment Finance Companies) providing goods
or services to a Project, the contract or agreement approved by the Technical
Committee in accordance with Section 3.2 or 3.3, as the case may be, of the
Credit Agreement or as otherwise required thereby entered into by such Affiliate
in favor of Administrative Agent for the subordination of O&M Costs as provided
therein.

            "Aggregate LC Stated Amount" means, as of any time, the aggregate
Stated Amount of all Letters of Credit issued and outstanding under the Credit
Agreement.

            "Annual Operating Budget" has the meaning given in Section 5.15.2 of
the Credit Agreement.

            "Applicable Debt to Capitalization Ratio" means (a) for so long as
there exist fewer than nine Funded Projects, a Debt to Capitalization Ratio of
0.70 to 1.00, (b) for so long as there exist nine Funded Projects, a Debt to
Capitalization Ratio of 0.675 to 1.00, (c) for so long as there exist 10 Funded
Projects, a Debt to Capitalization Ratio of 0.65 to 1.00, (d) for so long as
there exist 11 Funded Projects, a Debt to Capitalization Ratio of 0.625 to 1.00,
(e) for so long as there exist 12 Funded Projects, a Debt to Capitalization
Ratio of 0.60 to 1.00, and (f) for so long as there exist more than 12 Funded
Projects, a Debt to Capitalization Ratio of 0.70 to 1.00. For purposes of
determining the Applicable Debt to Capitalization Ratio, Funded Projects that
are released from the Lien of the Collateral Documents as provided in the Credit
Agreement shall not thereafter be considered Funded Projects.

            "Applicable Margin" shall mean, for all Loans, the amount set forth
below for the applicable Type of Loan (with (lambda) being Borrower's Debt to
Capitalization Ratio):

<TABLE>
<CAPTION>
                  Debt to
               Capitalization     Base Rate,        LIBO Rate
   Level      Ratio (Projects)     (% p.a.)         (% p.a.)
<S>           <C>                 <C>               <C>
     I       (lambda)=/<50%             0.75%            1.50%

     II     50%<(lambda)=/<60%          1.00%            1.75%

    III        60%<(lambda)             1.50%            2.25%
</TABLE>

                                       2
<PAGE>   167
            "Applicable Permit" means any Permit, including any zoning,
environmental protection, pollution (including air, water or noise), sanitation,
FERC, PUC, import, export, safety, siting or building Permit (a) that is
necessary to be obtained by or on behalf of a Project Owner at the time the
determination is made in light of the stage of development, construction or
operation of a Project (to the extent required by Legal Requirements or the
Operative Documents) to construct, test, operate, maintain, repair, own or use a
Project as contemplated by the Operative Documents, to sell electricity and
steam therefrom, for a Project Owner to enter into any Operative Document or to
consummate any transaction contemplated thereby, in each case in accordance with
all applicable Legal Requirements, (b) that is necessary so that none of
Borrower or the other Portfolio Entities, Administrative Agent, Lead Arrangers,
Technical Committee or the Banks nor any Affiliate of any of them may be deemed
by any Governmental Authority to be subject to regulation under the FPA or PUHCA
or under any state laws or regulations respecting the rates of, or the financial
or organizational regulation of, electric utilities as a result of the
construction or operation of a Project or the sale of electricity or steam
therefrom, or (c) that is listed on Part I(A) of any Permit Schedule.

            "Applicable Third Party Permit" means any Permit, including any
zoning, environmental protection, pollution, sanitation, FERC, PUC, import,
export, safety, siting or building Permit (a) that is necessary to be obtained
by any Person (other than a Project Owner) that is a party to a Project
Document, a Credit Document or an Additional Project Document in order to
perform such Person's obligations under and as contemplated by the Operative
Documents to which such Person is a party, or in order to consummate any
transaction contemplated thereby, in each case in accordance with all applicable
Legal Requirements or (b) that is listed on Part I(B) of any Permit Schedule.

            "Arrangers" means each of Banc of America Securities LLC, ING
(U.S.) Capital LLC, Bayerische Landesbank Girozentrale, CIBC World Markets
Corp., Dresdner Kleinwort Benson North America Services LLC and TD Securities
(USA) Inc. as the arrangers of the Commitments.

            "Available Construction Funds" means, at any time and without
duplication, the sum of (a) amounts in the Construction Account and all
subaccounts thereunder other than the Turbine Purchase Sub-Account (provided,
however, that amounts in any given Construction Sub-Account shall only be taken
into account to the extent of the Project Costs remaining to be paid in respect
of the Project to which such Construction Sub-Account relates), (b) the
Available Loan Commitment, (c) undisbursed Insurance Proceeds which are
available for payment of Project Costs, (d) any delay liquidated damages which
Borrower or another Portfolio Entity has received under any Construction
Contract, (e) any other liquidated damages which Borrower or another Portfolio
Entity has received under the other Project Documents and which, by the terms of
the Credit Agreement, are available for the payment of Project Costs, (f) any
undisbursed amounts on deposit with Administrative Agent or Depositary Agent
constituting Base Equity or Additional Borrower Equity or amounts deposited
pursuant to Section 3.10(a) of the Credit Agreement which are designated to be
used to pay Project Costs but not Turbine Costs other than Turbine Costs for
Turbines assigned to the applicable Project(s) (as set forth on Exhibit G-3 to
the Credit Agreement), (g) the Base Equity required to be funded pursuant to
Section 5.17.1 of the Credit Agreement and (h) any other Committed Equity Funds
which are designated to be


                                       3
<PAGE>   168
used to pay Project Costs but not Turbine Costs other than Turbine Costs for
Turbines assigned to the applicable Project(s) (as set forth on Exhibit G-3 to
the Credit Agreement).

            "Available Loan Commitment" means at any time and from time to time
during the Loan Availability Period, the Total Loan Commitment at such time
minus the sum of (a) the aggregate principal amount of all Loans outstanding at
such time plus (b) the aggregate Stated Amount of all Letters of Credit and
outstanding Reimbursement Obligations thereunder at such time.

            "Bank" or "Banks" means the banks and other financial institutions
that are or become parties to the Credit Agreement and their successors and
assigns including each LC Bank.

            "Banking Day" means any day other than a Saturday, Sunday or other
day on which banks are or Administrative Agent is authorized to be closed in the
State of New York or the State of California and, where such term is used in any
respect relating to a LIBOR Loan, which is also a day on which dealings in
Dollar deposits are carried out in the London interbank market.

            "Bankruptcy Event" shall be deemed to occur, with respect to any
Person, if that Person shall institute a voluntary case seeking liquidation or
reorganization under the Bankruptcy Law, or shall consent to the institution of
an involuntary case thereunder against it; or such Person shall file a petition
or consent or shall otherwise institute any similar proceeding under any other
applicable Federal or state law, or shall consent thereto; or such Person shall
apply for, or by consent or acquiescence there shall be an appointment, of a
receiver, liquidator, sequestrator, trustee or other officer with similar powers
for itself or any substantial part of its assets; or such Person shall make an
assignment for the benefit of its creditors; or such Person shall admit in
writing its inability to pay its debts generally as they become due; or if an
involuntary case shall be commenced seeking liquidation or reorganization of
such Person under the Bankruptcy Law or any similar proceedings shall be
commenced against such Person under any other applicable Federal or state law
and (i) the petition commencing the involuntary case is not timely controverted,
(ii) the petition commencing the involuntary case is not dismissed within 60
days of its filing, (iii) an interim trustee is appointed to take possession of
all or a portion of the property, and/or to operate all or any part of the
business of such Person and such appointment is not vacated within 60 days, or
(iv) an order for relief shall have been issued or entered therein; or a decree
or order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee or other officer having similar
powers, of such Person or all or a part of its property shall have been entered;
or any other similar relief shall be granted against such Person under any
applicable Federal or state law.

            "Bankruptcy Law" means Title 11, United States Code, and any other
state or federal insolvency, reorganization, moratorium or similar law for the
relief of debtors, or any successor statute.

            "Base Case Project Projections" means a projection of operating
results for the Projects over a period ending no sooner than the Loan Maturity
Date, showing at a minimum Borrower's reasonable good faith estimates, as of the
date of delivery, of revenue, operating


                                       4
<PAGE>   169
expenses, Four-Quarter Portfolio Interest Coverage Ratios (on an annual basis),
Debt to Capitalization Ratios projected to exist from time to time and sources
and uses of revenues over the forecast period, in each case as delivered
pursuant to Section 3.1.16, 3.2.24, 3.3.27 or 3.3.41 of the Credit Agreement.

            "Base Equity" has the meaning given in Section 5.17.1 of the Credit
Agreement.

            "Base Rate" means the greater of (a) the prime commercial lending
rate announced by Credit Suisse First Boston at its New York office or (b) the
Federal Funds Rate plus 0.50%.

            "Base Rate Construction Loan" has the meaning given in Section
2.1.1(b)(i) of the Credit Agreement.

            "Base Rate Loans" means, collectively, the Base Rate Construction
Loans and the Base Rate Turbine Purchase Loans.

            "Base Rate Turbine Purchase Loans" has the meaning given in Section
2.1.2(b)(i) of the Credit Agreement.

            "Baytown Energy Center Project" means the Initial Project titled
"Baytown Energy Center" set forth on Exhibit G-1 to the Credit Agreement.

            "Beneficiary" has the meaning given in the granting clause of the
Deeds of Trust.

            "Bookrunner" means The Bank of Nova Scotia.

            "Borrower" means Calpine Construction Finance Company II, LLC, a
Delaware limited liability company.

            "Borrower Security Agreement" means the Borrower Security Agreement
dated as of October 16, 2000 in substantially the form of Exhibit D-4A to the
Credit Agreement as executed by Borrower in favor of Administrative Agent.

            "Borrower's Environmental Consultant" means with respect to any
Project, the Person providing environmental consulting services and site
assessment report(s) to the Portfolio Entities with respect to such Project and
who provides a reliance letter in form and substance reasonably acceptable to
the Technical Committee.

            "Borrowing" means a borrowing by Borrower of any Loan or the
issuance, renewal, extension or increase in the Stated Amount of any Letter of
Credit.

            "Broad River - Phase II Project" means the Initial Project titled
"Broad River Energy Center II" set forth on Exhibit G-1 to the Credit Agreement.

            "Calpine" means Calpine Corporation, a Delaware corporation.


                                       5
<PAGE>   170
            "Calpine DEC Credit Agreement" means the Credit Agreement between
Calpine, as lender, and the Delta Energy Center Project Owner, as borrower, and
to which Borrower and/or Development Company will become parties (as lenders),
pursuant to which Calpine and, after becoming party, Borrower and/or Development
Company will loan funds on a secured basis to the Delta Energy Center Project
Owner to pay Project Costs incurred with respect to such Project, such agreement
and all other documents associated therewith to be in form and substance
satisfactory to the Technical Committee.

"Calpine Indenture" means, collectively, (a) that certain Indenture dated
February 17, 1994 relating to the principal amount of $105,000,000 9 1/4% Senior
Notes due 2004 by and between Calpine and State Street Bank and Trust Company
(as successor to Shawmut Bank Connecticut), as trustee, as supplemented by that
certain First Supplemental Indenture, dated as of July 31, 2000; (b) that
certain Indenture dated as of May 16, 1996 relating to the issuance of the
principal amount of $180,000,000 of 10 1/2% Senior Notes due 2006, by and
between Calpine and State Street Bank and Trust Company (as successor to Fleet
National Bank), as trustee, as supplemented by that certain First Supplemental
Indenture, dated as of August 1, 2000; (c) that certain Indenture dated as of
July 8, 1997 relating to the issuance of a principal amount of $275,000,000,
8 3/4% Senior Notes due 2007, by and between Calpine and The Bank of New York,
as trustee, as supplemented by that certain First Supplemental Indenture dated
as of September 10, 1997 and that certain Second Supplemental Indenture, dated
as of July 31, 2000; (d) that certain Indenture dated as of March 31, 1998
relating to the issuance of a principal amount of $400,000,000, 7 7/8% Senior
Notes due 2008, by and between Calpine and the Bank of New York, as trustee, as
supplemented by that certain First Supplemental Indenture dated as of July 24,
1998 and that Second Supplemental Indenture, dated as of July 31, 2000; (e) that
certain Indenture, dated as of March 29, 1999, relating to the issuance of a
principal amount of $250,000,000, 7 5/8% Senior Notes due 2006 and the issuance
of a principal amount of $350,000,000, 7 3/4% Senior Notes due 2009 by and
between Calpine and The Bank of New York, as trustee, as supplemented by that
certain First Supplemental Indenture, dated as of July 31, 2000; (f) that
certain Indenture, dated as of August 10, 2000, relating to the issuance of a
principal amount of $250,000,000, 8 1/4% Senior Notes due 2005 and the issuance
of a principal amount of $750,000,000, 8 5/8% Senior Notes due 2010 by and
between Calpine and Wilmington Trust, as trustee, as supplemented by that
certain First Supplemental Indenture, dated as of September 28, 2000; and (g)
such additional indentures relating to senior notes of Calpine issued after the
date hereof.

            "Capital Adequacy Requirement" has the meaning given in Section
2.8.4 of the Credit Agreement.

            "Capitalization" means, at any time, the sum of (x) the aggregate
Debt of the Portfolio Entities at such time (except (a) Debt consisting of
Contributions made in the form of subordinated loans and (b) Portfolio Entity
Debt) and (y) the Net Worth of the Portfolio Entities at such time. The Debt and
Net Worth of the Portfolio Entities with respect to partially owned Projects
shall be determined in accordance with GAAP.

            "Carville Project" means the Initial Project titled "Carville Energy
Center" set forth on Exhibit G-1 to the Credit Agreement.


                                       6
<PAGE>   171
            "CCFC II Equipment Finance Company" means CCFC II Equipment Finance
Company, LLC, a Delaware limited liability company.

            "CCFC II Equipment Finance Company Security Agreement" means the
CCFC II Equipment Finance Company Security Agreement dated as of October 16,
2000 in substantially the form of Exhibit D-4D to the Credit Agreement as
executed by CCFC II Equipment Finance Company in favor of Administrative Agent.

            "CCFC II Equipment Finance Holdings Company" means CCFC II Equipment
Finance Holdings Company, LLC, a Delaware limited liability company.

            "Change of Law" has the meaning given in Section 2.8.2 of the Credit
Agreement.

            "Closing Date" means the date when each of the conditions precedent
listed in Section 3.1 of the Credit Agreement has been satisfied (or waived in
accordance with the terms of the Credit Agreement).

            "COD" means, with respect to a Project, the date on which such
Project has achieved Commercial Operation.

            "Co-Documentation Agents" means each of Bayerische Landesbank
Girozentrale, CIBC World Markets Corp., Dresdner Kleinwort Benson North America
Services LLC and TD Securities (USA) Inc.

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

            "Collateral" means all real and personal property which is subject
or is intended to become subject to the security interests or liens granted by
any of the Collateral Documents.

            "Collateral Documents" means the Deeds of Trust, the Depositary
Agreement, the Credit Agreement, the Borrower Security Agreement, the
Development Company Security Agreement, the CCFC II Equipment Finance Company
Security Agreement, the Pledge Agreements (Pledged Equity Interests), the
Project/Turbine Owner Security Agreements, the Equipment Finance Company
Security Agreements, the Consents, the Equity Documents, the Affiliated
Subordination Agreements, the Debt Subordination Agreements, any security
agreements granting security interests in the Operating Accounts and any
financing statements, notices and the like filed, recorded or delivered in
connection with the foregoing.

            "Commercial Operation" means, with respect to a Project, that such
Project is able to operate and produce electrical energy for commercial sale in
accordance with the Prudent Utility Practices and applicable laws.

            "Commitment Fee" has the meaning given in Section 2.4.2 of the
Credit Agreement.

            "Commitments" means, with respect to each Bank, such Bank's Loan
Commitment, Turbine Purchase Loan Commitment and Letter of Credit Commitment,
and with


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<PAGE>   172
respect to all Banks, the Total Loan Commitment, the Total Turbine Purchase Loan
Commitment and the Total Letter of Credit Commitment.

            "Committed Equity Funds" means Contributions required pursuant to
Section 5.17.1 of the Credit Agreement and guaranteed by Calpine pursuant to
Section 1 of the Project Completion Guaranty or otherwise irrevocably and
unconditionally committed by Calpine to fund Project Costs pursuant to
documentation in form and substance reasonably satisfactory to the Required
Banks.

            "Completion" means, with respect to each Project, that (i) all work
under the applicable Major Construction Contracts (other than "punchlist" items
and work which is to be done after the Project has passed its "acceptance tests"
or "performance tests") has been completed substantially in accordance with the
applicable Plans and Specifications and the requirements of all Applicable
Permits, (ii) all necessary facilities for the transportation of natural gas to
such Project have been completed, (iii) all necessary electrical interconnection
facilities sufficient to transmit all power generated by such Project have been
completed, (iv) all necessary facilities for the procurement, transportation and
discharge of water to or from such Project have been completed, (v) the
"acceptance tests" or "performance tests" (however defined) under the applicable
Prime Construction Contract and the applicable Power Island Supply Contract have
been performed and the Project has achieved the minimum levels specified in such
contracts for such "acceptance tests" or "performance tests," (vi) such
"acceptance tests" or "performance tests" either (A) have been successfully
completed as provided in the Prime Construction Contract and the Power Island
Supply Contract, or (B) performance liquidated damages as provided in such
contracts have been paid by the applicable Contractor under the applicable Major
Construction Contract and/or by Calpine under the Project Completion Guaranty in
an amount which, in the aggregate, is equal to the lesser of (1) the amount of
performance liquidated damages required to be paid in order to be deemed to have
successfully completed such "acceptance tests" or "performance tests" under the
applicable Major Construction Contracts, without regard to any limitations of
liability in such contracts, or (2) the EPC Equivalent Damages for such Project,
and (vii) all real estate rights necessary for the completion of the foregoing
and the continued operation of such Project shall have been obtained, in each
case other than clause (vii) above, as satisfactorily certified by the
Independent Engineer to Administrative Agent in its reasonable discretion.

            "Completion Date" means, with respect to a Project, the date on
which Completion of such Project occurs.

            "Confirmation of Interest Period Selection" has the meaning given in
Section 2.1.3(b)(ii) of the Credit Agreement.

            "Consents" means the third-party consents required pursuant to the
Credit Agreement in substantially the form of Exhibit E-1 to the Credit
Agreement and any other third party consents to the assignments contemplated by
the Credit Documents.

            "Construction Account" has the meaning given in Section 1.1 of the
Depositary Agreement.


                                       8
<PAGE>   173
            "Construction Contracts" means, collectively, for each Project, the
Prime Construction Contract, the Construction Management Agreement, the Power
Island Supply Contract and the Engineering Contract for such Project and any
other contract or agreement approved by the Technical Committee in accordance
with Section 3.2 or 3.3, as the case may be, of the Credit Agreement entered
into by, or on behalf of, the Project Owner with respect to such Project with a
Contractor for the construction of all or any portion of such Project, or the
supply or provision of any goods or services relating to the construction of
such Project.

            "Construction Credit Event" has the meaning given in Section 3.4 of
the Credit Agreement.

            "Construction Drawdown Certificate" means a certificate delivered to
Administrative Agent substantially in the form of Exhibit C-6 to the Credit
Agreement.

            "Construction Loan" has the meaning given in Section 2.1.1(a) of the
Credit Agreement.

            "Construction Management Agreement" means, collectively, for each
Project, the contract or agreement approved by the Technical Committee in
accordance with Section 3.2 or 3.3, as the case may be, of the Credit Agreement
entered into by, or on behalf of, the Project Owner with respect to such Project
for the provision of construction management services for such Project.

            "Construction Manager" means any wholly-owned subsidiary of Calpine
or any other Person approved by the Technical Committee in accordance with
Section 3.2 or 3.3, as the case may be, of the Credit Agreement in its capacity
as construction manager under a Construction Management Agreement.

            "Construction Period" means, with respect to any Project, the period
from the commencement of construction of such Project through the Completion
Date of such Project.

            "Construction Sub-Account" has the meaning given in Section 7.1.1 of
the Credit Agreement.

            "Contractors" means, collectively, each Construction Manager, each
Prime Contractor, each Project Engineer, and any other Person who is providing
goods or services to a Project pursuant to a Construction Contract.

            "Contribution" means either (i) a cash equity contribution or (ii) a
subordinated loan made pursuant to a Debt Subordination Agreement, or a
combination thereof (other than with respect to Portfolio Entity Debt) and, for
purposes of Section 6.6 of the Credit Agreement only, in-kind amounts considered
to be Contributions, in each case as permitted pursuant to the Credit Agreement.
At such time as a Project to which a Turbine has been assigned (as set forth in
Exhibit G-3 to the Credit Agreement) becomes a Funded Project, Contributions
with respect to such Turbine shall be deemed Contributions with respect to such
Project.

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


                                       9
<PAGE>   174
with a Portfolio Entity, are treated as a single employer under Sections 414(b),
(c), (m) or (o) of the Code.

            "Corporate Portfolio Entities" means, collectively, CPN
Freestone, Inc. and Calpine Freestone, Inc.

            "Corpus - Phase I Project" means the Initial Project titled "Corpus
Christi Energy Center 1" set forth on Exhibit G-1 to the Credit Agreement.

            "Costs" means, collectively, Project Costs and Turbine Costs.

            "Co-Syndication Agents" means each of The Bank of Nova Scotia, Banc
of America Securities LLC and ING (U.S.) Capital LLC.

            "Credit Agreement" means the Credit Agreement dated as of October
16, 2000 by and among Borrower, Administrative Agent, Lead Arrangers, Arrangers,
LC Bank, Co-Documentation Agents, Co-Syndication Agents, Bookrunner and the
Banks.

            "Credit Documents" means the Credit Agreement, the Notes, the
Portfolio Entity Notes, the Collateral Documents, the Letters of Credit and any
other loan or security agreements or letter agreement or similar document,
entered into by Administrative Agent and one or more Major Project Participants
in connection with the transactions contemplated by the Credit Documents.

            "Date Certain" means the fourth anniversary of the Closing Date,
provided, however, that the Date Certain may be extended up to the fifth
anniversary of the Closing Date in accordance with Section 2.11 of the Credit
Agreement.

            "Debt" of any Person at any date means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (d) all obligations of such Person under leases which are or should
be, in accordance with GAAP, recorded as capital leases in respect of which such
Person is liable, (e) all obligations of such Person to purchase securities (or
other property) which arise out of or in connection with the sale of the same or
substantially similar securities (or property), (f) all deferred obligations of
such Person to reimburse any bank or other Person in respect of amounts paid or
advanced under a letter of credit or other instrument, (g) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person, (h) all Debt (or other obligations) of others guaranteed
directly or indirectly by such Person or as to which such Person has an
obligation substantially the economic equivalent of a guaranty and (i)
obligations in respect of Hedge Transactions.

            "Debt Service" means all fees of Administrative Agent and the Banks,
interest (including all interest accrued during the subject period) and
principal, Reimbursement Obligations and interest thereon and any other payments
due in connection with Letters of Credit, Liquidation Costs, Hedge Breaking
Fees, and net payments pursuant to Hedge Transactions.


                                       10
<PAGE>   175
            "Debt to Capitalization Ratio" means the ratio of (x) the aggregate
outstanding principal amount of Debt of the Portfolio Entities (except (a) Debt
consisting of Contributions made in the form of subordinated loans and (b)
Portfolio Entity Debt) at a given time to (y) the sum of the Capitalization of
the Portfolio Entities at such time (excluding, for purposes of clause (y),
Turbine Purchase Loans then outstanding and the aggregate amount of progress
payments made on the Turbines), all calculated in accordance with Section
5.10(c) of the Credit Agreement.

            "Debt Subordination Agreement" means a Subordination Agreement
executed by the Member or Calpine, Borrower and Administrative Agent in
substantially the form of Exhibit D-7 to the Credit Agreement and otherwise in
form and substance satisfactory to Administrative Agent.

            "Decatur Energy Center Project" means the Initial Project titled
"Decatur Energy Center" set forth on Exhibit G-1 to the Credit Agreement.

            "Declined Commitment" has the meaning given in Section 2.11.2 of the
Credit Agreement.

            "Deeds of Trust" means, collectively, each of the deeds of trust or
mortgages encumbering the Sites and/or Easements related to the Projects as
security for the Obligations, each in substantially the form of Exhibit D-3 to
the Credit Agreement with such changes as may be appropriate or necessary under
the laws of the jurisdiction in which the respective Project is located.

            "Deemed Interest" means interest accruing at an interest rate equal
to 9% per annum; provided, however, that with respect to Contributions made for
a Project or a Turbine prior to Completion of such Project or the Project to
which such Turbine is assigned (as set forth in Exhibit G-3 to the Credit
Agreement), Deemed Interest thereon shall accrue but not be payable until
Completion of the relevant Project, at which time such accrued interest shall be
added to, and be considered part of, the principal amount of such Contribution.

            "Default Rate" means the interest rate per annum equal to the
interest rate then applicable plus two percent. Interest computed with reference
to the Default Rate shall be adjusted and calculated in the same manner as
interest computed with reference to the Base Rate.

            "Delta Energy Center Project" means the Initial Project titled
"Delta Energy Center" set forth on Exhibit G-1 to the Credit Agreement.

            "Delta Energy Center Project Owner" means the Project Owner with
respect to the Delta Energy Center Project.

            "Depositary Agent" means The Bank of New York, in its capacity as
depositary agent under the Depositary Agreement.

            "Depositary Agreement" means the Depositary Agreement dated as of
October 16, 2000 in substantially the form of Exhibit D-1 to the Credit
Agreement among Borrower, Administrative Agent and Depositary Agent.


                                       11
<PAGE>   176
            "Designated Project" means the Delta Energy Center Project and any
Subsequent Project that is owned (a) 50% by a wholly-owned direct or indirect
Subsidiary of Borrower and (b) 50% by a wholly-owned direct or indirect
Subsidiary of Bechtel Corporation.

            "Determination Date" means, with respect to any action to be taken
by the Required Banks under the Credit Documents, including, without limitation,
supplemental agreements with Borrower adding, modifying or waiving any
provisions to the Credit Documents or changing in any manner the rights of the
Banks or Borrower hereunder or waiving any Inchoate Default or Event of Default
under Section 3.12 or 10.9 of the Credit Agreement, a date established by
Administrative Agent by which the Banks disapproving such action must notify
Administrative Agent of the same, such date to allow the Banks a reasonable time
period to consider the action being so requested and in any event not less than
10 Banking Days after the later of (a) the date Borrower or Administrative Agent
notifies the Banks of such proposed action and (b) the date the Banks receive
all documentation and other information which the Technical Committee considers
reasonably necessary for the Banks' consideration of such proposed action and
such additional documentation and other information that a Bank may reasonably
request within five Banking Days after receipt of the documentation and other
information originally provided by the Technical Committee under this clause
(b).

            "Development Company" means Calpine CCFC II Development Company,
LLC, a Delaware limited liability company.

            "Development Company Security Agreement" means the Development
Company Security Agreement dated as of October 16, 2000 in substantially the
form of Exhibit D-4C to the Credit Agreement as executed by Development Company
in favor of Administrative Agent.

            "Disbursement Requisition" means a request for disbursement of funds
submitted by Borrower to Administrative Agent in the form of Exhibit C-10 to the
Credit Agreement.

            "Diversification Requirements" means, with respect to any Subsequent
Project, that the fraction determined by dividing (A) the projected net capacity
of such Subsequent Project plus the net capacity of all other Initial Projects
and Funded Subsequent Projects located within the same NERC Region as such
Subsequent Project by (B) the aggregate net capacity of all Initial Projects and
Funded Subsequent Projects (including such Subsequent Project) is less than .50.

            "Dollars" and "$" means United States dollars or such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts in the United States of
America.

            "Drawdown Certificate" means a Construction Drawdown Certificate or
a Turbine Purchase Drawdown Certificate, as appropriate.

            "Drawing Date" has the meaning given in Section 2.2.4 of the Credit
Agreement.

            "Drawing Payment" means any payment by LC Bank honoring a drawing
under a Letter of Credit.


                                       12
<PAGE>   177
            "Easements" means the easements appurtenant, easements in gross,
license agreements and other rights running in favor of a Project Owner and/or
appurtenant to any Site, including without limitation those certain easements
and licenses described in the Title Policies.

            "EBITDA" means, for any period, Project Operating Revenues for such
period minus Senior O&M Costs (excluding payments under Equipment Leases) for
such period.

            "Eligible Facility" means an eligible facility within the meaning of
PUHCA.

            "Eminent Domain Proceeds" has the meaning given in Section 7.6 of
the Credit Agreement.

            "Engineering Contracts" means, collectively, for each Project, the
contract or agreement approved by the Technical Committee in accordance with
Section 3.2 or 3.3, as the case may be, of the Credit Agreement entered into by,
or on behalf of, the Project Owner with respect to such Project for the supply
of engineering or design services for such Project.

            "Environmental Claim" means any and all liabilities, losses,
administrative, regulatory or judicial actions, suits, demands, decrees, claims,
liens, judgments, warning notices, notices of noncompliance or violation,
investigations, proceedings, removal or remedial actions or orders, or damages
(foreseeable and unforeseeable, including consequential and punitive damages),
penalties, fees, out-of-pocket costs, expenses, disbursements, attorneys' or
consultants' fees, relating in any way to any Hazardous Substance Law or any
Permit issued under any such Hazardous Substance Law (hereafter "Claims"),
including (a) any and all Claims by Governmental Authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Hazardous Substance Law, and (b) any and all Claims by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Substances or arising
from alleged injury or threat of injury to health, safety or the environment.

            "Environmental Reports" means, collectively, for each Project, the
environmental reports delivered to Administrative Agent in accordance with
Section 3.2.13, 3.3.14 or 3.3.41, as the case may be, of the Credit Agreement
with respect to such Project.

            "EPC Equivalent Damages" means [*].

            "Equipment" has the meaning given in the granting clause of the
Deeds of Trust.
            "Equipment Finance Company" means a direct or indirect wholly-owned
Subsidiary of Borrower (or, with the consent of the Required Banks, if the
relevant Project Owner is a partially-owned Subsidiary of Borrower, a
partially-owned Subsidiary of Borrower) that directly owns Turbines or other
equipment leased to one or more Project Owners pursuant to one or more Equipment
Leases. In the event a Turbine Owner leases Turbines to a Project Owner pursuant
to an Equipment Lease, such Turbine Owner shall be deemed an Equipment Finance
Company and shall no longer be considered a Turbine Owner.


                                       13
<PAGE>   178
            "Equipment Finance Company Security Agreements" means, collectively,
each Equipment Finance Company Security Agreement, in substantially the form of
Exhibit D-4E to the Credit Agreement, executed by an Equipment Finance Company
pursuant to Section 3.1, 3.2 or 3.3 of the Credit Agreement, as the case may be,
with respect to its respective Turbine(s) or other equipment leased to a Project
Owner in favor of Administrative Agent. In the event a Turbine Owner becomes an
Equipment Finance Company pursuant to the definition of "Equipment Finance
Company" or "Turbine Owner" contained herein, the Project/Turbine Owner Security
Agreement previously executed by such Turbine Owner, if any, shall be amended at
such time as the relevant Project becomes a Funded Project as considered
necessary by the Technical Committee to ensure that all rights and assets held
by such Equipment Finance Company related to such Project, including the related
Equipment Lease, have been pledged to Administrative Agent and the Banks, at
which time such Project/Turbine Owner Security Agreement shall be deemed an
Equipment Finance Company Security Agreement.

            "Equipment Lease" means a lease entered into between an Equipment
Finance Company, as lessor, and a Project Owner with respect to a Funded
Project, as lessee, pursuant to which such Equipment Finance Company leases to
such Project Owner Turbine(s) and/or other equipment to be used or incorporated
into such Project Owner's Funded Project, in each case as approved by the
Technical Committee pursuant to Section 3.2 or 3.3, as the case may be, of the
Credit Agreement; collectively, the "Equipment Leases".

            "Equity Documents" means the Project Completion Guaranty, the
Turbine Purchase Guaranty, the Project Owner Guaranties, and any other guaranty
executed from time to time by a Portfolio Entity, Non-Affiliated Parent, or an
Affiliate of Borrower in favor of Administrative Agent and the Banks.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.

            "ERISA Plan" means any employee benefit plan (a) maintained by a
Portfolio Entity or any member of the Controlled Group, or to which any of them
contributes or is obligated to contribute, for its employees and (b) covered by
Title IV of ERISA or to which Section 412 of the Code applies.

            "Event of Default" has the meaning given in Article 8 of the Credit
Agreement.

            "Event of Eminent Domain" means any compulsory transfer or taking by
condemnation, eminent domain or exercise of a similar power, or transfer under
threat of such compulsory transfer or taking, of any part of the Collateral or
any of the real property interests subject to the Deeds of Trust, by any agency,
department, authority, commission, board, instrumentality or political
subdivision of any state, the United States or another Governmental Authority
having jurisdiction.

            "Exempt Wholesale Generator" means an exempt wholesale generator
within the meaning of PUHCA.

            "Expiration Date" has the meaning given in each Letter of Credit.


                                       14
<PAGE>   179
            "Federal Funds Rate" means, for any day, the weighted average of the
per annum rates on overnight Federal funds transactions with member banks of the
Federal Reserve System arranged by Federal funds brokers as published by the
Federal Reserve Bank of New York for such day (or, if such rate is not so
published for any day, the average rate charged by Administrative Agent on such
day on such transactions as determined by Administrative Agent).

            "Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.

            "FERC" means the Federal Energy Regulatory Commission and its
successors.

            "Final Completion" means, with respect to any Project, that all
conditions to "Final Completion" shall have been satisfied as provided in
Section 3.7 of the Credit Agreement.

            "Final Project Cost" means, with respect to any Project, the actual
total Project Costs through Final Completion of such Project, as determined by
Administrative Agent in consultation with Independent Engineer and Borrower.

            "Four-Quarter Portfolio Interest Coverage Ratio" means, as of the
last day of each calendar quarter, the ratio of (a) EBITDA for the 12-month
period ending on such day for the Projects that have achieved (or, in the case
of a projected ratio calculation, are projected to achieve) Commercial Operation
before such day to (b) the sum of (x) Borrower's interest expense allocated to
such Projects plus (y) interest accruing on all outstanding Turbine Loans to the
extent not capitalized or paid for with Contributions in excess of amounts
required under Section 5.17.1 of the Credit Agreement, all in accordance with
GAAP for such 12-month period. In the event that a given Project achieved (or,
in the case of a projected ratio calculation, is projected to achieve)
Commercial Operation at any time during such 12-month period, such Project's
EBITDA and allocated interest expense shall be calculated beginning on the date
Commercial Operation was achieved (or projected to be achieved), all calculated
pursuant to Section 5.10(c) of the Credit Agreement.

            "FPA" means the Federal Power Act, excluding Sections 1-18, 21-30,
202(c), 210, 211, 212, 305(c) and any necessary enforcement provision of Part
III of the Act with regard to the foregoing sections.

            "Fuel Consultant" means, for each Project, the Person providing fuel
consulting services to the Banks with respect to such Project or their
respective successors appointed pursuant to the Credit Agreement.

            "Fuel Manager" means any Person approved by the Technical Committee
in accordance with Section 3.2 or 3.3, as the case may be, of the Credit
Agreement in its capacity as fuel manager under a Fuel Management Agreement.

            "Fuel Management Agreements" means, collectively, for each Project,
the fuel management agreement approved by the Technical Committee in accordance
with Section 3.2 or 3.3, as the case may be, of the Credit Agreement and entered
into by the Project Owner with respect to such Project.


                                       15
<PAGE>   180
            "Fuel Plans" means, collectively, the fuel plans delivered by
Borrower pursuant to Sections 3.2.17, 3.3.18 and Section 3.3.41 of the Credit
Agreement.

            "Fuel Supplier" means any wholly-owned subsidiary of Calpine or any
other Person who is supplying fuel and/or related services to a Project pursuant
to a Gas Supply Contract.

            "Funded Projects" means, collectively, the Projects that have
satisfied their initial funding requirements under Section 3.2 or 3.3, as the
case may be, of the Credit Agreement.

            "Funded Subsequent Projects" means, collectively, the Subsequent
Projects that are Funded Projects.

            "Funded Turbines" means, collectively, the Turbines that have
satisfied their initial funding requirements under Section 3.5 of the Credit
Agreement; provided, Funded Turbines do not include Turbines from and after the
date that they are assigned or leased to Funded Projects (as set forth on
Exhibit G-3 to the Credit Agreement) (regardless of whether such Turbines where
Funded Turbines prior to the initial funding of such Project).

            "Funding Date" means each date of an initial funding of Loans for a
Project pursuant to Section 3.2 or 3.3, as the case may be, of the Credit
Agreement.

            "GAAP" means generally accepted accounting principles in the United
States consistently applied.

            "Gas Supply Contracts" means, collectively, the contracts or
agreements entered into in accordance with the Credit Agreement by, or on behalf
of, a Project Owner with a Fuel Supplier for the supply of fuel and/or related
services for a Project.

            "Gas Transportation Agreements" means, collectively, the contracts
or agreements entered into in accordance with the Credit Agreement by, or on
behalf of, a Project Owner with a Gas Transporter for the supply of fuel
transportation services for a Project.

            "Gas Transporter" means any Person that owns gathering systems
and/or transportation systems that are able to move fuel from its source of
supply to a point of interconnection that provides such services to a Project
pursuant to a Gas Transportation Agreement.

            "Governmental Authority" means any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, body, agency, bureau or entity, (including any
zoning authority, FERC, the PUC, the FDIC, the Comptroller of the Currency or
the Federal Reserve Board, any central bank or any comparable authority) or any
arbitrator with authority to bind a party at law.

            "Governmental Rule" means any law, rule, regulation, ordinance,
order, code interpretation, treaty, judgment, decree, directive, guidelines,
policy or similar form of decision of any Governmental Authority.


                                       16
<PAGE>   181
            "Granting Bank" has the meaning given in Section 10.13.2 of the
Credit Agreement.

            "Hazardous Substances" means (statutory acronyms and abbreviations
having the meaning given them in the definition of "Hazardous Substances Laws")
substances defined as "hazardous substances," "pollutants" or "contaminants" in
Section 101 of the CERCLA; those substances defined as "hazardous waste,"
"hazardous materials" or "regulated substances" by the RCRA; those substances
designated as a "hazardous substance" pursuant to Section 311 of the CWA; those
substances defined as "hazardous materials" in Section 103 of the HMTA; those
substances regulated as a hazardous chemical substance or mixture or as an
imminently hazardous chemical substance or mixture pursuant to Sections 6 or 7
of the TSCA; those substances defined as "contaminants" by Section 1401 of the
SDWA, if present in excess of permissible levels; those substances regulated by
the Oil Pollution Act; those substances defined as a pesticide pursuant to
Section 2(u) of the FIFRA; those substances defined as a source, special nuclear
or by-product material by Section 11 of the AEA; those substances defined as
"residual radioactive material" by Section 101 of the UMTRCA; those substances
defined as "toxic materials" or "harmful physical agents" pursuant to Section 6
of the OSHA); those substances defined as hazardous wastes in 40 C.F.R. Part
261.3; those substances defined as hazardous waste constituents in 40 C.F.R.
Part 260.10, specifically including Appendix VII and VIII of Subpart D of 40
C.F.R. Part 261; those substances designated as hazardous substances in 40
C.F.R. Parts 116.4 and 302.4; those substances defined as hazardous substances
or hazardous materials in 49 C.F.R. Part 171.8; those substances regulated as
hazardous materials, hazardous substances, or toxic substances in 40 C.F.R. Part
1910; in any other Hazardous Substances Laws; and in the regulations adopted and
publications promulgated pursuant to said laws, whether or not such regulations
or publications are specifically referenced herein.

            "Hazardous Substances Law" means any of:

                    (i) the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.)
("CERCLA");

                   (ii) the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et seq.) ("Clean Water Act" or "CWA");

                  (iii) the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.) ("RCRA");

                   (iv) the Atomic Energy Act of 1954 (42 U.S.C. Section 2011 et
seq.) ("AEA");


                    (v) the Clean Air Act (42 U.S.C. Section 7401 et seq.)
("CAA");

                   (vi) the Emergency Planning and Community Right to Know Act
(42 U.S.C. Section 11001 et seq.) ("EPCRA");

                  (vii) the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.) ("FIFRA");


                                       17
<PAGE>   182
                 (viii) the Oil Pollution Act of 1990 (P.L.  101-380,
104 Stat. 486);

                   (ix) the Safe Drinking Water Act (42 U.S.C.  Sections 300f et
seq.) ("SDWA");

                    (x) the Surface Mining Control and Reclamation Act of 1974
(30 U.S.C. Sections 1201 et seq.) ("SMCRA");

                   (xi) the Toxic Substances Control Act (15 U.S.C. Section 2601
et seq.) ("TSCA");

                  (xii) the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 et seq.) ("HMTA");

                 (xiii) the Uranium Mill Tailings Radiation Control Act
of 1978 (42 U.S.C. Section 7901 et seq.) ("UMTRCA");

                  (xiv) the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.) ("OSHA");

                   (xv) all other Federal Governmental Rules which govern
Hazardous Substances; and

                  (xxi) and all state and local Governmental Rules which govern
Hazardous Substances in any state or local jurisdiction in which a Project is
located, and the regulations adopted and publications promulgated pursuant to
all such foregoing laws.

            "Hedge Breaking Fees" means all reasonable costs, fees and expenses
incurred by Borrower in connection with any unwinding, breach or termination of
the Hedge Transactions, all to the extent provided in and calculated pursuant to
the applicable Interest Rate Agreements.

            "Hedge Transaction" means any "Transaction" (such as swaps, caps,
collars or floors) entered into under an Interest Rate Agreement.

            "Improvements" has the meaning given in the granting clause in the
Deeds of Trust.

            "Inchoate Default" means any occurrence, circumstance or event, or
any combination thereof, which, with the lapse of time and/or the giving of
notice, would constitute an Event of Default.

            "Independent Consultants" means, collectively, the Insurance
Consultant, the Fuel Consultant, the Independent Engineer, the Power Marketing
Consultant or their successors appointed pursuant to the Credit Agreement.

            "Independent Engineer" means R.W. Beck, Inc., or its successor
appointed pursuant to the Credit Agreement.


                                       18
<PAGE>   183
            "Information Memorandum" means the descriptive Information
Memorandum with respect to the Projects, Turbines and Credit Agreement prepared
by Co-Syndication Agents in consultation with Borrower for use in connection
with the syndication of the Commitments.

            "Initial Contribution" means the Contributions described in Section
3.1.23 of the Credit Agreement.

            "Initial Projects" means, collectively, the natural gas-fired power
generating plants utilizing commercially accepted technology located on the
respective Sites, all as further described in Exhibit G-1 to the Credit
Agreement, as such Exhibit may be amended as the result of the replacement of an
Initial Project with a Substituted Initial Project (which Substituted Initial
Project shall thereafter be considered an Initial Project) together with all
buildings, structures or improvements erected on the respective Sites and the
respective Easements with respect to such Sites, all alterations thereto or
replacements thereof, all fixtures, attachments, appliances, equipment,
machinery and other articles attached thereto or used in connection therewith
and all Parts which may from time to time be incorporated or installed in or
attached thereto, all contracts and agreements for the purchase or sale of
commodities or other personal property related thereto, all leases of real or
personal property related thereto, and all other real and tangible and
intangible personal property owned by a Project Owner or by an Equipment Finance
Company and leased to a Project Owner and placed upon or used in connection with
such natural gas-fired power generating plants, whether located upon the
respective Sites and Easements or otherwise; each individually, an "Initial
Project."

            "Insurance Consultant" means Marsh USA Inc. or its successor
appointed pursuant to the Credit Agreement.

            "Insurance Proceeds" has the meaning given in Section 7.5.1 of the
Credit Agreement.

            "Intermediate Parents" means, collectively, each of the wholly-owned
Subsidiaries of Borrower that holds a direct or indirect ownership interest in a
Project Owner, an Equipment Finance Company or a Turbine Owner, including,
without limitation, Development Company and CCFC II Equipment Finance Company.

            "Interest Period" means, with respect to any LIBOR Loan, the time
period selected by Borrower which commences on the first day of such Loan or the
effective date of any conversion (as the case may be) and ends on the last day
of such time period, provided that no single day shall be deemed to be a part of
two Interest Periods.

            "Interest Rate" means the Base Rate or the LIBO Rate, as the case
may be.

            "Interest Rate Agreements" means any ISDA Master Agreement and the
schedules thereto between Borrower and the counterparty(ies) thereto and the
transaction confirmations thereunder.

            "Inventory" means "inventory," as defined in the UCC, of the
Portfolio Entities.


                                       19
<PAGE>   184
            "Joint Venture Agreement" has the meaning given in Section 3.3.2 of
the Credit Agreement.

            "Joint Venturers" has the meaning given in Section 3.3.2 of the
Credit Agreement.

            "LC Action" has the meaning given in Section 3.8 of the Credit
Agreement.

            "LC Bank" means Bayerische Landesbank Girozentrale or, from time to
time, the Bank approved by such Bank, Borrower and Administrative Agent that
issues the Letters of Credit, in its capacity as such issuer.

            "LC Beneficiary" means the account beneficiary under a Letter of
Credit, or any assignee or transferee of such beneficiary with respect to the
rights of such beneficiary under such Letter of Credit.

            "Lead Arrangers" means each of Credit Suisse First Boston, New York
Branch and The Bank of Nova Scotia as the lead arrangers of the Commitments.

            "Leases" mean all contracts or agreements approved by the Technical
Committee in accordance with Section 3.2 or 3.3, as the case may be, of the
Credit Agreement entered into by or on behalf of a Project Owner for the leasing
of a Site for a Project.

            "Legal Requirements" means, as to any Person, the articles of
incorporation, bylaws or other organizational or governing documents of such
Person, and any requirement under a Permit, and any Governmental Rule in each
case applicable to or binding upon such Person or any of its properties or to
which such Person or any of its property is subject.

            "Lending Office" means, with respect to any Bank, the office
designated as such beneath the name of such Bank on Exhibit H of the Credit
Agreement or such other office of such Bank as such Bank may specify from time
to time to Administrative Agent and Borrower.

            "Letter of Credit" means a letter of credit issued by LC Bank
pursuant to Section 2.2 of the Credit Agreement in substantially the format of
letters of credit generally issued by LC Bank.

            "Letter of Credit Commitment" means, at any time with respect to
each Bank, such Bank's Proportionate Share of the Total Letter of Credit
Commitment at such time.

            "Letter of Credit Fee" has the meaning given in Section 2.5.1 of the
Credit Agreement.

            "LIBO Rate" means, with respect to any LIBOR Loan for any Interest
Period, the rate per annum determined by Administrative Agent at approximately
11:00 a.m. (London time) on the date which is two Business Days prior to the
beginning of such Interest Period by reference to the British Bankers'
Association Interest Settlement Rates for deposits in Dollars (as set forth by
any service selected by Administrative Agent which has been nominated by the
British Bankers' Association as an authorized information vendor for the purpose
of displaying such rates) for a period equal to such Interest Period; provided
that, to the extent that an interest


                                       20
<PAGE>   185
rate is not ascertainable pursuant to the foregoing provisions of this
definition the "LIBO Rate" shall be the interest rate per annum determined by
Administrative Agent to be the average of the rates per annum at which deposits
in Dollars are offered for such Interest Period to major banks in the London
interbank market in London, England by Administrative Agent at approximately
11:00 a.m. (London time) on the date which is two Business Days prior to the
beginning of such Interest Period. Each determination by Administrative Agent
pursuant to this definition shall be conclusive absent manifest error.

            "LIBOR Construction Loan" has the meaning given in Section
2.1.1(b)(i) of the Credit Agreement.

            "LIBOR Loans" means, collectively, the LIBOR Construction Loans and
the LIBOR Turbine Purchase Loans.

            "LIBOR Turbine Purchase Loans" has the meaning given in Section
2.1.2(b)(i) of the Credit Agreement.

            "Lien" on any asset means any mortgage, deed of trust, lien, pledge,
charge, security interest, or easement or encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected or effective
under applicable law, as well as the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.

            "Liquidation Costs" has the meaning given in Section 2.9 of the
Credit Agreement.

            "Limited Liability Company Agreement" means that certain Limited
Liability Company Agreement of CCFC II, LLC, dated as of October 16, 2000 and
executed by the Member.

            "Loan" means, collectively, the Construction Loans and the
Turbine Purchase Loans.

            "Loan Availability Period" means the period from the Closing Date to
the Loan Maturity Date.

            "Loan Commitment" means, at any time with respect to each Bank, such
Bank's Proportionate Share of the Total Loan Commitment at such time.

            "Loan Maturity Date" means the date that is the earliest to occur of
(a) the acceleration of the Obligations upon and during the occurrence and
continuance of an Event of Default and (b) the Date Certain.

            "Los Medanos Energy Center Project" means the Initial Project titled
"Los Medanos Energy Center" set forth on Exhibit G-1 to the Credit Agreement.

            "Loss Proceeds Account" has the meaning given in Section 1.1 of the
Depositary Agreement.


                                       21
<PAGE>   186
            "Maintenance Contracts" means, collectively, the contracts or
agreements approved by the Technical Committee in accordance with Section 3.2 or
3.3, as the case may be, of the Credit Agreement entered into by, or on behalf
of, a Project Owner or an Equipment Finance Company for the supply of
maintenance services for a Project.

            "Maintenance Provider" means any entity approved by the Technical
Committee in accordance with Section 3.2 or 3.3, as the case may be, of the
Credit Agreement in its capacity as maintenance provider under a Maintenance
Contract.

            "Major Construction Contracts" means, collectively, the Construction
Management Agreement, the Prime Construction Contract, the Engineering Contract
and the Power Island Supply Contract for the Project to which it relates.

            "Major Contractors" means, collectively, with respect to a given
Project, the Construction Manager, the Prime Contractor, the Project Engineer
and the Power Island Supplier, if any, for such Project.

            "Major Fuel Supplier" means the Fuel Supplier under a Major Gas
Supply Contract.

            "Major Gas Supply Contract" means, collectively, (i) one or more Gas
Supply Contracts, with the same Fuel Supplier for the same Project, for more
than 17,000 MMBtu/day in the aggregate (calculated on a yearly average basis)
for a given Project with a term of more than two years or (ii) any Gas Supply
Contract with an Affiliate of Borrower.

            "Major Gas Transportation Agreement" means, collectively, (i) one or
more Gas Transportation Agreements, with the same Fuel Transporter for the same
Project, for more than 17,000 MMBtu/day in the aggregate (calculated on a yearly
average basis) for a given Project with a term of more than two years and (ii)
any Gas Transportation Agreement with an Affiliate of Borrower.

            "Major Gas Transporter" means the Gas Transporter under a Major Gas
Transportation Agreement.

            "Major Maintenance" means labor, materials and other direct expenses
for any overhaul of, or major maintenance procedure for, the Projects which
requires significant disassembly or shutdown of any of the Projects pursuant to
manufacturers' guidelines or recommendations, engineering or operating
considerations or the requirements of any applicable Legal Requirement,
including, without limitation, fees payable under the Maintenance Contracts.

            "Major Power Purchase Agreement" means one or more Power Purchase
Documents, with the same power purchaser for the same Project, for more than 100
MW in the aggregate (calculated on a yearly average basis) of capacity and/or
firm energy from a given Project with a term of more than two years.

            "Major Power Purchaser" means the Power Purchaser under a Major
Power Purchase Agreement.


                                       22
<PAGE>   187
            "Major Project Documents" means, collectively, with respect to a
given Project, the Major Construction Contracts, the Project Management
Agreement, the Power Marketing Agreement, the Fuel Management Agreement, the
Maintenance Contract, any Major Gas Supply Contracts, the Affiliated Party
Agreement Guaranty, any guaranty agreements executed by Persons other than
Calpine in favor of the relevant Project Owner pursuant to Sections 3.2.34,
3.3.36 and 6.8 of the Credit Agreement, any Major Gas Transportation Agreements,
any Major Power Purchase Agreements, the Lease, if any, of the applicable Site,
the O&M Agreement, the Equipment Lease, if any, and any Joint Venture Agreement,
if any, for such Project.

            "Major Project Participants" means Borrower, the Member, Calpine,
and, with respect to each Project, the Project Owner, the Operator, the Project
Manager, the Power Marketer, the Fuel Manager, the Maintenance Provider, the
lessor under the Lease, if any, of the applicable Site, each Major Contractor,
each Major Power Purchaser, each Major Fuel Supplier, each Major Gas
Transporter, each guarantor that executes a guaranty agreement (other than
Calpine) in favor of a Project Owner pursuant to Sections 3.2.34, 3.3.36 and 6.8
of the Credit Agreement, the Equipment Finance Company, if any, and each Joint
Venturer, if any, for such Project.

            "Major Subcontractor" means any subcontractor party to a subcontract
with a Major Contractor providing for the payment to such subcontractor of
$100,000 or more.

            "Mandatory Prepayment" has the meaning specified in Section 2.1.7(c)
of the Credit Agreement.

            "Material Adverse Effect" means

            (a)   a material adverse change (i) with respect to Borrower, in the
                  business, property, results of operation or financial
                  condition of Borrower, the other Portfolio Entities, the
                  Initial Projects, the Funded Subsequent Projects, and the
                  Funded Turbines taken as a whole, or Calpine, and (ii) with
                  respect to an individual Initial Project, Funded Subsequent
                  Project or related Project Owner, in the business, property,
                  results of operating or financial condition of such Project
                  and the relevant Project Owner taken as a whole; provided that
                  a change in any Bank's or the Power Marketing Consultant's or
                  Fuel Consultant's view of future price of electricity or gas
                  is not a Material Adverse Effect; or

            (b)   any event or occurrence of whatever nature (but specifically
                  excluding a change in any Bank's or the Power Marketing
                  Consultant's or the Fuel Consultant's view of the future price
                  of electricity or gas) which could reasonably be expected to
                  materially and adversely affect:

                  (i)   the Portfolio Entities' ability to perform their
                        obligations under the Credit Documents or, with respect
                        to an individual Initial Project, Funded Subsequent
                        Project or Funded Turbine, the ability of such Project,
                        relevant Project Owner, relevant Major Project
                        Participant or relevant Turbine Purchase Contractor to
                        perform its obligations


                                       23
<PAGE>   188
                        under a Project Document or Turbine Purchase Contract,
                        as the case may be, where such inability to perform will
                        have a material and adverse effect on the completion of
                        the construction or operation of such Project or the
                        purchase and operation of such Turbine, as the case may
                        be, or

                  (ii)  the Banks' security interests in the Collateral.

            "Maturity" or "maturity" means, with respect to any Loan, Borrowing,
interest, fee or other amount payable by Borrower under the Credit Agreement or
the other Credit Documents, the date such Loan, Borrowing, interest, fee or
other amount becomes due, whether upon the stated maturity or due date, upon
acceleration or otherwise.

            "Maximum Debt to Capitalization Ratio" means [*].

            "Member" means Calpine CCFC II Holdings, Inc., a Delaware
corporation.

            "Minimum Notice Period" means at least three Banking Days before the
date of any Borrowing or conversion of Type of Loan resulting in whole or in
part of LIBOR Loans and at least one Banking Day before any Borrowing or
conversion of Type of Loan resulting in whole of Base Rate Loans.

            "Moody's" means Moody's Investors Service, Inc.

            "Mortgaged Properties" has the meaning given in the granting clauses
of the Deeds of Trust.

            "Multiemployer Plan" means any multiemployer plan (as defined in
Section 3(37) of ERISA).

            "NERC Region" means one of the ten geographic areas within the
United States, Canada and a portion of Baja California Norte designated as a
"region" by the North American Electric Reliability Counsel.

            "Net Worth" means, at any time, the aggregate net equity of the
Portfolio Entities set forth in the balance sheet of the Portfolio Entities,
prepared in accordance with GAAP.

            "Non-Advancing Bank" has the meaning given in Section 10.12 of the
Credit Agreement.

            "Non-Affiliated Parents" means, collectively, each Person other than
Borrower or a wholly-owned Subsidiary of Borrower who directly owns equity
interests in a Project Owner.

            "Non-Fundamental Project Default" with respect to any Initial
Project or Funded Subsequent Project means the occurrence of any of the
following events with respect to such Project:


                                       24
<PAGE>   189
            (a)   Breach of Project Documents.

                  (i)   Portfolio Entities. Any of the relevant Portfolio
Entities shall be in breach of any term, condition, provision, covenant,
representation, warranty or obligation, or in default, under a Project Document
relating to such Project, and such breach or default shall not be remediable or,
if remediable, shall continue unremedied for a period of 30 days; provided that
if (A) such breach cannot be cured within such 30 day period, (B) such breach is
susceptible of cure within 90 days, (C) the relevant Portfolio Entity is
proceeding with diligence and in good faith to cure such breach, (D) the
existence of such breach has not had and could not after considering the nature
of the cure, be reasonably expected to give rise to termination by the
counterparty to the Project Document which is subject to breach or to otherwise
have a Material Adverse Effect on such Project and (E) Administrative Agent
shall have received an officer's certificate signed by a Responsible Officer of
Borrower to the effect of clauses (A), (B), (C) and (D) above and stating what
action such Portfolio Entity is taking to cure such breach, then such 30 day
cure period shall be extended to such date, not to exceed a total of 90 days, as
shall be necessary for such Portfolio Entity diligently to cure such breach.

                  (ii)  Third Party. A party other than the relevant Portfolio
Entities shall be in breach of, or in default under, a Project Document relating
to such Project or any Consent, or any Equity Document (other than the Project
Completion Guaranty), such breach could reasonably be expected to have a
Material Adverse Effect on such Project, and such breach or default shall not be
remediable or, if remediable, shall continue unremedied for a period of 30 days;
provided that if (A) such breach cannot be cured within such 30 day period, (B)
such breach is susceptible of cure within 90 days, (C) the breaching party is
proceeding with diligence and in good faith to cure such breach, and (D) the
existence of such breach has not had and could not after considering the nature
of the cure, be reasonably expected to have a Material Adverse Effect on such
Project then, such 30 day cure period shall be extended to such date, not to
exceed a total of 90 days, as shall be necessary for such third party diligently
to cure such breach; provided further that, no Event of Default shall be
declared as a result of any such action if the relevant Portfolio Entity obtains
a Replacement Obligor for the affected party within the 90 day cure period
referred to in this paragraph (or within the 30 day cure period, if no extension
is given) and such action has not had and does not have prior to so obtaining
such Replacement Obligor a Material Adverse Effect on such Project.

                  (iii) Termination. Any material provision in any Project
Document relating to such Project shall for any reason cease to be valid and
binding on any party thereto (other than the relevant Portfolio Entities) except
upon fulfillment of such party's obligations thereunder (or any such party shall
so state in writing), or shall be declared null and void, or the validity or
enforceability thereof shall be contested by any party thereto (other than
Administrative Agent and the Banks) or any Governmental Authority, or any such
party shall deny that it has any liability or obligation thereunder, except upon
fulfillment of its obligations thereunder, and such occurrence could reasonably
be expected to have a Material Adverse Effect on such Project; provided that no
Event of Default shall occur as a result of such breach or default if the
relevant Portfolio Entity obtains a Replacement Obligor for the affected party
within 90 days thereafter and, such breach or default has not had and does not
have prior to so obtaining such Replacement Obligor, a Material Adverse Effect
on such Project.


                                       25
<PAGE>   190
            (b)   Breach of Covenants. Borrower or the relevant Project Owner
under its respective Project Owners Guaranty shall fail to perform or observe
any of the covenants (in the case of the relevant Project Owner, as if such
covenants were fully set forth and incorporated in its respective Project Owners
Guaranty) set forth in Section 5.2.2, 5.3, 5.4 (if the event with respect to
which notice is required to be given relates to such Project), 5.5 (if the party
whose financial statements were not properly delivered is not a Calpine
Affiliate), 5.6 (with respect to books, records and accounts of such Project),
5.7 (if the failure to comply with the Legal Requirement relates to such
Project), 5.8, 5.9(b), (c), (d), (e) or (f), 5.13, 5.14, 5.15, 5.16.1, 5.16.3,
5.21, 5.22, 5.23, 6.14, 6.20 or 6.23 and such failure shall continue unremedied
for a period of 30 days after Borrower becomes aware thereof or receives written
notice thereof from Administrative Agent provided, however, that, if (i) such
failure cannot be cured within such 30 day period, (ii) such failure is
susceptible of cure, (iii) the relevant Project Owner is proceeding with
diligence and in good faith to cure such failure, (iv) the existence of such
failure has not had and cannot after considering the nature of the cure be
reasonably expected to have a Material Adverse Effect on such Project and (v)
Administrative Agent shall have received an officer's certificate signed by a
Responsible Officer of Borrower to the effect of clauses (i), (ii), (iii) and
(iv) above and stating what action the relevant Project Owner is taking to cure
such failure, then such 30 day cure period shall be extended to such date, not
to exceed a total of 90 days, as shall be necessary for such Project Owner
diligently to cure such failure.

            (c)   Material Adverse Effect. The occurrence of any event or
circumstance having a Material Adverse Effect on such Project.

            (d)   Omissions. Any financial statement, representation, warranty
or certificate made or prepared by, under the control of or on behalf of a
Portfolio Entity and furnished to Administrative Agent, the Lead Arrangers, the
Technical Committee or any Bank pursuant to this Agreement, or in any separate
statement or document to be delivered to Administrative Agent or any Bank
hereunder or under any other Credit Document, shall contain an untrue or
misleading statement of a material fact or shall fail to state a material fact
necessary to make the statements therein not misleading as of the date made, in
either case, which could reasonably be expected to result in a Material Adverse
Effect on such Project.

            "Non-Fundamental Project Inchoate Default" means, with respect to
any Initial Project or Funded Subsequent Project, any occurrence, circumstance
or event, or any combination thereof, which, with the lapse of time or giving of
notice, would constitute a Non-Fundamental Project Default with respect to such
Project.

            "Nonrecourse Persons" has the meaning given in Article 9 of the
Credit Agreement.

            "Notice of Borrowing" means a Notice of Construction Borrowing or a
Notice of Turbine Purchase Borrowing, as appropriate.

            "Note" has the meaning given in Section 2.1.4 of the Credit
Agreement.

            "Notice of Construction Borrowing" has the meaning given in Section
2.1.1(b) of the Credit Agreement.


                                       26
<PAGE>   191
            "Notice of Conversion of Loan Type" has the meaning given in Section
2.1.6 of the Credit Agreement.

            "Notice of LC Activity" has the meaning given in Section 2.2.3 of
the Credit Agreement.

            "Notice of Turbine Purchase Borrowing" has the meaning given in
Section 2.1.2(b) of the Credit Agreement.

            "O&M Agreement" means the contracts or agreements approved by the
Technical Committee in accordance with Section 3.2 or 3.3, as the case may be,
of the Credit Agreement entered into by, or on behalf of, a Project Owner for
the operation or maintenance of a Project.

            "O&M Costs" means all actual cash maintenance and operation costs
incurred and paid for any Project in any particular calendar or fiscal year or
period to which said term is applicable, including payments for fuel, additives
or chemicals and transportation costs related thereto, replacement energy,
capacity and other products or services required to be obtained by a Project
Owner under any Power Purchase Agreement, Major Maintenance costs, local, sales
and real estate taxes, income taxes of any Portfolio Entity, insurance,
consumables, payments made in connection with the requirements of any Permit or
Legal Requirement, payments under any lease (including an Equipment Lease),
payments pursuant to the agreements for the management, operation and
maintenance of the applicable Project, payments for goods or services, including
project management, power marketer and fuel management services, provided or
rendered to the owner of such Project, legal, accounting and consulting fees and
expenses paid by the owner of such Project in connection with the management,
maintenance or operation of Project, fees paid in connection with obtaining,
transferring, maintaining or amending any Permits and reasonable general and
administrative expenses, but exclusive in all cases of non-cash charges,
including depreciation or obsolescence charges or reserves therefor,
amortization of intangibles or other bookkeeping entries of a similar nature,
and also exclusive of all interest charges and charges for the payment or
amortization of principal of indebtedness of the owner of the applicable
Project. O&M Costs shall not include (a) distributions of any kind (as opposed
to payments for goods or services) to a Project Owner or its Affiliates, (b)
depreciation, (c) capital expenditures other than those incurred in an emergency
included in and approved as part of an Annual Operating Budget or (d) payments
for restoration or repair of such Project from the Loss Proceeds Account in
accordance with the terms of the Credit Agreement. In the case of Projects that
are not wholly-owned by a Project Owner, O&M Costs shall consist of a pro rata
portion (based on such Project Owner's ownership percentage in such Project) of
the amounts of costs described above.

            "Obligations" means and includes, with respect to any Person, all
loans, advances, debts, liabilities, and obligations, howsoever arising, owed by
such Person to Administrative Agent, LC Bank, Lead Arrangers, Technical
Committee or the Banks of every kind and description (whether or not evidenced
by any note or instrument and whether or not for the payment of money), direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, pursuant to the terms of the Credit Agreement or any of the
other Credit Documents, including all interest, fees, charges, expenses,
attorneys' fees and accountants fees chargeable to such Person and payable by
such Person hereunder or thereunder.


                                       27
<PAGE>   192
            "Oneta Energy Center Project" means the Initial Project titled
"Oneta Energy Center" set forth on Exhibit G-1 to the Credit Agreement.

            "Operating Account" has the meaning given in Section 7.3.1 of the
Credit Agreement.

            "Operation" means, with respect to any Project, the commencement of
performance testing with respect to such Project.

            "Operative Documents" means the Credit Documents, the Project
Documents, the Turbine Purchase Contracts and any Additional Project Documents.

            "Operator" means any wholly-owned subsidiary of Calpine or any other
Person approved by the Technical Committee in accordance with Section 3.2 or
3.3, as the case may be, of the Credit Agreement in its capacity as operator
under an O&M Agreement.

            "Other Taxes" has the meaning given in Section 2.6.4(a) of the
Credit Agreement.

            "Outstanding Committed Credit" means, as of a given date, the total
of the aggregate principal amount of all Loans then outstanding.

            "Parts" means any part, appliance, instrument, appurtenance,
accessory or other property of any nature necessary or useful to the operation,
maintenance, service or repair of a Project.

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

            "Performance Tests" means, for any Project, the "acceptance tests"
or "performance tests" (however defined) under the Major Construction Contracts
for such Project.

            "Permit" means any action, approval, consent, waiver, exemption,
variance, franchise, order, permit, authorization, right or license of or from a
Governmental Authority.

            "Permit Schedule" has the meaning given in Section 3.2.18 of the
Credit Agreement.

            "Permitted Debt" means: (a) indebtedness incurred under the Credit
Documents, (b) indebtedness to any party pursuant to the terms of an Operative
Document, not more than 90 days past due or being contested in good faith and by
appropriate proceedings, (c) trade or other similar indebtedness incurred in the
ordinary course of business (but not for borrowed money) (i) not more than 90
days past due, or (ii) being contested in good faith and by appropriate
proceedings, (d) contingent liabilities permitted pursuant to Section 6.1 of the
Credit Agreement, (e) indebtedness incurred pursuant to a Contribution, (f)
Interest Rate Agreements with an aggregate notional amount not to exceed at any
time the Outstanding Committed Credit, (g) Contributions in the form of
subordinated debt, (h) Portfolio Entity Debt, (i) indebtedness incurred by the
Delta Energy Center Project Owner pursuant to the Calpine DEC Credit Agreement,
such indebtedness to be subordinated to the indebtedness incurred under the
Credit


                                       28
<PAGE>   193
Documents pursuant to a subordination agreement in form and substance
satisfactory to Administrative Agent and (j) rights under Equipment Leases.

            "Permitted Encumbrances" means (a) with respect to the Funded
Projects, those liens, encumbrances or other exceptions to title satisfactory to
the Technical Committee and specified on a Title Policy pursuant to Sections
3.2.28(a), 3.3.30(a) and 3.3.41 of the Credit Agreement, and (b) with respect to
the Unfunded Subsequent Projects, those liens, encumbrances, or other exceptions
to title which do not result in a Material Adverse Effect on Borrower.

            "Permitted Investments" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having a maturity not exceeding
one year from the date of issuance, (ii) time deposits and certificates of
deposit of any Bank or any domestic commercial bank rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's
having capital and surplus in excess of $500,000,000, (iii) commercial paper of
any domestic corporation rated at least A-1 or the equivalent thereof by S&P or
at least P-1 or the equivalent thereof by Moody's and, in each case, having a
maturity not exceeding 90 days from the date of acquisition, (iv) fully secured
repurchase obligations with a term of not more than seven (7) days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications established in clause (ii) above and
(v) money market mutual funds.

            "Permitted Liens" means (a) the rights and interests of the Banks as
provided in the Credit Documents, (b) Liens for any tax, assessment or other
governmental charge, either secured by a bond or other security reasonably
acceptable to Administrative Agent or not yet due or being contested in good
faith and by appropriate proceedings, so long as (i) such proceedings shall not
involve any substantial danger of the sale, forfeiture or loss of an Initial
Project or a Funded Subsequent Project, or the related Site or any related
Easements, or a Funded Turbine, as the case may be, title thereto or any
interest therein and shall not interfere in any material respect with the use or
disposition of such Project, Site or any Easements, or (ii) a bond or other
security reasonably acceptable to Administrative Agent has been posted or
provided in such manner and amount as to assure Administrative Agent that any
taxes, assessments or other charges determined to be due will be promptly paid
in full when such contest is determined, (c) materialmen's, mechanics',
workers', repairmen's, employees' or other like Liens, junior in right of
payment to the Lien of the Collateral Documents or for which the Banks are
otherwise indemnified, arising in the ordinary course of business or in
connection with the construction of an Initial Project or a Funded Subsequent
Project or the purchase of a Funded Turbine, either for amounts not yet due or
for amounts being contested in good faith and by appropriate proceedings, so
long as (i) such proceedings shall not involve any substantial danger of the
sale, forfeiture or loss of such Project or the related Site or any related
Easements or such Turbine, as the case may be, title thereto or any interest
therein and shall not interfere in any material respect with the use or
disposition of such Project, Site or Easements, or such Turbine, or (ii) a bond
or other security reasonably acceptable to Administrative Agent has been posted
or provided in such manner and amount as to assure Administrative Agent that any
amounts determined to be due will be promptly paid in full when such contest is
determined, (d) Liens arising out of judgments or awards so long as an appeal or
proceeding for review is being prosecuted in good


                                       29
<PAGE>   194
faith and for the payment of which adequate reserves, bonds or other security
reasonably acceptable to Administrative Agent have been provided or are fully
covered by insurance, (e) Permitted Encumbrances, (f) Liens, deposits or pledges
to secure statutory obligations or performance of bids, tenders, contracts
(other than for the repayment of borrowed money) or leases, or for purposes of
like general nature in the ordinary course of its business, not to exceed
$2,000,000 in the aggregate at any time, and with any such Lien to be released
as promptly as practicable, (g) other Liens incident to the ordinary course of
business that are not incurred in connection with the obtaining of any loan,
advance or credit and that do not in the aggregate materially impair the use of
the property or assets of the Portfolio Entities or the value of such property
or assets for the purposes of such business, (h) involuntary Liens as
contemplated by the Operative Documents (including a lien of an attachment,
judgment or execution) securing a charge or obligation, on the Portfolio
Entities' property, either real or personal, whether now or hereafter owned in
the aggregate sum of less than $1,000,000, (i) with respect to the Delta Energy
Center Project, Liens securing indebtedness incurred pursuant to the Calpine DEC
Credit Agreement which are subordinated to the Liens under the Credit Documents
pursuant to a subordination agreement in form and substance satisfactory to
Administrative Agent and (j) rights under any Equipment Lease.

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

            "Plans and Specifications" means, collectively, the plans and
specifications for the construction and design of the Projects, including any
document describing the scope of work performed by the Contractors under the
Construction Contracts or any other contract for the construction of the
Projects and any transmission or other interconnection facilities, all work
drawings, engineering and construction schedules, project schedules, project
monitoring systems, specifications status lists, material and procurement
ledgers, drawings and drawing lists, manpower allocation documents, management
and project procedures documents, project design criteria, and any other
document referred to in the Construction Contracts or any of the documents
referred to in this definition.

            "Pledge Agreements (Pledged Equity Interests)" means, collectively,
each Pledge Agreement (Pledged Equity Interests), in substantially the form of
Exhibit D-9 to the Credit Agreement, executed by the Member, a Portfolio Entity
(other than a Project Owner, an Equipment Finance Company or a Turbine Owner
(unless such Equipment Finance Company or Turbine Owner is also an Intermediate
Parent)) or a Non-Affiliated Parent, as the case may be, pursuant to Section
3.1, 3.2, 3.3 or 3.5, as the case may be, with respect to Pledged Equity
Interests held by such Person in favor of Administrative Agent.

            "Pledged Equity Interests" means the equity interests of each
Portfolio Entity, such equity interests being pledged as security to
Administrative Agent by the Member, the Portfolio Entities (other than the
Project Owners, the Equipment Finance Companies and the Turbine Owners (unless
such Equipment Finance Companies or Turbine Owners are also Intermediate
Parents)) or the Non-Affiliated Parents, as the case may be, pursuant to the
Pledge Agreements (Pledged Equity Interests).


                                       30
<PAGE>   195
            "Portfolio Entities" means, collectively, Borrower, the Project
Owners and their Intermediate Parents, the Equipment Finance Companies and their
Intermediate Parents and the Turbine Owners and their Intermediate Parents.

            "Portfolio Entity Debt" means collectively, the subordinated loans
made by (a) Borrower to Development Company or CCFC II Equipment Finance Company
and (b) Development Company or CCFC II Equipment Finance Company (or their
successors) to each of the Project Owners, Turbine Owners and Equipment Finance
Companies, as applicable, in each case evidenced by the Portfolio Entity Notes
in accordance with Section 7.14 of the Credit Agreement.

            "Portfolio Entity Notes" means, collectively, each of the promissory
notes, in substantially the form of Exhibit D-10 to the Credit Agreement, (a)
issued by a Project Owner, a Turbine Owner or an Equipment Finance Company in
favor of Development Company or CCFC II Equipment Finance Company and (b) issued
by Development Company or CCFC II Equipment Finance Company in favor of
Borrower, such Portfolio Entity Notes being pledged as security to
Administrative Agent by Development Company, CCFC II Equipment Finance Company
and Borrower pursuant to the Development Company Security Agreement, the CCFC II
Equipment Finance Company Security Agreement and the Borrower Security
Agreement, respectively.

            "Power Island Supplier" means the Turbine Purchase Contractor or any
entity approved by the Technical Committee in accordance with Section 3.2 or
3.3, as the case may be, of the Credit Agreement in its capacity as supplier
under one or more Power Island Supply Contracts.

            "Power Island Supply Contracts" means, collectively, the contracts
or agreements for the purchase or supply of the "power island" (combustion
turbines, steam turbine, HRSGs, etc.) for a Project (including any Turbine
Purchase Contract related thereto) between the Project Owner, the Turbine Owner
or the Equipment Finance Company, if any, and the Power Island Suppliers for
such Project and approved by the Technical Committee pursuant to Section 3.2 or
3.3, as the case may be, of the Credit Agreement.

            "Power Marketer" means any wholly-owned subsidiary of Calpine or any
other Person approved by the Technical Committee in accordance with Section 3.2
or 3.3, as the case may be, of the Credit Agreement in its capacity as power
marketer under a Power Marketing Agreement.

            "Power Marketing Agreement" means, collectively, for each Project,
the power marketing agreement approved by the Technical Committee in accordance
with Section 3.2 or 3.3, as the case may be, of the Credit Agreement and entered
into by the Project Owner with respect to such Project.

            "Power Marketing Consultants" means for each Project, the nationally
recognized independent power marketing consultants providing power marketing
consulting services with respect to such Project to the Banks or their
representatives.


                                       31
<PAGE>   196
            "Power Marketing Plan" means, collectively, the power marketing
plans delivered by Borrower pursuant to Sections 3.2.16, 3.3.17 and 3.3.41 of
the Credit Agreement.

            "Power Purchase Documents" means, collectively, for each Project,
contracts or agreements entered into by, or on behalf of, the Project Owner with
respect to such Project in accordance with the Credit Agreement for the sale of
electrical and/or steam energy or capacity or any ancillary or other related
services, including transmission services, from such Project.

            "Power Purchaser" means any Person who is purchasing electrical
and/or steam energy or capacity or ancillary or other related services pursuant
to any Power Purchase Document.

            "Prime Construction Contracts" means, for each Project, the contract
or agreement approved by the Technical Committee in accordance with Section 3.2
or 3.3, as the case may be, of the Credit Agreement entered into by, or on
behalf of, the Project Owner with respect to such Project for either (i) the
design and construction of the entire Project on a "turnkey" basis or (ii) the
construction of that portion of the Project not included within the scope of the
Power Island Supply Contract pursuant to plans or designs prepared by the
Project Engineer for such Project.

            "Prime Contractor" means any entity approved by the Technical
Committee in accordance with Section 3.2 or 3.3, as the case may be, of the
Credit Agreement in its capacity as prime contractor under a Prime Construction
Contract.

            "Proceeds" has the meaning given in Section 7.9 of the Credit
Agreement.

            "Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code which is not exempt under Section 408
of ERISA or Section 4975 of the Code.

            "Project" means an Initial Project or a Subsequent Project;
collectively, the "Projects".

            "Project Budget" means, collectively, the project budgets delivered
by Borrower pursuant to Sections 3.1.14, 3.3.25 and 3.3.41 of the Credit
Agreement.

            "Project Completion Guaranty" means the Project Completion Guaranty
dated as of October 16, 2000 on substantially the form of Exhibit D-2B to the
Credit Agreement executed by Calpine in favor of Administrative Agent.

            "Project Costs" means, with respect to any Project or any Portfolio
Entity, the cost of the development, design, engineering, acquisition,
equipping, construction, assembly, inspection, testing, completion, and start-up
of a Project, including: (a) all amounts payable under the Construction
Contracts, any contractor bonuses, site acquisition and preparation costs, any
interconnection and transmission upgrade costs payable by a Project Owner
pursuant to the Power Purchase Documents, all steam and water interconnection
costs, all costs related to water clarification facilities and/or water
treatment facilities and all costs of acquisition and construction of natural
gas fuel handling and processing equipment (if any) and interconnection


                                       32
<PAGE>   197
expenses payable pursuant to the Gas Supply Contracts and the Gas Transportation
Agreements after the Closing Date; (b) financing, advisory, legal and other
fees; (c) all other costs, including fuel-related costs and prepaid fuel costs,
management services fees and expenses and expenses to complete the acquisition,
construction and financing of such Project; (d) interest and fees payable on or
in respect of any Note or Loan Commitments pursuant to the Credit Agreement
prior to Final Completion of such Project; (e) payments and fees under the
Interest Rate Agreements; provided, however, that "Project Costs" shall not
include any contingency and (f) the initial working capital for a Project as
included in the applicable Project Budget. Project Costs with respect to a
Funded Project shall include Turbine Costs for Turbines assigned or leased to
such Project regardless of whether such Turbine Costs were funded by Turbine
Purchase Loans prior to such Project becoming a Funded Project. Except as
otherwise set forth in Section 3.3.2 or 3.3.41 of the Credit Agreement, in the
case of Projects that are not wholly owned by a Project Owner, Project Costs
shall consist of a pro rata portion (based on such Project Owner's ownership
percentage in such Project) of the amounts of costs described above.

            "Project Documents" means, collectively, agreements or documents
relating to the development, construction or operation of any Project, including
Turbine Purchase Contracts assigned to a Project Owner, entered into by a
Project Owner, a Turbine Owner or an Equipment Finance Company and approved by
the Technical Committee in accordance with and to the extent required under
Section 3.2 or 3.3, as the case may be, of the Credit Agreement.

            "Project Engineer" means any entity approved by the Technical
Committee in accordance with Section 3.2 or 3.3, as the case may be, of the
Credit Agreement in its capacity as project engineer under an Engineering
Contract.

            "Project Management Agreement" means, collectively, each agreement
or document relating to the provision of management services to a Project,
entered into by the Project Owner with respect to such Project and approved by
the Technical Committee in accordance with Section 3.2 or 3.3, as the case may
be, of the Credit Agreement.

            "Project Manager" means any wholly-owned subsidiary of Calpine or
any other Person approved by the Technical Committee in accordance with Section
3.2 or 3.3, as the case may be, of the Credit Agreement in its capacity as
project manager under a Project Management Agreement.

            "Project Operating Revenues" means all payments received by a
Project Owner under the Power Purchase Documents (excluding damages, liquidated
damages and certain other payments described in Section 7.7 of the Credit
Agreement to the extent deposited in the Loss Proceeds Account), proceeds of any
business interruption insurance, income derived from the sale or use of electric
or thermal capacity or energy transmitted or distributed by any Project,
payments for remarketing of fuel or transportation rights relating thereto, and
net payments, if any, received by Borrower under Hedge Transactions, all as
determined in conformity with cash accounting principles, and the investment
income on amounts in the Accounts (but solely to the extent deposited in the
Revenue Account).


                                       33
<PAGE>   198
            "Project Owners" means, collectively, each of the direct or indirect
Subsidiaries of Borrower that directly develops and owns all or a portion of an
Initial Project or a Funded Subsequent Project in accordance with the Credit
Agreement.

            "Project Owner Guaranties" means, collectively, each Project Owner
Guaranty, in substantially the form of Exhibit D-4A to the Credit Agreement,
executed by each Project Owner pursuant to Sections 3.1, 3.2, or 3.3 of the
Credit Agreement, as the case may be, with respect to its respective Project, in
favor of Administrative Agent.

            "Project Revenues" means all income and receipts of the Portfolio
Entities (including Equipment Finance Companies pursuant to Equipment Leases
(except as provided in Section 6.6(b) of the Credit Agreement)) derived from the
ownership or operation of the Projects, including payments received by the
Portfolio Entities under the Power Purchase Documents, Construction Contracts
and O&M Agreements (including damages, liquidated damages and certain other
payments described in Section 7.7 of the Credit Agreement), proceeds of any
delay in start up or business interruption or other insurance, income derived
from the sale or use of electric or thermal capacity or energy transmitted or
distributed by any Project, payments for remarketing of fuel or transportation
rights relating thereto, and net payments, if any, received by Borrower under
Hedge Transactions, together with any receipts derived from the sale of any
property pertaining to any Project or incidental to the operation of any
Project, all as determined in conformity with cash accounting principles, the
investment income on amounts in the Accounts (but solely to the extent deposited
in the Revenue Account), the proceeds of any condemnation awards relating to any
Project and proceeds from the Collateral Documents with respect to Projects.

            "Projects Five Through Twelve" means, collectively, each of the
fifth through twelfth Projects to become a Funded Project.

            "Projects One Through Four" means, collectively, each of the first
four Initial Projects to become a Funded Project.

            "Project Schedules" means, collectively, the project schedules
delivered by Borrower pursuant to Sections 3.1.15, 3.2.25, 3.3.26 and 3.3.41 of
the Credit Agreement.

            "Project/Turbine Owner Security Agreements" means, collectively,
each Project/Turbine Owner Security Agreement, in substantially the form of
Exhibit D-4A to the Credit Agreement, executed by a Project Owner or a Turbine
Owner pursuant to Section 3.1, 3.2, 3.3 or 3.5 of the Credit Agreement, as the
case may be, with respect to its respective Projects or Turbine(s), as the case
may be, in favor of Administrative Agent.

            "Proportionate Share" means, with respect to each Bank, the
percentage participation of such Bank in the Total Loan Commitment, the Total
Turbine Purchase Loan Commitment or the Total Letter of Credit Commitment,
respectively, as set forth on Exhibit H to the Credit Agreement. Upon any
transfer by a Bank of all or part of its Commitments, Administrative Agent may
revise Exhibit H to reflect the Banks' Proportionate Shares after giving effect
to such transfer.


                                       34
<PAGE>   199
            "Prudent Utility Practices" means those practices, methods,
equipment, specifications and standards of safety and performance, as the same
may change from time to time, as are commonly used by gas fired electric
generation stations in the state where a Project is located, as applicable, of a
type and size similar to the applicable Project as good, safe and prudent
engineering practices in connection with the design, construction, operation,
maintenance, repair and use of electrical and other equipment, facilities and
improvements of such electrical station, with commensurate standards of safety,
performance, dependability, efficiency and economy. Prudent Utility Practices
does not necessarily mean one particular practice, method, equipment
specification or standard in all cases, but is instead intended to encompass a
broad range of acceptable practices, methods, equipment specifications and
standards.

            "PUC" means, with respect to a Project, the Public Utility
Commission, Public Service Commission, or equivalent Government Authority in the
state where a Project is located.

            "PUHCA" means the Public Utility Holding Company Act of 1935 and all
rules and regulations adopted thereunder.

            "PURPA" means the Public Utility Regulatory Policies Act of 1978 and
all rules and regulations adopted thereunder.

            "Qualifying Facility" means a qualifying facility within the meaning
of PURPA.

            "Receivables" means "accounts" and "general intangibles", as such
terms are defined in Section 9-106 of the UCC, of the Portfolio Entities and any
chattel paper, document or instrument relating to any such account or general
intangible and any security agreement, lease or other contract securing any of
the foregoing.

            "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System (or any successor).

            "Regulatory Change" means any change after the date of the Credit
Agreement in federal, state, local or foreign laws, regulations, Legal
Requirements or requirements under Applicable Permits, or the adoption or making
after such date of any interpretations, directives or requests of or under any
federal, state, local or foreign laws, regulations, Legal Requirements or
requirements under Applicable Permits (whether or not having the force of law)
by any Governmental Authority charged with the interpretation or administration
thereof.

            "Reimbursement Obligation" means Borrower's obligation to repay
Drawing Payments under any of the Letters of Credit as provided in Sections
2.2.4 and 2.2.5 of the Credit Agreement.

            "Reimbursement Payment" means a payment made by or on behalf of
Borrower in partial or complete satisfaction of a Reimbursement Obligation,
including any interest payment obligation in connection therewith.


                                       35
<PAGE>   200
            "Release" means disposing, discharging, injecting, spilling,
leaking, leaching, dumping, pumping, pouring, emitting, escaping, emptying,
seeping, placing and the like, into or upon any land or water or air, or
otherwise entering into the environment.

            "Renewal Notice" has the meaning given in Section 2.11.2 of the
Credit Agreement.

            "Renewing Bank" has the meaning given in Section 2.11.2 of the
Credit Agreement.

            "Replacement Bank" has the meaning given in Section 2.11.3 of the
Credit Agreement.

            "Replacement Obligor" means, with respect to any Person party to a
Project Document, any Person satisfactory to the Required Banks and having
credit, or acceptable credit support, equal to or greater than that of the
replaced Person on the date that the applicable Project Document was entered
into (or otherwise acceptable to the Required Banks) who, pursuant to any
definitive agreement, definitive guaranty or definitive backup arrangement, in
each case reasonably satisfactory to the Required Banks, assumes the obligation
of providing the services and/or products on terms and conditions no less
favorable to Borrower than those which such Person is obligated to provide
pursuant to the applicable Project Document.

            "Required Banks" means, at any time, Banks having Proportionate
Shares which in the aggregate exceed 66.67%.

            "Required Contribution Percentage" means the applicable percentage
set forth in the column titled "Required Contribution Percentage" on Schedule 1
to the Credit Agreement related to the period in question.

            "Reserve Requirement" means, for LIBOR Loans, the maximum rate
(expressed as a percentage) at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during the
Interest Period therefor under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding $1,000,000,000 against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which includes
deposits by reference to which the LIBO Rate or LIBOR Loans is to be determined,
(ii) any category of liabilities or extensions of credit or other assets which
include LIBOR Loans or (iii) any category of liabilities or extensions of credit
which are considered irrevocable commitments to lend.

            "Responsible Officer" means, as to any Person, its president, chief
executive officer, any vice president, treasurer, or secretary or any managing
general partner (or any of the preceding with regard to such managing general
partner).

            "Revenue Account" has the meaning given in Section 1.1 of the
Depositary Agreement.


                                       36
<PAGE>   201
            "S&P" means Standard & Poor's Corporation.

            "Santa Rosa - Phase I Project" means the Initial Project titled
"Santa Rosa Energy Center 1" set forth on Exhibit G-1 to the Credit Agreement.

            "Secured Obligations" has the meaning given in the granting clause
of the Deed of Trust.

            "Senior O&M Costs" means all O&M Costs except Subordinated O&M
Costs.

            "Settlement Amount" has the meaning given in Section 5.11.6 of the
Credit Agreement.

            "Site" has the meaning given in the relevant Deed of Trust.

            "SPC " has the meaning given in Section 10.13.2 of the Credit
Agreement.

            "Stated Amount" means with respect to each Letter of Credit, the
total amount available to be drawn thereunder at the time in question in
accordance with the terms of such Letter of Credit.

            "Subject Companies" has the meaning given in Section 4.11 of the
Credit Agreement.

            "Subordinated O&M Costs" means all of the O&M Costs that are payable
to Affiliates of Borrower to the extent such amounts are subordinated pursuant
to the applicable Affiliated Subordination Agreements.

            "Subsequent Projects" means, collectively, the natural gas-fired
power generating plants utilizing commercially accepted technology located on
the respective Sites, all as further described in Exhibit G-2 to the Credit
Agreement owned or partially owned by a Project Owner, together with all
buildings, structures or improvements erected on the respective Sites and the
respective Easements with respect to such Sites, all alterations thereto or
replacements thereof, all fixtures, attachments, appliances, equipment,
machinery and other articles attached thereto or used in connection therewith
and all Parts which may from time to time be incorporated or installed in or
attached thereto, all contracts and agreements for the purchase or sale of
commodities or other personal property related thereto, all leases of real or
personal property related thereto, and all other real and tangible and
intangible personal property owned by a Project Owner or by an Equipment Finance
Company and leased to a Project Owner and placed upon or used in connection with
such natural gas-fired power generating plants, whether located upon the
respective Sites and Easements or otherwise; each individually, a "Subsequent
Project." Borrower may, in its sole discretion and upon written notice to
Administrative Agent, amend, modify or supplement Exhibit G-2 to the Credit
Agreement in order to add additional Subsequent Projects to such Exhibit.

            "Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which 50% or
more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to


                                       37
<PAGE>   202
vote in the election of directors, managers or trustees thereof is at the time
of determination owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person of a combination thereof
and (ii) any partnership or limited liability company of which 50% or more of
the partnership's or limited liability company's, as the case may be, capital
accounts, distribution rights or general or limited partnership interests or
limited liability company membership interests, as the case may be, are owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof.

            "Substituted Initial Project" means a Subsequent Project that (A)
has a substantially similar effect on the projected annual Four-Quarter
Portfolio Interest Coverage Ratio as the Initial Project for which it is being
substituted as determined by the Required Banks, (B) is 100% owned by its
respective Project Owner, (C) satisfies the Diversification Requirements, (D)
satisfies each condition precedent set forth in Section 3.1 of the Credit
Agreement that would have been applicable to such Subsequent Project (or the
relevant Portfolio Entities) if such Subsequent Project was an Initial Project
as of the Closing Date, including, without limitation, the delivery to
Administrative of the relevant Credit Documents, (E) except for a Subsequent
Project being substituted for the Delta Energy Center Project, is not a
Designated Project and (F) with respect to the relevant Project Owner's
Non-Affiliated Parents, if any, satisfies each condition precedent set forth in
Section 3.3 of the Credit Agreement related to Non-Affiliated Parents generally,
including, without limitation, the delivery to Administrative of the relevant
Credit Documents with respect to such Non-Affiliated Parents, if any.

            "Taxes" has the meaning given in Section 2.6.4(a) of the Credit
Agreement.

            "Technical Committee" has the meaning given in Section 10.17 of the
Credit Agreement.

            "Telerate Screen" means the display designated as Page 3750 on the
Dow Jones Market Screen (or such page as may replace such page for the purpose
of displaying London Interbank offered rates of major banks, or, if
discontinued, any replacement service designated by Administrative Agent).

            "Title Insurer" means, with respect to a Project, the title company
issuing a Title Policy pursuant to Section 3.2.28, 3.3.30 or 3.3.41 of the
Credit Agreement.

            "Title Policy" means, collectively, the title policies delivered by
Borrower pursuant to Sections 3.2.28, 3.3.30 and 3.3.41 of the Credit Agreement.

            "Total Letter of Credit Commitment" has the meaning given in Section
2.3.3 of the Credit Agreement.

            "Total Loan Commitment" has the meaning given in Section 2.3.1 of
the Credit Agreement.

            "Total Turbine Purchase Loan Commitment" has the meaning given in
Section 2.3.2 of the Credit Agreement.


                                       38
<PAGE>   203
            "Turbine" means a natural gas-fired combustion turbine generator or
a steam turbine generator or rights thereto ordered and allocated by the
manufacturer thereof, together with all alterations thereto or replacements
thereof, all contracts and agreements relating thereto, including the Turbine
Purchase Contract and/or the appropriate Power Island Supply Contract, and all
other tangible and intangible personal property, interests or rights in respect
thereof, in each case owned by (a) a Turbine Owner and assigned to an Initial
Project or a Subsequent Project with a Turbine Delivery Date, in each case as
more fully described on Exhibit G-3 to the Credit Agreement, (b) a Project Owner
or (c) an Equipment Finance Company and leased to a Project Owner pursuant to an
Equipment Lease. Borrower may, in its sole discretion and upon written notice to
Administrative Agent, amend, modify or supplement Exhibit G-3 to the Credit
Agreement in order to add additional Turbines to such Exhibit. To the extent
title to a Turbine has not been transferred to a Turbine Owner, "Turbine" means
the rights to such Turbine under the applicable Turbine Purchase Contract. Once
a Turbine has been assigned to a Funded Project or leased to a Project,
reference to such Turbine shall be removed from Exhibit G-3 to the Credit
Agreement.

            "Turbine Costs" means, with respect to any Turbine owned by a
Turbine Owner, the sum of (a) all amounts payable under the associated Turbine
Purchase Contract; plus (b) interest and fees payable on or in respect of any
Note or Loan Commitments pursuant to the Credit Agreement prior to the date such
Turbine has been assigned to a Funded Project or is no longer part of the
Collateral. Notwithstanding the foregoing, at such time as a Project to which a
Funded Turbine has been assigned (as set forth in Exhibit G-3 to the Credit
Agreement) becomes a Funded Project, Turbine Costs with respect to such Turbines
shall be deemed Project Costs with respect to the corresponding Project and
shall thereafter no longer be considered Turbine Costs.

            "Turbine Delivery Date" means, with respect to any Turbine, the
earliest date upon which such Turbine (or portion thereof) is scheduled to be
physically delivered to Turbine Owner or otherwise deemed to be in Turbine
Owner's control pursuant to the associated Turbine Purchase Contract, such date
being set forth on Exhibit G-3 to the Credit Agreement with respect to each
Turbine.

            "Turbine Funding Date" means each date of an initial funding of
Turbine Purchase Loans for a Turbine pursuant to Section 3.5 of the Credit
Agreement.

            "Turbine Owners" means, collectively, Borrower and/or each of the
direct or indirect Subsidiaries of Borrower that directly owns (a) a Turbine or
rights to a Turbine assigned to an Initial Project (as set forth in Exhibit G-3
to the Credit Agreement) or (b) a Funded Turbine or rights to a Funded Turbine.
In the event a Turbine Owner leases Turbines to a Project Owner pursuant to an
Equipment Lease, such Turbine Owner shall be deemed an Equipment Finance Company
and shall no longer be considered a Turbine Owner.

            "Turbine Purchase Contractor" means Siemens Westinghouse Power
Corporation, a Delaware corporation, or General Electric Company, a New York
corporation or, with respect to steam Turbines only, any other Person approved
by the Technical Committee.


                                       39
<PAGE>   204
            "Turbine Purchase Contracts" means, collectively, each of the
contracts or agreements for the purchase or supply of the Turbines entered into
by a Turbine Owner and approved by the Technical Committee pursuant to Section
3.5 of the Credit Agreement.

            "Turbine Purchase Credit Event" has the meaning given in Section 3.6
of the Credit Agreement.

            "Turbine Purchase Drawdown Certificate" means a certificate
delivered to Administrative Agent substantially in the form of Exhibit C-8 to
the Credit Agreement.

            "Turbine Purchase Guaranty" means the Turbine Purchase Guaranty
dated as of October 16, 2000 on substantially the form of Exhibit D-2C to the
Credit Agreement executed by Calpine in favor of Administrative Agent, on behalf
of the Banks.

            "Turbine Purchase Loan" has the meaning given in Section 2.1.2(a) of
the Credit Agreement.

            "Turbine Purchase Loan Commitment" means, at any time with respect
to each Bank, such Bank's Proportionate Share of the Total Turbine Purchase Loan
Commitment at such time.

            "Turbine Purchase Sub-Accounts" has the meaning given in Section
7.1.1 of the Credit Agreement.

            "Type" means the type of Loan, whether a Base Rate Loan or LIBOR
Loan.

            "UCC" means the Uniform Commercial Code of the jurisdiction the law
of which governs the document in which such term is used.

            "Unfunded Projects" means, collectively, the Projects other than the
Funded Projects.

            "Unfunded Subsequent Projects" means, collectively, the Subsequent
Projects other than the Funded Subsequent Projects.

            "Waterfall Level" has the meaning given in Section 7.2.1 of the
Credit Agreement.

            "Working Capital Reserve Account" has the meaning given in Section
1.1 of the Depositary Agreement.

            "Working Capital Reserve Requirement" means an amount equal to the
anticipated O&M Costs (including fuel costs) for all Initial Projects and Funded
Subsequent Projects then in operation for a 30-day period.


                                       40
<PAGE>   205
                             RULES OF INTERPRETATION

            1.    The singular includes the plural and the plural includes
the singular.

            2.    "or" is not exclusive.

            3.    A reference to a Governmental Rule includes any amendment or
modification to such Governmental Rule, and all regulations, rulings and other
Governmental Rules promulgated under such Governmental Rule.

            4.    A reference to a Person includes its permitted successors
and permitted assigns.

            5.    Accounting terms have the meanings assigned to them by GAAP,
as applied by the accounting entity to which they refer.

            6.    The words "include," "includes" and "including" are not
limiting.

            7.    A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated. Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document. In the event of any conflict between the provisions of the
Credit Agreement (exclusive of the Exhibits, Schedules, Annexes and Appendices
thereto) and any Exhibit, Schedule or Annex thereto, the provisions of this
Credit Agreement shall control. A reference to any Exhibit, Schedule, Annex or
Appendix of the Credit Agreement shall mean such Exhibit, Schedule, Annex or
Appendix as, amended, modified or supplemented from time to time in accordance
with the Credit Agreement; provided, that no Exhibit, Schedule, Annex or
Appendix may be amended, modified or supplemented by Borrower except to the
extent specifically permitted in the Credit Agreement.

            8.    References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.

            9.    The words "hereof," "herein" and "hereunder" and words of
similar import when used in any document shall refer to such document as a whole
and not to any particular provision of such document.

            10.   References to "days" shall mean calendar days, unless the term
"Banking Days" shall be used. References to a time of day shall mean such time
in New York, New York, unless otherwise specified.

            11.   The Credit Documents are the result of negotiations between,
and have been reviewed by the Portfolio Entities, Administrative Agent, Lead
Arrangers, Arrangers, Co-Documentation Agents, LC Bank, Co-Syndication Agents,
Bookrunner each Bank and their respective counsel. Accordingly, the Credit
Documents shall be deemed to be the product of all


                                       41
<PAGE>   206
parties thereto, and no ambiguity shall be construed in favor of or against the
Portfolio Entities, Administrative Agent, Lead Arrangers, Arrangers, LC Bank,
Co-Documentation Agents, Co-Syndication Agents, Bookrunner or any Bank solely as
a result of any such party having drafted or proposed the ambiguous provision.


                                       42


<PAGE>   207
                                                             EXHIBIT B
                                                             to Credit Agreement

                                                                     Note No. __
                                  FORM OF NOTE

$______________                                              New York, New York
                                                             ___________________

                  For value received, the undersigned CALPINE CONSTRUCTION
FINANCE COMPANY II, LLC, a Delaware limited liability company ("Borrower"),
promises to pay to ___________________ (the "Bank"), or order, at the office of
CREDIT SUISSE FIRST BOSTON, acting through its New York Branch as Administrative
Agent, located at ______________________, Attn: Manager, Project Finance, in
lawful money of the United States of America and in immediately available funds,
the principal amount of ______________________ DOLLARS ($______________), or if
less, the aggregate unpaid and outstanding principal amount of Loans advanced by
the Bank to Borrower pursuant to that certain Credit Agreement, dated as of
October 16, 2000 (the "Credit Agreement"), by and among Borrower, the financial
institutions listed on Exhibit H thereto, Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, as the same may be amended from time to time, and all
other amounts owed by Borrower to the Bank hereunder.

                  This is one of the Notes referred to in the Credit Agreement
and is entitled to the benefits thereof and is subject to all terms, provisions
and conditions thereof. Capitalized terms used and not defined herein shall have
the meanings set forth in the Credit Agreement.

                  This Note is made in connection with and is secured by, among
other instruments, the provisions of the Collateral Documents. Reference is
hereby made to the Credit Agreement and the Collateral Documents for the
provisions, among others, with respect to the custody and application of the
Collateral, the nature and extent of the security provided thereunder, the
rights, duties and obligations of Borrower and the rights of the holder of this
Note.

                  The principal amount hereof is payable in accordance with the
Credit Agreement, and such principal amount may be prepaid solely in accordance
with the Credit Agreement, including without limitation any prepayment fees and
premiums provided for therein.

                  Borrower further agrees to pay, in lawful money of the United
States of America and in immediately available funds, interest from the date
hereof on the unpaid and outstanding principal amount hereof until such unpaid
and outstanding principal amount shall become due and payable (whether at stated
maturity, by acceleration or otherwise) at the rates of interest and at the
times set forth in the Credit Agreement and Borrower agrees to pay other fees
and costs as stated in the Credit Agreement.

                  If any payment on this Note becomes due and payable on a date
which is not a Banking Day, such payment shall be made on the first succeeding,
or next preceding, Banking Day, in accordance with the terms of the Credit
Agreement.
<PAGE>   208
                  All Loans made by the Bank pursuant to the Credit Agreement
and other Credit Documents, and all payments and prepayments made on account of
the principal balance hereof shall be recorded by the Bank on the grid attached
hereto, provided that failure to make such a notation shall not affect or
diminish Borrower's obligation to repay all amounts due on this Note, as and
when due.

                  Upon the occurrence of any one or more Events of Default, all
amounts then remaining unpaid on this Note may become or be declared to be
immediately due and payable as provided in the Credit Agreement and other Credit
Documents, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or notices or demands of any kind, all of
which are expressly waived by Borrower.

                  Recourse under this Note shall be limited as provided in
Article 9 of the Credit Agreement.

                  Borrower agrees to pay costs and expenses, including without
limitation attorneys' fees, incurred in connection with the interpretation or
enforcement of this Note, in accordance with the Credit Agreement.

              [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       2
<PAGE>   209
                  This Note has been executed and delivered in and shall be
construed and interpreted in accordance with and governed by the laws of the
State of New York, without reference to conflicts of laws (other than Section
5-1401 of the New York General Obligations Law).

                                  CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                                  a Delaware limited liability company


                                  By:
                                     -------------------------------------------
                                     Name:

                                     Title:
<PAGE>   210
<TABLE>
<CAPTION>
                                      Prepayment or           Outstanding
       Date            Advance          Repayment               Balance
--------------------------------------------------------------------------------
<S>                    <C>            <C>                     <C>


</TABLE>
<PAGE>   211
                                                             EXHIBIT C-1
                                                             to Credit Agreement

                    FORM OF NOTICE OF CONSTRUCTION BORROWING

                     (Delivered pursuant to Section 2.1.1(b)
                            of the Credit Agreement)

[Date]


Credit Suisse First Boston,
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

Re:      Calpine Construction Finance Company II Projects

                  This Notice of Construction Borrowing is delivered to you
pursuant to Section 2.1.1(b) of the Credit Agreement dated as of October 16,
2000 ("Credit Agreement"), among Calpine Construction Finance Company II, LLC, a
Delaware limited liability company, as Borrower ("Borrower"), the financial
institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse First
Boston, acting through its New York Branch, as Lead Arranger and Administrative
Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent. All capitalized terms used herein shall have the
respective meanings specified in Exhibit A to the Credit Agreement unless
otherwise defined herein or unless the context requires otherwise.

                  This Notice of Borrowing constitutes a request for a Borrowing
of Construction Loans as set out below:

                  1.       The requested date of the Borrowing is __________,
                           ______, which is a Banking Day.

                  2.       The total amount of the requested Construction Loans
                           is $____________.

                  3.       Borrower requests the following funding options:

                           a.       Base Rate Loans amount:  $_______________.

                           b.       LIBOR Loans:

<TABLE>
<CAPTION>
                                    Amount Requested    Initial Interest Period
<S>                                                     <C>
                                    $______                   ________ months
                                    $______                   ________ months
                                    $______                   ________ months
</TABLE>
<PAGE>   212
                  The undersigned further confirms and certifies to
Administrative Agent and each Bank that (i) the requested Construction Loans,
when added to all other Construction Loans outstanding as of the date hereof do
not exceed the Total Loan Commitment minus the sum of (x) the aggregate
principal amount of all Turbine Purchase Loans outstanding as of the date
hereof, (y) the aggregate Stated Amount of all Letters of Credit outstanding as
of the date hereof, (z) the aggregate amount of all Reimbursement Obligations
outstanding as of the date hereof, and (ii) the conditions precedent to the
Borrowing hereby requested set forth in Article 3 of the Credit Agreement have
been satisfied or waived in accordance with the terms thereof.

                      CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                        By:
                           ----------------------------------------
                        Name:
                        Title:


                                       2
<PAGE>   213
                                                             EXHIBIT C-2
                                                             to Credit Agreement

                  FORM OF NOTICE OF TURBINE PURCHASE BORROWING
                     (Delivered pursuant to Section 2.1.2(b)
                            of the Credit Agreement)

[Date]


Credit Suisse First Boston,
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

Re:      Calpine Construction Finance Company II ("Turbines")

                  This Notice of Turbine Purchase Borrowing is delivered to you
pursuant to Section 2.1.2(b) of the Credit Agreement dated as of October 16,
2000 ("Credit Agreement"), among Calpine Construction Finance Company II, LLC, a
Delaware limited liability company, as Borrower ("Borrower"), the financial
institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse First
Boston, acting through its New York Branch, as Lead Arranger and Administrative
Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent. All capitalized terms used herein shall have the
respective meanings specified in Exhibit A to the Credit Agreement unless
otherwise defined herein or unless the context requires otherwise.

                  This Notice of Borrowing constitutes a request for a Borrowing
of Turbine Purchase Loans as set out below:

                  1.       The requested date of the Borrowing is __________,
                           ______, which is a Banking Day.

                  2.       The total amount of the requested Turbine Purchase
                           Loans is $____________.

                  3.       Borrower requests the following funding options:

                           a.       Base Rate Loans amount:  $_______________.

                           b.       LIBOR Loans:

<TABLE>
<CAPTION>
                                    Amount  Requested    Initial Interest Period
<S>                                                      <C>
                                    $______                 ________ months
                                    $______                 ________ months
                                    $______                 ________ months
</TABLE>
<PAGE>   214
                  The undersigned further confirms and certifies to
Administrative Agent and each Bank that (i) the requested Turbine Purchase
Loans, when added to all other Turbine Purchase Loans outstanding as of the date
hereof shall not exceed the lesser of (x) the Total Turbine Purchase Loan
Commitment and (y) an amount equal to the excess, if any, of (A) the amount of
the Total Loan Commitment as of the date hereof over (B) the aggregate principal
amount of all Loans outstanding as of the date hereof plus the Aggregate LC
Stated Amount and all outstanding Reimbursement Obligations outstanding as of
the date hereof, and (ii) the conditions precedent to the Borrowing hereby
requested set forth in Article 3 of the Credit Agreement have been satisfied or
waived in accordance with the terms thereof.

                      CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                       By:     ____________________________________________
                               Name:
                               Title:


                                       2
<PAGE>   215
                                                             EXHIBIT C-3
                                                             to Credit Agreement

                FORM OF CONFIRMATION OF INTEREST PERIOD SELECTION

                   (Delivered pursuant to Section 2.1.3(b)(ii)
                            of the Credit Agreement)


[Date]

Credit Suisse First Boston
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

                  Re:      Calpine Construction Finance Company II Project

                  This Confirmation of Interest Period Selection is delivered to
you pursuant to Section 2.1.3(b)(ii) of the Credit Agreement dated as of October
16, 2000 ("Credit Agreement"), among Calpine Construction Finance Company II,
LLC, a Delaware limited liability company, as Borrower ("Borrower"), the
financial institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse
First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. All capitalized terms used herein shall have the
respective meanings specified in Exhibit A to the Credit Agreement unless
otherwise defined herein or unless the context requires otherwise.

                  This Confirmation of Interest Period Selection relates to $
__________ of the LIBOR Loans with an Interest Period ending on ________. This
Confirmation of Interest Period Selection constitutes a confirmation that
effective __________ (which shall be the last day of an Interest Period), the
requested Interest Period for ___________ of such LIBOR Loans shall be __
months. [SPECIFY WHETHER CONSTRUCTION/TURBINE PURCHASE LOANS, IF NECESSARY]

                  This notice shall be effective only if delivered to
Administrative Agent as a Confirmation of Interest Period Selection made
pursuant to Section 2.1.3(b)(ii) of the Credit Agreement.
<PAGE>   216
                  The undersigned confirms and certifies to each Bank that as of
the date of this Confirmation of Interest Period Selection, no Event of Default
or Inchoate Default exists under the Credit Agreement.

                      CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                                    By:
                                       -----------------------------------------
                                    Name:
                                    Title:



                  The undersigned acknowledges receipt of a copy of this
Confirmation of Interest Period Selection:

CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,            Date:            ,
as Administrative Agent for the Banks                         -----------  -----

By:
         -----------------------------------------------------
         Name:
         Title:


By:
         -----------------------------------------------------
         Name:
         Title:

<PAGE>   217
                                                             EXHIBIT C-4
                                                             to Credit Agreement

                    FORM OF NOTICE OF CONVERSION OF LOAN TYPE

                      (Delivered pursuant to Section 2.1.6
                            of the Credit Agreement)


[Date]

Credit Suisse First Boston,
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

                  Re:      Calpine Construction Finance Company II Projects

                  1. Reference is hereby made to that certain Credit Agreement
dated as of October 16, 2000 ("Credit Agreement"), among Calpine Construction
Finance Company II, LLC, a Delaware limited liability company, as Borrower
("Borrower"), the financial institutions listed on Exhibit H thereto (the
"Banks"), Credit Suisse First Boston, acting through its New York Branch, as
Lead Arranger and Administrative Agent ("Administrative Agent"), The Bank of
Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of
America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital
LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale,
as Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. All capitalized terms used herein
shall have the respective meanings specified in Exhibit A to the Credit
Agreement unless otherwise defined herein or unless the context requires
otherwise.

                  2. Pursuant to Section 2.1.6 of the Credit Agreement, Borrower
hereby notifies Administrative Agent: [SPECIFY WHETHER CONSTRUCTION/TURBINE
PURCHASE LOANS, IF NECESSARY]]

                           (a) the conversion of $_______________ of such Loans
         from a [BASE RATE/LIBOR] Loan to a [LIBOR/BASE RATE] Loan;

                           (b) that the effective date of the conversion shall
         be ___________, which is a Banking Day and which shall be the first day
         after the last day of an Interest Period if converting from LIBOR
         Loans;

                           (c) if converting to LIBOR Loans, the following
         Interest Periods are selected:
<PAGE>   218
<TABLE>
<CAPTION>
                            Amount         Requested Initial Interest Period
<S>                                        <C>
                          $_________               ________ months
                          $_________               ________ months
                          $_________               ________ months
</TABLE>


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>   219
         IN WITNESS WHEREOF, Borrower has executed this Notice of Conversion of
Loan Type on the date set forth above.

                      CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                                    By:
                                        -----------------------------------

                                        Name:
                                        Title:



         The undersigned acknowledges receipt of a copy of this Notice of
Conversion of Loan Type:

CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,            Date:            ,
as Administrative Agent for the Banks                          ----------  -----

By:
        ------------------------------------------------------
        Name:
        Title:

By:
        ------------------------------------------------------
        Name:
        Title:


<PAGE>   220
                                                             EXHIBIT C-5
                                                             to Credit Agreement

                          FORM OF NOTICE OF LC ACTIVITY

                      (Delivered pursuant to Section 2.2.3
                            of the Credit Agreement)


[Date]

Credit Suisse First Boston,
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

                  Re:      Calpine Construction Finance Company II Project

                  This Notice of LC Activity is delivered to you pursuant to
Section 2.2.3 of the Credit Agreement dated as of October 16, 2000 ("Credit
Agreement"), among Calpine Construction Finance Company II, LLC, a Delaware
limited liability company, as Borrower ("Borrower"), the financial institutions
listed on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent. All capitalized terms used herein shall have the
respective meanings specified in Exhibit A to the Credit Agreement unless
otherwise defined herein or unless the context requires otherwise.

                  1. We request that a/the [SPECIFY LETTER OF CREDIT] be
[ISSUED] [EXTENDED] [INCREASED] as provided below.


                  2. The Letter of Credit relates to the _______ Project.

                  3. The issue date of the Letter of Credit is
__________________, and the [EXTENDED] Expiration Date of the Letter of Credit
is ________________, neither of which is later than the Loan Maturity Date.

                  4. [THE STATED AMOUNT OF THE LETTER OF CREDIT IS
$_____________] or [WE REQUEST THAT THE STATED AMOUNT OF THE LETTER OF CREDIT BE
INCREASED FROM $________ TO $_________] which, together with the Aggregate LC
Stated Amount and all outstanding Reimbursement Obligations thereunder, does not
exceed the lesser of (i) the Total Letter of Credit Commitment and (ii) an
amount equal to the excess, if any, of (a) the amount of the Total Loan
Commitment as of the date hereof over (b)
<PAGE>   221
the aggregate principal amount of all Loans then outstanding plus the Aggregate
LC Stated Amount and all outstanding Reimbursement Obligations.

                  5. The Available Construction Funds, after taking into effect
the issuance of the Letter of Credit requested hereby, will be equal to or
exceed the remaining Project Costs of all Initial Projects and Funded Subsequent
Projects then under construction.

                  6. Administrative Agent is instructed to deliver the [LETTER
OF CREDIT] [NOTICE OF EXTENSION] [NOTICE OF INCREASE IN STATED AMOUNT] to
________, [THE LC BENEFICIARY] [BORROWER], at [ADDRESS].

                  The undersigned further confirms and certifies to
Administrative Agent and each Bank that the Letter of Credit requested hereby
shall only be used in the manner and for the purposes specified and permitted by
the Credit Agreement, and that, as of the date of the issuance of such Letter of
Credit, the conditions set forth in Section 3.8 of the Credit Agreement have all
been satisfied or waived in accordance with the terms thereof.

                      CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                        By:
                           -----------------------------------------------------
                           Name:
                           Title:
<PAGE>   222
                                                             EXHIBIT C-6
                                                             to Credit Agreement

                    FORM OF CONSTRUCTION DRAWDOWN CERTIFICATE

                      (Delivered pursuant to Section 3.4.3
                            of the Credit Agreement)


                                                        Date: [__________, ____]

                                              Drawdown Date:  [__________, ____]


Credit Suisse First Boston,
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

Ladies and Gentlemen:

         1. This Construction Drawdown Certificate is delivered to you pursuant
to Section 3.4.3 of that certain Credit Agreement dated as of October 16, 2000
("Credit Agreement"), among Calpine Construction Finance Company II, LLC, a
Delaware limited liability company, as Borrower ("Borrower"), the financial
institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse First
Boston, acting through its New York Branch, as Lead Arranger and Administrative
Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent. Unless otherwise defined herein, all capitalized terms
used herein shall have the respective meanings specified in Exhibit A to the
Credit Agreement.

         2. We have read the provisions of the Credit Agreement which are
relevant to the furnishing of this Construction Drawdown Certificate. To the
extent that this Construction Drawdown Certificate evidences, attests or
confirms compliance with any covenants or conditions precedent provided for in
the Credit Agreement, we have made such examination or investigation as was, in
our opinion, necessary to enable us to express an informed opinion as to whether
such covenants or conditions have been complied with. This Construction Drawdown
Certificate relates to a Borrowing or other disbursement to take place on the
Drawdown Date.
<PAGE>   223
         3. This Construction Drawdown Certificate relates to the
__________________________ Project (the "Project").

         4. BORROWER HEREBY CERTIFIES THAT, as of the date hereof:

                  4.1 The Project Costs for the Project incurred through the
immediately preceding Drawdown Date by or on behalf of the appropriate Portfolio
Entities and for which a Construction Drawdown Certificate has previously been
submitted by Borrower are $__________, segregated by major categories as
described in Column A of Appendix I hereto. The Project Costs for the Project
paid during the previous month from funds in the Project's Operating Account as
permitted pursuant to Section 7.1.2(c) of the Credit Agreement are as follows:
_____.

                  4.2 The Project Costs for the Project to be paid with the
funds requested by this Construction Drawdown Certificate for the current month
are $___________, segregated by major categories as described in Column B of
Appendix I hereto. Of such Project Costs, $__________ will be paid through the
application of Contributions pursuant to Section 3.10 of the Credit Agreement,
$__________ will be paid through the application of Contributions pursuant to
Section 5.17.1 of the Credit Agreement, $___________ will be paid through the
application of Additional Borrower Equity and $_________ will be paid through
the application of Construction Loans. All items shown in Column B represent
work that has been satisfactorily performed in a good and workmanlike manner and
in conformance with the Project's Construction Contracts or materials that have
been supplied and delivered to the Project's Site prior to the date of this
Certificate, or Borrower's best estimate of fuel and other O&M Costs related to
startup and testing of the Project which will become due and payable on the
Drawdown Date or within thirty (30) days thereafter.

                  4.3 The estimated dates of Completion and Final Completion for
the Project are set forth on Appendix II hereto.

                  4.4 The estimated Project Costs to Final Completion for the
Project are _________, segregated by major categories and described in Column L
of Appendix I hereto. The aggregate amount of Project Costs for the Project (not
including financing fees and interest expenses allocated to such Project but not
reflected in such Project's Project Budget and other expenses not allocable to a
Project) will not exceed 110% of the anticipated aggregate amount of such
Project Costs for the Project as set forth in the Project's Project Budget. The
aggregate amount of Project Costs for all Initial Projects and Funded Subsequent
Projects under construction as of the date hereof will not exceed 105% of the
anticipated aggregate amount of Project Costs for such Projects as set forth in
such Projects' Project Budgets. [MODIFY THIS CERTIFICATION IF NECESSARY IN
ACCORDANCE WITH THE LAST CLAUSE OF SECTION 3.4.3 OF THE CREDIT AGREEMENT.]

                  4.5 A detailed description of the variances from the estimated
Project Costs for the Project as of the date of the Credit Agreement is
summarized in Appendix III hereto.

                  4.6 The Available Construction Funds are sufficient to pay all
remaining Project Costs for all Initial Projects and Funded Subsequent Projects
under construction as of the date hereof (after giving effect to this and any
other Drawdown Certificates delivered as of the date hereof).


                                       2
<PAGE>   224
                  4.7 There has not occurred any development which materially
adversely affects the likelihood of the Project achieving Completion on or
before the Loan Maturity Date.

                  4.8 No Event of Default or Inchoate Default or, with respect
to the Project, Non-Fundamental Project Default or Non-Fundamental Project
Inchoate Default has occurred and is continuing.

                  4.9 All proceeds of all Construction Loans and other amounts
deposited into the Project's Construction Sub-Account on or prior to the date
hereof, except for $_________ remaining in the Project's Construction
Sub-Account since the date of the last Construction Drawdown Certificate, have
been expended and have been applied to Project Costs for the Project in
accordance with the applicable Construction Contracts, the applicable Project
Documents or the Credit Agreement.

                  4.10 All insurance required under the Credit Agreement is in
place, in good standing and in full force and effect and all premiums due
thereon have been paid.

                  4.11 There are no Applicable Permits or Applicable Third Party
Permits other than those which have been obtained as of the date hereof.

                  4.12 Each Applicable Permit and Applicable Third Party Permit
with respect to the Project has been issued, is in full force and effect and is
not subject to any current legal proceedings, or to any unsatisfied condition
that could allow modification or revocation and all applicable appeal periods
have expired with respect thereto.

                  4.13 To Borrower's knowledge, no facts or circumstances exist
which indicate that any Permit will not be timely obtainable at a cost
consistent with the Project's Project Budget without material difficulty or
delay by Borrower or the applicable Major Project Participant, respectively,
prior to the time that it becomes an Applicable Permit or an Applicable Third
Party Permit, as applicable.

                  4.14 All of the Operative Documents executed and delivered
with respect to the Project on or prior to the date of the Borrowing requested
by this Drawdown Certificate are in full force and effect without change or
amendment since the respective dates of their execution and delivery in a form
which was approved by Administrative Agent, except as consented to in writing by
Administrative Agent to the extent required under the Credit Agreement or as
otherwise permitted by the Credit Agreement. No Portfolio Entity is in default
under any term of any Project Document with respect to the Project and, to the
best of Borrower's knowledge, no other party to such a Project Document is in
default thereunder except, in either case, where such default could not
reasonably be expected to have a Material Adverse Effect on the Project.

                  4.15 The Project has not been abandoned or terminated.

                  4.16 No Portfolio Entity with respect to the Project has
incurred or permitted to exist any Liens (other than Permitted Liens) on the
Project or the Mortgaged Property with respect to the Project or any part
thereof or on any other assets of such Portfolio Entity, except as permitted
under the Credit Agreement. No Liens, claims of Lien, attachments or similar
claims (including without limitation mechanic's and materialman's liens) have
been recorded or filed with respect to the Project or the Mortgaged Property
with respect to the Project or any part thereof, except Permitted


                                       3
<PAGE>   225
Liens or Permitted Encumbrances, as the case may be, and such Liens, claims of
Lien, attachments or similar claims as will be released, removed and discharged
from the funds requested by this Construction Drawdown Certificate and the
corresponding Notice of Construction Borrowing.

                  4.17 There are no pending or, to the best knowledge of
Borrower, threatened actions or proceedings of any kind, including actions or
proceedings of or before any Governmental Authority, to which Borrower or any
other Portfolio Entity with respect to the Project, the Member, Calpine, any
Affiliated Major Project Participant or, to the best knowledge of Borrower, any
other Major Project Participant with respect to the Project, or by which any of
them or any of their properties or the Project are bound, which if adversely
determined to or against Borrower or any other such Portfolio Entity, the
Member, Calpine, any other such Major Project Participant or the Project could
reasonably be expected to have a Material Adverse Effect on Borrower or the
Project, except as permitted pursuant to the terms of the Credit Agreement.

                  4.18 No Portfolio Entity with respect to the Project has
waived performance or released from liability any party to any Operative
Document with respect to the Project except with the consent of Administrative
Agent or as otherwise permitted by the Credit Agreement.

                  4.19 Attached to this Construction Drawdown Certificate as
Appendix IV are complete and accurate listings of all material contracts entered
into by the Portfolio Entities with respect to the Project from the last day of
the month preceding the date of the last Construction Drawdown Certificate to
the last day of the month preceding the date hereof with respect to the Project.

                  4.20 Borrower has obtained and is delivering to Administrative
Agent concurrently herewith a datedown endorsement to the Title Policy with
respect to the Project to the date the Construction Loans requested hereby are
to be made, extending the coverage of Title Policy to such date, including all
Borrowings and extensions of credit made to and including such date, insuring
that the Lien of the Deed of Trust with respect to the Project on the Mortgaged
Property with respect to the Project is prior to any liens, encumbrances or
other matters except Permitted Encumbrances and Permitted Liens described in
clauses (a), (b) or (c) of the definition thereof.

                  4.21 All property, rights and assets acquired for the Project
are free and clear of all encumbrances except for Permitted Liens or as
otherwise permitted by the Credit Agreement.

                  4.22 All of the representations of Borrower and the other
Portfolio Entities with respect to the Project contained in the Credit Documents
(in each case with respect to itself or the Project) are true and correct to the
extent provided therein on and as of the Construction Drawdown Date with the
same effect as if given on the date hereof (except to the extent such
representations and warranties relate to a prior date).

                  4.23 A list of all approved, pending and proposed change
orders to the Construction Contracts since the previous Construction Drawdown
Certificate pertaining to the Project, together with copies of all such change
orders not previously delivered to the Administrative Agent, is attached hereto
as Appendix V.

                  4.24 Attached hereto (if funds are being requested with
respect to any Construction Contract) as Attachment A and delivered herewith is
a duly executed and completed Contractor's


                                       4
<PAGE>   226
Certificate and a copy of the information delivered to the relevant Portfolio
Entity pursuant to [INSERT PROVISIONS OF APPLICABLE CONSTRUCTION CONTRACT],
including the Monthly Progress Report prepared thereunder for the month to which
this Drawdown Certificate relates.

                  4.25 The conditions set forth in Section 3.4 of the Credit
Agreement are satisfied or have been waived in writing by Administrative Agent
as of the date hereof and as of the date of the requested draw.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       5
<PAGE>   227
                  IN WITNESS WHEREOF, Borrower has executed this Construction
Drawdown Certificate as of the date hereof.


                      CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                                    By:
                                        ---------------------------------------

                                        Name:
                                        Title:
<PAGE>   228
                                   Appendix I
                                 to Exhibit C-6


CALPINE - PROJECT XXXXXXXXXX
PROJECT COSTS AS OF

X/XX/XX

<TABLE>
<CAPTION>
                                 PRIOR       THIS DRAW      TOTAL      BUDGETED TOTAL   VARIANCE   CLOSING BUDGET    CURRENT BANK
                              EXPENDITURES    REQUEST    EXPENDITURES   EXPENDITURES                               APPROVED BUDGET
                             (DEBT&EQUITY)                 TO DATE

<S>                          <C>             <C>         <C>           <C>              <C>        <C>             <C>

                                   A             B         C=(A+B)            D          E=(C-D)          F               G

LAND
DEVELOPMENT COSTS
CONSTRUCTION
POWER ISLAND
INSURANCE
EPC
PROJECT ENHANCEMENTS
SALES TAX
CONSTRUCTION
MANAGEMENT
STARTUP (COMMISSIONING)
PENDING CHG. ORDERS
TITLE INSURANCE
                                                                                              -                                -
                 SUBTOTAL              0           -              -               -           -               -                -
INTEREST EXPENSE
COMMITMENT FEES
INDEPENDENT ENGINEER
                   TOTAL:              0           -              -               -           -               -                -
</TABLE>

<TABLE>
<CAPTION>
                          PRIOR    EQUITY  CUMULATIVE     CURRENT      EXPECTED
                          EQUITY    THIS    EQUITY      ESTIMATE OF   BALANCE TO
                          REQUEST  MONTH               TOTAL PROJECT  COMPLETION
                                                           COSTS
<S>                       <C>      <C>     <C>         <C>            <C>

                             H      I      J=(H+I)          K         L=(K-C)

LAND
DEVELOPMENT COSTS
CONSTRUCTION
POWER ISLAND
INSURANCE
EPC
PROJECT ENHANCEMENTS
SALES TAX
CONSTRUCTION
MANAGEMENT
STARTUP (COMMISSIONING)
PENDING CHG. ORDERS
TITLE INSURANCE
                                      -          -              -           -
                SUBTOTAL       -      -          -              -           -
INTEREST EXPENSE
COMMITMENT FEES
INDEPENDENT ENGINEER
                  TOTAL:       -      -          -              -           -
</TABLE>


                                      I-1
<PAGE>   229
                                   Appendix II

                                 to Exhibit C-6

               Estimated Dates of Completion and Final Completion

Completion:                         _________


Final Completion:                   _________


                                      II-1
<PAGE>   230
                                  Appendix III

                                 to Exhibit C-6

                  Summary description of variances from estimated Project Costs.

<TABLE>
<CAPTION>
     Variation                                              Amount
<S>                                            <C>          <C>
     0                                                      0






TOTAL                                          $0
</TABLE>


                                      III-1
<PAGE>   231
                                   Appendix IV

                                 to Exhibit C-6

         Material Contracts entered into by Project Owner with respect to the
Project and property, rights and assets acquired from date of previous
Construction Drawdown Certificate to the date hereof.


                                      IV-1
<PAGE>   232
                                   Appendix V

                                 to Exhibit C-6

                              List of Change Orders


                                       V-1
<PAGE>   233
                                 ATTACHMENT A TO

                  BORROWER'S CONSTRUCTION DRAWDOWN CERTIFICATE

                            CONTRACTOR'S CERTIFICATE

                  Pursuant to Section ____ of that certain
________________________ Contract (the "Contract") by and between Calpine
Construction Finance Company II, LLC, a Delaware limited liability company, and
______________________ ("Contractor"), Contractor hereby certifies, to the
Contractor's knowledge as of the date hereof, that (all capitalized terms have
the meanings ascribed in the Contract unless otherwise indicated):

         1.       This attachment refers to the __________________________
                  Project (the "Project").

         2.       The Work performed to date has, unless otherwise stated by
                  Contractor, been performed in all material respects in
                  accordance with the Contract and the Contract schedule in
                  effect on the date hereof as referenced in Article ____ of the
                  Contract.

         3.       To the Contractor's knowledge, no event currently exists with
                  respect to the Contract which reasonably could be expected to
                  delay the [INSERT PROPER TERMINOLOGY USED IN CONTRACT WITH
                  RESPECT TO COMPLETION OF SCOPE OF WORK UNDER SUCH CONTRACT].

         4.       Contractor has been paid all amounts due to it under the
                  Contract and all Subcontractor/Suppliers engaged or employed
                  by Contractor have been paid to the extent that such amounts
                  are due or such payment (or a portion thereof) is subject to a
                  good faith contest which is being diligently pursued by the
                  Contractor (in each case, other than amounts to be paid with
                  the proceeds of the drawdown related to this certificate).

                  By furnishing this Contractor's Certificate, Contractor
assumes no independent liability to recipients of the same. Any liability of the
undersigned arising from this Contractor's Certificate shall be governed
exclusively by the terms of the Contract including any limitations of liability
and exclusive remedy provisions therein.

                  IN WITNESS WHEREOF, the undersigned have executed this
Contractor's Certificate as of the ___ of _______________, ____.


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


                                     By:
                                        ----------------------------------------
                                              Name:
                                              Its:


                                       A-1
<PAGE>   234
                                                             EXHIBIT C-7
                                                             to Credit Agreement

                   FORM OF ENGINEER'S CONSTRUCTION CERTIFICATE

                        [LETTERHEAD OF [R.W. BECK, INC.]]

                      (Delivered pursuant to Section 3.4.3)

Credit Suisse First Boston,                 Date: _____________________
New York Branch                             Drawdown Date: _________________
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

                  Re:      Calpine Construction Finance Company II Projects

Ladies and Gentlemen:

                  R.W. Beck, Inc. ("Independent Engineer"), pursuant to Section
3.4.3 of the Credit Agreement dated as of October 16, 2000 ("Credit Agreement"),
among Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto (the "Banks"), Credit Suisse First Boston, acting through its New York
Branch, as Lead Arranger and Administrative Agent ("Administrative Agent"), The
Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc
of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, hereby makes the
following statements, with respect to the _______ Project (the "Project") as of
_____________________.

         1.       We have read the provisions of Section 3.4.3 of the Credit
                  Agreement as it identifies the responsibilities of the
                  Independent Engineer related to providing this Independent
                  Engineer's Construction Certificate.

         2.       All defined terms set forth in this Independent Engineer's
                  Construction Certificate shall have respective meanings
                  specified in Exhibit A to the Credit Agreement unless
                  otherwise defined herein.

         3.       We have reviewed the material and data made available to us by
                  the Contractors with respect to the Project and the relevant
                  Portfolio Entities since the date of the last Construction
                  Drawdown Certificate with respect to the Project, consisting
                  of: the Construction Drawdown Certificate with respect to the
                  Project, dated ________________, and the Appendices and other
                  items attached thereto; drawings and specifications prepared
                  by ________________ and ________________; and work progress
                  documents consisting of ________________. We have also
                  observed the status of construction progress and startup
                  activities at the Project's Site (the "Site"). Our review and
                  observations were performed in accordance with generally
                  accepted consulting
<PAGE>   235
                  practices consisting of a walk-through of such Site conducted
                  on ____________, _____, observation of installed equipment and
                  material, observation of work procedures, review of "QA" and
                  "QC" reports as made available by the Contractors with respect
                  to the Project and attendance of the construction monthly
                  progress review meeting with respect to the Project. We have
                  reviewed paragraphs 4.1 through 4.7, 4.9, 4.11 through 4.13
                  and 4.15 of the Construction Drawdown Certificate with respect
                  to the Project (the "Current Construction Drawdown
                  Certificate"), dated ________________ (the "Drawdown Date"),
                  and we have previously reviewed the corresponding paragraphs
                  of all previous Construction Drawdown Certificates with
                  respect to the Project. We have also reviewed the materials
                  attached to the Current Construction Drawdown Certificate as
                  Attachment A, including each monthly progress report submitted
                  pursuant to each Construction Contract with respect to the
                  Project (the "Current Contractor Certificates"), and we have
                  reviewed the contractor certificates submitted with all
                  previous Construction Drawdown Certificates with respect to
                  the Project. We have also reviewed the following additional
                  material: _________________________.

         4.       To the extent practical, we have periodically reviewed the
                  progress of engineering, procurement and construction for the
                  Project and in the course of this review we have not
                  discovered any errors or omissions in the claims for materials
                  that have been procured and work performed under this and all
                  previous Borrowings.

         5.       Based on our review of the aforementioned information, and of
                  data provided to us by others which we have not independently
                  verified, we are of the opinion that, as of Drawdown Date:

                  a.       The estimated Project Costs to Final Completion
                           [ARE/ARE NOT] as set forth in the Current
                           Construction Drawdown Certificate. [IF NOT, CONTINUE
                           AS FOLLOWS: IN OUR OPINION, THE ESTIMATED PROJECT
                           COSTS TO FINAL COMPLETION VARY FROM THE ESTIMATED
                           PROJECT COSTS SET FORTH IN THE CURRENT CONSTRUCTION
                           DRAWDOWN CERTIFICATE BECAUSE: [(STATE REASONS)];

                  b.       The aggregate amount of Project Costs for the Project
                           (not including financing fees and interest expenses
                           allocated to such Project but not reflected in such
                           Project's Project Budget and other expenses not
                           allocable to a Project) will not exceed 110% of the
                           anticipated aggregate amount of such Project Costs
                           for the Project as set forth in the Project's Project
                           Budget.

                  c.       The aggregate amount of Project Costs for all Initial
                           Projects and Funded Subsequent Projects under
                           construction as of the date hereof will not exceed
                           105% of the anticipated aggregate amount of Project
                           Costs for all such Projects as set forth in such
                           Projects' Project Budgets.

                           [IF THE AGGREGATE AMOUNT OF PROJECT COSTS FOR THE
                           PROJECT EXCEEDS 110% OF THE ANTICIPATED AGGREGATE
                           AMOUNT OF SUCH PROJECT COSTS, THEN CONTINUE AS
                           FOLLOWS:]

                  [__.     WE CONFIRM THAT THE COST OVERRUNS WITH RESPECT TO THE
                           PROJECT ARE NOT REASONABLY LIKELY TO EXCEED $______.]

                  [__.     THE AGGREGATE AMOUNT OF PROJECT COSTS FOR ALL INITIAL
                           PROJECTS AND FUNDED SUBSEQUENT PROJECTS UNDER
                           CONSTRUCTION AS OF THE DATE HEREOF, AFTER GIVING
<PAGE>   236
                           EFFECT TO ANY FURTHER CONTEMPLATED OVERRUNS WITH
                           RESPECT TO THE PROJECT, WILL NOT EXCEED 105% OF THE
                           ANTICIPATED AGGREGATE AMOUNT OF PROJECT COSTS FOR ALL
                           SUCH PROJECTS AS SET FORTH IN SUCH PROJECTS' PROJECT
                           BUDGETS.]

                  d.       Completion with respect to the Project will occur on
                           or before the Date Certain.

                  e.       Our scope of review [HAS/HAS NOT] brought to our
                           actual attention any errors in the information
                           contained in the paragraphs of the Current
                           Construction Drawdown Certificate or in the Current
                           Contractor Certificate referred to in paragraph 3 of
                           this Independent Engineer's Construction Certificate.
                           [IF ANY PARAGRAPH IN THE CURRENT DRAWDOWN CERTIFICATE
                           OR INFORMATION IN THE CURRENT CONTRACTOR CERTIFICATE
                           IS INCORRECT, LIST AND SPECIFY REASONS.]

                  f.       Except as disclosed in the Permit Schedule applicable
                           to the Project, to our knowledge, no other Permits or
                           governmental authorizations are required in
                           connection with the construction and operation of the
                           Project;

                  g.       The quality of construction performed with respect to
                           the Project during the period covered by this
                           Independent Engineer's Construction Certificate is
                           [SATISFACTORY/UNSATISFACTORY] and [APPEARS TO HAVE
                           BEEN/DOES NOT APPEAR TO HAVE BEEN] performed in a
                           good and workmanlike manner and in conformance with
                           the Construction Contracts with respect to the
                           Project; [IF UNSATISFACTORY, SPECIFY REASONS.]

                  h.       The work accomplished with respect to the Project
                           during the period covered by this Independent
                           Engineer's Construction Certificate [IS/IS NOT] in
                           accordance with the Project's Project Schedule; and
                           [IF NOT IN ACCORDANCE WITH SCHEDULE, SPECIFY
                           REASONS.]

                  i.       After giving effect to the Borrowings requested by
                           the Current Construction Drawdown Certificate, we
                           estimate Available Construction Funds to be
                           sufficient to pay remaining Project Costs for all
                           Initial Projects and Funded Subsequent Projects under
                           construction as of the date hereof (after giving
                           effect to any other Drawdown Certificates delivered
                           to Administrative Agent as of the date hereof).

         6.       To the best of our knowledge, there are no approved or
                  material proposed change orders which are not listed on
                  Appendix V to the Current Construction Drawdown Certificate or
                  that have not been listed in a previous Construction Drawdown
                  Certificate.

         7.       Without having specifically reviewed the matter, the
                  undersigned does not know of any pending or proposed changes
                  in any codes or regulations affecting the design, construction
                  or use of the Project which would affect completion of the
                  Project or the ability to obtain any certificates or permits
                  necessary for the use and operation of the Project.

                  Except as specified above, the undersigned has not discovered
any error in the matters set forth in the Current Construction Drawdown
Certificate or Current Contractor Certificate that are within its scope of work.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>   237
                  The information contained herein is for the benefit of
Administrative Agent and the Banks and may be relied upon for the purposes of
making Loans pursuant to the Credit Agreement.

                            R.W. BECK, INC.,
                            a Washington corporation

                            By:
                               ---------------------------------------------
                                Name:

                                Title:
<PAGE>   238
                                                             EXHIBIT C-8
                                                             to Credit Agreement

                  FORM OF TURBINE PURCHASE DRAWDOWN CERTIFICATE

                                        (Delivered pursuant to Section 3.6.3
                                              of the Credit Agreement)


                                              Date: [__________, ____]

                                              Drawdown Date:  [__________, ____]


Credit Suisse First Boston,
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

Ladies and Gentlemen:

         1. This Turbine Purchase Drawdown Certificate is delivered to you
pursuant to Section 3.6.3 of that certain Credit Agreement dated as of October
16, 2000 ("Credit Agreement"), among Calpine Construction Finance Company II,
LLC, a Delaware limited liability company, as Borrower ("Borrower"), the
financial institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse
First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. Unless otherwise defined herein, all capitalized
terms used herein shall have the respective meanings specified in Exhibit A to
the Credit Agreement.

         2. We have read the provisions of the Credit Agreement which are
relevant to the furnishing of this Turbine Purchase Drawdown Certificate. To the
extent that this Turbine Purchase Drawdown Certificate evidences, attests or
confirms compliance with any covenants or conditions precedent provided for in
the Credit Agreement, we have made such examination or investigation as was, in
our opinion, necessary to enable us to express an informed opinion as to whether
such covenants or conditions have been complied with. This Turbine Purchase
Drawdown Certificate relates to a Borrowing or other disbursement to take place
on the Drawdown Date.


                                       1
<PAGE>   239
         3. This Turbine Purchase Drawdown Certificate relates to the Turbine(s)
identified by serial #___ (as set forth on Exhibit G-3 to the Credit Agreement)
(the "Turbine(s)") and assigned to the ____ Project.

         4. BORROWER HEREBY CERTIFIES THAT, as of the date hereof:

                  4.1 The Turbine Costs for the Turbine(s) incurred through the
immediately preceding Drawdown Date by or on behalf of Borrower and for which a
Turbine Purchase Drawdown Certificate has previously been submitted by Borrower
are $__________.

                  4.2 The Turbine Costs for the Turbine(s) to be paid with the
funds requested by this Turbine Purchase Drawdown Certificate for the current
month are $___________. Of such Turbine Costs, $__________ will be paid through
the application of Contributions pursuant to Section 3.10 of the Credit
Agreement, $__________ will be paid through the application of Contributions
pursuant to Section 5.17.1 of the Credit Agreement and $_________ will be paid
through the application of Turbine Purchase Loans.

                  4.3 The Turbine Delivery Date of the Turbine(s) is ______.

                  4.4 The remaining Turbine Costs for the Turbine(s) are
_________.

                  4.5 The technology and size of the Turbine(s) is appropriate
for the Project to which it has been assigned.

                  4.6 No Event of Default or Inchoate Default has occurred and
is continuing.

                  4.7 All proceeds of all Turbine Purchase Loans and other
amounts deposited into the Turbine Purchase Sub-Account with respect to the
Turbine(s) on or prior to the date hereof, except for $_________ remaining in
such Turbine Purchase Sub-Account since the date of the last Turbine Purchase
Drawdown Certificate, have been expended and have been applied to Turbine Costs
for the Turbine(s) in accordance with the applicable Turbine Purchase Contract
or the Credit Agreement.

                  4.8 All insurance required under the Credit Agreement with
respect to the Turbine(s) is in place, in good standing and in full force and
effect and all premiums due thereon have been paid.

                  4.9 The Turbine Purchase Contract executed and delivered with
respect to the Turbine(s) is in full force and effect without change or
amendment since the date of its execution and delivery in a form which was
approved by Administrative Agent, except as consented to in writing by
Administrative Agent to the extent required under the Credit Agreement or as
otherwise permitted by the Credit Agreement. The Turbine Owner with respect to
the Turbine(s) is not in material default under the Turbine Purchase Contract
with respect to the Turbine(s) and, to the best of Borrower's knowledge, no
other material defaults have occurred with respect to the Turbine Purchase
Contract.

                  4.10 The Turbine Owner with respect to the Turbine(s) has not
incurred or permitted to exist any Liens (other than Permitted Liens) on the
Turbine(s) or any part thereof or on any other assets of such Turbine Owner,
except as permitted under the Credit Agreement. No Liens, claims of Lien,
attachments or similar claims (including without limitation mechanic's and
materialman's liens) have been recorded or filed with respect to the Turbine(s)
or any part thereof, except Permitted Liens and such


                                       2
<PAGE>   240
Liens, claims of Lien, attachments or similar claims as will be released,
removed and discharged from the funds requested by this Turbine Purchase
Drawdown Certificate and the corresponding Notice of Turbine Purchase Borrowing.

                  4.11 All of the representations of Borrower and the relevant
Turbine Owner contained in the Credit Documents are true and correct to the
extent provided therein on and as of the Turbine Purchase Drawdown Date with the
same effect as if given on the date hereof (except to the extent such
representations and warranties relate to a prior date).

                  4.12 The conditions set forth in Section 3.6 of the Credit
Agreement are satisfied or have been waived in writing by Administrative Agent
as of the date hereof and as of the date of the requested draw.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       3
<PAGE>   241
                  IN WITNESS WHEREOF, Borrower has executed this Turbine
Purchase Drawdown Certificate as of the date hereof.

                      CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                                        By:
                                           -------------------------------------
                                           Name:
                                           Title:


                                       4
<PAGE>   242
                                                             EXHIBIT C-9
                                                             to Credit Agreement

                 FORM OF ENGINEER'S TURBINE PURCHASE CERTIFICATE

                        [LETTERHEAD OF [R.W. BECK, INC.]]

                      (Delivered pursuant to Section 3.6.3)


Credit Suisse First Boston,                     Date: _____________________
New York Branch                                 Drawdown Date: _________________
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

                  Re:      Calpine Construction Finance Company II Turbines

Ladies and Gentlemen:

                  R.W. Beck, Inc. ("Independent Engineer"), pursuant to Section
3.6.3 of the Credit Agreement dated as of October 16, 2000 ("Credit Agreement"),
among Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto (the "Banks"), Credit Suisse First Boston, acting through its New York
Branch, as Lead Arranger and Administrative Agent ("Administrative Agent"), The
Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc
of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, hereby makes the
following statements, with respect to the Turbine(s) identified by serial #___
(as set forth on Exhibit G-3 to the Credit Agreement) (the "Turbine(s)") and
assigned to the _______ Project as of ________________.

         1.       We have read the provisions of Section 3.6.3 of the Credit
                  Agreement as it identifies the responsibilities of the
                  Independent Engineer related to providing this Independent
                  Engineer's Turbine Purchase Certificate.

         2.       All defined terms set forth in this Independent Engineer's
                  Turbine Purchase Certificate shall have respective meanings
                  specified in Exhibit A to the Credit Agreement unless
                  otherwise defined herein.

         3.       We have reviewed the material and data made available to us by
                  Borrower since the date of the last Turbine Purchase Drawdown
                  Certificate with respect to the Turbine(s), consisting of the
                  Turbine Purchase Drawdown Certificate with respect to the
                  Turbine(s), if any, dated ________________. We have reviewed
                  paragraphs 4.1 through 4.7 of the Turbine Purchase Drawdown
                  Certificate with respect to the Turbine(s) (the "Current
                  Turbine Purchase Drawdown Certificate"), dated
                  ________________ (the "Drawdown Date"), and we have previously
                  reviewed the corresponding paragraphs of all previous Turbine
                  Purchase Drawdown Certificates
<PAGE>   243
                  with respect to the Turbine(s). We have also reviewed the
                  following additional material: _____________________.

         4.       Based on our review of the aforementioned information, and of
                  data provided to us by others which we have not independently
                  verified, we are of the opinion that, as of Drawdown Date:

                  a.       The payments to the Turbine Purchase Contractor with
                           respect to the Turbine have been made.

                  b.       Our scope of review [HAS/HAS NOT] brought to our
                           actual attention any errors in the information
                           contained in the paragraphs of the Current Turbine
                           Purchase Drawdown Certificate. [IF ANY PARAGRAPH IN
                           THE CURRENT TURBINE PURCHASE DRAWDOWN CERTIFICATE IS
                           INCORRECT, LIST AND SPECIFY REASONS.]

                  Except as specified above, the undersigned has not discovered
any error in the matters set forth in the Current Turbine Purchase Drawdown
Certificate that are within its scope of work.

                  The information contained herein is for the benefit of
Administrative Agent and the Banks and may be relied upon for the purposes of
making Loans pursuant to the Credit Agreement.

                            R.W. BECK, INC.,
                            a Washington corporation

                            By:
                               ---------------------------------------------
                                Name:

                                Title:
<PAGE>   244
                                                             EXHIBIT C-10
                                                             to Credit Agreement

                        FORM OF DISBURSEMENT REQUISITION

            (Delivered pursuant to Section 7.2.2 [AND SECTION 7.2.3]
                            of the Credit Agreement)

[Date]

Credit Suisse First Boston
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

                       Re:      Calpine Construction Finance Company II Projects

                  This Disbursement Requisition is delivered to you pursuant to
Section 7.2.2 [AND SECTION 7.2.3] of the Credit Agreement dated as of October
16, 2000 ("Credit Agreement"), among Calpine Construction Finance II Company,
LLC, a Delaware limited liability company, as Borrower ("Borrower"), the
financial institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse
First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. All capitalized terms used herein shall have the
respective meanings specified in Exhibit A to the Credit Agreement unless
otherwise defined herein or unless the context requires otherwise.

                  This Disbursement Requisition constitutes, with respect to the
_______ Project (the "Project"), [(a)] a request for a transfer of Senior O&M
Costs from the Revenue Account to the Operating Account as described in Section
7.2.2 of the Credit Agreement [AND (b) A REQUEST FOR PAYMENT OF SUBORDINATED O&M
COSTS AS DESCRIBED IN SECTION 7.2.3 OF THE CREDIT AGREEMENT], [EACH] as further
described below:

         1.       DISBURSEMENT DATE

                  1.1 [IF THE DISBURSEMENT REQUISITION IS FOR SENIOR O&M COSTS
ONLY, INSERT: THE DISBURSEMENT DATE IS [LAST BANKING DAY OF EACH MONTH].]

                      [IF THE DISBURSEMENT REQUISITION INCLUDES PAYMENT OF
SUBORDINATED O&M COSTS, INSERT: [THE DISBURSEMENT DATE IS THE LAST DAY OF A
CALENDAR QUARTER].]
<PAGE>   245
         2.       AMOUNT

                  2.1 Amount of Senior O&M Costs to be transferred to the
Project's Operating Sub-Account: $___________.

                  2.2 [AMOUNT OF SUBORDINATED O&M COSTS: $___________.]

         3.       BORROWER HEREBY CONFIRMS AND CERTIFIES THAT, as of the date
                  hereof:

                  3.1 The O&M Costs with respect to the Project incurred during
the present fiscal year of Borrower through the immediately preceding date of
disbursement from the Revenue Account pursuant to Sections 7.2.2 [AND 7.2.3] of
the Credit Agreement by or on behalf of Borrower are $___________, segregated by
major categories as described in Column 1 on Appendix I hereto.

                  3.2 The O&M Costs with respect to the Project expected to be
paid with this disbursement are $__________, segregated by major categories as
described in Column 5 on Appendix I hereto. All items shown in Column 5
represent Borrower's best estimate of O&M Costs with respect to the Project
which have become, or are anticipated to become, due and payable during the
calendar month to which this Disbursement Requisition relates. [OF THE AMOUNTS
SHOWN IN COLUMN 5, ALL REPRESENT WORK OR AMOUNTS INCLUDED IN THE PROJECT'S
ANNUAL OPERATING BUDGET/$___________ REPRESENT WORK OR AMOUNTS NOT INCLUDED IN
THE PROJECT'S ANNUAL OPERATING BUDGET].

                  3.3 No Event of Default or Inchoate Default or, with respect
to the Project, Non-Fundamental Project Default or Non-Fundamental Project
Inchoate Default has occurred and is continuing or will occur upon giving effect
to the application of the disbursement requested hereby.

                  3.4 Except as specified below, all proceeds of all
disbursements from the [REVENUE ACCOUNT] [PROJECT'S REVENUE SUB-ACCOUNT] made
prior to the date hereof for O&M Costs with respect to the Project have been
expended and have been applied to O&M Costs with respect to the Project in
accordance with the Credit Agreement. [LIST ANY EXCEPTIONS] [TO DISCUSS WHETHER
SEPARATE REVENUE SUB-ACCOUNTS ARE APPROPRIATE]

                  3.5 Attached to this Disbursement Requisition as Appendix II
are true, complete and correct listings of all Additional Project Documents with
respect to the Project and all material property, rights and assets acquired by
Borrower with respect to the Project since the date of the last Disbursement
Requisition with respect to the Project to the date hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       2
<PAGE>   246
                  IN WITNESS WHEREOF, the undersigned has executed and delivered
this Disbursement Requisition on the date shown above.

                                 CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                                 a Delaware limited liability company

                                 By:
                                     -------------------------------------------
                                     Name:
                                     Title:
<PAGE>   247
                                   APPENDIX I
                                 To Exhibit C-10

                 CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

   Disbursement Request for the month of _____________, 200__ with respect to
                               the _______ Project

<TABLE>
<CAPTION>
                        (1)            (2)           (3)        (4)        (5)            (6)        (7)     (8)      (9)     (10)
                                                               O&M                        the      (5)+(1)  (2+4)   (7)-(8)
[Example Only -                                               BUDGET      CURRENT      lesser of    TOTAL
Actuals to Conform  EXPENDITURES  DISBURSEMENTS               AMOUNT      MONTH'S      4 or 5-3      O&M              O&M
to Categories Set      TO LAST       TO LAST      REMAINING     FOR    EXPENDITURES  (=/<(4))* NET  COSTS   TOTAL    OVER       %
Forth in Operating  DISBURSEMENT   DISBURSEMENT   RESIDUAL/   CURRENT    DUE AND     DISBURSEMENT    TO      O&M    (UNDER)   OVER/
Budget]                 DATE           DATE      (SHORTFALL)   MONTH     PAYABLE       REQUEST      DATE    BUDGET    RUN    (UNDER)
<S>                 <C>           <C>            <C>          <C>      <C>           <C>            <C>     <C>     <C>      <C>
Land
Development Costs
Construction
Power Island
Insurance
EPC
Project
  Enhancements
Sales Tax
Construction
 Management
Startup
 (Commissioning)
Pending Change
  Orders
Title Insurance

Subtotal

Interest Expense
Commitment Fees
Independent
  Engineer

TOTAL
</TABLE>

---------------------------------
* Subject to variation as permitted under Section [5.15.2] of the Credit
Agreement.


                                      I-1
<PAGE>   248
                                   APPENDIX II
                                 to Exhibit C-10

                  CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

         Additional Project Documents with respect to the _______ Project to be
executed from date of previous disbursement request to the date hereof.

<TABLE>
<CAPTION>
  Item                  Cost
<S>               <C>
TOTAL             $[____________]
</TABLE>


                                      II-1
<PAGE>   249
                                                             EXHIBIT C-11
                                                             to Credit Agreement

                FORM OF RESERVE ACCOUNT DISBURSEMENT REQUISITION

          (Delivered pursuant to Section 7.8.3 of the Credit Agreement)


[Date]

Credit Suisse First Boston,
New York Branch
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance

                           Re:  Calpine Construction Finance Company II Projects

                  This Reserve Account Disbursement Requisition is delivered to
you pursuant to Section 7.8.3 of the Credit Agreement dated as of October 16,
2000 ("Credit Agreement"), among Calpine Construction Finance Company II, LLC, a
Delaware limited liability company, as Borrower ("Borrower"), the financial
institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse First
Boston, acting through its New York Branch, as Lead Arranger and Administrative
Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent. All capitalized terms used herein shall have the
respective meanings specified in Exhibit A to the Credit Agreement unless
otherwise defined herein or unless the context requires otherwise.

                  This Reserve Account Disbursement Requisition relates to the
__________________ Project (the "Project").

                  Borrower hereby requests a withdrawal from the Working Capital
Reserve Account in the amount of $____________ for the payment of Senior O&M
Costs that have become due and payable for the Project as described and to the
Persons specified on Schedule 1 attached hereto.

                  Borrower hereby confirms and certifies that, as of the date
hereof:

                  (a)      Insufficient amounts are available in the Revenue
                           Account and the Project's Operating Account for the
                           payment of Senior O&M Costs with respect to the
                           Project;

                  [CHOOSE ONE ALTERNATIVE (b) BELOW, AS APPLICABLE]
<PAGE>   250
                  [(b) THE AMOUNT REQUESTED DOES NOT, TOGETHER WITH ALL SENIOR
                  O&M COSTS WITH RESPECT TO THE PROJECT PREVIOUSLY PAID DURING
                  THE SAME CALENDAR YEAR AS THE DATE OF THIS REQUISITION, EXCEED
                  115% OF THE AMOUNTS OF SENIOR O&M COSTS (OTHER THAN FUEL
                  COSTS) SPECIFIED FOR THE PROJECT IN THE PROJECT'S ANNUAL
                  OPERATING BUDGET FOR SUCH CALENDAR YEAR.]

                  [(b) ADMINISTRATIVE AGENT, AS EVIDENCED BY ITS SIGNATURE
                  BELOW, CONSENTS TO SUCH WITHDRAWAL.]

                  (c) No Event of Default or Inchoate Default or, with respect
to the Project, Non-Fundamental Project Default or Non-Fundamental Project
Inchoate Default has occurred and is continuing or will occur upon giving effect
to the application of the withdrawal requested hereby; and

                  (d) Except as specified below, all proceeds of all withdrawals
from the Working Capital Reserve Account made prior to the date hereof have been
expended and have been applied in accordance with the Credit Agreement. [LIST
ANY EXCEPTIONS].

                  The undersigned hereby certifies that the undersigned is an
officer of Borrower and, as such, is authorized to execute this Reserve Account
Disbursement Requisition on behalf of Borrower.

                  IN WITNESS WHEREOF, the undersigned has executed and delivered
this Reserve Account Disbursement Requisition on the date shown above.

                               CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                               a Delaware limited liability company


                               By:
                                  ----------------------------------------------

                                     Name:
                                     Title:

                  The undersigned acknowledges receipt of a copy of this Reserve
Account Disbursement Requisition:

CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH            Date:            ,
as Administrative Agent for the Banks                         ----------  -----

By:
        ------------------------------------------------------
        Name:
        Title:

By:
        ------------------------------------------------------
        Name:
        Title:
<PAGE>   251
                                   Schedule 1
                                 To Exhibit C-11

                Description of Payees and Uses of Funds Withdrawn
                    From the Working Capital Reserve Account


                                      I-1
<PAGE>   252
                                                                     EXHIBIT D-1
                                                         to the Credit Agreement


                          FORM OF DEPOSITARY AGREEMENT

                          dated as of October 16, 2000

                                      among

                  CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company,

                                  as Borrower,

                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch

                     as Administrative Agent for the Banks,

                                       and

                              THE BANK OF NEW YORK,

                               as Depositary Agent
<PAGE>   253
                  THIS DEPOSITARY AGREEMENT (this "Agreement"), dated as of
October 16, 2000, is among CALPINE CONSTRUCTION FINANCE COMPANY II, LLC, a
Delaware limited liability company ("Borrower"), CREDIT SUISSE FIRST BOSTON,
acting through its New York Branch, acting in its capacity as Administrative
Agent ("Administrative Agent") for the Banks under the Credit Agreement (as
defined below), and THE BANK OF NEW YORK, acting in its capacity as Depositary
Agent (the "Depositary Agent").

                                    RECITALS

                  A. Borrower has entered into that certain Credit Agreement,
dated as of October 16, 2000 (as the same may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among Borrower,
the financial institutions listed on Exhibit H thereto (the "Banks"), Credit
Suisse First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent, whereby the Banks have agreed to advance to Borrower
certain loans to finance the construction and operation by Borrower of the
Projects and the purchase of the Turbines.

                  B. In order to give effect to (a) the security interest in the
Accounts (as defined herein) granted by Borrower to Administrative Agent and (b)
the deposit of funds into the Accounts and the application of funds in
connection with the construction and operation of the Projects and the purchase
of the Turbines, each as contemplated in the Credit Agreement, the parties have
agreed that all amounts to be paid over to Administrative Agent for deposit
into, and disbursement from, the Accounts under of the Credit Agreement shall be
paid to Depositary Agent, as agent for Administrative Agent, to be held by
Depositary Agent in pledge as collateral security for Borrower's obligations
under the Credit Agreement and distributed by Depositary Agent as provided
herein.

                  C. Depositary Agent has agreed to act as depositary agent for
Administrative Agent pursuant to the terms of this Agreement.

                                    AGREEMENT

                  NOW, THEREFORE, in consideration of the premises and of the
mutual covenants contained in this Agreement and for other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
<PAGE>   254
                                   ARTICLE 1

                      Definitions; Rules of Interpretation

Section 1.1 Definitions. Capitalized terms used but not defined herein shall
have the respective meanings given them in Exhibit A to the Credit Agreement.
The following terms when used herein shall have the following meanings:

                  "Accounts" shall mean the collective reference to the
Construction Account, the Revenue Account, the Loss Proceeds Account, the
Working Capital Reserve Account and any and all other accounts hereinafter
established under the Credit Agreement and/or this Agreement, including any
sub-accounts within such accounts but excluding any Operating Account held in
the name of any Project Owner.

                  "Account Withdrawal Certificate" shall mean a certificate of
an Authorized Representative of Borrower countersigned by Administrative Agent
substantially in the form of Exhibit A hereto, stating (i) the specific amount
requested to be withdrawn from a specific Account and transferred, applied or
paid over to another Account or Person, (ii) the purpose for which such payment
shall be made, (iii) that no Event of Default and, with respect to withdrawals
from the Construction Account or the Loss Proceeds Account of the Project to
which such withdrawl relates, no Non-Fundamental Project Default shall have
occurred and be continuing or will occur after giving effect to the withdrawal
of funds so requested and (iv) that all other conditions to distributions from
such account set forth in the Credit Agreement have been satisfied.

                  "Construction Account" shall mean, collectively, the special
account designated by that name established by the Depositary Agent pursuant to
Section 2.5, the Construction Sub-Accounts, including the Turbine Purchase
Sub-Accounts and all other sub-accounts therein.

                  "Disbursement Instruction" shall mean a notice from
Administrative Agent, substantially in the form of Exhibit B hereto, instructing
Depositary Agent to transfer a specific amount of funds from any of the Accounts
to such other account or recipient identified by Administrative Agent in
accordance therewith.

                  "Loss Proceeds Account" shall mean collectively the special
account designated by that name established by Depositary Agent pursuant to
Section 2.5 and all sub-accounts therein.

                  "Revenue Account" shall mean the special account designated by
that name established by the Depositary Agent pursuant to Section 2.5 and all
sub-accounts therein.

                  "UCC" shall mean the Uniform Commercial Code as adopted in the
State of New York.

                  "Working Capital Reserve Account" shall mean the special
account designated by that name established by the Depositary Agent pursuant to
Section 2.5 and all sub-accounts therein.


                                       1
<PAGE>   255
                  Section 1.2 Rules of Interpretation. The rules of
interpretation set forth in Exhibit A to the Credit Agreement shall apply to
this Agreement.

                                   ARTICLE 2

                        Appointment of Depositary Agent;

                            Establishment of Accounts

                  Section 2.1 Appointment of Depositary Agent. Depositary Agent
is hereby appointed by Borrower and by Administrative Agent as depositary agent
hereunder, and Depositary Agent hereby agrees to act as such and to accept all
cash, payments, other amounts and Permitted Investments to be delivered to or
held by Depositary Agent pursuant to the terms of this Agreement. Depositary
Agent shall hold and safeguard the Accounts (and the cash, instruments and
securities on deposit therein) during the term of this Agreement and shall treat
the cash, instruments, and securities in the Accounts as funds, instruments and
securities pledged by Borrower to Administrative Agent for the ratable benefit
of the Banks, to be held by Depositary Agent, as agent of Administrative Agent,
in trust in accordance with the provisions hereof.

                  Section 2.2 Security Interest; Control. In order to secure the
performance by Borrower of all of its covenants, agreements and obligations
under the Credit Agreement and the other Credit Documents and the payment and
performance by Borrower of all Obligations, this Agreement is intended to
create, and Borrower hereby pledges to and creates in favor of Administrative
Agent, for the benefit of the Banks, a security interest in and to, the
Accounts, all cash, cash equivalents, instruments, investments and other
securities at any time on deposit in the Accounts, and all proceeds of any of
the foregoing (collectively, the "Collateral"). All moneys, cash equivalents,
instruments, investments and securities at any time on deposit in any of the
Accounts shall constitute collateral security for the payment and performance by
Borrower of the Obligations, and shall at all times be subject to the control of
Administrative Agent, acting through Depositary Agent in respect of the Accounts
and shall be held in the custody of Depositary Agent in trust for the purposes
of, and on the terms set forth in, this Agreement.

                  Section 2.3 Accounts Maintained as UCC "Securities Accounts."
Depositary Agent hereby agrees and confirms that it has established the Accounts
as set forth and defined in this Agreement. Each of Depositary Agent and
Borrower agrees that (i) Depositary Agent is acting as "securities intermediary"
(within the meaning of Section 8-102(14) of the UCC) with respect to the
Accounts and the "financial assets" (within the meaning of Section 8-102(a)(9)
of the UCC, the "Financial Assets") credited to the Accounts; (ii) each such
Account established by Depositary Agent is and will be maintained as a
"securities account" (within the meaning of Section 8-501 of the UCC); (iii)
Borrower is an "entitlement holder" (within the meaning of Section 8-102(a)(7)
of the UCC) in respect of the Financial Assets credited to such Accounts and
with respect to such Accounts and Depositary Agent shall so note in its records
pertaining to such Financial Assets and Accounts; and (iv) all Financial Assets
in registered form or payable to or to order of and credited to any such Account
shall be registered in the name of, payable to or to the order of, or specially
endorsed to, Depositary Agent or in blank, or credited to another securities
account maintained in the name of Depositary Agent, and in no case will any
Financial


                                       2
<PAGE>   256
Asset credited to any such Account be registered in the name of, payable to or
to the order of, or endorsed to, Borrower except to the extent the foregoing
have been subsequently endorsed by Borrower to Depositary Agent or in blank.
Each item of property (including a security, security entitlement, investment
property, instrument or obligation, share, participation, interest or other
property whatsoever) credited to any Account shall be treated as a Financial
Asset. Until this Agreement shall terminate in accordance with the terms hereof,
Administrative Agent shall have "control" (within the meaning of Section
8-106(d)(2) of the UCC) of Borrower's "security entitlements" (within the
meaning of Section 8-102(a)(17) of the UCC, "Security Entitlements") with
respect to the Accounts and the Financial Assets credited to the Accounts. All
property delivered to Depositary Agent pursuant to this Agreement will be
promptly credited to the Accounts and shall be treated as Financial Assets. If
at any time Depositary Agent shall receive from Administrative Agent any
"entitlement order" (within the meaning of Section 8-102(8) of the UCC, an
"Entitlement Order") relating to the Accounts or Financial Assets credited to
the Accounts, Depositary Agent shall comply with such Entitlement Order without
further consent by Borrower or any other Person. In the event that Depositary
Agent receives conflicting Entitlement Orders relating to the Accounts or
Financial Assets credited to the Accounts from Administrative Agent and any
other Person (including, without limitation, Borrower), Depositary Agent shall
comply with the Entitlement Orders originated by Administrative Agent. Each of
Borrower and Depositary Agent agrees that it has not and will not execute and
deliver, or otherwise become bound by, any agreement under which it agrees with
any Person other than Administrative Agent to comply with Entitlement Orders
originated by such Person relating to the Accounts or Financial Assets credited
to the Accounts. Except for the claims and interests of Administrative Agent and
Borrower in the Accounts and the Financial Assets credited to the Accounts,
neither Depositary Agent nor Borrower knows of any claim to, or interest in, any
Account or Financial Assets credited to the Accounts. If either Depositary Agent
or Borrower obtains knowledge that any Person has asserted a lien, encumbrance
or adverse claim against any or the Accounts or Financial Assets credited to the
Accounts, such party will promptly notify Administrative Agent thereof. In the
event that the Depositary Agent has or subsequently obtains by agreement,
operation of law or otherwise a Lien or security interest in any Account, any
Security Entitlement carried therein or credited thereto or any Financial Asset
that is the subject of any such Security Entitlement, Depositary Agent agrees
that such Lien or security interest shall be subordinate to the Lien and
security interest of the Administrative Agent. The Financial Assets standing to
the credit of the Accounts will not be subject to deduction, set-off, banker's
lien or any other right, and Depositary Agent shall not grant, permit or consent
to any other right or interest in such Financial Assets, in favor of any Person
(including the Depositary Agent) other than Administrative Agent.

                  Section 2.4 Borrower's Rights. Borrower shall not have any
rights or powers with respect to any amounts in the Accounts or any part thereof
except (i) as provided in Article 5 hereof and (ii) the right to have such
amounts applied in accordance with the provisions hereof and of the Credit
Agreement.

                  Section 2.5 Creation of Accounts. Depositary Agent hereby
establishes at its office located in New York, New York, the following special,
segregated and irrevocable money collateral accounts and sub-accounts within
such accounts which shall be maintained at all times


                                       3
<PAGE>   257
until the termination of this Agreement, unless earlier termination is otherwise
provided for herein or in the Credit Agreement:

         (1)      The Construction Account (Acc. # 050451);

         (2)      The Construction Sub-Account (Los Medanos) (Acc. # 050452);

         (3)      The Construction Sub-Account (Baytown) (Acc. # 050453);

         (4)      The Construction Sub-Account (Carville) (Acc. # 050454);

         (5)      The Construction Sub-Account (Panda) (Acc. # 050455);

         (6)      The Construction Sub-Account (Santa Rosa) (Acc. # 050456);

         (7)      The Construction Sub-Account (Delta) (Acc. # 050457);

         (8)      The Construction Sub-Account (Freestone) (Acc. # 050458);

         (9)      The Construction Sub-Account (Broad River) (Acc. # 050459);

         (10)     The Construction Sub-Account (Channel) (Acc. # 050460);

         (11)     The Construction Sub-Account (Corpus Christi) (Acc. # 050461);

         (12)     The Construction Sub-Account (Decatur) (Acc. # 050462);

         (13)     The Construction Sub-Account (Morgan) (Acc. # 050463);

         (14)     The Turbine Purchase Sub-Account (Acc. # 050464);

         (15)     The Revenue Account (Acc. # 050465);

         (16)     The Revenue Sub-Account (Los Medanos) (Acc. # 050491);

         (17)     The Revenue Sub-Account (Baytown) (Acc. # 050490);

         (18)     The Revenue Sub-Account (Carville) (Acc. # 050489);

         (19)     The Revenue Sub-Account (Panda) (Acc. # 050488);

         (20)     The Revenue Sub-Account (Santa Rosa) (Acc. # 050487);

         (21)     The Revenue Sub-Account (Delta) (Acc. # 050486);

         (22)     The Revenue Sub-Account (Freestone) (Acc. # 050485);

         (23)     The Revenue Sub-Account (Broad River) (Acc. # 050484);


                                       4
<PAGE>   258
        (24)     The Revenue Sub-Account (Channel) (Acc. # 050483);

        (25)     The Revenue Sub-Account (Corpus Christi) (Acc. # 050482);

        (26)     The Revenue Sub-Account (Decatur) (Acc. # 050481);

        (27)     The Revenue Sub-Account (Morgan) (Acc. # 050480);

        (28)     The Loss Proceeds Account (Acc. # 050466);

        (29)     The Loss Proceeds Sub-Account (Los Medanos) (Acc. # 050479);

        (30)     The Loss Proceeds Sub-Account (Baytown) (Acc. # 050478);

        (31)     The Loss Proceeds Sub-Account (Carville) (Acc. # 050477);

        (32)     The Loss Proceeds Sub-Account (Panda) (Acc. # 050476);

        (33)     The Loss Proceeds Sub-Account (Santa Rosa) (Acc. # 050475);

        (34)     The Loss Proceeds Sub-Account (Delta) (Acc. # 050474);

        (35)     The Loss Proceeds Sub-Account (Freestone) (Acc. # 050473);

        (36)     The Loss Proceeds Sub-Account (Broad River) (Acc. # 050472);

        (37)     The Loss Proceeds Sub-Account (Channel) (Acc. # 050471);

        (38)     The Loss Proceeds Sub-Account (Corpus Christi) (Acc. # 050470);

        (39)     The Loss Proceeds Sub-Account (Decatur) (Acc. #050469);

        (40)     The Loss Proceeds Sub-Account (Morgan) (Acc. # 050468);

        (41)     The Working Capital Reserve Account (Acc. # 050467);

        (42)     The Working Capital Sub-Account (Los Medanos) (Acc. # 050598);

        (43)     The Working Capital Sub-Account (Baytown) (Acc. # 050597);

        (44)     The Working Capital Sub-Account (Carville) (Acc. # 050596);

        (45)     The Working Capital Sub-Account (Panda) (Acc. # 050595);

        (46)     The Working Capital Sub-Account (Santa Rosa) (Acc. # 050594);

        (47)     The Working Capital Sub-Account (Delta) (Acc. # 050593);

        (48)     The Working Capital Sub-Account (Freestone) (Acc. # 050592);


                                       5
<PAGE>   259
         (49)     The Working Capital Sub-Account (Broad River) (Acc. # 050591);

         (50)     The Working Capital Sub-Account (Channel) (Acc. # 050590);

         (51)     The Working Capital Sub-Account (Corpus Christi) (Acc. #
                  050589);

         (52)     The Working Capital Sub-Account (Decatur) (Acc. # 050588); and

         (53)     The Working Capital Sub-Account (Morgan) (Acc. # 050587).

All moneys, investments and securities at any time on deposit in any of the
Accounts shall constitute trust funds to be held in the custody of Depositary
Agent for the purposes and on the terms set forth in this Agreement.

                                   ARTICLE 3

                             Deposits into Accounts

         Section 3.1 Deposits. Each of Borrower and Administrative Agent
covenants and agrees that all amounts required by the Credit Agreement or the
other Credit Documents to be delivered or deposited in any of the Accounts,
shall be paid over to Depositary Agent directly for deposit into the appropriate
Account. Any deposit made to any Account under this Agreement shall be
irrevocable and the amount of such deposit and any instrument or security held
in such Account and all income or gain earned on such deposits shall be held in
trust by Depositary Agent and applied solely as provided in this Agreement. In
the event Depositary Agent receives monies without adequate instruction with
respect to the source or proper Account into which such monies are to be
deposited, Depositary Agent shall deposit such monies into the Revenue Account
and notify Borrower and Administrative Agent of the receipt and the source of
such monies.

                                   ARTICLE 4

                             Payments from Accounts

         Section 4.1 Withdrawals by Administrative Agent. As soon as
practicable, and in all events within three Banking Days after receipt of a
Disbursement Instruction, executed by Administrative Agent, Depositary Agent
shall distribute or apply monies on deposit in the Accounts specified in such
notice, in the manner, in the amount and to the Person or Account specified in
such Disbursement Instruction. Notwithstanding anything to the contrary in this
Agreement, from and after Depositary Agent's receipt of notice from
Administrative Agent or Borrower that an Event of Default exists until such time
as Depositary Agent receives notice from Administrative Agent that such Event of
Default no longer exists, Depositary Agent shall only withdraw or transfer
amounts in the Construction Account or the Loss Process Account at the direction
of Administrative Agent. Notwithstanding anything to the contrary in this
Agreement, from and after Depositary Agent's receipt of notice from
Administrative Agent or Borrower that a Non-Fundamental Project Default exists
until such time as Depositary Agent receives notice from Administrative Agent
that such Non-Fundamental Project Default no longer


                                       6
<PAGE>   260
exists, Depositary Agent shall only withdraw or transfer amounts in the
Construction Account or the Loss Proceeds Account for the Project to which such
Non-Fundamental Project Default relates at the direction of Administrative
Agent. In the event that funds on deposit in any Account exceed the amounts
required to be deposited therein, and such excess funds are required to be
transferred to the Revenue Account pursuant to the Credit Agreement,
Administrative Agent shall, as soon as practicable, deliver a Disbursement
Instruction to the Depositary Agent requesting that such excess funds be
transferred to the Revenue Account.

         Section 4.2 Withdrawals from Construction Account. On the same Banking
Day on which Depositary Agent receives an Account Withdrawal Certificate from
Borrower, duly executed by Borrower and acknowledged and agreed to in writing by
Administrative Agent, requesting that funds be withdrawn and/or transferred from
the Construction Account or a sub-account therein, Depositary Agent shall
distribute or apply monies on deposit in the Construction Account or such
sub-account therein in the manner, in the amount and to the Person or Account
specified in such Account Withdrawal Certificate; provided, however, that in the
event that Depositary Agent receives such Account Withdrawal Certificate after
12:00 p.m. eastern standard time of any Banking Day, then Depositary Agent may
take the actions specified therein on the next Banking Day.

         Section 4.3 Withdrawals from the Revenue Account. As soon as
practicable and in all events within three Banking Days after receipt of an
Account Withdrawal Certificate from Borrower, duly executed by Borrower and
acknowledged and agreed to in writing by Administrative Agent, requesting that
funds be withdrawn and/or transferred from the Revenue Account or a sub-account
therein, Depositary Agent shall distribute or apply monies on deposit in the
Revenue Account or such sub-account therein in the manner, in the amount and to
the Person or Account specified in such Account Withdrawal Certificate.

         Section 4.4 Withdrawals from the Loss Proceeds Account. As soon as
practicable, and in all events within three Banking Days after receipt of an
Account Withdrawal Certificate from Borrower, duly executed by Borrower and
acknowledged and agreed to in writing by Administrative Agent, requesting that
funds be withdrawn and/or transferred from the Loss Proceeds Account or a
sub-account therein, Depositary Agent shall distribute or apply monies on
deposit in the Loss Proceeds Account or such sub-account therein in the manner,
in the amount and to the Person or Account specified in such Account Withdrawal
Certificate.

         Section 4.5 Withdrawals from the Working Capital Reserve Account. As
soon as practicable, and in all events within three Banking Days after receipt
of an Account Withdrawal Certificate from Borrower, duly executed by Borrower
and acknowledged and agreed to in writing by Administrative Agent, requesting
that funds be withdrawn and/or transferred from the Working Capital Reserve
Account or a sub-account therein, Depositary Agent shall distribute or apply
monies on deposit in the Working Capital Reserve Account or such sub-account
therein in the manner, in the amount and to the Person or Account specified in
such Account Withdrawal Certificate.


                                       7
<PAGE>   261
                                    ARTICLE 5

                                   Investment

         Section 5.1 Permitted Investments. Depositary Agent shall invest any
money held in any Account in such Permitted Investments as directed in writing
by Borrower from time to time (or, if Administrative Agent shall have notified
Depositary Agent that Administrative Agent is exercising its power of attorney
to direct investments, by and at the discretion of Administrative Agent). In the
event that Depositary Agent has not received any such written directions,
Depositary Agent shall invest all available funds in a money market mutual fund
selected by Borrower. Any income or gain realized as a result of any such
investment shall be held as part of the applicable Account and reinvested as
provided in this Agreement until released in compliance with Article 4. Any
income tax payable on account of any such income or gain shall be paid by
Borrower. Depositary Agent shall have no liability for any loss resulting from
any such investment other than solely by reason of its willful misconduct or
gross negligence or bad faith or from failure to exercise such care in the
custody of any such investments as it does for accounts held by other customers
or in the custody of its own investments. Any such investment may be sold
(without regard to maturity date) by Depositary Agent whenever necessary to make
any distribution required by this Agreement. In addition, if an Event of Default
has occurred and is continuing, any investment shall be liquidated and sold by
Depositary Agent if so directed in writing by Administrative Agent.

                                   ARTICLE 6

                                Depositary Agent

         Section 6.1 Rights, Duties, etc. The acceptance by Depositary Agent of
its duties under this Agreement is subject to the following terms and conditions
which the parties to this Agreement hereby agree shall govern and control with
respect to Depositary Agent's rights, duties, liabilities and immunities:

                  (a) Depositary Agent shall act as an agent only and shall not
be responsible or liable in any manner for soliciting any funds or for the
sufficiency, correctness, genuineness or validity of any funds or securities
deposited with or held by it, except as set forth in Section 6.1(c) hereof;

                  (b) Depositary Agent shall be protected in acting or
refraining from acting upon any written notice, certificate, instruction,
request or other paper or document, as to the due execution thereof and the
validity and effectiveness of the provisions thereof and as to the truth of any
information contained therein, which Depositary Agent in good faith believes to
be genuine;

                  (c) Depositary Agent shall not be liable for any error of
judgment or for any act done or step taken or omitted except in the case of its
gross negligence, willful misconduct or bad faith;


                                       8
<PAGE>   262
                  (d) Depositary Agent may consult with and obtain advice from
counsel in the event of any dispute or question as to the construction of any
provision of this Agreement;

                  (e) Depositary Agent shall have no duties as Depositary Agent
except those which are expressly set forth in this Agreement and in any
modification or amendment hereof; provided, however, that no such modification
or amendment shall affect Depositary Agent's duties unless Depositary Agent
shall have given its prior written consent to such modification or amendment;

                  (f) Depositary Agent may execute or perform any duties under
this Agreement either directly or through agents or attorneys;

                  (g) Depositary Agent may engage or be interested in any
financial or other transactions with any party to this Agreement and may act on,
or as depositary, trustee or agent for, any committee or body of holders of
obligations of such Persons as freely as if it were not Depositary Agent
hereunder; and

                  (h) Depositary Agent shall not be obligated to take any action
which in its reasonable judgment would involve it in expense or liability unless
it has been furnished with reasonable indemnity.

         Section 6.2 Resignation or Removal.

                  (a) Depositary Agent may at any time resign by giving notice
to each other party to this Agreement, such resignation to be effective upon the
appointment of a successor Depositary Agent as provided below.

                  (b) Administrative Agent may remove Depositary Agent at any
time by giving notice to each other party to this Agreement, such removal to be
effective upon the appointment of successor Depositary Agent as provided below.

                  (c) In the event of any resignation or removal of Depositary
Agent, a successor Depositary Agent, which shall be a bank or trust company
organized under the laws of the United States America or of the State of New
York, having a corporate trust office in New York and a capital and surplus of
not less than $50,000,000, shall be appointed by Administrative Agent after
consultation with Borrower. If a successor Depositary Agent shall not have been
appointed and accepted its appointment as Depositary Agent within 45 days after
such notice of resignation of Depositary Agent or such notice of removal of
Depositary Agent, Depositary Agent, Administrative Agent or Borrower may apply
to any court of competent jurisdiction to appoint a successor Depositary Agent
to act until such time, if any, as a successor Depositary Agent shall have
accepted its appointment as provided above. A successor Depositary Agent so
appointed by such court shall immediately and without further act be superseded
by any successor Depositary Agent appointed by Administrative Agent as provided
above. Any such successor Depositary Agent shall be capable of acting as a
"securities intermediary" (within the meaning of Section 8-102(14) of the UCC)
and shall deliver to each party to this Agreement a written instrument accepting
such appointment and thereupon such


                                       9
<PAGE>   263
successor Depositary Agent shall succeed to all the rights and duties of
Depositary Agent under this Agreement and shall be entitled to receive the
Accounts from the predecessor Depositary Agent.

                                   ARTICLE 7

                                 Determinations

         Section 7.1 Sales of Permitted Investments. Depositary Agent will use
its best efforts to sell Permitted Investments so that actual money is
available, on each date on which a distribution is to be made pursuant to this
Agreement, for Depositary Agent to make such distribution in money on such date.

         Section 7.2 Available Cash. In determining the amount of deposit or
available money in any Account at any time, in addition to any money then on
deposit in such Account, Depositary Agent shall treat as on deposit or as
available money the net amount which would have been received by Depositary
Agent on such day if Depositary Agent had liquidated all the Permitted
Investments (at then prevailing market prices) then on deposit in such Account.

                                   ARTICLE 8

                                  Miscellaneous

         Section 8.1 Fees and Indemnification of Depositary Agent. Borrower
agrees to pay the fees of Depositary Agent as compensation for its services
under this Agreement. In addition, Borrower and Administrative Agent hereby
agree that (a) Depositary Agent, its directors, officers, employees and agents
(each such Person being called a "Depositary Agent Indemnitee") are released
from any and all liabilities to Borrower and Administrative Agent arising from
the terms or in connection with this Agreement and the compliance of any
Depositary Agent Indemnitee with the terms hereof, except to the extent that
such liabilities arise from the negligence or willful misconduct of any
Depositary Agent Indemnitee, and (b) Borrower, Administrative Agent and their
respective successors and assigns shall at all times indemnify and save harmless
the Depositary Agent Indemnitees from and against any and all claims, actions
and suits of others arising out of the terms of this Agreement or the compliance
of any Depositary Agent Indemnitee with the terms hereof, whether or not any
Depositary Agent Indemnitee is a party thereto, except to the extent that such
claims, actions or suits arise from the negligence or willful misconduct of any
Depositary Agent Indemnitee, and from and against any and all liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising by reason of the same. The provisions of this
Section 8.1 shall survive the termination of this Agreement and the resignation
or removal of Depositary Agent. All payments made by Borrower hereunder shall be
made without setoff or counterclaim.

         Section 8.2 Waiver of Right of Set-Off. Depositary Agent waives, with
respect to all of its existing and future claims against Borrower or any
Affiliate thereof, all existing and future rights of set-off and banker's liens
against the Accounts and all items (and proceeds thereof) that come into its
possession in connection with the Accounts.


                                       10
<PAGE>   264
         Section 8.3 Termination. Subject to Section 8.1, the provisions of this
Agreement shall terminate on the date on which all Obligations shall have been
paid in full and the Credit Documents have terminated in accordance with their
terms. The termination of this Agreement shall have been deemed to have occurred
upon receipt by Depositary Agent of a certificate to such effect executed by
Administrative Agent. Promptly after receipt of such certificate by Depositary
Agent, Depositary Agent shall distribute all amounts contained in the Accounts
to the Borrower and shall be discharged of all obligations hereunder.

         Section 8.4 Severability. If any one or more of the covenants or
agreements provided in this Agreement on the part of the parties to this
Agreement to be performed should be determined by a court of competent
jurisdiction to be contrary to law, such covenant or agreement shall be deemed
and construed to be severable from the remaining covenants and agreements of
this Agreement and shall in no way affect the validity of the remaining
provisions.

         Section 8.5 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which taken together
shall constitute but one and the same instrument.

         Section 8.6 Amendments This Agreement may not be modified or amended
without the prior written consent of each of the parties to this Agreement.

         Section 8.7 Applicable Law. This Agreement and any instrument or
agreement required hereunder (to the extent not expressly provided for therein)
shall be governed by, and construed in accordance with, the laws of the State of
New York, without reference to conflicts of laws (other than Section 5-1401 of
the New York General Obligations Law).

         Section 8.8 Notices, etc.. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered, or mailed by first-class mail, postage prepaid,
to the following addresses:

                  (a)  If to Administrative Agent:

                  Credit Suisse First Boston,
                  New York Branch
                  Eleven Madison Avenue
                  New York, New York  10010
                  Attention: Portfolio Management
                  Telephone Number: (212) 325-9126
                  Telecopier Number: (212) 325-8321

                  (b)  If to Borrower:

                  Calpine Construction Finance Company II, LLC
                  c/o Calpine Corporation
                  50 West San Fernando Street
                  San Jose, California 95113
                  Attention:  General Counsel


                                       11
<PAGE>   265
                  Telephone No.: (408) 995-5115
                  Telecopier No.:  (408) 995-0505

                  and

                  6700 Knoll Center Parkway, Suite 200
                  Pleasanton, California  94566
                  Attention: Corporate Asset Management
                  Telephone Number: (925) 600-2000
                  Telecopier Number: (925) 600-8926

                  (c)  If to Depositary Agent:

                  The Bank of New York
                  101 Barclay Street, Floor 2100
                  New York, New York  10286
                  Attention: Corporate Trust Administrator
                  Telephone Number: (212) 815-5939
                  Telecopier Number: (212) 815-5915

                  All notices or other communications required or permitted to
be delivered hereunder, shall be in writing and shall be considered as properly
delivered (a) if delivered in person, (b) if sent by overnight delivery service
(including Federal Express, Emery, DHL, Air Borne and other similar overnight
delivery services), (c) in the event overnight delivery services are not readily
available, if mailed by first class United States Mail, postage prepaid,
registered or certified with return receipt requested or (d) if sent by prepaid
telegram, or by telecopy confirmed by telephone. Notice so delivered shall be
effective upon receipt by the addressee, except that communication or notice so
transmitted by telecopy or other direct written electronic means shall be deemed
to have been validly and effectively delivered on the day (if a Banking Day and,
if not, on the next following Banking Day) on which it is transmitted if
transmitted before 4:00 p.m., recipient's time, and if transmitted after that
time, on the next following Banking Day; provided, however, that if any notice
is tendered to an addressee and the delivery thereof is refused by such
addressee, such notice shall be effective upon such tender. Any party shall have
the right to change its address for notice hereunder to any other location
within the continental United States by giving of 30 days' notice to the other
parties in the manner set forth hereinabove.

                  Section 8.9 Further Information. Depositary Agent shall
promptly provide Administrative Agent and Borrower with any information
reasonably requested by Administrative Agent or Borrower concerning balances in
the Accounts and payments from such Accounts.

                  Section 8.10 Benefit of Agreement. This Agreement shall inure
to the benefit of, and be enforceable by, the parties to this Agreement and
their respective successors and permitted assigns.


                                       12
<PAGE>   266
                  Section 8.11 Account Balance Statements. Depositary Agent
shall on a monthly basis, and at such other times as Administrative Agent or
Borrower may from time to time reasonably request, provide Administrative Agent
and Borrower account balance statements in respect of each of the Accounts. Such
balance statements shall also include deposits and transfers to, withdrawals
from and the net investment income or gain received and collected from each
Account.

                  Section 8.12 Authorized Officer of Administrative Agent. All
written directions and instructions (which may be provided by facsimile
transmission) by Administrative Agent to Depositary Agent pursuant to this
Agreement shall be executed by an authorized signatory of Administrative Agent.
No person shall be deemed to be an authorized signatory of Administrative Agent
unless named on a certificate of incumbency of such person delivered to
Depositary Agent on the Closing Date.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       13
<PAGE>   267
                  IN WITNESS WHEREOF, the parties hereto have each caused this
Depositary Agreement to be duly executed by their duly authorized officers, all
as of the day and year first above written.

                          CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                          a Delaware limited liability company

                          By:
                                -----------------------------------------------
                                Name:
                                Title:


                          CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,
                          as Administrative Agent for the Banks

                          By:
                              -------------------------------------------------
                                Name:
                                Title:

                          By:
                              -------------------------------------------------
                                Name:
                                Title:


                          THE BANK OF NEW YORK, as Depositary Agent

                          By:
                                -----------------------------------------------
                                Name:
                                Title:


                                       14
<PAGE>   268
                                   Exhibit A


                     Form of Account Withdrawal Certificate

       [LETTERHEAD OF [BORROWER] [AUTHORIZED REPRESENTATIVE OF BORROWER]]

                                     [DATE]

         [THE LANGUAGE IN BRACKETS REPRESENTS ALTERNATIVE DRAWING EVENTS AND THE
CERTIFICATE PRESENTED SHOULD RECITE ONLY THE APPLICABLE ALTERNATIVE.]

Dear Sirs:

         Reference is made to that certain Depositary Agreement (the "Depositary
Agreement") dated as of October 16, 2000, among Calpine Construction Finance
Company II, LLC, a Delaware limited liability company ("Borrower"), The Bank of
New York, as Depositary Agent ("Depositary Agent"), and Credit Suisse First
Boston, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks named in that certain Credit Agreement
dated as of October 16, 2000, among Borrower, the financial institutions listed
on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting through
its New York Branch, as Lead Arranger and Administrative Agent, The Bank of Nova
Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America
Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as
Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as
Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. Capitalized terms used herein
without definition shall have the respective meanings specified in the
Depositary Agreement.

         Please liquidate investments held in the [NAME OF ACCOUNT] under the
Depositary Agreement in an amount sufficient to yield proceeds of
$_____________, to be used for the payment of [________ COSTS] as set forth in
the [CONSTRUCTION DRAWDOWN CERTIFICATE] [TURBINE PURCHASE DRAWDOWN CERTIFICATE]
[DISBURSEMENT REQUISITION] [SPECIFY ANY OTHER PURPOSES FOR THE WITHDRAWAL],
attached hereto as Schedule 1. Please [PAY] [TRANSFER] such amounts [BY
[OFFICIAL BANK CHECK] [WIRE TRANSFER]] to [THE ________ ACCOUNT(S)] [THE
PERSON(S) SPECIFIED ON SCHEDULE 2 ATTACHED HERETO AT THE ADDRESSES SET FORTH
THEREIN].

         The undersigned hereby certifies that:

         (a) the undersigned is an officer of the [BORROWER] [AUTHORIZED
REPRESENTATIVE OF BORROWER] and, as such, is authorized to execute this Account
Withdrawal Certificate on behalf of [BORROWER] [AUTHORIZED REPRESENTATIVE OF
BORROWER];

         (b) the amounts paid or applied pursuant to this Account Withdrawal
Certificate shall be used for the purpose(s) set forth on Schedule 1 attached
hereto;


                                   Exhibit A
<PAGE>   269
         (c) no Event of Default and, with respect to withdrawals from the
Construction Account or the Loss Proceeds Account for the Project to which such
withdrawal relates, no Non-Fundamental Project Default has occurred and is
continuing or will occur after giving effect to the withdrawal of funds
requested by this Account Withdrawal Certificate; and

         (d) all other conditions to distributions from the [NAME OF ACCOUNT]
set forth in the Credit Agreement have been satisfied.

                           Very truly yours,

                           CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                           a Delaware limited liability company

                           By:
                                 -----------------------------------------------
                                 Name:
                                 Title:


                           ACKNOWLEDGED AND AGREED:


                           CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,
                           as Administrative Agent for the Banks

                           By:
                               -------------------------------------------------
                                Name:
                                Title:

                           By:
                               -------------------------------------------------
                                Name:
                                Title:


                                   Exhibit A
<PAGE>   270
                  Schedule 1 to Account Withdrawal Certificate

              Use of Proceeds of Withdrawal from [NAME OF ACCOUNT]



                             Exhibit A - Schedule 1
<PAGE>   271
                  Schedule 2 to Account Withdrawal Certificate

             Payees of Proceeds of Withdrawal from [NAME OF ACCOUNT]



                             Exhibit A - Schedule 2
<PAGE>   272
                                    Exhibit B

                        Form of Disbursement Instruction

[LETTERHEAD OF ADMINISTRATIVE AGENT]

                                     [DATE]

         [THE LANGUAGE IN BRACKETS REPRESENTS ALTERNATIVE DRAWING EVENTS AND THE
CERTIFICATE PRESENTED SHOULD RECITE ONLY THE APPLICABLE ALTERNATIVE.]

Dear Sirs:

         Reference is made to that certain Depositary Agreement (the "Depositary
Agreement") dated as of October 16, 2000, among Calpine Construction Finance
Company II, LLC, a Delaware limited liability company ("Borrower"), The Bank of
New York, as Depositary Agent ("Depositary Agent"), and Credit Suisse First
Boston, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks named in that certain Credit Agreement
dated as of October 16, 2000, among Borrower, the financial institutions listed
on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting through
its New York Branch, as Lead Arranger and Administrative Agent, The Bank of Nova
Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America
Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as
Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as
Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. Capitalized terms used herein
without definition shall have the respective meanings specified in the
Depositary Agreement.

         Please liquidate investments held in the [NAME OF ACCOUNT] under the
Depositary Agreement in an amount sufficient to yield proceeds of
$_____________. Please [PAY] [TRANSFER] such amounts [BY [OFFICIAL BANK CHECK]
[WIRE TRANSFER]] to [THE _________ ACCOUNT(S)] [THE PERSON(S) SPECIFIED ON
SCHEDULE 1 ATTACHED HERETO AT THE ADDRESSES SET FORTH THEREIN].

         The undersigned hereby certifies that the undersigned is an officer of
the Administrative Agent and, as such, is authorized to execute this
Disbursement Instruction on behalf of Administrative Agent.

                                   Very truly yours,

                                   CREDIT SUISSE FIRST BOSTON,
                                   NEW YORK BRANCH,
                                   as Administrative Agent for the Banks

                                   By:
                                          --------------------------------------
                                          Name:
                                          Title:

                                   By:
                                          --------------------------------------
                                          Name:
                                          Title:


                                   Exhibit B
<PAGE>   273
                     Schedule 1 to Disbursement Instruction

             Payees of Proceeds of Withdrawal from [NAME OF ACCOUNT]



                             Exhibit B -- Schedule 1
<PAGE>   274
                                TABLE OF CONTENTS

ARTICLE 1 Definitions; Rules of Interpretation............................    1
       Section 1.1 Definitions............................................    1
       Section 1.2 Rules of Interpretation................................    2

ARTICLE 2 Appointment of Depositary Agent; Establishment of Accounts......    2
       Section 2.1 Appointment of Depositary Agent........................    2
       Section 2.2 Security Interest; Control.............................    2
       Section 2.3 Accounts Maintained as UCC "Securities Accounts".......    2
       Section 2.4 Borrower's Rights......................................    3
       Section 2.5 Creation of Accounts...................................    3

ARTICLE 3 Deposits into Accounts..........................................    6
       Section 3.1 Deposits...............................................    6

ARTICLE 4 Payments from Accounts..........................................    6
       Section 4.1 Withdrawals by Administrative Agent....................    6
       Section 4.2 Withdrawals from Construction Account..................    7
       Section 4.3 Withdrawals from the Revenue Account...................    7
       Section 4.4 Withdrawals from the Loss Proceeds Account.............    7
       Section 4.5 Withdrawals from the Working Capital Reserve Account...    7

ARTICLE 5 Investment......................................................    8
       Section 5.1 Permitted Investments..................................    8

ARTICLE 6 Depositary Agent................................................    8
       Section 6.1 Rights, Duties, etc....................................    8
       Section 6.2 Resignation or Removal.................................    9

ARTICLE 7 Determinations..................................................   10
       Section 7.1 Sales of Permitted Investments.........................   10
       Section 7.2 Available Cash.........................................   10

ARTICLE 8 Miscellaneous...................................................   10
       Section 8.1 Fees and Indemnification of Depositary Agent...........   10
       Section 8.2 Waiver of Right of Set-Off.............................   10
       Section 8.3 Termination............................................   11
       Section 8.4 Severability...........................................   12
       Section 8.5 Counterparts...........................................   11
       Section 8.6 Amendments.............................................   11
       Section 8.7 Applicable Law.........................................   11
       Section 8.8 Notices, etc...........................................   11
       Section 8.9 Further Information....................................   12
       Section 8.10 Benefit of Agreement..................................   12
       Section 8.11 Account Balance Statements............................   13
       Section 8.12 Authorized Officer of Administrative Agent............   13


                                       i
<PAGE>   275
                                                         EXHIBIT D2-A
                                                         to the Credit Agreement

                       AFFILIATED PARTY AGREEMENT GUARANTY

                  This AFFILIATED PARTY AGREEMENT GUARANTY (this "Guaranty")
dated as of __________, 200_ is made by CALPINE CORPORATION, a Delaware
corporation ("Guarantor"), in favor of [NAME OF PROJECT OWNER] a Delaware [TYPE
OF ENTITY] ("Project Owner").

                                    RECITALS

                  A. _____________, a _____________ ("______"), and Project
Owner are parties to that certain ______________ dated as of ____________, 2000
(the "______"), that certain _______________ dated as of ___________, 2000 (the
" ") and that certain _________ dated as of ______________, 2000 (the "_____").
_____________, a _____________ ("______"), and Project Owner are parties to that
certain ______________ dated as of ____________, 2000 (the "_____"), that
certain _______________ dated as of ___________, 2000 (the "______") and that
certain _________ dated as of ______________, 2000 (the "_____"). Collectively,
the ______, the ______, the _______, and the _________ are referred to as the
"Relevant Documents". Collectively, ______, ______ and ______ are referred to as
the "Affiliated Parties". [RELEVANT DOCUMENTS TO INCLUDE, IF APPLICABLE,
CONSTRUCTION MANAGEMENT AGREEMENT, PROJECT MANAGEMENT AGREEMENT, O&M AGREEMENT,
FUEL MANAGEMENT AGREEMENT, FUEL SUPPLY AGREEMENT AND POWER MARKETING AGREEMENT.]

                  B. Guarantor owns, either directly or indirectly, more than
50% of the outstanding capital stock or other equity interests of each of the
Affiliated Parties; and

                  C. Project Owner has agreed to enter into the Relevant
Documents on the condition that Guarantor guarantee certain of the Affiliated
Parties' obligations thereunder as provided herein; and

                  D. Guarantor acknowledges that it will benefit, directly and
indirectly, if Project Owner enters into the Relevant Documents; and

                  E. The obligations of Guarantor hereunder are being incurred
concurrently with the obligations of the Affiliated Parties under the Relevant
Documents; and

                  F. Capitalized terms used but not defined herein shall have
the respective meanings given them in Exhibit A to that certain Credit Agreement
dated as of October 16, 2000 among Calpine Construction Finance Company II, LLC,
a Delaware limited liability company as ("Borrower"), the financial institutions
listed on Exhibit H thereto, Credit Suisse First Boston,


                                       1
<PAGE>   276
acting through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent. The Rules of Interpretations contained in said Exhibit A
shall apply hereto.

                                    AGREEMENT

                  NOW, THEREFORE, in consideration of the premises set forth
above and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and as an inducement to Project Owner to enter
into the Relevant Documents with the Affiliated Parties, Guarantor hereby
consents and agrees as follows:

                  1.                Guaranty.

                           (a) The undersigned Guarantor, as primary obligor and
not merely as surety, unconditionally and irrevocably guarantees to Project
Owner payment and performance when due, whether by acceleration or otherwise, of
any and all obligations and liabilities of each of the Affiliated Parties under
the Relevant Documents, together with all expenses incurred by Project Owner in
enforcing any of such obligations and liabilities or the terms hereof,
including, without limitation, reasonable fees and expenses of legal counsel
(collectively, the "Obligations"), and agrees that if for any reason any of the
Affiliated Parties shall fail to pay or perform when due any of such
Obligations, Guarantor will pay or perform the same forthwith (it being
understood that Guarantor's liability hereunder shall be subject to the same
limitations of liability as the Affiliated Parties' liability under the Relevant
Documents). Guarantor waives notice of acceptance of this Guaranty and of any
obligation to which it applies or may apply under the terms hereof, and waives
diligence, presentment, demand of payment, notice of dishonor or non-payment,
protest, notice of protest, of any such obligations, suit or taking other action
by Project Owner against, and giving any notice of default or other notice to,
or making any demand on, any party liable thereon (including Guarantor).

                           (b) This Guaranty is a primary obligation of the
Guarantor and is an absolute, unconditional, continuing and irrevocable guaranty
of payment and performance and not of collectibility and is in no way
conditioned on or contingent upon any attempt to enforce in whole or in part any
of the Affiliated Parties' liabilities and obligations to Project Owner. If any
of the Affiliated Parties shall fail to pay or perform any of the Obligations to
Project Owner as and when they are due, Guarantor shall forthwith pay or
perform, as applicable, such Obligations. Any and all payments by Guarantor
hereunder shall be in immediately available funds. Each failure by any of the
Affiliated Parties to pay or perform any Obligations shall give rise to a
separate cause of action herewith, and separate suits may be brought hereunder
as each cause of action arises.


                                       2
<PAGE>   277
                           (c) Project Owner may, at any time and from time to
time (whether or not after revocation or termination of this Guaranty) without
the consent of or notice to Guarantor, except such notice as may be required by
the Relevant Documents or applicable law which cannot be waived, without
incurring responsibility to Guarantor, without impairing or releasing the
obligations of Guarantor hereunder, upon or without any terms or conditions and
in whole or in part, (i) change the manner, place and terms of payment or
performance or change or extend the time of payment of, renew, or alter any
Obligation, or any obligations and liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof or in
any manner modify, amend or supplement the terms of the Relevant Documents, any
documents, instruments or agreements executed in connection therewith, in each
case with the consent of the relevant Affiliated Parties, if required by the
Relevant Documents, and the guaranty herein made shall apply to the Obligations,
changed, extended, renewed, modified, amended, supplemented or altered in any
manner; (ii) exercise or refrain from exercising any rights against any of the
Affiliated Parties or others (including Guarantor) or otherwise act or refrain
from acting; (iii) add or release any other guarantor from its obligations
without affecting or impairing the obligations of Guarantor hereunder; (iv)
settle or compromise any Obligations and/or any obligations and liabilities
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and may subordinate the payment of all or any part thereof to
the payment of any obligations and liabilities which may be due to Project Owner
or others; (v) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner or in any order any property by whomsoever pledged or
mortgaged to secure or howsoever securing the Obligations or any liabilities or
obligations (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof and/or any offset thereagainst; (vi) apply any sums
by whomsoever paid or howsoever realized to any obligations and liabilities of
any of the Affiliated Parties to Project Owner under the Relevant Documents in
the manner provided therein regardless of what obligations and liabilities
remain unpaid; (vii) consent to or waive any breach of, or any act, omission or
default under, the Relevant Documents or otherwise amend, modify or supplement
(with the consent of the relevant Affiliated Parties, if required by the
Relevant Documents) the Relevant Documents or any of such other instruments or
agreements; and/or (viii) act or fail to act in any manner referred to in this
Guaranty which may deprive Guarantor of its right to subrogation against any of
the Affiliated Parties to recover full indemnity for any payments made pursuant
to this Guaranty or of its right of contribution against any other party.

                           (d) No invalidity, irregularity or unenforceability
of the obligations or liabilities hereby guaranteed shall affect, impair, or be
a defense to this Guaranty, which is a primary obligation of Guarantor.

                           (e) This is a continuing Guaranty and all obligations
to which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. In the event that,
notwithstanding the provisions of Section 1(a) hereof, this Guaranty shall be
deemed revocable in accordance with applicable law, then any such revocation
shall become effective only upon receipt by Project Owner of written notice of
revocation signed by Guarantor. No revocation or termination hereof shall affect
in any manner rights arising under this Guaranty with respect to Obligations (i)
arising prior to receipt by Project Owner of written notice of such revocation
or termination and the sole effect of revocation and termination hereof shall be
to exclude from this Guaranty Obligations thereafter arising which are


                                       3
<PAGE>   278
unconnected with Obligations theretofore arising or transactions theretofore
entered into or (ii) arising as a result of a default under the Relevant
Documents occurring by reason of the revocation or termination of this Guaranty.

                           (f) (i) Except as otherwise required by law, each
payment required to be made by Guarantor to Project Owner hereunder shall be
made without deduction or withholding for or on account of Taxes. If such
deduction or withholding is so required, Guarantor shall, upon notice thereof
from Project Owner, (A) pay the amount required to be deducted or withheld to
the appropriate authorities before penalties attach thereto or interest accrues
thereon, (B) on or before the 60th day after payment of such amount, forward to
Project Owner an official receipt evidencing such payment (or a certified copy
thereof), and (C) in the case of any such deduction or withholding, forthwith
pay to Project Owner such additional amount as may be necessary to ensure that
the net amount actually received by Project Owner is free and clear of such
Taxes, including any Taxes on such additional amount, is equal to the amount
that Project Owner would have received had there been no such deduction or
withholding.

                                    (ii) As used herein, the term "Tax" means
any present or future tax, levy, impost, duty, charge, assessment or fee of any
nature (including interest, penalties and additions thereto) that is imposed by
any government or other taxing authority in respect of any payment under this
Guaranty other than any income, franchise or similar tax imposed upon the gross
or net income of Project Owner by the United States or any State or any
jurisdiction where Project Owner is organized and/or the jurisdiction in which
is located.

                  2. Representations and Warranties. Guarantor makes the
representations and warranties set forth below to Project Owner as of the date
hereof:

                           (a) Guarantor is duly formed, validly existing and in
good standing under the laws of the State of Delaware and has the power and
authority to execute and deliver this Guaranty and to perform its obligations
hereunder.

                           (b) Guarantor has taken all necessary corporate
action to authorize the execution and delivery of this Guaranty and the
performance of its obligations hereunder.

                           (c) All governmental authorizations and actions
necessary in connection with the execution and delivery by Guarantor of this
Guaranty and the performance of its obligations hereunder have been obtained or
performed and remain valid and in full force and effect.

                           (d) This Guaranty has been duly executed and
delivered by Guarantor and constitutes the legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in accordance with the terms of this
Guaranty, subject to applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally.

                           (e) The execution, delivery and performance of this
Guaranty (i) do not and will not contravene any provisions of Guarantor's
certificate of incorporation or bylaws,


                                       4
<PAGE>   279
or any law, rule, regulation, order, judgment or decree applicable to or binding
on Guarantor or any of its Affiliates or properties; (ii) do not and will not
contravene, or result in any breach of or constitute any default under, any
agreement or instrument to which Guarantor is a party or by which Guarantor or
any of its properties may be bound or affected; and (iii) do not and will not
require the consent of any Person under any existing law or agreement which has
not already been obtained.

                           (f) There is no pending or, to the best of
Guarantor's knowledge, threatened action or proceeding affecting Guarantor
before any court, governmental agency or arbitrator, which might reasonably be
expected to materially and adversely affect the financial condition, results of
operations, business or prospects of Guarantor or the ability of Guarantor to
perform its obligations under this Guaranty.

                           (g) Guarantor possesses all franchises, certificates,
licenses, permits and other governmental authorizations and approvals necessary
for it to own its properties, conduct its businesses and perform its obligations
under this Guaranty.

                           (h) Guarantor is not an investment company or a
company controlled by an investment company, within the meaning of the
Investment Company Act of 1940, and is not subject to, or is exempt from,
regulation under the Public Utility Holding Company Act of 1935 and the Federal
Power Act.

                           (i) Guarantor has established adequate means of
obtaining financial and other information pertaining to the businesses,
operations and condition (financial and otherwise) of each of the Affiliated
Parties and their respective properties on a continuing basis, and Guarantor now
is and hereafter will be completely familiar with the businesses, operations and
condition (financial and otherwise) of each of the Affiliated Parties and their
respective properties.

                           (j) (i) Guarantor is not, and will not as a result of
the execution and delivery of this Guaranty, be rendered insolvent, (ii)
Guarantor does not intend to incur, or believe it is incurring, obligations
beyond its ability to pay and (iii) Guarantor's property remaining after the
delivery and performance of this Guaranty will not constitute unreasonably small
capital.

                  3. Covenants. So long as any Obligations are outstanding,
Guarantor agrees that:

                           (a) It will maintain in full force and effect all
consents of any governmental or other authority that are required to be obtained
by it with respect to this Guaranty and will obtain any that may become
necessary in the future;

                           (b) It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Guaranty;


                                       5
<PAGE>   280
                           (c) Promptly, and in any event within 30 Banking Days
after the General Counsel of Guarantor obtains knowledge thereof, Guarantor will
give to Project Owner notice of the occurrence of any event or of any litigation
or governmental proceeding pending (i) against Guarantor or any of its
Affiliates which could affect the business, operations, property, assets or
condition (financial or otherwise) of Guarantor so as to materially and
adversely affect the ability of Guarantor to perform its obligations hereunder
or (ii) with respect to this Guaranty, which event or pending proceeding is
likely to materially and adversely affect the business, operations, property,
assets or condition (financial or otherwise) of Guarantor and its Affiliates
taken as a whole;

                           (d) It will deliver such other documents and other
information reasonably requested by Project Owner; and

                           (e) It will comply in all material respects with its
certificate of incorporation.

                  4. Waiver. Guarantor hereby waives and relinquishes all rights
and remedies accorded by applicable law to sureties or guarantors and agrees not
to assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Project Owner to proceed against any of the
Affiliated Parties or any other person or to proceed against or exhaust any
security held by Project Owner at any time or to pursue any other remedy in
Project Owner's power before proceeding against Guarantor, (b) any defense that
may arise by reason of the incapacity, lack of power or authority, death,
dissolution, merger, termination or disability of any of the Affiliated Parties
or any other Person or the failure of Project Owner to file or enforce a claim
against the estate (in administration, bankruptcy or any other proceeding) of
any of the Affiliated Parties or any other Person, (c) demand, presentment,
protest and notice of any kind, including without limitation notice of the
existence, creation or incurring of any new or additional indebtedness or
obligation or of any action or non-action on the part of any of the Affiliated
Parties, Project Owner, any endorser or creditor of any of the Affiliated
Parties or Guarantor or on the part of any other person under this or any other
instrument in connection with any obligation or evidence of indebtedness held by
Project Owner as collateral or in connection with any Obligations, (d) any
defense based upon an election of remedies by Project Owner, including without
limitation an election to proceed by non-judicial rather than judicial
foreclosure, which destroys or otherwise impairs the subrogation rights of
Guarantor, the right of Guarantor to proceed against any of the Affiliated
Parties for reimbursement, or both, (e) any defense based on any offset against
any amounts which may be owed by any Person to Guarantor for any reason
whatsoever, (f) any defense based on any act, failure to act, delay or omission
whatsoever on the part of any of the Affiliated Parties or the failure by any of
the Affiliated Parties to do any act or thing or to observe or perform any
covenant, condition or agreement to be observed or performed by it under the
Relevant Documents, (g) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal provided, that, upon
payment in full of the Obligations, this Guaranty shall no longer be of any
force or effect, (h) any defense, setoff or counterclaim which may at any time
be available to or asserted by any of the Affiliated Parties against Project
Owner or any other Person under the Relevant Documents, (i) any duty on the part
of Project Owner to disclose to Guarantor any facts Project Owner may now


                                       6
<PAGE>   281
or hereafter know about any of the Affiliated Parties, regardless of whether
Project Owner have reason to believe that any such facts materially increase the
risk beyond that which Guarantor intends to assume, or have reason to believe
that such facts are unknown to Guarantor, or have a reasonable opportunity to
communicate such facts to Guarantor, since Guarantor acknowledges that Guarantor
is fully responsible for being and keeping informed of the financial condition
of any of the Affiliated Parties and of all circumstances bearing on the risk of
non-payment of any obligations and liabilities hereby guaranteed, (j) the fact
that Guarantor may at any time in the future dispose of all or part of its
direct or indirect interest in any of the Affiliated Parties, (k) any defense
based on any change in the time, manner or place of any payment under, or in any
other term of, the Relevant Documents or any other amendment, renewal,
extension, acceleration, compromise or waiver of or any consent or departure
from the terms of the Relevant Documents, (l) any defense arising because of
Project Owner's election, in any proceeding instituted under the Federal
Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code, and (m) any defense based upon any borrowing or grant of a
security interest under Section 364 of the Federal Bankruptcy Code.

                  5. Subordination. Except as otherwise specifically provided in
this Guaranty, all existing and future indebtedness of any of the Affiliated
Parties to Guarantor (except to the extent such indebtedness is incurred in the
ordinary course of business and relates to costs of materials or services
provided pursuant to or consistent with the Relevant Documents) and the right of
Guarantor to withdraw any capital invested by Guarantor in any of the Affiliated
Parties, is hereby subordinated to all obligations and liabilities hereby
guaranteed. Without the prior written consent of Project Owner or Administrative
Agent, such subordinated indebtedness shall not be paid or withdrawn in whole or
in part, nor shall Guarantor accept any payment of or on account of any such
indebtedness or as a withdrawal of capital while this Guaranty is in effect. Any
payment by any of the Affiliated Parties in violation of this Guaranty shall be
received by Guarantor in trust for Project Owner, and Guarantor shall cause the
same to be paid to Project Owner immediately upon demand by Project Owner on
account of the relevant Affiliated Parties' obligations and liabilities hereby
guaranteed. Guarantor shall not assign all or any portion of such indebtedness
while this Guaranty remains in effect except upon prior written notice to
Project Owner by which the assignee of any such indebtedness agrees that the
assignment is made subject to the terms of this Guaranty, and that any attempted
assignment of such indebtedness in violation of the provisions hereof shall be
void.

                  6. Subrogation. Until the Obligations have been paid in full,
(a) Guarantor shall not have any right of subrogation and waives all rights to
enforce any remedy which Project Owner now have or may hereafter have against
any of the Affiliated Parties, and waives the benefit of, and all rights to
participate in, any security now or hereafter held by Project Owner from any of
the Affiliated Parties and (b) Guarantor waives any claim, right or remedy which
Guarantor now has or hereafter acquire against any of the Affiliated Parties
that arises hereunder and/or from the performance by the Guarantor hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Project Owner against any of the Affiliated
Parties, or any security which Project Owner now has or may hereafter acquire,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise.


                                       7
<PAGE>   282
                  7. Bankruptcy.

                           (a) So long as any of the Obligations are owed to
Project Owner, Guarantor shall not, without the prior written consent of Project
Owner, commence, or join with any other Person in commencing, any bankruptcy,
reorganization, or insolvency proceeding against any of the Affiliated Parties.
The obligations of Guarantor under this Guaranty shall not be altered, limited
or affected by any proceeding, voluntary or involuntary, involving the
bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement
of any of the Affiliated Parties, or by any defense which any of the Affiliated
Parties may have by reason of any order, decree or decision of any court or
administrative body resulting from any such proceeding.

                           (b) So long as any Obligations are owed to Project
Owner, to the extent of such Obligations, Guarantor shall file, in any
bankruptcy or other proceeding in which the filing of claims is required or
permitted by law, all claims which Guarantor may have against any of the
Affiliated Parties relating to any indebtedness of any of the Affiliated Parties
to Guarantor, and hereby assigns to Project Owner all rights of Guarantor
thereunder. If Guarantor does not file any such claim, Project Owner, is hereby
authorized to do so in the name of Guarantor or, in Project Owner's discretion,
to assign the claim to a nominee and to cause proofs of claim to be filed in the
name of Project Owner's nominee. The foregoing power of attorney is coupled with
an interest and cannot be revoked. Project Owner or its nominee shall have the
sole right to accept or reject any plan proposed in any such proceeding and to
take any other action which a party filing a claim is entitled to take. In all
such cases, whether in administration, bankruptcy or otherwise, the person
authorized to pay such a claim shall pay the same to Project Owner to the extent
of any Obligations which then remain unpaid, and, to the full extent necessary
for that purpose, Guarantor hereby assigns to Project Owner all of Guarantor's
rights to all such payments or distributions to which Guarantor would otherwise
be entitled; provided, however, that Guarantor's obligations hereunder shall not
be satisfied except to the extent that Project Owner receives cash by reason of
any such payment or distribution. If Project Owner receives anything hereunder
other than cash, the same shall be held as collateral for amounts due under this
Guaranty.

                  8. Successions or Assignments.

                           (a) This Guaranty shall inure to the benefit of the
successors or assigns of Project Owner who shall have, to the extent of its
interest, the rights of Project Owner hereunder.

                           (b) This Guaranty is binding upon Guarantor and its
successors and assigns. Guarantor is not entitled to assign its obligations
hereunder to any other person without the written consent of Project Owner and
Administrative Agent, and any purported assignment in violation of this
provision shall be void.


                                       8
<PAGE>   283
                  9. Waivers.

                           (a) No delay on the part of Project Owner in
exercising any of its rights (including those hereunder) and no partial or
single exercise thereof and no action or non-action by Project Owner, with or
without notice to Guarantor or anyone else, shall constitute a waiver of any
rights or shall affect or impair this Guaranty.

                           (b) GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY AND THE RELATIONSHIP BETWEEN
GUARANTOR AND Project Owner THAT IS BEING ESTABLISHED. GUARANTOR ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT Project Owner HAS RELIED ON THE WAIVER IN ENTERING INTO THIS GUARANTY, AND
THAT Project Owner WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE
DEALINGS. GUARANTOR FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

                  10. Interpretation. The section headings in this Guaranty are
for the convenience of reference only and shall not affect the meaning or
construction of any provision hereof.

                  11. Notices. All notices in connection with this Guaranty
shall be given by telex or cable or by notice in writing hand-delivered or sent
by facsimile transmission or by certified mail return-receipt requested
(airmail, if overseas), postage prepaid. All such notices shall be sent to the
appropriate telex or telecopier number or address, as the case may be, set forth
in Section 15 below or to such other number or address as shall have been
subsequently specified by written notice to the other party, and shall be sent
with copies, if any, as indicated below. All such notices shall be effective
upon receipt, and confirmation by answerback of any such notice so sent by telex
shall be sufficient evidence of receipt thereof.

                  12. Amendments. This Guaranty may be amended only with the
written consent of the parties hereto.

                  13. Jurisdiction; Governing Law.

                           (a) Any action or proceeding relating in any way to
this Guaranty may be brought and enforced in the courts of the State of New York
or of the United States for the Southern District of New York. Any such process
or summons in connection with any such action or proceeding may be served by
mailing a copy thereof by certified or registered mail, or any substantially
similar form of mail, addressed to Guarantor as provided for notices hereunder.

                           (b) This Guaranty and the rights and obligations of
Project Owner and of the Guarantor shall be governed by and construed in
accordance with the law of the State of


                                       9
<PAGE>   284
New York without reference to principles of conflicts of laws (other than
Section 5-1401 of the New York General Obligations Law).

                  14. Integration of Terms. This Guaranty contains the entire
agreement between the Guarantor and Project Owner relating to the subject matter
hereof and supersedes all oral statements and prior writing with respect hereto.

                  15. Addresses.

                           (a) The address of Guarantor for notices is:

                                    Calpine Corporation
                                    50 West San Fernando Street
                                    San Jose, California 95113
                                    Attention: General Counsel
                                    Telephone Number: (408) 995-5115
                                    Telecopier Number: (408) 995-0505

                           and

                                    6700 Koll Center Parkway, Suite 200
                                    Pleasanton, California 94566
                                    Attention: Corporate Asset Optimization
                                    Telephone No.: (925) 600-2000
                                    Telecopy No.: (925) 600-8926

                           (b) The address of Project Owner for notices is:

                                    [NAME OF PROJECT OWNER]
                                    c/o [REGIONAL OFFICE]
                                    Attention: Asset Optimization and
                                      Regional Counsel
                                    Telephone Number:
                                    Telecopy Number:

                           and

                                    [NAME OF PROJECT OWNER]
                                    c/o Calpine Corporation
                                    50 West San Fernando Street
                                    San Jose, California   95113
                                    Attention:  General Counsel
                                    Telephone No.: (408) 995-5115
                                    Telecopy No.: (408) 995-0505


                                       10
<PAGE>   285
                           (c) The address of Administrative Agent for notices
                               is:

                                    Credit Suisse First Boston,
                                    New York Branch
                                    Eleven Madison Avenue
                                    New York, New York  10010-3629
                                    Attention: Portfolio Management
                                    Telephone Number: (212) 325-9126
                                    Telecopier Number: (212) 325-8321

                  16. Interest; Collection Expenses. Any amount required to be
paid by Guarantor pursuant to the terms hereof shall bear interest at the
Default Rate or the maximum rate permitted by law, whichever is less, from the
date due until paid in full. If Project Owner is required to pursue any remedy
against Guarantor hereunder, Guarantor shall pay to Project Owner, as the case
may be, upon demand, all reasonable attorneys' fees and expenses all other costs
and expenses incurred by Project Owner in enforcing this Guaranty.

                  17. Reinstatement of Guaranty. This Guaranty shall continue to
be effective or be reinstated, as the case may be, if at any time any payment to
or on behalf of any of the Affiliated Parties or to Project Owner by any of the
Affiliated Parties under the Relevant Documents or by Guarantor hereunder is
rescinded or must otherwise be returned by Project Owner upon the insolvency,
bankruptcy, reorganization, dissolution or liquidation of any of the Affiliated
Parties or otherwise, all as though such payment had not been made.

                  18. Counterparts. The Guaranty may be executed in one or more
duplicate counterparts, and when executed and delivered by all of the parties
listed below shall constitute a single binding agreement.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       11
<PAGE>   286
                  IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be duly executed and delivered in San Jose, California as of the day and year
first written above.

                             CALPINE CORPORATION,
                             a Delaware corporation

                             By:
                                ------------------------------------------------
                                Name:
                                Title:

Agreed and accepted.

[NAME OF PROJECT OWNER]
a Delaware [TYPE OF ENTITY]


By:
      ------------------------------------------
Name:
Title:


<PAGE>   287

                                                                    EXHIBIT D2-B
                                                         to the Credit Agreement

                           PROJECT COMPLETION GUARANTY

                  THIS PROJECT COMPLETION GUARANTY (this "Guaranty") dated as of
October 16, 2000 is made by CALPINE CORPORATION, a Delaware corporation
("Guarantor"), in favor of CREDIT SUISSE FIRST BOSTON, acting through its New
York Branch, as Administrative Agent ("Administrative Agent") for the Banks
under that certain Credit Agreement (the "Credit Agreement") dated as of October
16, 2000 among Calpine Construction Finance Company II, LLC, a Delaware limited
liability company, as Borrower ("Borrower"), the financial institutions listed
on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting through
its New York Branch, as Lead Arranger and Administrative Agent, The Bank of Nova
Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America
Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as
Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as
Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent.

                                    RECITALS

                  A. Guarantor owns all the outstanding stock of CCFC II
Holdings, Inc., a Delaware corporation, the sole member of Borrower.

                  B. Administrative Agent and the Banks have agreed to enter
into the Credit Agreement with Borrower on the condition that Guarantor
guarantee certain of Borrower's obligations thereunder as provided herein.

                  C. Guarantor acknowledges that it will benefit, directly and
indirectly, if Administrative Agent and the Banks enter into the Credit
Agreement.

                  D. The obligations of Guarantor hereunder are being incurred
concurrently with the obligations of Borrower under the Credit Agreement.

                  E. Capitalized terms used but not defined herein shall have
the respective meanings given them in Exhibit A to the Credit Agreement and the
Rules of Interpretations contained in said Exhibit A shall apply hereto.

                                    AGREEMENT

                  NOW, THEREFORE, in consideration of the premises set forth
above and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged and as an inducement to Administrative Agent and
the Banks to enter into the Credit Agreement with Borrower, Guarantor hereby
consents and agrees as follows:
<PAGE>   288
                  1. Guaranty.

                           (a) The undersigned Guarantor, as primary obligor and
not merely as surety, unconditionally and irrevocably guarantees to the Banks
(i) the performance, when due, of the obligations of Borrower under Section 5.14
of the Credit Agreement to achieve Completion of each of the Initial Projects
and the Funded Subsequent Projects (including with respect to any partially
owned Projects), (ii) the payment, when due, of the obligations of Borrower
under Section 5.17.1, 5.17.2 and 5.17.3(x) of the Credit Agreement and (iii) if
Borrower is unable to obtain a disbursement of Loan proceeds under the Credit
Agreement for any Project for which the requirements of Section 5.14 of the
Credit Agreement have not been waived in accordance with the terms of the Credit
Agreement for a period of 60 consecutive days after a request for the same
pursuant to a Drawdown Certificate delivered pursuant to Section 3.4 of the
Credit Agreement, the prompt payment, when due, of the Project Costs for which
funds were requested in such Drawdown Certificate, in each case together with
the payment of all expenses incurred by Administrative Agent or the Banks in
enforcing any of such obligations and liabilities or the terms hereof,
including, without limitation, reasonable fees and expenses of legal counsel
(collectively, the "Obligations"), and agrees that if for any reason Borrower
shall fail to pay or perform, as the case may be, when due any of such
Obligations, Guarantor will pay or perform, as the case may be, the same
forthwith; provided, however, if the default giving rise to the potential
exercise of remedies is susceptible of cure and the failure to so exercise
remedies could not reasonably be expected to have a Material Adverse Effect on
Borrower, Administrative Agent and the Banks shall not exercise any remedies in
the nature of foreclosure on or sale of any Collateral, appointment of a
receiver, entry into possession of any Project or other remedies under the
Credit Documents intended to or having the effect of depriving Borrower or any
other Portfolio Entity of the use, possession or enjoyment of any of the
Projects as a result of an Event of Default thereunder for 90 days so long as
Guarantor is diligently pursuing performance of the Obligations and/or
diligently attempting to refinance all outstanding Loans under the Credit
Agreement; provided, further, that if the Obligations under clause (ii) above
have been performed, Guarantor's liability with respect to the Obligations under
clause (i) above shall be limited to the excess of the cost of achieving
Completion of the applicable Projects over the amounts deposited or contributed
pursuant to Section 5.17.3 of the Credit Agreement. Guarantor waives notice of
acceptance of this Guaranty and of any obligation to which it applies or may
apply under the terms hereof, and waives diligence, presentment, demand of
payment or performance, notice of dishonor or non-payment or non-performance,
protest, notice of protest, of any such obligations, suit or taking other action
by the Banks against, and giving any notice of default or other notice to, or
making any demand on, any party liable thereon (including Guarantor).

                           (b) This Guaranty is a primary obligation of
Guarantor and is an absolute, unconditional, continuing and irrevocable guaranty
of payment and performance, as the case may be, of the Obligations and not of
collectibility, and is in no way conditioned on or contingent upon any attempt
to enforce in whole or in part Borrower's or any other Portfolio Entity's
liabilities and obligations to the Banks. If Borrower shall fail to pay or
perform, as the case may be, any of the Obligations to the Banks as and when
they are due, Guarantor shall forthwith pay or perform, as the case may be, such
Obligations immediately (in the case of payment obligations, in immediately
available funds). Each failure by Borrower to pay or perform, as the case may
be, any Obligations shall give rise to a separate cause of action herewith, and
separate suits may be brought hereunder as each cause of action arises.

                           (c) The Banks may, at any time and from time to time
(whether or not after revocation or termination of this Guaranty) without the
consent of or notice to Guarantor, except such notice as may be required by the
Credit Documents or applicable law which cannot be waived, without incurring
responsibility to Guarantor, without impairing or releasing the obligations of
Guarantor hereunder, upon or without any terms or conditions and in whole or in
part, (i) change the manner, place and terms of payment or performance or change
or extend the time of payment or performance of, or renew or alter, any
Obligation, or any obligations and liabilities (including any of those
hereunder)


                                       2
<PAGE>   289
incurred directly or indirectly in respect thereof or hereof or in any manner
modify, amend or supplement the terms of the Credit Documents (including
provisions with respect to the Completion of the Projects), any documents,
instruments or agreements executed in connection therewith, in each case with
the consent of Borrower or such other relevant Portfolio Entity, if required by
the Credit Documents, and the guaranty herein made shall apply to the
Obligations changed, extended, renewed, modified, amended, supplemented or
altered in any manner; (ii) exercise or refrain from exercising any rights
against Borrower, any other Portfolio Entity or others (including Guarantor) or
otherwise act or refrain from acting; (iii) add or release any other guarantor
from its obligations without affecting or impairing the obligations of Guarantor
hereunder; (iv) settle or compromise any Obligations and/or any obligations and
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and may subordinate the payment or performance of
all or any part thereof to the payment or performance of any obligations and
liabilities which may be due to the Banks or others; (v) sell, exchange,
release, surrender, realize upon or otherwise deal with in any manner or in any
order any property by whomsoever pledged or mortgaged to secure or howsoever
securing the Obligations or any liabilities or obligations (including any of
those hereunder) incurred directly or indirectly in respect thereof or hereof
and/or any offset thereagainst; (vi) apply any sums by whomsoever paid or
howsoever realized to any obligations and liabilities of Borrower or any other
Portfolio Entity to the Banks under the Credit Documents in the manner provided
therein regardless of what obligations and liabilities remain unpaid; (vii)
consent to or waive any breach of, or any act, omission or default under, the
Credit Documents (including provisions with respect to the Completion of the
Projects) or otherwise amend, modify or supplement (with the consent of Borrower
or such other relevant Portfolio Entity, if required by the Credit Documents)
the Credit Documents (including provisions with respect to the Completion of the
Projects) or any of such other instruments or agreements; and/or (viii) act or
fail to act in any manner referred to in this Guaranty which may deprive
Guarantor of its right to subrogation against Borrower to recover full indemnity
for any payments or performances made pursuant to this Guaranty or of its right
of contribution against any other party.

                           (d) No invalidity, irregularity or unenforceability
of the obligations or liabilities hereby guaranteed shall affect, impair or be a
defense to this Guaranty, which is a primary obligation of Guarantor.

                           (e) This is a continuing Guaranty and all obligations
to which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. In the event that,
notwithstanding the provisions of Section 1(a) hereof, this Guaranty shall be
deemed revocable in accordance with applicable law, then any such revocation
shall become effective only upon receipt by Administrative Agent of written
notice of revocation signed by Guarantor. No revocation or termination hereof
shall affect in any manner rights arising under this Guaranty with respect to
Obligations arising prior to receipt by Administrative Agent of written notice
of such revocation or termination.

                           (f) (i) Except as otherwise required by law, each
payment required to be made by Guarantor to the Banks hereunder shall be made
without deduction or withholding for or on account of Taxes. If such deduction
or withholding is so required, Guarantor shall, upon notice thereof from
Administrative Agent, (A) pay the amount required to be deducted or withheld to
the appropriate authorities before penalties attach thereto or interest accrues
thereon, (B) on or before the 60th day after payment of such amount, forward to
the Banks an official receipt evidencing such payment (or a certified copy
thereof), and (C) in the case of any such deduction or withholding, forthwith
pay to Administrative Agent for the account of the Banks such additional amount
as may be necessary to ensure that the net amount actually received by the Banks
is free and clear of such Taxes, including any Taxes on such additional amount,
is equal to the amount that the Banks would have received had there been no such
deduction or withholding.


                                       3
<PAGE>   290
                               (ii) As used herein, the term "Tax" means any
present or future tax, levy, impost, duty, charge, assessment or fee of any
nature (including interest, penalties and additions thereto) that is imposed by
any government or other taxing authority in respect of any payment under this
Guaranty other than (A) any income, franchise or similar tax imposed upon the
gross or net income of Administrative Agent or any Bank by the United States,
New York State, any jurisdiction where Administrative Agent or any Bank is
organized and/or the jurisdiction in which is located any office from or at
which Administrative Agent or any Bank is making or maintaining any Loans or
receiving any payments under any of the Credit Documents and (B) any stamp,
registration, documentation or similar tax.

                           (g) In fulfilling its obligations hereunder with
respect to the Obligations set forth in Section 1(a)(i) hereof, but subject to
the provisions of Section 5.14 of the Credit Agreement, Guarantor hereby
irrevocably and unconditionally guarantees, promises and agrees to perform and
comply with Section 5.14 of the Credit Agreement. The words "perform and comply
with" are used in their most comprehensive sense and include without limitation
(i) the payment of all costs and expenses with respect to the construction of
the Initial Projects and the Funded Subsequent Projects and the construction of
such Projects within the time and in the manner set forth in Section 5.14 of the
Credit Agreement, (ii) the payment, satisfaction or discharge of all Liens
(other than Permitted Liens other than the Liens described in clause (c) of the
definition of "Permitted Liens") arising out of or relating to the construction
and Completion of, and that are or may be imposed upon or asserted against, the
Initial Projects and the Funded Subsequent Projects and (iii) the defense and
indemnification of the Banks against all such Liens, whether arising from the
furnishing of labor, materials, supplies or equipment, from taxes, assessments,
fees or other charges, from injuries or damage to persons or property, or
otherwise. Without limiting the generality of the foregoing, Guarantor agrees
(A) to cause any and all costs of achieving Completion of each of the Initial
Projects and the Funded Subsequent Projects, including without limitation the
costs of all labor, materials, supplies and equipment related thereto and any
and all costs and cost overruns prior to such Completion, to be funded, paid and
satisfied from Guarantor's own resources as the same shall become due and (B) to
cause the Completion of each of the Initial Projects and the Funded Subsequent
Projects, using Guarantor's own resources, in a timely, good and workmanlike
manner, in accordance with the terms of the Credit Documents; provided, however,
that Guarantor shall not be required to pay any performance and/or other
liquidated damages due and owing from a Contractor (other than a Contractor that
is an Affiliate of Guarantor) under a Construction Contract; provided, further,
Guarantor's liability with respect to such liquidated damages shall be limited
to the amount specified in clause (vi)(B) of the definition of "Completion" less
the amount of any such liquidated damages determined to be due and owing from
any applicable Contractors.

                  2. Representations and Warranties. Guarantor makes the
representations and warranties set forth below to Administrative Agent and the
Banks as of the date hereof:

                           (a) Guarantor is duly formed, validly existing and in
good standing under the laws of the State of Delaware and has the power and
authority to execute and deliver this Guaranty and to perform its obligations
hereunder.

                           (b) Guarantor has taken all necessary corporate
action to authorize the execution and delivery of this Guaranty and the
performance of its obligations hereunder.

                           (c) All governmental authorizations and actions
necessary in connection with the execution and delivery by Guarantor of this
Guaranty and the performance of its obligations hereunder have been obtained or
performed and remain valid and in full force and effect.

                           (d) This Guaranty has been duly executed and
delivered by Guarantor and constitutes the legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in


                                       4
<PAGE>   291
accordance with the terms of this Guaranty, subject to applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights generally.

                           (e) The execution, delivery and performance of this
Guaranty (i) do not and will not contravene any provisions of Guarantor's
certificate of incorporation or bylaws, or any law, rule, regulation, order,
judgment or decree applicable to or binding on Guarantor or any of its
Affiliates or properties; (ii) do not and will not contravene, or result in any
breach of or constitute any default under, any agreement or instrument to which
Guarantor is a party or by which Guarantor or any of its properties may be bound
or affected; and (iii) do not and will not require the consent of any Person
under any existing law or agreement which has not already been obtained.

                           (f) There is no pending or, to the best of
Guarantor's knowledge, threatened action or proceeding affecting Guarantor
before any court, governmental agency or arbitrator, which might reasonably be
expected to materially and adversely affect the financial condition, results of
operations, business or prospects of Guarantor or the ability of Guarantor to
perform its obligations under this Guaranty.

                           (g) All quarterly and annual financial statements
heretofore delivered by Guarantor to Administrative Agent are true, correct and
complete, do not fail to disclose any material liabilities, whether direct or
contingent, fairly present the financial condition of Guarantor as of the date
delivered and are prepared in accordance with generally accepted accounting
principles consistently applied.

                           (h) Guarantor possesses all franchises, certificates,
licenses, permits and other governmental authorizations and approvals necessary
for it to own its properties, conduct its businesses and perform its obligations
under this Guaranty.

                           (i) Guarantor is not an investment company or a
company controlled by an investment company, within the meaning of the
Investment Company Act of 1940, and is not subject to, or is exempt from,
regulation under the Public Utility Holding Company Act of 1935 and the Federal
Power Act.

                           (j) Guarantor has established adequate means of
obtaining financial and other information pertaining to the businesses,
operations and condition (financial and otherwise) of Borrower and the other
Portfolio Entities and their respective properties on a continuing basis, and
Guarantor now is and hereafter will be completely familiar with the businesses,
operations and condition (financial and otherwise) of Borrower and the other
Portfolio Entities and their respective properties.

                           (k) (i) Guarantor is not, and will not as a result of
the execution and delivery of this Guaranty, be rendered insolvent, (ii)
Guarantor does not intend to incur, or believe it is incurring, obligations
beyond its ability to pay or perform and (iii) Guarantor's property remaining
after the delivery and performance of this Guaranty will not constitute
unreasonably small capital.

                           (l) Guarantor is not in default under any material
agreement relating to the incurrence of debt to which it is a party.

                  3. Covenants. So long as any Obligations are outstanding,
Guarantor agrees that:

                           (a) It will maintain in full force and effect all
consents of any governmental or other authority that are required to be obtained
by it with respect to this Guaranty and will obtain any that may become
necessary in the future;


                                       5
<PAGE>   292
                           (b) It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Guaranty;

                           (c) Promptly, and in any event within 30 Banking Days
after the General Counsel of Guarantor obtains knowledge thereof, Guarantor will
give to Administrative Agent notice of the occurrence of any event or of any
litigation or governmental proceeding pending (i) against Guarantor or any of
its Affiliates which could affect the business, operations, property, assets or
condition (financial or otherwise) of Guarantor so as to materially and
adversely affect the ability of Guarantor to perform its obligations hereunder
or (ii) with respect to this Guaranty, which event or pending proceeding is
likely to materially and adversely affect the business, operations, property,
assets or condition (financial or otherwise) of Guarantor and its Affiliates
taken as a whole;

                           (d) It will deliver such other documents and other
information reasonably requested by Administrative Agent;

                           (e) It will comply in all material respects with its
certificate of incorporation;

                           (f) Guarantor will not permit its:

                                    (i) Tangible Net Worth to be less than (A)
$1,474,280,000 plus (B) 50% of the consolidated net income of Guarantor and its
Subsidiaries (without giving effect to any losses) for each Fiscal Quarter
ending on or after September 30, 2000, plus (C) 100% of the Net Equity Proceeds
from any equity offering by Guarantor after June 30, 2000;

                                    (ii) Leverage Ratio to be greater than .85
to 1.00 as of the end of any Fiscal Quarter;

                                    (iii) Interest Coverage Ratio as of the end
of any Fiscal Quarter to be less than 1.75 to 1.00 for the 12 month period
comprising the four previous Fiscal Quarters; or

                                    (iv) Interest Coverage Ratio (Parent Only)
as of the end of any Fiscal Quarter to be less than 1.60 to 1.00 for the 12
month period comprising the four previous Fiscal Quarters.

Guarantor shall furnish, or shall cause to be furnished, to Administrative Agent
as soon as possible and in any event within 60 days after the end of each of the
first three Fiscal Quarters of each Fiscal Year and within 120 days after the
end of each Fiscal Year, a certificate, executed by a Responsible Officer of
Guarantor, showing (in reasonable detail and with appropriate calculations and
computations in all respects reasonably satisfactory to Administrative Agent)
compliance with the covenants set forth in this Section 3(f).

Capitalized terms used in this Section 3(f) and defined in Appendix A attached
hereto shall have the meanings given therein.

                  4. Waiver. Guarantor hereby waives and relinquishes all rights
and remedies accorded by applicable law to sureties or guarantors and agrees not
to assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Administrative Agent or the Banks to proceed
against Borrower or any other Person or to proceed against or exhaust any
security held by Administrative Agent or the Banks at any time or to pursue any
other remedy in Administrative Agent's or the Banks' power before proceeding
against Guarantor, (b) any defense that may arise by reason of the incapacity,
lack of power or authority, death, dissolution, merger, termination or
disability


                                       6
<PAGE>   293
of Borrower or any other Person or the failure of Administrative Agent or the
Banks to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of Borrower or any other Person, (c) demand,
presentment, protest and notice of any kind except as provided herein, including
without limitation notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action on the part
of Borrower, Administrative Agent, the Banks, any endorser or creditor of
Borrower or Guarantor or on the part of any other Person under this or any other
instrument in connection with any obligation or evidence of indebtedness held by
Administrative Agent or the Banks as collateral or in connection with any
Obligations, (d) any defense based upon an election of remedies by
Administrative Agent or the Banks, including without limitation an election to
proceed by non-judicial rather than judicial foreclosure, which destroys or
otherwise impairs the subrogation rights of Guarantor, the right of Guarantor to
proceed against Borrower for reimbursement, or both, (e) any defense based on
any offset against any amounts which may be owed by any Person to Guarantor for
any reason whatsoever, (f) any defense based on any act, failure to act, delay
or omission whatsoever on the part of Borrower or any other Portfolio Entity of
the failure by Borrower or any other Portfolio Entity to do any act or thing or
to observe or perform any covenant, condition or agreement to be observed or
performed by it under the Credit Documents, (g) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than that of the
principal provided, that, upon payment or performance in full of the
Obligations, this Guaranty shall no longer be of any force or effect, (h) any
defense, setoff or counterclaim which may at any time be available to or
asserted by Borrower or any other Portfolio Entity against Administrative Agent,
the Banks or any other Person under the Credit Documents, (i) any duty on the
part of Administrative Agent or the Banks to disclose to Guarantor any facts
Administrative Agent or the Banks may now or hereafter know about Borrower or
any other Portfolio Entity, regardless of whether Administrative Agent or the
Banks have reason to believe that any such facts materially increase the risk
beyond that which Guarantor intends to assume, or have reason to believe that
such facts are unknown to Guarantor, or have a reasonable opportunity to
communicate such facts to Guarantor, since Guarantor acknowledges that Guarantor
is fully responsible for being and keeping informed of the financial condition
of Borrower and the other Portfolio Entities and of all circumstances bearing on
the risk of non-payment or non-performance of any obligations and liabilities
hereby guaranteed, (j) the fact that Guarantor may at any time in the future
dispose of all or part of its direct or indirect interest in Borrower or any
other Portfolio Entity, (k) any defense based on any change in the time, manner
or place of any payment or performance under, or in any other term of, the
Credit Documents (including provisions with respect to the Completion of the
Projects) or any other amendment, renewal, extension, acceleration, compromise
or waiver of or any consent or departure from the terms of the Credit Documents
(including provisions with respect to the Completion of the Projects), (l) any
defense arising because of Administrative Agent's or the Banks' election, in any
proceeding instituted under the Federal Bankruptcy Code, of the application of
Section 1111(b)(2) of the Federal Bankruptcy Code, and (m) any defense based
upon any borrowing or grant of a security interest under Section 364 of the
Federal Bankruptcy Code.

                  5. Subordination. Except as otherwise specifically provided in
this Guaranty, all existing and future indebtedness of Borrower or any other
Portfolio Entity to Guarantor (except to the extent such indebtedness consists
of approved operating expenses or other O&M Costs with respect to materials or
services provided consistent with an applicable Annual Operating Budget) and the
right of Guarantor to withdraw any capital invested by Guarantor in Borrower or
any other Portfolio Entity, is hereby subordinated to all obligations and
liabilities hereby guaranteed. Without the prior written consent of
Administrative Agent, such subordinated indebtedness shall not be paid or
withdrawn in whole or in part, nor shall Guarantor accept any payment of or on
account of any such indebtedness or as a withdrawal of capital while the Credit
Agreement is in effect except from distributions permitted under Waterfall Level
8 and 10 of Section 7.2 of the Credit Agreement or as permitted under Section
3.10(b) of the Credit Agreement. Any payment by Borrower in violation of this
Guaranty shall be received by Guarantor in trust for Administrative Agent and
the Banks, and Guarantor shall cause the same to be paid


                                       7
<PAGE>   294
to Administrative Agent for the benefit of the Banks immediately upon demand by
Administrative Agent on account of Borrower's obligations and liabilities hereby
guaranteed. Guarantor shall not assign all or any portion of such indebtedness
while the Credit Agreement remains in effect except upon prior written notice to
Administrative Agent by which the assignee of any such indebtedness agrees that
the assignment is made subject to the terms of this Guaranty, and that any
attempted assignment of such indebtedness in violation of the provisions hereof
shall be void.

                  6. Subrogation. So long as the Credit Agreement remains in
effect, (a) Guarantor shall not have any right of subrogation and waives all
rights to enforce any remedy which the Banks now have or may hereafter have
against Borrower or any other Portfolio Entity, and waives the benefit of, and
all rights to participate in, any security now or hereafter held by
Administrative Agent or the Banks from Borrower or any other Portfolio Entity
and (b) Guarantor waives any claim, right or remedy which Guarantor may now have
or hereafter acquire against Borrower or any other Portfolio Entity that arises
hereunder and/or from the performance by Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy of the Banks against Borrower or any other Portfolio Entity, or any
security which the Banks now have or hereafter acquire, whether or not such
claim, right or remedy arises in equity, under contract, by statute, under
common law or otherwise.

                  7. Bankruptcy.

                           (a) So long as the Credit Agreement remains in
effect, Guarantor shall not, without the prior written consent of Administrative
Agent, commence, or join with any other Person in commencing, any bankruptcy,
reorganization, or insolvency proceeding against Borrower or any other Portfolio
Entity. The obligations of Guarantor under this Guaranty shall not be altered,
limited or affected by any proceeding, voluntary or involuntary, involving the
bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement
of Borrower or any other Portfolio Entity, or by any defense which Borrower or
any other Portfolio Entity may have by reason of any order, decree or decision
of any court or administrative body resulting from any such proceeding.

                           (b) So long as the Credit Agreement remains in
effect, to the extent of any Obligations, Guarantor shall file, in any
bankruptcy or other proceeding in which the filing of claims is required or
permitted by law, all claims which Guarantor may have against Borrower or any
other Portfolio Entity relating to any indebtedness of Borrower or any other
Portfolio Entity to Guarantor, and hereby assigns to Administrative Agent on
behalf of the Banks all rights of Guarantor thereunder. If Guarantor does not
file any such claim, Administrative Agent, as attorney-in-fact for Guarantor, is
hereby authorized to do so in the name of Guarantor or, in Administrative
Agent's discretion, to assign the claim to a nominee and to cause proofs of
claim to be filed in the name of Administrative Agent's nominee. The foregoing
power of attorney is coupled with an interest and cannot be revoked.
Administrative Agent or its nominee shall have the sole right to accept or
reject any plan proposed in any such proceeding and to take any other action
which a party filing a claim is entitled to take. In all such cases, whether in
administration, bankruptcy or otherwise, the person authorized to pay such a
claim shall pay the same to Administrative Agent to the extent of any
Obligations which then remain unpaid, and, to the full extent necessary for that
purpose, Guarantor hereby assigns to Administrative Agent all of Guarantor's
rights to all such payments or distributions to which Guarantor would otherwise
be entitled; provided, however, that Guarantor's obligations hereunder shall not
be satisfied except to the extent that Administrative Agent receives cash by
reason of any such payment or distribution. If Administrative Agent receives
anything hereunder other than cash, the same shall be held as collateral for
amounts due under this Guaranty.


                                       8
<PAGE>   295
                  8. Successions or Assignments.

                           (a) This Guaranty shall inure to the benefit of the
successors or assigns of the Banks who shall have, to the extent of their
interest, the rights of the Banks hereunder; provided, however, that the rights
of the Banks hereunder, if any be retained by them, shall have priority over and
be senior to the rights of its successors or assigns unless Administrative Agent
shall otherwise elect.

                           (b) This Guaranty is binding upon Guarantor and its
successors and assigns. Guarantor is not entitled to assign its obligations
hereunder to any other person without the written consent of Administrative
Agent, and any purported assignment in violation of this provision shall be
void.

                  9. Waivers.

                           (a) No delay on the part of Administrative Agent or
the Banks in exercising any of their rights (including those hereunder) and no
partial or single exercise thereof and no action or non-action by Administrative
Agent or the Banks, with or without notice to Guarantor or anyone else, shall
constitute a waiver of any rights or shall affect or impair this Guaranty.

                           (b) GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY AND THE RELATIONSHIP BETWEEN
GUARANTOR AND ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. GUARANTOR
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT ADMINISTRATIVE AGENT HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS GUARANTY, AND THAT ADMINISTRATIVE AGENT WILL CONTINUE TO RELY
ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. GUARANTOR FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

                  10. Interpretation. The section headings in this Guaranty are
for the convenience of reference only and shall not affect the meaning or
construction of any provision hereof.

                  11. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be considered as
properly given (a) if delivered in person, (b) if sent by overnight delivery
service by the addressee, except that communication or notice so transmitted by
telecopy or other direct written electronic means shall be deemed to have been
validly and effectively given on the day (if a Bank Day and, if not, on the next
following Banking Day) on which it is transmitted if transmitted before 4:00
p.m., recipient's time, and if transmitted after that time, on the next
following Banking Day; provided, however, that if any notice is tendered to an
addressee and the delivery thereof is refused by such addressee, such notice
shall be effective upon such tender. Any party shall have the right to change
its address for notice hereunder to any other location within the continental
United States by giving of 30 days' notice to the other parties in the manner
set forth hereinabove.

                  12. Amendments. This Guaranty may be amended only with the
written consent of the parties hereto.

                  13. Jurisdiction; Governing Law.


                                       9
<PAGE>   296
                           (a) Any action or proceeding relating in any way to
this Guaranty may be brought and enforced in the courts of the State of New York
or of the United States for the Southern District of New York. Any such process
or summons in connection with any such action or proceeding may be served by
mailing a copy thereof by certified or registered mail, or any substantially
similar form of mail, addressed to Guarantor as provided for notices hereunder.

                           (b) This Guaranty and the rights and obligations of
Administrative Agent and of Guarantor shall be governed by and construed in
accordance with the law of the State of New York without reference to principles
of conflicts of laws (other than Section 5-1401 of the New York General
Obligations Law).

                  14. Integration of Terms. This Guaranty contains the entire
agreement between Guarantor and the Banks relating to the subject matter hereof
and supersedes all oral statements and prior writing with respect hereto.

                  15. Addresses.

                  (a)      The address of Guarantor for notices is:

                           Calpine Corporation
                           50 West San Fernando Street
                           San Jose, California 95113
                           Attention: General Counsel
                           Telephone Number: (408) 995-5115
                           Telecopier Number: (408) 995-0505

                  (b)      The address of Administrative Agent for notices is:

                           Credit Suisse First Boston
                           New York Branch
                           Eleven Madison Avenue
                           New York, New York  10010-3629
                           Attn:  Portfolio Management
                           Telephone No.(212) 325-9126
                           Telecopy No.:  (212) 325-8321

                  16. Interest; Collection Expenses. Any amount required to be
paid by Guarantor pursuant to the terms hereof shall bear interest at the
Default Rate or the maximum rate permitted by law, whichever is less, from the
date due until paid in full. If Administrative Agent or the Banks are required
to pursue any remedy against Guarantor hereunder, Guarantor shall pay to
Administrative Agent or the Banks, as the case may be, upon demand, all
reasonable attorneys' fees and expenses all other costs and expenses incurred by
Administrative Agent or the Banks in enforcing this Guaranty.

                  17. Termination; Reinstatement of Guaranty. Upon the
indefeasible payment in full of all Obligations owing under the Credit
Agreement, this Guaranty shall terminate in its entirety. Notwithstanding the
foregoing, this Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment to or on behalf of Borrower or to
Administrative Agent by Borrower or any other Person in respect of the
Obligations (as such term is defined in the Credit Agreement) or by Guarantor
hereunder is rescinded or must otherwise be returned by Administrative Agent
upon the insolvency, bankruptcy, reorganization, dissolution or liquidation of
Borrower or any other Portfolio Entity or otherwise, all as though such payment
had not been made.


                                       10
<PAGE>   297
                  18. Counterparts. The Guaranty may be executed in one or more
duplicate counterparts, and when executed and delivered by all of the parties
listed below shall constitute a single binding agreement.

                  19. No Benefit to Borrower. This Guaranty is for the benefit
of only Administrative Agent and is not for the benefit of Borrower or any other
Portfolio Entity. Notwithstanding that, pursuant to the Credit Agreement,
Guarantor may treat any amounts actually paid hereunder as a loan to Borrower,
the Guaranty shall not be deemed to be a contract to make a loan, or extend
other debt financing or financial accommodation, for the benefit of Borrower, in
each case within the meaning of Section 365(e) of the Federal Bankruptcy Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       11
<PAGE>   298
                  IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
duly executed and delivered as of the day and year first written above.

                             CALPINE CORPORATION,
                             a Delaware corporation

                             By:
                                  ----------------------------------------------
                             Name:
                             Title:

Agreed and accepted.

CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
as Administrative Agent

By:
         -----------------------------------------
         Name:
         Title:


By:
         -----------------------------------------
         Name:
         Title:
<PAGE>   299
                    APPENDIX A TO PROJECT COMPLETION GUARANTY

"Asset Sale" means any sale, transfer, lease or other disposition pursuant to
which (a) Guarantor or a Subsidiary receives consideration at the time of such
sale, transfer, lease contribution or conveyance at least equal to the fair
market value of assets being sold, transferred, leased, contributed or conveyed,
(b) at least 60% of the consideration received by Guarantor or such Subsidiary
is in the form of cash or cash equivalents and (c) an amount equal to 100% of
Net Available Cash is either (x) reinvested in additional assets within 365 days
of such asset sale or (y) used by Guarantor to prepay the loans and to
permanently reduce the commitments under the Guarantor Credit Agreement.

"Capital Expenditures" means, for any period, the aggregate amount of all
expenditures of Guarantor and its Subsidiaries for fixed or capital assets made
during such period which, in accordance with GAAP, would be classified as
capital expenditures.

"Capitalized Lease Liabilities" means all rental obligations of Guarantor or any
of its Subsidiaries under any leasing or similar arrangement which, in
accordance with GAAP, would be classified as capitalized leases, where (a) the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and (b) 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.

"Cogen America" means Cogeneration Corporation of America, a Delaware
corporation of which Guarantor owns not less than 50% of the outstanding voting
stock.

"Consolidated EBITDA" means, for any period, as applied to Guarantor, the sum of
Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net Income
(Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense,
(c) depreciation expense, (d) amortization expense and (e) all other non-cash
items reducing Consolidated Net Income, less all non-cash items increasing
Consolidated Net Income, in each case for such period; provided that, if
Guarantor has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced by GAAP) by an
amount equal to (A) the consolidated net income (loss) of such Subsidiary (to
the extent included in Consolidated Net Income (Loss)) multiplied by (B) the
quotient of (1) the number of shares of outstanding common stock of such
Subsidiary not owned on the last day of such period by Guarantor or any Wholly
Owned Subsidiary divided by (2) the total number of shares of outstanding common
stock of such Subsidiary on the last day of such period.

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

"Consolidated Interest Expense" means, for any period, as applied to Guarantor,
the sum of (a) the total interest expense of Guarantor and its consolidated
Subsidiaries for such period as determined in accordance with GAAP, plus (b) all
but the principal component of rentals in respect of Capitalized Lease
Liabilities paid, accrued, or scheduled to be paid or accrued by Guarantor or
its consolidated Subsidiaries, plus (c) one-third of all operating lease
obligations paid, accrued, and/or scheduled to be paid by Guarantor and its
consolidated Subsidiaries, plus (d) capitalized interest, plus (e) dividends
paid in respect of preferred stock of Guarantor or any Subsidiary held by
Persons other than Guarantor or a Wholly Owned Subsidiary, including, without
limitation, but without duplication of payments by Guarantor to a Trust, all
payments by a Trust of dividends and distributions with respect to the
<PAGE>   300
Guaranteed Preferred Securities, plus (f) cash contributions to any employee
stock ownership plan to the extent such contributions are used by such employee
stock ownership plan to pay interest or fees to any Person (other than Guarantor
or a Subsidiary) in connection with loans incurred by such employee stock
ownership plan to purchase capital stock of Guarantor.

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

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

"Debt" means the outstanding principal amount of all Indebtedness of Guarantor
and its consolidated Subsidiaries of the nature referred to in clauses (a), (b),
(c) and (f) of the definition of "Indebtedness" (as
<PAGE>   301
defined in this Appendix A), and (without duplication) all Contingent
Liabilities in respect of any of the foregoing.

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

"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.

"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 October, 1999, the $300,000,000
of principal amount of such securities issued in January, 2000 and the
$60,000,000 of principal amount of such securities issued in February, 2000.

"Guarantor EBITDA" means, for any period, the Consolidated EBITDA of Guarantor
and its Subsidiaries, minus that portion of Consolidated Interest Expense
payable by the consolidating Subsidiaries, minus the principal payments of the
consolidating Subsidiaries, minus the consolidated non-discretionary Capital
Expenditures (i.e., Capital Expenditures which are expressly required to be made
under any agreement, contract, instrument, permit, license, law, regulation,
judgment or other arrangement (other than those arrangements and contracts that
relate to the performance of the work for which the Capital Expenditure is being
made) binding on Guarantor or any Subsidiary) of Guarantor and its Subsidiaries,
plus, without duplication, cash and Permitted Investments of Guarantor's Wholly
Owned Subsidiaries and Cogen America that are legally and contractually
available to each such Subsidiary for the payment of dividends, but only to the
extent the source of such cash and Permitted Investments is from that portion of
Consolidated EBITDA attributable to such Subsidiary or from repayments to such
Subsidiary of loans made by such Subsidiary.

"Guarantor Credit Agreement" means that certain First Amended and Restated
Credit Agreement (as amended, amended and restated or otherwise modified from
time to time), dated as of May 23, 2000, among Guarantor, certain commercial
lending institutions party thereto (the "Guarantor Lenders") and The Bank of
Nova Scotia, as agent for the Guarantor Lenders or, if the Guarantor Credit
Agreement has been terminated, any replacement thereof.

"Guarantor Interest Expense" means, for any period, as applied to Guarantor, the
sum of (a) the total interest expense of Guarantor for such period as determined
in accordance with GAAP, including, without limitation, all interest paid by
Guarantor under its subordinated debt securities issued to a Trust, plus (b) all
but the principal component of rentals in respect of Capitalized Lease
Liabilities paid, accrued, or scheduled to be paid or accrued by Guarantor, plus
(c) one-third of all operating lease obligations paid, accrued and/or scheduled
to be paid by Guarantor, plus (d) capitalized interest, plus (e) dividends paid
in respect of preferred stock of Guarantor held by Persons other than Guarantor,
plus (f) cash contributions to any employee stock ownership plan to the extent
such contributions are used by such employee stock ownership plan to pay
interest or fees to any person (other than Guarantor) in connection with loans
incurred by such employee stock ownership plan to purchase capital stock of
Guarantor.

"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.
<PAGE>   302
"Indebtedness" of any Person means, without duplication:

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

                  (b) all obligations, contingent or otherwise, relative to the
stated amount of all letters of credit and banker's acceptances issued for the
account of such Person (excluding Guarantor's subordinated debt securities
issued to a Trust and the Guaranteed Preferred Securities, or any similar
securities); 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 Guaranty, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer, unless the indebtedness of such partnership
or joint venture is expressly nonrecourse to such Person.

"Interest Coverage Ratio" means, for any period of four Fiscal Quarters, the
ratio of (x) the Consolidated EBITDA of Guarantor and its Subsidiaries during
such period to (y) the Consolidated Interest Expense of Guarantor and its
Subsidiaries (excluding from Consolidated Interest Expense for purposes of this
clause (y) interest capitalized in connection with the construction of a new
Facility which interest is capitalized during the construction of such Facility)
incurred during such period.

"Interest Coverage Ratio (Parent Only)" means, for any period of four Fiscal
Quarters, the ratio of (x) the Guarantor EBITDA during such period to (y)
Guarantor Interest Expense (excluding from Guarantor Interest Expense for
purposes of this clause (y) interest capitalized in connection with the
construction of a new Facility which interest is capitalized during the
construction of such Facility) during such period.

"Leverage Ratio" means the ratio of (a) Debt to (b) Debt plus Tangible Net
Worth.
<PAGE>   303
"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.

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

"Net Equity Proceeds" means, with respect to any issuance by Guarantor or a
Trust of any equity securities (including the Guaranteed Preferred Securities),
the gross consideration received by or for the account of Guarantor minus
underwriting and brokerage commissions, discounts and fees relating to such
issuance that are payable by Guarantor.

"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.

"Subsidiary" means, with respect to any Person, any corporation, partnership or
other Person of which more than 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 (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency) is at the time
directly or indirectly owned by such Person, by such Person and one or more
other Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person.

"Tangible Net Worth" means the consolidated net worth of Guarantor and its
Subsidiaries, including the aggregate outstanding face amount of the Guaranteed
Preferred Securities, after subtracting therefrom the aggregate amount of any
intangible assets of Guarantor and its Subsidiaries, including goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks and brand names.

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

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

<PAGE>   304

                                                                    EXHIBIT D2-C

                                                         to the Credit Agreement

                            TURBINE PURCHASE GUARANTY

                  THIS TURBINE PURCHASE GUARANTY (this "Guaranty") dated as of
October 16, 2000 is made by CALPINE CORPORATION, a Delaware corporation
("Guarantor"), in favor of CREDIT SUISSE FIRST BOSTON, acting through its New
York Branch, as Administrative Agent ("Administrative Agent") for the Banks
under that certain Credit Agreement (the "Credit Agreement") dated as of October
16, 2000 among Calpine Construction Finance Company II, LLC, a Delaware limited
liability company, as Borrower ("Borrower"), the financial institutions listed
on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting through
its New York Branch, as Lead Arranger and Administrative Agent, The Bank of Nova
Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America
Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as
Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as
Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent.

                                    RECITALS

                  A. Guarantor owns all the outstanding stock of CCFC II
Holdings, Inc., a Delaware corporation, the sole member of Borrower.

                  B. Administrative Agent and the Banks have agreed to enter
into the Credit Agreement with Borrower on the condition that Guarantor
guarantee certain of Borrower's obligations thereunder as provided herein.

                  C. Guarantor acknowledges that it will benefit, directly and
indirectly, if Administrative Agent and the Banks enter into the Credit
Agreement.

                  D. The obligations of Guarantor hereunder are being incurred
concurrently with the obligations of Borrower under the Credit Agreement.

                  E. Capitalized terms used but not defined herein shall have
the respective meanings given them in Exhibit A to the Credit Agreement and the
Rules of Interpretations contained in said Exhibit A shall apply hereto.

                                    AGREEMENT
<PAGE>   305
                  NOW, THEREFORE, in consideration of the premises set forth
above and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged and as an inducement to Administrative Agent and
the Banks to enter into the Credit Agreement with Borrower, Guarantor hereby
consents and agrees as follows:

                  1. Guaranty.

                           (a) The undersigned Guarantor, as primary obligor and
not merely as surety, unconditionally and irrevocably guarantees to the Banks
(i) the payment, when due, of the obligations of Borrower under Section 6.4.2(i)
of the Credit Agreement, (ii) without duplication of amounts paid pursuant to
clause (i) above, the payment, when due, of the obligations of Borrower under
Section 5.17.3(y) of the Credit Agreement and (iii) if Borrower is unable to
obtain a disbursement of Loan proceeds under the Credit Agreement for any Funded
Turbine for a period of 60 consecutive days after a request for the same
pursuant to a Drawdown Certificate delivered pursuant to Section 3.6 of the
Credit Agreement, the prompt payment, when due, of the Turbine Costs for which
funds were requested in such Drawdown Certificate, in each case together with
the payment of all expenses incurred by Administrative Agent or the Banks in
enforcing any of such obligations and liabilities or the terms hereof,
including, without limitation, reasonable fees and expenses of legal counsel
(collectively, the "Obligations"), and agrees that if for any reason Borrower
shall fail to pay when due any of such Obligations, Guarantor will pay the same
forthwith. Guarantor waives notice of acceptance of this Guaranty and of any
obligation to which it applies or may apply under the terms hereof, and waives
diligence, presentment, demand of payment or performance, notice of dishonor or
non-payment or non-performance, protest, notice of protest, of any such
obligations, suit or taking other action by the Banks against, and giving any
notice of default or other notice to, or making any demand on, any party liable
thereon (including Guarantor).

                           (b) This Guaranty is a primary obligation of
Guarantor and is an absolute, unconditional, continuing and irrevocable guaranty
of payment of the Obligations and not of collectibility, and is in no way
conditioned on or contingent upon any attempt to enforce in whole or in part
Borrower's or any other Portfolio Entity's liabilities and obligations to the
Banks. If Borrower shall fail to pay any of the Obligations to the Banks as and
when they are due, Guarantor shall forthwith pay such Obligations immediately
(in the case of payment obligations, in immediately available funds). Each
failure by Borrower to pay any Obligations shall give rise to a separate cause
of action herewith, and separate suits may be brought hereunder as each cause of
action arises.

                           (c) The Banks may, at any time and from time to time
(whether or not after revocation or termination of this Guaranty) without the
consent of or notice to Guarantor, except such notice as may be required by the
Credit Documents or applicable law which cannot be waived, without incurring
responsibility to Guarantor, without impairing or releasing the obligations of
Guarantor hereunder, upon or without any terms or conditions and in whole or in
part, (i) change the manner, place and terms of payment or change or extend the
time of payment of, or renew or alter, any Obligation, or any obligations and
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof or in any manner modify, amend or supplement the
terms of the Credit Documents, any documents, instruments or agreements executed
in connection therewith, in each case with the consent of Borrower or such


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<PAGE>   306
other relevant Portfolio Entity, if required by the Credit Documents, and the
guaranty herein made shall apply to the Obligations changed, extended, renewed,
modified, amended, supplemented or altered in any manner; (ii) exercise or
refrain from exercising any rights against Borrower, any other Portfolio Entity
or others (including Guarantor) or otherwise act or refrain from acting; (iii)
add or release any other guarantor from its obligations without affecting or
impairing the obligations of Guarantor hereunder; (iv) settle or compromise any
Obligations and/or any obligations and liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment or performance of all or any part thereof to the payment
or performance of any obligations and liabilities which may be due to the Banks
or others; (v) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner or in any order any property by whomsoever pledged or
mortgaged to secure or howsoever securing the Obligations or any liabilities or
obligations (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof and/or any offset thereagainst; (vi) apply any sums
by whomsoever paid or howsoever realized to any obligations and liabilities of
Borrower or any other Portfolio Entity to the Banks under the Credit Documents
in the manner provided therein regardless of what obligations and liabilities
remain unpaid; (vii) consent to or waive any breach of, or any act, omission or
default under, the Credit Documents or otherwise amend, modify or supplement
(with the consent of Borrower or such other relevant Portfolio Entity, if
required by the Credit Documents) the Credit Documents or any of such other
instruments or agreements; and/or (viii) act or fail to act in any manner
referred to in this Guaranty which may deprive Guarantor of its right to
subrogation against Borrower to recover full indemnity for any payments or
performances made pursuant to this Guaranty or of its right of contribution
against any other party.

                           (d) No invalidity, irregularity or unenforceability
of the obligations or liabilities hereby guaranteed shall affect, impair or be a
defense to this Guaranty, which is a primary obligation of Guarantor.

                           (e) This is a continuing Guaranty and all obligations
to which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. In the event that,
notwithstanding the provisions of Section 1(a) hereof, this Guaranty shall be
deemed revocable in accordance with applicable law, then any such revocation
shall become effective only upon receipt by Administrative Agent of written
notice of revocation signed by Guarantor. No revocation or termination hereof
shall affect in any manner rights arising under this Guaranty with respect to
Obligations arising prior to receipt by Administrative Agent of written notice
of such revocation or termination.

                           (f) (i) Except as otherwise required by law, each
payment required to be made by Guarantor to the Banks hereunder shall be made
without deduction or withholding for or on account of Taxes. If such deduction
or withholding is so required, Guarantor shall, upon notice thereof from
Administrative Agent, (A) pay the amount required to be deducted or withheld to
the appropriate authorities before penalties attach thereto or interest accrues
thereon, (B) on or before the 60th day after payment of such amount, forward to
the Banks an official receipt evidencing such payment (or a certified copy
thereof), and (C) in the case of any such deduction or withholding, forthwith
pay to Administrative Agent for the account of the Banks such additional amount
as may be necessary to ensure that the net amount actually received by the Banks
is free and clear of such Taxes, including any Taxes on such additional amount,
is


                                       3
<PAGE>   307
equal to the amount that the Banks would have received had there been no such
deduction or withholding.

                               (ii) As used herein, the term "Tax" means any
present or future tax, levy, impost, duty, charge, assessment or fee of any
nature (including interest, penalties and additions thereto) that is imposed by
any government or other taxing authority in respect of any payment under this
Guaranty other than (A) any income, franchise or similar tax imposed upon the
gross or net income of Administrative Agent or any Bank by the United States,
New York State, any jurisdiction where Administrative Agent or any Bank is
organized and/or the jurisdiction in which is located any office from or at
which Administrative Agent or any Bank is making or maintaining any Loans or
receiving any payments under any of the Credit Documents and (B) any stamp,
registration, documentation or similar tax.

                  2. Representations and Warranties. Guarantor makes the
representations and warranties set forth below to Administrative Agent and the
Banks as of the date hereof:

                           (a) Guarantor is duly formed, validly existing and in
good standing under the laws of the State of Delaware and has the power and
authority to execute and deliver this Guaranty and to perform its obligations
hereunder.

                           (b) Guarantor has taken all necessary corporate
action to authorize the execution and delivery of this Guaranty and the
performance of its obligations hereunder.

                           (c) All governmental authorizations and actions
necessary in connection with the execution and delivery by Guarantor of this
Guaranty and the performance of its obligations hereunder have been obtained or
performed and remain valid and in full force and effect.

                           (d) This Guaranty has been duly executed and
delivered by Guarantor and constitutes the legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in accordance with the terms of this
Guaranty, subject to applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally.

                           (e) The execution, delivery and performance of this
Guaranty (i) do not and will not contravene any provisions of Guarantor's
certificate of incorporation or bylaws, or any law, rule, regulation, order,
judgment or decree applicable to or binding on Guarantor or any of its
Affiliates or properties; (ii) do not and will not contravene, or result in any
breach of or constitute any default under, any agreement or instrument to which
Guarantor is a party or by which Guarantor or any of its properties may be bound
or affected; and (iii) do not and will not require the consent of any Person
under any existing law or agreement which has not already been obtained.

                           (f) There is no pending or, to the best of
Guarantor's knowledge, threatened action or proceeding affecting Guarantor
before any court, governmental agency or arbitrator, which might reasonably be
expected to materially and adversely affect the financial condition, results of
operations, business or prospects of Guarantor or the ability of Guarantor to
perform its obligations under this Guaranty.


                                       4
<PAGE>   308
                           (g) All quarterly and annual financial statements
heretofore delivered by Guarantor to Administrative Agent are true, correct and
complete, do not fail to disclose any material liabilities, whether direct or
contingent, fairly present the financial condition of Guarantor as of the date
delivered and are prepared in accordance with generally accepted accounting
principles consistently applied.

                           (h) Guarantor possesses all franchises, certificates,
licenses, permits and other governmental authorizations and approvals necessary
for it to own its properties, conduct its businesses and perform its obligations
under this Guaranty.

                           (i) Guarantor is not an investment company or a
company controlled by an investment company, within the meaning of the
Investment Company Act of 1940, and is not subject to, or is exempt from,
regulation under the Public Utility Holding Company Act of 1935 and the Federal
Power Act.

                           (j) Guarantor has established adequate means of
obtaining financial and other information pertaining to the businesses,
operations and condition (financial and otherwise) of Borrower and the other
Portfolio Entities and their respective properties on a continuing basis, and
Guarantor now is and hereafter will be completely familiar with the businesses,
operations and condition (financial and otherwise) of Borrower and the other
Portfolio Entities and their respective properties.

                           (k) (i) Guarantor is not, and will not as a result of
the execution and delivery of this Guaranty, be rendered insolvent, (ii)
Guarantor does not intend to incur, or believe it is incurring, obligations
beyond its ability to pay or perform and (iii) Guarantor's property remaining
after the delivery and performance of this Guaranty will not constitute
unreasonably small capital.

                           (l) Guarantor is not in default under any material
agreement relating to the incurrence of debt to which it is a party.

                  3. Covenants. So long as any Obligations are outstanding,
Guarantor agrees that:

                           (a) It will maintain in full force and effect all
consents of any governmental or other authority that are required to be obtained
by it with respect to this Guaranty and will obtain any that may become
necessary in the future;

                           (b) It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Guaranty;

                           (c) Promptly, and in any event within 30 Banking Days
after the General Counsel of Guarantor obtains knowledge thereof, Guarantor will
give to Administrative Agent notice of the occurrence of any event or of any
litigation or governmental proceeding pending (i) against Guarantor or any of
its Affiliates which could affect the business, operations,


                                       5
<PAGE>   309
property, assets or condition (financial or otherwise) of Guarantor so as to
materially and adversely affect the ability of Guarantor to perform its
obligations hereunder or (ii) with respect to this Guaranty, which event or
pending proceeding is likely to materially and adversely affect the business,
operations, property, assets or condition (financial or otherwise) of Guarantor
and its Affiliates taken as a whole;

                           (d) It will deliver such other documents and other
information reasonably requested by Administrative Agent; and

                           (e) It will comply in all material respects with its
certificate of incorporation.

                  4. Waiver. Guarantor hereby waives and relinquishes all rights
and remedies accorded by applicable law to sureties or guarantors and agrees not
to assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Administrative Agent or the Banks to proceed
against Borrower or any other Person or to proceed against or exhaust any
security held by Administrative Agent or the Banks at any time or to pursue any
other remedy in Administrative Agent's or the Banks' power before proceeding
against Guarantor, (b) any defense that may arise by reason of the incapacity,
lack of power or authority, death, dissolution, merger, termination or
disability of Borrower or any other Person or the failure of Administrative
Agent or the Banks to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of Borrower or any other
Person, (c) demand, presentment, protest and notice of any kind except as
provided herein, including without limitation notice of the existence, creation
or incurring of any new or additional indebtedness or obligation or of any
action or non-action on the part of Borrower, Administrative Agent, the Banks,
any endorser or creditor of Borrower or Guarantor or on the part of any other
Person under this or any other instrument in connection with any obligation or
evidence of indebtedness held by Administrative Agent or the Banks as collateral
or in connection with any Obligations, (d) any defense based upon an election of
remedies by Administrative Agent or the Banks, including without limitation an
election to proceed by non-judicial rather than judicial foreclosure, which
destroys or otherwise impairs the subrogation rights of Guarantor, the right of
Guarantor to proceed against Borrower for reimbursement, or both, (e) any
defense based on any offset against any amounts which may be owed by any Person
to Guarantor for any reason whatsoever, (f) any defense based on any act,
failure to act, delay or omission whatsoever on the part of Borrower or any
other Portfolio Entity of the failure by Borrower or any other Portfolio Entity
to do any act or thing or to observe or perform any covenant, condition or
agreement to be observed or performed by it under the Credit Documents, (g) any
defense based upon any statute or rule of law which provides that the obligation
of a surety must be neither larger in amount nor in other respects more
burdensome than that of the principal provided, that, upon payment in full of
the Obligations, this Guaranty shall no longer be of any force or effect, (h)
any defense, setoff or counterclaim which may at any time be available to or
asserted by Borrower or any other Portfolio Entity against Administrative Agent,
the Banks or any other Person under the Credit Documents, (i) any duty on the
part of Administrative Agent or the Banks to disclose to Guarantor any facts
Administrative Agent or the Banks may now or hereafter know about Borrower or
any other Portfolio Entity, regardless of whether Administrative Agent or the
Banks have reason to believe that any such facts materially increase the risk
beyond that which Guarantor intends to assume, or have reason to believe that
such facts are unknown to Guarantor,


                                       6
<PAGE>   310
or have a reasonable opportunity to communicate such facts to Guarantor, since
Guarantor acknowledges that Guarantor is fully responsible for being and keeping
informed of the financial condition of Borrower and the other Portfolio Entities
and of all circumstances bearing on the risk of non-payment of any obligations
and liabilities hereby guaranteed, (j) the fact that Guarantor may at any time
in the future dispose of all or part of its direct or indirect interest in
Borrower or any other Portfolio Entity, (k) any defense based on any change in
the time, manner or place of any payment under, or in any other term of, the
Credit Documents or any other amendment, renewal, extension, acceleration,
compromise or waiver of or any consent or departure from the terms of the Credit
Documents, (l) any defense arising because of Administrative Agent's or the
Banks' election, in any proceeding instituted under the Federal Bankruptcy Code,
of the application of Section 1111(b)(2) of the Federal Bankruptcy Code, and (m)
any defense based upon any borrowing or grant of a security interest under
Section 364 of the Federal Bankruptcy Code.

                  5. Subordination. Except as otherwise specifically provided in
this Guaranty, all existing and future indebtedness of Borrower or any other
Portfolio Entity to Guarantor (except to the extent such indebtedness consists
of approved operating expenses or other O&M Costs with respect to materials or
services provided consistent with an applicable Annual Operating Budget) and the
right of Guarantor to withdraw any capital invested by Guarantor in Borrower or
any other Portfolio Entity, is hereby subordinated to all obligations and
liabilities hereby guaranteed. Without the prior written consent of
Administrative Agent, such subordinated indebtedness shall not be paid or
withdrawn in whole or in part, nor shall Guarantor accept any payment of or on
account of any such indebtedness or as a withdrawal of capital while the Credit
Agreement is in effect except from distributions permitted under Waterfall Level
8 and 10 of Section 7.2 of the Credit Agreement or as permitted under Section
3.10(b) of the Credit Agreement. Any payment by Borrower in violation of this
Guaranty shall be received by Guarantor in trust for Administrative Agent and
the Banks, and Guarantor shall cause the same to be paid to Administrative Agent
for the benefit of the Banks immediately upon demand by Administrative Agent on
account of Borrower's obligations and liabilities hereby guaranteed. Guarantor
shall not assign all or any portion of such indebtedness while the Credit
Agreement remains in effect except upon prior written notice to Administrative
Agent by which the assignee of any such indebtedness agrees that the assignment
is made subject to the terms of this Guaranty, and that any attempted assignment
of such indebtedness in violation of the provisions hereof shall be void.

                  6. Subrogation. So long as the Credit Agreement remains in
effect, (a) Guarantor shall not have any right of subrogation and waives all
rights to enforce any remedy which the Banks now have or may hereafter have
against Borrower or any other Portfolio Entity, and waives the benefit of, and
all rights to participate in, any security now or hereafter held by
Administrative Agent or the Banks from Borrower or any other Portfolio Entity
and (b) Guarantor waives any claim, right or remedy which Guarantor may now have
or hereafter acquire against Borrower or any other Portfolio Entity that arises
hereunder and/or from the performance by Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy of the Banks against Borrower or any other Portfolio Entity, or any
security which the Banks now have or hereafter acquire, whether or not such
claim, right or remedy arises in equity, under contract, by statute, under
common law or otherwise.


                                       7
<PAGE>   311
                  7. Bankruptcy.

                           (a) So long as the Credit Agreement remains in
effect, Guarantor shall not, without the prior written consent of Administrative
Agent, commence, or join with any other Person in commencing, any bankruptcy,
reorganization, or insolvency proceeding against Borrower or any other Portfolio
Entity. The obligations of Guarantor under this Guaranty shall not be altered,
limited or affected by any proceeding, voluntary or involuntary, involving the
bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement
of Borrower or any other Portfolio Entity, or by any defense which Borrower or
any other Portfolio Entity may have by reason of any order, decree or decision
of any court or administrative body resulting from any such proceeding.

                           (b) So long as the Credit Agreement remains in
effect, to the extent of any Obligations, Guarantor shall file, in any
bankruptcy or other proceeding in which the filing of claims is required or
permitted by law, all claims which Guarantor may have against Borrower or any
other Portfolio Entity relating to any indebtedness of Borrower or any other
Portfolio Entity to Guarantor, and hereby assigns to Administrative Agent on
behalf of the Banks all rights of Guarantor thereunder. If Guarantor does not
file any such claim, Administrative Agent, as attorney-in-fact for Guarantor, is
hereby authorized to do so in the name of Guarantor or, in Administrative
Agent's discretion, to assign the claim to a nominee and to cause proofs of
claim to be filed in the name of Administrative Agent's nominee. The foregoing
power of attorney is coupled with an interest and cannot be revoked.
Administrative Agent or its nominee shall have the sole right to accept or
reject any plan proposed in any such proceeding and to take any other action
which a party filing a claim is entitled to take. In all such cases, whether in
administration, bankruptcy or otherwise, the person authorized to pay such a
claim shall pay the same to Administrative Agent to the extent of any
Obligations which then remain unpaid, and, to the full extent necessary for that
purpose, Guarantor hereby assigns to Administrative Agent all of Guarantor's
rights to all such payments or distributions to which Guarantor would otherwise
be entitled; provided, however, that Guarantor's obligations hereunder shall not
be satisfied except to the extent that Administrative Agent receives cash by
reason of any such payment or distribution. If Administrative Agent receives
anything hereunder other than cash, the same shall be held as collateral for
amounts due under this Guaranty.

                  8. Successions or Assignments.

                           (a) This Guaranty shall inure to the benefit of the
successors or assigns of the Banks who shall have, to the extent of their
interest, the rights of the Banks hereunder; provided, however, that the rights
of the Banks hereunder, if any be retained by them, shall have priority over and
be senior to the rights of its successors or assigns unless Administrative Agent
shall otherwise elect.

                           (b) This Guaranty is binding upon Guarantor and its
successors and assigns. Guarantor is not entitled to assign its obligations
hereunder to any other person without the written consent of Administrative
Agent, and any purported assignment in violation of this provision shall be
void.


                                       8
<PAGE>   312
                  9. Waivers.

                           (a) No delay on the part of Administrative Agent or
the Banks in exercising any of their rights (including those hereunder) and no
partial or single exercise thereof and no action or non-action by Administrative
Agent or the Banks, with or without notice to Guarantor or anyone else, shall
constitute a waiver of any rights or shall affect or impair this Guaranty.

                           (b) GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY AND THE RELATIONSHIP BETWEEN
GUARANTOR AND ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. GUARANTOR
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT ADMINISTRATIVE AGENT HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS GUARANTY, AND THAT ADMINISTRATIVE AGENT WILL CONTINUE TO RELY
ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. GUARANTOR FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

                  10. Interpretation. The section headings in this Guaranty are
for the convenience of reference only and shall not affect the meaning or
construction of any provision hereof.

                  11. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be considered as
properly given (a) if delivered in person, (b) if sent by overnight delivery
service by the addressee, except that communication or notice so transmitted by
telecopy or other direct written electronic means shall be deemed to have been
validly and effectively given on the day (if a Bank Day and, if not, on the next
following Banking Day) on which it is transmitted if transmitted before 4:00
p.m., recipient's time, and if transmitted after that time, on the next
following Banking Day; provided, however, that if any notice is tendered to an
addressee and the delivery thereof is refused by such addressee, such notice
shall be effective upon such tender. Any party shall have the right to change
its address for notice hereunder to any other location within the continental
United States by giving of 30 days' notice to the other parties in the manner
set forth hereinabove.

                  12. Amendments. This Guaranty may be amended only with the
written consent of the parties hereto.

                  13. Jurisdiction; Governing Law.

                           (a) Any action or proceeding relating in any way to
this Guaranty may be brought and enforced in the courts of the State of New York
or of the United States for the Southern District of New York. Any such process
or summons in connection with any such


                                       9
<PAGE>   313
action or proceeding may be served by mailing a copy thereof by certified or
registered mail, or any substantially similar form of mail, addressed to
Guarantor as provided for notices hereunder.

                           (b) This Guaranty and the rights and obligations of
Administrative Agent and of Guarantor shall be governed by and construed in
accordance with the law of the State of New York without reference to principles
of conflicts of laws (other than Section 5-1401 of the New York General
Obligations Law).

                  14. Integration of Terms. This Guaranty contains the entire

agreement between Guarantor and the Banks relating to the subject matter hereof
and supersedes all oral statements and prior writing with respect hereto.

                  15. Addresses.

                           (a) The address of Guarantor for notices is:

                               Calpine Corporation
                               50 West San Fernando Street
                               San Jose, California 95113
                               Attention: General Counsel
                               Telephone Number: (408) 995-5115
                               Telecopier Number: (408) 995-0505

                           (b) The address of Administrative Agent for notices
                               is:

                               Credit Suisse First Boston,
                               New York Branch
                               Eleven Madison Avenue
                               New York, New York  10010-3629
                               Attn:  Portfolio Management
                               Telephone No.(212) 325-9126
                               Telecopy No.:  (212) 325-8321

                  16. Interest; Collection Expenses. Any amount required to be
paid by Guarantor pursuant to the terms hereof shall bear interest at the
Default Rate or the maximum rate permitted by law, whichever is less, from the
date due until paid in full. If Administrative Agent or the Banks are required
to pursue any remedy against Guarantor hereunder, Guarantor shall pay to
Administrative Agent or the Banks, as the case may be, upon demand, all
reasonable attorneys' fees and expenses all other costs and expenses incurred by
Administrative Agent or the Banks in enforcing this Guaranty.

                  17. Termination; Reinstatement of Guaranty. Upon the
indefeasible payment in full of all Obligations owing under the Credit
Agreement, this Guaranty shall terminate in its entirety. Notwithstanding the
foregoing, this Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment to or on behalf of Borrower or to
Administrative Agent by Borrower or any other Person in respect of the
Obligations (as such term is defined in the Credit Agreement) or by Guarantor
hereunder is rescinded or must


                                       10
<PAGE>   314
otherwise be returned by Administrative Agent upon the insolvency, bankruptcy,
reorganization, dissolution or liquidation of Borrower or any other Portfolio
Entity or otherwise, all as though such payment had not been made.

                  18. Counterparts. The Guaranty may be executed in one or more
duplicate counterparts, and when executed and delivered by all of the parties
listed below shall constitute a single binding agreement.

                  19. No Benefit to Borrower. This Guaranty is for the benefit
of only Administrative Agent and is not for the benefit of Borrower or any other
Portfolio Entity. Notwithstanding that, pursuant to the Credit Agreement,
Guarantor may treat any amounts actually paid hereunder as a loan to Borrower,
the Guaranty shall not be deemed to be a contract to make a loan, or extend
other debt financing or financial accommodation, for the benefit of Borrower, in
each case within the meaning of Section 365(e) of the Federal Bankruptcy Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       11
<PAGE>   315
                  IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
duly executed and delivered as of the day and year first written above.

                             CALPINE CORPORATION,
                             a Delaware corporation

                             By:
                                ------------------------------------
                                Name:

                                Title:

Agreed and accepted.

CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
as Administrative Agent

By:
         ------------------------------------
         Name:
         Title:


By:
         ------------------------------------
         Name:
         Title:



<PAGE>   316
                                                                    EXHIBIT D2-D
                                                         to the Credit Agreement

                             PROJECT OWNER GUARANTY

                  THIS PROJECT OWNER GUARANTY (this "Guaranty") dated as of ,
200__ is made by ____________, a Delaware ___________ ("Guarantor"), in favor of
CREDIT SUISSE FIRST BOSTON, acting through its New York Branch, as
Administrative Agent ("Administrative Agent") for the Banks under that certain
Credit Agreement (the "Credit Agreement") dated as of October 16, 2000 among
Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto (the "Banks"), Credit Suisse First Boston, acting through its New York
Branch, as Lead Arranger and Administrative Agent ("Administrative Agent"), The
Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc
of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent.

                                    RECITALS

                  A. Guarantor is a Subsidiary of Borrower and developer and
owner of the _________ Project (the "Project"). Borrower will loan to Guarantor
proceeds of the Loans made by the Banks to Borrower under the Credit Agreement
for Guarantor's payment of Project Costs with respect to the Project.

                  B. Administrative Agent and the Banks have agreed to enter
into the Credit Agreement with Borrower on the condition that Guarantor
guarantee certain of Borrower's and the other Portfolio Entities' obligations
thereunder as provided herein.

                  C. Guarantor acknowledges that it will benefit, directly and
indirectly, if Administrative Agent and the Banks enter into the Credit
Agreement and the other Credit Documents.

                  D. [THE OBLIGATIONS OF GUARANTOR HEREUNDER ARE BEING INCURRED
CONCURRENTLY WITH [THE OBLIGATIONS OF BORROWER UNDER THE CREDIT AGREEMENT][THE
INITIAL FUNDING OF LOANS TO BORROWER WITH RESPECT TO THE PROJECT].

                  E. Capitalized terms used but not defined herein shall have
the respective meanings given them in Exhibit A to the Credit Agreement and the
Rules of Interpretations contained in said Exhibit A shall apply hereto.

                                    AGREEMENT

                  NOW, THEREFORE, in consideration of the premises set forth
above and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged and as an inducement to Administrative Agent and
the Banks to enter into the Credit Agreement with Borrower
<PAGE>   317
and the other Credit Documents with the Portfolio Entities, Guarantor hereby
consents and agrees as follows:

                  1. Guaranty.

                           (a) The undersigned Guarantor, as primary obligor and
not merely as surety, unconditionally and irrevocably guarantees to the Banks
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise of all of the Obligations of the Portfolio Entities under the Credit
Documents, including without limitation the Obligations of Borrower under the
Credit Agreement and the other Credit Documents, in each case together with the
payment of all expenses incurred by Administrative Agent or the Banks in
enforcing any of such obligations and liabilities or the terms hereof,
including, without limitation, reasonable fees and expenses of legal counsel,
but expressly excluding any Obligations (including expenses of enforcement and
the fees and expenses of legal counsel related thereto) arising out of or
attributable to Projects which have achieved Operation prior to the effective
date of this Guaranty (collectively, the "Guaranteed Obligations"), and agrees
that if for any reason Borrower or any other Portfolio Entity shall fail to pay
when due any of such Guaranteed Obligations, Guarantor will pay the same
forthwith. Guarantor waives notice of acceptance of this Guaranty and of any
obligation to which it applies or may apply under the terms hereof, and waives
diligence, presentment, demand of payment or performance, notice of dishonor or
non-payment or non-performance, protest, notice of protest, of any such
obligations, suit or taking other action by the Banks against, and giving any
notice of default or other notice to, or making any demand on, any party liable
thereon (including Guarantor).

                           (b) This Guaranty is a primary obligation of
Guarantor and is an absolute, unconditional, continuing and irrevocable guaranty
of payment of the Guaranteed Obligations and not of collectibility, and is in no
way conditioned on or contingent upon any attempt to enforce in whole or in part
Borrower's or any other Portfolio Entity's liabilities and obligations to the
Banks. If Borrower or any other Portfolio Entity shall fail to pay any of the
Guaranteed Obligations to the Banks as and when they are due, Guarantor shall
forthwith pay such Guaranteed Obligations immediately (in immediately available
funds). Each failure by Borrower or any other Portfolio Entity to pay any
Guaranteed Obligations shall give rise to a separate cause of action herewith,
and separate suits may be brought hereunder as each cause of action arises.

                           (c) The Banks may, at any time and from time to time
(whether or not after revocation or termination of this Guaranty) without the
consent of or notice to Guarantor, except such notice as may be required by the
Credit Documents or applicable law which cannot be waived, without incurring
responsibility to Guarantor, without impairing or releasing the obligations of
Guarantor hereunder, upon or without any terms or conditions and in whole or in
part, (i) change the manner, place and terms of payment or performance or change
or extend the time of payment or performance of, or renew or alter, any
Obligation, or any obligations and liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof or in
any manner modify, amend or supplement the terms of the Credit Documents, any
documents, instruments or agreements executed in connection therewith, in each
case with the consent of Borrower or such other relevant Portfolio Entity, if
required by the Credit Documents, and the guaranty herein made shall apply to
the Guaranteed Obligations changed, extended, renewed, modified, amended,
supplemented or altered in any manner; (ii) exercise or refrain from exercising
any rights against Borrower, any other Portfolio Entity or others (including
Guarantor) or otherwise act or refrain from acting; (iii) add or release any
other guarantor from its obligations without affecting or impairing the
obligations of Guarantor hereunder; (iv) settle or compromise any Guaranteed
Obligations and/or any obligations and liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment or performance of all or any part thereof to the payment
or performance of any obligations and liabilities


                                       2
<PAGE>   318
which may be due to the Banks or others; (v) sell, exchange, release, surrender,
realize upon or otherwise deal with in any manner or in any order any property
by whomsoever pledged or mortgaged to secure or howsoever securing the
Guaranteed Obligations or any liabilities or obligations (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof and/or
any offset thereagainst; (vi) apply any sums by whomsoever paid or howsoever
realized to any obligations and liabilities of Borrower or any other Portfolio
Entity to the Banks under the Credit Documents in the manner provided therein
regardless of what obligations and liabilities remain unpaid; (vii) consent to
or waive any breach of, or any act, omission or default under, the Credit
Documents or otherwise amend, modify or supplement (with the consent of Borrower
or such other relevant Portfolio Entity, if required by the Credit Documents)
the Credit Documents or any of such other instruments or agreements; and/or
(viii) act or fail to act in any manner referred to in this Guaranty which may
deprive Guarantor of its right to subrogation against Borrower or any other
Portfolio Entity to recover full indemnity for any payments or performances made
pursuant to this Guaranty or of its right of contribution against any other
party.

                           (d) No invalidity, irregularity or unenforceability
of the obligations or liabilities hereby guaranteed shall affect, impair or be a
defense to this Guaranty, which is a primary obligation of Guarantor.

                           (e) This is a continuing Guaranty and all obligations
to which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. In the event that,
notwithstanding the provisions of Section 1(a) hereof, this Guaranty shall be
deemed revocable in accordance with applicable law, then any such revocation
shall become effective only upon receipt by Administrative Agent of written
notice of revocation signed by Guarantor. No revocation or termination hereof
shall affect in any manner rights arising under this Guaranty with respect to
Guaranteed Obligations arising prior to receipt by Administrative Agent of
written notice of such revocation or termination.

                           (f) (i) Except as otherwise required by law, each
payment required to be made by Guarantor to the Banks hereunder shall be made
without deduction or withholding for or on account of Taxes. If such deduction
or withholding is so required, Guarantor shall, upon notice thereof from
Administrative Agent, (A) pay the amount required to be deducted or withheld to
the appropriate authorities before penalties attach thereto or interest accrues
thereon, (B) on or before the 60th day after payment of such amount, forward to
the Banks an official receipt evidencing such payment (or a certified copy
thereof), and (C) in the case of any such deduction or withholding, forthwith
pay to Administrative Agent for the account of the Banks such additional amount
as may be necessary to ensure that the net amount actually received by the Banks
is free and clear of such Taxes, including any Taxes on such additional amount,
is equal to the amount that the Banks would have received had there been no such
deduction or withholding.

                                    (ii) As used herein, the term "Tax" means
any present or future tax, levy, impost, duty, charge, assessment or fee of any
nature (including interest, penalties and additions thereto) that is imposed by
any government or other taxing authority in respect of any payment under this
Guaranty other than (A) any income, franchise or similar tax imposed upon the
gross or net income of Administrative Agent or any Bank by the United States,
New York State, any jurisdiction where Administrative Agent or any Bank is
organized and/or the jurisdiction in which is located any office from or at
which Administrative Agent or any Bank is making or maintaining any Loans or
receiving any payments under any of the Credit Documents and (B) any stamp,
registration, documentation or similar tax.

                  2. Representations and Warranties. Guarantor makes the
representations and warranties set forth below to Administrative Agent and the
Banks as of the date hereof:


                                       3
<PAGE>   319
                           (a) Guarantor is duly formed, validly existing and in
good standing under the laws of the State of Delaware and has the power and
authority to execute and deliver this Guaranty and to perform its obligations
hereunder.

                           (b) Guarantor has taken all necessary action to
authorize the execution and delivery of this Guaranty and the performance of its
obligations hereunder.

                           (c) All governmental authorizations and actions
necessary in connection with the execution and delivery by Guarantor of this
Guaranty and the performance of its obligations hereunder have been obtained or
performed and remain valid and in full force and effect.

                           (d) This Guaranty has been duly executed and
delivered by Guarantor and constitutes the legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in accordance with the terms of this
Guaranty, subject to applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally.

                           (e) The execution, delivery and performance of this
Guaranty (i) do not and will not contravene any provisions of Guarantor's
constituent documents, or any law, rule, regulation, order, judgment or decree
applicable to or binding on Guarantor or any of its Affiliates or properties;
(ii) do not and will not contravene, or result in any breach of or constitute
any default under, any agreement or instrument to which Guarantor is a party or
by which Guarantor or any of its properties may be bound or affected; and (iii)
do not and will not require the consent of any Person under any existing law or
agreement which has not already been obtained.

                           (f) There is no pending or, to the best of
Guarantor's knowledge, threatened action or proceeding affecting Guarantor
before any court, governmental agency or arbitrator, which might reasonably be
expected to materially and adversely affect the financial condition, results of
operations, business or prospects of Guarantor or the ability of Guarantor to
perform its obligations under this Guaranty.

                           (g) All of Guarantor's quarterly and annual financial
statements heretofore delivered by Borrower to Administrative Agent are true,
correct and complete, do not fail to disclose any material liabilities, whether
direct or contingent, fairly present the financial condition of Guarantor as of
the date delivered and are prepared in accordance with generally accepted
accounting principles consistently applied.

                           (h) Guarantor possesses all franchises, certificates,
licenses, permits and other governmental authorizations and approvals necessary
for it to own its properties, conduct its businesses and perform its obligations
under this Guaranty.

                           (i) Guarantor is not an investment company or a
company controlled by an investment company, within the meaning of the
Investment Company Act of 1940, and is not subject to, or is exempt from,
regulation under the Public Utility Holding Company Act of 1935 and the Federal
Power Act.

                           (j) Guarantor has established adequate means of
obtaining financial and other information pertaining to the businesses,
operations and condition (financial and otherwise) of Borrower and the other
Portfolio Entities and their respective properties on a continuing basis, and
Guarantor now is and hereafter will be completely familiar with the businesses,
operations and condition (financial and otherwise) of Borrower and the other
Portfolio Entities and their respective properties.


                                       4
<PAGE>   320
                           (k) (i) Guarantor is not, and will not as a result of
the execution and delivery of this Guaranty, be rendered insolvent, (ii)
Guarantor does not intend to incur, or believe it is incurring, obligations
beyond its ability to pay or perform and (iii) Guarantor's property remaining
after the delivery and performance of this Guaranty will not constitute
unreasonably small capital. If, notwithstanding the foregoing, enforcement of
the liability of Guarantor under this Guaranty for the full amount of the
Guaranteed Obligations would be an unlawful or voidable transfer under any
applicable fraudulent conveyance or fraudulent transfer law or any comparable
law, then the liability of Guarantor hereunder shall be reduced to the highest
amount for which such liability may then be enforced without giving rise to an
unlawful or voidable transfer under any such law.

                           (l) Guarantor is not in default under any material
agreement relating to the incurrence of debt to which it is a party.

                  3. Covenants. So long as any Guaranteed Obligations are
outstanding, Guarantor agrees that:

                           (a) It will maintain in full force and effect all
consents of any governmental or other authority that are required to be obtained
by it with respect to this Guaranty and will obtain any that may become
necessary in the future;

                           (b) It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Guaranty;

                           (c) Promptly, and in any event within 30 Banking Days
after the General Counsel of Guarantor obtains knowledge thereof, Guarantor will
give to Administrative Agent notice of the occurrence of any event or of any
litigation or governmental proceeding pending (i) against Guarantor or any of
its Affiliates which could affect the business, operations, property, assets or
condition (financial or otherwise) of Guarantor so as to materially and
adversely affect the ability of Guarantor to perform its obligations hereunder
or (ii) with respect to this Guaranty, which event or pending proceeding is
likely to materially and adversely affect the business, operations, property,
assets or condition (financial or otherwise) of Guarantor;

                           (d) It will deliver such other documents and other
information reasonably requested by Administrative Agent;

                           (e) It will comply in all material respects with its
constituent documents;

                           (f) It will perform, or cause Borrower to perform,
each of the covenants and other agreements contained in Articles 5 and 6 of the
Credit Agreement as if such covenants and other agreements were fully set forth
in this Guaranty, such agreements and other covenants being incorporated into
this Guaranty by reference; provided, however, that performance of such
covenants by Borrower or another Portfolio Entity will satisfy Guarantor's
obligations hereunder with respect to such convenants.

                  4. Waiver. Guarantor hereby waives and relinquishes all rights
and remedies accorded by applicable law to sureties or guarantors and agrees not
to assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Administrative Agent or the Banks to proceed
against Borrower, any other Portfolio Entity or any other Person or to proceed
against or exhaust any security held by Administrative Agent or the Banks at any
time or to pursue any other


                                       5
<PAGE>   321
remedy in Administrative Agent's or the Banks' power before proceeding against
Guarantor, (b) any defense that may arise by reason of the incapacity, lack of
power or authority, death, dissolution, merger, termination or disability of
Borrower, any other Portfolio Entity or any other Person or the failure of
Administrative Agent or the Banks to file or enforce a claim against the estate
(in administration, bankruptcy or any other proceeding) of Borrower, any other
Portfolio Entity or any other Person, (c) demand, presentment, protest and
notice of any kind except as provided herein, including without limitation
notice of the existence, creation or incurring of any new or additional
indebtedness or obligation or of any action or non-action on the part of
Borrower, any other Portfolio Entity, Administrative Agent, the Banks, any
endorser or creditor of Borrower, any other Portfolio Entity or Guarantor or on
the part of any other Person under this or any other instrument in connection
with any obligation or evidence of indebtedness held by Administrative Agent or
the Banks as collateral or in connection with any Guaranteed Obligations, (d)
any defense based upon an election of remedies by Administrative Agent or the
Banks, including without limitation an election to proceed by non-judicial
rather than judicial foreclosure, which destroys or otherwise impairs the
subrogation rights of Guarantor, the right of Guarantor to proceed against
Borrower or any other Portfolio Entity for reimbursement, or both, (e) any
defense based on any offset against any amounts which may be owed by any Person
to Guarantor for any reason whatsoever, (f) any defense based on any act,
failure to act, delay or omission whatsoever on the part of Borrower or any
other Portfolio Entity of the failure by Borrower or any other Portfolio Entity
to do any act or thing or to observe or perform any covenant, condition or
agreement to be observed or performed by it under the Credit Documents, (g) any
defense based upon any statute or rule of law which provides that the obligation
of a surety must be neither larger in amount nor in other respects more
burdensome than that of the principal provided, that, upon payment or
performance in full of the Guaranteed Obligations, this Guaranty shall no longer
be of any force or effect, (h) any defense, setoff or counterclaim which may at
any time be available to or asserted by Borrower or any other Portfolio Entity
against Administrative Agent, the Banks or any other Person under the Credit
Documents, (i) any duty on the part of Administrative Agent or the Banks to
disclose to Guarantor any facts Administrative Agent or the Banks may now or
hereafter know about Borrower or any other Portfolio Entity, regardless of
whether Administrative Agent or the Banks have reason to believe that any such
facts materially increase the risk beyond that which Guarantor intends to
assume, or have reason to believe that such facts are unknown to Guarantor, or
have a reasonable opportunity to communicate such facts to Guarantor, since
Guarantor acknowledges that Guarantor is fully responsible for being and keeping
informed of the financial condition of Borrower and the other Portfolio Entities
and of all circumstances bearing on the risk of non-payment or non-performance
of any obligations and liabilities hereby guaranteed, (j) the fact that
Guarantor may at any time in the future dispose of all or part of its direct or
indirect interest in Borrower or any other Portfolio Entity, (k) any defense
based on any change in the time, manner or place of any payment or performance
under, or in any other term of, the Credit Documents or any other amendment,
renewal, extension, acceleration, compromise or waiver of or any consent or
departure from the terms of the Credit Documents, (l) any defense arising
because of Administrative Agent's or the Banks' election, in any proceeding
instituted under the Federal Bankruptcy Code, of the application of Section
1111(b)(2) of the Federal Bankruptcy Code, and (m) any defense based upon any
borrowing or grant of a security interest under Section 364 of the Federal
Bankruptcy Code.

                  5. Subordination. Except as otherwise specifically provided in
this Guaranty, all existing and future indebtedness of Borrower or any other
Portfolio Entity to Guarantor (except to the extent such indebtedness consists
of approved operating expenses or other O&M Costs with respect to materials or
services provided consistent with an applicable Annual Operating Budget) and the
right of Guarantor to withdraw any capital invested by Guarantor in Borrower or
any other Portfolio Entity, is hereby subordinated to all obligations and
liabilities hereby guaranteed. Without the prior written consent of
Administrative Agent, such subordinated indebtedness shall not be paid or
withdrawn in whole or in part, nor shall Guarantor accept any payment of or on
account of any such indebtedness or as


                                       6
<PAGE>   322
a withdrawal of capital while the Credit Documents are in effect. Any payment by
Borrower or any other Portfolio Entity in violation of this Guaranty shall be
received by Guarantor in trust for Administrative Agent and the Banks, and
Guarantor shall cause the same to be paid to Administrative Agent for the
benefit of the Banks immediately upon demand by Administrative Agent on account
of Borrower's and the other Portfolio Entities' obligations and liabilities
hereby guaranteed. Guarantor shall not assign all or any portion of such
indebtedness while the Credit Documents remain in effect except upon prior
written notice to Administrative Agent by which the assignee of any such
indebtedness agrees that the assignment is made subject to the terms of this
Guaranty, and that any attempted assignment of such indebtedness in violation of
the provisions hereof shall be void.

                  6. Subrogation. So long as the Credit Documents remain in
effect, (a) Guarantor shall not have any right of subrogation and waives all
rights to enforce any remedy which the Banks now have or may hereafter have
against Borrower or any other Portfolio Entity, and waives the benefit of, and
all rights to participate in, any security now or hereafter held by
Administrative Agent or the Banks from Borrower or any other Portfolio Entity
and (b) Guarantor waives any claim, right or remedy which Guarantor may now have
or hereafter acquire against Borrower or any other Portfolio Entity that arises
hereunder and/or from the performance by Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy of the Banks against Borrower or any other Portfolio Entity, or any
security which the Banks now have or hereafter acquire, whether or not such
claim, right or remedy arises in equity, under contract, by statute, under
common law or otherwise.

                  7. Bankruptcy.

                           (a) So long as the Credit Documents remain in effect,
Guarantor shall not, without the prior written consent of Administrative Agent,
commence, or join with any other Person in commencing, any bankruptcy,
reorganization, or insolvency proceeding against Borrower or any other Portfolio
Entity. The obligations of Guarantor under this Guaranty shall not be altered,
limited or affected by any proceeding, voluntary or involuntary, involving the
bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement
of Borrower or any other Portfolio Entity, or by any defense which Borrower or
any other Portfolio Entity may have by reason of any order, decree or decision
of any court or administrative body resulting from any such proceeding.

                           (b) So long as the Credit Documents remain in effect,
to the extent of any Guaranteed Obligations, Guarantor shall file, in any
bankruptcy or other proceeding in which the filing of claims is required or
permitted by law, all claims which Guarantor may have against Borrower or any
other Portfolio Entity relating to any indebtedness of Borrower or any other
Portfolio Entity to Guarantor, and hereby assigns to Administrative Agent on
behalf of the Banks all rights of Guarantor thereunder. If Guarantor does not
file any such claim, Administrative Agent, as attorney-in-fact for Guarantor, is
hereby authorized to do so in the name of Guarantor or, in Administrative
Agent's discretion, to assign the claim to a nominee and to cause proofs of
claim to be filed in the name of Administrative Agent's nominee. The foregoing
power of attorney is coupled with an interest and cannot be revoked.
Administrative Agent or its nominee shall have the sole right to accept or
reject any plan proposed in any such proceeding and to take any other action
which a party filing a claim is entitled to take. In all such cases, whether in
administration, bankruptcy or otherwise, the person authorized to pay such a
claim shall pay the same to Administrative Agent to the extent of any Guaranteed
Obligations which then remain unpaid, and, to the full extent necessary for that
purpose, Guarantor hereby assigns to Administrative Agent all of Guarantor's
rights to all such payments or distributions to which Guarantor would otherwise
be entitled; provided, however, that Guarantor's obligations hereunder shall not
be satisfied except to the extent that Administrative Agent receives cash by
reason of any such payment or


                                       7
<PAGE>   323
distribution. If Administrative Agent receives anything hereunder other than
cash, the same shall be held as collateral for amounts due under this Guaranty.

                  8. Successions or Assignments.

                           (a) This Guaranty shall inure to the benefit of the
successors or assigns of the Banks who shall have, to the extent of their
interest, the rights of the Banks hereunder; provided, however, that the rights
of the Banks hereunder, if any be retained by them, shall have priority over and
be senior to the rights of its successors or assigns unless Administrative Agent
shall otherwise elect.

                           (b) This Guaranty is binding upon Guarantor and its
successors and assigns. Guarantor is not entitled to assign its obligations
hereunder to any other person without the written consent of Administrative
Agent, and any purported assignment in violation of this provision shall be
void.

                  9. Waivers.

                           (a) No delay on the part of Administrative Agent or
the Banks in exercising any of their rights (including those hereunder) and no
partial or single exercise thereof and no action or non-action by Administrative
Agent or the Banks, with or without notice to Guarantor or anyone else, shall
constitute a waiver of any rights or shall affect or impair this Guaranty.

                           (b) GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY AND THE RELATIONSHIP BETWEEN
GUARANTOR AND ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. GUARANTOR
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT ADMINISTRATIVE AGENT HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS GUARANTY, AND THAT ADMINISTRATIVE AGENT WILL CONTINUE TO RELY
ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. GUARANTOR FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

                  10. Interpretation. The section headings in this Guaranty are
for the convenience of reference only and shall not affect the meaning or
construction of any provision hereof.

                  11. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be considered as
properly given (a) if delivered in person, (b) if sent by overnight delivery
service by the addressee, except that communication or notice so transmitted by
telecopy or other direct written electronic means shall be deemed to have been
validly and effectively given on the day (if a Bank Day and, if not, on the next
following Banking Day) on which it is transmitted if transmitted before 4:00
p.m., recipient's time, and if transmitted after that time, on the next
following Banking Day; provided, however, that if any notice is tendered to an
addressee and the delivery thereof is refused by such addressee, such notice
shall be effective upon such tender. Any party shall have the right to change
its address for notice hereunder to any other location within the continental
United States by giving of 30 days' notice to the other parties in the manner
set forth hereinabove.

                  12. Amendments. This Guaranty may be amended only with the
written consent of the parties hereto.


                                       8
<PAGE>   324
                  13. Jurisdiction; Governing Law.

                           (a) Any action or proceeding relating in any way to
this Guaranty may be brought and enforced in the courts of the State of New York
or of the United States for the Southern District of New York. Any such process
or summons in connection with any such action or proceeding may be served by
mailing a copy thereof by certified or registered mail, or any substantially
similar form of mail, addressed to Guarantor as provided for notices hereunder.

                           (b) This Guaranty and the rights and obligations of
Administrative Agent and of Guarantor shall be governed by and construed in
accordance with the law of the State of New York without reference to principles
of conflicts of laws (other than Section 5-1401 of the New York General
Obligations Law).

                  14. Integration of Terms. This Guaranty contains the entire
agreement between Guarantor and the Banks relating to the subject matter hereof
and supersedes all oral statements and prior writing with respect hereto.

                  15. Addresses.

                           (a) The address of Guarantor for notices is:

                               ________________________________________
                               50 West San Fernando Street
                               San Jose, California 95113
                               Attention: General Counsel
                               Telephone Number: (408) 995-5115
                               Telecopier Number: (408) 995-0505

                           (b) The address of Administrative Agent for notices
                               is:

                               Credit Suisse First Boston,
                               New York Branch
                               Eleven Madison Avenue
                               New York, New York  10010-3629
                               Attn:  Portfolio Management
                               Telephone No.(212) 325-9126
                               Telecopy No.:  (212) 325-8321

                  16. Interest; Collection Expenses. Any amount required to be
paid by Guarantor pursuant to the terms hereof shall bear interest at the
Default Rate or the maximum rate permitted by law, whichever is less, from the
date due until paid in full. If Administrative Agent or the Banks are required
to pursue any remedy against Guarantor hereunder, Guarantor shall pay to
Administrative Agent or the Banks, as the case may be, upon demand, all
reasonable attorneys' fees and expenses all other costs and expenses incurred by
Administrative Agent or the Banks in enforcing this Guaranty.

                  17. Termination; Reinstatement of Guaranty. Upon the
indefeasible payment in full of all Guaranteed Obligations owing under the
Credit Documents, this Guaranty shall terminate in its entirety. Notwithstanding
the foregoing, this Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment to or on behalf of Borrower, the
other Portfolio Entities or to Administrative Agent by Borrower, any other
Portfolio Entity or any other Person in respect of the


                                       9
<PAGE>   325
Guaranteed Obligations or by Guarantor hereunder is rescinded or must otherwise
be returned by Administrative Agent upon the insolvency, bankruptcy,
reorganization, dissolution or liquidation of Borrower or any other Portfolio
Entity or otherwise, all as though such payment had not been made.

                  18. Counterparts. The Guaranty may be executed in one or more
duplicate counterparts, and when executed and delivered by all of the parties
listed below shall constitute a single binding agreement.

                  19. No Benefit to Borrower or other Portfolio Entities. This
Guaranty is for the benefit of only Administrative Agent and is not for the
benefit of Borrower or any other Portfolio Entity. Notwithstanding that,
pursuant to the Credit Documents, Guarantor may treat any amounts actually paid
hereunder as a loan to Borrower or the relevant Portfolio Entity, but this
Guaranty shall not be deemed to be a contract to make a loan, or extend other
debt financing or financial accommodation, for the benefit of Borrower, in each
case within the meaning of Section 365(e) of the Federal Bankruptcy Code.

                  20. Scope of Liability. Notwithstanding anything herein to the
contrary, recourse against Guarantor, the other Portfolio Entities, the Member
and their respective Affiliates, members, partners, stockholders, officers,
directors and employees under this Guaranty shall be limited to the extent
provided in Article 9 of the Credit Agreement.

                   [REMINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       10
<PAGE>   326
                  IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
duly executed and delivered as of the day and year first written above.

                            ---------------------------------,
                            a Delaware
                                        ---------------------
                            By:
                               -------------------------------------------------
                               Name:

                               Title:

Agreed and accepted.

CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,
as Administrative Agent

By:
         ----------------------------------
         Name:
         Title:


By:
         ----------------------------------
         Name:
         Title:

<PAGE>   327
                                                                     Exhibit D-3

                              FORM OF DEED OF TRUST

         This DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT, dated
as of ___________, 200__ (this "Deed of Trust") BY _________________, a Delaware
__________ ("Trustor"), whose address is ___________________________, to [TITLE
COMPANY], as trustee ("Trustee"), whose address is [TC ADDRESS], for the benefit
of CREDIT SUISSE FIRST BOSTON, acting through its New York Branch, as
Administrative Agent for the Banks (as defined below) (together with its
successors and assigns, "Beneficiary"), whose address is Eleven Madison Avenue,
New York, New York 10010.

  [FORM DEED OF TRUST INCORPORATES PROVISIONS FOR BOTH FEE AND LEASEHOLD DEED
 OF TRUST. LOCAL COUNSEL TO SUPPLEMENT AS NECESSARY TO COMPLY WITH LOCAL LAW.]

                                    Recitals

         A. Calpine Construction Finance Company II, LLC, a Delaware limited
liability company (the "Borrower"), Credit Suisse First Boston, acting through
its New York Branch, as Lead Arranger and Administrative Agent ("Administrative
Agent"), The Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and
Bookrunner, Banc of America Securities LLC, as Arranger and Co-Syndication
Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication Agent, Bayerische
Landesbank Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC
World Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort
Benson North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, and the financial
institutions listed in Exhibit H thereto, (together with their respective
successors and assigns, the "Banks") have entered into a Credit Agreement, dated
as of October 16, 2000 (as modified, supplemented or amended from time to time,
the "Credit Agreement"), pursuant to which the Banks have agreed to lend to
Borrower Two Billion Five Hundred Million Dollars ($2,500,000,000) for the
purpose of purchasing turbines and purchasing, constructing, owning and
operating various power projects. Borrower intends to loan certain proceeds of
the Credit Agreement to Trustor for Trustor's payment of project costs
associated with the Project (as defined below). Capitalized terms used in this
Deed of Trust and not otherwise defined herein shall have the meanings assigned
to them in the Credit Agreement.

         B. Trustor and Administrative Agent on behalf of the Banks have entered
into the Project Owner Guaranty dated as of _____, 200_ (the "Guaranty")
pursuant to which Trustor has guaranteed, among other things, the obligations of
each of the other Portfolio Entities under the Credit Documents, including
Borrower's obligations under the Credit Agreement and the other Credit Documents
to which Borrower is a party.

         C. The Banks are willing to make the Loans and make other financial
accommodations in accordance with the Credit Documents, but in each case only
upon the condition, among others,
<PAGE>   328
that Trustor secure its obligations under the Guaranty and the other Credit
Documents with various items of real and personal property owned by Trustor.

         D. As set forth more fully below, Trustor intends to secure its payment
and performance of its obligations under the Guaranty and the other Credit
Documents with the Trust Estate (as defined below), along with various other
items of personal and real property owned by Trustor.

                                    Agreement

         NOW, THEREFORE, to secure the prompt and complete payment when and as
due and payable of all of the obligations and liabilities of Trustor to
Beneficiary and the Banks, by acceleration or otherwise, arising out of or in
connection with the Credit Agreement, the Guaranty executed by Trustor in favor
of Beneficiary, the other Credit Documents and the obligations of Trustor set
forth herein (collectively, the "Secured Obligations"; provided, however, the
Secured Obligations shall not include any obligations and liabilities of Trustor
to Beneficiary and the Banks relating to or arising from Projects (as defined in
the Credit Agreement) that have achieved Operation prior to the effective date
of this Deed of Trust), and in consideration of the covenants herein contained
and in the Guaranty, Trustor, intending to be legally bound, does hereby grant,
bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, set over and
confirm unto Trustee in trust for Beneficiary as set forth in this Deed of
Trust, for the benefit of Beneficiary and the Banks, all of Trustor's estate,
right, title, interest, property, claim and demand, now or hereafter arising, in
and to the following property and rights (herein collectively called the "Trust
Estate"):

                  (a) Trustor's interest in and to the lands and premises more
         particularly described in Exhibit A herein (the "Premises") [TRUSTOR'S
         INTEREST UNDER THE GROUND LEASE (AS MODIFIED, SUPPLEMENTED OR AMENDED
         FROM TIME TO TIME, THE "GROUND LEASE") EXECUTED ON __________ BETWEEN
         ____________ AND TRUSTOR, AND THE LEASEHOLD ESTATE CREATED THEREBY AND
         ALL OTHER RIGHTS OF TRUSTOR UNDER THE GROUND LEASE, WHEREBY TRUSTOR
         LEASES THE LANDS AND PREMISES MORE PARTICULARLY DESCRIBED IN EXHIBIT A
         HERETO, (THE "LEASED PREMISES")], together with all and singular the
         tenements, hereditaments and appurtenances thereto, and also Trustor's
         rights in and to (i) any land lying within the right-of-way of any
         streets, open or proposed, adjoining the same, (ii) any easements,
         natural gas pipelines, rights-of-way and rights used in connection
         therewith or as a means of access thereto, including, without
         limitation, the easements described in Exhibit B hereto, all easements
         for ingress and egress and easements for water and sewage pipelines,
         running in favor of Trustor, or appurtenant to the [LEASED] Premises,
         [OR ARISING UNDER THE GROUND LEASE] (collectively, the "Easements"),
         (iii) any and all sidewalks, alleys, strips and gores of land adjacent
         thereto or used in connection therewith (the [LEASED] Premises, the
         Easements and all of the foregoing being hereinafter collectively
         called the "Site"), [AND (iv) ALL RIGHTS OF TRUSTOR TO EXERCISE ANY
         ELECTION OR OPTION TO MAKE ANY DETERMINATION OR TO GIVE ANY NOTICE,
         CONSENT, WAIVER OR APPROVAL OR TO TAKE ANY OTHER ACTION UNDER THE
         GROUND LEASE];


                                       2
<PAGE>   329
                  (b) all buildings, structures, fixtures and other improvements
         now or hereafter erected on the Site owned by Trustor, including the
         Project (collectively, the "Improvements");

                  (c) all machinery, apparatus, equipment, fittings, fixtures,
         boilers, turbines and other articles of personal property, including
         all goods and all goods which become fixtures, now owned or hereafter
         acquired by Trustor and now or hereafter located on, attached to or
         used in the operation of or in connection with the Site and/or the
         Improvements, and all replacements thereof, additions thereto and
         substitutions therefor, to the fullest extent permitted by applicable
         law (all of the foregoing being hereinafter collectively called the
         "Equipment");

                  (d) all raw materials, work in process and other materials
         used or consumed in the construction of, or now or hereafter located on
         or used in connection with, the Site, the Improvements and the
         Equipment, (including, without limitation, fuel and fuel deposits, now
         or hereafter located on the Site or elsewhere or otherwise owned by
         Trustor) (the above items, together with the Equipment, being
         hereinafter collectively called the "Tangible Collateral");

                  (e) all rights, powers, privileges and other benefits of
         Trustor (to the extent assignable) now or hereafter obtained by Trustor
         from any Governmental Authority, including, without limitation, Permits
         issued in the name of Trustor, governmental actions relating to the
         ownership, operation, management and use of the Site, the development
         and financing of the Project, the Improvements and the Equipment, and
         any improvements, modifications or additions thereto;

                  (f) all the lands and interests in lands, tenements and
         hereditaments hereafter acquired by Trustor in connection with or
         appurtenant to the Site, including (without limitation) all interests
         of Trustor, whether as lessor or lessee, in any leases of land
         hereafter made and all rights of Trustor thereunder;

                  (g) any and all other property in connection with or
         appurtenant to the Site that may from time to time, by delivery or by
         writing of any kind, be subjected to the lien hereof by Trustor or by
         anyone on its behalf or with its consent, or which may come into the
         possession or be subject to the control of Trustee or Beneficiary
         pursuant to this Deed of Trust, being hereby collaterally assigned to
         Beneficiary and subjected or added to the lien or estate created by
         this Deed of Trust forthwith upon the acquisition thereof by Trustor,
         as fully as if such property were now owned by Trustor and were
         specifically described in this Deed of Trust and subjected to the lien
         and security interest hereof; and Trustee and Beneficiary is hereby
         authorized to receive any and all such property as and for additional
         security hereunder; and

                  (h) all the remainder or remainders, reversion or reversions,
         rents, revenues, issues, profits, royalties, income and other benefits
         derived from any of the foregoing, all of which are hereby assigned to
         Beneficiary, who is hereby authorized to collect and receive


                                       3
<PAGE>   330
         the same, to give proper receipts and acquittances therefor and to
         apply the same in accordance with the provisions of this Deed of Trust.

            [INCORPORATE PARTICULAR ITEMS OF PROPERTY RELATING TO THE
                PROJECT IN QUESTION INTO COLLATERAL DESCRIPTION]

         TO HAVE AND TO HOLD the said Trust Estate, whether now owned or held or
hereafter acquired, unto Beneficiary, its successors and assigns, pursuant to
the provisions of this Deed of Trust.

         IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security
interest or estate created by this Deed of Trust to secure the payment of the
Secured Obligations, both present and future, shall be first, prior and superior
to any Lien, security interest, reservation of title or other interest
heretofore, contemporaneously or subsequently suffered or granted by Trustor,
its legal representatives, successors or assigns, except only those, if any,
expressly hereinafter referred to and that the Trust Estate is to be held, dealt
with and disposed of by Beneficiary, upon and subject to the terms, covenants,
conditions, uses and agreements set forth in this Deed of Trust.

         PROVIDED ALWAYS, that upon payment in full of the Secured Obligations
in accordance with the terms and provisions hereof and of the other Credit
Documents and the observance and performance by Trustor of its covenants and
agreements set forth herein and therein, then this Deed of Trust and the estate
hereby and therein granted shall cease and be void and shall be reconveyed as
provided herein below.

                            ARTICLE 1 - DEFINITIONS

         1.1 Defined Terms. Capitalized terms used in this Deed of Trust and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement. Any term defined by reference to an agreement, instrument or other
document shall have the meaning so assigned to it whether or not such document
is in effect. In addition, for purposes of this Deed of Trust, the following
definitions shall apply:

                  "Credit Agreement" has the meaning ascribed to it in Recital A
hereof.

                  "Easements " has the meaning ascribed to it in the Granting
Clauses.

                  "Equipment" has the meaning ascribed to it in the Granting
Clauses.

                  ["GROUND LEASE" HAS THE MEANING ASCRIBED TO IT IN THE GRANTING
CLAUSES.]

                  "Guaranty" has the meaning ascribed to it in Recital B hereof.

                  "Improvements" has the meaning ascribed to it in the Granting
Clauses.

                  ["LEASED PREMISES" HAS THE MEANING ASCRIBED TO IT IN THE
GRANTING CLAUSES.]


                                       4
<PAGE>   331
                  "Premises" has the meaning ascribed to it in the Granting
Clauses.

                  "Proceeds" has the meaning assigned to it under the UCC and,
in any event, shall include, without limitation, (i) any and all proceeds of any
insurance (including, without limitation, property casualty and title
insurance), indemnity, warranty or guaranty payable from time to time with
respect to any of the Site; (ii) any and all proceeds in the form of accounts
(as such term is defined in the UCC), security deposits, tax escrows (if any),
down payments (to the extent the same may be pledged under applicable law),
collections, contract rights, documents, instruments, chattel paper, liens and
security instruments, guaranties or general intangibles relating in whole or in
part to the Site and all rights and remedies of whatever kind or nature Trustor
may hold or acquire for the purpose of securing or enforcing any obligation due
Trustor thereunder.

                  "Project" means that certain _____MW (approximately) power
generating facility located at ___________, as more particularly described on
Exhibit G-__ to the Credit Agreement.

                  "Secured Obligations" has the meaning ascribed to it in the
Granting Clauses.

                  "Site" has the meaning ascribed to it in the Granting Clauses.

                  "Tangible Collateral" has the meaning ascribed to it in the
Granting Clauses.

                  "Trust Estate" has the meaning ascribed to it in the Granting
Clauses.

         1.2 Accounting Terms. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not defined herein
shall have the respective meanings given to them under GAAP.

         1.3 The Rules of Interpretation. The rules of interpretation as set
forth in the Credit Agreement shall govern the terms, conditions and provisions
hereof. In the event of any conflict between those set forth in this Deed of
Trust and the Credit Agreement, the latter shall be deemed controlling and shall
preempt the former.

                  ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS

         2.1 Trustor Performance of Credit Documents. Trustor shall perform,
observe and comply with each and every provision hereof, and with each and every
provision contained in the Credit Documents and shall promptly pay to
Beneficiary, when payment shall become due under the Guaranty, the principal
with interest thereon and all other sums required to be paid by Trustor under
this Deed of Trust and the other Credit Documents at the time and in the manner
provided in the Credit Documents.

         2.2 General Representations, Covenants and Warranties. Trustor, to the
best of its knowledge, represents, covenants and warrants that as of the date
hereof: (a) Trustor has good and marketable title to the Site [, INCLUDING THE
GROUND LEASE AND THE LEASEHOLD ESTATE CREATED THEREBY], free and clear of all
encumbrances except the title exceptions set forth on Exhibit C


                                       5
<PAGE>   332
hereto and that it has the right to hold, occupy and enjoy its interest in the
[LEASED] Premises [ON AND SUBJECT TO THE TERMS AND CONDITIONS OF THE GROUND
LEASE], and has good right, full power and lawful authority to mortgage and
pledge the same as provided herein and Beneficiary may at all times peaceably
and quietly enter upon, hold, occupy and enjoy the entire [LEASED] Premises in
accordance with the terms hereof; (b) all costs arising from construction of any
improvements, the performance of any labor and the purchase of all Tangible
Collateral and Improvements have been or shall be paid when due; (c) the Site
has access for ingress and egress to dedicated street(s); and (d) no material
part of the [LEASED] Premises has been damaged, destroyed, condemned or
abandoned.

         2.3 Compliance with Legal Requirements. Trustor shall promptly, fully,
and faithfully comply with all Legal Requirements relating to its use and
occupancy of the [LEASED] Premises, whether or not such compliance requires work
or remedial measures that are ordinary or extraordinary, foreseen or unforeseen,
structural or nonstructural, or that interfere with the use or enjoyment of the
[LEASED] Premises.

         2.4 Insurance; Application of Insurance Proceeds; Application of
Eminent Domain Proceeds.

                  2.4.1 Trustor shall at its sole expense obtain for, deliver
to, assign and maintain for the benefit of Beneficiary, during the term of this
Deed of Trust, insurance policies insuring the Site and liability insurance
policies, all in accordance with the requirements of Section 5.18 of the Credit
Agreement. Trustor shall pay promptly when due any premiums on such insurance
policies and on any renewals thereof. In the event of the foreclosure of this
Deed of Trust or any other transfer of the [LEASED] Premises in extinguishment
of the indebtedness and other sums secured hereby, all right, title and interest
of Trustor in and to all casualty insurance policies, and renewals thereof then
in force, shall pass to the purchaser or grantee in connection therewith;
provided that Trustor's obligations shall be reduced accordingly.

                  2.4.2 All insurance proceeds and all Eminent Domain Proceeds
shall be paid and/or shall be applied in accordance with the provisions of the
Credit Documents, including, without limitation, Sections 7.5 and 7.6 of the
Credit Agreement.

         2.5 Assignment of Rents. Trustor unconditionally and absolutely assigns
to Beneficiary all of Trustor's right, title and interest in and to: all leases,
subleases, occupancy agreements, licenses, rental contracts and other agreements
now or hereafter existing relating to the use or occupancy of the Premises,
together with all guarantees, modifications, extensions and renewals thereof;
and all rents, issues, profits, income and proceeds due or to become due from
tenants of the Premises (the "Leases"), including rentals and all other payments
of any kind under any leases now existing or hereafter entered into, together
with all deposits (including security deposits) of tenants thereunder. This is
an absolute assignment to Beneficiary and not an assignment as security for the
performance of the obligations under the Credit Documents, or any other
indebtedness. Subject to the provisions of herein below, Beneficiary shall have
the right, power and authority to: notify any person that the Leases have been
assigned to Beneficiary and that all rents and other obligations are to be paid
directly to Beneficiary, whether or not Beneficiary has commenced or completed
foreclosure or taken possession of the Premises; settle compromise,


                                       6
<PAGE>   333
release, extend the time of payment of, and make allowances, adjustments and
discounts of any rents or other obligations under the Leases; enforce payment of
rents and other rights under the Leases, prosecute any action or proceeding ,
and defend against any claim with respect to rents and Leases; enter upon, take
possession of and operate the Premises, lease all or any part of the Premises;
and/or perform any and all obligations of Trustor under the Leases and exercise
any and all rights of Trustor therein contained to the full extent of Trustor's
rights and obligations thereunder, with or without the bringing of any action or
the appointment of a receiver. At Beneficiary's request, Trustor shall deliver a
copy of this Deed of Trust to each tenant under a Lease. Trustor irrevocably
directs any tenant, without any requirement for notice to or consent by Trustor,
to comply with all demands of Beneficiary under this Section 2.5 and to turn
over to Beneficiary on demand all rents which it receives. Beneficiary shall
have the right, but not the obligation, to use and apply all rents received
hereunder in such order and such manner as Beneficiary may determine in
accordance with the Credit Agreement. Notwithstanding that this is an absolute
assignment of the rents and Leases and not merely the collateral assignment of,
or the grant of a lien or security interest in the rents and Leases, Beneficiary
grants to Trustor a revocable license to collect and receive the rents and to
retain, use and enjoy such rents. Such license may be revoked by Beneficiary
only upon the occurrence of any Event of Default. Trustor shall apply any rents
which it receives to the payment due under the Secured Obligations, taxes,
assessments, water charges, sewer rents and other governmental charges levied,
assessed or imposed against the Premises, insurance premiums, and other
obligations of lessor under the Leases before using such proceeds for any other
purpose. [UNLESS APPLICABLE (IN WHICH CASE DEFINED TERM "PREMISES" TO BE CHANGED
TO "LEASED PREMISES"), DELETE IF SITE IS HELD VIA LEASE].

         [2.5 REJECTION OF GROUND LEASE BY LESSOR. TO THE EXTENT APPLICABLE, IF
THE LESSOR UNDER THE GROUND LEASE REJECTS OR DISAFFIRMS THE GROUND LEASE OR
PURPORTS OR SEEKS TO DISAFFIRM THE GROUND LEASE PURSUANT TO ANY BANKRUPTCY LAW,
THEN:

                  2.5.1 TO THE EXTENT PERMITTED BY LAW OR GOVERNMENTAL RULE,
TRUSTOR SHALL REMAIN IN POSSESSION OF THE LEASED PREMISES DEMISED UNDER THE
GROUND LEASE AND SHALL PERFORM ALL ACTS REASONABLY NECESSARY FOR TRUSTOR TO
REMAIN IN SUCH POSSESSION FOR THE UNEXPIRED TERM OF SUCH GROUND LEASE (INCLUDING
ALL RENEWALS), WHETHER THE THEN EXISTING TERMS AND PROVISIONS OF SUCH GROUND
LEASE REQUIRE SUCH ACTS OR OTHERWISE; AND

                  2.5.2 ALL THE TERMS AND PROVISIONS OF THIS DEED OF TRUST AND
THE LIEN CREATED BY THIS DEED OF TRUST SHALL REMAIN IN FULL FORCE AND EFFECT AND
SHALL EXTEND AUTOMATICALLY TO ALL OF TRUSTOR'S RIGHTS AND REMEDIES ARISING AT
ANY TIME UNDER, OR PURSUANT TO, SECTION 365(h) OF THE BANKRUPTCY CODE, INCLUDING
ALL OF TRUSTOR'S RIGHTS TO REMAIN IN POSSESSION OF THE LEASED PREMISES.]

         2.6 Expenses. Trustor shall indemnify Beneficiary with respect to any
transaction or matter in any way connected with any portion of the Site, or
Trustor's use, occupancy, or operation of the Site in accordance with Section
5.11 of the Credit Agreement.

         2.7 Beneficiary Assumes No Secured Obligations. It is expressly agreed
that, anything herein contained to the contrary notwithstanding, Trustor shall
remain obligated under all


                                       7
<PAGE>   334
agreements which are included in the definition of "Trust Estate" and shall
perform all of its obligations thereunder in accordance with the provisions
thereof, and neither Beneficiary nor any of the Banks shall have any obligation
or liability with respect to such obligations of Trustor, nor shall Beneficiary
or any of the Banks be required or obligated in any manner to perform or fulfill
any obligations or duties of Trustor under such agreements, or to make any
payment or to make any inquiry as to the nature or sufficiency of any payment
received by it, or to present or file any claim or take any action to collect or
enforce the payment of any amounts which have been assigned to Beneficiary
hereunder or to which Beneficiary or the Banks may be entitled at any time or
times.

         2.8 Further Assurances. Trustor shall, from time to time, at its
expense, promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Trustee or Beneficiary
may reasonably request, in order to perfect and continue the lien and security
interest granted hereby and to enable Beneficiary to obtain the full benefits of
the lien and security interest granted or intended to be granted hereby. Trustor
shall keep the Trust Estate free and clear of all Liens, other than Permitted
Liens. Without limiting the generality of the foregoing, Trustor shall execute
and record or file this Deed of Trust and each amendment hereto, and such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be necessary, or as Beneficiary or
Trustee may reasonably request, in order to perfect and preserve the lien and
security interest granted or purported to be granted hereby. Trustor hereby
authorizes Beneficiary to file one or more financing statements or continuation
statements, and amendments thereto, relative to all or any part of the Trust
Estate necessary to preserve or protect the lien and security interest granted
hereby without the signature of Trustor where permitted by law.

         2.9 Acts of Trustor. Except as provided in or permitted by the Credit
Documents, Trustor hereby represents and warrants that it has not mortgaged,
hypothecated, assigned or pledged and hereby covenants that it will not
mortgage, hypothecate, assign or pledge, so long as this Deed of Trust shall
remain in effect, any of its right, title or interest in and to the Trust Estate
or any part thereof, to anyone other than Beneficiary.

         2.10 After-Acquired Property. Any and all of the Trust Estate which is
hereafter acquired shall immediately, without any further conveyance, assignment
or act on the part of Trustor or Beneficiary, become and be subject to the lien
and security interest of this Deed of Trust as fully and completely as though
specifically described herein, but nothing contained in this Section 2.10 shall
be deemed to modify or change the obligations of Trustor under Section 2.8
hereof. If and whenever from time to time Trustor shall hereafter acquire any
real property or interest therein which constitutes or is intended to constitute
part of the Trust Estate hereunder, Trustor shall promptly give notice thereof
to Beneficiary and Trustor shall forthwith execute, acknowledge and deliver to
Beneficiary a supplement to this Deed of Trust in form and substance reasonably
satisfactory to Beneficiary subjecting the property so acquired to the lien of
this Deed of Trust. At the same time, if Beneficiary so requests, Trustor shall
deliver to Beneficiary an endorsement to the lender's policy of title insurance
issued to Beneficiary insuring the lien of this Deed of Trust which shall insure
to Beneficiary in form and substance satisfactory to Beneficiary that the lien
of this Deed of Trust as insured under such title insurance policy encumber such
later acquired property and that Trustor's title to such property meets all of
the applicable requirements


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<PAGE>   335
of the Credit Documents with respect to title to Trustor's real property. [TO BE
AMENDED IF LOCAL TITLE RULES PRECLUDE SUCH ENDORSEMENT TO TITLE POLICY.]

         2.11 Site.

                  2.11.1 [TRUSTOR SHALL PAY OR CAUSE TO BE PAID ALL RENT AND
OTHER CHARGES REQUIRED UNDER THE GROUND LEASE AS AND WHEN THE SAME ARE DUE AND
SHALL PROMPTLY AND FAITHFULLY PERFORM OR CAUSE TO BE PERFORMED ALL OTHER
MATERIAL TERMS, OBLIGATIONS, COVENANTS, CONDITIONS, AGREEMENTS, INDEMNITIES AND
LIABILITIES OF TRUSTOR UNDER THE GROUND LEASE.] Trustor shall observe all
applicable covenants, easements and other restrictions of record with respect to
the Site, the Easements or to any other part of the Trust Estate, in all
material respects.

                  2.11.2 [TRUSTOR SHALL DO, OR CAUSE TO BE DONE, ALL THINGS
NECESSARY TO PRESERVE AND KEEP UNIMPAIRED ALL RIGHTS OF TRUSTOR AS LESSEE UNDER
THE GROUND LEASE, AND TO PREVENT ANY DEFAULT UNDER THE GROUND LEASE, OR ANY
TERMINATION, SURRENDER, CANCELLATION, FORFEITURE, SUBORDINATION OR IMPAIRMENT
THEREOF. TRUSTOR DOES HEREBY AUTHORIZE AND IRREVOCABLY APPOINT AND CONSTITUTE
BENEFICIARY AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT, WHICH APPOINTMENT IS
COUPLED WITH AN INTEREST, IN ITS NAME, PLACE AND STEAD, TO TAKE ANY AND ALL
ACTIONS DEEMED NECESSARY OR DESIRABLE BY BENEFICIARY TO PERFORM AND COMPLY WITH
ALL THE OBLIGATIONS OF TRUSTOR UNDER THE GROUND LEASE, AND TO DO AND TAKE UPON
THE OCCURRENCE AND DURING CONSTRUCTION OF AN EVENT OF DEFAULT, BUT WITHOUT ANY
OBLIGATION SO TO DO OR TAKE, ANY ACTION WHICH BENEFICIARY DEEMS REASONABLY
NECESSARY TO PREVENT OR CURE ANY DEFAULT BY TRUSTOR UNDER THE GROUND LEASE, TO
ENTER INTO AND UPON THE SITE OR ANY PART THEREOF AS PROVIDED IN THE CREDIT
DOCUMENTS IN ORDER TO PREVENT OR CURE ANY DEFAULT OF TRUSTOR PURSUANT THERETO,
TO THE END THAT THE RIGHTS OF TRUSTOR IN AND TO THE LEASEHOLD ESTATE CREATED BY
THE GROUND LEASE SHALL BE KEPT FREE FROM DEFAULT.]

                  2.11.3 [TRUSTOR SHALL USE ALL REASONABLE EFFORTS TO ENFORCE
THE OBLIGATIONS OF THE LESSOR UNDER THE GROUND LEASE IN A COMMERCIALLY
REASONABLE MANNER.]

                  2.11.4 [TRUSTOR SHALL NOT VOLUNTARILY SURRENDER ITS LEASEHOLD
ESTATE AND INTEREST UNDER THE GROUND LEASE OR MODIFY, CHANGE, SUPPLEMENT, ALTER
OR AMEND THE GROUND LEASE OR AFFIRMATIVELY WAIVE ANY PROVISIONS THEREOF, EITHER
ORALLY OR IN WRITING, EXCEPT AS PERMITTED IN THE CREDIT DOCUMENTS, AND ANY
ATTEMPT ON THE PART OF TRUSTOR TO DO ANY OF THE FOREGOING WITHOUT THE WRITTEN
CONSENT OF BENEFICIARY SHALL BE NULL AND VOID.]

                  2.11.5 [IF ANY ACTION OR PROCEEDING SHALL BE INSTITUTED TO
EVICT TRUSTOR OR TO RECOVER POSSESSION OF THE SITE OR ANY PART THEREOF OR
INTEREST THEREIN FROM TRUSTOR OR ANY ACTION OR PROCEEDING OTHERWISE AFFECTING
THE SITE OR THIS DEED OF TRUST SHALL BE INSTITUTED, THEN TRUSTOR SHALL,
IMMEDIATELY AFTER RECEIPT, DELIVER TO BENEFICIARY A TRUE AND COMPLETE COPY OF
EACH PETITION, SUMMONS, COMPLAINT, NOTICE OF MOTION, ORDER TO SHOW CAUSE AND ALL
OTHER PLEADINGS AND PAPERS, HOWEVER DESIGNATED, SERVED IN ANY SUCH ACTION OR
PROCEEDING.]

                  2.11.6 [TRUSTOR COVENANTS AND AGREES THAT THE FEE TITLE TO THE
SITE AND THE LEASEHOLD ESTATE CREATED UNDER THE GROUND LEASE SHALL NOT MERGE BUT
SHALL ALWAYS REMAIN


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<PAGE>   336
SEPARATE AND DISTINCT, NOTWITHSTANDING THE UNION OF SAID ESTATES EITHER IN
TRUSTOR OR A THIRD PARTY BY PURCHASE OR OTHERWISE AND, IN CASE TRUSTOR ACQUIRES
THE FEE TITLE OR ANY OTHER ESTATE, TITLE OR INTEREST IN AND TO THE SITE, THE
LIEN OF THIS DEED OF TRUST SHALL, WITHOUT FURTHER CONVEYANCE, SIMULTANEOUSLY
WITH SUCH ACQUISITION, BE SPREAD TO COVER AND ATTACH TO SUCH ACQUIRED ESTATE AND
AS SO SPREAD AND ATTACHED SHALL BE PRIOR TO THE LIEN OF ANY MORTGAGE PLACED ON
THE ACQUIRED ESTATE AFTER THE DATE OF THIS DEED OF TRUST.]

                  2.11.7 [NO RELEASE OR FORBEARANCE OF ANY OF TRUSTOR'S
OBLIGATIONS UNDER THE GROUND LEASE BY THE LESSOR THEREUNDER, SHALL RELEASE
TRUSTOR FROM ANY OF ITS OBLIGATIONS UNDER THIS DEED OF TRUST.]

                  2.11.8 [TRUSTOR SHALL, WITHIN TEN DAYS AFTER WRITTEN DEMAND
FROM BENEFICIARY, DELIVER TO BENEFICIARY PROOF OF PAYMENT OF ALL ITEMS THAT ARE
REQUIRED TO BE PAID BY TRUSTOR UNDER THE GROUND LEASE, INCLUDING, WITHOUT
LIMITATION, RENT, TAXES, OPERATING EXPENSES AND OTHER CHARGES.]

                  2.11.9 [THE LIEN OF THIS DEED OF TRUST SHALL ATTACH TO ALL OF
TRUSTOR'S RIGHTS AND REMEDIES AT ANY TIME ARISING UNDER OR PURSUANT TO SECTION
365(h) OF THE BANKRUPTCY LAW, INCLUDING, WITHOUT LIMITATION, ALL OF TRUSTOR'S
RIGHTS TO REMAIN IN POSSESSION OF THE SITE. TRUSTOR SHALL NOT ELECT TO TREAT THE
GROUND LEASE AS TERMINATED UNDER SECTION 365(h)(1) OF THE BANKRUPTCY LAW, AND
ANY SUCH ELECTION SHALL BE VOID.]

                           2.11.9.1 [IF PURSUANT TO SECTION 365(h)(2) OF THE
         BANKRUPTCY LAW, TRUSTOR SHALL SEEK TO OFFSET AGAINST THE RENT RESERVED
         IN THE GROUND LEASE THE AMOUNT OF ANY DAMAGES CAUSED BY THE
         NONPERFORMANCE BY THE LESSOR OR ANY OTHER PARTY OF ANY OF THEIR
         RESPECTIVE OBLIGATIONS THEREUNDER AFTER THE REJECTION BY THE LESSOR OR
         SUCH OTHER PARTY OF THE GROUND LEASE UNDER THE BANKRUPTCY LAW, THEN
         TRUSTOR SHALL, PRIOR TO EFFECTING SUCH OFFSET, NOTIFY BENEFICIARY OF
         ITS INTENT TO DO SO, SETTING FORTH THE AMOUNT PROPOSED TO BE SO OFFSET
         AND THE BASIS THEREFOR. BENEFICIARY SHALL HAVE THE RIGHT TO OBJECT TO
         ALL OR ANY PART OF SUCH OFFSET THAT, IN THE REASONABLE JUDGMENT OF
         BENEFICIARY, WOULD CONSTITUTE A BREACH OF THE GROUND LEASE, AND IN THE
         EVENT OF SUCH OBJECTION, TRUSTOR SHALL NOT EFFECT ANY OFFSET OF THE
         AMOUNTS FOUND OBJECTIONABLE BY BENEFICIARY. NEITHER BENEFICIARY'S
         FAILURE TO OBJECT AS AFORESAID NOR ANY OBJECTION RELATING TO SUCH
         OFFSET SHALL CONSTITUTE AN APPROVAL OF ANY SUCH OFFSET BY BENEFICIARY.]

                           2.11.9.2 [IF ANY ACTION, PROCEEDING, MOTION OR NOTICE
         SHALL BE COMMENCED OR FILED IN RESPECT OF THE LESSOR UNDER THE GROUND
         LEASE OR ANY OTHER PARTY OR IN RESPECT OF THE GROUND LEASE IN
         CONNECTION WITH ANY CASE UNDER THE BANKRUPTCY LAW, THEN BENEFICIARY
         SHALL HAVE THE OPTION TO INTERVENE IN ANY SUCH LITIGATION WITH COUNSEL
         OF BENEFICIARY'S CHOICE. BENEFICIARY MAY PROCEED IN ITS OWN NAME IN
         CONNECTION WITH ANY SUCH LITIGATION, AND TRUSTOR AGREES TO EXECUTE ANY
         AND ALL POWERS, AUTHORIZATIONS, CONSENTS OR OTHER DOCUMENTS REQUIRED BY
         BENEFICIARY IN CONNECTION THEREWITH.]

                           2.11.9.3 [TRUSTOR SHALL, AFTER OBTAINING KNOWLEDGE
         THEREOF, PROMPTLY NOTIFY BENEFICIARY OF ANY FILING BY OR AGAINST THE
         LESSOR OR OTHER PARTY WITH


                                       10
<PAGE>   337
         AN INTEREST IN THE SITE OF A PETITION UNDER THE BANKRUPTCY LAW. TRUSTOR
         SHALL PROMPTLY DELIVER TO BENEFICIARY, FOLLOWING RECEIPT, COPIES OF ANY
         AND ALL NOTICES, SUMMONSES, PLEADINGS, APPLICATIONS AND OTHER DOCUMENTS
         RECEIVED BY TRUSTOR IN CONNECTION WITH ANY SUCH PETITION AND ANY
         PROCEEDINGS RELATING THERETO.]

                           2.11.9.4 [IF THERE SHALL BE FILED BY OR AGAINST
         TRUSTOR A PETITION UNDER THE BANKRUPTCY LAW, AND TRUSTOR, AS LESSEE
         UNDER THE GROUND LEASE, SHALL DETERMINE TO REJECT THE GROUND LEASE
         PURSUANT TO SECTION 365(a) OF THE BANKRUPTCY LAW, THEN TRUSTOR SHALL
         GIVE BENEFICIARY A NOTICE OF THE DATE ON WHICH TRUSTOR SHALL APPLY TO
         THE BANKRUPTCY COURT FOR AUTHORITY TO REJECT THE GROUND LEASE (SUCH
         NOTICE TO BE NO LATER THAN 20 DAYS PRIOR TO SUCH DATE). BENEFICIARY
         SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO SERVE UPON TRUSTOR AT
         ANY TIME PRIOR TO THE DATE ON WHICH TRUSTOR SHALL SO APPLY TO THE
         BANKRUPTCY COURT A NOTICE STATING THAT BENEFICIARY DEMANDS THAT TRUSTOR
         ASSUME AND ASSIGN THE GROUND LEASE TO BENEFICIARY PURSUANT TO SECTION
         365 OF THE BANKRUPTCY LAW. IF BENEFICIARY SHALL SERVE UPON TRUSTOR THE
         NOTICE DESCRIBED IN THE PRECEDING SENTENCE, TO THE EXTENT PERMITTED BY
         LAW OR GOVERNMENTAL RULE TRUSTOR SHALL NOT SEEK TO REJECT THE GROUND
         LEASE AND SHALL COMPLY WITH THE DEMAND PROVIDED FOR IN THE PRECEDING
         SENTENCE. IN ADDITION, EFFECTIVE UPON THE ENTRY OF AN ORDER FOR RELIEF
         WITH RESPECT TO TRUSTOR UNDER THE BANKRUPTCY LAW, TRUSTOR HEREBY
         ASSIGNS AND TRANSFERS TO BENEFICIARY A NON-EXCLUSIVE RIGHT TO APPLY TO
         THE BANKRUPTCY COURT UNDER SECTION 365(d)(4) OF THE BANKRUPTCY LAW FOR
         AN ORDER EXTENDING THE PERIOD DURING WHICH THE GROUND LEASE MAY BE
         REJECTED OR ASSUMED; AND SHALL (a) PROMPTLY NOTIFY BENEFICIARY OF ANY
         DEFAULT BY TRUSTOR IN THE PERFORMANCE OR OBSERVANCE OF ANY OF THE
         TERMS, COVENANTS OR CONDITIONS ON THE PART OF TRUSTOR TO BE PERFORMED
         OR OBSERVED UNDER THE GROUND LEASE AND OF THE GIVING OF ANY WRITTEN
         NOTICE BY THE LESSOR THEREUNDER TO TRUSTOR OF ANY SUCH DEFAULT, AND (b)
         PROMPTLY CAUSE A COPY OF EACH WRITTEN NOTICE GIVEN TO TRUSTOR BY THE
         LESSOR UNDER THE GROUND LEASE TO BE DELIVERED TO BENEFICIARY.
         BENEFICIARY MAY RELY ON ANY NOTICE RECEIVED BY IT FROM ANY SUCH LESSOR
         OF ANY DEFAULT BY TRUSTOR UNDER THE GROUND LEASE AND MAY TAKE SUCH
         ACTION AS MAY BE PERMITTED BY LAW OR GOVERNMENTAL RULE TO CURE SUCH
         DEFAULT EVEN THOUGH THE EXISTENCE OF SUCH DEFAULT OR THE NATURE THEREOF
         SHALL BE QUESTIONED OR DENIED BY TRUSTOR OR BY ANY PERSON ON ITS
         BEHALF.]

         2.12 Power of Attorney. Trustor does hereby irrevocably constitute and
appoint Beneficiary, its true and lawful attorney (which appointment is coupled
with an interest), with full power of substitution, for Trustor and in the name,
place and stead of Trustor or in Beneficiary's own name, for so long as any of
the Secured Obligations are outstanding, to ask, demand, collect, receive,
receipt for and sue for any and all rents, income and other sums which are
assigned hereunder with full power to endorse the name of Trustor on all
instruments given in payment or in part payment thereof, to settle, adjust or
compromise any claims thereunder as fully as Trustor itself could do and in its
discretion file any claim or take any action or proceeding, either in its own
name or in the name of Trustor or otherwise, which Beneficiary may deem
necessary or appropriate to protect and preserve the right, title and interest
of Beneficiary in and to such rents, income and other sums and the security
intended to be afforded hereby; provided that Beneficiary shall not exercise
such rights unless an Event of Default has occurred and is continuing.


                                       11
<PAGE>   338
         2.13 Covenant to Pay. If an Event of Default has occurred and is
continuing and such Event of Default could reasonably be expected to materially
and adversely affect Beneficiary's interest hereunder in the Trust Estate or
result in personal injury, then Beneficiary, among its other rights and
remedies, shall have the right, but not the obligation, to pay, observe or
perform the same, in whole or in part, and with such modifications as
Beneficiary reasonably shall deem advisable. To the extent provided in the
Credit Documents, all sums, including, without limitation, reasonable attorneys
fees, so expended or incurred by Beneficiary by reason of the default of
Trustor, or by reason of the bankruptcy or insolvency of Trustor, as well as,
without limitation, sums expended or incurred to sustain the lien or estate of
this Deed of Trust or its priority, or to protect or enforce any rights of
Beneficiary hereunder, or to recover any of the Secured Obligations, or to
complete construction of the Project for which the Credit Documents are intended
as financing, or for repairs, maintenance, alterations, replacements or
improvements thereto or for the protection thereof, or for real estate taxes or
other governmental assessments or charges against any part of the Trust Estate,
or premiums for insurance of the Trust Estate, shall be entitled to the benefit
of the lien on the Trust Estate as of the date of the recording of this Deed of
Trust, shall be deemed to be added to and be part of the Secured Obligations
secured hereby, whether or not the result thereof causes the total amount of the
Secured Obligations to exceed the stated amount set forth in the second
introductory paragraph of this Deed of Trust, and shall be repaid by Trustor as
provided in the Credit Documents.

         2.14 Security Agreement.

                  2.14.1 This Deed of Trust shall also be a security agreement
between Trustor and Beneficiary covering the Deed of Trust Property constituting
personal property or fixtures (hereinafter collectively called "UCC Collateral")
governed by the [RELEVANT STATE] Uniform Commercial Code ("UCC") as the same may
be more specifically set forth in any financing statement delivered in
connection with this Deed of Trust, and as further security for the payment and
performance of the Secured Obligations, Trustor hereby grants to Beneficiary a
security interest in such portion of the Site to the full extent that the Site
may be subject to the UCC. In addition to Beneficiary's other rights hereunder,
Beneficiary shall have all rights of a secured party under the UCC. Trustor
shall execute and deliver to Beneficiary all financing statements and such
further assurances that may be reasonably required by Beneficiary to establish,
create, perfect (to the extent the same can be achieved by the filing of a
financing statement) and maintain the validity and priority of Beneficiary's
security interests, and Trustor shall bear all reasonable costs thereof,
including all UCC searches. Except as otherwise provided in the Credit
Documents, if Beneficiary should dispose of any of the Site comprising the UCC
Collateral pursuant to the UCC, ten (10) days' prior written notice by
Beneficiary to Trustor shall be deemed to be reasonable notice; provided,
however, Beneficiary may dispose of such property in accordance with the
foreclosure procedures of this Deed of Trust in lieu of proceeding under the
UCC. Beneficiary may from time to time execute and deliver at Trustor's expense,
all continuation statements, termination statements, amendments, partial
releases, or other instruments relating to all financing statements by and
between Trustor and Beneficiary. Except as otherwise provided in the Credit
Documents, if an Event of Default shall occur and is continuing, (a)
Beneficiary, in addition to any other rights and remedies which it may have, may
exercise immediately and without demand to the extent permitted by law, any and
all rights and remedies granted to a secured party under the UCC


                                       12
<PAGE>   339
including, without limiting the generality of the foregoing, the right to take
possession of the UCC Collateral or any part thereof, and to take such other
measures as Beneficiary may deem necessary for the care, protection and
preservation of such collateral and (b) upon request or demand of Beneficiary,
Trustor shall at its expense, assemble the UCC Collateral and make it available
to Beneficiary at a convenient place acceptable to Beneficiary. Trustor shall
pay to Beneficiary on demand, any and all expenses, including reasonable
attorneys' fees and disbursements incurred or paid by Beneficiary in protecting
the interest in the UCC Collateral and in enforcing the rights hereunder with
respect to such UCC Collateral.

                  2.14.2 Trustor and the Beneficiary agree, to the extent
permitted by law, that: (i) this Deed of Trust upon recording or registration in
the real estate records of the proper office shall constitute a financing
statement filed as a "fixture filing" within the meaning of [SECTIONS 9-313 AND
9-402 OF THE UCC]; (ii) all or a part of the Trust Estate are or are to become
fixtures; and (iii) the addresses of Trustor and Beneficiary are as set forth on
the first page of this Deed of Trust.

                              ARTICLE 3 - REMEDIES

         3.1 Acceleration of Maturity. If an Event of Default occurs and is
continuing, Beneficiary may (except that such acceleration shall be automatic if
the Event of Default is caused by a Bankruptcy Event of Trustor), declare the
Secured Obligations to be due and payable immediately, and upon such declaration
such principal and interest and other sums shall immediately become due and
payable without demand, presentment, notice or other requirements of any kind
(all of which Trustor waives).

         3.2 Protective Advances If an Event of Default shall have occurred and
is continuing, then without thereby limiting Beneficiary's other rights or
remedies, waiving or releasing any of Trustor's obligations, or imposing any
obligation on Beneficiary, Beneficiary may either advance any amount owing or
perform any or all actions that Beneficiary considers necessary or appropriate
to cure such default. All such advances shall constitute "Protective Advances."
No sums advanced or performance rendered by Beneficiary shall cure, or be deemed
a waiver of any Event of Default.

         3.3 Institution of Equity Proceedings. If an Event of Default occurs
and is continuing, Beneficiary may institute an action, suit or proceeding in
equity for specific performance of this Deed of Trust, the Guaranty or any other
Credit Document, all of which shall be specifically enforceable by injunction or
other equitable remedy.

         3.4 Beneficiary's Power of Enforcement.

                  (a) If an Event of Default occurs and is continuing,
Beneficiary shall be entitled, at its option and in its sole and absolute
discretion, to prepare and record on its own behalf, or to deliver to Trustee
for recording, if appropriate, written declaration of default and demand for
sale and written Notice of Breach and Election to Sell (or other statutory
notice) to cause the Trust Estate to be sold to satisfy the obligations hereof,
and in the case of delivery to Trustee, Trustee shall cause said notice to be
filed for record.


                                       13
<PAGE>   340
                  (b) After the lapse of such time as may then be required by
law following the recordation of said Notice of Breach and Election to Sell, and
notice of sale having been given as then required by law, Trustee without demand
on Trustor, shall sell the Trust Estate or any portion thereof at the time and
place fixed by it in said notice, either as a whole or in separate parcels, and
in such order as it may determine, at public auction to the highest bidder, of
cash in lawful money of the United States payable at the time of sale. Trustee
may, for any cause it deems expedient, postpone the sale of all or any portion
of said property until it shall be completed and, in every case, notice of
postponement shall be given by public announcement thereof at the time and place
last appointed for the sale and from time to time thereafter Trustee may
postpone such sale by public announcement at the time fixed by the preceding
postponement; provided that Trustee shall give Trustor notice of such
postponement to the extent required by law. Trustee shall execute and deliver to
the purchaser its Deed, Bill of Sale, or other instrument conveying said
property so sold, but without any covenant or warranty, express or implied. The
recitals in such instrument of conveyance of any matters or facts shall be
conclusive proof of the truthfulness thereof. Any person, including Beneficiary,
may bid at the sale.

                  (c) After deducting all costs, fees and expenses of Trustee
and of this Deed of Trust, including, without limitation, costs of evidence of
title and reasonable attorneys' fees of Trustee or Beneficiary in connection
with a sale, Trustee shall apply the proceeds of such sale to payment of all
sums expended under the terms hereof not then repaid, with accrued interest at
the interest rate on the Notes then to the payment of all other sums then
secured hereby and the remainder, if any, to the person or persons legally
entitled thereto.

                  (d) If any Event of Default occurs and is continuing,
Beneficiary may, either with or without entry or taking possession of the Trust
Estate, and without regard to whether or not the indebtedness and other sums
secured hereby shall be due and without prejudice to the right of Beneficiary
thereafter to bring an action or proceeding to foreclose or any other action for
any default existing at the time such earlier action was commenced, proceed by
any appropriate action or proceeding: (1) to enforce payment of the Secured
Obligations, to the extent permitted by law, or the performance of any term
hereof or any other right; (2) to foreclose this Deed of Trust in any manner
provided by law for the foreclosure of mortgages or deeds of trust on real
property and to sell, as an entirety or in separate lots or parcels, the Trust
Estate or any portion thereof pursuant to the laws of the [RELEVANT STATE] or
under the judgment or decree of a court or courts of competent jurisdiction, and
Beneficiary shall be entitled to recover in any such proceeding all costs and
expenses incident thereto, including reasonable attorneys' fees in such amount
as shall be awarded by the court; (3) to exercise any or all of the rights and
remedies available to it under the Credit Documents; and (4) to pursue any other
remedy available to it. Beneficiary shall take action either by such proceedings
or by the exercise of its powers with respect to entry or taking possession, or
both, as Beneficiary may determine.

                  (e) The remedies described in this Section 3.4 may be
exercised with respect to all or any portion of the Tangible Collateral, either
simultaneously with the sale of any real property encumbered hereby or
independent thereof. Beneficiary shall at any time be


                                       14
<PAGE>   341
permitted to proceed with respect to all or any portion of the Tangible
Collateral in any manner permitted by the UCC. Trustor agrees that Beneficiary's
inclusion of all or any portion of the Tangible Collateral in a sale or other
remedy exercised with respect to the real property encumbered hereby, as
permitted by the UCC, is a commercially reasonable disposition of such property.

         3.5 Beneficiary's Right to Enter and Take Possession, Operate and Apply
Income.

                  (a) If an Event of Default occurs and is continuing, Trustor,
upon demand of Beneficiary, shall forthwith surrender to Beneficiary the actual
possession and, if and to the extent permitted by law, Beneficiary itself, or by
such officers or agents as it may appoint, may enter and take possession of all
the Trust Estate including the Tangible Collateral, without liability for
trespass, damages or otherwise, and may exclude Trustor and its agents and
employees wholly therefrom and may have joint access with Trustor to the books,
papers and accounts of Trustor.

                  (b) If an Event of Default has occurred and is continuing and
Trustor shall for any reason fail to surrender or deliver the Trust Estate, the
Tangible Collateral or any part thereof after Beneficiary's demand, Beneficiary
may obtain a judgment or decree conferring on Beneficiary or Trustee the right
to immediate possession or requiring Trustor to deliver immediate possession of
all or part of such property to Beneficiary or Trustee and Trustor hereby
specifically consents to the entry of such judgment or decree. Trustor shall pay
to Beneficiary or Trustee, upon demand, all costs and expenses of obtaining such
judgment or decree and reasonable compensation to Beneficiary or Trustee, their
attorneys and agents, and all such costs, expenses and compensation shall, until
paid, be secured by the lien of this Deed of Trust.

                  (c) Upon every such entering upon or taking of possession,
Beneficiary or Trustee may hold, store, use, operate, manage and control the
Trust Estate and conduct the business thereof, and, from time to time in its
sole and absolute discretion and without being under any duty to so act:

                           (1) make all necessary and proper maintenance,
repairs, renewals and replacements thereto and thereon, and all necessary
additions, betterments and improvements thereto and thereon and purchase or
otherwise acquire fixtures, personalty and other property in connection
therewith;

                           (2) insure or keep the Trust Estate insured;

                           (3) manage and operate the Trust Estate and exercise
all the rights and powers of Trustor in their name or otherwise with respect to
the same;

                           (4) enter into agreements with others to exercise the
powers herein granted Beneficiary or Trustee, all as Beneficiary or Trustee from
time to time may determine; and shall apply the monies so received by
Beneficiary or Trustee in such priority as provided by the Credit Documents to
(1) the payment of interest and principal due and payable to the Beneficiary,
(2) the deposits for taxes and assessments and insurance premiums due, (3) the
cost of insurance, taxes,


                                       15
<PAGE>   342
assessments and other proper charges upon the Trust Estate or any part thereof;
(4) the compensation, expenses and disbursements of the agents, attorneys and
other representatives of Beneficiary or Trustee as allowed under this Deed of
Trust; and (5) any other charges or costs required to be paid by Trustor under
the terms of the Credit Documents.

                           (5) rent or sublet the Trust Estate or any portion
thereof for any purpose permitted by this Deed of Trust.

                  Beneficiary or Trustee shall surrender possession of the Trust
Estate and the Tangible Collateral to Trustor (i) as may be required by law or
court order, or (ii) when all amounts under any of the terms of the Credit
Documents, including this Deed of Trust, shall have been paid current and all
Events of Default have been cured or waived. The same right of taking
possession, however, shall exist if any subsequent Event of Default shall occur
and be continuing.

         3.6 Separate Sales. To the extent permitted by law or Governmental
Rule, the Trust Estate may be sold in one or more parcels and in such manner and
order as Trustee, in his sole discretion, may elect, it being expressly
understood and agreed that the right of sale arising out of any Event of Default
shall not be exhausted by any one or more sales.

         3.7 Waiver of Appraisement, Valuation, Stay, Extension and Redemption
Laws. Trustor agrees to the full extent permitted by law that if an Event of
Default occurs and is continuing, neither Trustor nor anyone claiming through or
under it shall or will set up, claim or seek to take advantage of any
appraisement, valuation, stay, extension or redemption laws now or hereafter in
force, in order to prevent or hinder the enforcement or foreclosure of this Deed
of Trust or the absolute sale of the Trust Estate or any portion thereof or the
final and absolute putting into possession thereof, immediately after such sale,
of the purchasers thereof, and Trustor for itself and all who may at any time
claim through or under it, hereby waives, to the full extent that it may
lawfully so do, the benefit of all such laws, and any and all right to have the
assets comprising the Trust Estate marshalled upon any foreclosure of the lien
hereof and agrees that Trustee or any court having jurisdiction to foreclose
such lien may sell the Trust Estate in part or as an entirety.

         3.8 Receiver. If an Event of Default occurs and is continuing,
Beneficiary, to the extent permitted by law, and without regard to the value,
adequacy or occupancy of the security for the indebtedness and other sums
secured hereby, shall be entitled as a matter of right if it so elects to the
appointment of a receiver to enter upon and take possession of the Trust Estate
and to collect all earnings, revenues and receipts and apply the same as the
court may direct, and such receiver may be appointed by any court of competent
jurisdiction upon application by Beneficiary. To the extent permitted by law or
Governmental Rule, Beneficiary may have a receiver appointed without notice to
Trustor or any third party, and Beneficiary may waive any requirement that the
receiver post a bond. To the extent permitted by law or Governmental Rule,
Beneficiary shall have the power to designate and select the Person who shall
serve as the receiver and to negotiate all terms and conditions under which such
receiver shall serve. To the extent permitted by law or Governmental Rule, any
receiver appointed on Beneficiary's behalf may be an Affiliate of Beneficiary.
The reasonable expenses, including receiver's fees, reasonable attorneys' fees,
costs and agent's compensation, incurred pursuant to the powers herein contained
shall be secured by this Deed of


                                       16
<PAGE>   343
Trust. The right to enter and take possession of and to manage and operate the
Trust Estate and to collect all earnings, revenues and receipts, whether by a
receiver or otherwise, shall be cumulative to any other right or remedy
available to Beneficiary under this Deed of Trust, the other Credit Documents or
otherwise available to Beneficiary and may be exercised concurrently therewith
or independently thereof, but such rights shall be exercised in a manner which
is otherwise in accordance with and consistent with the Credit Documents.
Beneficiary shall be liable to account only for such earnings, revenues and
receipts (including, without limitation, security deposits) actually received by
Beneficiary, whether received pursuant to this section or any other provision
hereof. Notwithstanding the appointment of any receiver or other custodian,
Beneficiary shall be entitled as pledgee to the possession and control of any
cash, deposits, or instruments at the time held by, or payable or deliverable
under the terms of this Deed of Trust to, Beneficiary.

         3.9 Suits to Protect the Trust Estate. Beneficiary shall have the power
and authority to institute and maintain any suits and proceedings as
Beneficiary, in its sole and absolute discretion, may deem advisable (a) to
prevent any impairment of the Trust Estate by any acts which may be unlawful or
in violation of this Deed of Trust, (b) to preserve or protect its interest in
the Trust Estate, or (c) to restrain the enforcement of or compliance with any
legislation or other Legal Requirement that may be unconstitutional or otherwise
invalid, if the enforcement of or compliance with such enactment, rule or order
might impair the security hereunder or be prejudicial to Beneficiary's interest

         3.10 Proofs of Claim. In the case of any receivership, insolvency,
Bankruptcy Event, reorganization, arrangement, adjustment, composition or other
judicial proceedings affecting Trustor, any Affiliate or any guarantor, co-maker
or endorser of any of Trustor's obligations, its creditors or its property,
Beneficiary, to the extent permitted by law, shall be entitled to file such
proofs of claim or other documents as it may deem be necessary or advisable in
order to have its claims allowed in such proceedings for the entire amount due
and payable by Trustor under the Credit Documents, at the date of the
institution of such proceedings, and for any additional amounts which may become
due and payable by Trustor after such date.

         3.11 Trustor to Pay Amounts Secured Hereby on Any Default in Payment;
Application of Monies by Beneficiary.

                  (a) In case of a foreclosure sale of all or any part of the
Trust Estate and of the application of the proceeds of sale to the payment of
the sums secured hereby, to the extent permitted by law, Beneficiary shall be
entitled to enforce payment from Trustor of any additional amounts then
remaining due and unpaid and to recover judgment against Trustor for any portion
thereof remaining unpaid, with interest at the interest rate on the Notes.

                  (b) Trustor hereby agrees to the extent permitted by law, that
no recovery of any such judgment by Beneficiary or other action by Beneficiary
and no attachment or levy of any execution upon any of the Trust Estate or any
other property shall in any way affect the Lien and security interest of this
Deed of Trust upon the Trust Estate or any part thereof or any Lien, rights,
powers or remedies of Beneficiary hereunder, but such Lien, rights, powers and
remedies shall continue unimpaired as before.


                                       17
<PAGE>   344
                  (c) Any monies collected or received by Beneficiary under this
Section 3.11 shall be first applied to the payment of compensation, expenses and
disbursements of the agents, attorneys and other representatives of Beneficiary,
and the balance remaining shall be applied to the payment of amounts due and
unpaid under the Credit Documents.

         3.12 Delay or Omission; No Waiver. No delay or omission of Beneficiary
or the Banks to exercise any right, power or remedy upon any Event of Default
shall exhaust or impair any such right, power or remedy or shall be construed to
waive any such Event of Default or to constitute acquiescence therein. Every
right, power and remedy given to Beneficiary whether contained herein or in the
other Credit Documents or otherwise available to Beneficiary may be exercised
from time to time and as often as may be deemed expedient by Beneficiary.

         3.13 No Waiver of One Default to Affect Another. No waiver of any Event
of Default hereunder shall extend to or affect any subsequent or any other Event
of Default then existing, or impair any rights, powers or remedies consequent
thereon. If Beneficiary (a) grants forbearance or an extension of time for the
payment of any sums secured hereby; (b) takes other or additional security for
the payment thereof; (c) waives or does not exercise any right granted in this
Deed of Trust or any other Credit Document; (d) releases any part of the Trust
Estate from the lien or security interest of this Deed of Trust or any other
instrument securing the Secured Obligations; (e) consents to the filing of any
map, plat or replat of the [LEASED] Premises; (f) consents to the granting of
any easement on the [LEASED] Premises; or (g) makes or consents to any agreement
changing the terms of this Deed of Trust or any other Credit Document
subordinating the lien or any charge hereof, no such act or omission shall
release, discharge, modify, change or affect the liability under this Deed of
Trust or any other Credit Document or otherwise of Trustor, or any subsequent
purchaser of the Trust Estate or any part thereof or any maker, co-signer,
surety or guarantor with respect to any other matters not addressed by such act
or omission. No such act or omission shall preclude Beneficiary from exercising
any right, power or privilege herein granted or intended to be granted in case
of any Event of Default then existing or of any subsequent Event of Default,
nor, except as otherwise expressly provided in an instrument or instruments
executed by Beneficiary, shall the lien or security interest of this Deed of
Trust be altered thereby, except to the extent expressly provided in such acts
or omissions. In the event of the sale or transfer by operation of law or
otherwise of all or any part of the Trust Estate, Beneficiary, without notice to
any person, firm or corporation, is hereby authorized and empowered to deal with
any such vendee or transferee with reference to the Trust Estate or the
indebtedness secured hereby, or with reference to any of the terms or conditions
hereof, as fully and to the same extent as it might deal with the original
parties hereto and without in any way releasing or discharging any of the
liabilities or undertakings hereunder, or waiving its right to declare such sale
or transfer an Event of Default as provided herein. Notwithstanding anything to
the contrary contained in this Deed of Trust or any other Credit Document, (i)
in the case of any non-monetary Event of Default, Beneficiary may continue to
accept payments due hereunder without thereby waiving the existence of such or
any other Event of Default and (ii) in the case of any monetary Event of
Default, Beneficiary may accept partial payments of any sums due hereunder
without thereby waiving the existence of such Event of Default if the partial
payment is not sufficient to completely cure such Event of Default.


                                       18
<PAGE>   345
         3.14 Discontinuance of Proceedings; Position of Parties Restored. If
Beneficiary shall have proceeded to enforce any right or remedy under this Deed
of Trust by foreclosure, entry of judgement or otherwise and such proceedings
shall have been discontinued or abandoned for any reason, or such proceedings
shall have resulted in a final determination adverse to Beneficiary, then and in
every such case Trustor and Beneficiary shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of
Beneficiary shall continue as if no such proceedings had occurred or had been
taken.

         3.15 Remedies Cumulative. Subject to the provisions of Section 5.15
hereof, no right, power or remedy, including without limitation remedies with
respect to any security for the Secured Obligations, conferred upon or reserved
to Beneficiary by this Deed of Trust or any other Credit Document is exclusive
of any other right, power or remedy, but each and every such right, power and
remedy shall be cumulative and concurrent and shall be in addition to any other
right, power and remedy given hereunder or under any other Credit Document, now
or hereafter existing at law, in equity or by statute, and Beneficiary shall be
entitled to resort to such rights, powers, remedies or security as Beneficiary
shall in its sole and absolute discretion deem advisable.

         3.16 Interest After Event of Default. If an Event of Default shall have
occurred and is continuing, all sums outstanding and unpaid under the Credit
Documents, including this Deed of Trust, shall, at Beneficiary's option, bear
interest at the interest rate on the [NOTES] until such Event of Default has
been cured. Trustor's obligation to pay such interest shall be secured by this
Deed of Trust.

         3.17 Foreclosure; Expenses of Litigation. If Trustee forecloses,
reasonable attorneys' fees for services in the supervision of said foreclosure
proceeding shall be allowed to the Trustee and Beneficiary as part of the
foreclosure costs. In the event of foreclosure of the lien hereof, there shall
be allowed and included as additional indebtedness all reasonable expenditures
and expenses which may be paid or incurred by or on behalf of Beneficiary for
attorneys' fees, appraiser's fees, outlays for documentary and expert evidence,
stenographers' charges, publication costs, and costs (which may be estimated as
to items to be expended after foreclosure sale or entry of the decree) of
procuring all such abstracts of title, title searches and examinations, title
insurance policies and guarantees, and similar data and assurances with respect
to title as Beneficiary may deem reasonably necessary either to prosecute such
suit or to evidence to a bidder at any sale which may be had pursuant to such
decree the true condition of the title to or the value of the Trust Estate or
any portion thereof. All expenditures and expenses of the nature in this section
mentioned, and such expenses and fees as may be incurred in the protection of
the Trust Estate and the maintenance of the lien and security interest of this
Deed of Trust, including the reasonable fees of any attorney employed by
Beneficiary in any litigation or proceeding affecting this Deed of Trust or any
other Credit Document, the Trust Estate or any portion thereof, including,
without limitation, civil, probate, appellate and bankruptcy proceedings, or in
preparation for the commencement or defense of any proceeding or threatened suit
or proceeding, shall be immediately due and payable by Trustor, with interest
thereon at the interest rate on the Notes, and shall be secured by this Deed of
Trust. Trustee waives its right to any statutory fee in connection with any
judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a
reasonable fee for such services.


                                       19
<PAGE>   346
         3.18 Deficiency Judgments Recourse against Trustor, the other Portfolio
Entities, the Member and their respective Affiliates, members, partners,
stockholders, officers, directors and employees under this Deed of Trust shall
be limited to the extent provided in Article 9 of the Credit Agreement. Subject
to Article 9 of the Credit Agreement, if after foreclosure of this Deed of Trust
or Trustee's sale hereunder, there shall remain any deficiency with respect to
any amounts payable under the Credit Documents, including hereunder, or any
amounts secured hereby, and Beneficiary shall institute any proceedings to
recover such deficiency or deficiencies, all such amounts shall continue to bear
interest at the interest rate on the Notes. Subject to Article 9 of the Credit
Agreement, Trustor waives any defense to Beneficiary's recovery against Trustor
of any deficiency after any foreclosure sale of the Trust Estate. Subject to
Article 9 of the Credit Agreement, to the extent permitted by law, Trustor
expressly waives any defense or benefits that may be derived from any statute
granting Trustor any defense to any such recovery by Beneficiary. Subject to
Article 9 of the Credit Agreement, in addition, Beneficiary and Trustee shall be
entitled to recovery of all of their reasonable costs and expenditures
(including without limitation any court imposed costs) in connection with such
proceedings, including their reasonable attorneys' fees, appraisal fees and the
other costs, fees and expenditures referred to in Section 3.17 above. This
provision shall survive any foreclosure or sale of the Trust Estate, any portion
thereof and/or the extinguishment of the lien hereof.

         3.19 Waiver of Jury Trial. Beneficiary and Trustor each waive any right
to have a jury participate in resolving any dispute whether sounding in
contract, tort or otherwise arising out of, connected with, related to or
incidental to the relationship established between them in connection with this
Deed of Trust, the Guaranty or any other Credit Document. Any such disputes
shall be resolved in a bench trial without a jury.

         3.20 Exculpation of Beneficiary. The acceptance by Beneficiary of the
assignment contained herein with all of the rights, powers, privileges and
authority created hereby shall not, prior to entry upon and taking possession of
the Trust Estate by Beneficiary, be deemed or construed to make Beneficiary a
"mortgagee in possession"; nor thereafter or at any time or in any event
obligate Beneficiary to appear in or defend any action or proceeding relating to
the Trust Estate, nor shall Beneficiary, prior to such entry and taking, be
liable in any way for any injury or damage to person or property sustained by
any Person in or about the Trust Estate.

              ARTICLE 4 - RIGHTS AND RESPONSIBILITIES OF TRUSTEE;
                      OTHER PROVISIONS RELATING TO TRUSTEE

         Notwithstanding anything to the contrary in this Deed of Trust, Trustor
and Beneficiary agree as follows.

         4.1 Exercise of Remedies by Trustee To the extent that this Deed of
Trust or applicable law authorizes or empowers Beneficiary to exercise any
remedies set forth in Article Three hereof or otherwise, or perform any acts in
connection therewith, Trustee (but not to the exclusion of Beneficiary unless so
required under the law of the State of [RELEVANT STATE]) shall have the power to
exercise any or all such remedies, and to perform any acts provided for in this
Deed of Trust in connection therewith, all for the benefit of Beneficiary and on
Beneficiary's behalf in accordance with applicable law of the State of [RELEVANT
STATE]. In connection therewith,


                                       20
<PAGE>   347
Trustee: (a) shall not exercise, or waive the exercise of, any Beneficiary's
Remedies (other than any rights or Trustee to any indemnity or reimbursement),
except at Beneficiary's request, and (b) shall exercise, or waive the exercise
of, any or all of Beneficiary's remedies at Beneficiary's request, and in
accordance with Beneficiary's directions as to the manner of such exercise or
waiver. Trustee may, however, decline to follow Beneficiary's request or
direction if Trustee shall be advised by counsel that the action or proceeding,
or manner thereof, so directed may not lawfully be taken or waived.

         4.2 Rights and Privileges of Trustee. To the extent that this Deed of
Trust requires Trustor to reimburse Beneficiary for any expenditures Beneficiary
may incur, Trustee shall be entitled to the same rights to reimbursement of
expenses as Beneficiary, subject to such limitations and conditions as would
apply in the case of Beneficiary. To the extent that this Deed of Trust negates
or limits Beneficiary's liability as to any matter, Trustee shall be entitled to
the same negation or limitation of liability. To the extent that Trustor,
pursuant to this Deed of Trust, appoints Beneficiary as Trustor's attorney in
fact for any purpose, Beneficiary or (when so instructed by Beneficiary) Trustee
shall be entitled to act on Trustor's behalf without joinder or confirmation by
the other.

         4.3 Resignation or Replacement of Trustee Trustee may resign by an
instrument in writing addressed to Beneficiary, and Trustee may be removed at
any time with or without cause (i.e., in Beneficiary's sole and absolute
discretion) by an instrument in writing executed by Beneficiary. In case of the
death, resignation, removal or disqualification of Trustee or if for any reason
Beneficiary shall deem it desirable to appoint a substitute, successor or
replacement Trustee to act instead of Trustee originally named (or in place of
any substitute, successor or replacement Trustee), then Beneficiary shall have
the right and is hereby authorized and empowered to appoint a successor,
substitute or replacement Trustee, and, if preferred, several substitute
trustees in succession, without any formality other than appointment and
designation in writing executed by Beneficiary, which instrument shall be
recorded if required by the law of the State of [RELEVANT STATE]. The law of the
State of [RELEVANT STATE] shall govern the qualifications of any Trustee. The
authority conferred upon Trustee by this Deed of Trust shall automatically
extend to any and all other successor, substitute and replacement Trustee(s)
successively until the Secured Obligations have been paid in full or the Trust
Estate has been sold hereunder or released in accordance with the provisions of
the Credit Documents. Beneficiary's written appointment and designation of any
Trustee shall be full evidence of Beneficiary's right and authority to make the
same and of all facts therein recited. No confirmation, authorization, approval
or other action by Trustor shall be required in connection with any resignation
or other replacement of Trustee.

         4.4 Authority of Beneficiary. If Beneficiary is a banking corporation,
state banking corporation or a national banking association and the instrument
of appointment of any successor or replacement Trustee is executed on
Beneficiary's behalf by an officer of such corporation, state banking
corporation or national banking association, then such appointment may be
executed by any authorized officer or agent of Beneficiary and such appointment
shall be conclusively presumed to be executed with authority and shall be valid
and sufficient without proof of any action by the board of directors or any
superior officer of Beneficiary.


                                       21
<PAGE>   348
         4.5 Effect of Appointment of Successor Trustee. Upon the appointment
and designation of any successor, substitute or replacement Trustee, Trustee's
entire estate and title in the Trust Estate shall vest in the designated
successor, substitute or replacement Trustee. Such successor, substitute or
replacement Trustee shall thereupon succeed to and shall hold, possess and
execute all the rights, powers, privileges, immunities and duties herein
conferred upon Trustee. All references herein to Trustee shall be deemed to
refer to Trustee (including any successor or substitute appointed and designated
as herein provided) from time to time acting hereunder.

         4.6 Confirmation of Transfer and Succession. Any new Trustee appointed
pursuant to any of the provisions hereof shall, without any further act, deed or
conveyance, become vested with all the estates, properties, rights, powers and
trusts of his predecessor in the rights hereunder with like effect as if
originally named as Trustee herein; but nevertheless, upon the written request
of Beneficiary or of any successor, substitute or replacement Trustee, any
former Trustee ceasing to act shall execute and deliver an instrument
transferring to such successor, substitute or replacement Trustee all of the
right, title, estate and interest in the Trust Estate of Trustee so ceasing to
act, together with all the rights, powers, privileges, immunities and duties
herein conferred upon Trustee, and shall duly assign, transfer and deliver all
properties and moneys held by said Trustee hereunder to said successor,
substitute or replacement Trustee.

         4.7 Exculpation. Trustee shall not be liable for any error of judgment
or act done by Trustee in good faith, or otherwise be responsible or accountable
under any circumstances whatsoever, except for Trustee's gross negligence,
willful misconduct or knowing violation of law. Trustee shall not be personally
liable in case of entry by him, or anyone entering by virtue of the powers
herein granted him, upon the Trust Estate for debts contracted or liability or
damages incurred in the management or operation of the Trust Estate. Trustee
shall have the right to rely on any instrument, document or signature
authorizing or supporting any action taken or proposed to be taken by it
hereunder, believed by it in good faith to be genuine. All moneys received by
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated in any
manner from any other moneys (except to the extent required by law). Trustee
shall be under no liability for interest on any moneys received by it hereunder.

         4.8 Endorsement and Execution of Documents. Upon Beneficiary's written
request, Trustee shall, without liability or notice to Trustor, execute, consent
to, or join in any instrument or agreement in connection with or necessary to
effectuate the purposes of the Credit Documents. Trustor hereby irrevocably
designates Trustee as its attorney in fact to execute, acknowledge and deliver,
on Trustor's behalf and in Trustor's name, all instruments or agreements
necessary to implement any provision(s) of this Deed of Trust or to further
perfect the lien created by this Deed of Trust on the Trust Estate. This power
of attorney shall be deemed to be coupled with an interest and shall survive any
disability of Trustor.

         4.9 Multiple Trustees. If Beneficiary appoints multiple trustees, then
any Trustee, individually, may exercise all powers granted to Trustee under this
instrument, without the need for action by any other Trustee(s).


                                       22
<PAGE>   349
         4.10 No Required Action. Trustee shall not be required to take any
action under this Deed of Trust or to institute, appear in or defend any action,
suit or other proceeding in connection therewith where in his opinion such
action will be likely to involve him in expense or liability, unless requested
so to do by a written instrument signed by Beneficiary and, if Trustee so
requests, unless Trustee is tendered security and indemnity satisfactory to him
against any and all costs, expense and liabilities arising therefrom. Trustee
shall not be responsible for the execution, acknowledgment or validity of the
Credit Documents, or for the proper authorization thereof, or for the
sufficiency of the lien and security interest purported to be created hereby,
and makes no representation in respect thereof or in respect of the rights,
remedies and recourses of Beneficiary.

         4.11 Terms of Trustee's Acceptance. Trustee accepts the trust created
by this Deed of Trust upon the following terms and conditions:

                  (a) DELEGATION. Trustee may exercise any of its powers through
appointment of attorney(s) in fact or agents.

                  (b) SECURITY. Trustee shall be under no obligation to take any
action upon any Event of Default unless furnished security or indemnity, in form
satisfactory to Trustee, against costs, expenses, and liabilities that Trustee
may incur.

                  (c) COSTS AND EXPENSES. Trustor shall reimburse Trustee, as
part of the Secured Obligations secured hereunder, for all reasonable
disbursements and expenses (including reasonable legal fees and expenses)
incurred by reason of or arising from an Event of Default and as provided for in
this Deed of Trust, including any of the foregoing incurred in Trustee's
administering and executing the trust created by this Deed of Trust and
performing Trustee's duties and exercising Trustee's powers under this Deed of
Trust.

                  (d) RELEASE. Upon payment of the Secured Obligations secured
hereunder, Beneficiary shall request Trustee to release this Deed of Trust and
shall surrender all the Secured Obligations secured hereunder to Trustee.
Trustee shall release this Deed of Trust without charge to Trustor. Trustor
shall pay all costs of recordation, if any.

                              ARTICLE 5 - GENERAL

         5.1 Discharge. When all of the Secured Obligations shall have been paid
in full, then this Deed of Trust and the lien and security interest created
hereby shall be of no further force and effect, Trustor shall be released from
the covenants, agreements and obligations of Trustor contained in this Deed of
Trust and all right, title and interest in and to the Trust Estate shall revert
to Trustor. Beneficiary and Trustee, at the request and the expense of Trustor,
shall promptly execute a deed of reconveyance and such other documents as may be
reasonably requested by Trustor to evidence the discharge and satisfaction of
this Deed of Trust and the release of Trustor from its obligations hereunder.

         5.2 No Waiver. The exercise of the privileges granted in this Deed of
Trust to perform Trustor's obligations under the agreements which constitute the
Trust Estate shall in no event be considered or constitute a waiver of any right
which Beneficiary may have at any time, after an


                                       23
<PAGE>   350
Event of Default shall have occurred and be continuing, to declare the Secured
Obligations to be immediately due and payable. No delay or omission to exercise
any right, remedy or power accruing upon any default shall impair any such
right, remedy or power or shall be construed to be a waiver of any such default
or acquiescence therein; and every such right, remedy and power may be exercised
from time to time and as often as may be deemed expedient.

         5.3 Extension, Rearrangement or Renewal of Secured Obligations. It is
expressly agreed that any of the Secured Obligations at any time secured hereby
may be from time to time extended for any period, or with the consent of Trustor
rearranged or renewed, and that any part of the security herein described, or
any other security for the Secured Obligations, may be waived or released,
without altering, varying or diminishing the force, effect or lien or security
interest of this Deed of Trust; and the lien and security interest granted by
this Deed of Trust shall continue as a prior lien and security interest on all
of the Trust Estate not expressly so released, until the Secured Obligations are
fully paid and this Deed of Trust is terminated in accordance with the
provisions hereof; and no other security now existing or hereafter taken to
secure the payment of the Secured Obligations or any part thereof or the
performance of any obligation or liability of Trustor whatever shall in any
manner impair or affect the security given by this Deed of Trust; and all
security for the payment of the Secured Obligations or any part thereof and the
performance of any obligation or liability shall be taken, considered and held
as cumulative.

         5.4 Forcible Detainer. Trustor agrees for itself and all Persons
claiming by, through or under it, that subsequent to foreclosure hereunder in
accordance with this Deed of Trust and applicable law if Trustor shall hold
possession of the Trust Estate or any part thereof, Trustor or the Persons so
holding possession shall be guilty of trespass; and any such tenant failing or
refusing to surrender possession upon demand shall be guilty of forcible
detainer and shall be liable to such purchasers for reasonable rental on said
premises, and shall be subject to eviction and removal in accordance with law.

         5.5 Waiver of Stay or Extension. To the extent permitted to be waived
by law, Trustor shall not at any time insist upon or plead or in any manner
whatever claim the benefit or advantage of any stay, extension or moratorium law
now or at any time hereafter in force in any locality where the Trust Estate or
any part thereof may or shall be situated, nor shall Trustor claim any benefit
or advantage from any law now or hereafter in force providing for the valuation
or appraisement of the Trust Estate or any part thereof prior to any sale
thereof to be made pursuant to any provision of this Deed of Trust or to a
decree of any court of competent jurisdiction, nor after any such sale shall
Trustor claim or exercise any right conferred by any law now or at any time
hereafter in force to redeem the Trust Estate so sold or any part thereof; and
Trustor hereby expressly waives all benefit or advantage of any such law or laws
and the appraisement of the Trust Estate or any part thereof, and covenants that
Trustor shall not hinder or delay the execution of any power herein granted and
delegated to Beneficiary but that Trustor shall permit the execution of every
such power as though no such law had been made.

         5.6 Notices. Except where certified or registered mail notice is
required by applicable law, any notice to Trustor or Beneficiary required or
permitted hereunder shall be deemed to be given when given in the manner
prescribed in Section 12.1 of the Credit Agreement. All notices to


                                       24
<PAGE>   351
Trustee required or permitted hereunder shall be deemed given when given in the
manner prescribed in Section 12.1 of the Credit Agreement to the following
address:

                           [TRUSTEE ADDRESS]

         5.7 Severability. All rights, powers and remedies provided herein may
be exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Deed of Trust invalid, unenforceable or not entitled
to be recorded, registered or filed under any applicable law. In the event any
term or provision contained in this Deed of Trust is in conflict, or may
hereafter be held to be in conflict, with the laws of [RELEVANT STATE] or of the
United States of America, this Deed of Trust shall be affected only as to such
particular term or provision, and shall in all other respects remain in full
force and effect.

         5.8 Application of Payments. In the event that any part of the Secured
Obligations cannot lawfully be secured hereby, or in the event that the lien and
security interest hereof cannot be lawfully enforced to pay any part of the
Secured Obligations, or in the event that the lien or security interest created
by this Deed of Trust shall be invalid or unenforceable as to any part of the
Secured Obligations, then all payments on the Secured Obligations shall be
deemed to have been first applied to the complete payment and liquidation of
that part of the Secured Obligations which is not secured by this Deed of Trust
and the unsecured portion of the Secured Obligations shall be completely paid
and liquidated prior to the payment and liquidation of the remaining secured
portion of the Secured Obligations.

         5.9 Governing Law

                    THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF [RELEVANT STATE.]

         5.10 Entire Agreement. THIS WRITTEN AGREEMENT, THE GUARANTY AND THE
OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

AS OF THE DATE HEREOF, THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

         TRUSTOR                                     BENEFICIARY

         5.11 Amendments. This Deed of Trust may be amended, supplemented or
otherwise modified only by an instrument in writing signed by Trustor and
Beneficiary.


                                       25
<PAGE>   352
         5.12 Successors and Assigns. All terms of this Deed of Trust shall run
with the land and bind each of Trustor and Beneficiary and their respective
successors and assigns, and all Persons claiming under or through Trustor or
Beneficiary, as the case may be, or any such successor or assign, and shall
inure to the benefit of Beneficiary and Trustor, and their respective successors
and assigns.

         5.13 Renewal, Etc. Beneficiary may at any time and from time to time
renew or extend this Deed of Trust, or alter or modify the same in any way, or
waive any of the terms, covenants or conditions hereof in whole or in part and
may release any portion of the Trust Estate or any other security, and grant
such extensions and indulgences in relation to the Secured Obligations as
Beneficiary may determine, without the consent of any junior lienor or
encumbrancer and without any obligation to give notice of any kind thereto and
without in any manner affecting the priority of the lien and security interest
hereof on any part of the Trust Estate; provided that nothing in this Section
5.13 shall grant Beneficiary the right to alter or modify the Deed of Trust
without the consent of the Trustor unless otherwise specifically permitted in
this Deed of Trust.

         5.14 Future Advances. This Deed of Trust is executed and delivered to
secure, among other things, Trustor's guaranty of future advances under the
Credit Agreement. It is understood and agreed that this Deed of Trust secures
Trustor's guaranty of present and future advances made pursuant to the Credit
Agreement and that the lien of such future advances shall relate to the date of
this Deed of Trust. The advances are being used by Trustor to pay for all or
part of the cost of completing erection, acquisition, construction, alteration
or repair of any part of the Project, the financing of which, in whole or in
part, this Deed of Trust was given to secure.

         5.15 Liability. Notwithstanding any provision in this Deed of Trust to
the contrary, Recourse against the Trustor, the other Portfolio Entities, the
Member and their respective Affiliates (all as defined in the Credit Agreement),
stockholders, officers, directors and employees under this Deed of Trust shall
be limited to the extent provided in Article 9 of the Credit Agreement.

         5.16 [SEVERABILITY AND COMPLIANCE WITH USURY LAW. THE CREDIT DOCUMENTS
ARE INTENDED TO BE PERFORMED IN ACCORDANCE WITH, AND ONLY TO THE EXTENT
PERMITTED BY, ALL APPLICABLE GOVERNMENTAL RULES AND LEGAL REQUIREMENTS. IF ANY
PROVISION OF ANY OF THE CREDIT DOCUMENTS OR THE APPLICATION THEREOF TO ANY
PERSON OR CIRCUMSTANCE SHALL, FOR ANY REASON AND TO ANY EXTENT, BE INVALID OR
UNENFORCEABLE, NEITHER THE REMAINDER OF THE INSTRUMENT IN WHICH SUCH PROVISION
IS CONTAINED, NOR THE APPLICATION OF SUCH PROVISION TO OTHER PERSONS OR
CIRCUMSTANCES, NOR THE OTHER INSTRUMENTS REFERRED TO HEREINABOVE, SHALL BE
AFFECTED THEREBY, BUT RATHER SHALL BE ENFORCEABLE TO THE GREATEST EXTENT
PERMITTED BY LAW. IT IS EXPRESSLY STIPULATED AND AGREED TO BE THE INTENT OF
TRUSTOR AND BENEFICIARY AT ALL TIMES TO COMPLY WITH THE APPLICABLE [RELEVANT
STATE] LAW GOVERNING THE MAXIMUM RATE OR AMOUNT OF INTEREST PAYABLE ON OR IN
CONNECTION WITH THE SECURED OBLIGATIONS (OR APPLICABLE UNITED STATES FEDERAL LAW
TO THE EXTENT THAT IT PERMITS BENEFICIARY TO CONTRACT FOR, CHARGE, TAKE, RESERVE
OR RECEIVE A GREATER AMOUNT OF INTEREST THAN UNDER [RELEVANT STATE] LAW). IF THE
APPLICABLE LAW IS EVER JUDICIALLY INTERPRETED SO AS TO RENDER USURIOUS ANY
AMOUNT CALLED FOR UNDER THE CREDIT DOCUMENTS, OR CONTRACTED FOR, CHARGED, TAKEN,
RESERVED OR RECEIVED WITH RESPECT TO THE EXTENSION OF CREDIT EVIDENCED BY THE
CREDIT DOCUMENTS OR IF ACCELERATION OF THE MATURITY OF THE SECURED OBLIGATIONS
OR IF ANY PREPAYMENT BY TRUSTOR RESULTS IN TRUSTOR


                                       26
<PAGE>   353
HAVING PAID ANY INTEREST IN EXCESS OF THAT PERMITTED BY LAW, THEN IT IS
TRUSTOR'S AND BENEFICIARY'S EXPRESS INTENT THAT ALL EXCESS AMOUNTS THERETOFORE
COLLECTED BY BENEFICIARY BE CREDITED ON THE PRINCIPAL BALANCE DUE UNDER THE
CREDIT DOCUMENTS (OR, IF THE CREDIT DOCUMENTS HAVE BEEN OR WOULD THEREBY BE PAID
IN FULL, REFUNDED TO TRUSTOR), AND THE PROVISIONS OF THE CREDIT DOCUMENTS
IMMEDIATELY BE DEEMED REFORMED AND THE AMOUNTS THEREAFTER COLLECTIBLE THEREUNDER
REDUCED, WITHOUT THE NECESSITY OF THE EXECUTION OF ANY NEW DOCUMENT, SO AS TO
COMPLY WITH THE APPLICABLE LAW, BUT SO AS TO PERMIT THE RECOVERY OF THE FULLEST
AMOUNT OTHERWISE CALLED FOR HEREUNDER AND THEREUNDER. THE RIGHT TO ACCELERATE
MATURITY OF SECURED OBLIGATIONS DOES NOT INCLUDE THE RIGHT TO ACCELERATE ANY
INTEREST WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH ACCELERATION, AND
BENEFICIARY DOES NOT INTEND TO COLLECT ANY UNEARNED INTEREST IN THE EVENT OF
ACCELERATION. ALL SUMS PAID OR AGREED TO BE PAID TO BENEFICIARY FOR THE USE,
FORBEARANCE OR DETENTION OF THE SECURED OBLIGATIONS SHALL, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, BE AMORTIZED, PRORATED, ALLOCATED AND SPREAD
THROUGHOUT THE FULL TERM OF THE SECURED OBLIGATIONS UNTIL PAYMENT IN FULL SO
THAT THE RATE OR AMOUNT OF INTEREST ON ACCOUNT OF THE SECURED OBLIGATIONS DOES
NOT EXCEED THE APPLICABLE USURY CEILING.]

         5.17 [SUBJECT TO GROUND LEASE. THE TRUSTOR, THE BENEFICIARY AND THE
TRUSTEE ACKNOWLEDGE AND AGREE THAT THIS DEED OF TRUST IS SUBJECT TO THE TERMS
AND CONDITIONS OF THE GROUND LEASE. IN THE EVENT OF A CONFLICT BETWEEN THE TERMS
OF THIS DEED OF TRUST AND THE GROUND LEASE, THE TERMS OF THE GROUND LEASE SHALL
SUPERSEDE AND CONTROL.]

         5.18 Release of Collateral.

                  (a) Notwithstanding any provision herein to the contrary, The
Trust Estate or any part thereof shall be released from the security interest
created by this Deed of Trust at any time or from time to time upon the request
of the Trustor; provided that the requirements of the Credit Documents have been
satisfied. Upon satisfaction of such requirements, a Responsible Officer of the
Beneficiary shall instruct the Trustee to promptly execute, deliver and
acknowledge any necessary or proper instruments of termination, satisfaction or
release to evidence the release of any Trust Estate permitted to be released
pursuant to this Deed of Trust.

                  (b) The Beneficiary may instruct the Trustee to release Trust
Estate from the security interest created hereunder upon the sale or disposition
of such Trust Estate pursuant to the Beneficiary's powers, rights and duties
with respect to remedies provided herein.

         5.19 Fixture Filing Under Uniform Commercial Code. Trustor and the
Beneficiary agree, to the extent permitted by law, that: (i) this Deed of Trust
upon recording or registration in the real estate records of the proper office
shall constitute a financing statement filed as a "fixture filing" within the
meaning of [SECTIONS 9-313 AND 9-402] of the UCC; and (ii) the addresses of
Trustor and Beneficiary are as set forth on the last page of this Deed of Trust.

         5.20 Credit Agreement Controls. [EXCEPT WITH RESPECT TO SECTION 5.17
HEREOF,] In the event of any conflict between any terms and provisions set forth
in this Deed of Trust and those set forth in the Credit Agreement, the terms and
provisions of the Credit Agreement shall supersede and control the terms and
provisions of this Deed of Trust.


                                       27
<PAGE>   354
                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       28
<PAGE>   355
         IN WITNESS WHEREOF, Trustor has caused this Deed of Trust to be duly
executed and delivered as of the day and year first above written.

                              -------------------------,
                              a Delaware
                                        ---------------

                              By:
                                 -------------------------------------------
                                 Name:

                                 Title:


                                       29
<PAGE>   356
THE STATE OF     :
                 :
COUNTY OF        :

         This instrument was acknowledged before me on _______________, 200__,
by _______________________________________, ____________________________________
President of _____ ____________________________________, a ______________
corporation, on behalf of such corporation.

                                               _________________________________
                                               Notary Public, State of _________
                                               My Commission Expires:___________
                                               _________________________________
                                               Printed Name of Notary


                                       30
<PAGE>   357
                                    EXHIBIT A

                        DESCRIPTION OF [LEASED] PREMISES
<PAGE>   358
                                    EXHIBIT B

                            DESCRIPTION OF EASEMENTS
<PAGE>   359
                                    EXHIBIT C

                             PERMITTED ENCUMBRANCES
<PAGE>   360

                                                                     EXHIBIT D-3
                                                         to the Credit Agreement

RECORDING REQUESTED BY  AND
WHEN RECORDED, RETURN TO:

Christopher B. Isaac

LATHAM & WATKINS
701 "B" STREET, SUITE 2100
SAN DIEGO, CALIFORNIA  92101



                                     FORM OF
                       DEED OF TRUST, ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

                         DATED AS OF ____________, 200__

                                       BY

                             A DELAWARE __________,
                                   AS TRUSTOR

                                       TO

                                [TITLE COMPANY],
                                   AS TRUSTEE

                               FOR THE BENEFIT OF

                           CREDIT SUISSE FIRST BOSTON,
                       ACTING THROUGH ITS NEW YORK BRANCH,
                     AS ADMINISTRATIVE AGENT FOR THE BANKS,
                                 AS BENEFICIARY
<PAGE>   361
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                   Page
                                                                                                                   ----
<S>                                                                                                               <C>
ARTICLE 1 - DEFINITIONS..........................................................................................    4

   1.1      DEFINED TERMS........................................................................................    4
   1.2      ACCOUNTING TERMS.....................................................................................    5
   1.3      THE RULES OF INTERPRETATION..........................................................................    5

ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS.....................................................................    5

   2.1      TRUSTOR PERFORMANCE OF CREDIT DOCUMENTS..............................................................    5
   2.2      GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES....................................................    5
   2.3      COMPLIANCE WITH LEGAL REQUIREMENTS...................................................................    6
   2.4      INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS.................    6
   2.5      ASSIGNMENT OF RENTS..................................................................................    6
   2.6      EXPENSES.............................................................................................    7
   2.7      BENEFICIARY ASSUMES NO SECURED OBLIGATIONS...........................................................    7
   2.8      FURTHER ASSURANCES...................................................................................    8
   2.9      ACTS OF TRUSTOR......................................................................................    8
   2.10     AFTER-ACQUIRED PROPERTY..............................................................................    8
   2.11     SITE.................................................................................................    9
   2.12     POWER OF ATTORNEY....................................................................................   11
   2.13     COVENANT TO PAY......................................................................................   12
   2.14     SECURITY AGREEMENT...................................................................................   12

ARTICLE 3 - REMEDIES.............................................................................................   13

   3.1      ACCELERATION OF MATURITY.............................................................................   13
   3.2      PROTECTIVE ADVANCES..................................................................................   13
   3.3      INSTITUTION OF EQUITY PROCEEDINGS....................................................................   13
   3.4      BENEFICIARY'S POWER OF ENFORCEMENT...................................................................   13
   3.5      BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME...........................   15
   3.6      SEPARATE SALES.......................................................................................   16
   3.7      WAIVER OF APPRAISEMENT, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS...............................   16
   3.8      RECEIVER.............................................................................................   16
   3.9      SUITS TO PROTECT THE TRUST ESTATE....................................................................   17
   3.10     PROOFS OF CLAIM......................................................................................   17
   3.11     TRUSTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY
              BENEFICIARY........................................................................................   17
   3.12     DELAY OR OMISSION; NO WAIVER.........................................................................   18
   3.13     NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER...........................................................   18
   3.14     DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED..........................................   19
   3.15     REMEDIES CUMULATIVE..................................................................................   19
   3.16     INTEREST AFTER EVENT OF DEFAULT......................................................................   19
   3.17     FORECLOSURE; EXPENSES OF LITIGATION..................................................................   19
   3.18     DEFICIENCY JUDGMENTS.................................................................................   20
   3.19     WAIVER OF JURY TRIAL.................................................................................   20
   3.20     EXCULPATION OF BENEFICIARY...........................................................................   20

ARTICLE 4 - RIGHTS AND RESPONSIBILITIES OF TRUSTEE; OTHER PROVISIONS RELATING TO TRUSTEE.........................   20
</TABLE>

                                       1
<PAGE>   362
<TABLE>
<S>                                                                                                               <C>
   4.1      EXERCISE OF REMEDIES BY TRUSTEE......................................................................   20
   4.2      RIGHTS AND PRIVILEGES OF TRUSTEE.....................................................................   21
   4.3      RESIGNATION OR REPLACEMENT OF TRUSTEE................................................................   21
   4.4      AUTHORITY OF BENEFICIARY.............................................................................   21
   4.5      EFFECT OF APPOINTMENT OF SUCCESSOR TRUSTEE...........................................................   22
   4.6      CONFIRMATION OF TRANSFER AND SUCCESSION..............................................................   22
   4.7      EXCULPATION..........................................................................................   22
   4.8      ENDORSEMENT AND EXECUTION OF DOCUMENTS...............................................................   22
   4.9      MULTIPLE TRUSTEES....................................................................................   22
   4.10     NO REQUIRED ACTION...................................................................................   23
   4.11     TERMS OF TRUSTEE'S ACCEPTANCE........................................................................   23

ARTICLE 5 - GENERAL..............................................................................................   23

   5.1      DISCHARGE............................................................................................   23
   5.2      NO WAIVER............................................................................................   23
   5.3      EXTENSION, REARRANGEMENT OR RENEWAL OF SECURED OBLIGATIONS...........................................   24
   5.4      FORCIBLE DETAINER....................................................................................   24
   5.5      WAIVER OF STAY OR EXTENSION..........................................................................   24
   5.6      NOTICES..............................................................................................   24
   5.7      SEVERABILITY.........................................................................................   25
   5.8      APPLICATION OF PAYMENTS..............................................................................   25
   5.9      GOVERNING LAW........................................................................................   25
   5.10     ENTIRE AGREEMENT.....................................................................................   25
   5.11     AMENDMENTS...........................................................................................   25
   5.12     SUCCESSORS AND ASSIGNS...............................................................................   26
   5.13     RENEWAL, ETC.........................................................................................   26
   5.14     FUTURE ADVANCES......................................................................................   26
   5.15     LIABILITY............................................................................................   26
   5.16     [SEVERABILITY AND COMPLIANCE WITH USURY LAW..........................................................   26
   5.17     [SUBJECT TO GROUND LEASE.............................................................................   27
   5.18     RELEASE OF COLLATERAL................................................................................   27
   5.19     FIXTURE FILING UNDER UNIFORM COMMERCIAL CODE.........................................................   27
   5.20     CREDIT AGREEMENT CONTROLS............................................................................   27
</TABLE>

                                       2
<PAGE>   363
                                                                    EXHIBIT D4-A

                           BORROWER SECURITY AGREEMENT


                  This BORROWER SECURITY AGREEMENT (this "Agreement"), dated as
of October 16, 2000, is entered into by and between CALPINE CONSTRUCTION FINANCE
COMPANY II, LLC, a Delaware limited liability company ("Borrower"), and CREDIT
SUISSE FIRST BOSTON, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks (as defined below).

                                     PREFACE

     A. Borrower, the financial institutions listed on Exhibit H to the Credit
Agreement (the "Banks"), Credit Suisse First Boston, acting through its New York
Branch, as Lead Arranger and Administrative Agent ("Administrative Agent"), The
Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc
of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, have entered into
that certain Credit Agreement, dated as of October 16, 2000 (as modified,
supplemented or amended from time to time, the "Credit Agreement"), pursuant to
which the Banks agreed to make certain advances of credit to Borrower in the
amounts specified and on the terms and subject to the conditions set forth
therein. For purposes of this Agreement, the term "Banks" shall include the
Administrative Agent, the Lead Arrangers, the Co-Syndication Agents, the
Bookrunner, the Co-Documentation Agents and the Banks (as such terms are defined
in the Credit Agreement).

     B. As a condition precedent to the Banks' making the advances of credit
contemplated by the Credit Agreement, the Banks require that Borrower shall have
executed this Agreement.

                                    AGREEMENT

         In consideration of the promises contained herein, and in order to
induce the Banks to enter into the Credit Agreement and to make the advances of
credit pursuant to the terms thereof, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower hereby agrees with Administrative Agent for the benefit of
Administrative Agent and the Banks as follows:

     1. DEFINITIONS.

         1.1 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a
<PAGE>   364
jurisdiction other than the State of New York the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.

         1.2 All capitalized terms used, but not otherwise defined herein, shall
have the meanings provided in the Credit Agreement. All other terms used herein
(whether or not capitalized) shall have the meanings given them in the UCC. The
rules of interpretation contained in Exhibit A to the Credit Agreement shall
apply to this Agreement.

     2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST.

         2.1 To secure the timely payment and performance of the Obligations (as
defined in Section 3 hereof) Borrower does hereby assign, grant and pledge to,
and subject to a security interest in favor of, Administrative Agent, on behalf
of and for the benefit of Administrative Agent and the Banks, all the estate,
right, title and interest of Borrower, whether now owned or hereafter acquired,
in, to and under:

                  2.1.1 The following agreements and documents, as amended from
time to time (individually, an "Assigned Agreement," and collectively, the
"Assigned Agreements") and all of Borrower's rights thereunder:

                  (a) any Project Documents and Turbine Purchase Contracts to
which Borrower is or may become a party;

                  (b) the insurance policies maintained or required to be
maintained by Borrower or any other Person under the Credit Agreement,
including, without limitation, any such policies insuring against loss of
revenues by reason of interruption of the operation of a Project and all loss
proceeds and other amounts payable to Borrower thereunder, and all eminent
domain proceeds relating to any Project;

                  (c) to the extent assignable, all agreements, including vendor
warranties, running to Borrower or assigned to Borrower, relating to the
construction, maintenance, improvement, operation or acquisition of a Project or
Turbine or any part thereof, or transport of material, equipment and other parts
of a Project or any part thereof;

                  (d) any lease or sublease agreements or easement agreements,
including, without limitation, those relating to a Project or any part thereof
or any ancillary facilities, to which Borrower is or becomes a party;

                  (e) each Additional Project Document, and, to the extent
assignable, any other agreements to which Borrower may be or become a party,
including, without limitation, those relating to the construction or operation
of a Project or any part thereof or the purchase of a Turbine;

                  (f) all amendments, supplements, substitutions and renewals to
any of the aforesaid agreements; and


                                       2
<PAGE>   365
                  (g) all Permits issued in the name of Borrower, but excluding
any of the Permits which by their terms or by operation of law prohibit or do
not allow assignment or which would become void solely by virtue of a security
interest being granted therein;

                  2.1.2 all rents, profits, income, distributions royalties and
revenues derived in any other manner by Borrower, including, without limitation,
those from its direct or indirect ownership of a Project, Turbine or Portfolio
Entity or any part thereof, including, without limitation, all Project Revenues
and all revenues from the sale of electricity, steam, heat, goods or services,
but excluding amounts distributed to Borrower under Waterfall Levels 8 and 10 of
Section 7.2.1 of the Credit Agreement;

                  2.1.3 all other personal property and fixtures of Borrower,
including, without limitation, those relating to any Project, Turbine or
Portfolio Entity, whether now owned or existing or hereafter acquired or
arising, or in which Borrower may have an interest, and wheresoever located,
whether or not of a type which may be subject to a security interest under the
UCC, including, without limitation, all machinery, tools, engines, turbines
(including combustion turbines and steam turbine generators), boilers, fuel
storage tanks, control equipment, appliances, mechanical and electrical systems,
elevators, lighting, alarm systems, fire control systems, furnishings,
furniture, as-extracted collateral, equipment, service equipment, motor
vehicles, building or maintenance equipment, building or maintenance materials,
pipes and pipelines supplies, goods and property covered by any warehouse
receipts or bills of lading or other such documents, spare parts, maps, plans,
specifications, architectural, engineering, construction or shop drawings,
manuals or similar documents, copyrights, trademarks and trade names, and any
replacements, renewals or substitutions for any of the foregoing or additional
tangible or intangible personal property hereafter acquired by Borrower;

                  2.1.4 all goods, money, instruments, investment securities,
investment property, accounts, contract rights, commercial tort claims, letters
of credit, letter of credit rights, payment intangibles, promissory notes,
software, supporting obligations, documents, deposit accounts, chattel paper
(including tangible and electronic chattel paper), general intangibles, and
inventory, including, without limitation, those relating directly or indirectly
to any Project, Turbine or Portfolio Entity;

                  2.1.5 the Portfolio Entity Note from Development Company (the
"Development Company Portfolio Entity Note") and the Portfolio Entity Note from
CCFC II Equipment Finance Company, LLC, a Delaware limited liability company;

                  2.1.6 all Accounts, including without limitation, the
Construction Accounts, the Revenue Accounts, the Loss Proceeds Account and the
Working Capital Reserve Accounts, including any sub-accounts within such
accounts; and

                  2.1.7 the proceeds of all of the foregoing (all of the
collateral described in clauses 2.1.1 through 2.1.7 being herein collectively
referred to as the "Collateral"), including, without limitation, (a) all rights
of Borrower to receive moneys due and to become due under or pursuant to the
Collateral; (b) all rights of Borrower to receive the return of any premiums
for, or proceeds of, any insurance, indemnity, warranty or guaranty with respect
to the Collateral or to

                                       3
<PAGE>   366
receive any condemnation proceeds; (c) all claims of Borrower for damages
arising out of, or for breach of or default under, the Assigned Agreements or
any other Collateral; (d) all rights of Borrower to terminate, amend,
supplement, modify or waive performance under the Assigned Agreements, to
perform thereunder and to compel performance and otherwise exercise all remedies
thereunder; and (e) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed of, whether voluntarily or
involuntarily.

         2.2 In order to effectuate the foregoing, Borrower has heretofore
delivered, or concurrently with the delivery hereof, is delivering to
Administrative Agent an executed counterpart or certified copy of each of the
Assigned Agreements. Borrower will likewise deliver to Administrative Agent an
executed counterpart of each future lease, construction agreement, operation
agreement and other agreement, including, without limitation, those relating to
a Project, Turbine or Portfolio Entity, or any part thereof, and amendments and
supplements to the foregoing, included in the Collateral, as they are entered
into by Borrower promptly upon the execution thereof. Notwithstanding anything
to the contrary contained herein, no such future lease, construction agreement,
operation agreement or other material agreement or any part thereof may be
entered into by Borrower except as permitted under the Credit Agreement.

         2.3 Notwithstanding anything to the contrary contained herein, Borrower
shall remain liable under each of the Assigned Agreements to perform all of the
obligations undertaken by it thereunder, all in accordance with and pursuant to
the terms and provisions thereof, and Administrative Agent shall have no
obligation or liability under any of such Assigned Agreements by reason of or
arising out of this Agreement, nor shall Administrative Agent be required or
obligated in any manner to perform or fulfill any obligations of Borrower
thereunder or to make any payment or inquiry as to the nature or sufficiency of
any payment received by it, or present or file any claim or take any action to
collect or enforce the payment of any amounts which may have been assigned to it
or to which it may be entitled at any time.

         2.4 If any default by Borrower under any of the Assigned Agreements
shall occur and be continuing, then Administrative Agent shall, at its option
and after the expiration of the applicable cure periods under Section 8.1.7 of
the Credit Agreement, be permitted (but shall not be obligated) to remedy any
such default by giving written notice of such intent to Borrower and to the
parties to the Assigned Agreement or Assigned Agreements for which
Administrative Agent intends to remedy the default. After giving such notice of
its intent to cure such default and upon the commencement thereof,
Administrative Agent will proceed diligently to cure such default. Any cure by
Administrative Agent of Borrower's default under any of the Assigned Agreements
shall not be construed as an assumption by Administrative Agent or any of the
Banks of any obligations, covenants or agreements of Borrower under such
Assigned Agreement, and neither Administrative Agent nor any of the Banks shall
be liable to Borrower or any other Person as a result of any actions undertaken
by Administrative Agent in curing or attempting to cure any such default, except
as set forth in Section 12.13 of the Credit Agreement. This Agreement shall not
be deemed to release or to affect in any way the obligations of Borrower under
the Assigned Agreements.


                                       4
<PAGE>   367
     3. OBLIGATIONS SECURED. Without limiting the generality of the foregoing,
this Agreement and all of the Collateral secure the payment and performance when
due of all Obligations (as defined in the Credit Agreement) of Borrower to the
Administrative Agent and the Banks (the "Obligations").

     4. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants as of the date hereof as follows:

         4.1 Borrower has not assigned any of its rights under the Assigned
Agreements except as provided in the Credit Documents.

         4.2 Borrower has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral, except such as may have been filed
pursuant to this Agreement and the other Credit Documents or pursuant to the
documents evidencing Permitted Liens.

         4.3 Except as permitted by the Credit Agreement, Borrower is lawfully
possessed of ownership of the Collateral and has full right, title and interest
in and to all rights purported to be granted to it under the Assigned
Agreements, not subject to any mortgages, liens, charges, or encumbrances except
Permitted Liens. Borrower has full power and lawful authority to grant and
assign the Collateral hereunder.

     5. COVENANTS OF BORROWER. Borrower covenants as follows:


         5.1 Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by Administrative Agent either in Borrower's name or in
Administrative Agent's name, as Administrative Agent may deem necessary.

         5.2 Borrower will, so long as any Obligations shall be outstanding,
warrant and defend its title to the Collateral and the interest of
Administrative Agent in the Collateral against any claim or demand of any
persons (other than Permitted Liens) which could reasonably be expected to
materially adversely affect Borrower's title to, or Administrative Agent's right
or interest in, such Collateral.

         5.3 Borrower will at all times keep accurate and complete records of
the Collateral. Borrower shall permit representatives of Administrative Agent
upon reasonable prior notice, and in accordance with Section 5.6 of the Credit
Agreement, at any time during normal business hours of Borrower to inspect and
make abstracts from Borrower's books and records pertaining to the Collateral.
Upon the occurrence and during the continuation of any Event of Default, at
Administrative Agent's request, Borrower shall promptly deliver copies of any
and all such records to Administrative Agent.

         5.4 Unless waived in writing by Administrative Agent, Borrower shall
give Administrative Agent at least 45 days' notice before it changes the
location of its principal place of business, chief executive office or state of
organization and shall at the expense of Borrower execute and deliver such
instruments and documents as may reasonably be required by Administrative Agent
to maintain a prior perfected security interest in the Collateral.


                                       5
<PAGE>   368
     6. EVENTS OF DEFAULT. The occurrence of an Event of Default under the
Credit Agreement, whatever the reason therefor and whether it shall be voluntary
or involuntary or be effected by operation of law, or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an event of default
hereunder (an "Event of Default").

     7. REMEDIES UPON EVENT OF DEFAULT.

         7.1 If any Event of Default has occurred and is continuing,
Administrative Agent may (1) declare any amounts payable by Borrower under the
Credit Agreement to be due and payable immediately and thereupon the same shall
become immediately due and payable (provided that if such Event of Default
occurs under Section 8.1.4 of the Credit Agreement with respect to Borrower, all
such amounts shall become automatically due and payable); (2) proceed to protect
and enforce the rights vested in it by this Agreement, including but not limited
to, the right to cause all revenues pledged hereby as security and all other
moneys pledged hereunder to be paid directly to it, and to enforce its rights
hereunder to such payments and all other rights hereunder by such appropriate
judicial proceedings as it shall deem most effective to protect and enforce any
of such rights, either at law or in equity or otherwise, whether for specific
enforcement of any covenant or agreement contained in any of the Assigned
Agreements, or in aid of the exercise of any power therein or herein granted, or
for any foreclosure hereunder and sale under a judgment or decree in any
judicial proceeding, or to enforce any other legal or equitable right vested in
it by this Agreement or by law; (3) cause any action at law or suit in equity or
other proceeding to be instituted and prosecuted to collect or enforce any
Obligations or rights hereunder or included in the Collateral, or to foreclose
or enforce any other agreement or other instrument by or under or pursuant to
which such Obligations are issued or secured, subject in each case to the
provisions and requirements thereof; (4) sell or otherwise dispose of any or all
of the Collateral or cause the Collateral to be sold or otherwise disposed of in
one or more sales or transactions, at such prices and in such manner as
Administrative Agent may deem commercially reasonable, and for cash or on credit
or for future delivery, without assumption of any credit risk at any broker's
board or at public or private sale, with or without a warranty of title, without
demand of performance or notice of intention to sell or of time or place of sale
(except such notice as is required by applicable statute and cannot be waived),
it being agreed that Administrative Agent may be a purchaser on behalf of the
Banks or on its own behalf at any such sale and that Administrative Agent, any
Bank, or any other Person who may be a bona fide purchaser for value and without
notice of any claims of any or all of the Collateral so sold shall thereafter
hold the same absolutely free from any claim or right of whatsoever kind,
including any equity of redemption, of Borrower, any such demand, notice or
right and equity being hereby expressly waived and released to the extent
permitted by law; (5) incur reasonable expenses, including reasonable attorneys'
fees, reasonable consultants' fees, and other costs appropriate to the exercise
of any right or power under this Agreement; (6) perform any obligation of
Borrower hereunder or under any other Credit Document, and make payments,
purchase, contest or compromise any encumbrance, charge or lien, and pay taxes
and expenses without, however, any obligation to do so; (7) in connection with
any acceleration and foreclosure, take possession of the Collateral and render
it usable and repair and renovate the same without, however, any obligation to
do so, and enter upon any Site or any other location where the same may be
located for that purpose, control, manage, operate, rent and lease the
Collateral, either separately or in

                                       6
<PAGE>   369
conjunction with any Project, collect all rents and income from the Collateral
and apply the same to reimburse the Banks for any cost or expenses incurred
hereunder or under any of the Credit Documents and to the payment or performance
of Borrower's obligations hereunder or under any of the Credit Documents, and
apply the balance to the Loans of Borrower as provided for in the Credit
Agreement and any remaining excess balance to whomsoever is legally entitled
thereto; (8) secure the appointment of a receiver of the Collateral or any part
thereof; or (9) exercise any other or additional rights or remedies granted to a
secured party under the UCC. If pursuant to applicable law prior notice of any
such action is required to be given to Borrower, Borrower hereby acknowledges
that the minimum time required by such applicable law, or if no minimum time is
specified, 10 Banking Days, shall be deemed a reasonable notice period.

         7.2 All reasonable costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Administrative Agent in connection with any such
suit or proceeding or in connection with the performance by Administrative Agent
of any of Borrower's agreements contained in any of the Assigned Agreements or
any exercise of its rights or remedies hereunder, pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the Default Rate from the date on which
such costs or expenses are incurred to the date of payment thereof, shall
constitute additional indebtedness secured by this Agreement and shall be paid
by Borrower to Administrative Agent on behalf of the Banks on demand.

     8. REMEDIES CUMULATIVE; DELAY NOT WAIVER.

         8.1 No right, power or remedy herein conferred upon or reserved to
Administrative Agent is intended to be exclusive of any other right, power or
remedy and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder or otherwise shall not
prevent the concurrent assertion or employment of any other appropriate right or
remedy. Resort to any or all security now or hereafter held by Administrative
Agent may be taken concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken nonjudicial
proceedings, or both.

         8.2 No delay or omission of Administrative Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by Administrative Agent.

     9. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuation
of an Event of Default, the proceeds of any sale of or other realization upon,
all or any part of the Collateral shall be applied: first, to all fees, costs
and expenses incurred by and due and owing to Administrative Agent and the Banks
under the Credit Agreement, the other Credit Documents or the Collateral
Documents; second, to accrued and unpaid interest on the Obligations (including
any interest which, but for the provisions of the Bankruptcy Code, would have
accrued on such

                                       7
<PAGE>   370
amounts); third, to the principal amounts of the Obligations outstanding;
fourth, to any other Obligations of Borrower owing to Administrative Agent or
the Banks; and fifth, to, or as directed by, Borrower.

     10. ATTORNEY-IN-FACT. Borrower hereby constitutes and appoints
Administrative Agent, acting for and on behalf of itself and the Banks and each
successor or assign of Administrative Agent and the Banks, the true and lawful
attorney-in-fact of Borrower, with full power and authority in the place and
stead of Borrower and in the name of Borrower, Administrative Agent or otherwise
to enforce all rights, interests and remedies of Borrower with respect to the
Collateral, including, without limitation, the right:

         10.1 to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral, including without
limitation, any insurance policies;

         10.2 to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;

         10.3 to file any claims or take any action or institute any proceedings
in connection therewith which Administrative Agent may reasonably deem to be
necessary or advisable;

         10.4 to pay, settle or compromise all bills and claims which may be or
become liens or security interests against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Administrative
Agent has been provided; and

         10.5 upon foreclosure and to the extent provided in the Consents, to do
any and every act which Borrower may do on its behalf with respect to the
Collateral or any part thereof and to exercise any or all of Borrower's rights
and remedies under any or all of the Assigned Agreements;

provided, however, that Administrative Agent shall not exercise any such rights
except upon the occurrence and continuation of an Event of Default. This power
of attorney is a power coupled with an interest and shall be irrevocable.

     11. ADMINISTRATIVE AGENT MAY PERFORM. Upon the occurrence and during the
continuance of an Event of Default, if Borrower fails to perform any agreement
contained herein, Administrative Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of Administrative Agent incurred
in connection therewith shall be part of the Obligations.

     12. PERFECTION; FURTHER ASSURANCES.

         12.1 Borrower agrees that from time to time, at the expense of
Borrower, Borrower shall promptly execute and deliver all instruments and
documents, and take all action, that may be reasonably necessary, or that
Administrative Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted

                                       8
<PAGE>   371
hereby or to enable Administrative Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Borrower shall (i) with respect to the Development
Company Portfolio Entity Note and any other Collateral evidenced by a promissory
note or other instrument in excess of $5,000, deliver and pledge to
Administrative Agent for the benefit of the Banks such note duly endorsed
without recourse, and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to Administrative Agent; and
(ii) execute and deliver to Administrative Agent such financing or continuation
statements, or amendments thereto, and such other instruments, endorsements or
notices, as may be reasonably necessary or desirable or as Administrative Agent
may reasonably request, in order to perfect and preserve the assignments and
security interests granted or purported to be granted hereby.

         12.2 Borrower hereby authorizes Administrative Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Borrower where
permitted by law.

         12.3 Borrower shall pay all filing, registration and recording fees and
all refiling, re-registration and re-recording fees, and all reasonable expenses
incident to the execution and acknowledgment of this Agreement, any assurance,
and all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution and delivery of this Agreement, any agreement supplemental hereto,
any financing statements, and any instruments of further assurance.

         12.4 Borrower shall, promptly upon request, provide to Administrative
Agent all information and evidence it may reasonably request concerning the
Collateral to enable Administrative Agent to enforce the provisions of this
Agreement.

     13. PLACE OF BUSINESS; LOCATION OF RECORDS. Unless Administrative Agent is
otherwise notified under Section 5.4, the place of business and chief executive
office of Borrower is, and all records of Borrower concerning the Collateral are
and will be, located at the address set forth in Schedule 4.24 to the Credit
Agreement and Borrower is, and will be, a limited liability company organized
under the laws of the State of Delaware.

     14. CONTINUING ASSIGNMENT AND SECURITY INTEREST; TRANSFER OF NOTES. This
Agreement shall create a continuing assignment of, and security interest in, the
Collateral and shall (a) remain in full force and effect until payment in full
of the Obligations, (b) be binding upon Borrower, its successors and assigns;
provided, however, that the obligations of Borrower, its successors and assigns
hereunder may not be assigned without the prior written consent of
Administrative Agent; and (c) inure, together with the rights and remedies of
Administrative Agent, to the benefit of Administrative Agent, the Banks and
their respective successors, transferees and assigns. Without limiting the
generality of the foregoing but subject to the terms of the Credit Agreement,
Administrative Agent or any of the Banks may assign or otherwise transfer all or
any part of or interest in the Notes and the other Credit Documents or other
evidence of indebtedness held by them to any other Person to the extent
permitted by and in accordance with the Credit Agreement, and such other Person
shall thereupon become vested with all or an appropriate part of the benefits in
respect thereof granted to the Banks herein or

                                       9
<PAGE>   372
otherwise. The release of the security interest in any or all of the Collateral,
the taking or acceptance of additional security, or the resort by Administrative
Agent to any security it may have in any order it may deem appropriate, shall
not affect the liability of any person on the indebtedness secured hereby. If
this Agreement shall be terminated or revoked by operation of law, Borrower will
indemnify and save Administrative Agent and the Banks harmless from any loss
which may be suffered or incurred by Administrative Agent and the Banks in
acting hereunder prior to the receipt by Administrative Agent, its successors,
transferees, or assigns of notice of such termination or revocation.

     15. TERMINATION OF SECURITY INTEREST. Upon the indefeasible payment in full
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Borrower. Upon any such termination,
Administrative Agent will, at Borrower's expense, execute and, subject to
Section 21 hereof, deliver to Borrower such documents (including, without
limitation, UCC-3 termination statements) as Borrower shall reasonably request
to evidence such termination.

     16. ATTORNEYS' FEES. In the event any legal action or proceeding
(including, without limitation, any of the remedies provided for herein or at
law) is commenced to enforce or interpret this Agreement or any provision
thereof, unless Borrower is the prevailing party, Borrower shall indemnify each
of Administrative Agent and the Banks for their reasonable attorneys' fees and
other costs and expenses incurred therein, and if a judgment or award is entered
in any such action or proceeding, such reasonable attorneys' fees and other
costs and expenses may be made a part of such judgment or award.

     17. LIABILITY. Recourse against the Borrower, the other Portfolio Entities,
the Member and their respective Affiliates, members, partners, stockholders,
officers, directors and employees under this Agreement shall be limited to the
extent provided in Article 9 of the Credit Agreement.

     18. AMENDMENTS; WAIVERS; CONSENTS. No amendment, modification, termination
or waiver of any provision of this Agreement, or consent to any departure by
Borrower therefrom, shall in any event be effective without the written
concurrence of Administrative Agent and the Borrower.

     19. NOTICES. All notices required or permitted under the terms and
provisions hereof shall be in writing and any such notice shall be effective if
given in accordance with the provisions of Section 12.1 of the Credit Agreement.
Notices to Borrower may be given at the address of Borrower set forth in such
Section 12.1.

     20. GOVERNING LAW. This Agreement, including all matters of construction,
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the state of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies

                                       10
<PAGE>   373
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the state of New York.

     21. REINSTATEMENT. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by
Administrative Agent in respect of the Obligations is rescinded or must
otherwise be restored or returned by Administrative Agent upon the insolvency,
bankruptcy, reorganization, liquidation of Borrower or any general partner of
Borrower or upon the dissolution of, or appointment of any intervenor or
conservator of, or trustee or similar official for, Borrower or any general
partner of Borrower or any substantial part of Borrower's or any of its general
partners' assets, or otherwise, all as though such payments had not been made.

     22. SEVERABILITY. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.

     23. SURVIVAL OF PROVISIONS. All agreements, representations and warranties
made herein shall survive the execution and delivery of this Agreement and the
Credit Agreement and the making of the Loans and extensions of credit
thereunder. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements, representations and warranties of Borrower set forth
herein shall terminate only upon payment of the Obligations, and the termination
of all Commitments and other obligations of the Banks under the Credit
Documents.

     24. HEADINGS DESCRIPTIVE. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

     25. ENTIRE AGREEMENT. This Agreement, together with any other agreement
executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.

     26. TIME. Time is of the essence of this Agreement.

     27. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.

     28. WAIVER OF JURY TRIAL. BORROWER AND ADMINISTRATIVE AGENT HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP AMONG BORROWER AND
ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. BORROWER AND ADMINISTRATIVE
AGENT ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL

                                       11
<PAGE>   374
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND ADMINISTRATIVE
AGENT FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       12
<PAGE>   375
                  IN WITNESS WHEREOF, each of the undersigned has caused this
Borrower Security Agreement to be duly executed and delivered as of the day and
year first above written.


                               CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                               a Delaware limited liability company


                               By:
                                        ---------------------------------------
                                        Name:
                                        Title:



                               CREDIT SUISSE FIRST BOSTON,
                               NEW YORK BRANCH,
                               as Administrative Agent


                               By:
                                        ---------------------------------------
                                        Name:
                                        Title:

                               By:
                                        ---------------------------------------
                                        Name:
                                        Title:
<PAGE>   376
                                                                    EXHIBIT D-4A
                                                         to the Credit Agreement




                                      FORM

                                       OF

                           BORROWER SECURITY AGREEMENT


                          Dated as of October 16, 2000

                                     between


                  CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company

                                       and


                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch,
                             as Administrative Agent
<PAGE>   377
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                PAGE
                                                                                ----
<S>                                                                            <C>
1.  Definitions...............................................................   2
2.  Assignment, Pledge and Grant of Security Interest.........................   2
3.  Obligations Secured.......................................................   6
4.  Representations and Warranties of Borrower................................   6
5.  Covenants of Borrower.....................................................   6
6.  Events of Default.........................................................   7
7.  Remedies Upon Event of Default............................................   7
8.  Remedies Cumulative; Delay Not Waiver.....................................   8
9.  Application of Proceeds...................................................   9
10. Attorney-In-Fact..........................................................   9
11. Administrative Agent May Perform..........................................  10
12. Perfection; Further Assurances............................................  10
13. Place of Business; Location of Records....................................  11
14. Continuing Assignment and Security Interest; Transfer of Notes............  11
15. Termination of Security Interest..........................................  11
16. Attorneys' Fees...........................................................  11
17. Liability.................................................................  11
18. Amendments; Waivers; Consents.............................................  12
19. Notices...................................................................  12
20. Governing Law.............................................................  12
21. Reinstatement.............................................................  12
22. Severability..............................................................  12
23. Survival of Provisions....................................................  12
24. Headings Descriptive......................................................  13
25. Entire Agreement..........................................................  13
26. Time......................................................................  13
27. Counterparts..............................................................  13
28. Waiver of Jury Trial......................................................  13
</TABLE>

                                       i
<PAGE>   378
                                                                    EXHIBIT D4-B

                    PROJECT/TURBINE OWNER SECURITY AGREEMENT


                  This PROJECT/TURBINE OWNER SECURITY AGREEMENT (this
"Agreement"), dated as of _______, 200__, is entered into by and between [NAME
OF PROJECT/TURBINE OWNER], a Delaware _________ ("Owner"), and CREDIT SUISSE
FIRST BOSTON, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks (as defined below).

                                     PREFACE

     A. [OWNER INTENDS TO CONSTRUCT AND OWN AND OPERATE THE _________ PROJECT
(THE "PROJECT").][OWNER INTENDS TO PURCHASE [DESCRIBE TURBINES] (THE
"TURBINE(S)") AND IN FURTHERANCE THEREOF HAS ENTERED INTO OR BEEN ASSIGNED
RIGHTS UNDER THAT CERTAIN [DESCRIBE TURBINE PURCHASE CONTRACT] DATED
____________, _______, BETWEEN [OWNER] AND [DESCRIBE TURBINE PURCHASE
CONTRACTOR] (THE "TURBINE PURCHASE CONTRACT").

     B. Calpine Construction Finance Company II, LLC, a Delaware limited
liability company ("Borrower"), the financial institutions listed on Exhibit H
to the Credit Agreement (the "Banks"), Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, have entered into that certain Credit Agreement, dated
as of October 16, 2000 (as modified, supplemented or amended from time to time,
the "Credit Agreement"), pursuant to which the Banks agreed to make certain
advances of credit to Borrower in the amounts specified and on the terms and
subject to the conditions set forth therein. For purposes of this Agreement, the
term "Banks" shall include the Administrative Agent, the Lead Arrangers, the
Co-Syndication Agents, the Bookrunner, the Co-Documentation Agents and the Banks
(as such terms are defined in the Credit Agreement).

     C. Owner intends to finance certain [PROJECT][TURBINE] Costs associated
with Owner's [CONSTRUCTION AND OPERATION OF THE PROJECT][PURCHASE OF THE
TURBINE(S)] with funds borrowed by Borrower pursuant to the Credit Agreement.

     D. [INSERT IF PROJECT OWNER][OWNER AND ADMINISTRATIVE AGENT ON BEHALF OF
THE BANKS HAVE ENTERED INTO THE PROJECT OWNER GUARANTY DATED AS OF _________,
200__ (THE "GUARANTY") PURSUANT TO WHICH OWNER HAS GUARANTEED THE OBLIGATIONS OF
EACH OF THE OTHER PORTFOLIO ENTITIES UNDER THE CREDIT DOCUMENTS, INCLUDING
BORROWER'S OBLIGATIONS UNDER THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS
TO WHICH BORROWER IS A PARTY.]
<PAGE>   379
     E. As a condition precedent to the Banks' making the advances of credit
contemplated by the Credit Agreement, the Banks require that Owner shall have
executed this Agreement.

                                    AGREEMENT

     In consideration of the promises contained herein, and in order to induce
the Banks to enter into the Credit Agreement and to make the advances of credit
pursuant to the terms thereof, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Owner hereby agrees
with Administrative Agent for the benefit of Administrative Agent and the Banks
as follows:


     1. DEFINITIONS.

         1.1 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York [OR, WITH RESPECT TO THE
OPERATING ACCOUNT (AS DEFINED BELOW) ONLY, THE STATE OF ____________][IF PROJECT
OWNER, INSERT STATE WHERE OPERATING ACCOUNT HELD] provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York [OR, IF APPLICABLE, THE STATE OF ____________][TO BE
USED FOR OPERATING ACCOUNT] the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

         1.2 All capitalized terms used, but not otherwise defined herein, shall
have the meanings provided in the Credit Agreement. All other terms used herein
(whether or not capitalized) shall have the meanings given them in the UCC. The
rules of interpretation contained in Exhibit A to the Credit Agreement shall
apply to this Agreement.

     2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST.

         2.1 To secure the timely payment and performance of the Obligations (as
defined in Section 3 hereof) Owner does hereby assign, grant and pledge to, and
subject to a security interest in favor of, Administrative Agent, on behalf of
and for the benefit of Administrative Agent and the Banks, all the estate,
right, title and interest of Owner, whether now owned or hereafter acquired, in,
to and under:

         2.1.1 The following agreements and documents, as amended from time to
time (individually, an "Assigned Agreement," and collectively, the "Assigned
Agreements") and all of Owner's rights thereunder:

                  (a) [INSERT IF PROJECT OWNER - IF AT CLOSING USE GENERAL
DEFINITIONS BELOW AND IF AT FUNDING INSERT DESCRIPTION OF

                                       2
<PAGE>   380
SPECIFIC DOCUMENTS IN ADDITION TO GENERAL DEFINITIONS][ALL PROJECT DOCUMENTS
WITH RESPECT TO THE PROJECT TO WHICH OWNER IS OR MAY BECOME A PARTY FROM TIME TO
TIME INCLUDING;

                         (i) ANY POWER ISLAND SUPPLY CONTRACT;

                         (ii) ANY PRIME CONSTRUCTION CONTRACT;

                         (iii) ANY ENGINEERING CONTRACT;

                         (iv) ANY MAINTENANCE CONTRACT;

                         (v) ANY CONSTRUCTION MANAGEMENT AGREEMENT;

                         (vi) ANY PROJECT DOCUMENT RELATED TO THE DELIVERY OF
        WATER TO THE PROJECTS;

                         (vii) ANY LEASE;

                         (viii) ANY O&M AGREEMENT;

                         (ix) ANY PROJECT MANAGEMENT AGREEMENT;

                         (x) ANY GAS SUPPLY CONTRACT;

                         (xi) ANY GAS TRANSPORTATION AGREEMENT;

                         (xii) ANY FUEL MANAGEMENT AGREEMENT;

                         (xiii) ANY POWER PURCHASE DOCUMENT;

                         (xiv) ANY POWER MARKETING AGREEMENT; AND

                         (xv) ANY EQUIPMENT LEASE;]

                  [INSERT IF TURBINE OWNER][OWNER'S INTEREST IN ANY TURBINE
PURCHASE CONTRACT AND ANY EQUIPMENT LEASE;]

                  (b) the insurance policies maintained or required to be
maintained by Owner or any other Person under the Credit Agreement [OR THE
TURBINE PURCHASE CONTRACT][OR ANY PROJECT DOCUMENT, INCLUDING, WITHOUT
LIMITATION, ANY SUCH POLICIES INSURING AGAINST LOSS OF REVENUES BY REASON OF
INTERRUPTION OF THE OPERATION OF THE PROJECT AND ALL LOSS PROCEEDS AND OTHER
AMOUNTS PAYABLE TO OWNER THEREUNDER, AND ALL EMINENT DOMAIN PROCEEDS RELATING TO
THE PROJECT];

                  (c) to the extent assignable, all other agreements, including
vendor warranties, running to Owner or assigned to Owner, relating to the
[CONSTRUCTION, MAINTENANCE, IMPROVEMENT, OPERATION OR ACQUISITION OF THE
PROJECT][PURCHASE OF THE TURBINE] or any part thereof,

                                       3
<PAGE>   381
or transport of material, equipment and other parts of the [PROJECT][TURBINE] or
any part thereof;


                  (d) [INSERT IF PROJECT OWNER][ANY OTHER LEASE OR SUBLEASE
AGREEMENTS OR EASEMENT AGREEMENTS RELATING TO THE PROJECT OR ANY PART THEREOF OR
ANY ANCILLARY FACILITIES TO WHICH OWNER IS OR BECOMES A PARTY];

                  (e) [INSERT IF PROJECT OWNER][ANY TURBINE PURCHASE CONTRACT TO
WHICH OWNER IS OR BECOMES A PARTY];

                  (f) [INSERT IF PROJECT OWNER][EACH ADDITIONAL PROJECT
DOCUMENT, AND, TO THE EXTENT ASSIGNABLE, ANY OTHER AGREEMENTS TO WHICH OWNER MAY
BE OR BECOME A PARTY TO RELATING TO THE CONSTRUCTION OR OPERATION OF THE PROJECT
OR ANY PART THEREOF];

                  (g) all amendments, supplements, substitutions and renewals to
any of the aforesaid agreements; and

                  (h) [INSERT IF PROJECT OWNER][ALL PERMITS ISSUED IN THE NAME
OF THE OWNER BUT EXCLUDING ANY OF THE PERMITS WHICH BY THEIR TERMS OR BY
OPERATION OF LAW PROHIBIT OR DO NOT ALLOW ASSIGNMENT OR WHICH WOULD BECOME VOID
SOLELY BY VIRTUE OF A SECURITY INTEREST BEING GRANTED THEREIN];

                  2.1.2 [INSERT IF PROJECT OWNER][ALL RENTS, PROFITS, INCOME,
DISTRIBUTIONS, ROYALTIES AND REVENUES DERIVED IN ANY OTHER MANNER BY OWNER FROM
ITS OWNERSHIP OF THE PROJECT OR ANY PART THEREOF AND THE OPERATION OF THE
PROJECT OR ANY PART THEREOF, INCLUDING, WITHOUT LIMITATION, ALL PROJECT REVENUES
AND ALL REVENUES FROM THE SALE OF ELECTRICITY, STEAM, HEAT, GOODS OR SERVICES];

                  2.1.3 all other personal property and fixtures of Owner,
including without limitation personal property and fixtures relating to the
[PROJECT][TURBINE], whether now owned or existing or hereafter acquired or
arising, or in which Owner may have an interest, and wheresoever located,
whether or not of a type which may be subject to a security interest under the
UCC, including without limitation all machinery, tools, engines, turbines
(including combustion turbines and steam turbine generators), boilers, fuel
storage tanks, control equipment, appliances, mechanical and electrical systems,
elevators, lighting, alarm systems, fire control systems, furnishings,
furniture, as-extracted collateral, equipment, service equipment, motor
vehicles, building or maintenance equipment, building or maintenance materials,
pipes and pipelines supplies, goods and property covered by any warehouse
receipts or bills of lading or other such documents, spare parts, maps, plans,
specifications, architectural, engineering, construction or shop drawings,
manuals or similar documents, copyrights, trademarks and trade names, and any
replacements, renewals or substitutions for any of the foregoing or additional
tangible or intangible personal property hereafter acquired by Owner;

                  2.1.4 all goods, money, instruments, investment securities,
investment property, accounts, contract rights, commercial tort claims, letters
of credit, letter of credit rights, payment intangibles, promissory notes,
software, supporting obligations, documents, deposit

                                       4
<PAGE>   382
accounts, chattel paper (including tangible and electronic chattel paper),
general intangibles, and inventory, including without limitation those relating
to the [PROJECT][TURBINE];

                  2.1.5 [INSERT IF PROJECT OWNER][THE ______________ (THE
"OPERATING ACCOUNT");] and

                  2.1.6 the proceeds of all of the foregoing (all of the
collateral described in clauses [2.1.1 THROUGH 2.1.6], being herein collectively
referred to as the "Collateral"), including without limitation, (a) all rights
of Owner to receive moneys due and to become due under or pursuant to the
Collateral; (b) all rights of Owner to receive the return of any premiums for,
or proceeds of, any insurance, indemnity, warranty or guaranty with respect to
the Collateral or to receive any condemnation proceeds; (c) all claims of Owner
for damages arising out of, or for breach of or default under, the Assigned
Agreements or any other Collateral; (d) all rights of Owner to terminate, amend,
supplement, modify or waive performance under the Assigned Agreements, to
perform thereunder and to compel performance and otherwise exercise all remedies
thereunder; and (e) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed of, whether voluntarily or
involuntarily.

         2.2 In order to effectuate the foregoing, Owner has heretofore
delivered, or concurrently with the delivery hereof, is delivering to
Administrative Agent an executed counterpart or certified copy of each of the
Assigned Agreements. Owner will likewise deliver to Administrative Agent an
executed counterpart of each future lease, construction agreement, operation
agreement and other agreement, including without limitation those relating to
the [PROJECT][PURCHASE OF THE TURBINE] or any part thereof, and amendments and
supplements to the foregoing, included in the Collateral, as they are entered
into by Owner promptly upon the execution thereof. Notwithstanding anything to
the contrary contained herein, no such future lease, construction agreement,
operation agreement or other material agreement may be entered into by Owner
except as permitted under the Credit Documents.

         2.3 Notwithstanding anything to the contrary contained herein, Owner
shall remain liable under each of the Assigned Agreements to perform all of the
obligations undertaken by it thereunder, all in accordance with and pursuant to
the terms and provisions thereof, and Administrative Agent shall have no
obligation or liability under any of such Assigned Agreements by reason of or
arising out of this Agreement, nor shall Administrative Agent be required or
obligated in any manner to perform or fulfill any obligations of Owner
thereunder or to make any payment or inquiry as to the nature or sufficiency of
any payment received by it, or present or file any claim or take any action to
collect or enforce the payment of any amounts which may have been assigned to it
or to which it may be entitled at any time.

         2.4 If any default by Owner under any of the Assigned Agreements shall
occur and be continuing, then Administrative Agent shall, at its option and
after the expiration of the applicable cure periods under Section 8.1.7 of the
Credit Agreement, be permitted (but shall not be obligated) to remedy any such
default by giving written notice of such intent to Owner and to the parties to
the Assigned Agreement or Assigned Agreements for which Administrative Agent
intends to remedy the default. After giving such notice of its intent to cure
such default and upon

                                       5
<PAGE>   383
the commencement thereof, Administrative Agent will proceed diligently to cure
such default. Any cure by Administrative Agent of Owner's default under any of
the Assigned Agreements shall not be construed as an assumption by
Administrative Agent or any of the Banks of any obligations, covenants or
agreements of Owner under such Assigned Agreement, and neither Administrative
Agent nor any of the Banks shall be liable to Owner or any other Person as a
result of any actions undertaken by Administrative Agent in curing or attempting
to cure any such default, except as set forth in Section 12.13 of the Credit
Agreement. This Agreement shall not be deemed to release or to affect in any way
the obligations of Owner under the Assigned Agreements.

     3. OBLIGATIONS SECURED. Without limiting the generality of the foregoing,
this Agreement and all of the Collateral secure the payment and performance when
due of the [IF PROJECT OWNER: GUARANTEED OBLIGATIONS (AS DEFINED IN THE
GUARANTY) OF OWNER UNDER THE GUARANTY][IF TURBINE OWNER: OBLIGATIONS (AS DEFINED
IN THE CREDIT AGREEMENT) OF EACH OF THE PORTFOLIO ENTITIES (INCLUDING OWNER)
UNDER THE CREDIT DOCUMENTS, INCLUDING BORROWER'S OBLIGATIONS UNDER THE CREDIT
AGREEMENT AND THE OTHER CREDIT DOCUMENTS TO WHICH BORROWER IS A PARTY] to the
Administrative Agent and the Banks (the "Obligations"); provided, however, the
Obligations as defined in this Section 3 shall not include any Obligations (as
defined in the Credit Agreement) of any Portfolio Entity under the Credit
Documents relating to or arising from Projects (as defined in the Credit
Agreement) that have achieved Operation prior to the effective date of this
Agreement.

     4. REPRESENTATIONS AND WARRANTIES OF OWNER. Owner represents and warrants
as of the date hereof as follows:

         4.1 Owner has not assigned any of its rights under the Assigned
Agreements except as provided in the Credit Documents.

         4.2 Owner has not executed and is not aware of any effective financing
statement, security agreement or other instrument similar in effect covering all
or any part of the Collateral, except such as may have been filed pursuant to
this Agreement and the other Credit Documents or pursuant to the documents
evidencing Permitted Liens.

         4.3 Except as permitted by the Credit Agreement, Owner is lawfully
possessed of ownership of the Collateral and has full right, title and interest
in and to all rights purported to be granted to it under the Assigned
Agreements, not subject to any mortgages, liens, charges, or encumbrances except
Permitted Liens. Owner has full power and lawful authority to grant and assign
the Collateral hereunder.

     5. COVENANTS OF OWNER. Owner covenants as follows:

         5.1 Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by Administrative Agent either in Owner's name or in
Administrative Agent's name, as Administrative Agent may deem necessary.


                                       6
<PAGE>   384
         5.2 Owner will, so long as any Obligations shall be outstanding,
warrant and defend its title to the Collateral and the interest of
Administrative Agent in the Collateral against any claim or demand of any
persons (other than Permitted Liens) which could reasonably be expected to
materially adversely affect Owner's title to, or Administrative Agent's right or
interest in, such Collateral.

         5.3 Owner will at all times keep accurate and complete records of the
Collateral. Owner shall permit representatives of Administrative Agent upon
reasonable prior notice, and in accordance with Section 5.6 of the Credit
Agreement, at any time during normal business hours of Owner to inspect and make
abstracts from Owner's books and records pertaining to the Collateral. Upon the
occurrence and during the continuation of any Event of Default, at
Administrative Agent's request, Owner shall promptly deliver copies of any and
all such records to Administrative Agent.

         5.4 Unless waived in writing by Administrative Agent, Owner shall give
Administrative Agent at least 45 days' notice before it changes the location of
its principal place of business, chief executive office or state of organization
and shall at the expense of Owner execute and deliver such instruments and
documents as may reasonably be required by Administrative Agent to maintain a
prior perfected security interest in the Collateral.

     6. EVENTS OF DEFAULT. The occurrence of an Event of Default under the
Credit Agreement, whatever the reason therefor and whether it shall be voluntary
or involuntary or be effected by operation of law, or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an event of default
hereunder (an "Event of Default").

     7. REMEDIES UPON EVENT OF DEFAULT.

         7.1 If any Event of Default has occurred and is continuing,
Administrative Agent may (a) proceed to protect and enforce the rights vested in
it by this Agreement, including but not limited to, the right to cause all
revenues pledged hereby as security and all other moneys pledged hereunder to be
paid directly to it, and to enforce its rights hereunder to such payments and
all other rights hereunder by such appropriate judicial proceedings as it shall
deem most effective to protect and enforce any of such rights, either at law or
in equity or otherwise, whether for specific enforcement of any covenant or
agreement contained in any of the Assigned Agreements, or in aid of the exercise
of any power therein or herein granted, or for any foreclosure hereunder and
sale under a judgment or decree in any judicial proceeding, or to enforce any
other legal or equitable right vested in it by this Agreement or by law; (b)
cause any action at law or suit in equity or other proceeding to be instituted
and prosecuted to collect or enforce any Obligations or rights hereunder or
included in the Collateral, or to foreclose or enforce any other agreement or
other instrument by or under or pursuant to which such Obligations are issued or
secured, subject in each case to the provisions and requirements thereof; (c)
sell or otherwise dispose of any or all of the Collateral or cause the
Collateral to be sold or otherwise disposed of in one or more sales or
transactions, at such prices and in such manner as Administrative Agent may deem
commercially reasonable, and for cash or on credit or for future delivery,
without assumption of any credit risk at any broker's board or at public or

                                       7
<PAGE>   385
private sale, with or without a warranty of title, without demand of
performance or notice of intention to sell or of time or place of sale (except
such notice as is required by applicable statute and cannot be waived), it being
agreed that Administrative Agent may be a purchaser on behalf of the Banks or on
its own behalf at any such sale and that Administrative Agent, any Bank, or any
other Person who may be a bona fide purchaser for value and without notice of
any claims of any or all of the Collateral so sold shall thereafter hold the
same absolutely free from any claim or right of whatsoever kind, including any
equity of redemption, of Owner, any such demand, notice or right and equity
being hereby expressly waived and released to the extent permitted by law; (d)
incur reasonable expenses, including reasonable attorneys' fees, reasonable
consultants' fees, and other costs appropriate to the exercise of any right or
power under this Agreement; (e) perform any obligation of Owner hereunder or
under any other Credit Document, and make payments, purchase, contest or
compromise any encumbrance, charge or lien, and pay taxes and expenses without,
however, any obligation to do so; (f) in connection with any acceleration and
foreclosure, take possession of the Collateral and render it usable and repair
and renovate the same without, however, any obligation to do so, and enter upon
any Site or any other location where the same may be located for that purpose,
control, manage, operate, rent and lease the Collateral[, EITHER SEPARATELY OR
IN CONJUNCTION WITH THE PROJECT], collect all rents and income from the
Collateral and apply the same to reimburse the Banks for any cost or expenses
incurred hereunder or under any of the Credit Documents and to the payment or
performance of Owner's obligations hereunder or under any of the Credit
Documents, and apply the balance to the Loans of Borrower as provided for in the
Credit Agreement and any remaining excess balance to whomsoever is legally
entitled thereto; (g) secure the appointment of a receiver of the Collateral or
any part thereof; or (h) exercise any other or additional rights or remedies
granted to a secured party under the UCC. If pursuant to applicable law prior
notice of any such action is required to be given to Owner, Owner hereby
acknowledges that the minimum time required by such applicable law, or if no
minimum time is specified, 10 Banking Days, shall be deemed a reasonable notice
period.

         7.2 All reasonable costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Administrative Agent in connection with any such
suit or proceeding or in connection with the performance by Administrative Agent
of any of Owner's agreements contained in any of the Assigned Agreements or any
exercise of its rights or remedies hereunder, pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the Default Rate from the date on which
such costs or expenses are incurred to the date of payment thereof, shall
constitute additional indebtedness secured by this Agreement and shall be paid
by Owner to Administrative Agent on behalf of the Banks on demand.

     8. REMEDIES CUMULATIVE; DELAY NOT WAIVER.

         8.1 No right, power or remedy herein conferred upon or reserved to
Administrative Agent is intended to be exclusive of any other right, power or
remedy and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder or otherwise shall not
prevent the concurrent assertion or employment of any other appropriate right or


                                       8
<PAGE>   386
remedy. Resort to any or all security now or hereafter held by Administrative
Agent may be taken concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken nonjudicial
proceedings, or both.

         8.2 No delay or omission of Administrative Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by Administrative Agent.

     9. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuation
of an Event of Default, the proceeds of any sale of or other realization upon,
all or any part of the Collateral shall be applied: first, to all fees, costs
and expenses incurred by and due and owing to Administrative Agent and the Banks
under the Credit Agreement, the other Credit Documents or the Collateral
Documents; second, to accrued and unpaid interest on the Obligations (including
any interest which, but for the provisions of the Bankruptcy Code, would have
accrued on such amounts); third, to the principal amounts of the Obligations
outstanding; fourth, to any other Obligations of Owner owing to Administrative
Agent or the Banks; and fifth, to, or as directed by, Owner.

     10. ATTORNEY-IN-FACT. Owner hereby constitutes and appoints Administrative
Agent, acting for and on behalf of itself and the Banks and each successor or
assign of Administrative Agent and the Banks, the true and lawful
attorney-in-fact of Owner, with full power and authority in the place and stead
of Owner and in the name of Owner, Administrative Agent or otherwise to enforce
all rights, interests and remedies of Owner with respect to the Collateral,
including, without limitation, the right:

         10.1 to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral, including without
limitation, any insurance policies;

         10.2 to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;

         10.3 to file any claims or take any action or institute any proceedings
in connection therewith which Administrative Agent may reasonably deem to be
necessary or advisable;

         10.4 to pay, settle or compromise all bills and claims which may be or
become liens or security interests against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Administrative
Agent has been provided; and

         10.5 upon foreclosure and to the extent provided in the Consents, to do
any and every act which Owner may do on its behalf with respect to the
Collateral or any part thereof

                                       9
<PAGE>   387
and to exercise any or all of Owner's rights and remedies under any or all of
the Assigned Agreements;

provided, however, that Administrative Agent shall not exercise any such rights
except upon the occurrence and continuation of an Event of Default. This power
of attorney is a power coupled with an interest and shall be irrevocable.

     11. ADMINISTRATIVE AGENT MAY PERFORM. Upon the occurrence and during the
continuance of an Event of Default, if Owner fails to perform any agreement
contained herein, Administrative Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of Administrative Agent incurred
in connection therewith shall be part of the Obligations.

     12. PERFECTION; FURTHER ASSURANCES.

         12.1 Owner agrees that from time to time, at the expense of Owner,
Owner shall promptly execute and deliver all instruments and documents, and take
all action, that may be reasonably necessary, or that Administrative Agent may
reasonably request, in order to perfect and protect the assignment and security
interest granted or intended to be granted hereby or to enable Administrative
Agent to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, Owner shall
(a) if any Collateral shall be evidenced by a promissory note or other
instrument in excess of $5,000, deliver and pledge to Administrative Agent for
the benefit of the Banks such note duly endorsed without recourse, and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Administrative Agent; and (b) execute and deliver
to Administrative Agent such financing or continuation statements, or amendments
thereto, and such other instruments, endorsements or notices, as may be
reasonably necessary or desirable or as Administrative Agent may reasonably
request, in order to perfect and preserve the assignments and security interests
granted or purported to be granted hereby.

         12.2 Owner hereby authorizes Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Owner where permitted by
law.

         12.3 Owner shall pay all filing, registration and recording fees and
all refiling, re-registration and re-recording fees, and all reasonable expenses
incident to the execution and acknowledgment of this Agreement, any assurance,
and all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution and delivery of this Agreement, any agreement supplemental hereto,
any financing statements, and any instruments of further assurance.

         12.4 Owner shall, promptly upon request, provide to Administrative
Agent all information and evidence it may reasonably request concerning the
Collateral to enable Administrative Agent to enforce the provisions of this
Agreement.


                                       10
<PAGE>   388
     13. PLACE OF BUSINESS; LOCATION OF RECORDS. Unless Administrative Agent is
otherwise notified under Section 5.4, the place of business and chief executive
office of Owner is, and all records of Owner concerning the Collateral are and
will be, located at the address set forth in Schedule 4.24 to the Credit
Agreement and Owner is, and will be, a _________ organized under the laws of the
state of Delaware.

     14. CONTINUING ASSIGNMENT AND SECURITY INTEREST; [FOR PROJECT OWNERS ONLY:
TRANSFER OF GUARANTY]. This Agreement shall create a continuing assignment of,
and security interest in, the Collateral and shall (a) remain in full force and
effect until payment in full of the Obligations, (b) be binding upon Owner, its
successors and assigns; provided, however, that the obligations of Owner, its
successors and assigns hereunder may not be assigned without the prior written
consent of Administrative Agent; and (c) inure, together with the rights and
remedies of Administrative Agent, to the benefit of Administrative Agent, the
Banks and their respective successors, transferees and assigns. Without limiting
the generality of the foregoing but subject to the terms of the Credit
Agreement, Administrative Agent or any of the Banks may assign or otherwise
transfer all or any part of or interest in the Notes and the other Credit
Documents[INSERT IF PROJECT OWNER: , INCLUDING THE GUARANTY,] or other evidence
of indebtedness held by them to any other Person to the extent permitted by and
in accordance with the Credit Agreement, and such other Person shall thereupon
become vested with all or an appropriate part of the benefits in respect thereof
granted to the Banks herein or otherwise. The release of the security interest
in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by Administrative Agent to any security it may have in
any order it may deem appropriate, shall not affect the liability of any person
on the indebtedness secured hereby. If this Agreement shall be terminated or
revoked by operation of law, Owner will indemnify and save Administrative Agent
and the Banks harmless from any loss which may be suffered or incurred by
Administrative Agent and the Banks in acting hereunder prior to the receipt by
Administrative Agent, its successors, transferees, or assigns of notice of such
termination or revocation.

     15. TERMINATION OF SECURITY INTEREST. Upon the indefeasible payment in full
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Owner. Upon any such termination,
Administrative Agent will, at Owner's expense, execute and, subject to Section
21 hereof, deliver to Owner such documents (including, without limitation, UCC-3
termination statements) as Owner shall reasonably request to evidence such
termination.

     16. ATTORNEYS' FEES. In the event any legal action or proceeding
(including, without limitation, any of the remedies provided for herein or at
law) is commenced to enforce or interpret this Agreement or any provision
thereof, unless Owner is the prevailing party, Owner shall indemnify each of
Administrative Agent and the Banks for their reasonable attorneys' fees and
other costs and expenses incurred therein, and if a judgment or award is entered
in any such action or proceeding, such reasonable attorneys' fees and other
costs and expenses may be made a part of such judgment or award.

     17. LIABILITY. Recourse against the Owner, the other Portfolio Entities,
the Member and their respective Affiliates, members, partners, stockholders,
officers, directors and employees

                                       11
<PAGE>   389
under this Agreement shall be limited to the extent provided in Article 9 of the
Credit Agreement.

     18. AMENDMENTS; WAIVERS; CONSENTS. No amendment, modification, termination
or waiver of any provision of this Agreement, or consent to any departure by
Owner therefrom, shall in any event be effective without the written concurrence
of Administrative Agent and the Owner.

     19. NOTICES. All notices required or permitted under the terms and
provisions hereof shall be in writing and any such notice shall be effective if
given in accordance with the provisions of Section 12.1 of the Credit Agreement.
Notices to Owner may be given at the address of Borrower set forth in such
Section 12.1.

     20. GOVERNING LAW. This Agreement, including all matters of construction,
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the state of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the state of New York. [INSERT
FOR PROJECT OWNER][NOTWITHSTANDING THE FOREGOING, THE VALIDITY, PERFECTION AND
PRIORITY OF THE LIEN AND SECURITY INTEREST CREATED HEREUNDER IN RESPECT TO THE
OPERATING ACCOUNT IS GOVERNED BY THE LAWS OF THE STATE OF ________ [INSERT STATE
WHERE OPERATING ACCOUNT HELD].

     21. REINSTATEMENT. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by
Administrative Agent in respect of the Obligations is rescinded or must
otherwise be restored or returned by Administrative Agent upon the insolvency,
bankruptcy, reorganization, liquidation of Owner or any general partner of Owner
or upon the dissolution of, or appointment of any intervenor or conservator of,
or trustee or similar official for, Owner or any general partner of Owner or any
substantial part of Owner's or any of its general partners' assets, or
otherwise, all as though such payments had not been made.

     22. SEVERABILITY. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.

     23. SURVIVAL OF PROVISIONS. All agreements, representations and warranties
made herein shall survive the execution and delivery of this Agreement and the
Credit Agreement and the making of the Loans and extensions of credit
thereunder. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements, representations and warranties of Owner set forth
herein shall terminate only upon payment of the Obligations, and the termination
of all Commitments and other obligations of the Banks under the Credit
Documents.


                                       12
<PAGE>   390
     24. HEADINGS DESCRIPTIVE. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

     25. ENTIRE AGREEMENT. This Agreement, together with any other agreement
executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.

     26. TIME. Time is of the essence of this Agreement.

     27. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.

     28. WAIVER OF JURY TRIAL. OWNER AND ADMINISTRATIVE AGENT HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP AMONG OWNER AND
ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. OWNER AND ADMINISTRATIVE AGENT
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. OWNER AND ADMINISTRATIVE AGENT FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

     29. ADDITIONAL WAIVERS. [TO INSERT IF TURBINE OWNER] [OWNER HEREBY WAIVES
AND RELINQUISHES ALL RIGHTS AND REMEDIES ACCORDED BY APPLICABLE LAW TO SURETIES
OR GUARANTORS AND AGREES NOT TO ASSERT OR TAKE ADVANTAGE OF ANY SUCH RIGHTS OR
REMEDIES, INCLUDING WITHOUT LIMITATION (a) ANY RIGHT TO REQUIRE ADMINISTRATIVE
AGENT OR THE BANKS TO PROCEED AGAINST ANY PORTFOLIO ENTITY OR ANY OTHER PERSON
OR TO PROCEED AGAINST OR EXHAUST ANY SECURITY HELD BY ADMINISTRATIVE AGENT OR
THE BANKS AT ANY TIME OR TO PURSUE ANY OTHER REMEDY IN ADMINISTRATIVE AGENT'S OR
THE BANKS' POWER BEFORE PROCEEDING AGAINST OWNER, (b) ANY DEFENSE THAT MAY ARISE
BY REASON OF THE INCAPACITY, LACK OF POWER OR AUTHORITY, DEATH, DISSOLUTION,
MERGER, TERMINATION OR DISABILITY OF ANY PORTFOLIO ENTITY OR ANY OTHER PERSON OR
THE FAILURE OF ADMINISTRATIVE AGENT OR THE BANKS TO FILE OR ENFORCE A CLAIM
AGAINST THE ESTATE (IN ADMINISTRATION, BANKRUPTCY OR ANY OTHER PROCEEDING) OF
ANY PORTFOLIO ENTITY OR ANY OTHER PERSON, (c) DEMAND, PRESENTMENT, PROTEST AND
NOTICE OF ANY KIND, INCLUDING WITHOUT LIMITATION NOTICE OF THE EXISTENCE,
CREATION OR INCURRING OF ANY NEW OR ADDITIONAL INDEBTEDNESS OR OBLIGATION OR OF
ANY ACTION OR NON-ACTION ON THE PART OF ANY PORTFOLIO ENTITY, ADMINISTRATIVE
AGENT, THE BANKS, ANY ENDORSER OR CREDITOR OF THE FOREGOING OR ON THE PART OF
ANY OTHER PERSON UNDER THIS OR ANY OTHER INSTRUMENT IN CONNECTION WITH ANY
OBLIGATION OR EVIDENCE OF INDEBTEDNESS HELD BY ADMINISTRATIVE AGENT OR THE BANKS
AS

                                       13
<PAGE>   391
COLLATERAL OR IN CONNECTION WITH ANY OBLIGATIONS, (d) ANY DEFENSE BASED UPON AN
ELECTION OF REMEDIES BY ADMINISTRATIVE AGENT OR THE BANKS, INCLUDING WITHOUT
LIMITATION AN ELECTION TO PROCEED BY NON-JUDICIAL RATHER THAN JUDICIAL
FORECLOSURE, WHICH DESTROYS OR OTHERWISE IMPAIRS THE SUBROGATION RIGHTS OF
OWNER, THE RIGHT OF OWNER TO PROCEED AGAINST A PORTFOLIO ENTITY OR ANOTHER
PERSON FOR REIMBURSEMENT, OR BOTH, (e) ANY DEFENSE BASED ON ANY OFFSET AGAINST
ANY AMOUNTS WHICH MAY BE OWED BY ANY PERSON TO OWNER FOR ANY REASON WHATSOEVER,
(f) ANY DEFENSE BASED ON ANY ACT, FAILURE TO ACT, DELAY OR OMISSION WHATSOEVER
ON THE PART OF A PORTFOLIO ENTITY OF THE FAILURE BY A PORTFOLIO ENTITY TO DO ANY
ACT OR THING OR TO OBSERVE OR PERFORM ANY COVENANT, CONDITION OR AGREEMENT TO BE
OBSERVED OR PERFORMED BY IT UNDER THE CREDIT DOCUMENTS, (g) ANY DEFENSE BASED
UPON ANY STATUTE OR RULE OF LAW WHICH PROVIDES THAT THE OBLIGATION OF A SURETY
MUST BE NEITHER LARGER IN AMOUNT NOR IN OTHER RESPECTS MORE BURDENSOME THAN THAT
OF THE PRINCIPAL PROVIDED, THAT, UPON PAYMENT IN FULL OF THE OBLIGATIONS, THIS
AGREEMENT SHALL NO LONGER BE OF ANY FORCE OR EFFECT, (h) ANY DEFENSE, SETOFF OR
COUNTERCLAIM WHICH MAY AT ANY TIME BE AVAILABLE TO OR ASSERTED BY A PORTFOLIO
ENTITY AGAINST ADMINISTRATIVE AGENT, THE BANKS OR ANY OTHER PERSON UNDER THE
CREDIT DOCUMENTS, (i) ANY DUTY ON THE PART OF ADMINISTRATIVE AGENT OR THE BANKS
TO DISCLOSE TO OWNER ANY FACTS ADMINISTRATIVE AGENT OR THE BANKS MAY NOW OR
HEREAFTER KNOW ABOUT ANY PORTFOLIO ENTITY, REGARDLESS OF WHETHER ADMINISTRATIVE
AGENT OR THE BANKS HAVE REASON TO BELIEVE THAT ANY SUCH FACTS MATERIALLY
INCREASE THE RISK BEYOND THAT WHICH OWNER INTENDS TO ASSUME, OR HAVE REASON TO
BELIEVE THAT SUCH FACTS ARE UNKNOWN TO OWNER, OR HAVE A REASONABLE OPPORTUNITY
TO COMMUNICATE SUCH FACTS TO OWNER, SINCE OWNER ACKNOWLEDGES THAT OWNER IS FULLY
RESPONSIBLE FOR BEING AND KEEPING INFORMED OF THE FINANCIAL CONDITION OF THE
PORTFOLIO ENTITIES AND OF ALL CIRCUMSTANCES BEARING ON THE RISK OF NON-PAYMENT
OF ANY OBLIGATIONS AND LIABILITIES HEREBY GUARANTEED, (j) THE FACT THAT ANY
PORTFOLIO ENTITY MAY AT ANY TIME IN THE FUTURE DISPOSE OF ALL OR PART OF ITS
DIRECT OR INDIRECT INTEREST IN ANY OTHER PORTFOLIO ENTITY, (k) ANY DEFENSE BASED
ON ANY CHANGE IN THE TIME, MANNER OR PLACE OF ANY PAYMENT UNDER, OR IN ANY OTHER
TERM OF, THE CREDIT DOCUMENTS OR ANY OTHER AMENDMENT, RENEWAL, EXTENSION,
ACCELERATION, COMPROMISE OR WAIVER OF OR ANY CONSENT OR DEPARTURE FROM THE TERMS
OF THE CREDIT DOCUMENTS, (l) ANY DEFENSE ARISING BECAUSE OF ADMINISTRATIVE
AGENT'S OR THE BANKS' ELECTION, IN ANY PROCEEDING INSTITUTED UNDER THE FEDERAL
BANKRUPTCY CODE, OF THE APPLICATION OF SECTION 1111(b)(2) OF THE FEDERAL
BANKRUPTCY CODE, AND (m) ANY DEFENSE BASED UPON ANY BORROWING OR GRANT OF A
SECURITY INTEREST UNDER SECTION 364 OF THE FEDERAL BANKRUPTCY CODE.]



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       14
<PAGE>   392
                  IN WITNESS WHEREOF, each of the undersigned has caused this
Project/Turbine Owner Security Agreement to be duly executed and delivered as of
the day and year first above written.


                                       [NAME OF PROJECT/TURBINE OWNER],
                                       a Delaware
                                                  -----------------------------

                                       By:
                                                -------------------------------
                                                Name:
                                                Title:



                                       CREDIT SUISSE FIRST BOSTON,
                                       NEW YORK BRANCH,
                                       as Administrative Agent

                                       By:
                                                -------------------------------
                                                Name:
                                                Title:


                                       By:
                                                -------------------------------
                                                Name:
                                                Title:
<PAGE>   393
                                                                    EXHIBIT D-4B
                                                         to the Credit Agreement


                                      FORM

                                       OF

                    PROJECT/TURBINE OWNER SECURITY AGREEMENT


                          Dated as of __________, 200__

                                     between


                         [NAME OF PROJECT/TURBINE OWNER]
                             a Delaware ___________

                                       and


                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch,
                             as Administrative Agent
<PAGE>   394
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                             PAGE
                                                                                                             ----
<S>                                                                                                          <C>
1.  Definitions.............................................................................................   2
2.  Assignment, Pledge and Grant of Security Interest.......................................................   2
3.  Obligations Secured.....................................................................................   4
4.  Representations and Warranties of Owner.................................................................   4
5.  Covenants of Owner......................................................................................   5
6.  Events of Default.......................................................................................   5
7.  Remedies Upon Event of Default..........................................................................   5
8.  Remedies Cumulative; Delay Not Waiver...................................................................   7
9.  Application of Proceeds.................................................................................   7
10. Attorney-In-Fact........................................................................................   7
11. Administrative Agent May Perform........................................................................   8
12. Perfection; Further Assurances..........................................................................   8
13. Place of Business; Location of Records..................................................................   9
14. Continuing  Assignment  and Security  Interest;  [for Project  Owners only:  Transfer of
    Guaranty]...............................................................................................   9
15. Termination of Security Interest........................................................................   9
16. Attorneys' Fees.........................................................................................   9
17. Liability...............................................................................................  10
18. Amendments; Waivers; Consents...........................................................................  10
19. Notices.................................................................................................  10
20. Governing Law...........................................................................................  10
21. Reinstatement...........................................................................................  10
22. Severability............................................................................................  10
23. Survival of Provisions..................................................................................  10
24. Headings Descriptive....................................................................................  11
25. Entire Agreement........................................................................................  11
26. Time....................................................................................................  11
27. Counterparts............................................................................................  11
28. Waiver of Jury Trial....................................................................................  11
29. Additional Waivers......................................................................................  11
</TABLE>

                                       i
<PAGE>   395
                                                                    EXHIBIT D4-C

                     DEVELOPMENT COMPANY SECURITY AGREEMENT


                  This DEVELOPMENT COMPANY SECURITY AGREEMENT (this
"Agreement"), dated as of __________________, __________, is entered into by and
between CCFC II DEVELOPMENT COMPANY, LLC, a Delaware limited liability company
("Owner"), and CREDIT SUISSE FIRST BOSTON, acting through its New York Branch,
as Administrative Agent ("Administrative Agent") for the Banks (as defined
below).

                                     PREFACE

     A. Calpine Construction Finance Company II, LLC, a Delaware limited
liability company ("Borrower"), the financial institutions listed on Exhibit H
to the Credit Agreement (the "Banks"), Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, have entered into that certain Credit Agreement, dated
as of October 16, 2000 (as modified, supplemented or amended from time to time,
the "Credit Agreement"), pursuant to which the Banks agreed to make certain
advances of credit to Borrower in the amounts specified and on the terms and
subject to the conditions set forth therein. For purposes of this Agreement, the
term "Banks" shall include the Administrative Agent, the Lead Arrangers, the
Co-Syndication Agents, the Bookrunner, the Co-Documentation Agents and the Banks
(as such terms are defined in the Credit Agreement).

     B. Owner is a wholly-owned Subsidiary of Borrower and certain Portfolio
Entities (including each Project Owner, their Intermediate Parents, certain
Turbine Owners and certain Equipment Finance Companies) are Subsidiaries of
Owner. Each Project Owner and certain Turbine Owners intend to finance certain
Costs associated with such entity's construction and operation of a Project or
purchase of a Turbine(s), as the case may be, with funds borrowed from Owner.
Owner intends to borrower such funds from Borrower and Borrower intends to
borrower such funds pursuant to the Credit Agreement.

     C. As a condition precedent to the Banks' making the advances of credit
contemplated by the Credit Agreement, the Banks require that Owner shall have
executed this Agreement.

                                    AGREEMENT

     In consideration of the promises contained herein, and in order to induce
the Banks to enter into the Credit Agreement and to make the advances of credit
pursuant to the terms thereof, and for other good and valuable consideration,
the receipt and adequacy of which are hereby
<PAGE>   396
acknowledged, Owner hereby agrees with Administrative Agent for the benefit of
Administrative Agent and the Banks as follows:


     1. DEFINITIONS.

         1.1 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

         1.2 All capitalized terms used, but not otherwise defined herein, shall
have the meanings provided in the Credit Agreement. All other terms used herein
(whether or not capitalized) shall have the meanings given them in the UCC. The
rules of interpretation contained in Exhibit A to the Credit Agreement shall
apply to this Agreement.

     2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST.

         2.1 To secure the timely payment and performance of the Obligations (as
defined in Section 3 hereof) Owner does hereby assign, grant and pledge to, and
subject to a security interest in favor of, Administrative Agent, on behalf of
and for the benefit of Administrative Agent and the Banks, all the estate,
right, title and interest of Owner, whether now owned or hereafter acquired, in,
to and under:

                  2.1.1 The following agreements and documents, as amended from
time to time (individually, an "Assigned Agreement," and collectively, the
"Assigned Agreements") and all of Owner's rights thereunder:

                  (a) all Project Documents and Turbine Purchase Contracts with
respect to which Owner is or may become a party from time to time;

                  (b) the insurance policies maintained or required to be
maintained by Owner or any other Person under any Operative Document; and

                  (c) all amendments, supplements, substitutions and renewals to
any of the aforesaid agreements.

                  2.1.2 the Portfolio Entity Notes from each Project Owner and
Turbine Owner (collectively, the "Project/Turbine Owner Portfolio Entity
Notes");

                  2.1.3 all other personal property and fixtures of Owner,
including without limitation personal property and fixtures relating to any
Project or Turbine, whether now owned or existing or hereafter acquired or
arising, or in which Owner may have an interest, and

                                       2
<PAGE>   397
wheresoever located, whether or not of a type which may be subject to a security
interest under the UCC, including without limitation all machinery, tools,
engines, turbines (including combustion turbines and steam turbine generators),
boilers, fuel storage tanks, control equipment, appliances, mechanical and
electrical systems, elevators, lighting, alarm systems, fire control systems,
furnishings, furniture, as-extracted collateral, equipment, service equipment,
motor vehicles, building or maintenance equipment, building or maintenance
materials, pipes and pipelines supplies, goods and property covered by any
warehouse receipts or bills of lading or other such documents, spare parts,
maps, plans, specifications, architectural, engineering, construction or shop
drawings, manuals or similar documents, copyrights, trademarks and trade names,
and any replacements, renewals or substitutions for any of the foregoing or
additional tangible or intangible personal property hereafter acquired by Owner;

                  2.1.4 all goods, money, instruments, investment securities,
investment property, accounts, contract rights, commercial tort claims, letters
of credit, letter of credit rights, payment intangibles, promissory notes,
software, supporting obligations, documents, deposit accounts, chattel paper
(including tangible and electronic chattel paper), general intangibles, and
inventory, including without limitation those relating to any Project or
Turbine; and

                  2.1.5 the proceeds of all of the foregoing (all of the
collateral described in clauses 2.1.1 through 2.1.5, being herein collectively
referred to as the "Collateral"), including without limitation, (a) all rights
of Owner to receive moneys due and to become due under or pursuant to the
Collateral; (b) all rights of Owner to receive the return of any premiums for,
or proceeds of, any insurance, indemnity, warranty or guaranty with respect to
the Collateral or to receive any condemnation proceeds; (c) all claims of Owner
for damages arising out of, or for breach of or default under, the Assigned
Agreements or any other Collateral; (d) all rights of Owner to terminate, amend,
supplement, modify or waive performance under the Assigned Agreements, to
perform thereunder and to compel performance and otherwise exercise all remedies
thereunder; and (e) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed of, whether voluntarily or
involuntarily.

         2.2 In order to effectuate the foregoing, Owner has heretofore
delivered, or concurrently with the delivery hereof, is delivering to
Administrative Agent an executed counterpart or certified copy of each of the
Assigned Agreements. Owner will likewise deliver to Administrative Agent an
executed counterpart of each future lease, construction agreement, operation
agreement and other agreement, including without limitation those relating to
any Project or Turbine or any part thereof, and amendments and supplements to
the foregoing, included in the Collateral, as they are entered into by Owner
promptly upon the execution thereof. Notwithstanding anything to the contrary
contained herein, no such future lease, construction agreement, operation
agreement or other material agreement may be entered into by Owner except as
permitted under the Credit Documents.

         2.3 Notwithstanding anything to the contrary contained herein, Owner
shall remain liable under each of the Assigned Agreements to perform all of the
obligations undertaken by it thereunder, all in accordance with and pursuant to
the terms and provisions thereof, and Administrative Agent shall have no
obligation or liability under any of such

                                       3
<PAGE>   398
Assigned Agreements by reason of or arising out of this Agreement, nor shall
Administrative Agent be required or obligated in any manner to perform or
fulfill any obligations of Owner thereunder or to make any payment or inquiry as
to the nature or sufficiency of any payment received by it, or present or file
any claim or take any action to collect or enforce the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time.

         2.4 If any default by Owner under any of the Assigned Agreements shall
occur and be continuing, then Administrative Agent shall, at its option and
after the expiration of the applicable cure periods under Section 8.1.7 of the
Credit Agreement, be permitted (but shall not be obligated) to remedy any such
default by giving written notice of such intent to Owner and to the parties to
the Assigned Agreement or Assigned Agreements for which Administrative Agent
intends to remedy the default. After giving such notice of its intent to cure
such default and upon the commencement thereof, Administrative Agent will
proceed diligently to cure such default. Any cure by Administrative Agent of
Owner's default under any of the Assigned Agreements shall not be construed as
an assumption by Administrative Agent or any of the Banks of any obligations,
covenants or agreements of Owner under such Assigned Agreement, and neither
Administrative Agent nor any of the Banks shall be liable to Owner or any other
Person as a result of any actions undertaken by Administrative Agent in curing
or attempting to cure any such default, except as set forth in Section 12.13 of
the Credit Agreement. This Agreement shall not be deemed to release or to affect
in any way the obligations of Owner under the Assigned Agreements.

     3. OBLIGATIONS SECURED. Without limiting the generality of the foregoing,
this Agreement and all of the Collateral secure the payment and performance when
due of the Obligations (as defined in the Credit Agreement) of each of the
Portfolio Entities (including Owner) under the Credit Documents, including
Borrower's Obligations under the Credit Agreement and the other Credit Documents
to which Borrower is a party to the Administrative Agent and the Banks (the
"Obligations"); provided, however, the Obligations as defined in this Section 3
shall not include any Obligations (as defined in the Credit Agreement) of any
Portfolio Entity under the Credit Documents relating to or arising from Projects
(as defined in the Credit Agreement) that have achieved Operation prior to the
effective date of this Agreement.

     4. REPRESENTATIONS AND WARRANTIES OF OWNER. Owner represents and warrants
as of the date hereof as follows:

         4.1 Owner has not assigned any of its rights under the Assigned
Agreements except as provided in the Credit Documents.

         4.2 Owner has not executed and is not aware of any effective financing
statement, security agreement or other instrument similar in effect covering all
or any part of the Collateral, except such as may have been filed pursuant to
this Agreement and the other Credit Documents or pursuant to the documents
evidencing Permitted Liens.

         4.3 Except as permitted by the Credit Agreement, Owner is lawfully
possessed of ownership of the Collateral and has full right, title and interest
in and to all rights purported to be granted to it under the Assigned
Agreements, not subject to any mortgages, liens, charges, or

                                       4
<PAGE>   399
encumbrances except Permitted Liens. Owner has full power and lawful authority
to grant and assign the Collateral hereunder.

     5. COVENANTS OF OWNER. Owner covenants as follows:

         5.1 Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by Administrative Agent either in Owner's name or in
Administrative Agent's name, as Administrative Agent may deem necessary.

         5.2 Owner will, so long as any Obligations shall be outstanding,
warrant and defend its title to the Collateral and the interest of
Administrative Agent in the Collateral against any claim or demand of any
persons (other than Permitted Liens) which could reasonably be expected to
materially adversely affect Owner's title to, or Administrative Agent's right or
interest in, such Collateral.

         5.3 Owner will at all times keep accurate and complete records of the
Collateral. Owner shall permit representatives of Administrative Agent upon
reasonable prior notice, and in accordance with Section 5.6 of the Credit
Agreement, at any time during normal business hours of Owner to inspect and make
abstracts from Owner's books and records pertaining to the Collateral. Upon the
occurrence and during the continuation of any Event of Default, at
Administrative Agent's request, Owner shall promptly deliver copies of any and
all such records to Administrative Agent.

         5.4 Unless waived in writing by Administrative Agent, Owner shall give
Administrative Agent at least 45 days' notice before it changes the location of
its principal place of business, chief executive office or state of organization
and shall at the expense of Owner execute and deliver such instruments and
documents as may reasonably be required by Administrative Agent to maintain a
prior perfected security interest in the Collateral.

     6. EVENTS OF DEFAULT. The occurrence of an Event of Default under the
Credit Agreement, whatever the reason therefor and whether it shall be voluntary
or involuntary or be effected by operation of law, or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an event of default
hereunder (an "Event of Default").

     7. REMEDIES UPON EVENT OF DEFAULT.

         7.1 If any Event of Default has occurred and is continuing,
Administrative Agent may (a) proceed to protect and enforce the rights vested in
it by this Agreement, including but not limited to, the right to cause all
revenues pledged hereby as security and all other moneys pledged hereunder to be
paid directly to it, and to enforce its rights hereunder to such payments and
all other rights hereunder by such appropriate judicial proceedings as it shall
deem most effective to protect and enforce any of such rights, either at law or
in equity or otherwise, whether for specific enforcement of any covenant or
agreement contained in any of the Assigned Agreements, or in aid of the exercise
of any power therein or herein granted, or for any foreclosure hereunder and
sale under a judgment or decree in any judicial proceeding, or to

                                       5
<PAGE>   400
enforce any other legal or equitable right vested in it by this Agreement or by
law; (b) cause any action at law or suit in equity or other proceeding to be
instituted and prosecuted to collect or enforce any Obligations or rights
hereunder or included in the Collateral, or to foreclose or enforce any other
agreement or other instrument by or under or pursuant to which such Obligations
are issued or secured, subject in each case to the provisions and requirements
thereof; (c) sell or otherwise dispose of any or all of the Collateral or cause
the Collateral to be sold or otherwise disposed of in one or more sales or
transactions, at such prices and in such manner as Administrative Agent may deem
commercially reasonable, and for cash or on credit or for future delivery,
without assumption of any credit risk at any broker's board or at public or
private sale, with or without a warranty of title, without demand of performance
or notice of intention to sell or of time or place of sale (except such notice
as is required by applicable statute and cannot be waived), it being agreed that
Administrative Agent may be a purchaser on behalf of the Banks or on its own
behalf at any such sale and that Administrative Agent, any Bank, or any other
Person who may be a bona fide purchaser for value and without notice of any
claims of any or all of the Collateral so sold shall thereafter hold the same
absolutely free from any claim or right of whatsoever kind, including any equity
of redemption, of Owner, any such demand, notice or right and equity being
hereby expressly waived and released to the extent permitted by law; (d) incur
reasonable expenses, including reasonable attorneys' fees, reasonable
consultants' fees, and other costs appropriate to the exercise of any right or
power under this Agreement; (e) perform any obligation of Owner hereunder or
under any other Credit Document, and make payments, purchase, contest or
compromise any encumbrance, charge or lien, and pay taxes and expenses without,
however, any obligation to do so; (f) in connection with any acceleration and
foreclosure, take possession of the Collateral and render it usable and repair
and renovate the same without, however, any obligation to do so, and enter upon
any Site or any other location where the same may be located for that purpose,
control, manage, operate, rent and lease the Collateral, either separately or in
conjunction with a Project, collect all rents and income from the Collateral and
apply the same to reimburse the Banks for any cost or expenses incurred
hereunder or under any of the Credit Documents and to the payment or performance
of Owner's obligations hereunder or under any of the Credit Documents, and apply
the balance to the Loans of Borrower as provided for in the Credit Agreement and
any remaining excess balance to whomsoever is legally entitled thereto; (g)
secure the appointment of a receiver of the Collateral or any part thereof; or
(h) exercise any other or additional rights or remedies granted to a secured
party under the UCC. If pursuant to applicable law prior notice of any such
action is required to be given to Owner, Owner hereby acknowledges that the
minimum time required by such applicable law, or if no minimum time is
specified, 10 Banking Days, shall be deemed a reasonable notice period.

         7.2 All reasonable costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Administrative Agent in connection with any such
suit or proceeding or in connection with the performance by Administrative Agent
of any of Owner's agreements contained in any of the Assigned Agreements or any
exercise of its rights or remedies hereunder, pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the Default Rate from the date on which
such costs or expenses are incurred to the date of payment thereof, shall
constitute additional indebtedness secured by this Agreement and shall be paid
by Owner to Administrative Agent on behalf of the Banks on demand.


                                       6
<PAGE>   401
     8. REMEDIES CUMULATIVE; DELAY NOT WAIVER.

         8.1 No right, power or remedy herein conferred upon or reserved to
Administrative Agent is intended to be exclusive of any other right, power or
remedy and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder or otherwise shall not
prevent the concurrent assertion or employment of any other appropriate right or
remedy. Resort to any or all security now or hereafter held by Administrative
Agent may be taken concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken nonjudicial
proceedings, or both.

         8.2 No delay or omission of Administrative Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by Administrative Agent.

     9. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuation
of an Event of Default, the proceeds of any sale of or other realization upon,
all or any part of the Collateral shall be applied: first, to all fees, costs
and expenses incurred by and due and owing to Administrative Agent and the Banks
under the Credit Agreement, the other Credit Documents or the Collateral
Documents; second, to accrued and unpaid interest on the Obligations (including
any interest which, but for the provisions of the Bankruptcy Code, would have
accrued on such amounts); third, to the principal amounts of the Obligations
outstanding; fourth, to any other Obligations of Owner owing to Administrative
Agent or the Banks; and fifth, to, or as directed by, Owner.

     10. ATTORNEY-IN-FACT. Owner hereby constitutes and appoints Administrative
Agent, acting for and on behalf of itself and the Banks and each successor or
assign of Administrative Agent and the Banks, the true and lawful
attorney-in-fact of Owner, with full power and authority in the place and stead
of Owner and in the name of Owner, Administrative Agent or otherwise to enforce
all rights, interests and remedies of Owner with respect to the Collateral,
including, without limitation, the right:

         10.1 to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral, including without
limitation, any insurance policies;

         10.2 to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;

         10.3 to file any claims or take any action or institute any proceedings
in connection therewith which Administrative Agent may reasonably deem to be
necessary or advisable;


                                       7
<PAGE>   402
         10.4 to pay, settle or compromise all bills and claims which may be or
become liens or security interests against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Administrative
Agent has been provided; and

         10.5 upon foreclosure and to the extent provided in the Consents, to do
any and every act which Owner may do on its behalf with respect to the
Collateral or any part thereof and to exercise any or all of Owner's rights and
remedies under any or all of the Assigned Agreements;

provided, however, that Administrative Agent shall not exercise any such rights
except upon the occurrence and continuation of an Event of Default. This power
of attorney is a power coupled with an interest and shall be irrevocable.

     11. ADMINISTRATIVE AGENT MAY PERFORM. Upon the occurrence and during the
continuance of an Event of Default, if Owner fails to perform any agreement
contained herein, Administrative Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of Administrative Agent incurred
in connection therewith shall be part of the Obligations.

     12. PERFECTION; FURTHER ASSURANCES.

         12.1 Owner agrees that from time to time, at the expense of Owner,
Owner shall promptly execute and deliver all instruments and documents, and take
all action, that may be reasonably necessary, or that Administrative Agent may
reasonably request, in order to perfect and protect the assignment and security
interest granted or intended to be granted hereby or to enable Administrative
Agent to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, Owner shall
(a) with respect to the Project/Turbine Owner Portfolio Entity Notes and any
other Collateral evidenced by a promissory note or other instrument in excess of
$5,000, deliver and pledge to Administrative Agent for the benefit of the Banks
such note duly endorsed without recourse, and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
Administrative Agent; and (b) execute and deliver to Administrative Agent such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary or
desirable or as Administrative Agent may reasonably request, in order to perfect
and preserve the assignments and security interests granted or purported to be
granted hereby.

         12.2 Owner hereby authorizes Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Owner where permitted by
law.

         12.3 Owner shall pay all filing, registration and recording fees and
all refiling, re-registration and re-recording fees, and all reasonable expenses
incident to the execution and acknowledgment of this Agreement, any assurance,
and all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in

                                       8
<PAGE>   403
connection with the execution and delivery of this Agreement, any agreement
supplemental hereto, any financing statements, and any instruments of further
assurance.

         12.4 Owner shall, promptly upon request, provide to Administrative
Agent all information and evidence it may reasonably request concerning the
Collateral to enable Administrative Agent to enforce the provisions of this
Agreement.

     13. PLACE OF BUSINESS; LOCATION OF RECORDS. Unless Administrative Agent is
otherwise notified under Section 5.4, the place of business and chief executive
office of Owner is, and all records of Owner concerning the Collateral are and
will be, located at the address set forth in Schedule 4.24 to the Credit
Agreement and Owner is, and will be, a limited liability company organized under
the laws of the state of Delaware.

     14. CONTINUING ASSIGNMENT AND SECURITY INTEREST. This Agreement shall
create a continuing assignment of, and security interest in, the Collateral and
shall (a) remain in full force and effect until payment in full of the
Obligations, (b) be binding upon Owner, its successors and assigns; provided,
however, that the obligations of Owner, its successors and assigns hereunder may
not be assigned without the prior written consent of Administrative Agent; and
(c) inure, together with the rights and remedies of Administrative Agent, to the
benefit of Administrative Agent, the Banks and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing but
subject to the terms of the Credit Agreement, Administrative Agent or any of the
Banks may assign or otherwise transfer all or any part of or interest in the
Notes and the other Credit Documents or other evidence of indebtedness held by
them to any other Person to the extent permitted by and in accordance with the
Credit Agreement, and such other Person shall thereupon become vested with all
or an appropriate part of the benefits in respect thereof granted to the Banks
herein or otherwise. The release of the security interest in any or all of the
Collateral, the taking or acceptance of additional security, or the resort by
Administrative Agent to any security it may have in any order it may deem
appropriate, shall not affect the liability of any person on the indebtedness
secured hereby. If this Agreement shall be terminated or revoked by operation of
law, Owner will indemnify and save Administrative Agent and the Banks harmless
from any loss which may be suffered or incurred by Administrative Agent and the
Banks in acting hereunder prior to the receipt by Administrative Agent, its
successors, transferees, or assigns of notice of such termination or revocation.

     15. TERMINATION OF SECURITY INTEREST. Upon the indefeasible payment in full
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Owner. Upon any such termination,
Administrative Agent will, at Owner's expense, execute and, subject to Section
21 hereof, deliver to Owner such documents (including, without limitation, UCC-3
termination statements) as Owner shall reasonably request to evidence such
termination.

     16. ATTORNEYS' FEES. In the event any legal action or proceeding
(including, without limitation, any of the remedies provided for herein or at
law) is commenced to enforce or interpret this Agreement or any provision
thereof, unless Owner is the prevailing party, Owner shall indemnify each of
Administrative Agent and the Banks for their reasonable attorneys' fees and
other costs and expenses incurred therein, and if a judgment or award is entered
in any such

                                       9
<PAGE>   404
action or proceeding, such reasonable attorneys' fees and other costs and
expenses may be made a part of such judgment or award.

     17. LIABILITY. Recourse against the Owner, the other Portfolio Entities,
the Member and their respective Affiliates, members, partners, stockholders,
officers, directors and employees under this Agreement shall be limited to the
extent provided in Article 9 of the Credit Agreement.

     18. AMENDMENTS; WAIVERS; CONSENTS. No amendment, modification, termination
or waiver of any provision of this Agreement, or consent to any departure by
Owner therefrom, shall in any event be effective without the written concurrence
of Administrative Agent and the Owner.

     19. NOTICES. All notices required or permitted under the terms and
provisions hereof shall be in writing and any such notice shall be effective if
given in accordance with the provisions of Section 12.1 of the Credit Agreement.
Notices to Owner may be given at the address of Borrower set forth in such
Section 12.1.

     20. GOVERNING LAW. This Agreement, including all matters of construction,
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the state of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the state of New York.

     21. REINSTATEMENT. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by
Administrative Agent in respect of the Obligations is rescinded or must
otherwise be restored or returned by Administrative Agent upon the insolvency,
bankruptcy, reorganization, liquidation of Owner or any general partner of Owner
or upon the dissolution of, or appointment of any intervenor or conservator of,
or trustee or similar official for, Owner or any general partner of Owner or any
substantial part of Owner's or any of its general partners' assets, or
otherwise, all as though such payments had not been made.

     22. SEVERABILITY. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.

     23. SURVIVAL OF PROVISIONS. All agreements, representations and warranties
made herein shall survive the execution and delivery of this Agreement and the
Credit Agreement and the making of the Loans and extensions of credit
thereunder. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements, representations and warranties of

                                       10
<PAGE>   405
Owner set forth herein shall terminate only upon payment of the Obligations, and
the termination of all Commitments and other obligations of the Banks under the
Credit Documents.

     24. HEADINGS DESCRIPTIVE. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

     25. ENTIRE AGREEMENT. This Agreement, together with any other agreement
executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.

     26. TIME. Time is of the essence of this Agreement.

     27. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.

     28. WAIVER OF JURY TRIAL. OWNER AND ADMINISTRATIVE AGENT HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP AMONG OWNER AND
ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. OWNER AND ADMINISTRATIVE AGENT
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. OWNER AND ADMINISTRATIVE AGENT FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

     29. ADDITIONAL WAIVERS. Owner hereby waives and relinquishes all rights and
remedies accorded by applicable law to sureties or guarantors and agrees not to
assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Administrative Agent or the Banks to proceed
against any Portfolio Entity or any other Person or to proceed against or
exhaust any security held by Administrative Agent or the Banks at any time or to
pursue any other remedy in Administrative Agent's or the Banks' power before
proceeding against Owner, (b) any defense that may arise by reason of the
incapacity, lack of power or authority, death, dissolution, merger, termination
or disability of any Portfolio Entity or any other Person or the failure of
Administrative Agent or the Banks to file or enforce a claim against the estate
(in administration, bankruptcy or any other proceeding) of any Portfolio Entity
or any other Person, (c) demand, presentment, protest and notice of any kind,
including without limitation notice of the existence, creation or incurring of
any new or additional indebtedness or obligation or of any action or non-action
on the part of any Portfolio Entity, Administrative Agent, the Banks, any
endorser or creditor of the foregoing or on the part of any other Person

                                       11
<PAGE>   406
under this or any other instrument in connection with any obligation or evidence
of indebtedness held by Administrative Agent or the Banks as collateral or in
connection with any Obligations, (d) any defense based upon an election of
remedies by Administrative Agent or the Banks, including without limitation an
election to proceed by non-judicial rather than judicial foreclosure, which
destroys or otherwise impairs the subrogation rights of Owner, the right of
Owner to proceed against a Portfolio Entity or another Person for reimbursement,
or both, (e) any defense based on any offset against any amounts which may be
owed by any Person to Owner for any reason whatsoever, (f) any defense based on
any act, failure to act, delay or omission whatsoever on the part of a Portfolio
Entity of the failure by a Portfolio Entity to do any act or thing or to observe
or perform any covenant, condition or agreement to be observed or performed by
it under the Credit Documents, (g) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal
provided, that, upon payment in full of the Obligations, this Agreement shall no
longer be of any force or effect, (h) any defense, setoff or counterclaim which
may at any time be available to or asserted by a Portfolio Entity against
Administrative Agent, the Banks or any other Person under the Credit Documents,
(i) any duty on the part of Administrative Agent or the Banks to disclose to
Owner any facts Administrative Agent or the Banks may now or hereafter know
about any Portfolio Entity, regardless of whether Administrative Agent or the
Banks have reason to believe that any such facts materially increase the risk
beyond that which Owner intends to assume, or have reason to believe that such
facts are unknown to Owner, or have a reasonable opportunity to communicate such
facts to Owner, since Owner acknowledges that Owner is fully responsible for
being and keeping informed of the financial condition of the Portfolio Entities
and of all circumstances bearing on the risk of non-payment of any obligations
and liabilities hereby guaranteed, (j) the fact that any Portfolio Entity may at
any time in the future dispose of all or part of its direct or indirect interest
in any other Portfolio Entity, (k) any defense based on any change in the time,
manner or place of any payment under, or in any other term of, the Credit
Documents or any other amendment, renewal, extension, acceleration, compromise
or waiver of or any consent or departure from the terms of the Credit Documents,
(l) any defense arising because of Administrative Agent's or the Banks'
election, in any proceeding instituted under the Federal Bankruptcy Code, of the
application of Section 1111(b)(2) of the Federal Bankruptcy Code, and (m) any
defense based upon any borrowing or grant of a security interest under Section
364 of the Federal Bankruptcy Code.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       12
<PAGE>   407
                  IN WITNESS WHEREOF, each of the undersigned has caused this
Development Company Security Agreement to be duly executed and delivered as of
the day and year first above written.


                                      CCFC II DEVELOPMENT COMPANY, LLC,
                                      a Delaware limited liability company

                                      By:
                                               --------------------------------
                                               Name:
                                               Title:



                                      CREDIT SUISSE FIRST BOSTON,
                                      NEW YORK BRANCH,
                                      as Administrative Agent

                                      By:
                                               --------------------------------
                                               Name:
                                               Title:

                                      By:
                                               --------------------------------
                                               Name:
                                               Title:
<PAGE>   408
                                                                    EXHIBIT D-4C
                                                         to the Credit Agreement


                                      FORM

                                       OF

                     DEVELOPMENT COMPANY SECURITY AGREEMENT


                   Dated as of __________________, __________

                                     between


                        CCFC II DEVELOPMENT COMPANY, LLC
                      a Delaware limited liability company

                                       and


                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch,
                             as Administrative Agent
<PAGE>   409
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                            <C>
1.   Definitions.............................................................................................    2
2.   Assignment, Pledge and Grant of Security Interest.......................................................    2
3.   Obligations Secured.....................................................................................    4
4.   Representations and Warranties of Owner.................................................................    4
5.   Covenants of Owner......................................................................................    5
6.   Events of Default.......................................................................................    5
7.   Remedies Upon Event of Default..........................................................................    5
8.   Remedies Cumulative; Delay Not Waiver...................................................................    7
9.   Application of Proceeds.................................................................................    7
10.  Attorney-In-Fact........................................................................................    7
11.  Administrative Agent May Perform........................................................................    8
12.  Perfection; Further Assurances..........................................................................    8
13.  Place of Business; Location of Records..................................................................    9
14.  Continuing Assignment and Security Interest.............................................................    9
15.  Termination of Security Interest........................................................................    9
16.  Attorneys' Fees.........................................................................................    9
17.  Liability...............................................................................................   10
18.  Amendments; Waivers; Consents...........................................................................   10
19.  Notices.................................................................................................   10
20.  Governing Law...........................................................................................   10
21.  Reinstatement...........................................................................................   10
22.  Severability............................................................................................   10
23.  Survival of Provisions..................................................................................   10
24.  Headings Descriptive....................................................................................   11
25.  Entire Agreement........................................................................................   11
26.  Time....................................................................................................   11
27.  Counterparts............................................................................................   11
28.  Waiver of Jury Trial....................................................................................   11
29.  Additional Waivers......................................................................................   11
</TABLE>

                                       i
<PAGE>   410
                              DEPOSITARY AGREEMENT

                          dated as of October 16, 2000

                                      among

                  CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                      a Delaware limited liability company,

                                  as Borrower,


                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch
                     as Administrative Agent for the Banks,


                                       and


                              THE BANK OF NEW YORK,

                               as Depositary Agent
<PAGE>   411
         THIS DEPOSITARY AGREEMENT (this "Agreement"), dated as of October 16,
2000, is among CALPINE CONSTRUCTION FINANCE COMPANY II, LLC, a Delaware limited
liability company ("Borrower"), CREDIT SUISSE FIRST BOSTON, acting through its
New York Branch, acting in its capacity as Administrative Agent ("Administrative
Agent") for the Banks under the Credit Agreement (as defined below), and THE
BANK OF NEW YORK, acting in its capacity as Depositary Agent (the "Depositary
Agent").

                                    RECITALS


         A. Borrower has entered into that certain Credit Agreement, dated as of
October 16, 2000 (as the same may be amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among Borrower, the financial
institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse First
Boston, acting through its New York Branch, as Lead Arranger and Administrative
Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, whereby the Banks have agreed to advance to Borrower
certain loans to finance the construction and operation by Borrower of the
Projects and the purchase of the Turbines.

         B. In order to give effect to (a) the security interest in the Accounts
(as defined herein) granted by Borrower to Administrative Agent and (b) the
deposit of funds into the Accounts and the application of funds in connection
with the construction and operation of the Projects and the purchase of the
Turbines, each as contemplated in the Credit Agreement, the parties have agreed
that all amounts to be paid over to Administrative Agent for deposit into, and
disbursement from, the Accounts under of the Credit Agreement shall be paid to
Depositary Agent, as agent for Administrative Agent, to be held by Depositary
Agent in pledge as collateral security for Borrower's obligations under the
Credit Agreement and distributed by Depositary Agent as provided herein.

         C. Depositary Agent has agreed to act as depositary agent for
Administrative Agent pursuant to the terms of this Agreement.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained in this Agreement and for other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:


                                       1
<PAGE>   412
                                   ARTICLE 1

                      Definitions; Rules of Interpretation

         Section 1.1 Definitions. Capitalized terms used but not defined herein
shall have the respective meanings given them in Exhibit A to the Credit
Agreement. The following terms when used herein shall have the following
meanings:

         "Accounts" shall mean the collective reference to the Construction
Account, the Revenue Account, the Loss Proceeds Account, the Working Capital
Reserve Account and any and all other accounts hereinafter established under the
Credit Agreement and/or this Agreement, including any sub-accounts within such
accounts but excluding any Operating Account held in the name of any Project
Owner.

         "Account Withdrawal Certificate" shall mean a certificate of an
Authorized Representative of Borrower countersigned by Administrative Agent
substantially in the form of Exhibit A hereto, stating (i) the specific amount
requested to be withdrawn from a specific Account and transferred, applied or
paid over to another Account or Person, (ii) the purpose for which such payment
shall be made, (iii) that no Event of Default and, with respect to withdrawals
from the Construction Account or the Loss Proceeds Account of the Project to
which such withdrawal relates, no Non-Fundamental Project Default shall have
occurred and be continuing or will occur after giving effect to the withdrawal
of funds so requested and (iv) that all other conditions to distributions from
such account set forth in the Credit Agreement have been satisfied.

         "Construction Account" shall mean, collectively, the special account
designated by that name established by the Depositary Agent pursuant to Section
2.5, the Construction Sub-Accounts, including the Turbine Purchase Sub-Accounts
and all other sub-accounts therein.

         "Disbursement Instruction" shall mean a notice from Administrative
Agent, substantially in the form of Exhibit B hereto, instructing Depositary
Agent to transfer a specific amount of funds from any of the Accounts to such
other account or recipient identified by Administrative Agent in accordance
therewith.

         "Loss Proceeds Account" shall mean collectively the special account
designated by that name established by Depositary Agent pursuant to Section 2.5
and all sub-accounts therein.

         "Revenue Account" shall mean the special account designated by that
name established by the Depositary Agent pursuant to Section 2.5 and all
sub-accounts therein.

         "UCC" shall mean the Uniform Commercial Code as adopted in the State of
New York.

         "Working Capital Reserve Account" shall mean the special account
designated by that name established by the Depositary Agent pursuant to Section
2.5 and all sub-accounts therein.


                                       2
<PAGE>   413
         Section 1.2 Rules of Interpretation. The rules of interpretation set
forth in Exhibit A to the Credit Agreement shall apply to this Agreement.

                                   ARTICLE 2

                        Appointment of Depositary Agent;
                            Establishment of Accounts

         Section 2.1 Appointment of Depositary Agent. Depositary Agent is hereby
appointed by Borrower and by Administrative Agent as depositary agent hereunder,
and Depositary Agent hereby agrees to act as such and to accept all cash,
payments, other amounts and Permitted Investments to be delivered to or held by
Depositary Agent pursuant to the terms of this Agreement. Depositary Agent shall
hold and safeguard the Accounts (and the cash, instruments and securities on
deposit therein) during the term of this Agreement and shall treat the cash,
instruments, and securities in the Accounts as funds, instruments and securities
pledged by Borrower to Administrative Agent for the ratable benefit of the
Banks, to be held by Depositary Agent, as agent of Administrative Agent, in
trust in accordance with the provisions hereof.

         Section 2.2 Security Interest; Control. In order to secure the
performance by Borrower of all of its covenants, agreements and obligations
under the Credit Agreement and the other Credit Documents and the payment and
performance by Borrower of all Obligations, this Agreement is intended to
create, and Borrower hereby pledges to and creates in favor of Administrative
Agent, for the benefit of the Banks, a security interest in and to, the
Accounts, all cash, cash equivalents, instruments, investments and other
securities at any time on deposit in the Accounts, and all proceeds of any of
the foregoing (collectively, the "Collateral"). All moneys, cash equivalents,
instruments, investments and securities at any time on deposit in any of the
Accounts shall constitute collateral security for the payment and performance by
Borrower of the Obligations, and shall at all times be subject to the control of
Administrative Agent, acting through Depositary Agent in respect of the Accounts
and shall be held in the custody of Depositary Agent in trust for the purposes
of, and on the terms set forth in, this Agreement.

         Section 2.3 Accounts Maintained as UCC "Securities Accounts."
Depositary Agent hereby agrees and confirms that it has established the Accounts
as set forth and defined in this Agreement. Each of Depositary Agent and
Borrower agrees that (i) Depositary Agent is acting as "securities intermediary"
(within the meaning of Section 8-102(14) of the UCC) with respect to the
Accounts and the "financial assets" (within the meaning of Section 8-102(a)(9)
of the UCC, the "Financial Assets") credited to the Accounts; (ii) each such
Account established by Depositary Agent is and will be maintained as a
"securities account" (within the meaning of Section 8-501 of the UCC); (iii)
Borrower is an "entitlement holder" (within the meaning of Section 8-102(a)(7)
of the UCC) in respect of the Financial Assets credited to such Accounts and
with respect to such Accounts and Depositary Agent shall so note in its records
pertaining to such Financial Assets and Accounts; and (iv) all Financial Assets
in registered form or payable to or to order of and credited to any such Account
shall be registered in the name of, payable to or to the order of, or specially
endorsed to, Depositary Agent or in blank, or credited to another securities
account maintained in the name of Depositary Agent, and in no case will any
Financial

                                       3
<PAGE>   414
Asset credited to any such Account be registered in the name of, payable to or
to the order of, or endorsed to, Borrower except to the extent the foregoing
have been subsequently endorsed by Borrower to Depositary Agent or in blank.
Each item of property (including a security, security entitlement, investment
property, instrument or obligation, share, participation, interest or other
property whatsoever) credited to any Account shall be treated as a Financial
Asset. Until this Agreement shall terminate in accordance with the terms hereof,
Administrative Agent shall have "control" (within the meaning of Section
8-106(d)(2) of the UCC) of Borrower's "security entitlements" (within the
meaning of Section 8-102(a)(17) of the UCC, "Security Entitlements") with
respect to the Accounts and the Financial Assets credited to the Accounts. All
property delivered to Depositary Agent pursuant to this Agreement will be
promptly credited to the Accounts and shall be treated as Financial Assets. If
at any time Depositary Agent shall receive from Administrative Agent any
"entitlement order" (within the meaning of Section 8-102(8) of the UCC, an
"Entitlement Order") relating to the Accounts or Financial Assets credited to
the Accounts, Depositary Agent shall comply with such Entitlement Order without
further consent by Borrower or any other Person. In the event that Depositary
Agent receives conflicting Entitlement Orders relating to the Accounts or
Financial Assets credited to the Accounts from Administrative Agent and any
other Person (including, without limitation, Borrower), Depositary Agent shall
comply with the Entitlement Orders originated by Administrative Agent. Each of
Borrower and Depositary Agent agrees that it has not and will not execute and
deliver, or otherwise become bound by, any agreement under which it agrees with
any Person other than Administrative Agent to comply with Entitlement Orders
originated by such Person relating to the Accounts or Financial Assets credited
to the Accounts. Except for the claims and interests of Administrative Agent and
Borrower in the Accounts and the Financial Assets credited to the Accounts,
neither Depositary Agent nor Borrower knows of any claim to, or interest in, any
Account or Financial Assets credited to the Accounts. If either Depositary Agent
or Borrower obtains knowledge that any Person has asserted a lien, encumbrance
or adverse claim against any or the Accounts or Financial Assets credited to the
Accounts, such party will promptly notify Administrative Agent thereof. In the
event that the Depositary Agent has or subsequently obtains by agreement,
operation of law or otherwise a Lien or security interest in any Account, any
Security Entitlement carried therein or credited thereto or any Financial Asset
that is the subject of any such Security Entitlement, Depositary Agent agrees
that such Lien or security interest shall be subordinate to the Lien and
security interest of the Administrative Agent. The Financial Assets standing to
the credit of the Accounts will not be subject to deduction, set-off, banker's
lien or any other right, and Depositary Agent shall not grant, permit or consent
to any other right or interest in such Financial Assets, in favor of any Person
(including the Depositary Agent) other than Administrative Agent.

         Section 2.4 Borrower's Rights. Borrower shall not have any rights or
powers with respect to any amounts in the Accounts or any part thereof except
(i) as provided in Article 5 hereof and (ii) the right to have such amounts
applied in accordance with the provisions hereof and of the Credit Agreement.

         Section 2.5 Creation of Accounts. Depositary Agent hereby establishes
at its office located in New York, New York, the following special, segregated
and irrevocable money collateral accounts and sub-accounts within such accounts
which shall be maintained at all times

                                       4
<PAGE>   415
until the termination of this Agreement, unless earlier termination is otherwise
provided for herein or in the Credit Agreement:

         (1)      The Construction Account (Acc. # 050451);

         (2)      The Construction Sub-Account (Los Medanos) (Acc. # 050452);

         (3)      The Construction Sub-Account (Baytown) (Acc. # 050453);

         (4)      The Construction Sub-Account (Carville) (Acc. # 050454);

         (5)      The Construction Sub-Account (Panda) (Acc. # 050455);

         (6)      The Construction Sub-Account (Santa Rosa) (Acc. # 050456);

         (7)      The Construction Sub-Account (Delta) (Acc. # 050457);

         (8)      The Construction Sub-Account (Freestone) (Acc. # 050458);

         (9)      The Construction Sub-Account (Broad River) (Acc. # 050459);

         (10)     The Construction Sub-Account (Channel) (Acc. # 050460);

         (11)     The Construction Sub-Account (Corpus Christi) (Acc. # 050461);

         (12)     The Construction Sub-Account (Decatur) (Acc. # 050462);

         (13)     The Construction Sub-Account (Morgan) (Acc. # 050463);

         (14)     The Turbine Purchase Sub-Account (Acc. # 050464);

         (15)     The Revenue Account (Acc. # 050465);

         (16)     The Revenue Sub-Account (Los Medanos) (Acc. # 050491);

         (17)     The Revenue Sub-Account (Baytown) (Acc. # 050490);

         (18)     The Revenue Sub-Account (Carville) (Acc. # 050489);

         (19)     The Revenue Sub-Account (Panda) (Acc. # 050488);

         (20)     The Revenue Sub-Account (Santa Rosa) (Acc. # 050487);

         (21)     The Revenue Sub-Account (Delta) (Acc. # 050486);

         (22)     The Revenue Sub-Account (Freestone) (Acc. # 050485);

         (23)     The Revenue Sub-Account (Broad River) (Acc. # 050484);


                                       5
<PAGE>   416
         (24)     The Revenue Sub-Account (Channel) (Acc. # 050483);

         (25)     The Revenue Sub-Account (Corpus Christi) (Acc. # 050482);

         (26)     The Revenue Sub-Account (Decatur) (Acc. # 050481);

         (27)     The Revenue Sub-Account (Morgan) (Acc. # 050480);

         (28)     The Loss Proceeds Account (Acc. # 050466);

         (29)     The Loss Proceeds Sub-Account (Los Medanos) (Acc. # 050479);

         (30)     The Loss Proceeds Sub-Account (Baytown) (Acc. # 050478);

         (31)     The Loss Proceeds Sub-Account (Carville) (Acc. # 050477);

         (32)     The Loss Proceeds Sub-Account (Panda) (Acc. # 050476);

         (33)     The Loss Proceeds Sub-Account (Santa Rosa) (Acc. # 050475);

         (34)     The Loss Proceeds Sub-Account (Delta) (Acc. # 050474);

         (35)     The Loss Proceeds Sub-Account (Freestone) (Acc. # 050473);

         (36)     The Loss Proceeds Sub-Account (Broad River) (Acc. # 050472);

         (37)     The Loss Proceeds Sub-Account (Channel) (Acc. # 050471);

         (38)     The Loss Proceeds Sub-Account (Corpus Christi)
                  (Acc. # 050470);

         (39)     The Loss Proceeds Sub-Account (Decatur) (Acc. #050469);

         (40)     The Loss Proceeds Sub-Account (Morgan) (Acc. # 050468);

         (41)     The Working Capital Reserve Account (Acc. # 050467);

         (42)     The Working Capital Sub-Account (Los Medanos) (Acc. # 050598);

         (43)     The Working Capital Sub-Account (Baytown) (Acc. # 050597);

         (44)     The Working Capital Sub-Account (Carville) (Acc. # 050596);

         (45)     The Working Capital Sub-Account (Panda) (Acc. # 050595);

         (46)     The Working Capital Sub-Account (Santa Rosa) (Acc. # 050594);

         (47)     The Working Capital Sub-Account (Delta) (Acc. # 050593);

         (48)     The Working Capital Sub-Account (Freestone) (Acc. # 050592);


                                       6
<PAGE>   417
         (49)     The Working Capital Sub-Account (Broad River) (Acc. # 050591);

         (50)     The Working Capital Sub-Account (Channel) (Acc. # 050590);

         (51)     The Working Capital Sub-Account (Corpus Christi) (Acc. #
                  050589);

         (52)     The Working Capital Sub-Account (Decatur) (Acc. # 050588); and

         (53)     The Working Capital Sub-Account (Morgan) (Acc. # 050587).

All moneys, investments and securities at any time on deposit in any of the
Accounts shall constitute trust funds to be held in the custody of Depositary
Agent for the purposes and on the terms set forth in this Agreement.

                                   ARTICLE 3

                             Deposits into Accounts

         Section 3.1 Deposits. Each of Borrower and Administrative Agent
covenants and agrees that all amounts required by the Credit Agreement or the
other Credit Documents to be delivered or deposited in any of the Accounts,
shall be paid over to Depositary Agent directly for deposit into the appropriate
Account. Any deposit made to any Account under this Agreement shall be
irrevocable and the amount of such deposit and any instrument or security held
in such Account and all income or gain earned on such deposits shall be held in
trust by Depositary Agent and applied solely as provided in this Agreement. In
the event Depositary Agent receives monies without adequate instruction with
respect to the source or proper Account into which such monies are to be
deposited, Depositary Agent shall deposit such monies into the Revenue Account
and notify Borrower and Administrative Agent of the receipt and the source of
such monies.

                                   ARTICLE 4

                             Payments from Accounts

         Section 4.1 Withdrawals by Administrative Agent. As soon as
practicable, and in all events within three Banking Days after receipt of a
Disbursement Instruction, executed by Administrative Agent, Depositary Agent
shall distribute or apply monies on deposit in the Accounts specified in such
notice, in the manner, in the amount and to the Person or Account specified in
such Disbursement Instruction. Notwithstanding anything to the contrary in this
Agreement, from and after Depositary Agent's receipt of notice from
Administrative Agent or Borrower that an Event of Default exists until such time
as Depositary Agent receives notice from Administrative Agent that such Event of
Default no longer exists, Depositary Agent shall only withdraw or transfer
amounts in the Construction Account or the Loss Process Account at the direction
of Administrative Agent. Notwithstanding anything to the contrary in this
Agreement, from and after Depositary Agent's receipt of notice from
Administrative Agent or Borrower that a Non-Fundamental Project Default exists
until such time as Depositary Agent receives notice from Administrative Agent
that such Non-Fundamental Project Default no longer

                                       7
<PAGE>   418
exists, Depositary Agent shall only withdraw or transfer amounts in the
Construction Account or the Loss Proceeds Account for the Project to which such
Non-Fundamental Project Default relates at the direction of Administrative
Agent. In the event that funds on deposit in any Account exceed the amounts
required to be deposited therein, and such excess funds are required to be
transferred to the Revenue Account pursuant to the Credit Agreement,
Administrative Agent shall, as soon as practicable, deliver a Disbursement
Instruction to the Depositary Agent requesting that such excess funds be
transferred to the Revenue Account.

         Section 4.2 Withdrawals from Construction Account. On the same Banking
Day on which Depositary Agent receives an Account Withdrawal Certificate from
Borrower, duly executed by Borrower and acknowledged and agreed to in writing by
Administrative Agent, requesting that funds be withdrawn and/or transferred from
the Construction Account or a sub-account therein, Depositary Agent shall
distribute or apply monies on deposit in the Construction Account or such
sub-account therein in the manner, in the amount and to the Person or Account
specified in such Account Withdrawal Certificate; provided, however, that in the
event that Depositary Agent receives such Account Withdrawal Certificate after
12:00 p.m. eastern standard time of any Banking Day, then Depositary Agent may
take the actions specified therein on the next Banking Day.

         Section 4.3 Withdrawals from the Revenue Account. As soon as
practicable and in all events within three Banking Days after receipt of an
Account Withdrawal Certificate from Borrower, duly executed by Borrower and
acknowledged and agreed to in writing by Administrative Agent, requesting that
funds be withdrawn and/or transferred from the Revenue Account or a sub-account
therein, Depositary Agent shall distribute or apply monies on deposit in the
Revenue Account or such sub-account therein in the manner, in the amount and to
the Person or Account specified in such Account Withdrawal Certificate.

         Section 4.4 Withdrawals from the Loss Proceeds Account. As soon as
practicable, and in all events within three Banking Days after receipt of an
Account Withdrawal Certificate from Borrower, duly executed by Borrower and
acknowledged and agreed to in writing by Administrative Agent, requesting that
funds be withdrawn and/or transferred from the Loss Proceeds Account or a
sub-account therein, Depositary Agent shall distribute or apply monies on
deposit in the Loss Proceeds Account or such sub-account therein in the manner,
in the amount and to the Person or Account specified in such Account Withdrawal
Certificate.

         Section 4.5 Withdrawals from the Working Capital Reserve Account. As
soon as practicable, and in all events within three Banking Days after receipt
of an Account Withdrawal Certificate from Borrower, duly executed by Borrower
and acknowledged and agreed to in writing by Administrative Agent, requesting
that funds be withdrawn and/or transferred from the Working Capital Reserve
Account or a sub-account therein, Depositary Agent shall distribute or apply
monies on deposit in the Working Capital Reserve Account or such sub-account
therein in the manner, in the amount and to the Person or Account specified in
such Account Withdrawal Certificate.


                                       8
<PAGE>   419
                                   ARTICLE 5

                                   Investment

Section 5.1 Permitted Investments. Depositary Agent shall invest any money held
in any Account in such Permitted Investments as directed in writing by Borrower
from time to time (or, if Administrative Agent shall have notified Depositary
Agent that Administrative Agent is exercising its power of attorney to direct
investments, by and at the discretion of Administrative Agent). In the event
that Depositary Agent has not received any such written directions, Depositary
Agent shall invest all available funds in a money market mutual fund selected by
Borrower. Any income or gain realized as a result of any such investment shall
be held as part of the applicable Account and reinvested as provided in this
Agreement until released in compliance with Article 4. Any income tax payable on
account of any such income or gain shall be paid by Borrower. Depositary Agent
shall have no liability for any loss resulting from any such investment other
than solely by reason of its willful misconduct or gross negligence or bad faith
or from failure to exercise such care in the custody of any such investments as
it does for accounts held by other customers or in the custody of its own
investments. Any such investment may be sold (without regard to maturity date)
by Depositary Agent whenever necessary to make any distribution required by this
Agreement. In addition, if an Event of Default has occurred and is continuing,
any investment shall be liquidated and sold by Depositary Agent if so directed
in writing by Administrative Agent.

                                   ARTICLE 6
                                Depositary Agent

         Section 6.1 Rights, Duties, etc. The acceptance by Depositary Agent of
its duties under this Agreement is subject to the following terms and conditions
which the parties to this Agreement hereby agree shall govern and control with
respect to Depositary Agent's rights, duties, liabilities and immunities:

                  (a) Depositary Agent shall act as an agent only and shall not
be responsible or liable in any manner for soliciting any funds or for the
sufficiency, correctness, genuineness or validity of any funds or securities
deposited with or held by it, except as set forth in Section 6.1(c) hereof;

                  (b) Depositary Agent shall be protected in acting or
refraining from acting upon any written notice, certificate, instruction,
request or other paper or document, as to the due execution thereof and the
validity and effectiveness of the provisions thereof and as to the truth of any
information contained therein, which Depositary Agent in good faith believes to
be genuine;

                  (c) Depositary Agent shall not be liable for any error of
judgment or for any act done or step taken or omitted except in the case of its
gross negligence, willful misconduct or bad faith;


                                       9
<PAGE>   420
                  (d) Depositary Agent may consult with and obtain advice from
counsel in the event of any dispute or question as to the construction of any
provision of this Agreement;

                  (e) Depositary Agent shall have no duties as Depositary Agent
except those which are expressly set forth in this Agreement and in any
modification or amendment hereof; provided, however, that no such modification
or amendment shall affect Depositary Agent's duties unless Depositary Agent
shall have given its prior written consent to such modification or amendment;

                  (f) Depositary Agent may execute or perform any duties under
this Agreement either directly or through agents or attorneys;

                  (g) Depositary Agent may engage or be interested in any
financial or other transactions with any party to this Agreement and may act on,
or as depositary, trustee or agent for, any committee or body of holders of
obligations of such Persons as freely as if it were not Depositary Agent
hereunder; and

                  (h) Depositary Agent shall not be obligated to take any action
which in its reasonable judgment would involve it in expense or liability unless
it has been furnished with reasonable indemnity.

         Section 6.2 Resignation or Removal.

                  (a) Depositary Agent may at any time resign by giving notice
to each other party to this Agreement, such resignation to be effective upon the
appointment of a successor Depositary Agent as provided below.

                  (b) Administrative Agent may remove Depositary Agent at any
time by giving notice to each other party to this Agreement, such removal to be
effective upon the appointment of successor Depositary Agent as provided below.

                  (c) In the event of any resignation or removal of Depositary
Agent, a successor Depositary Agent, which shall be a bank or trust company
organized under the laws of the United States America or of the State of New
York, having a corporate trust office in New York and a capital and surplus of
not less than $50,000,000, shall be appointed by Administrative Agent after
consultation with Borrower. If a successor Depositary Agent shall not have been
appointed and accepted its appointment as Depositary Agent within 45 days after
such notice of resignation of Depositary Agent or such notice of removal of
Depositary Agent, Depositary Agent, Administrative Agent or Borrower may apply
to any court of competent jurisdiction to appoint a successor Depositary Agent
to act until such time, if any, as a successor Depositary Agent shall have
accepted its appointment as provided above. A successor Depositary Agent so
appointed by such court shall immediately and without further act be superseded
by any successor Depositary Agent appointed by Administrative Agent as provided
above. Any such successor Depositary Agent shall be capable of acting as a
"securities intermediary" (within the meaning of Section 8-102(14) of the UCC)
and shall deliver to each party to this Agreement a written instrument accepting
such appointment and thereupon such

                                       10
<PAGE>   421
successor Depositary Agent shall succeed to all the rights and duties of
Depositary Agent under this Agreement and shall be entitled to receive the
Accounts from the predecessor Depositary Agent.

                                   ARTICLE 7

                                 Determinations

         Section 7.1 Sales of Permitted Investments. Depositary Agent will use
its best efforts to sell Permitted Investments so that actual money is
available, on each date on which a distribution is to be made pursuant to this
Agreement, for Depositary Agent to make such distribution in money on such date.

         Section 7.2 Available Cash. In determining the amount of deposit or
available money in any Account at any time, in addition to any money then on
deposit in such Account, Depositary Agent shall treat as on deposit or as
available money the net amount which would have been received by Depositary
Agent on such day if Depositary Agent had liquidated all the Permitted
Investments (at then prevailing market prices) then on deposit in such Account.

                                   ARTICLE 8

                                  Miscellaneous

         Section 8.1 Fees and Indemnification of Depositary Agent. Borrower
agrees to pay the fees of Depositary Agent as compensation for its services
under this Agreement. In addition, Borrower and Administrative Agent hereby
agree that (a) Depositary Agent, its directors, officers, employees and agents
(each such Person being called a "Depositary Agent Indemnitee") are released
from any and all liabilities to Borrower and Administrative Agent arising from
the terms or in connection with this Agreement and the compliance of any
Depositary Agent Indemnitee with the terms hereof, except to the extent that
such liabilities arise from the negligence or willful misconduct of any
Depositary Agent Indemnitee, and (b) Borrower, Administrative Agent and their
respective successors and assigns shall at all times indemnify and save harmless
the Depositary Agent Indemnitees from and against any and all claims, actions
and suits of others arising out of the terms of this Agreement or the compliance
of any Depositary Agent Indemnitee with the terms hereof, whether or not any
Depositary Agent Indemnitee is a party thereto, except to the extent that such
claims, actions or suits arise from the negligence or willful misconduct of any
Depositary Agent Indemnitee, and from and against any and all liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising by reason of the same. The provisions of this
Section 8.1 shall survive the termination of this Agreement and the resignation
or removal of Depositary Agent. All payments made by Borrower hereunder shall be
made without setoff or counterclaim.

         Section 8.2 Waiver of Right of Set-Off. Depositary Agent waives, with
respect to all of its existing and future claims against Borrower or any
Affiliate thereof, all existing and future rights of set-off and banker's liens
against the Accounts and all items (and proceeds thereof) that come into its
possession in connection with the Accounts.


                                       11
<PAGE>   422
         Section 8.3 Termination. Subject to Section 8.1, the provisions of this
Agreement shall terminate on the date on which all Obligations shall have been
paid in full and the Credit Documents have terminated in accordance with their
terms. The termination of this Agreement shall have been deemed to have occurred
upon receipt by Depositary Agent of a certificate to such effect executed by
Administrative Agent. Promptly after receipt of such certificate by Depositary
Agent, Depositary Agent shall distribute all amounts contained in the Accounts
to the Borrower and shall be discharged of all obligations hereunder.

         Section 8.4 Severability. If any one or more of the covenants or
agreements provided in this Agreement on the part of the parties to this
Agreement to be performed should be determined by a court of competent
jurisdiction to be contrary to law, such covenant or agreement shall be deemed
and construed to be severable from the remaining covenants and agreements of
this Agreement and shall in no way affect the validity of the remaining
provisions.

         Section 8.5 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which taken together
shall constitute but one and the same instrument.

         Section 8.6 Amendments This Agreement may not be modified or amended
without the prior written consent of each of the parties to this Agreement.

         Section 8.7 Applicable Law. This Agreement and any instrument or
agreement required hereunder (to the extent not expressly provided for therein)
shall be governed by, and construed in accordance with, the laws of the State of
New York, without reference to conflicts of laws (other than Section 5-1401 of
the New York General Obligations Law).

         Section 8.8 Notices, etc. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered, or mailed by first-class mail, postage prepaid,
to the following addresses:

                  (a)  If to Administrative Agent:

                  Credit Suisse First Boston,
                  New York Branch
                  Eleven Madison Avenue
                  New York, New York  10010
                  Attention: Portfolio Management
                  Telephone Number: (212) 325-9126
                  Telecopier Number: (212) 325-8321

                  (b)  If to Borrower:

                  Calpine Construction Finance Company II, LLC
                  c/o Calpine Corporation
                  50 West San Fernando Street
                  San Jose, California 95113
                  Attention:  General Counsel


                                       12
<PAGE>   423
                  Telephone No.: (408) 995-5115
                  Telecopier No.:  (408) 995-0505

                  and

                  6700 Knoll Center Parkway, Suite 200
                  Pleasanton, California  94566
                  Attention: Corporate Asset Management
                  Telephone Number: (925) 600-2000
                  Telecopier Number: (925) 600-8926

                  (c)  If to Depositary Agent:

                  The Bank of New York
                  101 Barclay Street, Floor 2100
                  New York, New York  10286
                  Attention: Corporate Trust Administrator
                  Telephone Number: (212) 815-5939
                  Telecopier Number: (212) 815-5915

         All notices or other communications required or permitted to be
delivered hereunder, shall be in writing and shall be considered as properly
delivered (a) if delivered in person, (b) if sent by overnight delivery service
(including Federal Express, Emery, DHL, Air Borne and other similar overnight
delivery services), (c) in the event overnight delivery services are not readily
available, if mailed by first class United States Mail, postage prepaid,
registered or certified with return receipt requested or (d) if sent by prepaid
telegram, or by telecopy confirmed by telephone. Notice so delivered shall be
effective upon receipt by the addressee, except that communication or notice so
transmitted by telecopy or other direct written electronic means shall be deemed
to have been validly and effectively delivered on the day (if a Banking Day and,
if not, on the next following Banking Day) on which it is transmitted if
transmitted before 4:00 p.m., recipient's time, and if transmitted after that
time, on the next following Banking Day; provided, however, that if any notice
is tendered to an addressee and the delivery thereof is refused by such
addressee, such notice shall be effective upon such tender. Any party shall have
the right to change its address for notice hereunder to any other location
within the continental United States by giving of 30 days' notice to the other
parties in the manner set forth hereinabove.

         Section 8.9 Further Information. Depositary Agent shall promptly
provide Administrative Agent and Borrower with any information reasonably
requested by Administrative Agent or Borrower concerning balances in the
Accounts and payments from such Accounts.

         Section 8.10 Benefit of Agreement. This Agreement shall inure to the
benefit of, and be enforceable by, the parties to this Agreement and their
respective successors and permitted assigns.


                                       13
<PAGE>   424
         Section 8.11 Account Balance Statements. Depositary Agent shall on a
monthly basis, and at such other times as Administrative Agent or Borrower may
from time to time reasonably request, provide Administrative Agent and Borrower
account balance statements in respect of each of the Accounts. Such balance
statements shall also include deposits and transfers to, withdrawals from and
the net investment income or gain received and collected from each Account.

         Section 8.12 Authorized Officer of Administrative Agent. All written
directions and instructions (which may be provided by facsimile transmission) by
Administrative Agent to Depositary Agent pursuant to this Agreement shall be
executed by an authorized signatory of Administrative Agent. No person shall be
deemed to be an authorized signatory of Administrative Agent unless named on a
certificate of incumbency of such person delivered to Depositary Agent on the
Closing Date.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       14
<PAGE>   425
                  IN WITNESS WHEREOF, the parties hereto have each caused this
Depositary Agreement to be duly executed by their duly authorized officers, all
as of the day and year first above written.

                             CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                             a Delaware limited liability company

                             By:
                                   ------------------------------------------
                                   Name:
                                   Title:


                             CREDIT SUISSE FIRST BOSTON,
                             NEW YORK BRANCH,
                             as Administrative Agent for the Banks


                             By:
                                 --------------------------------------------
                                   Name:
                                   Title:

                             By:
                                 --------------------------------------------
                                   Name:
                                   Title:


                             THE BANK OF NEW YORK,
                             as Depositary Agent


                             By:
                                   ------------------------------------------
                                   Name:
                                   Title:
<PAGE>   426
                                    Exhibit A

                     Form of Account Withdrawal Certificate

       [LETTERHEAD OF [BORROWER] [AUTHORIZED REPRESENTATIVE OF BORROWER]]

                                     [DATE]

         [THE LANGUAGE IN BRACKETS REPRESENTS ALTERNATIVE DRAWING EVENTS AND THE
CERTIFICATE PRESENTED SHOULD RECITE ONLY THE APPLICABLE ALTERNATIVE.]

Dear Sirs:

         Reference is made to that certain Depositary Agreement (the "Depositary
Agreement") dated as of October 16, 2000, among Calpine Construction Finance
Company II, LLC, a Delaware limited liability company ("Borrower"), The Bank of
New York, as Depositary Agent ("Depositary Agent"), and Credit Suisse First
Boston, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks named in that certain Credit Agreement
dated as of October 16, 2000, among Borrower, the financial institutions listed
on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting through
its New York Branch, as Lead Arranger and Administrative Agent, The Bank of Nova
Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America
Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as
Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as
Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. Capitalized terms used herein
without definition shall have the respective meanings specified in the
Depositary Agreement.


         Please liquidate investments held in the [NAME OF ACCOUNT] under the
Depositary Agreement in an amount sufficient to yield proceeds of
$_____________, to be used for the payment of [________ COSTS] as set forth in
the [CONSTRUCTION DRAWDOWN CERTIFICATE] [TURBINE PURCHASE DRAWDOWN CERTIFICATE]
[DISBURSEMENT REQUISITION] [SPECIFY ANY OTHER PURPOSES FOR THE WITHDRAWAL],
attached hereto as Schedule 1. Please [PAY] [TRANSFER] such amounts [BY
[OFFICIAL BANK CHECK] [WIRE TRANSFER]] to [THE ________ ACCOUNT(S)] [THE
PERSON(S) SPECIFIED ON SCHEDULE 2 ATTACHED HERETO AT THE ADDRESSES SET FORTH
THEREIN].

         The undersigned hereby certifies that:

         (a) the undersigned is an officer of the [BORROWER] [AUTHORIZED
REPRESENTATIVE OF BORROWER] and, as such, is authorized to execute this Account
Withdrawal Certificate on behalf of [BORROWER] [AUTHORIZED REPRESENTATIVE OF
BORROWER];

         (b) the amounts paid or applied pursuant to this Account Withdrawal
Certificate shall be used for the purpose(s) set forth on Schedule 1 attached
hereto;


                                   Exhibit A
<PAGE>   427
         (c) no Event of Default and, with respect to withdrawals from the
Construction Account or the Loss Proceeds Account for the Project to which such
withdrawal relates, no Non-Fundamental Project Default has occurred and is
continuing or will occur after giving effect to the withdrawal of funds
requested by this Account Withdrawal Certificate; and

         (d) all other conditions to distributions from the [NAME OF ACCOUNT]
set forth in the Credit Agreement have been satisfied.

                                    Very truly yours,

                                    CALPINE CONSTRUCTION FINANCE COMPANY II,
                                    LLC, a Delaware limited liability company

                                    By:
                                          --------------------------------------
                                          Name:
                                          Title:


                                    ACKNOWLEDGED AND AGREED:
                                    -----------------------


                                    CREDIT SUISSE FIRST BOSTON, NEW YORK BRANCH,
                                    as Administrative Agent for the Banks



                                    By:
                                        ----------------------------------------
                                         Name:
                                         Title:

                                    By:
                                        ----------------------------------------
                                         Name:
                                         Title:

                                   Exhibit A
<PAGE>   428
                  Schedule 1 to Account Withdrawal Certificate

              Use of Proceeds of Withdrawal from [NAME OF ACCOUNT]

                             Exhibit A - Schedule 1
<PAGE>   429
                  Schedule 2 to Account Withdrawal Certificate

             Payees of Proceeds of Withdrawal from [NAME OF ACCOUNT]


                             Exhibit A - Schedule 2
<PAGE>   430
                                    Exhibit B

                        Form of Disbursement Instruction

[LETTERHEAD OF ADMINISTRATIVE AGENT]

                                     [DATE]

         [THE LANGUAGE IN BRACKETS REPRESENTS ALTERNATIVE DRAWING EVENTS AND THE
CERTIFICATE PRESENTED SHOULD RECITE ONLY THE APPLICABLE ALTERNATIVE.]

Dear Sirs:

         Reference is made to that certain Depositary Agreement (the "Depositary
Agreement") dated as of October 16, 2000, among Calpine Construction Finance
Company II, LLC, a Delaware limited liability company ("Borrower"), The Bank of
New York, as Depositary Agent ("Depositary Agent"), and Credit Suisse First
Boston, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks named in that certain Credit Agreement
dated as of October 16, 2000, among Borrower, the financial institutions listed
on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting through
its New York Branch, as Lead Arranger and Administrative Agent, The Bank of Nova
Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America
Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as
Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as
Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. Capitalized terms used herein
without definition shall have the respective meanings specified in the
Depositary Agreement.

         Please liquidate investments held in the [NAME OF ACCOUNT] under the
Depositary Agreement in an amount sufficient to yield proceeds of
$_____________. Please [PAY] [TRANSFER] such amounts [BY [OFFICIAL BANK CHECK]
[WIRE TRANSFER]] to [THE _________ ACCOUNT(S)] [THE PERSON(S) SPECIFIED ON
SCHEDULE 1 ATTACHED HERETO AT THE ADDRESSES SET FORTH THEREIN].

         The undersigned hereby certifies that the undersigned is an officer of
the Administrative Agent and, as such, is authorized to execute this
Disbursement Instruction on behalf of Administrative Agent.

                                         Very truly yours,

                                         CREDIT SUISSE FIRST BOSTON,
                                         NEW YORK BRANCH,
                                         as Administrative Agent for the Banks


                                         By:
                                                  -----------------------------
                                                  Name:
                                                  Title:

                                          By:
                                                  -----------------------------
                                                  Name:
                                                  Title:


                                    Exhibit B
<PAGE>   431
                     Schedule 1 to Disbursement Instruction

             Payees of Proceeds of Withdrawal from [NAME OF ACCOUNT]


                             Exhibit B -- Schedule 1
<PAGE>   432
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                <C>
ARTICLE 1 Definitions; Rules of Interpretation....................................................................    2
       Section 1.1   Definitions..................................................................................    2
       Section 1.2   Rules of Interpretation......................................................................    3

ARTICLE 2 Appointment of Depositary Agent; Establishment of Accounts..............................................    3
       Section 2.1    Appointment of Depositary Agent.............................................................    3
       Section 2.2    Security Interest; Control..................................................................    3
       Section 2.3    Accounts Maintained as UCC "Securities Accounts."...........................................    3
       Section 2.4    Borrower's Rights...........................................................................    4
       Section 2.5    Creation of Accounts........................................................................    4

ARTICLE 3 Deposits into Accounts..................................................................................    7
       Section 3.1 Deposits.......................................................................................    7

ARTICLE 4 Payments from Accounts..................................................................................    7
       Section 4.1    Withdrawals by Administrative Agent.........................................................    7
       Section 4.2    Withdrawals from Construction Account.......................................................    8
       Section 4.3    Withdrawals from the Revenue Account........................................................    8
       Section 4.4    Withdrawals from the Loss Proceeds Account..................................................    8
       Section 4.5    Withdrawals from the Working Capital Reserve Account........................................    8

ARTICLE 5 Investment .............................................................................................    9
       Section 5.1    Permitted Investments.......................................................................    9

ARTICLE 6 Depositary Agent .......................................................................................    9
       Section 6.1    Rights, Duties, etc.. ......................................................................    9
       Section 6.2    Resignation or Removal......................................................................   10

ARTICLE 7 Determinations .........................................................................................   11
       Section 7.1    Sales of Permitted Investments..............................................................   11
       Section 7.2    Available Cash..............................................................................   11

ARTICLE 8 Miscellaneous ..........................................................................................   11
       Section 8.1    Fees and Indemnification of Depositary Agent................................................   11
       Section 8.2    Waiver of Right of Set-Off..................................................................   11
       Section 8.3    Termination.................................................................................   12
       Section 8.4    Severability................................................................................   12
       Section 8.5    Counterparts................................................................................   12
       Section 8.6    Amendments..................................................................................   12
       Section 8.7    Applicable Law..............................................................................   12
       Section 8.8    Notices, etc................................................................................   12
       Section 8.9    Further Information.........................................................................   13
       Section 8.10   Benefit of Agreement........................................................................   13
       Section 8.11   Account Balance Statements..................................................................   14
       Section 8.12   Authorized Officer of Administrative Agent..................................................   14
</TABLE>

                                       i
<PAGE>   433


                                                                    EXHIBIT D2-B
                                                         to the Credit Agreement

                           PROJECT COMPLETION GUARANTY


        THIS PROJECT COMPLETION GUARANTY (this "Guaranty") dated as of October
16, 2000 is made by CALPINE CORPORATION, a Delaware corporation ("Guarantor"),
in favor of CREDIT SUISSE FIRST BOSTON, acting through its New York Branch, as
Administrative Agent ("Administrative Agent") for the Banks under that certain
Credit Agreement (the "Credit Agreement") dated as of October 16, 2000 among
Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto (the "Banks"), Credit Suisse First Boston, acting through its New York
Branch, as Lead Arranger and Administrative Agent, The Bank of Nova Scotia, as
Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities
LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger
and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent.

                                    RECITALS

        A. Guarantor owns all the outstanding stock of CCFC II Holdings, Inc., a
Delaware corporation, the sole member of Borrower.

        B. Administrative Agent and the Banks have agreed to enter into the
Credit Agreement with Borrower on the condition that Guarantor guarantee certain
of Borrower's obligations thereunder as provided herein.

        C. Guarantor acknowledges that it will benefit, directly and indirectly,
if Administrative Agent and the Banks enter into the Credit Agreement.

        D. The obligations of Guarantor hereunder are being incurred
concurrently with the obligations of Borrower under the Credit Agreement.

        E. Capitalized terms used but not defined herein shall have the
respective meanings given them in Exhibit A to the Credit Agreement and the
Rules of Interpretations contained in said Exhibit A shall apply hereto.

                                    AGREEMENT

        NOW, THEREFORE, in consideration of the premises set forth above and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and as an inducement to Administrative Agent and the Banks
to enter into the Credit Agreement with Borrower, Guarantor hereby consents and
agrees as follows:


<PAGE>   434


        1. Guaranty

               (a) The undersigned Guarantor, as primary obligor and not merely
as surety, unconditionally and irrevocably guarantees to the Banks (i) the
performance, when due, of the obligations of Borrower under Section 5.14 of the
Credit Agreement to achieve Completion of each of the Initial Projects and the
Funded Subsequent Projects (including with respect to any partially owned
Projects), (ii) the payment, when due, of the obligations of Borrower under
Section 5.17.1, 5.17.2 and 5.17.3(x) of the Credit Agreement and (iii) if
Borrower is unable to obtain a disbursement of Loan proceeds under the Credit
Agreement for any Project for which the requirements of Section 5.14 of the
Credit Agreement have not been waived in accordance with the terms of the Credit
Agreement for a period of 60 consecutive days after a request for the same
pursuant to a Drawdown Certificate delivered pursuant to Section 3.4 of the
Credit Agreement, the prompt payment, when due, of the Project Costs for which
funds were requested in such Drawdown Certificate, in each case together with
the payment of all expenses incurred by Administrative Agent or the Banks in
enforcing any of such obligations and liabilities or the terms hereof,
including, without limitation, reasonable fees and expenses of legal counsel
(collectively, the "Obligations"), and agrees that if for any reason Borrower
shall fail to pay or perform, as the case may be, when due any of such
Obligations, Guarantor will pay or perform, as the case may be, the same
forthwith; provide however, if the default giving rise to the potential exercise
of remedies is susceptible of cure and the failure to so exercise remedies could
not reasonably be expected to have a Material Adverse Effect on Borrower,
Administrative Agent and the Banks shall not exercise any remedies in the nature
of foreclosure on or sale of any Collateral, appointment of a receiver, entry
into possession of any Project or other remedies under the Credit Documents
intended to or having the effect of depriving Borrower or any other Portfolio
Entity of the use, possession or enjoyment of any of the Projects as a result of
an Event of Default thereunder for 90 days so long as Guarantor is diligently
pursuing performance of the Obligations and/or diligently attempting to
refinance all outstanding Loans under the Credit Agreement; provided, further,
that if the Obligations under clause (ii) above have been performed, Guarantor's
liability with respect to the Obligations under clause (i) above shall be
limited to the excess of the cost of achieving Completion of the applicable
Projects over the amounts deposited or contributed pursuant to Section 5.17.3 of
the Credit Agreement. Guarantor waives notice of acceptance of this Guaranty and
of any obligation to which it applies or may apply under the terms hereof, and
waives diligence, presentment, demand of payment or performance, notice of
dishonor or non-payment or non-performance, protest, notice of protest, of any
such obligations, suit or taking other action by the Banks against, and giving
any notice of default or other notice to, or making any demand on, any party
liable thereon (including Guarantor).

               (b) This Guaranty is a primary obligation of Guarantor and is an
absolute, unconditional, continuing and irrevocable guaranty of payment and
performance, as the case may be, of the Obligations and not of collectibility,
and is in no way conditioned on or contingent upon any attempt to enforce in
whole or in part Borrower's or any other Portfolio Entity's liabilities and
obligations to the Banks. If Borrower shall fail to pay or perform, as the case
may be, any of the Obligations to the Banks as and when they are due, Guarantor
shall forthwith pay or perform, as the case may be, such Obligations immediately
(in the case of payment obligations, in immediately available funds). Each
failure by Borrower to pay or perform, as the case may be, any Obligations shall
give rise to a separate cause of action herewith, and separate suits may be
brought hereunder as each cause of action arises.

               (c) The Banks may, at any time and from time to time (whether or
not after revocation or termination of this Guaranty) without the consent of or
notice to Guarantor, except such notice as may be required by the Credit
Documents or applicable law which cannot be waived, without incurring
responsibility to Guarantor, without impairing or releasing the obligations of
Guarantor hereunder, upon or without any terms or conditions and in whole or in
part, (i) change the manner, place and terms of payment or performance or change
or extend the time of payment or performance of, or renew or alter, any
Obligation, or any obligations and liabilities (including any of those
hereunder)

                                       2
<PAGE>   435

incurred directly or indirectly in respect thereof or hereof or in any manner
modify, amend or supplement the terms of the Credit Documents (including
provisions with respect to the Completion of the Projects), any documents,
instruments or agreements executed in connection therewith, in each case with
the consent of Borrower or such other relevant Portfolio Entity, if required by
the Credit Documents, and the guaranty herein made shall apply to the
Obligations changed, extended, renewed, modified, amended, supplemented or
altered in any manner, (ii) exercise or refrain from exercising any rights
against Borrower, any other Portfolio Entity or others (including Guarantor) or
otherwise act or refrain from acting; (iii) add or release any other guarantor
from its obligations without affecting or impairing the obligations of Guarantor
hereunder, (iv) settle or compromise any Obligations and/or any obligations and
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and may subordinate the payment or performance of
all or any part thereof to the payment or performance of any obligations and
liabilities which may be due to the Banks or others; (v) sell, exchange,
release, surrender, realize upon or otherwise deal with in any manner or in any
order any property by whomsoever pledged or mortgaged to secure or howsoever
securing the Obligations or any liabilities or obligations (including any of
those hereunder) incurred directly or indirectly in respect thereof or hereof
and/or any offset thereagainst; (vi) apply any sums by whomsoever paid or
howsoever realized to any obligations and liabilities of Borrower or any other
Portfolio Entity to the Banks under the Credit Documents in the manner provided
therein regardless of what obligations and liabilities remain unpaid; (vii)
consent to or waive any breach of, or any act, omission or default under, the
Credit Documents (including provisions with respect to the Completion of the
Projects) or otherwise amend, modify or supplement (with the consent of Borrower
or such other relevant Portfolio Entity, if required by the Credit Documents)
the Credit Documents (including provisions with respect to the Completion of the
Projects) or any of such other instruments or agreements; and/or (viii) act or
fail to act in any manner referred to in this Guaranty which may deprive
Guarantor of its right to subrogation against Borrower to recover full indemnity
for any payments or performances made pursuant to this Guaranty or of its right
of contribution against any other party.

               (d) No invalidity, irregularity or unenforceability of the
obligations or liabilities hereby guaranteed shall affect, impair or be a
defense to this Guaranty, which is a primary obligation of Guarantor.

               (e) This is a continuing Guaranty and all obligations to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. In the event that, notwithstanding the
provisions of Section 1(a) hereof, this Guaranty shall be deemed revocable in
accordance with applicable law, then any such revocation shall become effective
only upon receipt by Administrative Agent of written notice of revocation signed
by Guarantor. No revocation or termination hereof shall affect in any manner
rights arising under this Guaranty with respect to Obligations arising prior to
receipt by Administrative Agent of written notice of such revocation or
termination.

               (f) (i) Except as otherwise required by law, each payment
required to be made by Guarantor to the Banks hereunder shall be made without
deduction or withholding for or on account of Taxes. If such deduction or
withholding is so required, Guarantor shall, upon notice thereof from
Administrative Agent, (A) pay the amount required to be deducted or withheld to
the appropriate authorities before penalties attach thereto or interest accrues
thereon, (B) on or before the 60th day after payment of such amount, forward to
the Banks an official receipt evidencing such payment (or a certified copy
thereof), and (C) in the case of any such deduction or withholding, forthwith
pay to Administrative Agent for the account of the Banks such additional amount
as may be necessary to ensure that the net amount actually received by the Banks
is free and clear of such Taxes, including any Taxes on such additional amount,
is equal to the amount that the Banks would have received had there been no such
deduction or withholding.

                                       3
<PAGE>   436


                      (ii) As used herein, the term "Tax" means any present or
future tax, levy, impost, duty, charge, assessment or fee of any nature
(including interest, penalties and additions thereto) that is imposed by any
government or other taxing authority in respect of any payment under this
Guaranty other than (A) any income, franchise or similar tax imposed upon the
gross or net income of Administrative Agent or any Bank by the United States,
New York State, any jurisdiction where Administrative Agent or any Bank is
organized and/or the jurisdiction in which is located any office from or at
which Administrative Agent or any Bank is making or maintaining any Loans or
receiving any payments under any of the Credit Documents and (B) any stamp,
registration, documentation or similar tax.

               (g) In fulfilling its obligations hereunder with respect to the
Obligations set forth in Section 1(a)(i) hereof, but subject to the provisions
of Section 5.14 of the Credit Agreement, Guarantor hereby irrevocably and
unconditionally guarantees, promises and agrees to perform and comply with
Section 5.14 of the Credit Agreement. The words "perform and comply with" are
used in their most comprehensive sense and include without limitation (i) the
payment of all costs and expenses with respect to the construction of the
Initial Projects and the Funded Subsequent Projects and the construction of such
Projects within the time and in the manner set forth in Section 5.14 of the
Credit Agreement, (ii) the payment, satisfaction or discharge of all Liens
(other than Permitted Liens other than the Liens described in clause (c) of the
definition of "Permitted Liens") arising out of or relating to the construction
and Completion of, and that are or may be imposed upon or asserted against, the
Initial Projects and the Funded Subsequent Projects and (iii) the defense and
indemnification of the Banks against all such Liens, whether arising from the
furnishing of labor, materials, supplies or equipment, from taxes, assessments,
fees or other charges, from injuries or damage to persons or property, or
otherwise. Without limiting the generality of the foregoing, Guarantor agrees
(A) to cause any and all costs of achieving Completion of each of the Initial
Projects and the Funded Subsequent Projects, including without limitation the
costs of all labor, materials, supplies and equipment related thereto and any
and all costs and cost overruns prior to such Completion, to be funded, paid and
satisfied from Guarantor's own resources as the same shall become due and (B) to
cause the Completion of each of the Initial Projects and the Funded Subsequent
Projects, using Guarantor's own resources, in a timely, good and workmanlike
manner, in accordance with the terms of the Credit Documents; provided however.
that Guarantor shall not be required to pay any performance and/or other
liquidated damages due and owing from a Contractor (other than a Contractor that
is an Affiliate of Guarantor) under a Construction Contract; provided further,
Guarantor's liability with respect to such liquidated damages shall be limited
to the amount specified in clause (vi)(B) of the definition of "Completion" less
the amount of any such liquidated damages determined to be due and owing from
any applicable Contractors.

        2. Representations and Warranties. Guarantor makes the representations
and warranties set forth below to Administrative Agent and the Banks as of the
date hereof:

               (a) Guarantor is duly formed, validly existing and in good
standing under the laws of the State of Delaware and has the power and authority
to execute and deliver this Guaranty and to perform its obligations hereunder.

               (b) Guarantor has taken all necessary corporate action to
authorize the execution and delivery of this Guaranty and the performance of its
obligations hereunder.

               (c) All governmental authorizations and actions necessary in
connection with the execution and delivery by Guarantor of this Guaranty and the
performance of its obligations hereunder have been obtained or performed and
remain valid and in full force and effect.

               (d) This Guaranty has been duly executed and delivered by
Guarantor and constitutes the legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in

                                       4
<PAGE>   437


accordance with the terms of this Guaranty, subject to applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights generally.

               (e) The execution, delivery and performance of this Guaranty (i)
do not and will not contravene any provisions of Guarantor's certificate of
incorporation or bylaws, or any law, rule, regulation, order, judgment or decree
applicable to or binding on Guarantor or any of its Affiliates or properties;
(ii) do not and will not contravene, or result in any breach of or constitute
any default under, any agreement or instrument to which Guarantor is a party or
by which Guarantor or any of its properties may be bound or affected; and (iii)
do not and will not require the consent of any Person under any existing law or
agreement which has not already been obtained.

               (f) There is no pending or, to the best of Guarantor's knowledge,
threatened action or proceeding affecting Guarantor before any court,
governmental agency or arbitrator, which might reasonably be expected to
materially and adversely affect the financial condition, results of operations,
business or prospects of Guarantor or the ability of Guarantor to perform its
obligations under this Guaranty.

               (g) All quarterly and annual financial statements heretofore
delivered by Guarantor to Administrative Agent are true, correct and complete,
do not fail to disclose any material liabilities, whether direct or contingent,
fairly present the financial condition of Guarantor as of the date delivered and
are prepared in accordance with generally accepted accounting principles
consistently applied.

               (h) Guarantor possesses all franchises, certificates, licenses,
permits and other governmental authorizations and approvals necessary for it to
own its properties, conduct its businesses and perform its obligations under
this Guaranty.

               (i) Guarantor is not an investment company or a company
controlled by an investment company, within the meaning of the Investment
Company Act of 1940, and is not subject to, or is exempt from, regulation under
the Public Utility Holding Company Act of 1935 and the Federal Power Act.

               (j) Guarantor has established adequate means of obtaining
financial and other information pertaining to the businesses, operations and
condition (financial and otherwise) of Borrower and the other Portfolio Entities
and their respective properties on a continuing basis, and Guarantor now is and
hereafter will be completely familiar with the businesses, operations and
condition (financial and otherwise) of Borrower and the other Portfolio Entities
and their respective properties.

               (k) (i) Guarantor is not, and will not as a result of the
execution and delivery of this Guaranty, be rendered insolvent, (ii) Guarantor
does not intend to incur, or believe it is incurring, obligations beyond its
ability to pay or perform and (iii) Guarantor's property remaining after the
delivery and performance of this Guaranty will not constitute unreasonably small
capital.

               (1) Guarantor is not in default under any material agreement
relating to the incurrence of debt to which it is a party.

        3. Covenants. So long as any Obligations are outstanding, Guarantor
agrees that:

               (a) It will maintain in full force and effect all consents of any
governmental or other authority that are required to be obtained by it with
respect to this Guaranty and will obtain any that may become necessary in the
future;

                                       5
<PAGE>   438

               (b) It will comply in all material respects with all applicable
laws and orders to which it may be subject if failure so to comply would
materially impair its ability to perform its obligations under this Guaranty;

               (c) Promptly, and in any event within 30 Banking Days after the
General Counsel of Guarantor obtains knowledge thereof, Guarantor will give to
Administrative Agent notice of the occurrence of any event or of any litigation
or governmental proceeding pending (i) against Guarantor or any of its
Affiliates which could affect the business, operations, property, assets or
condition (financial or otherwise) of Guarantor so as to materially and
adversely affect the ability of Guarantor to perform its obligations hereunder
or (ii) with respect to this Guaranty, which event or pending proceeding is
likely to materially and adversely affect the business, operations, property,
assets or condition (financial or otherwise) of Guarantor and its Affiliates
taken as a whole;

               (d) It will deliver such other documents and other information
reasonably requested by Administrative Agent;

               (e) It will comply in all material respects with its certificate
of incorporation;

               (f) Guarantor will not permit its:

                      (i) Tangible Net Worth to be less than (A) $1,474,280,000
plus (B) 50% of the consolidated net income of Guarantor and its Subsidiaries
(without giving effect to any losses) for each Fiscal Quarter ending on or after
September 30, 2000, plus (C) 100% of the Net Equity Proceeds from any equity
offering by Guarantor after June 30, 2000;

                      (ii) Leverage Ratio to be greater than .85 to 1.00 as of
the end of any Fiscal Quarter;

                      (iii) Interest Coverage Ratio as of the end of any Fiscal
Quarter to be less than 1.75 to 1.00 for the 12 month period comprising the four
previous Fiscal Quarters; or

                      (iv) Interest Coverage Ratio (Parent Only) as of the end
of any Fiscal Quarter to be less than 1.60 to 1.00 for the 12 month period
comprising the four previous Fiscal Quarters.

Guarantor shall furnish, or shall cause to be furnished, to Administrative Agent
as soon as possible and in any event within 60 days after the end of each of the
first three Fiscal Quarters of each Fiscal Year and within 120 days after the
end of each Fiscal Year, a certificate, executed by a Responsible Officer of
Guarantor, showing (in reasonable detail and with appropriate calculations and
computations in all respects reasonably satisfactory to Administrative Agent)
compliance with the covenants set forth in this Section 3(f).

Capitalized terms used in this Section 3(f) and defined in Appendix A attached
hereto shall have the meanings given therein.

        4. Waiver. Guarantor hereby waives and relinquishes all rights and
remedies accorded by applicable law to sureties or guarantors and agrees not to
assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Administrative Agent or the Banks to proceed
against Borrower or any other Person or to proceed against or exhaust any
security held by Administrative Agent or the Banks at any time or to pursue any
other remedy in Administrative Agent's or the Banks' power before proceeding
against Guarantor, (b) any defense that may arise by reason of the incapacity,
lack of power or authority, death, dissolution, merger, termination or
disability

                                       6
<PAGE>   439


of Borrower or any other Person or the failure of Administrative Agent or the
Banks to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of Borrower or any other Person, (c) demand,
presentment, protest and notice of any kind except as provided herein, including
without limitation notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action on the part
of Borrower, Administrative Agent, the Banks, any endorser or creditor of
Borrower or Guarantor or on the part of any other Person under this or any other
instrument in connection with any obligation or evidence of indebtedness held by
Administrative Agent or the Banks as collateral or in connection with any
Obligations, (d) any defense based upon an election of remedies by
Administrative Agent or the Banks, including without limitation an election to
proceed by non-judicial rather than judicial foreclosure, which destroys or
otherwise impairs the subrogation rights of Guarantor, the right of Guarantor to
proceed against Borrower for reimbursement, or both, (e) any defense based on
any offset against any amounts which may be owed by any Person to Guarantor for
any reason whatsoever, (f) any defense based on any act, failure to act, delay
or omission whatsoever on the part of Borrower or any other Portfolio Entity of
the failure by Borrower or any other Portfolio Entity to do any act or thing or
to observe or perform any covenant, condition or agreement to be observed or
performed by it under the Credit Documents, (g) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than that of the
principal provided, that, upon payment or performance in full of the
Obligations, this Guaranty shall no longer be of any force or effect, (h) any
defense, setoff or counterclaim which may at any time be available to or
asserted by Borrower or any other Portfolio Entity against Administrative Agent,
the Banks or any other Person under the Credit Documents, (i) any duty on the
part of Administrative Agent or the Banks to disclose to Guarantor any facts
Administrative Agent or the Banks may now or hereafter know about Borrower or
any other Portfolio Entity, regardless of whether Administrative Agent or the
Banks have reason to believe that any such facts materially increase the risk
beyond that which Guarantor intends to assume, or have reason to believe that
such facts are unknown to Guarantor, or have a reasonable opportunity to
communicate such facts to Guarantor, since Guarantor acknowledges that Guarantor
is fully responsible for being and keeping informed of the financial condition
of Borrower and the other Portfolio Entities and of all circumstances bearing on
the risk of non-payment or non-performance of any obligations and liabilities
hereby guaranteed, (j) the fact that Guarantor may at any time in the future
dispose of all or part of its direct or indirect interest in Borrower or any
other Portfolio Entity, (k) any defense based on any change in the time, manner
or place of any payment or performance under, or in any other term of, the
Credit Documents (including provisions with respect to the Completion of the
Projects) or any other amendment, renewal, extension, acceleration, compromise
or waiver of or any consent or departure from the terms of the Credit Documents
(including provisions with respect to the Completion of the Projects), (l) any
defense arising because of Administrative Agent's or the Banks' election, in any
proceeding instituted under the Federal Bankruptcy Code, of the application of
Section 1111(b)(2) of the Federal Bankruptcy Code, and (m) any defense based
upon any borrowing or grant of a security interest under Section 364 of the
Federal Bankruptcy Code.

        5. Subordination. Except as otherwise specifically provided in this
Guaranty, all existing and future indebtedness of Borrower or any other
Portfolio Entity to Guarantor (except to the extent such indebtedness consists
of approved operating expenses or other O&M Costs with respect to materials or
services provided consistent with an applicable Annual Operating Budget) and the
right of Guarantor to withdraw any capital invested by Guarantor in Borrower or
any other Portfolio Entity, is hereby subordinated to all obligations and
liabilities hereby guaranteed. Without the prior written consent of
Administrative Agent, such subordinated indebtedness shall not be paid or
withdrawn in whole or in part, nor shall Guarantor accept any payment of or on
account of any such indebtedness or as a withdrawal of capital while the Credit
Agreement is in effect except from distributions permitted under Waterfall Level
8 and 10 of Section 7.2 of the Credit Agreement or as permitted under Section
3.10(b) of the Credit Agreement. Any payment by Borrower in violation of this
Guaranty shall be received by Guarantor in trust for Administrative Agent and
the Banks, and Guarantor shall cause the same to be paid

                                       7
<PAGE>   440


to Administrative Agent for the benefit of the Banks immediately upon demand by
Administrative Agent on account of Borrower's obligations and liabilities hereby
guaranteed. Guarantor shall not assign all or any portion of such indebtedness
while the Credit Agreement remains in effect except upon prior written notice to
Administrative Agent by which the assignee of any such indebtedness agrees that
the assignment is made subject to the terms of this Guaranty, and that any
attempted assignment of such indebtedness in violation of the provisions hereof
shall be void.

        6. Subrogation. So long as the Credit Agreement remains in effect, (a)
Guarantor shall not have any right of subrogation and waives all rights to
enforce any remedy which the Banks now have or may hereafter have against
Borrower or any other Portfolio Entity, and waives the benefit of, and all
rights to participate in, any security now or hereafter held by Administrative
Agent or the Banks from Borrower or any other Portfolio Entity and (b) Guarantor
waives any claim, right or remedy which Guarantor may now have or hereafter
acquire against Borrower or any other Portfolio Entity that arises hereunder
and/or from the performance by Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any claim, right
or remedy of the Banks against Borrower or any other Portfolio Entity, or any
security which the Banks now have or hereafter acquire, whether or not such
claim, right or remedy arises in equity, under contract, by statute, under
common law or otherwise.

        7. Bankruptcy.

               (a) So long as the Credit Agreement remains in effect, Guarantor
shall not, without the prior written consent of Administrative Agent, commence,
or join with any other Person in commencing, any bankruptcy, reorganization, or
insolvency proceeding against Borrower or any other Portfolio Entity. The
obligations of Guarantor under this Guaranty shall not be altered, limited or
affected by any proceeding, voluntary or involuntary, involving the bankruptcy,
reorganization, insolvency, receivership, liquidation or arrangement of Borrower
or any other Portfolio Entity, or by any defense which Borrower or any other
Portfolio Entity may have by reason of any order, decree or decision of any
court or administrative body resulting from any such proceeding.

               (b) So long as the Credit Agreement remains in effect, to the
extent of any Obligations, Guarantor shall file, in any bankruptcy or other
proceeding in which the filing of claims is required or permitted by law, all
claims which Guarantor may have against Borrower or any other Portfolio Entity
relating to any indebtedness of Borrower or any other Portfolio Entity to
Guarantor, and hereby assigns to Administrative Agent on behalf of the Banks all
rights of Guarantor thereunder. If Guarantor does not file any such claim,
Administrative Agent, as attorney-in-fact for Guarantor, is hereby authorized to
do so in the name of Guarantor or, in Administrative Agent's discretion, to
assign the claim to a nominee and to cause proofs of claim to be filed in the
name of Administrative Agent's nominee. The foregoing power of attorney is
coupled with an interest and cannot be revoked. Administrative Agent or its
nominee shall have the sole right to accept or reject any plan proposed in any
such proceeding and to take any other action which a party filing a claim is
entitled to take. In all such cases, whether in administration, bankruptcy or
otherwise, the person authorized to pay such a claim shall pay the same to
Administrative Agent to the extent of any Obligations which then remain unpaid,
and, to the full extent necessary for that purpose, Guarantor hereby assigns to
Administrative Agent all of Guarantor's rights to all such payments or
distributions to which Guarantor would otherwise be entitled; provided, however,
that Guarantor's obligations hereunder shall not be satisfied except to the
extent that Administrative Agent receives cash by reason of any such payment or
distribution. If Administrative Agent receives anything hereunder other than
cash, the same shall be held as collateral for amounts due under this Guaranty.

                                       8
<PAGE>   441


        8. Successions or Assignments.

               (a) This Guaranty shall inure to the benefit of the successors or
assigns of the Banks who shall have, to the extent of their interest, the rights
of the Banks hereunder; provided, however, that the rights of the Banks
hereunder, if any be retained by them, shall have priority over and be senior to
the rights of its successors or assigns unless Administrative Agent shall
otherwise elect.

               (b) This Guaranty is binding upon Guarantor and its successors
and assigns. Guarantor is not entitled to assign its obligations hereunder to
any other person without the written consent of Administrative Agent, and any
purported assignment in violation of this provision shall be void.

        9. Waivers.

               (a) No delay on the part of Administrative Agent or the Banks in
exercising any of their rights (including those hereunder) and no partial or
single exercise thereof and no action or non-action by Administrative Agent or
the Banks, with or without notice to Guarantor or anyone else, shall constitute
a waiver of any rights or shall affect or impair this Guaranty.

               (b) GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR RELATING
TO THE SUBJECT MATTER OF THIS GUARANTY AND THE RELATIONSHIP BETWEEN GUARANTOR
AND ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. GUARANTOR ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
ADMINISTRATIVE AGENT HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
GUARANTY, AND THAT ADMINISTRATIVE AGENT WILL CONTINUE TO RELY ON THE WAIVER IN
THEIR RELATED FUTURE DEALINGS. GUARANTOR FURTHER WARRANTS AND REPRESENTS THAT IT
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.

        10. Interpretation. The section headings in this Guaranty are for the
convenience of reference only and shall not affect the meaning or construction
of any provision hereof.

        11. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be considered as properly
given (a) if delivered in person, (b) if sent by overnight delivery service by
the addressee, except that communication or notice so transmitted by telecopy or
other direct written electronic means shall be deemed to have been validly and
effectively given on the day (if a Bank Day and, if not, on the next following
Banking Day) on which it is transmitted if transmitted before 4:00 p.m.,
recipient's time, and if transmitted after that time, on the next following
Banking Day; provided, however, that if any notice is tendered to an addressee
and the delivery thereof is refused by such addressee, such notice shall be
effective upon such tender. Any party shall have the right to change its address
for notice hereunder to any other location within the continental United States
by giving of 30 days' notice to the other parties in the manner set forth
hereinabove.

        12. Amendments. This Guaranty may be amended only with the written
consent of the parties hereto.

        13. Jurisdiction: Governing Law.

                                       9
<PAGE>   442


               (a) Any action or proceeding relating in any way to this Guaranty
may be brought and enforced in the courts of the State of New York or of the
United States for the Southern District of New York. Any such process or summons
in connection with any such action or proceeding may be served by mailing a copy
thereof by certified or registered mail, or any substantially similar form of
mail, addressed to Guarantor as provided for notices hereunder.

               (b) This Guaranty and the rights and obligations of
Administrative Agent and of Guarantor shall be governed by and construed in
accordance with the law of the State of New York without reference to principles
of conflicts of laws (other than Section 5-1401 of the New York General
Obligations Law).

        14. Integration of Terms. This Guaranty contains the entire agreement
between Guarantor and the Banks relating to the subject matter hereof and
supersedes all oral statements and prior writing with respect hereto.

        15. Addresses.

            (a) The address of Guarantor for notices is:

                            Calpine Corporation
                            50 West San Fernando Street
                            San Jose, California 95113
                            Attention: General Counsel
                            Telephone Number: (408) 995-5115
                            Telecopier Number: (408) 995-0505

            (b)   The address of Administrative Agent for notices is:

                            Credit Suisse First Boston
                            New York Branch
                            Eleven Madison Avenue
                            New York, New York 10010-3629
                            Attn: Portfolio Management
                            Telephone No.(212) 325-9126
                            Telecopy No.: (212) 325-8321

        16. Interest; Collection Expenses. Any amount required to be paid by
Guarantor pursuant to the terms hereof shall bear interest at the Default Rate
or the maximum rate permitted by law, whichever is less, from the date due until
paid in full. If Administrative Agent or the Banks are required to pursue any
remedy against Guarantor hereunder, Guarantor shall pay to Administrative Agent
or the Banks, as the case may be, upon demand, all reasonable attorneys' fees
and expenses all other costs and expenses incurred by Administrative Agent or
the Banks in enforcing this Guaranty.

        17. Termination; Reinstatement of Guaranty. Upon the indefeasible
payment in full of all Obligations owing under the Credit Agreement, this
Guaranty shall terminate in its entirety. Notwithstanding the foregoing, this
Guaranty shall continue to be effective or be reinstated, as the case may be, if
at any time any payment to or on behalf of Borrower or to Administrative Agent
by Borrower or any other Person in respect of the Obligations (as such term is
defined in the Credit Agreement) or by Guarantor hereunder is rescinded or must
otherwise be returned by Administrative Agent upon the insolvency, bankruptcy,
reorganization, dissolution or liquidation of Borrower or any other Portfolio
Entity or otherwise, all as though such payment had not been made.

                                       10
<PAGE>   443

        18. Counterparts. The Guaranty may be executed in one or more duplicate
counterparts, and when executed and delivered by all of the parties listed below
shall constitute a single binding agreement.

        19. No Benefit to Borrower. This Guaranty is for the benefit of only
Administrative Agent and is not for the benefit of Borrower or any other
Portfolio Entity. Notwithstanding that, pursuant to the Credit Agreement,
Guarantor may treat any amounts actually paid hereunder as a loan to Borrower,
the Guaranty shall not be deemed to be a contract to make a loan, or extend
other debt financing or financial accommodation, for the benefit of Borrower, in
each case within the meaning of Section 365(e) of the Federal Bankruptcy Code.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       11
<PAGE>   444

        IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly
executed and delivered as of the day and year first written above.


                                   CALPINE CORPORATION,
                                   a Delaware corporation


                                   By:
                                      ------------------------------------------
                                       Name:
                                       Title:


Agreed and accepted.

CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH, as
Administrative Agent


By:
   --------------------------------------
   Name:
   Title:


By:
   --------------------------------------
   Name:
   Title:


<PAGE>   445




                    APPENDIX A TO PROJECT COMPLETION GUARANTY


"Asset Sale" means any sale, transfer, lease or other disposition pursuant to
which (a) Guarantor or a Subsidiary receives consideration at the time of such
sale, transfer, lease contribution or conveyance at least equal to the fair
market value of assets being sold, transferred, leased, contributed or conveyed,
(b) at least 60% of the consideration received by Guarantor or such Subsidiary
is in the form of cash or cash equivalents and (c) an amount equal to 100% of
Net Available Cash is either (x) reinvested in additional assets within 365 days
of such asset sale or (y) used by Guarantor to prepay the loans and to
permanently reduce the commitments under the Guarantor Credit Agreement.

"Capital Expenditures" means, for any period, the aggregate amount of all
expenditures of Guarantor and its Subsidiaries for fixed or capital assets made
during such period which, in accordance with GAAP, would be classified as
capital expenditures.

"Capitalized Lease Liabilities" means all rental obligations of Guarantor or any
of its Subsidiaries under any leasing or similar arrangement which, in
accordance with GAAP, would be classified as capitalized leases, where (a) the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and (b) 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.

"Cogen America" means Cogeneration Corporation of America, a Delaware
corporation of which Guarantor owns not less than 50% of the outstanding voting
stock.

"Consolidated EBITDA" means, for any period, as applied to Guarantor, the sum of
Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net Income
(Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense,
(c) depreciation expense, (d) amortization expense and (e) all other non-cash
items reducing Consolidated Net Income, less all non-cash items increasing
Consolidated Net Income, in each case for such period; provided that, if
Guarantor has any Subsidiary that is not a Wholly Owned Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced by GAAP) by an
amount equal to (A) the consolidated net income (loss) of such Subsidiary (to
the extent included in Consolidated Net Income (Loss)) multiplied by (B) the
quotient of (1) the number of shares of outstanding common stock of such
Subsidiary not owned on the last day of such period by Guarantor or any Wholly
Owned Subsidiary divided by (2) the total number of shares of outstanding common
stock of such Subsidiary on the last day of such period.

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

"Consolidated Interest Expense" means, for any period, as applied to Guarantor,
the sum of (a) the total interest expense of Guarantor and its consolidated
Subsidiaries for such period as determined in accordance with GAAP, plus (b) all
but the principal component of rentals in respect of Capitalized Lease
Liabilities paid, accrued, or scheduled to be paid or accrued by Guarantor or
its consolidated Subsidiaries, plus (c) one-third of all operating lease
obligations paid, accrued, and/or scheduled to be paid by Guarantor and its
consolidated Subsidiaries, plus (d) capitalized interest, plus (e) dividends
paid in respect of preferred stock of Guarantor or any Subsidiary held by
Persons other than Guarantor or a Wholly Owned Subsidiary, including, without
limitation, but without duplication of payments by Guarantor to a Trust, all
payments by a Trust of dividends and distributions with respect to the



<PAGE>   446

Guaranteed Preferred Securities, plus (f) cash contributions to any employee
stock ownership plan to the extent such contributions are used by such employee
stock ownership plan to pay interest or fees to any Person (other than Guarantor
or a Subsidiary) in connection with loans incurred by such employee stock
ownership plan to purchase capital stock of Guarantor.

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

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

"Debt" means the outstanding principal amount of all Indebtedness of Guarantor
and its consolidated Subsidiaries of the nature referred to in clauses (a) (b),
(c) and (f) of the definition of "Indebtedness" (as


<PAGE>   447

defined in this Appendix A), and (without duplication) all Contingent
Liabilities in respect of any of the foregoing.

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

"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.

"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 October, 1999, the $300,000,000
of principal amount of such securities issued in January; 2000 and the
$60,000,000 of principal amount of such securities issued in February, 2000.

"Guarantor EBITDA" means, for any period, the Consolidated EBITDA of Guarantor
and its Subsidiaries, minus that portion of Consolidated Interest Expense
payable by the consolidating Subsidiaries, minus the principal payments of the
consolidating Subsidiaries, minus the consolidated non-discretionary Capital
Expenditures (i.e., Capital Expenditures which are expressly required to be made
under any agreement, contract, instrument, permit, license, law, regulation,
judgment or other arrangement (other than those arrangements and contracts that
relate to the performance of the work for which the Capital Expenditure is being
made) binding on Guarantor or any Subsidiary) of Guarantor and its Subsidiaries,
plus, without duplication, cash and Permitted Investments of Guarantor's Wholly
Owned Subsidiaries and Cogen America that are legally and contractually
available to each such Subsidiary for the payment of dividends, but only to the
extent the source of such cash and Permitted Investments is from that portion of
Consolidated EBITDA attributable to such Subsidiary or from repayments to such
Subsidiary of loans made by such Subsidiary.

"Guarantor Credit Agreement" means that certain First Amended and Restated
Credit Agreement (as amended, amended and restated or otherwise modified from
time to time), dated as of May 23, 2000, among Guarantor, certain commercial
lending institutions party thereto (the "Guarantor Lenders") and The Bank of
Nova Scotia, as agent for the Guarantor Lenders or, if the Guarantor Credit
Agreement has been terminated, any replacement thereof.

"Guarantor Interest Expense" means, for any period, as applied to Guarantor, the
sum of (a) the total interest expense of Guarantor for such period as determined
in accordance with GAAP, including, without limitation, all interest paid by
Guarantor under its subordinated debt securities issued to a Trust, plus (b) all
but the principal component of rentals in respect of Capitalized Lease
Liabilities paid, accrued, or scheduled to be paid or accrued by Guarantor, plus
(c) one-third of all operating lease obligations paid, accrued and/or scheduled
to be paid by Guarantor, plus (d) capitalized interest, plus (e) dividends paid
in respect of preferred stock of Guarantor held by Persons other than Guarantor,
plus (f) cash contributions to any employee stock ownership plan to the extent
such contributions are used by such employee stock ownership plan to pay
interest or fees to any person (other than Guarantor) in connection with loans
incurred by such employee stock ownership plan to purchase capital stock of
Guarantor.

"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.



<PAGE>   448

"Indebtedness" of any Person means, without duplication:

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

               (b) all obligations, contingent or otherwise, relative to the
stated amount of all letters of credit and banker's acceptances issued for the
account of such Person (excluding Guarantor's subordinated debt securities
issued to a Trust and the Guaranteed Preferred Securities, or any similar
securities); 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 Guaranty, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer, unless the indebtedness of such partnership
or joint venture is expressly nonrecourse to such Person.

"Interest Coverage Ratio" means, for any period of four Fiscal Quarters, the
ratio of (x) the Consolidated EBITDA of Guarantor and its Subsidiaries during
such period to (y) the Consolidated Interest Expense of Guarantor and its
Subsidiaries (excluding from Consolidated Interest Expense for purposes of this
clause interest capitalized in connection with the construction of a new
Facility which interest is capitalized during the construction of such Facility)
incurred during such period.

"Interest Coverage Ratio (Parent Only)" means, for any period of four Fiscal
Quarters, the ratio of (x) the Guarantor EBITDA during such period to (y)
Guarantor Interest Expense (excluding from Guarantor Interest Expense for
purposes of this clause interest capitalized in connection with the construction
of a new Facility which interest is capitalized during the construction of such
Facility) during such period.

"Leverage Ratio" means the ratio of (a) Debt to (b) Debt plus Tangible Net
Worth.


<PAGE>   449

"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.

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

"Net Equity Proceeds" means, with respect to any issuance by Guarantor or a
Trust of any equity securities (including the Guaranteed Preferred Securities),
the gross consideration received by or for the account of Guarantor minus
underwriting and brokerage commissions, discounts and fees relating to such
issuance that are payable by Guarantor.

"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.

"Subsidiary" means, with respect to any Person, any corporation, partnership or
other Person of which more than 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 (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency) is at the time
directly or indirectly owned by such Person, by such Person and one or more
other Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person.

"Tangible Net Worth" means the consolidated net worth of Guarantor and its
Subsidiaries, including the aggregate outstanding face amount of the Guaranteed
Preferred Securities, after subtracting therefrom the aggregate amount of any
intangible assets of Guarantor and its Subsidiaries, including goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks and brand names.

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

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


<PAGE>   450
                                                                    EXHIBIT D4-D

              CCFC II EQUIPMENT FINANCE COMPANY SECURITY AGREEMENT


                  This CCFC II EQUIPMENT FINANCE COMPANY SECURITY AGREEMENT
(this "Agreement"), dated as of __________________, __________, is entered into
by and between CCFC II EQUIPMENT FINANCE COMPANY, LLC, a Delaware limited
liability company ("Owner"), and CREDIT SUISSE FIRST BOSTON, acting through its
New York Branch, as Administrative Agent ("Administrative Agent") for the Banks
(as defined below).

                                     PREFACE

         A. Calpine Construction Finance Company II, LLC, a Delaware limited
liability company ("Borrower"), the financial institutions listed on Exhibit H
to the Credit Agreement (the "Banks"), Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, have entered into that certain Credit Agreement, dated
as of October 16, 2000 (as modified, supplemented or amended from time to time,
the "Credit Agreement"), pursuant to which the Banks agreed to make certain
advances of credit to Borrower in the amounts specified and on the terms and
subject to the conditions set forth therein. For purposes of this Agreement, the
term "Banks" shall include the Administrative Agent, the Lead Arrangers, the
Co-Syndication Agents, the Bookrunner, the Co-Documentation Agents and the Banks
(as such terms are defined in the Credit Agreement).

         B. Owner is a wholly-owned Subsidary of Borrower and each of the
Equipment Finance Companies are Subsidiaries of Owner. Each Equipment Finance
Company intends to finance certain Costs associated with such entity's purchase
of equipment with funds borrowed from Owner. Owner intends to borrower such
funds from Borrower and Borrower intends to borrower such funds pursuant to the
Credit Agreement.

         C. As a condition precedent to the Banks' making the advances of credit
contemplated by the Credit Agreement, the Banks require that Owner shall have
executed this Agreement.

                                    AGREEMENT

         In consideration of the promises contained herein, and in order to
induce the Banks to enter into the Credit Agreement and to make the advances of
credit pursuant to the terms thereof, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, Owner
hereby agrees with Administrative Agent for the benefit of Administrative Agent
and the Banks as follows:
<PAGE>   451
     1. DEFINITIONS.

         1.1 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

         1.2 All capitalized terms used, but not otherwise defined herein, shall
have the meanings provided in the Credit Agreement. All other terms used herein
(whether or not capitalized) shall have the meanings given them in the UCC. The
rules of interpretation contained in Exhibit A to the Credit Agreement shall
apply to this Agreement.

     2. ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST.

         2.1 To secure the timely payment and performance of the Obligations (as
defined in Section 3 hereof) Owner does hereby assign, grant and pledge to, and
subject to a security interest in favor of, Administrative Agent, on behalf of
and for the benefit of Administrative Agent and the Banks, all the estate,
right, title and interest of Owner, whether now owned or hereafter acquired, in,
to and under:

                  2.1.1 The following agreements and documents, as amended from
time to time (individually, an "Assigned Agreement," and collectively, the
"Assigned Agreements") and all of Owner's rights thereunder:

                  (a) all Project Documents and Equipment Leases with respect to
which Owner is or may become a party from time to time;

                  (b) the insurance policies maintained or required to be
maintained by Owner or any other Person under any Operative Document; and

                  (c) all amendments, supplements, substitutions and renewals to
any of the aforesaid agreements.

                  2.1.2 the Portfolio Entity Notes from each Equipment Finance
Company (collectively, the "Equipment Finance Company Portfolio Entity Notes");

                  2.1.3 all other personal property and fixtures of Owner,
including without limitation personal property and fixtures relating to any
equipment or Equipment Lease, whether now owned or existing or hereafter
acquired or arising, or in which Owner may have an interest, and wheresoever
located, whether or not of a type which may be subject to a security interest
under the UCC, including without limitation all machinery, tools, engines,
turbines (including combustion turbines and steam turbine generators), boilers,
fuel storage tanks, control

                                       2
<PAGE>   452
equipment, appliances, mechanical and electrical systems, elevators, lighting,
alarm systems, fire control systems, furnishings, furniture, as-extracted,
collateral, equipment, service equipment, motor vehicles, building or
maintenance equipment, building or maintenance materials, pipes and pipelines
supplies, goods and property covered by any warehouse receipts or bills of
lading or other such documents, spare parts, maps, plans, specifications,
architectural, engineering, construction or shop drawings, manuals or similar
documents, copyrights, trademarks and trade names, and any replacements,
renewals or substitutions for any of the foregoing or additional tangible or
intangible personal property hereafter acquired by Owner;

                  2.1.4 all goods, money, instruments, investment securities,
investment property, accounts, contract rights, commercial tort claims, letters
of credit, letter of credit rights, payment intangibles, promissory notes,
software, supporting obligations, documents, deposit accounts, chattel paper
(including tangible and electronic chattel paper), general intangibles, and
inventory, including without limitation those relating to any equipment or
Equipment Lease; and

                  2.1.5 the proceeds of all of the foregoing (all of the
collateral described in clauses 2.1.1 through 2.1.5, being herein collectively
referred to as the "Collateral"), including without limitation, (a) all rights
of Owner to receive moneys due and to become due under or pursuant to the
Collateral; (b) all rights of Owner to receive the return of any premiums for,
or proceeds of, any insurance, indemnity, warranty or guaranty with respect to
the Collateral or to receive any condemnation proceeds; (c) all claims of Owner
for damages arising out of, or for breach of or default under, the Assigned
Agreements or any other Collateral; (d) all rights of Owner to terminate, amend,
supplement, modify or waive performance under the Assigned Agreements, to
perform thereunder and to compel performance and otherwise exercise all remedies
thereunder; and (e) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed of, whether voluntarily or
involuntarily.

         2.2 In order to effectuate the foregoing, Owner has heretofore
delivered, or concurrently with the delivery hereof, is delivering to
Administrative Agent an executed counterpart or certified copy of each of the
Assigned Agreements. Owner will likewise deliver to Administrative Agent an
executed counterpart of each future lease, construction agreement, operation
agreement and other agreement, including without limitation those relating to
any equipment or Equipment Lease or any part thereof, and amendments and
supplements to the foregoing, included in the Collateral, as they are entered
into by Owner promptly upon the execution thereof. Notwithstanding anything to
the contrary contained herein, no such future lease, construction agreement,
operation agreement or other material agreement may be entered into by Owner
except as permitted under the Credit Documents.

         2.3 Notwithstanding anything to the contrary contained herein, Owner
shall remain liable under each of the Assigned Agreements to perform all of the
obligations undertaken by it thereunder, all in accordance with and pursuant to
the terms and provisions thereof, and Administrative Agent shall have no
obligation or liability under any of such Assigned Agreements by reason of or
arising out of this Agreement, nor shall Administrative Agent be required or
obligated in any manner to perform or fulfill any obligations of Owner
thereunder or to make any payment or inquiry as to the nature or sufficiency of
any payment

                                       3
<PAGE>   453
received by it, or present or file any claim or take any action to collect or
enforce the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time.

         2.4 If any default by Owner under any of the Assigned Agreements shall
occur and be continuing, then Administrative Agent shall, at its option and
after the expiration of the applicable cure periods under Section 8.1.7 of the
Credit Agreement, be permitted (but shall not be obligated) to remedy any such
default by giving written notice of such intent to Owner and to the parties to
the Assigned Agreement or Assigned Agreements for which Administrative Agent
intends to remedy the default. After giving such notice of its intent to cure
such default and upon the commencement thereof, Administrative Agent will
proceed diligently to cure such default. Any cure by Administrative Agent of
Owner's default under any of the Assigned Agreements shall not be construed as
an assumption by Administrative Agent or any of the Banks of any obligations,
covenants or agreements of Owner under such Assigned Agreement, and neither
Administrative Agent nor any of the Banks shall be liable to Owner or any other
Person as a result of any actions undertaken by Administrative Agent in curing
or attempting to cure any such default, except as set forth in Section 12.13 of
the Credit Agreement. This Agreement shall not be deemed to release or to affect
in any way the obligations of Owner under the Assigned Agreements.

     3. OBLIGATIONS SECURED. Without limiting the generality of the foregoing,
this Agreement and all of the Collateral secure the payment and performance when
due of the Obligations (as defined in the Credit Agreement) of each of the
Portfolio Entities (including Owner) under the Credit Documents, including
Borrower's Obligations under the Credit Agreement and the other Credit Documents
to which Borrower is a party to the Administrative Agent and the Banks (the
"Obligations"); provided, however, the Obligations as defined in this Section 3
shall not include any Obligations (as defined in the Credit Agreement) of any
Portfolio Entity under the Credit Documents relating to or arising from Projects
(as defined in the Credit Agreement) that have achieved Operation prior to the
effective date of this Agreement.

     4. REPRESENTATIONS AND WARRANTIES OF OWNER. Owner represents and warrants
as of the date hereof as follows:

         4.1 Owner has not assigned any of its rights under the Assigned
Agreements except as provided in the Credit Documents.

         4.2 Owner has not executed and is not aware of any effective financing
statement, security agreement or other instrument similar in effect covering all
or any part of the Collateral, except such as may have been filed pursuant to
this Agreement and the other Credit Documents or pursuant to the documents
evidencing Permitted Liens.

         4.3 Except as permitted by the Credit Agreement, Owner is lawfully
possessed of ownership of the Collateral and has full right, title and interest
in and to all rights purported to be granted to it under the Assigned
Agreements, not subject to any mortgages, liens, charges, or encumbrances except
Permitted Liens. Owner has full power and lawful authority to grant and assign
the Collateral hereunder.


                                       4
<PAGE>   454
     5. COVENANTS OF OWNER. Owner covenants as follows:

         5.1 Any action or proceeding to enforce this Agreement or any Assigned
Agreement may be taken by Administrative Agent either in Owner's name or in
Administrative Agent's name, as Administrative Agent may deem necessary.

         5.2 Owner will, so long as any Obligations shall be outstanding,
warrant and defend its title to the Collateral and the interest of
Administrative Agent in the Collateral against any claim or demand of any
persons (other than Permitted Liens) which could reasonably be expected to
materially adversely affect Owner's title to, or Administrative Agent's right or
interest in, such Collateral.

         5.3 Owner will at all times keep accurate and complete records of the
Collateral. Owner shall permit representatives of Administrative Agent upon
reasonable prior notice, and in accordance with Section 5.6 of the Credit
Agreement, at any time during normal business hours of Owner to inspect and make
abstracts from Owner's books and records pertaining to the Collateral. Upon the
occurrence and during the continuation of any Event of Default, at
Administrative Agent's request, Owner shall promptly deliver copies of any and
all such records to Administrative Agent.

         5.4 Unless waived in writing by Administrative Agent, Owner shall give
Administrative Agent at least 45 days' notice before it changes the location of
its principal place of business, chief executive office or state of organization
and shall at the expense of Owner execute and deliver such instruments and
documents as may reasonably be required by Administrative Agent to maintain a
prior perfected security interest in the Collateral.

     6. EVENTS OF DEFAULT. The occurrence of an Event of Default under the
Credit Agreement, whatever the reason therefor and whether it shall be voluntary
or involuntary or be effected by operation of law, or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an event of default
hereunder (an "Event of Default").

     7. REMEDIES UPON EVENT OF DEFAULT.

         7.1 If any Event of Default has occurred and is continuing,
Administrative Agent may (a) proceed to protect and enforce the rights vested in
it by this Agreement, including but not limited to, the right to cause all
revenues pledged hereby as security and all other moneys pledged hereunder to be
paid directly to it, and to enforce its rights hereunder to such payments and
all other rights hereunder by such appropriate judicial proceedings as it shall
deem most effective to protect and enforce any of such rights, either at law or
in equity or otherwise, whether for specific enforcement of any covenant or
agreement contained in any of the Assigned Agreements, or in aid of the exercise
of any power therein or herein granted, or for any foreclosure hereunder and
sale under a judgment or decree in any judicial proceeding, or to enforce any
other legal or equitable right vested in it by this Agreement or by law; (b)
cause any action at law or suit in equity or other proceeding to be instituted
and prosecuted to collect or enforce any Obligations or rights hereunder or
included in the Collateral, or to foreclose or

                                       5
<PAGE>   455
enforce any other agreement or other instrument by or under or pursuant to which
such Obligations are issued or secured, subject in each case to the provisions
and requirements thereof; (c) sell or otherwise dispose of any or all of the
Collateral or cause the Collateral to be sold or otherwise disposed of in one or
more sales or transactions, at such prices and in such manner as Administrative
Agent may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk at any broker's board or at
public or private sale, with or without a warranty of title, without demand of
performance or notice of intention to sell or of time or place of sale (except
such notice as is required by applicable statute and cannot be waived), it being
agreed that Administrative Agent may be a purchaser on behalf of the Banks or on
its own behalf at any such sale and that Administrative Agent, any Bank, or any
other Person who may be a bona fide purchaser for value and without notice of
any claims of any or all of the Collateral so sold shall thereafter hold the
same absolutely free from any claim or right of whatsoever kind, including any
equity of redemption, of Owner, any such demand, notice or right and equity
being hereby expressly waived and released to the extent permitted by law; (d)
incur reasonable expenses, including reasonable attorneys' fees, reasonable
consultants' fees, and other costs appropriate to the exercise of any right or
power under this Agreement; (e) perform any obligation of Owner hereunder or
under any other Credit Document, and make payments, purchase, contest or
compromise any encumbrance, charge or lien, and pay taxes and expenses without,
however, any obligation to do so; (f) in connection with any acceleration and
foreclosure, take possession of the Collateral and render it usable and repair
and renovate the same without, however, any obligation to do so, and enter upon
any Site or any other location where the same may be located for that purpose,
control, manage, operate, rent and lease the Collateral, either separately or in
conjunction with a Project, collect all rents and income from the Collateral and
apply the same to reimburse the Banks for any cost or expenses incurred
hereunder or under any of the Credit Documents and to the payment or performance
of Owner's obligations hereunder or under any of the Credit Documents, and apply
the balance to the Loans of Borrower as provided for in the Credit Agreement and
any remaining excess balance to whomsoever is legally entitled thereto; (g)
secure the appointment of a receiver of the Collateral or any part thereof; or
(h) exercise any other or additional rights or remedies granted to a secured
party under the UCC. If pursuant to applicable law prior notice of any such
action is required to be given to Owner, Owner hereby acknowledges that the
minimum time required by such applicable law, or if no minimum time is
specified, 10 Banking Days, shall be deemed a reasonable notice period.

         7.2 All reasonable costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Administrative Agent in connection with any such
suit or proceeding or in connection with the performance by Administrative Agent
of any of Owner's agreements contained in any of the Assigned Agreements or any
exercise of its rights or remedies hereunder, pursuant to the terms of this
Agreement, together with interest thereon (to the extent permitted by law)
computed at a rate per annum equal to the Default Rate from the date on which
such costs or expenses are incurred to the date of payment thereof, shall
constitute additional indebtedness secured by this Agreement and shall be paid
by Owner to Administrative Agent on behalf of the Banks on demand.


                                       6
<PAGE>   456
     8. REMEDIES CUMULATIVE; DELAY NOT WAIVER.

         8.1 No right, power or remedy herein conferred upon or reserved to
Administrative Agent is intended to be exclusive of any other right, power or
remedy and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder or otherwise shall not
prevent the concurrent assertion or employment of any other appropriate right or
remedy. Resort to any or all security now or hereafter held by Administrative
Agent may be taken concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken nonjudicial
proceedings, or both.

         8.2 No delay or omission of Administrative Agent to exercise any right
or power accruing upon the occurrence and during the continuance of any Event of
Default as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given by this Agreement may be exercised from time to
time, and as often as shall be deemed expedient, by Administrative Agent.

     9. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuation
of an Event of Default, the proceeds of any sale of or other realization upon,
all or any part of the Collateral shall be applied: first, to all fees, costs
and expenses incurred by and due and owing to Administrative Agent and the Banks
under the Credit Agreement, the other Credit Documents or the Collateral
Documents; second, to accrued and unpaid interest on the Obligations (including
any interest which, but for the provisions of the Bankruptcy Code, would have
accrued on such amounts); third, to the principal amounts of the Obligations
outstanding; fourth, to any other Obligations of Owner owing to Administrative
Agent or the Banks; and fifth, to, or as directed by, Owner.

     10. ATTORNEY-IN-FACT. Owner hereby constitutes and appoints Administrative
Agent, acting for and on behalf of itself and the Banks and each successor or
assign of Administrative Agent and the Banks, the true and lawful
attorney-in-fact of Owner, with full power and authority in the place and stead
of Owner and in the name of Owner, Administrative Agent or otherwise to enforce
all rights, interests and remedies of Owner with respect to the Collateral,
including, without limitation, the right:

         10.1 to ask, require, demand, receive and give acquittance for any and
all moneys and claims for moneys due and to become due under or arising out of
the Assigned Agreements or any of the other Collateral, including without
limitation, any insurance policies;

         10.2 to elect remedies thereunder and to endorse any checks or other
instruments or orders in connection therewith;

         10.3 to file any claims or take any action or institute any proceedings
in connection therewith which Administrative Agent may reasonably deem to be
necessary or advisable;


                                       7
<PAGE>   457
         10.4 to pay, settle or compromise all bills and claims which may be or
become liens or security interests against any or all of the Collateral, or any
part thereof, unless a bond or other security satisfactory to Administrative
Agent has been provided; and

         10.5 upon foreclosure and to the extent provided in the Consents, to do
any and every act which Owner may do on its behalf with respect to the
Collateral or any part thereof and to exercise any or all of Owner's rights and
remedies under any or all of the Assigned Agreements;

provided, however, that Administrative Agent shall not exercise any such rights
except upon the occurrence and continuation of an Event of Default. This power
of attorney is a power coupled with an interest and shall be irrevocable.

     11. ADMINISTRATIVE AGENT MAY PERFORM. Upon the occurrence and during the
continuance of an Event of Default, if Owner fails to perform any agreement
contained herein, Administrative Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of Administrative Agent incurred
in connection therewith shall be part of the Obligations.

     12. PERFECTION; FURTHER ASSURANCES.

         12.1 Owner agrees that from time to time, at the expense of Owner,
Owner shall promptly execute and deliver all instruments and documents, and take
all action, that may be reasonably necessary, or that Administrative Agent may
reasonably request, in order to perfect and protect the assignment and security
interest granted or intended to be granted hereby or to enable Administrative
Agent to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, Owner shall
(a) with respect to the Equipment Finance Company Portfolio Entity Notes and any
other Collateral evidenced by a promissory note or other instrument in excess of
$5,000, deliver and pledge to Administrative Agent for the benefit of the Banks
such note duly endorsed without recourse, and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
Administrative Agent; and (b) execute and deliver to Administrative Agent such
financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary or
desirable or as Administrative Agent may reasonably request, in order to perfect
and preserve the assignments and security interests granted or purported to be
granted hereby.

         12.2 Owner hereby authorizes Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Owner where permitted by
law.

         12.3 Owner shall pay all filing, registration and recording fees and
all refiling, re-registration and re-recording fees, and all reasonable expenses
incident to the execution and acknowledgment of this Agreement, any assurance,
and all federal, state, county and municipal stamp taxes and other taxes,
duties, imports, assessments and charges arising out of or in

                                       8
<PAGE>   458
connection with the execution and delivery of this Agreement, any agreement
supplemental hereto, any financing statements, and any instruments of further
assurance.

         12.4 Owner shall, promptly upon request, provide to Administrative
Agent all information and evidence it may reasonably request concerning the
Collateral to enable Administrative Agent to enforce the provisions of this
Agreement.

     13. PLACE OF BUSINESS; LOCATION OF RECORDS. Unless Administrative Agent is
otherwise notified under Section 5.4, the place of business and chief executive
office of Owner is, and all records of Owner concerning the Collateral are and
will be, located at the address set forth in Schedule 4.24 to the Credit
Agreement and Owner is, and will be, a limited liability company organized under
the laws of the state of Delaware.

     14. CONTINUING ASSIGNMENT AND SECURITY INTEREST. This Agreement shall
create a continuing assignment of, and security interest in, the Collateral and
shall (a) remain in full force and effect until payment in full of the
Obligations, (b) be binding upon Owner, its successors and assigns; provided,
however, that the obligations of Owner, its successors and assigns hereunder may
not be assigned without the prior written consent of Administrative Agent; and
(c) inure, together with the rights and remedies of Administrative Agent, to the
benefit of Administrative Agent, the Banks and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing but
subject to the terms of the Credit Agreement, Administrative Agent or any of the
Banks may assign or otherwise transfer all or any part of or interest in the
Notes and the other Credit Documents or other evidence of indebtedness held by
them to any other Person to the extent permitted by and in accordance with the
Credit Agreement, and such other Person shall thereupon become vested with all
or an appropriate part of the benefits in respect thereof granted to the Banks
herein or otherwise. The release of the security interest in any or all of the
Collateral, the taking or acceptance of additional security, or the resort by
Administrative Agent to any security it may have in any order it may deem
appropriate, shall not affect the liability of any person on the indebtedness
secured hereby. If this Agreement shall be terminated or revoked by operation of
law, Owner will indemnify and save Administrative Agent and the Banks harmless
from any loss which may be suffered or incurred by Administrative Agent and the
Banks in acting hereunder prior to the receipt by Administrative Agent, its
successors, transferees, or assigns of notice of such termination or revocation.

     15. TERMINATION OF SECURITY INTEREST. Upon the indefeasible payment in full
of the Obligations, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Owner. Upon any such termination,
Administrative Agent will, at Owner's expense, execute and, subject to Section
21 hereof, deliver to Owner such documents (including, without limitation, UCC-3
termination statements) as Owner shall reasonably request to evidence such
termination.

     16. ATTORNEYS' FEES. In the event any legal action or proceeding
(including, without limitation, any of the remedies provided for herein or at
law) is commenced to enforce or interpret this Agreement or any provision
thereof, unless Owner is the prevailing party, Owner shall indemnify each of
Administrative Agent and the Banks for their reasonable attorneys' fees and
other costs and expenses incurred therein, and if a judgment or award is entered
in any such

                                       9
<PAGE>   459
action or proceeding, such reasonable attorneys' fees and other costs and
expenses may be made a part of such judgment or award.

     17. LIABILITY. Recourse against the Owner, the other Portfolio Entities,
the Member and their respective Affiliates, members, partners, stockholders,
officers, directors and employees under this Agreement shall be limited to the
extent provided in Article 9 of the Credit Agreement.

     18. AMENDMENTS; WAIVERS; CONSENTS. No amendment, modification, termination
or waiver of any provision of this Agreement, or consent to any departure by
Owner therefrom, shall in any event be effective without the written concurrence
of Administrative Agent and the Owner.

     19. NOTICES. All notices required or permitted under the terms and
provisions hereof shall be in writing and any such notice shall be effective if
given in accordance with the provisions of Section 12.1 of the Credit Agreement.
Notices to Owner may be given at the address of Borrower set forth in such
Section 12.1.

     20. GOVERNING LAW. This Agreement, including all matters of construction,
validity, performance and the creation, validity, enforcement or priority of the
lien of, and security interests created by, this Agreement in or upon the
Collateral shall be governed by the laws of the state of New York, without
reference to conflicts of law (other than Section 5-1401 of the New York General
Obligations Law), except as required by mandatory provisions of law and except
to the extent that the validity or perfection of the lien and security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the state of New York.

     21. REINSTATEMENT. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by
Administrative Agent in respect of the Obligations is rescinded or must
otherwise be restored or returned by Administrative Agent upon the insolvency,
bankruptcy, reorganization, liquidation of Owner or any general partner of Owner
or upon the dissolution of, or appointment of any intervenor or conservator of,
or trustee or similar official for, Owner or any general partner of Owner or any
substantial part of Owner's or any of its general partners' assets, or
otherwise, all as though such payments had not been made.

     22. SEVERABILITY. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.

     23. SURVIVAL OF PROVISIONS. All agreements, representations and warranties
made herein shall survive the execution and delivery of this Agreement and the
Credit Agreement and the making of the Loans and extensions of credit
thereunder. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements, representations and warranties of

                                       10
<PAGE>   460
Owner set forth herein shall terminate only upon payment of the Obligations, and
the termination of all Commitments and other obligations of the Banks under the
Credit Documents.

     24. HEADINGS DESCRIPTIVE. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

     25. ENTIRE AGREEMENT. This Agreement, together with any other agreement
executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.

     26. TIME. Time is of the essence of this Agreement.

     27. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.

     28. WAIVER OF JURY TRIAL. OWNER AND ADMINISTRATIVE AGENT HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP AMONG OWNER AND
ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. OWNER AND ADMINISTRATIVE AGENT
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. OWNER AND ADMINISTRATIVE AGENT FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

     29. ADDITIONAL WAIVERS. Owner hereby waives and relinquishes all rights and
remedies accorded by applicable law to sureties or guarantors and agrees not to
assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Administrative Agent or the Banks to proceed
against any Portfolio Entity or any other Person or to proceed against or
exhaust any security held by Administrative Agent or the Banks at any time or to
pursue any other remedy in Administrative Agent's or the Banks' power before
proceeding against Owner, (b) any defense that may arise by reason of the
incapacity, lack of power or authority, death, dissolution, merger, termination
or disability of any Portfolio Entity or any other Person or the failure of
Administrative Agent or the Banks to file or enforce a claim against the estate
(in administration, bankruptcy or any other proceeding) of any Portfolio Entity
or any other Person, (c) demand, presentment, protest and notice of any kind,
including without limitation notice of the existence, creation or incurring of
any new or additional indebtedness or obligation or of any action or non-action
on the part of any Portfolio Entity, Administrative Agent, the Banks, any
endorser or creditor of the foregoing or on the part of any other Person

                                       11
<PAGE>   461
under this or any other instrument in connection with any obligation or evidence
of indebtedness held by Administrative Agent or the Banks as collateral or in
connection with any Obligations, (d) any defense based upon an election of
remedies by Administrative Agent or the Banks, including without limitation an
election to proceed by non-judicial rather than judicial foreclosure, which
destroys or otherwise impairs the subrogation rights of Owner, the right of
Owner to proceed against a Portfolio Entity or another Person for reimbursement,
or both, (e) any defense based on any offset against any amounts which may be
owed by any Person to Owner for any reason whatsoever, (f) any defense based on
any act, failure to act, delay or omission whatsoever on the part of a Portfolio
Entity of the failure by a Portfolio Entity to do any act or thing or to observe
or perform any covenant, condition or agreement to be observed or performed by
it under the Credit Documents, (g) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal
provided, that, upon payment in full of the Obligations, this Agreement shall no
longer be of any force or effect, (h) any defense, setoff or counterclaim which
may at any time be available to or asserted by a Portfolio Entity against
Administrative Agent, the Banks or any other Person under the Credit Documents,
(i) any duty on the part of Administrative Agent or the Banks to disclose to
Owner any facts Administrative Agent or the Banks may now or hereafter know
about any Portfolio Entity, regardless of whether Administrative Agent or the
Banks have reason to believe that any such facts materially increase the risk
beyond that which Owner intends to assume, or have reason to believe that such
facts are unknown to Owner, or have a reasonable opportunity to communicate such
facts to Owner, since Owner acknowledges that Owner is fully responsible for
being and keeping informed of the financial condition of the Portfolio Entities
and of all circumstances bearing on the risk of non-payment of any obligations
and liabilities hereby guaranteed, (j) the fact that any Portfolio Entity may at
any time in the future dispose of all or part of its direct or indirect interest
in any other Portfolio Entity, (k) any defense based on any change in the time,
manner or place of any payment under, or in any other term of, the Credit
Documents or any other amendment, renewal, extension, acceleration, compromise
or waiver of or any consent or departure from the terms of the Credit Documents,
(l) any defense arising because of Administrative Agent's or the Banks'
election, in any proceeding instituted under the Federal Bankruptcy Code, of the
application of Section 1111(b)(2) of the Federal Bankruptcy Code, and (m) any
defense based upon any borrowing or grant of a security interest under Section
364 of the Federal Bankruptcy Code.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       12
<PAGE>   462
                  IN WITNESS WHEREOF, each of the undersigned has caused this
CCFC II Equipment Finance Company Security Agreement to be duly executed and
delivered as of the day and year first above written.


                                  CCFC II EQUIPMENT FINANCE COMPANY, LLC,
                                  a Delaware limited liability company

                                  By:
                                           -----------------------------------
                                           Name:
                                           Title:



                                  CREDIT SUISSE FIRST BOSTON,
                                  NEW YORK BRANCH,
                                  as Administrative Agent

                                  By:
                                           -----------------------------------
                                           Name:
                                           Title:

                                  By:
                                           -----------------------------------
                                           Name:
                                           Title:



<PAGE>   463
                                                                    EXHIBIT D-4D
                                                         to the Credit Agreement






                                      FORM

                                       OF

              CCFC II EQUIPMENT FINANCE COMPANY SECURITY AGREEMENT


                  Dated as of __________________, __________

                                     between


                     CCFC II EQUIPMENT FINANCE COMPANY, LLC
                      a Delaware limited liability company

                                       and


                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch,
                             as Administrative Agent
<PAGE>   464
                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

1.    Definitions..............................................................2
2.    Assignment, Pledge and Grant of Security Interest........................2
3.    Obligations Secured......................................................4
4.    Representations and Warranties of Owner..................................4
5.    Covenants of Owner.......................................................5
Owner covenants as follows:....................................................5
6.    Events of Default........................................................5
7.    Remedies Upon Event of Default...........................................5
8.    Remedies Cumulative; Delay Not Waiver....................................7
9.    Application of Proceeds..................................................7
10.   Attorney-In-Fact.........................................................7
11.   Administrative Agent May Perform.........................................8
12.   Perfection; Further Assurances...........................................8
13.   Place of Business; Location of Records...................................9
14.   Continuing Assignment and Security Interest..............................9
15.   Termination of Security Interest.........................................9
16.   Attorneys' Fees..........................................................9
17.   Liability...............................................................10
18.   Amendments; Waivers; Consents...........................................10
19.   Notices.................................................................10
20.   Governing Law...........................................................10
21.   Reinstatement...........................................................10
22.   Severability............................................................10
23.   Survival of Provisions..................................................10
24.   Headings Descriptive....................................................11
25.   Entire Agreement........................................................11
26.   Time....................................................................11
27.   Counterparts............................................................11
28.   Waiver of Jury Trial....................................................11
29.   Additional Waivers......................................................11


                                       i
<PAGE>   465
                                                                    EXHIBIT D4-E


                  EQUIPMENT FINANCE COMPANY SECURITY AGREEMENT


            This EQUIPMENT FINANCE COMPANY SECURITY AGREEMENT (this
"Agreement"), dated as of ________, 200__, is entered into by and between
___________________, a Delaware _______________ ("Owner"), and CREDIT SUISSE
FIRST BOSTON, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks (as defined below).

                                     PREFACE

      A.    Owner intends to purchase certain equipment (the "Equipment") to be
leased to a Project Owner pursuant to one or more Equipment Leases and
incorporated into a Project.

      B.    Calpine Construction Finance Company II, LLC, a Delaware limited
liability company ("Borrower"), the financial institutions listed on Exhibit H
to the Credit Agreement (the "Banks"), Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, have entered into that certain Credit Agreement, dated
as of October 16, 2000 (as modified, supplemented or amended from time to time,
the "Credit Agreement"), pursuant to which the Banks agreed to make certain
advances of credit to Borrower in the amounts specified and on the terms and
subject to the conditions set forth therein. For purposes of this Agreement, the
term "Banks" shall include the Administrative Agent, the Lead Arrangers, the
Co-Syndication Agents, the Bookrunner, the Co-Documentation Agents and the Banks
(as such terms are defined in the Credit Agreement).

      C.    Owner intends to finance certain Costs associated with Owner's
purchase of the Equipment with funds borrowed by Borrower pursuant to the Credit
Agreement.

      D.    As a condition precedent to the Banks' making the advances of credit
contemplated by the Credit Agreement, the Banks require that Owner shall have
executed this Agreement.

                                    AGREEMENT

      In consideration of the promises contained herein, and in order to induce
the Banks to enter into the Credit Agreement and to make the advances of credit
pursuant to the terms thereof, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, Owner hereby agrees
with Administrative Agent for the benefit of Administrative Agent and the Banks
as follows:
<PAGE>   466
            1.    DEFINITIONS.

                  1.1   "UCC" shall mean the Uniform Commercial Code as the same
may, from time to time, be in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.

                  1.2   All capitalized terms used, but not otherwise defined
herein, shall have the meanings provided in the Credit Agreement. All other
terms used herein (whether or not capitalized) shall have the meanings given
them in the UCC. The rules of interpretation contained in Exhibit A to the
Credit Agreement shall apply to this Agreement.

            2.    ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST.

                  2.1   To secure the timely payment and performance of the
Obligations (as defined in Section 3 hereof) Owner does hereby assign, grant and
pledge to, and subject to a security interest in favor of, Administrative Agent,
on behalf of and for the benefit of Administrative Agent and the Banks, all the
estate, right, title and interest of Owner, whether now owned or hereafter
acquired, in, to and under:

                        2.1.1 The following agreements and documents, as amended
from time to time (individually, an "Assigned Agreement," and collectively, the
"Assigned Agreements") and all of Owner's rights thereunder:

                        (a)   Owner's interest in any Equipment Lease or Project
Document;

                        (b)   the insurance policies maintained or required to
be maintained by Owner or any other Person under the Credit Agreement or Project
Documents;

                        (c)   to the extent assignable, all other agreements,
including vendor warranties, running to Owner or assigned to Owner, relating to
the purchase of the Equipment or any part thereof, or transport of material,
equipment and other parts of the Equipment or any part thereof; and

                        (d)   all amendments, supplements, substitutions and
renewals to any of the aforesaid agreements;

                        2.1.2 all other personal property and fixtures of Owner,
including without limitation the Equipment and personal property and fixtures
relating to the Equipment, whether now owned or existing or hereafter acquired
or arising, or in which Owner may have an interest, and wheresoever located,
whether or not of a type which may be subject to a security interest under the
UCC, including without limitation all machinery, tools, engines, turbines


                                       2
<PAGE>   467
(including combustion turbines and steam turbine generators), boilers, fuel
storage tanks, control equipment, appliances, mechanical and electrical systems,
elevators, lighting, alarm systems, fire control systems, furnishings,
furniture, as-extracted collateral, equipment, service equipment, motor
vehicles, building or maintenance equipment, building or maintenance materials,
pipes and pipelines supplies, goods and property covered by any warehouse
receipts or bills of lading or other such documents, spare parts, maps, plans,
specifications, architectural, engineering, construction or shop drawings,
manuals or similar documents, copyrights, trademarks and trade names, and any
replacements, renewals or substitutions for any of the foregoing or additional
tangible or intangible personal property hereafter acquired by Owner;

                  2.1.3 all goods, money, instruments, investment securities,
investment property, accounts, contract rights, commercial tort claims, letters
of credit, letter of credit rights, payment intangibles, promissory notes,
software, supporting obligations, documents, deposit accounts, chattel paper
(including tangible and electronic chattel paper), general intangibles, and
inventory, including without limitation those relating to the Equipment; and

                  2.1.4 the proceeds of all of the foregoing (all of the
collateral described in clauses 2.1.1 through 2.1.4, being herein collectively
referred to as the "Collateral"), including without limitation, (a) all rights
of Owner to receive moneys due and to become due under or pursuant to the
Collateral; (b) all rights of Owner to receive the return of any premiums for,
or proceeds of, any insurance, indemnity, warranty or guaranty with respect to
the Collateral or to receive any condemnation proceeds; (c) all claims of Owner
for damages arising out of, or for breach of or default under, the Assigned
Agreements or any other Collateral; (d) all rights of Owner to terminate, amend,
supplement, modify or waive performance under the Assigned Agreements, to
perform thereunder and to compel performance and otherwise exercise all remedies
thereunder; and (e) to the extent not included in the foregoing, all proceeds
receivable or received when any and all of the foregoing Collateral is sold,
collected, exchanged or otherwise disposed of, whether voluntarily or
involuntarily.

            2.2   In order to effectuate the foregoing, Owner has heretofore
delivered, or concurrently with the delivery hereof, is delivering to
Administrative Agent an executed counterpart or certified copy of each of the
Assigned Agreements. Owner will likewise deliver to Administrative Agent an
executed counterpart of each future lease, construction agreement, operation
agreement and other agreement, including without limitation those relating to
the purchase of the Equipment or any part thereof, and amendments and
supplements to the foregoing, included in the Collateral, as they are entered
into by Owner promptly upon the execution thereof. Notwithstanding anything to
the contrary contained herein, no such future lease, construction agreement,
operation agreement or other material agreement may be entered into by Owner
except as permitted under the Credit Documents.

            2.3   Notwithstanding anything to the contrary contained herein,
Owner shall remain liable under each of the Assigned Agreements to perform all
of the obligations undertaken by it thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and Administrative Agent shall
have no obligation or liability under any of such Assigned Agreements by reason
of or arising out of this Agreement, nor shall Administrative Agent be required
or obligated in any manner to perform or fulfill any obligations of Owner


                                       3
<PAGE>   468
thereunder or to make any payment or inquiry as to the nature or sufficiency of
any payment received by it, or present or file any claim or take any action to
collect or enforce the payment of any amounts which may have been assigned to it
or to which it may be entitled at any time.

            2.4   If any default by Owner under any of the Assigned Agreements
shall occur and be continuing, then Administrative Agent shall, at its option
and after the expiration of the applicable cure periods under Section 8.1.7 of
the Credit Agreement, be permitted (but shall not be obligated) to remedy any
such default by giving written notice of such intent to Owner and to the parties
to the Assigned Agreement or Assigned Agreements for which Administrative Agent
intends to remedy the default. After giving such notice of its intent to cure
such default and upon the commencement thereof, Administrative Agent will
proceed diligently to cure such default. Any cure by Administrative Agent of
Owner's default under any of the Assigned Agreements shall not be construed as
an assumption by Administrative Agent or any of the Banks of any obligations,
covenants or agreements of Owner under such Assigned Agreement, and neither
Administrative Agent nor any of the Banks shall be liable to Owner or any other
Person as a result of any actions undertaken by Administrative Agent in curing
or attempting to cure any such default, except as set forth in Section 12.13 of
the Credit Agreement. This Agreement shall not be deemed to release or to affect
in any way the obligations of Owner under the Assigned Agreements.

      3.    OBLIGATIONS SECURED. Without limiting the generality of the
foregoing, this Agreement and all of the Collateral secure the payment and
performance when due of the Obligations (as defined in the Credit Agreement) of
each of the Portfolio Entities (including Owner) under the Credit Documents,
including Borrower's Obligations under the Credit Agreement and the other Credit
Documents to which Borrower is a party to the Administrative Agent and the Banks
(the "Obligations"); provided, however, the Obligations as defined in this
Section 3 shall not include any Obligations (as defined in the Credit Agreement)
of any Portfolio Entity under the Credit Documents relating to or arising from
Projects (as defined in the Credit Agreement) that have achieved Operation prior
to the effective date of this Agreement.

      4.    REPRESENTATIONS AND WARRANTIES OF OWNER. Owner represents and
warrants as of the date hereof as follows:

            4.1   Owner has not assigned any of its rights under the Assigned
Agreements except as provided in the Credit Documents.

            4.2   Owner has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral, except such as may have been filed
pursuant to this Agreement and the other Credit Documents or pursuant to the
documents evidencing Permitted Liens.

            4.3   Except as permitted by the Credit Agreement, Owner is lawfully
possessed of ownership of the Collateral and has full right, title and interest
in and to all rights purported to be granted to it under the Assigned
Agreements, not subject to any mortgages, liens, charges, or encumbrances except
Permitted Liens. Owner has full power and lawful authority to grant and assign
the Collateral hereunder.


                                       4
<PAGE>   469
      5.    COVENANTS OF OWNER. Owner covenants as follows:

            5.1   Any action or proceeding to enforce this Agreement or any
Assigned Agreement may be taken by Administrative Agent either in Owner's name
or in Administrative Agent's name, as Administrative Agent may deem necessary.

            5.2   Owner will, so long as any Obligations shall be outstanding,
warrant and defend its title to the Collateral and the interest of
Administrative Agent in the Collateral against any claim or demand of any
persons (other than Permitted Liens) which could reasonably be expected to
materially adversely affect Owner's title to, or Administrative Agent's right or
interest in, such Collateral.

            5.3   Owner will at all times keep accurate and complete records of
the Collateral. Owner shall permit representatives of Administrative Agent upon
reasonable prior notice, and in accordance with Section 5.6 of the Credit
Agreement, at any time during normal business hours of Owner to inspect and make
abstracts from Owner's books and records pertaining to the Collateral. Upon the
occurrence and during the continuation of any Event of Default, at
Administrative Agent's request, Owner shall promptly deliver copies of any and
all such records to Administrative Agent.

            5.4   Unless waived in writing by Administrative Agent, Owner shall
give Administrative Agent at least 45 days' notice before it changes the
location of its principal place of business, chief executive office or state of
organization and shall at the expense of Owner execute and deliver such
instruments and documents as may reasonably be required by Administrative Agent
to maintain a prior perfected security interest in the Collateral.

      6.    EVENTS OF DEFAULT. The occurrence of an Event of Default under the
Credit Agreement, whatever the reason therefor and whether it shall be voluntary
or involuntary or be effected by operation of law, or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an event of default
hereunder (an "Event of Default").

      7.    REMEDIES UPON EVENT OF DEFAULT.

            7.1   If any Event of Default has occurred and is continuing,
Administrative Agent may (a) proceed to protect and enforce the rights vested in
it by this Agreement, including but not limited to, the right to cause all
revenues pledged hereby as security and all other moneys pledged hereunder to be
paid directly to it, and to enforce its rights hereunder to such payments and
all other rights hereunder by such appropriate judicial proceedings as it shall
deem most effective to protect and enforce any of such rights, either at law or
in equity or otherwise, whether for specific enforcement of any covenant or
agreement contained in any of the Assigned Agreements, or in aid of the exercise
of any power therein or herein granted, or for any foreclosure hereunder and
sale under a judgment or decree in any judicial proceeding, or to enforce any
other legal or equitable right vested in it by this Agreement or by law; (b)
cause any action at law or suit in equity or other proceeding to be instituted
and prosecuted to collect or enforce any Obligations or rights hereunder or
included in the Collateral, or to foreclose or


                                       5
<PAGE>   470
enforce any other agreement or other instrument by or under or pursuant to which
such Obligations are issued or secured, subject in each case to the provisions
and requirements thereof; (c) sell or otherwise dispose of any or all of the
Collateral or cause the Collateral to be sold or otherwise disposed of in one or
more sales or transactions, at such prices and in such manner as Administrative
Agent may deem commercially reasonable, and for cash or on credit or for future
delivery, without assumption of any credit risk at any broker's board or at
public or private sale, with or without a warranty of title, without demand of
performance or notice of intention to sell or of time or place of sale (except
such notice as is required by applicable statute and cannot be waived), it being
agreed that Administrative Agent may be a purchaser on behalf of the Banks or on
its own behalf at any such sale and that Administrative Agent, any Bank, or any
other Person who may be a bona fide purchaser for value and without notice of
any claims of any or all of the Collateral so sold shall thereafter hold the
same absolutely free from any claim or right of whatsoever kind, including any
equity of redemption, of Owner, any such demand, notice or right and equity
being hereby expressly waived and released to the extent permitted by law; (d)
incur reasonable expenses, including reasonable attorneys' fees, reasonable
consultants' fees, and other costs appropriate to the exercise of any right or
power under this Agreement; (e) perform any obligation of Owner hereunder or
under any other Credit Document, and make payments, purchase, contest or
compromise any encumbrance, charge or lien, and pay taxes and expenses without,
however, any obligation to do so; (f) in connection with any acceleration and
foreclosure, take possession of the Collateral and render it usable and repair
and renovate the same without, however, any obligation to do so, and enter upon
any Site or any other location where the same may be located for that purpose,
control, manage, operate, rent and lease the Collateral, collect all rents and
income from the Collateral and apply the same to reimburse the Banks for any
cost or expenses incurred hereunder or under any of the Credit Documents and to
the payment or performance of Owner's obligations hereunder or under any of the
Credit Documents, and apply the balance to the Loans of Borrower as provided for
in the Credit Agreement and any remaining excess balance to whomsoever is
legally entitled thereto; (g) secure the appointment of a receiver of the
Collateral or any part thereof; or (h) exercise any other or additional rights
or remedies granted to a secured party under the UCC. If pursuant to applicable
law prior notice of any such action is required to be given to Owner, Owner
hereby acknowledges that the minimum time required by such applicable law, or if
no minimum time is specified, 10 Banking Days, shall be deemed a reasonable
notice period.

            7.2   All reasonable costs and expenses (including reasonable
attorneys' fees and expenses) incurred by Administrative Agent in connection
with any such suit or proceeding or in connection with the performance by
Administrative Agent of any of Owner's agreements contained in any of the
Assigned Agreements or any exercise of its rights or remedies hereunder,
pursuant to the terms of this Agreement, together with interest thereon (to the
extent permitted by law) computed at a rate per annum equal to the Default Rate
from the date on which such costs or expenses are incurred to the date of
payment thereof, shall constitute additional indebtedness secured by this
Agreement and shall be paid by Owner to Administrative Agent on behalf of the
Banks on demand.

      8.    REMEDIES CUMULATIVE; DELAY NOT WAIVER.


                                       6
<PAGE>   471
            8.1   No right, power or remedy herein conferred upon or reserved to
Administrative Agent is intended to be exclusive of any other right, power or
remedy and every such right, power and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder or otherwise shall not
prevent the concurrent assertion or employment of any other appropriate right or
remedy. Resort to any or all security now or hereafter held by Administrative
Agent may be taken concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken nonjudicial
proceedings, or both.

            8.2   No delay or omission of Administrative Agent to exercise any
right or power accruing upon the occurrence and during the continuance of any
Event of Default as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and every power and remedy given by this Agreement may be exercised
from time to time, and as often as shall be deemed expedient, by Administrative
Agent.

      9.    APPLICATION OF PROCEEDS. Upon the occurrence and during the
continuation of an Event of Default, the proceeds of any sale of or other
realization upon, all or any part of the Collateral shall be applied: first, to
all fees, costs and expenses incurred by and due and owing to Administrative
Agent and the Banks under the Credit Agreement, the other Credit Documents or
the Collateral Documents; second, to accrued and unpaid interest on the
Obligations (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts); third, to the principal
amounts of the Obligations outstanding; fourth, to any other Obligations of
Owner owing to Administrative Agent or the Banks; and fifth, to, or as directed
by, Owner.

      10.   ATTORNEY-IN-FACT. Owner hereby constitutes and appoints
Administrative Agent, acting for and on behalf of itself and the Banks and each
successor or assign of Administrative Agent and the Banks, the true and lawful
attorney-in-fact of Owner, with full power and authority in the place and stead
of Owner and in the name of Owner, Administrative Agent or otherwise to enforce
all rights, interests and remedies of Owner with respect to the Collateral,
including, without limitation, the right:

            10.1  to ask, require, demand, receive and give acquittance for any
and all moneys and claims for moneys due and to become due under or arising out
of the Assigned Agreements or any of the other Collateral, including without
limitation, any insurance policies;

            10.2  to elect remedies thereunder and to endorse any checks or
other instruments or orders in connection therewith;

            10.3  to file any claims or take any action or institute any
proceedings in connection therewith which Administrative Agent may reasonably
deem to be necessary or advisable;


                                       7
<PAGE>   472
            10.4  to pay, settle or compromise all bills and claims which may be
or become liens or security interests against any or all of the Collateral, or
any part thereof, unless a bond or other security satisfactory to Administrative
Agent has been provided; and

            10.5  upon foreclosure and to the extent provided in the Consents,
to do any and every act which Owner may do on its behalf with respect to the
Collateral or any part thereof and to exercise any or all of Owner's rights and
remedies under any or all of the Assigned Agreements;

provided, however, that Administrative Agent shall not exercise any such rights
except upon the occurrence and continuation of an Event of Default. This power
of attorney is a power coupled with an interest and shall be irrevocable.

      11.   ADMINISTRATIVE AGENT MAY PERFORM. Upon the occurrence and during the
continuance of an Event of Default, if Owner fails to perform any agreement
contained herein, Administrative Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of Administrative Agent incurred
in connection therewith shall be part of the Obligations.

      12.   PERFECTION; FURTHER ASSURANCES.

            12.1  Owner agrees that from time to time, at the expense of Owner,
Owner shall promptly execute and deliver all instruments and documents, and take
all action, that may be reasonably necessary, or that Administrative Agent may
reasonably request, in order to perfect and protect the assignment and security
interest granted or intended to be granted hereby or to enable Administrative
Agent to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, Owner shall
(a) if any Collateral shall be evidenced by a promissory note or other
instrument in excess of $5,000, deliver and pledge to Administrative Agent for
the benefit of the Banks such note duly endorsed without recourse, and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Administrative Agent; and (b) execute and deliver
to Administrative Agent such financing or continuation statements, or amendments
thereto, and such other instruments, endorsements or notices, as may be
reasonably necessary or desirable or as Administrative Agent may reasonably
request, in order to perfect and preserve the assignments and security interests
granted or purported to be granted hereby.

            12.2  Owner hereby authorizes Administrative Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Owner where permitted
by law.

            12.3  Owner shall pay all filing, registration and recording fees
and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment of this Agreement, any
assurance, and all federal, state, county and municipal stamp taxes and other
taxes, duties, imports, assessments and charges arising out of or in connection
with the execution and delivery of this Agreement, any agreement supplemental
hereto, any financing statements, and any instruments of further assurance.


                                       8
<PAGE>   473
            12.4  Owner shall, promptly upon request, provide to Administrative
Agent all information and evidence it may reasonably request concerning the
Collateral to enable Administrative Agent to enforce the provisions of this
Agreement.

      13.   PLACE OF BUSINESS; LOCATION OF RECORDS. Unless Administrative Agent
is otherwise notified under Section 5.4, the place of business and chief
executive office of Owner is, and all records of Owner concerning the Collateral
are and will be, located at the address set forth in Schedule 4.24 to the Credit
Agreement and Owner is, and will be, a _____________ organized under the laws of
the state of Delaware.

      14.   CONTINUING ASSIGNMENT AND SECURITY INTEREST. This Agreement shall
create a continuing assignment of, and security interest in, the Collateral and
shall (a) remain in full force and effect until payment in full of the
Obligations, (b) be binding upon Owner, its successors and assigns; provided,
however, that the obligations of Owner, its successors and assigns hereunder may
not be assigned without the prior written consent of Administrative Agent; and
(c) inure, together with the rights and remedies of Administrative Agent, to the
benefit of Administrative Agent, the Banks and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing but
subject to the terms of the Credit Agreement, Administrative Agent or any of the
Banks may assign or otherwise transfer all or any part of or interest in the
Notes and the other Credit Documents or other evidence of indebtedness held by
them to any other Person to the extent permitted by and in accordance with the
Credit Agreement, and such other Person shall thereupon become vested with all
or an appropriate part of the benefits in respect thereof granted to the Banks
herein or otherwise. The release of the security interest in any or all of the
Collateral, the taking or acceptance of additional security, or the resort by
Administrative Agent to any security it may have in any order it may deem
appropriate, shall not affect the liability of any person on the indebtedness
secured hereby. If this Agreement shall be terminated or revoked by operation of
law, Owner will indemnify and save Administrative Agent and the Banks harmless
from any loss which may be suffered or incurred by Administrative Agent and the
Banks in acting hereunder prior to the receipt by Administrative Agent, its
successors, transferees, or assigns of notice of such termination or revocation.

      15.   TERMINATION OF SECURITY INTEREST. Upon the indefeasible payment in
full of the Obligations, the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to Owner. Upon any such
termination, Administrative Agent will, at Owner's expense, execute and, subject
to Section 21 hereof, deliver to Owner such documents (including, without
limitation, UCC-3 termination statements) as Owner shall reasonably request to
evidence such termination.

      16.   ATTORNEYS' FEES. In the event any legal action or proceeding
(including, without limitation, any of the remedies provided for herein or at
law) is commenced to enforce or interpret this Agreement or any provision
thereof, unless Owner is the prevailing party, Owner shall indemnify each of
Administrative Agent and the Banks for their reasonable attorneys' fees and
other costs and expenses incurred therein, and if a judgment or award is entered
in any such action or proceeding, such reasonable attorneys' fees and other
costs and expenses may be made a part of such judgment or award.


                                       9
<PAGE>   474
      17.   LIABILITY. Recourse against the Owner, the other Portfolio Entities,
the Member and their respective Affiliates, members, partners, stockholders,
officers, directors and employees under this Agreement shall be limited to the
extent provided in Article 9 of the Credit Agreement.

      18.   AMENDMENTS; WAIVERS; CONSENTS. No amendment, modification,
termination or waiver of any provision of this Agreement, or consent to any
departure by Owner therefrom, shall in any event be effective without the
written concurrence of Administrative Agent and the Owner.

      19.   NOTICES. All notices required or permitted under the terms and
provisions hereof shall be in writing and any such notice shall be effective if
given in accordance with the provisions of Section 12.1 of the Credit Agreement.
Notices to Owner may be given at the address of Borrower set forth in such
Section 12.1.

      20.   GOVERNING LAW. This Agreement, including all matters of
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the state of New York,
without reference to conflicts of law (other than Section 5-1401 of the New York
General Obligations Law), except as required by mandatory provisions of law and
except to the extent that the validity or perfection of the lien and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the state of
New York.

      21.   REINSTATEMENT. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by
Administrative Agent in respect of the Obligations is rescinded or must
otherwise be restored or returned by Administrative Agent upon the insolvency,
bankruptcy, reorganization, liquidation of Owner or any general partner of Owner
or upon the dissolution of, or appointment of any intervenor or conservator of,
or trustee or similar official for, Owner or any general partner of Owner or any
substantial part of Owner's or any of its general partners' assets, or
otherwise, all as though such payments had not been made.

      22.   SEVERABILITY. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.

      23.   SURVIVAL OF PROVISIONS. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the Credit Agreement and the making of the Loans and extensions of
credit thereunder. Notwithstanding anything in this Agreement or implied by law
to the contrary, the agreements, representations and warranties of Owner set
forth herein shall terminate only upon payment of the Obligations, and the
termination of all Commitments and other obligations of the Banks under the
Credit Documents.


                                       10
<PAGE>   475
      24.   HEADINGS DESCRIPTIVE. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

      25.   ENTIRE AGREEMENT. This Agreement, together with any other agreement
executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.

      26.   TIME. Time is of the essence of this Agreement.

      27.   COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.

      28.   WAIVER OF JURY TRIAL. OWNER AND ADMINISTRATIVE AGENT HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP AMONG OWNER AND
ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. OWNER AND ADMINISTRATIVE AGENT
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. OWNER AND ADMINISTRATIVE AGENT FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

      29.   ADDITIONAL WAIVERS. Owner hereby waives and relinquishes all rights
and remedies accorded by applicable law to sureties or guarantors and agrees not
to assert or take advantage of any such rights or remedies, including without
limitation (a) any right to require Administrative Agent or the Banks to proceed
against any Portfolio Entity or any other Person or to proceed against or
exhaust any security held by Administrative Agent or the Banks at any time or to
pursue any other remedy in Administrative Agent's or the Banks' power before
proceeding against Owner, (b) any defense that may arise by reason of the
incapacity, lack of power or authority, death, dissolution, merger, termination
or disability of any Portfolio Entity or any other Person or the failure of
Administrative Agent or the Banks to file or enforce a claim against the estate
(in administration, bankruptcy or any other proceeding) of any Portfolio Entity
or any other Person, (c) demand, presentment, protest and notice of any kind,
including without limitation notice of the existence, creation or incurring of
any new or additional indebtedness or obligation or of any action or non-action
on the part of any Portfolio Entity, Administrative Agent, the Banks, any
endorser or creditor of the foregoing or on the part of any other Person under
this or any other instrument in connection with any obligation or evidence of
indebtedness held by Administrative Agent or the Banks as collateral or in
connection with any Obligations, (d) any defense based upon an election of
remedies by Administrative Agent or the Banks,


                                       11
<PAGE>   476
including without limitation an election to proceed by non-judicial rather than
judicial foreclosure, which destroys or otherwise impairs the subrogation rights
of Owner, the right of Owner to proceed against a Portfolio Entity or another
Person for reimbursement, or both, (e) any defense based on any offset against
any amounts which may be owed by any Person to Owner for any reason whatsoever,
(f) any defense based on any act, failure to act, delay or omission whatsoever
on the part of a Portfolio Entity of the failure by a Portfolio Entity to do any
act or thing or to observe or perform any covenant, condition or agreement to be
observed or performed by it under the Credit Documents, (g) any defense based
upon any statute or rule of law which provides that the obligation of a surety
must be neither larger in amount nor in other respects more burdensome than that
of the principal provided, that, upon payment in full of the Obligations, this
Agreement shall no longer be of any force or effect, (h) any defense, setoff or
counterclaim which may at any time be available to or asserted by a Portfolio
Entity against Administrative Agent, the Banks or any other Person under the
Credit Documents, (i) any duty on the part of Administrative Agent or the Banks
to disclose to Owner any facts Administrative Agent or the Banks may now or
hereafter know about any Portfolio Entity, regardless of whether Administrative
Agent or the Banks have reason to believe that any such facts materially
increase the risk beyond that which Owner intends to assume, or have reason to
believe that such facts are unknown to Owner, or have a reasonable opportunity
to communicate such facts to Owner, since Owner acknowledges that Owner is fully
responsible for being and keeping informed of the financial condition of the
Portfolio Entities and of all circumstances bearing on the risk of non-payment
of any obligations and liabilities hereby guaranteed, (j) the fact that any
Portfolio Entity may at any time in the future dispose of all or part of its
direct or indirect interest in any other Portfolio Entity, (k) any defense based
on any change in the time, manner or place of any payment under, or in any other
term of, the Credit Documents or any other amendment, renewal, extension,
acceleration, compromise or waiver of or any consent or departure from the terms
of the Credit Documents, (l) any defense arising because of Administrative
Agent's or the Banks' election, in any proceeding instituted under the Federal
Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code, and (m) any defense based upon any borrowing or grant of a
security interest under Section 364 of the Federal Bankruptcy Code.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       12
<PAGE>   477
            IN WITNESS WHEREOF, each of the undersigned has caused this
Equipment Finance Company Security Agreement to be duly executed and delivered
as of the day and year first above written.


                                    _________________________________
                                    a Delaware ______________________


                                    By:   ___________________________
                                          Name:
                                          Title:



                                    CREDIT SUISSE FIRST BOSTON,
                                    NEW YORK BRANCH,
                                    as Administrative Agent


                                    By:   ___________________________
                                          Name:
                                          Title:


                                    By:   ___________________________
                                          Name:
                                          Title:
<PAGE>   478
                                                                    EXHIBIT D-4E
                                                         to the Credit Agreement







                                      FORM

                                       OF

                  EQUIPMENT FINANCE COMPANY SECURITY AGREEMENT


                            Dated as of ______, 200__

                                     between

                               ________________
                           a Delaware _______________

                                       and


                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch,
                             as Administrative Agent
<PAGE>   479
                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

1.    Definitions..............................................................2
2.    Assignment, Pledge and Grant of Security Interest........................2
3.    Obligations Secured......................................................4
4.    Representations and Warranties of Owner..................................4
5.    Covenants of Owner.......................................................5
6.    Events of Default........................................................5
7.    Remedies Upon Event of Default...........................................5
8.    Remedies Cumulative; Delay Not Waiver....................................6
9.    Application of Proceeds..................................................7
10.   Attorney-In-Fact.........................................................7
11.   Administrative Agent May Perform.........................................8
12.   Perfection; Further Assurances...........................................8
13.   Place of Business; Location of Records...................................9
14.   Continuing Assignment and Security Interest..............................9
15.   Termination of Security Interest.........................................9
16.   Attorneys' Fees..........................................................9
17.   Liability...............................................................10
18.   Amendments; Waivers; Consents...........................................10
19.   Notices.................................................................10
20.   Governing Law...........................................................10
21.   Reinstatement...........................................................10
22.   Severability............................................................10
23.   Survival of Provisions..................................................10
24.   Headings Descriptive....................................................11
25.   Entire Agreement........................................................11
26.   Time....................................................................11
27.   Counterparts............................................................11
28.   Waiver of Jury Trial....................................................11
29.   Additional Waivers......................................................11


                                       i
<PAGE>   480
                                                             EXHIBIT D-6
                                                             to Credit Agreement

                          SCHEDULE OF SECURITY FILINGS



KEY TO ABBREVIATIONS

      The abbreviations and words listed below when used herein have the
meanings assigned to them below.

      "ALSS"                  =     The Office of the Alabama Secretary of
                                    State

      "Administrative Agent"  =     Credit Suisse First Boston, acting
                                    through its New York Branch

      "BIP1"                  =     Calpine Baytown Energy Center GP, LLC, a
                                    Delaware limited liability company, as
                                    the general partner of BPO

      "BIP2"                  =     Calpine Baytown Energy Center LP, LLC, a
                                    Delaware limited liability company, as
                                    the limited partner of BPO

      "BMCO"                  =     The Office of the Clerk of Boston,
                                    Massachusetts

      "BPO"                   =     Baytown Energy Center, LP, a Delaware
                                    limited partnership, as Baytown Project
                                    Owner

      "BRPO"                  =     Broad River Investors LLC, a Delaware
                                    limited liability company, as Broad River
                                    Project Owner

      "CAPO"                  =     Carville Energy LLC, a Delaware limited
                                    liability company, as Carville Project
                                    Owner

      "CASS"                  =     The Office of the California Secretary of
                                    State

      "CCFC II"               =     Calpine Construction Finance Company II,
                                    LLC, a Delaware limited liability company

      "CCIP"                  =     Clerk of the Court of the Iberville
                                    Parish, Louisiana

      "CCOC"                  =     County Clerk of Oklahoma County, Oklahoma

      "CCRO"                  =     The Contra Costa County, California,
                                    Recorder's Office
<PAGE>   481
      "CHIP1"                 =     Calpine Channel Energy Center GP, LLC, a
                                    Delaware limited liability company, as
                                    the general partner of CHPO

      "CHIP2"                 =     Calpine Channel Energy Center LP, LLC, a
                                    Delaware limited liability company, as
                                    the limited partner of CHPO

      "CHPO"                  =     Channel Energy Center, LP, a Delaware
                                    limited partnership, as Channel Project
                                    Owner

      "COIP1"                 =     Nueces Bay Energy LLC, a Delaware limited
                                    liability company, as the general partner
                                    of COPO

      "COIP2"                 =     SkyGen SouthCoast Investors LLC, a
                                    Delaware limited liability company, as
                                    the limited partner of COPO

      "COPO"                  =     Corpus Christi Cogeneration LP, a
                                    Delaware limited partnership, as Corpus
                                    Project Owner

      "COMPANY"               =     CCFC II Project Equipment Finance Company
                                    One, LLC, a Delaware limited liability
                                    company

      "DESS"                  =     The Office of the Delaware Secretary of
                                    State

      "DEVELOPMENT"           =     CCFC II Development Company LLC, a
                                    Delaware limited liability company

      "DPO"                   =     Decatur Energy Center, LLC, a Delaware
                                    limited liability company, as Decatur
                                    Project Owner

      "EQUIPMENT"             =     CCFC II Equipment Finance Company, LLC, a
                                    Delaware limited liability company

      "FINANCE"               =     CCFC II Equipment Finance Holdings, LLC,
                                    a Delaware limited liability company

      "FIP1"                  =     Calpine Freestone, Inc., a Delaware
                                    corporation, as the general partner of
                                    FPO and TO

      "FIP2"                  =     CPN Freestone, Inc. a Delaware
                                    corporation, as the limited partner of
                                    FPO and TO

      "FLSS"                  =     The Office of the Florida Secretary of
                                    State

      "FPO"                   =     Freestone Power Generation, LP, a Texas
                                    limited partnership, as Freestone Project
                                    Owner


                                       2
<PAGE>   482
      "HOLDINGS"              =     Calpine CCFC II Holdings, Inc., a
                                    Delaware corporation, as sole member of
                                    Borrower

      "LMPO"                  =     Los Medanos Energy Center LLC, a Delaware
                                    limited liability company, as Los Medanos
                                    Project Owner

      "MPO"                   =     Morgan Energy Center, LLC, a Delaware
                                    limited liability company, as Morgan
                                    Project Owner

      "MSS"                   =     The Office of the Massachusetts Secretary
                                    of State

      "PIP1"                  =     Calpine Oneta Power I, LLC, a Delaware
                                    limited liability company, as the general
                                    partner of PPO

      "PIP2"                  =     Calpine Oneta Power II, LLC, a Delaware
                                    limited liability company, as the limited
                                    partner of PPO

      "PPO"                   =     Calpine Oneta Power, L.P. a Delaware
                                    limited partnership, as Panda Oneta
                                    Project Owner

      "SCSS"                  =     The Office of the South Carolina
                                    Secretary of State

      "SRPO"                  =     Santa Rosa Energy LLC, a Delaware limited
                                    liability company, as Santa Rosa Project
                                    Owner

      "TO"                    =     Calpine Power Equipment, L.P., a Texas
                                    limited partnership

      "TXSS"                  =     The Office of the Texas Secretary of State



UCC-1 FINANCING STATEMENTS

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
CCFC II    Administrative    Credit Agreement,     All personal       CASS, DESS
           Agent (on         Borrower Security     property,
           behalf of the     Agreement,            including
           Banks)            Depositary            Accounts and
                             Agreement and         Equity Interests
                             Pledge and Security   of Development
                             Agreement (Pledged    and Finance
                             Equity Interests)
</TABLE>

                                       3
<PAGE>   483
<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
BIP1       Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of BPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
BIP2       Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of BPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
BPO        Administrative    Project/Turbine       All personal       CASS, DESS, TXSS
           Agent (on         Owner Security        property
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
BRPO       Administrative    Project/Turbine       All personal       CASS, DESS,
           Agent (on         Owner Security        property           SCSS, MSS, BMCO
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
CAPO       Administrative    Project/Turbine       All personal       CASS, CCIP,
           Agent (on         Owner Security        property           DESS, TXSS
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
CHIP1      Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of CHPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
CHIP2      Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of CHPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

                                       4
<PAGE>   484
<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
CHPO       Administrative    Project/Turbine       All personal       CASS, DESS, TXSS
           Agent (on         Owner Security        property
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
COIP1      Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of COPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
COIP2      Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of COPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
COPO       Administrative    Project/Turbine       All personal       CASS, DESS, TXSS
           Agent (on         Owner Security        property
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
COMPANY    Administrative    Company One           All personal       CASS, DESS
           Agent (on         Security Agreement    property
           behalf of the
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
DEVELOP-   Administrative    Development Company   All personal       CASS, DESS
 MENT      Agent (on         Security Agreement    property,
           behalf of the     and Pledge and        including Equity
           Banks)            Security Agreement    Interests of  -
                             (Pledged Equity       Intermediate
                             Interests)            Parents, BRPO,
                                                   CAPO, DPO, LMPO,
                                                   MPO and SRPO
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
DPO        Administrative    Project/Turbine       All personal       ALSS, CASS,
           Agent (on         Owner Security        property           DESS, TXSS
           behalf of the     Agreement
           Banks)
</TABLE>

                                       5
<PAGE>   485
<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
EQUIP-     Administrative    Equipment Finance     All personal       CASS, DESS
MENT       Agent (on         Security Agreement    property,
           behalf of the     and Pledge and        including equity
           Banks)            Security Agreement,   interests of
                             (Pledge Equity        Company
                             Interests)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
FINANCE    Administrative    Pledge and Security   Pledged Equity     CASS, DESS
           Agent (on         Agreement             of Equipment
           behalf of the
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
FIP1       Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of FPO and TC
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
FIP2       Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of FPO and TO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
FPO        Administrative    Project/Turbine       All personal       CASS, TXSS
           Agent (on         Owner Security        property
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
HOLDINGS   Administrative    Pledge and Security   Equity Interests   CASS, DESS
           Agent (on         Agreement (Pledged    of CCFC II
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
LMPO       Administrative    Project/Turbine       All personal       CASS, DESS
           Agent (on         Owner Security        property
           behalf of the     Agreement
           Banks)
</TABLE>

                                       6
<PAGE>   486
<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
MPO        Administrative    Project/Turbine       All personal       ALSS, CASS,
           Agent (on         Owner Security        property           DESS, TXSS
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
PIP1       Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of PPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
PIP2       Administrative    Pledge and Security   Equity Interests   CASS, DESS, TXSS
           Agent (on         Agreement (Pledged    of PPO
           behalf of the     Equity Interests)
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
PPO        Administrative    Project/Turbine       All personal       CASS, CCOC,
           Agent (on         Owner Security        property           DESS, TXSS
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
SRPO       Administrative    Project/Turbine       All personal       CASS, DESS,
           Agent (on         Owner Security        property           FLSS, BMCO, MSS
           behalf of the     Agreement
           Banks)
</TABLE>

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
TO         Administrative    Project/Turbine       All personal       CASS, DESS, TXSS
           Agent (on         Owner Security        property,
           behalf of the     Agreement             including
           Banks)                                  Turbine Purchase
                                                   Contract
</TABLE>

FIXTURE FILINGS

<TABLE>
<CAPTION>
Debtor     Secured Party     Granting Document     Collateral         Filing Office
------     -------------     -----------------     ----------         -------------
<S>        <C>               <C>                   <C>                <C>
LMPO       Administrative    Security Agreement    All fixtures       CCRO
           Agent (on                               relating to the
           behalf of the                           Los Medanos
           Banks)                                  Project
</TABLE>

                                       7
<PAGE>   487
                                                             EXHIBIT D-7
                                                             to Credit Agreement






                                      FORM

                                       OF

                          DEBT SUBORDINATION AGREEMENT


                                     between

                       __________________________________

                                       and

                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch,
                             as Administrative Agent
<PAGE>   488
                          DEBT SUBORDINATION AGREEMENT



            This SUBORDINATION AGREEMENT ("Agreement"), dated as of
________________, is made by and between ___________________________, a
__________________ ("Junior Claimant"), and CREDIT SUISSE FIRST BOSTON, acting
through its New York Branch, as Administrative Agent (the "Administrative
Agent") for the Senior Claimants (as defined below).

                                     PREFACE

            A.    Calpine Construction Finance Company II, LLC, a Delaware
limited liability company ("Borrower"), has entered into that certain Credit
Agreement ("Credit Agreement"), dated as of October 16, 2000, by and among
Borrower, the financial institutions listed on Exhibit H thereto (the "Banks"
and, together with Administrative Agent, Lead Arrangers, Arrangers, Syndication
Agents, Documentation Agents, Bookrunner and LC Bank, the "Senior Claimants"),
Credit Suisse First Boston, acting through its New York Branch, as Lead Arranger
and Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as
Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities
LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger
and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent, pursuant to which the Senior Claimants will, subject
to the terms and conditions contained therein and in the other Credit Documents,
provide credit facilities to Borrower in connection with Borrower's development,
construction and ownership of the Projects.

            B.    Borrower and Junior Claimant have and/or will enter into one
or more promissory notes and/or other documents and instruments (collectively,
the "Subordinated Agreement") pursuant to which, subject to the terms and
conditions contained therein and herein, Junior Claimant has and/or will lend to
Borrower funds in a principal amount up to the amount of Contributions required
or permitted to be made by Borrower under the Credit Agreement (the "Junior
Claimant Loan").

            C.    The Senior Claimants have agreed that Borrower may incur such
indebtedness to Junior Claimant under the Subordinated Agreement only if Junior
Claimant shall join in this Agreement and Junior Claimant shall subordinate, to
the extent and in the manner hereinafter set forth, all claims and rights in
respect of the Subordinated Debt (as defined below) to all Senior Claims (as
defined below) to the extent set forth in this Agreement.

                                    AGREEMENT

            NOW THEREFORE, in consideration of the premises and as an inducement
to the Senior Claimants to grant financial accommodations to Borrower, and in
consideration of the granting thereof, the parties hereby agree as follows:
<PAGE>   489
            1.    DEFINITIONS.  All capitalized terms used herein and not
otherwise defined herein shall have the meaning given in the Credit Agreement
as in effect on the date hereof.  As used in this Agreement, the following
terms shall have the following respective meanings:

                  "Proceeding" means any (a) insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment, composition or other
similar proceeding of or against Borrower, its property or its creditors as
such, (b) proceeding for any liquidation, dissolution or other winding-up of
Borrower, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings, (c) general assignment for the benefit of creditors of
Borrower or (d) other marshalling of the assets of Borrower.

                  "Senior Claims" means, subject in each case to Sections 3 and
8 hereof, (a) the principal of, and premium, if any, and interest on, the Loans
under the Credit Agreement (including, without limitation, any interest accruing
thereon at the legal rate after the commencement of any Proceeding and any
additional interest that would have accrued thereon but for the commencement of
such Proceeding); and (b) all other Obligations of Borrower to any Senior
Claimants, whether now existing or hereafter incurred or created, under or with
respect to the Credit Documents or any replacement, supplement to, or
refinancing of the Loans and other Obligations of the Borrower to any Senior
Claimants permitted under Section 3 hereof.

                  "Subordinated Debt" means all indebtedness owing to Junior
Claimant arising under or in respect of the Subordinated Debt Documents.

                  "Subordinated Debt Documents" means the Subordinated
Agreement, any promissory note or other instrument relating thereto and any
other documents or instruments directly relating to the foregoing (including any
amendments, replacements or substitutions thereof).

            2.    CERTAIN SUBORDINATION TERMS.  Until all Senior Claims shall
have been paid in full and the Senior Claimants' commitments irrevocably
terminated under the Credit Documents, and notwithstanding anything in the
Subordinated Debt Documents to the contrary:

                  2.1   Except as permitted under the Credit Agreement
(including Sections 3.10(b) and 7.2.1(8) thereof), Borrower shall not, directly
or indirectly, make any payment of principal, interest or otherwise on or in
respect of the Subordinated Debt.

                  2.2   Except for the right to demand and accept payments
permitted under the Credit Agreement or as provided in Section 2.1 or 2.5.2 of
this Agreement, Junior Claimant shall not demand, sue for, or accept from
Borrower or any other Person any such payment or collateral, nor take any other
action to enforce or collect upon any such payment or to enforce its rights to
receive any such payment, in either case in respect of the Subordinated Debt,
provided, however, that nothing herein shall limit the right or ability of
Junior Claimant (i) to receive payments from Borrower in respect of the
Subordinated Debt as provided in Section 2.1 so long as no Event of Default
under the Credit Agreement has occurred and is continuing, or


                                       2
<PAGE>   490
(ii) to accelerate the maturity of the Subordinated Debt at any time after the
Loans under the Credit Agreement have been accelerated; and provided further
that in the event that the Senior Claimants rescind the acceleration of the
Loans and provide written notice to Junior Claimant thereof, or the Junior
Claimant otherwise becomes aware of such rescission, Junior Claimant shall
rescind the acceleration of the Subordinated Debt.

                  2.3   Neither Borrower nor the Junior Claimant shall take any
action prejudicial to or inconsistent with the Senior Claimants' priority
position over Junior Claimant created by this Agreement, including, without
limitation, any action which will hinder, delay or otherwise prevent the Senior
Claimants from taking any action they deem necessary to enforce rights with
respect to the Senior Claims or the Lien of the Collateral Documents. Junior
Claimant shall not take any action or otherwise act to contest on account of the
Subordinated Debt (i) the validity or priority of any Liens or security
interests granted to, or for the benefit of, the Senior Claimants, (ii) the
relevant rights and duties of the Senior Claimants with respect to the Junior
Claimant on account of any Subordinated Debt as established in this Agreement or
(iii) Senior Claimants' exercise of remedies in accordance with the Credit
Agreement and the other Credit Documents.

                  2.4   Each document or instrument evidencing Subordinated Debt
shall bear a legend providing that payment of the Subordinated Debt thereunder
has been subordinated to prior payment of the Senior Claims in the manner and to
the extent set forth in this Agreement.

                  2.5   Without the prior written consent of the Administrative
Agent, acting in its sole discretion, Junior Claimant shall not commence or join
with any other creditor or creditors of Borrower in commencing any Proceeding
against Borrower or the Member, but may join in any Proceeding after it has
commenced. At any general meeting of creditors of Borrower or the Member, or in
the event of any Proceeding, if all Senior Claims have not been paid in full at
such time, Administrative Agent on behalf of the Senior Claimants is hereby
irrevocably authorized at any such meeting or in any such Proceeding:

                        2.5.1 To enforce claims comprising Subordinated Debt in
the name of Junior Claimant, by proof of debt, proof of claim, suit or
otherwise;

                        2.5.2 To collect any assets of Borrower distributed,
divided or applied by way of dividend or payment as a result of a Proceeding, or
such securities issued, on account of Subordinated Debt as a result thereof and
apply the same, or the proceeds of any realization upon the same that the Senior
Claimants in their discretion elect to effect, to Senior Claims until all Senior
Claims shall have been paid in full (the Senior Claimants hereby agreeing to
render any surplus to Junior Claimant and/or other subordinated creditors, as
their interests appear, or to interplead such surplus with a court of competent
jurisdiction); and

                        2.5.3 To take generally any action in connection with
any such meeting or proceeding which Junior Claimant might otherwise take in
respect of the Subordinated Debt and claims relating thereto; provided, however,
that Junior Claimant shall retain, to the exclusion of Senior Claimants and
Administrative Agent, the right to vote claims


                                       3
<PAGE>   491
comprising or arising out of the Subordinated Debt in any Proceeding, including
the right to vote to accept or reject any plan of partial or complete
liquidation, reorganization, readjustment, arrangement, composition or
extension.

                  After the commencement of any such Proceeding, Junior Claimant
may inquire in writing of Administrative Agent on behalf of the Senior Claimants
whether the Senior Claimants intend to exercise the foregoing rights with
respect to the Subordinated Debt. Should the Senior Claimants fail, at least 20
days before the deadline therefor, either to file a proof of claim with respect
to the Subordinated Debt and to furnish a copy thereof to the Junior Claimant,
or to inform such Junior Claimant in writing that the Senior Claimants intend to
exercise their rights to assert the Subordinated Debt in the manner hereinabove
provided, Junior Claimant may, but shall not be required to, proceed to file a
proof of claim with respect to the Subordinated Debt and take such further steps
with respect thereto, not inconsistent with this Agreement, as Junior Claimant
may deem proper.

                  2.6   Upon the occurrence and during the continuation of an
Event of Default, Junior Creditor may, but shall have no obligation to, upon not
less than 10 days prior written notice to Administrative Agent, purchase all of
the outstanding Loans and other Obligations of Borrower owing to the Senior
Claimants by irrevocably tendering, in immediately available funds, full payment
of the Purchase Price (as defined below) to Senior Claimants:

                        2.6.1 The Purchase Price shall be equal to the total\
amount of Senior Claims at the time of acceleration (assuming such obligations
have been accelerated);

                        2.6.2 Any such purchase by Junior Claimant shall be
without warranty by, or recourse to, the Senior Claimants, except with respect
to the legal and beneficial ownership by the Senior Claimants of the Obligations
so purchased, free and clear of all Liens and rights of others; and

                        2.6.3 Concurrently with any such purchase the Senior
Claimants shall forthwith sell, assign, transfer and convey to Junior Claimant
all of their right, title and interest in and to the Credit Documents and all
Liens and other security interests in favor of the Senior Claimants securing the
obligations of Borrower in connection therewith.

            3.    CREDIT AGREEMENT AND CREDIT DOCUMENTS. Junior Claimant
acknowledges that it has been provided with a copy of the Credit Agreement and
has read and is familiar with the provisions of the Credit Agreement, including
without limitation Article 7 thereof. Junior Claimant hereby consents to the
application of Project Revenues in accordance with the Credit Agreement,
including without limitation Article 7 thereof, notwithstanding anything in the
Subordinated Debt Documents to the contrary.

            4.    TIME OF FILING. Notwithstanding the time of filing, attachment
or recording of any document or other instrument, it is agreed by Junior
Claimant that any liens arising under or pursuant to the Collateral Documents
(as defined in the Credit Documents) shall be senior to any liens arising in
favor of Junior Claimant as part of or relating to the


                                       4
<PAGE>   492
Subordinated Debt Documents; provided, however, that nothing herein shall be
deemed to permit Junior Claimant to obtain any such liens.

            5.    WRONGFUL COLLECTIONS. Should any payment on account of, or any
collateral for any part of, the Subordinated Debt be received by Junior Claimant
in violation of this Agreement, such payment or collateral shall be delivered
forthwith to Administrative Agent on behalf of the Senior Claimants by the
recipient for application to Senior Claims, in the form received. Administrative
Agent is irrevocably authorized to supply any required endorsement or assignment
which may have been omitted. Until so delivered, any such payment or collateral
shall be held by the recipient in trust for the Senior Claimants and shall not
be commingled with other funds or property of the recipient.

            6.    OWNERSHIP OF SUBORDINATED DEBT; AMENDMENT OF SUBORDINATED
DEBT DOCUMENTS.


                  6.1   Junior Claimant represents and warrants that it is the
lawful owner of the Subordinated Debt and no part thereof has been assigned to
or subordinated or subjected to any other security interest in favor of anyone
other than the Senior Claimants. Junior Claimant agrees that it may not assign
all or any portion of the Subordinated Debt or any of its rights or remedies
under the Subordinated Debt Documents except upon the execution and delivery to
Administrative Agent of an agreement by any such assignee to be bound by the
terms of this Agreement (including provisions relating to assignment), in form
and substance the same as this Agreement, or otherwise as may be reasonably
satisfactory to Administrative Agent.

                  6.2   Without the prior written consent of Administrative
Agent and the Required Banks, the Subordinated Debt Documents may not be amended
so as to have an adverse effect upon the Senior Claims or Borrower's ability to
pay the Senior Claims at any time.

            7.    WAIVERS. Administrative Agent and the Senior Claimants are
hereby authorized to demand specific performance of this Agreement, whether or
not Borrower shall have complied with the provisions hereof applicable to it, at
any time when Junior Claimant shall have failed to comply with any provision
hereof applicable to it. Junior Claimant hereby irrevocably waives any defense
based on the adequacy of a remedy at law which might be asserted as a bar to the
remedy of specific performance hereof in any action brought therefor by the
Senior Claimants. Junior Claimant (a) further waives presentment, notice and
protest in connection with all negotiable instruments evidencing Senior Claims
or Subordinated Debt to which Junior Claimant may be a party, notice of the
acceptance of this Agreement by the Senior Claimants, notice of any loan made,
extension granted or other action taken in reliance hereon, and all demands and
notices of every kind in connection with this Agreement, Senior Claims or time
of payment of Senior Claims or Subordinated Debt and (b) hereby assents to any
renewal, extension or postponement of the time of payment of Senior Claims or
any other indulgence with respect thereto, to any increase in the amount of
Senior Claims, to any substitution, exchange or release of collateral therefor
and to the addition or release of any person primarily or secondarily liable
thereon and assents to the provisions of any instrument, security or other
writing evidencing Senior Claims.


                                       5
<PAGE>   493
            8.    SUBROGATION; NO IMPAIRMENT OF BORROWER'S OBLIGATIONS. Subject
to and from and after the payment in full of all Senior Claims and the
irrevocable termination of Senior Claimants' commitments under the Credit
Documents, Junior Claimant shall be subrogated to the rights of the Senior
Claimants to receive payments or distributions of cash, property or securities
of Borrower applicable to the Senior Claims until all amounts owing on the
Subordinated Debt shall be paid in full. For purposes of such subrogation, no
payments or distributions to the Senior Claimants to which Junior Claimant would
be entitled but for the provisions of this Agreement, and no payments paid over
by Junior Claimant to Senior Claimants pursuant to this Agreement shall, as
among the Borrower, its creditors other than the Senior Claimants, and Junior
Claimant, be deemed to be a payment or distribution on account of the
Subordinated Debt, it being understood that the provisions of this Agreement are
intended solely for the purpose of defining the relative rights of Junior
Claimant and the Senior Claimants. Nothing contained in this Agreement is
intended to or shall impair, as between Borrower and Junior Claimant, the
obligation of Borrower, which is absolute and unconditional, to pay to Junior
Claimant the principal of and the premium, if any, and the interest on the
Subordinated Debt, and all other amounts payable by Borrower under the
Subordinated Debt Documents, as and when the same shall become due and payable,
or to affect the relative rights of Junior Claimant and creditors of Borrower
other than the Senior Claimants.

            9.    REINSTATEMENT. The obligations of Junior Claimant under this
Agreement shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Claim, or any other payment
to any holder of any Senior Claim in its capacity as such, is rescinded or must
otherwise be restored or returned by the holder of such Senior Claims upon the
occurrence of any Proceeding, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for,
Borrower or any substantial part of its property, or otherwise, all as though
such payment had not been made.

            10.   BANKRUPTCY. This Agreement shall remain in full force and
effect as between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Borrower.

            11.   FURTHER ASSURANCES. Borrower and Junior Claimant shall execute
and deliver to the Senior Claimants such further instruments and shall take such
further action as the Senior Claimants may at any time or times reasonably
request in order to carry out the provisions and intent of this Agreement.

            12.   SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Neither the Junior Claimant nor the Senior
Claimants shall have a duty to preserve rights against prior parties in any
property of any kind received hereunder. Nothing contained herein shall impose
on the Senior Claimants any duties with respect to any property of Borrower or
Junior Claimant received hereunder.


                                       6
<PAGE>   494
            13.   COUNTERPARTS. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
agreement. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart signed by each of the parties
hereto.

            14.   GOVERNING LAW. This Agreement is intended to take effect as a
sealed instrument, shall be binding upon the parties hereto and their respective
executors, administrators, other legal representatives, successors and assigns,
and shall inure to the benefit of the Senior Claimants, their respective
successors and assigns and shall be governed by the laws of the State of New
York without reference to principles of conflict of laws (other than Section
5-1401 of the New York General Obligations Law). The parties hereto intend and
agree that this Agreement shall remain binding on such parties (other than
Borrower) notwithstanding the termination (except upon the payment in full of
Senior Claims) or unenforceability of this Agreement as against Borrower.




                   [REMINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       7
<PAGE>   495
            IN WITNESS WHEREOF, the parties hereto have caused this
Subordination Agreement to be duly executed as of the date first above written.

                                    [JUNIOR CLAIMANT]

                                    ______________________________
                                    a ____________________________


                                    By:   ____________________________________
                                          Name:
                                          Title:



                                    CREDIT SUISSE FIRST BOSTON,
                                    NEW YORK BRANCH,
                                    as Administrative Agent


                                    By:   ____________________________________
                                          Name:
                                          Title:

                                    By:   ____________________________________
                                          Name:
                                          Title:


Acknowledged and Agreed:


CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
a Delaware limited liability company

By:   ______________________________
      Name:
      Title:


                                       8
<PAGE>   496
                                TABLE OF CONTENTS


                                                                            PAGE
                                                                            ----

1.   Definitions...............................................................2
2.   Certain Subordination Terms...............................................2
3.   Credit Agreement and Credit Documents.....................................4
4.   Time of Filing............................................................4
5.   Wrongful Collections......................................................5
6.   Ownership of Subordinated Debt; Amendment of Subordinated Debt Documents..5
7.   Waivers...................................................................5
8.   Subrogation; No Impairment of Borrower's Obligations......................6
9.   Reinstatement.............................................................6
10.  Bankruptcy................................................................6
11.  Further Assurances........................................................6
12.  Successors and Assigns....................................................6
13.  Counterparts..............................................................7
14.  Governing Law.............................................................7
<PAGE>   497
                                                             EXHIBIT D-8
                                                             to Credit Agreement

                                    AFFILIATE

                             SUBORDINATION AGREEMENT


                           Dated as of _________, 200_

                                     between


                               _________________,
                               a _______________,


                                       and

                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch,
                             as Administrative Agent
<PAGE>   498
                             SUBORDINATION AGREEMENT


            This AFFILIATE SUBORDINATION AGREEMENT (this "Agreement") dated as
of __________, 200_ is entered into by and between __________, a __________ (the
"Junior Claimant"), and CREDIT SUISSE FIRST BOSTON, acting through its New York
Branch, as Administrative Agent ("Administrative Agent") for the Senior
Claimants (as defined below).

                                     PREFACE

            A.    Calpine Construction Finance Company II, LLC, a Delaware
limited liability company ("Borrower"), the financial institutions listed on
Exhibit H thereto (the "Banks"), Credit Suisse First Boston, acting through its
New York Branch, as Lead Arranger and Administrative Agent ("Administrative
Agent"), The Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and
Bookrunner, Banc of America Securities LLC, as Arranger and Co-Syndication
Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication Agent, Bayerische
Landesbank Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC
World Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort
Benson North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent (the Banks,
Administrative Agent, the Lead Arrangers, the Arrangers, the Syndication Agents,
the Documentation Agents, the Bookrunner and all financial institutions parties
to the Credit Agreement, the "Senior Claimants"), have entered into that certain
Credit Agreement dated as of October 16, 2000 ("Credit Agreement"), pursuant to
which the Senior Claimants will, subject to the terms and conditions contained
therein, provide credit facilities to Borrower in connection with the
development, construction and ownership of the Projects. Pursuant to the Credit
Agreement, (i) proceeds of such credit facilities will be utilized by Borrower
for, among other things, distribution to Project Owner for the payment of
Project Costs associated with the _____ Project, (ii) all Project Revenues
received by Project Owner will be transferred to the Accounts held by Borrower
and (iii) all O&M Costs, including the Subordinated O&M Costs, will be paid by
Project Owner from funds available for such purposes in accordance with Article
7 of the Credit Agreement.

            B.    __________ a __________ ("Project Owner") and Junior Claimant
have entered into (i) that certain __________ (the "______________") and (ii)
that certain ____________ (the "_________" and together with the ____________,
the "Subordinated Contracts") pursuant to which, subject to the terms and
conditions contained therein and herein, Project Owner has agreed to pay certain
fees for the [OPERATION, MAINTENANCE AND MANAGEMENT] of the _____ Project by
Junior Claimant (the "O&M Costs"). That portion of the O&M Costs which are
designated in Section ___ of the _______, or Section ___ of the _____ is
referred to herein as the "Subordinated O&M Costs."

            C.    Project Owner and Administrative Agent, on behalf of the
Banks, have entered into the Project Owner Guaranty dated as of ____, 200_ (the
"Guaranty") pursuant to which Project Owner has guaranteed the obligations of
each of the other Portfolio Entities under
<PAGE>   499
the Credit Documents, including Borrower's Obligations under the Credit
Agreement and the other Credit Documents to which Borrower is a party.

            D.    The Senior Claimants have agreed that Project Owner may enter
into each of the Subordinated Contracts only if Junior Claimant shall join in
this Agreement and Junior Claimant shall subordinate, to the extent and in the
manner hereinafter set forth, all claims and rights in respect of the
Subordinated O&M Costs to all Senior Claims (as defined below) to the extent set
forth in this Agreement.

                                    AGREEMENT

            NOW THEREFORE, in consideration of the premises and as an inducement
to the Senior Claimants to grant financial accommodations to Borrower, and in
consideration of the granting thereof, the parties hereby agree as follows:

            1.    DEFINITIONS. All capitalized terms used herein and not
otherwise defined herein shall have the meaning given in the Credit Agreement.
As used in this Agreement, the following terms shall have the following
respective meanings:

                  "Proceeding" means any (a) insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment, composition or other
similar proceeding relating to Project Owner, its property or its creditors as
such, (b) proceeding for any liquidation, dissolution or other winding-up of
Project Owner, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings, (c) assignment for the benefit of creditors of Project
Owner or (d) other marshaling of the assets of Project Owner.

                  "Senior Claims" means (a) the principal of, and premium, if
any, and interest on the Loans under the Credit Agreement (including, without
limitation, any interest accruing thereon at the legal rate after the
commencement of any Proceeding and any additional interest that would have
accrued thereon but for the commencement of such Proceeding) and all other
Obligations of Borrower to any Senior Claimants, whether now existing or
hereafter incurred or created, under or with respect to the Credit Documents and
any related documents; and (b) all of the Obligations of Project Owner to the
Senior Claimants, whether now existing or hereafter incurred or created, under
or with respect to the Credit Documents, including without limitation the
Guaranty, and any related documents.

            2.    CERTAIN SUBORDINATION TERMS. Until all Senior Claims shall
have been paid in full and the Senior Claimants' commitments irrevocably
terminated under the Credit Documents, and notwithstanding anything in either of
the Subordinated Contracts to the contrary:

                  2.1   Junior Claimant acknowledges that, notwithstanding
anything in either of the Subordinated Contracts to the contrary, Project Owner
may pay to Junior Claimant Subordinated O&M Costs due to Junior Claimant with
funds available for distribution by Borrower to Project Owner under Waterfall
Level 6 of Section 7.2 of the Credit Agreement only if and to the extent monies
are sufficient for the payment thereof pursuant to such Section 7.2.


                                       2
<PAGE>   500
Except as provided in this Section 2.1, Project Owner shall not, directly or
indirectly, make any payment on or in respect of the Subordinated O&M Costs, and
Project Owner shall not in any event transfer any collateral for any part of,
the Subordinated O&M Costs.

                  2.2   Except for the right to demand and accept payments set
forth in Section 2.1 hereof, Junior Claimant shall not demand, sue for, or
accept directly or indirectly from Project Owner any such payment or collateral,
nor take any other action to enforce or collect upon any such payment or to
enforce its rights, in either case in respect of the Subordinated O&M Costs, nor
set off against obligations owed to Project Owner under either of the
Subordinated Contracts or otherwise against any part of the Subordinated O&M
Costs. Notwithstanding anything in either of the Subordinated Contracts to the
contrary, the failure by Project Owner to pay any Subordinated O&M Costs shall
not under any circumstances, except where the funds are available therefor and
payment is permitted under Section 2.1 hereof, constitute a breach or default
under either of the Subordinated Contracts.

                  2.3   Neither Project Owner nor Junior Claimant shall
otherwise take any action prejudicial to or inconsistent with the Senior
Claimants' priority position over Junior Claimant created by this Agreement.

                  2.4   Each negotiable instrument or promissory note evidencing
a Subordinated O&M Cost or a lien, if any, in respect thereof shall bear a
legend (or otherwise include provisions satisfactory to Administrative Agent)
providing that payment of the Subordinated O&M Costs thereunder and the priority
of any such lien have been subordinated to prior payment of the Senior Claims
and the liens in respect thereof in the manner and to the extent set forth in
this Agreement.

                  2.5   Junior Claimant shall not commence or voluntarily permit
Project Owner to commence or join with any other creditor or creditors of
Project Owner in commencing any Proceeding against Project Owner or any other
Portfolio Entity or member or partner thereof; provided that Junior Claimant
shall not be so restricted with respect to claims arising directly out of
Project Owner's failure to perform its obligations or make any payments of O&M
Costs under either of the Subordinated Contracts other than the Subordinated O&M
Costs. At any general meeting of creditors of Project Owner or in the event of
any Proceeding, if all Senior Claims have not been paid in full at such time,
Administrative Agent on behalf of the Senior Claimants is hereby irrevocably
authorized at any such meeting or in any such Proceeding:

                        2.5.1 to enforce claims comprising the Subordinated O&M
Costs in the name of Junior Claimant, by proof of debt, proof of claim, suit or
otherwise;

                        2.5.2 to collect any assets of Project Owner
distributed, divided or applied by way of dividend or payment as a result of a
Proceeding, or such securities issued, on account of the Subordinated O&M Costs
as a result thereof and apply the same, or the proceeds of any realization upon
the same that the Senior Claimants in their discretion elect to effect, to
Senior Claims until all Senior Claims shall have been paid in full (the Senior
Claimants hereby agreeing to render any surplus as a court of competent
jurisdiction may direct); and


                                       3
<PAGE>   501
                        2.5.3 other than voting claims comprising the
Subordinated O&M Costs, to take generally any action in connection with any such
meeting or proceeding which Junior Claimant might otherwise take in respect of
the Subordinated O&M Costs and claims relating thereto.

            After the commencement of any such Proceeding, Junior Claimant may
inquire of Administrative Agent in writing whether Administrative Agent intends
to exercise the foregoing rights with respect to the Subordinated O&M Costs.
Should Administrative Agent fail, within a reasonable time after receipt of such
inquiry, either to file a proof of claim with respect to the Subordinated O&M
Costs and to furnish a copy thereof to Junior Claimant, or to inform Junior
Claimant in writing that the Senior Claimants intend to exercise their rights to
assert the Subordinated O&M Costs in the manner hereinabove provided, Junior
Claimant may, but shall not be required to, proceed to file a proof of claim
with respect to the Subordinated O&M Costs and take such further steps with
respect thereto, not inconsistent with this Agreement, as Junior Claimant may
deem proper.

                  2.6   In the event that (a) the Senior Claimants foreclose on
any or all of their liens on all or a substantial portion of the assets
constituting one or more of the Projects (or succeed to such assets by way of a
transfer in lieu of foreclosure), and (b) Senior Claimants assume either of the
Subordinated Contracts in accordance with the terms of the Consent and Agreement
dated as of ___________, 200_ among Junior Claimant, Administrative Agent and
Project Owner (the "Consent") (or enter into a new agreement pursuant to Section
1(d) of the Consent), then notwithstanding anything in either of the
Subordinated Contracts to the contrary, (i) Project Owner (or any successor or
assign) shall not be obligated to pay the Subordinated O&M Costs, if any, then
due, except as set forth in Section 2.6.1 or 2.6.2, as applicable, (ii) each of
the Subordinated Contracts shall remain in full force and effect notwithstanding
any such foreclosure (but subject to the terms and conditions thereof), and
(iii) the following shall apply:

                        2.6.1 In the event that the Senior Claimants (including,
for purposes of this Section 2.6.1, their Affiliates) or any of them become the
owners of one or more of the Projects, the Senior Claimants shall apply to the
outstanding balance, if any, of the Subordinated O&M Costs relating to such
Project(s) on (or promptly after) the last day of each calendar quarter all
Project Operating Revenues relating to such Project(s) received in excess of
amounts applied during such quarterly period to (a) the payment or application
of all costs for the operation and maintenance of such Projects in the nature of
those costs defined as "Senior O&M Costs" payable under Waterfall Level 1 of
Section 7.2 of the Credit Agreement, which expenditures shall not be materially
greater than as are consistent with operation of such Project(s) in accordance
with prudent operating practices (as determined with reference to similar
facilities under similar operating conditions), (b) the payment of a return of
and on the investment of the Senior Claimants, whether such investment is in the
form of equity or debt (and whether or not the Senior Claimants have foreclosed
on their liens by way of a partial or full credit bid or otherwise), which
payments shall not be greater than the periodic payments which would have been
payable under the priorities specified in Waterfall Levels 2 through 5 and 8 of
Section 7.2 of the Credit Agreement as in effect immediately prior to such
foreclosure, as reasonably determined by the Senior Claimants (assuming for
purposes of calculating such payment that (i) Loans had been extended to
Borrower at the Base Rate in the amount of the


                                       4
<PAGE>   502
unpaid balance of all Loans owed to the Senior Claimants immediately prior to
the exercise by such parties of their remedies, (ii) such deemed Loans have not
been repaid upon foreclosure, (iii) such deemed Loans are to be deemed amortized
straight line through the Loan Maturity Date (without giving effect to any
acceleration) and (iv) all outstanding Letters of Credit were fully drawn upon
by the respective LC Beneficiaries immediately prior to foreclosure) and (c)
funding of reserves in an amount which would have been available for the benefit
of the Senior Claimants under Waterfall Level 5 of Section 7.2 of the Credit
Agreement as in effect immediately prior to such foreclosure. Upon such
foreclosure by the Senior Claimants, each of the Subordinated Contracts, as
applicable, shall be deemed to be amended to reflect such arrangement.

                        2.6.2 In the event that the Senior Claimants sell one or
more of the Projects to a third party ("New Owner"), the New Owner shall apply
to the outstanding balance, if any, of the Subordinated O&M Costs relating to
such Project(s) on (or promptly after) the last day of each calendar quarter all
Project Operating Revenues relating to such Project(s) received in excess of
amounts applied during such quarterly period to (a) the payment of all costs for
the operation and maintenance of such Project(s) in the nature of those costs
defined as "Senior O&M Costs" payable under Waterfall Level 1 of Section 7.2 of
the Credit Agreement, which expenditures shall not be materially greater than as
are consistent with operation of such Project(s) in accordance with prudent
operating practices (as determined with reference to similar facilities under
similar operating conditions), (b) the periodic payment of fees, interest and
principal as required by the lenders to the New Owner, which payments shall not
be materially greater on an annual basis than such amounts payable by Borrower
to the Senior Claimants under the Credit Agreement as in effect immediately
prior to foreclosure by the Senior Claimants, as reasonably determined by the
lenders to the New Owner; provided that greater payments shall be permitted so
long as the payment of such excess amounts is subordinated to the Subordinated
O&M Costs and (c) the funding of reserves not materially in excess of the
amounts which would have been available for the benefit of the Senior Claimants
under Waterfall Level 5 of Section 7.2 the Credit Agreement as in effect
immediately prior to such foreclosure. The lenders to such New Owner shall be
deemed to be Senior Claimants hereunder, and the payments specified in clause
(b) and (c) of this Section 2.6.2 shall be deemed to be Senior Claims under this
Agreement. Subject to Junior Claimant's rights under Section ___ of the _____,
Section _______ of the ________ and Section ____ of the _________, [SECTION
REFERENCES RELATING TO JUNIOR CLAIMANT'S RIGHT TO TERMINATE UPON CHANGE OF
CONTROL] Junior Claimant agrees that it will execute and deliver to New Owner's
lenders such new subordination agreement, such amendments to each of the
Subordinated Contracts, and such other instruments, in each case consistent with
the terms of this Agreement, and Junior Claimant shall take such further action,
as the lenders to the New Owner reasonably request in furtherance of this
Section 2.6.2.

            3.    CREDIT AGREEMENT. Junior Claimant acknowledges that it has
been provided with a copy of the Credit Agreement and the Guaranty and has read
and is familiar with the provisions of the Credit Agreement, including without
limitation Article 7 thereof. Junior Claimant hereby consents to the application
of Project Revenues in the order of priority set forth in the Credit Agreement
and Guaranty, including without limitation Article 7 of the Credit Agreement,
notwithstanding anything in either of the Subordinated Contracts to the
contrary.


                                       5
<PAGE>   503
            4.    TIME OF FILING. Notwithstanding the time of filing, attachment
or recording of any document or other instrument, it is agreed by Junior
Claimant that any liens arising under or pursuant to the Collateral Documents
(as defined in the Credit Documents) shall be senior to any liens arising in
favor of Junior Claimant as part of or relating to either of the Subordinated
Contracts.

            5.    WRONGFUL COLLECTIONS. Should any payment on account of, or any
collateral for any part of, the Subordinated O&M Costs be received by Junior
Claimant in violation of this Agreement, such payment or collateral shall be
delivered forthwith to Administrative Agent on behalf of the Senior Claimants by
the recipient for application to Senior Claims, in the form received.
Administrative Agent is irrevocably authorized to supply any required
endorsement or assignment which may have been omitted. Until so delivered, any
such payment or collateral shall be held by the recipient in trust for the
Senior Claimants and shall not be commingled with other funds or property of the
recipient.

            6.    OWNERSHIP OF SUBORDINATED O&M COSTS; AMENDMENT OF SUBORDINATED
CONTRACTS.

                  6.1   Junior Claimant represents and warrants that it is the
lawful owner of the right to receive the Subordinated O&M Costs and no part
thereof has been assigned to or subordinated or subjected to any other security
interest in favor of anyone other than the Senior Claimants. Junior Claimant
shall not assign all or any portion of the Subordinated O&M Costs, its
commitment under, or any of its rights or remedies under, either of the
Subordinated Contracts without the prior written consent of Administrative Agent
and the Required Banks, which may be granted or withheld in their sole
discretion, and in any event only upon the execution and delivery to
Administrative Agent of an agreement by any such assignee to be bound by the
terms of this Agreement (including provisions relating to assignment), in form
and substance the same as this Agreement, or otherwise as may be reasonably
satisfactory to Administrative Agent.

                  6.2   Subject to Section 6.13.1 of the Credit Agreement and
Section 3(f) of the Guaranty, Junior Claimant shall not amend either of the
Subordinated Contracts without Administrative Agent's prior written consent.

            7.    WAIVERS. Administrative Agent and the Senior Claimants are
hereby authorized to demand specific performance of this Agreement, whether or
not Project Owner shall have complied with the provisions hereof applicable to
it, at any time when Junior Claimant shall have failed to comply with any
provision hereof applicable to it. Junior Claimant hereby irrevocably waives any
defense based on the adequacy of a remedy at law which might be asserted as a
bar to the remedy of specific performance hereof in any action brought therefor
by the Senior Claimants. Junior Claimant further waives presentment, notice and
protest in connection with all negotiable instruments evidencing Senior Claims
or Subordinated O&M Costs to which Junior Claimant may be a party, notice of the
acceptance of this Agreement by the Senior Claimants, notice of any loan made,
extension granted or other action taken in reliance hereon, and all demands and
notices of every kind in connection with this Agreement, Senior Claims or time
of payment of Senior Claims or Subordinated O&M Costs. Junior Claimant hereby
assents to any renewal, extension or postponement of the time of payment of
Senior


                                       6
<PAGE>   504
Claims or any other indulgence with respect thereto, to any increase in the
amount of Senior Claims, to any substitution, exchange or release of collateral
therefor and to the addition or release of any person primarily or secondarily
liable thereon and assents to the provisions of any instrument, security or
other writing evidencing Senior Claims.

            8.    SUBROGATION; NO IMPAIRMENT OF PROJECT OWNER'S OBLIGATIONS.
Subject to and from and after the indefeasible payment in full of all Senior
Claims and the irrevocable termination of Senior Claimants' commitments under
the Credit Documents, Junior Claimant shall be subrogated to the rights of the
Senior Claimants to receive payments or distributions of cash, property or
securities of Project Owner applicable to the Senior Claims until all amounts
owing on the Subordinated O&M Costs shall be paid in full, it being understood
that the provisions of this Agreement are and are intended solely for the
purpose of defining the relative rights of Junior Claimant and the Senior
Claimants; provided that such rights of subrogation shall be nonexclusive, and
shall be shared with any other subordinated creditor of the Project Owner which
has entered into an agreement with the Administrative Agent providing similar
rights of subrogation. Nothing contained in this Agreement is intended to or
shall impair, as between Project Owner, its creditors other than the Senior
Claimants and Junior Claimant, the obligation of Project Owner, which is
absolute and unconditional, to pay to Junior Claimant the principal of and the
premium, if any, and the interest on the Subordinated O&M Costs as and when the
same shall become due and payable in accordance with the terms of this Agreement
and the Subordinated Contracts, or to affect the relative rights of Junior
Claimant and creditors of Project Owner other than the Senior Claimants.

            9.    REINSTATEMENT. The obligations of Junior Claimant under this
Agreement shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Claim, or any other payment
to any holder of any Senior Claim in its capacity as such, is rescinded or must
otherwise be restored or returned by the holder of such Senior Claims upon the
occurrence of any Proceeding, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for,
Project Owner or any substantial part of its property, or otherwise, all as
though such payment had not been made.

            10.   BANKRUPTCY. This Agreement shall remain in full force and
effect as between the Junior Claimant and Senior Claimant notwithstanding the
occurrence of any Proceeding affecting Project Owner.

            11.   FURTHER ASSURANCES. Project Owner and Junior Claimant shall
execute and deliver to the Senior Claimants such further instruments and shall
take such further action as the Senior Claimants may at any time or times
reasonably request in order to carry out the provisions and intent of this
Agreement.

            12.   SUCCESSORS AND ASSIGNS. The rights granted to the Senior
Claimants hereunder are solely for their protection and nothing herein contained
shall impose on the Senior Claimants any duties with respect to any property of
Project Owner or Junior Claimant received hereunder. The Senior Claimants shall
have no duty to preserve rights against prior parties in any property of any
kind received hereunder.


                                       7
<PAGE>   505
            13.   COUNTERPARTS. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
agreement. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart signed by each of the parties
hereto.

            14.   GOVERNING LAW. This Agreement is intended to take effect as a
sealed instrument, shall be binding upon the parties hereto and their respective
executors, administrators, other legal representatives, successors and assigns,
and shall inure to the benefit of the Senior Claimants, their respective
successors and assigns and shall be governed by the laws of the State of New
York without reference to principles of conflict of laws (other than Section
5-1401 of the New York General Obligations Law). The parties hereto intend and
agree that this Agreement shall remain binding on such parties (other than
Project Owner) notwithstanding the termination (except upon the payment in full
of Senior Claims) or unenforceability of this Agreement as against Project
Owner.




                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       8
<PAGE>   506
            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.

                              _______________________,
                              a _____________________,
                               as Junior Claimant

                              By:   __________________,
                                    a ________________,
                                    its General Partner

                                    By:   ______________________________________
                                          Name:
                                          Title:


                              CREDIT SUISSE FIRST BOSTON,
                              NEW YORK BRANCH,
                              as Administrative Agent

                              By:   _________________________________________
                                    Name:
                                    Title:

                              By:   _________________________________________
                                    Name:
                                    Title:


The undersigned acknowledges and agrees to the foregoing:

                        [NAME OF PROJECT OWNER],
                        a __________

                        By:   __________________________________________
                              Name:
                              Title:
<PAGE>   507
                                                                     EXHIBIT D-9


     PLEDGE AND SECURITY AGREEMENT (PLEDGED EQUITY INTERESTS)

            This PLEDGE AND SECURITY AGREEMENT (PLEDGED EQUITY INTERESTS) (this
"Agreement"), dated as of ______________, 200__, is entered into by and among
_____________, a Delaware ___________ ("Pledgor"), _____________a Delaware
_____________ (the "Pledged Portfolio Entity"), and CREDIT SUISSE FIRST BOSTON,
acting through its New York Branch, as Administrative Agent ("Administrative
Agent") for the Banks (as defined below). [FORM MAKES ASSUMPTION THAT PLEDGOR IS
A PORTFOLIO ENTITY. IN CASE OF PLEDGE BY NON-AFFILIATE PARENT OR MEMBER, AMEND
ACCORDINGLY]

                                     PREFACE

      A.    Calpine Construction Finance Company II, LLC, a Delaware limited
liability company ("Borrower"), has entered into that certain Credit Agreement,
dated as of October 16, 2000 (as modified, supplemented or amended from time to
time, the "Credit Agreement"), among Borrower, the financial institutions listed
on Exhibit H thereto (the "Banks"), Credit Suisse First Boston, as Lead Arranger
and Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as
Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities,
LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger
and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, pursuant to which the Banks agreed to make certain
advances of credit to Borrower in the amounts specified and on the terms and
subject to the conditions set forth therein. For purposes of this Agreement the
term "Banks" shall include the Administrative Agent, the Lead Arrangers, the
Arrangers, the Sydincation Agents, the Documentation Agents, the Bookrunner and
the Banks (as such terms are defined in the Credit Agreement).

      B.    Borrower is the _________ of Pledgor. [DESCRIBE RELATIONSHIP]

      C.    Pledgor is the [GENERAL PARTNER][LIMITED PARTNER][SOLE MEMBER] of
the Pledged Portfolio Entity pursuant to that certain ______________ Agreement
of ______________, dated as of ________________ (as modified, supplemented or
amended from time to time in accordance with its terms, the "Constituent
Agreement").

      D.    Each of Pledgor and the Pledged Portfolio Entity acknowledges that
it will benefit, directly and indirectly, if Administrative Agent and the Banks
enter into the Credit Agreement.

      E.    As a condition precedent to the Banks' making the advances of credit
contemplated by the Credit Agreement, the Banks require that the Pledged
Portfolio Entity and Pledgor shall have executed this Agreement.
<PAGE>   508
                                    AGREEMENT

            In consideration of the premises herein, and in order to induce the
Banks to enter into the Credit Agreement and to make the advances of credit
pursuant to the terms thereof, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Pledged Portfolio
Entity and Pledgor hereby agree with Administrative Agent for the benefit of
Administrative Agent and the Banks as follows:

      1.    DEFINITIONS.

            1.1   "UCC" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

            1.2   All capitalized terms used, but not otherwise defined herein,
shall have the meanings provided in the Credit Agreement. The rules of
interpretation contained in Exhibit A to the Credit Agreement shall apply to
this Agreement.

      2.    ASSIGNMENT, PLEDGE AND GRANT OF SECURITY INTEREST.

            2.1   To secure the timely payment and performance of the
Obligations (as defined below), Pledgor hereby assigns and pledges to
Administrative Agent for the benefit of Administrative Agent and the Banks, and
grants to Administrative Agent for the benefit of Administrative Agent and the
Banks a security interest in all the estate, right, title and interest of
Pledgor, now owned or hereafter acquired, in, to and under any and all of the
following (the "Collateral"):

                  Any and all of Pledgor's [PARTNERSHIP][LIMITED LIABILITY
COMPANY] interest(s), whether now owned or subsequently acquired, in the Pledged
Portfolio Entity, including, without limitation, the certificates representing
such interest(s) and Pledgor's share of (i) all rights to receive all income,
gain, profit, loss or other items allocated or distributed to Pledgor under the
Constituent Agreement; (ii) all rights to receive all income, profit or other
distributions of any nature whatsoever by the Pledged Portfolio Entity with
respect to such interest(s); (iii) all of Pledgor's capital or ownership
interest, including capital accounts, in the Pledged Portfolio Entity, and all
accounts, deposits or credits of any kind with the Pledged Portfolio Entity;
(iv) all of Pledgor's voting rights in or rights to control or direct the
affairs of the Pledged Portfolio Entity; (v) all of Pledgor's right, title and
interest in the Pledged Portfolio Entity, in or to any and all of the Pledged
Portfolio Entity's assets or properties; (vi) all other right, title and
interest in or to the Pledged Portfolio Entity, as such rights are derived from
Pledgor's interest in the Pledged Portfolio Entity; (vii) all claims of Pledgor
for damages arising out of or for breach of or default relating to the
Collateral; and (viii) all rights of Pledgor to


                                       2
<PAGE>   509
terminate, amend, supplement, modify or waive performance under the Constituent
Agreement, to perform thereunder and to compel performance and otherwise
exercise all remedies thereunder; and (ix) all proceeds of any of the above.

[ADD FOR MEMBER PLEDGE AGREEMENT] [PROVIDED, HOWEVER, THAT "COLLATERAL" SHALL
NOT INCLUDE ANY CASH OR OTHER PROPERTY DISTRIBUTED TO PLEDGOR FOLLOWING A
DISTRIBUTION MADE PURSUANT TO WATERFALL LEVELS 8 OR 10, AS THE CASE MAY BE, OF
THE CREDIT AGREEMENT.]

[ADD FOR NON-AFFILIATE PARENT PLEDGE AGREEMENT] [PROVIDED, HOWEVER, THAT
"COLLATERAL" SHALL NOT INCLUDE ANY CASH OR OTHER PROPERTY DISTRIBUTED TO PLEDGOR
FOLLOWING A DISTRIBUTION MADE PURSUANT TO WATERFALL LEVEL 7 OF THE CREDIT
AGREEMENT.]

            2.2   If any default by Pledgor under the Constituent Agreement (a
"Constituent Agreement Default") shall occur, Administrative Agent shall, at its
option, be permitted (but shall not be obligated) to remedy any such Constituent
Agreement Default by giving written notice of such intent to the Pledged
Portfolio Entity and Pledgor. Administrative Agent shall have a period of 60
days after giving such notice in which to cure such Constituent Agreement
Default. In the event that any such Constituent Agreement Default (except
monetary defaults) shall not be reasonably curable within such sixty-day period,
neither the Pledged Portfolio Entity nor any Person acting on behalf of the
Pledged Portfolio Entity, including, without limitation, a general partner of
the Pledged Portfolio Entity, shall exercise any remedies thereunder if
Administrative Agent shall, within such 60-day period, initiate action to cure
such Constituent Agreement Default and proceed diligently to the curing thereof
within 120 days after giving written notice of a Constituent Agreement Default.
Any cure by Administrative Agent of a Constituent Agreement Default shall not be
construed as an assumption by Administrative Agent or any of the Banks of any
obligations, covenants or agreements of Pledgor under the Constituent Agreement,
and, subject to Section 12.13 of the Credit Agreement, neither Administrative
Agent nor any of the Banks shall be liable for any action taken pursuant to this
subsection 2.2 to cure any such Constituent Agreement Default, except as set
forth in Section 12.13 of the Credit Agreement. This Agreement shall not be
deemed to release or to affect in any way the obligations of Pledgor under the
Constituent Agreement.

      3.    OBLIGATIONS SECURED. Without limiting the generality of the
foregoing, this Agreement and all of the Collateral secure the payment and
performance when due of all Obligations (as defined in the Credit Agreement) of
Borrower and each other Portfolio Entity (including Pledgor) to the
Administrative Agent and the Banks pursuant to the Credit Documents (the
"Obligations"); provided, however, the Obligations as defined in this Section 3
shall not include any Obligations relating to or arising from Projects that have
achieved Operation prior to the effective date of this Agreement.

      4.    EVENTS OF DEFAULT. The occurrence of any of the following events
(each, an "Event of Default," and collectively the "Events of Default"),
whatever the reason for such Event of Default, and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall entitle Administrative Agent to
exercise any and all of its rights and remedies hereunder or at law:


                                       3
<PAGE>   510
            4.1   The occurrence (whether as a result of acts or omissions by
the Pledged Portfolio Entity or any other Person) of an Event of Default (as
"Event of Default" is defined under the Credit Agreement or the respective
Credit Document) under the Credit Agreement or any of the other Credit
Documents; or

            4.2   The failure on the part of Pledgor to observe or perform any
covenant contained in this Agreement on its part to be observed or performed,
and such failure shall continue unremedied for a period of 30 days after Pledgor
becomes aware thereof or receives written notice thereof from Administrative
Agent; provided, however, that, if (i) such failure cannot be cured within such
30 day period, (ii) such failure is susceptible of cure, (iii) Pledgor is
proceeding with diligence and in good faith to cure such failure, (iv) the
existence of such failure has not had and cannot after considering the nature of
the cure be reasonably expected to have a Material Adverse Effect on Borrower
and (v) Administrative Agent shall have received an officer's certificate signed
by a Responsible Officer of Pledgor to the effect of clauses (i), (ii), (iii)
and (iv) above and stating what action Pledgor is taking to cure such failure,
then such 30 day cure period shall be extended to such date, not to exceed a
total of 90 days, as shall be necessary for Pledgor diligently to cure such
failure; or

            4.3   Any representation or warranty of Pledgor contained in this
Agreement shall contain an untrue or misleading statement of a material fact or
shall fail to state a material fact necessary to make the statements therein not
misleading as of the date made which could reasonably be expected to result in a
Material Adverse Effect on Borrower; or

            4.4   The impairment of the priority of the security interest in the
Collateral granted herein.

      5.    REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents and
warrants as follows as of the date hereof:

            5.1   Pledgor (i) is a ____________ duly organized, validly existing
and in good standing under the laws of the State of Delaware with all requisite
corporate power and authority under the laws of such state to enter into the
Constituent Agreement and to perform its obligations thereunder and to
consummate the transactions contemplated thereby, (ii) is duly qualified,
authorized to do business and in good standing in each jurisdiction where the
character of its properties or the nature of its activities makes such
qualification necessary, [AND] (iii) has the power (A) to carry on its business
as now being conducted and as proposed to be conducted by it, (B) to execute,
deliver and perform each Operative Document to which it is a party, in its
individual capacity, (C) to take all action as may be necessary to consummate
the transactions contemplated thereunder, and (D) to grant the liens and
security interest provided for in this Agreement [AND (iv) [INSERT IF
CONSTITUENT DOCUMENTS GRANT PLEDGOR SIGNATORY POWERS] HAS THE POWER AND
AUTHORITY UNDER THE CONSTITUENT AGREEMENT TO EXECUTE AND DELIVER, ON BEHALF OF
THE PLEDGED PORTFOLIO ENTITY, EACH OPERATIVE DOCUMENT TO WHICH THE PLEDGED
PORTFOLIO ENTITY IS A PARTY].


            5.2   Pledgor has the full right, power and authority to execute,
deliver and perform this Agreement and to pledge and assign the Collateral.
[INSERT IF PLEDGOR IS


                                       4
<PAGE>   511
SOLE MEMBER, GENERAL PARTNER OR OTHERWISE CONTROLS PLEDGED PORTFOLIO ENTITY:
PLEDGOR HAS (i) TAKEN ALL NECESSARY ACTION TO AUTHORIZE THE EXECUTION, DELIVERY
AND PERFORMANCE OF THE CONSTITUENT AGREEMENT, THIS AGREEMENT AND EACH OTHER
OPERATIVE DOCUMENT TO WHICH THE PLEDGED PORTFOLIO ENTITY IS A PARTY; AND (ii)
DULY EXECUTED AND DELIVERED THE CONSTITUENT AGREEMENT, THIS AGREEMENT AND EACH
OPERATIVE DOCUMENT TO WHICH THE PLEDGED PORTFOLIO ENTITY IS A PARTY, IN EACH
CASE ON BEHALF OF THE PLEDGED PORTFOLIO ENTITY]. Neither Pledgor's execution and
delivery of any Operative Document nor its consummation of the transactions
contemplated thereby nor its compliance with the terms thereof (x) does or will
contravene the Constituent Agreement, the governing or other constituent
documents of Pledgor or any other Legal Requirement applicable to or binding on
Pledgor or any of its properties, or (y) does or will contravene or result in
any breach of or constitute any default under, or result in or require the
creation of any Lien (other than Permitted Liens) upon any of its property
under, any agreement or instrument to which it is a party or by which it or any
of its properties may be bound or affected.

            5.3   The Constituent Agreement has been duly authorized, executed
and delivered by Pledgor, has not been amended or otherwise modified, is in full
force and effect, and is binding upon and enforceable against Pledgor in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors' rights and by the
effect of general equitable principles. There exists no default under the
Constituent Agreement by Pledgor, or to the best of Pledgor's knowledge, by any
other party thereto that, with respect to such other party, could reasonably be
expected to have a Material Adverse Effect on Borrower or the Project directly
or indirectly owned by the Pledged Portfolio Entity.

            5.4   No consent of any other party (including, without limitation,
any creditor, shareholder or partner of Pledgor) and no consent, authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either (i) for the pledge by Pledgor of
the Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Pledgor or (ii) for the exercise by the
Administrative Agent of the voting or other rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement (except as has been obtained or made or as may be required in
connection with disposition of any Collateral by laws affecting the offering and
sale of securities generally).

            5.5   Pledgor is the lawful owner of and has full right, title and
interest in and to, its interest in the Pledged Portfolio Entity together with
the other rights and interests comprising the Collateral described above,
subject to no mortgages, liens, charges, or encumbrances of any kind except
Permitted Liens.

            5.6   Pledgor has not previously assigned any of its rights under
the Constituent Agreement or any of the Collateral except as specifically
permitted by the Credit Documents.

            5.7   Pledgor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the


                                       5
<PAGE>   512
Collateral on file in any recording office, except such as may have been filed
pursuant to this Agreement and the other Credit Documents.

            5.8   This Agreement is the legal, valid and binding obligation of
Pledgor, enforceable against Pledgor in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the enforcement of
creditors' rights and by the effect of general equitable principles. Upon filing
the UCC-1 financing statements executed by Pledgor with respect to the
Collateral at the office of the Secretary of State for the States of Delaware
and __________ pursuant to this Agreement, the delivery of all certificates or
instruments representing or evidencing the Collateral and the execution of this
Agreement by the Pledged Portfolio Entity, Administrative Agent will have a
valid and perfected first priority security interest in the Collateral, securing
payment of the Obligations.

            5.9   Pledgor is in compliance with all Legal Requirements
pertaining to it in connection with the Operative Documents to which it is a
party, the failure to comply with which could reasonably be expected to have a
Material Adverse Effect on Borrower or the Project owned directly or indirectly
by the Pledged Portfolio Entity, and no notices of violation of any Legal
Requirement or Operative Document relating to any Project or any Site have been
issued to or received by Pledgor.

            5.10  Except as set forth on Exhibit G-7 to the Credit Agreement,
there are no pending or, to Pledgor's knowledge, threatened actions, suits,
proceedings or investigations of any kind, including actions or proceedings of
or before any Governmental Authority, relating to the Collateral or to which
Pledgor is a party or is subject, or by which it or its properties are bound
that, if adversely determined to or against Pledgor could reasonably be expected
to have a Material Adverse Effect on Borrower or the Project owned directly or
indirectly by the Pledged Portfolio Entity.

            5.11  The financial statements of Pledgor delivered to the
Administrative Agent pursuant to Article 3 and Section 5.5 of the Credit
Agreement, if any, are, and, in the case of financial statements to be delivered
after the date hereof, will be, true, complete and correct in all material
respects as of the date of such statements and fairly present the financial
condition, results of operations and cash flow of Pledgor as of the date
thereof. Such financial statements have been prepared in accordance with GAAP.

            5.12  Pledgor has filed all federal, state and local tax returns
that it is required to file, has paid all taxes it is required to pay to the
extent due (other than those taxes that it is contesting in good faith and by
appropriate proceedings, with adequate, reserves established for such taxes)
and, to the extent such taxes are not due, has established reserves that are
adequate for the payment thereof and are required by GAAP. Except as set forth
on Exhibit G-8 to the Credit Agreement, Pledgor has no knowledge of any past or
existing violations of any Environmental Laws by any Person relating in any way
to any Site, Improvements or Easements.

            5.13  INSERT UNLESS PLEDGOR IS CALPINE CCFC II HOLDINGS, INC.]
[PLEDGOR HAS NOT CONDUCTED ANY BUSINESS OTHER THAN THE BUSINESS CONTEMPLATED BY
THE OPERATIVE DOCUMENTS;] Pledgor does not have any outstanding Debt or other
material liabilities


                                       6
<PAGE>   513
other than pursuant to or allowed by the Operative Documents; Pledgor is not a
party to or bound by any material contract other than the Operative Documents to
which it is a party.

            5.14  Neither Pledgor nor any of its Affiliates is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.

            5.15  The chief executive offices of Pledgor are located at the
address set forth on Schedule 4.24 of the Credit Agreement with respect to
Pledgor.

            5.16  Pledgor is not, and will not be, solely as a result of the
construction, ownership, leasing or operation of any Project owned directly or
indirectly by the Pledged Portfolio Entity, the sale of electricity therefrom or
the entering into any Operative Document or any transaction contemplated hereby
or thereby, subject to, or not exempt from, regulation under the FPA or PUHCA or
under state laws and regulations respecting the rates or the financial or
organizational regulation of electric utilities or will not be deemed by any
Governmental Authority having jurisdiction to be subject to financial,
organizational or rate regulation as an "electric utility," "electric
corporation," "electrical company," "public utility," "public utility holding
company" or any similar entity under any existing law, rule or regulation of any
Governmental Authority.

      6.    COVENANTS OF PLEDGOR. Pledgor covenants and agrees as follows:

            6.1   Pledgor shall perform and comply with all obligations and
conditions on its part to be performed hereunder, under the Constituent
Agreement and with respect to the Collateral.

            6.2   Pledgor shall, so long as any Obligations shall be
outstanding, defend its title to the Collateral and the interest of
Administrative Agent in the Collateral pledged hereunder against the claims and
demands of all persons whomsoever.

            6.3   Pledgor shall not directly or indirectly create, incur, assume
or suffer to exist any liens on or with respect to any part of the Collateral
(other than the Lien created by this Agreement and other Permitted Liens).

            6.4   Pledgor will not file or authorize or permit to be filed in
any jurisdiction any financing statements under the UCC or any like statement
relating to the Collateral in which Administrative Agent is not named as the
sole secured party.

            6.5   Except as permitted by the Credit Agreement or this Agreement,
Pledgor will not cause, suffer or permit the sale, assignment, conveyance or
other transfer of all or any portion of Pledgor's ownership interest or
interests in the Pledged Portfolio Entity. As used herein, the transfer of an
ownership interest in the Pledged Portfolio Entity includes (i) the sale,
assignment, pledge, hypothecation, transfer or other disposition (voluntarily or
involuntarily, by gift or otherwise, and whether as security or otherwise) of an
equity interest in any Person substantially all of the assets of which consist
directly or indirectly of an interest in the Pledged


                                       7
<PAGE>   514
Portfolio Entity, or (ii) the merger or consolidation of a Person referred to in
clause (i), with another Person.

            6.6   Except as permitted by the Credit Agreement, Pledgor shall not
terminate, modify or amend the Constituent Agreement.

            6.7   Pledgor shall give to Administrative Agent prompt notice of
(i) each material demand or notice received or given by it relating to the
Constituent Agreement; and (ii) any Default, Event of Default or event which
with the giving of notice or the passage of time or both might become an Event
of Default (as "Default" and "Event of Default" are defined in the Constituent
Agreement) under the Constituent Agreement, whether by the Pledged Portfolio
Entity, Pledgor or any other Person, of which Pledgor has knowledge or has
received notice.

            6.8   If Pledgor in its capacity as an owner of the Pledged
Portfolio Entity receives any income or distribution of money or property of any
kind from the Pledged Portfolio Entity other than as permitted hereby or by
Section 7.2 of the Credit Agreement, Pledgor shall hold such income or
distribution as trustee for and shall deliver the same to Administrative Agent.

            6.9   Pledgor will, at all times, keep accurate and complete records
of the Collateral. Pledgor shall permit representatives of Administrative Agent,
upon reasonable prior notice, at any time during normal business hours of
Pledgor to inspect and make abstracts from Pledgor's books and records
pertaining to the Collateral. Upon the occurrence and during the continuation of
any Event of Default, at Administrative Agent's request, Pledgor shall promptly
deliver copies of any and all such records to Administrative Agent.

            6.10  Pledgor shall give Administrative Agent at least 45 days'
notice before it changes the location of its place of business, chief executive
office or state of organization and shall at the expense of the Pledged
Portfolio Entity execute and deliver such instruments and documents as may be
required by Administrative Agent to maintain a prior perfected security interest
in the Collateral.

      7.    REMEDIES UPON EVENT OF DEFAULT.

            7.1   If any Event of Default has occurred and is continuing,
Administrative Agent shall have the right, at its election, but not the
obligation, to do any of the following: (i) in connection with any acceleration
and foreclosure, vote or exercise any and all of Pledgor's rights or powers
under the Constituent Agreement, including any rights or powers to manage or
control the Pledged Portfolio Entity; (ii) demand, sue for, collect or receive
any money or property at any time payable to or receivable by Pledgor on account
of or in exchange for all or any part of the Collateral; (iii) cause any action
at law or suit in equity or other proceeding to be instituted and prosecuted to
collect or enforce any Obligations or rights hereunder or included in the
Collateral, including specific enforcement of any covenant or agreement
contained herein or in the Constituent Agreement, or to foreclose or enforce the
security interest in all or any part of the Collateral granted herein, or to
enforce any other legal or equitable right vested in it by this Agreement or by
law; (iv) sell or otherwise dispose of all or any part of the Collateral or
cause all or any part of the Collateral to be sold or otherwise disposed of in
one or more sales or transactions, at such prices and in such manner as
Administrative Agent may deem appropriate,


                                       8
<PAGE>   515
and for cash or on credit or for future delivery, without assumption of any
credit risk, at any broker's board or at public or private sale, without demand
of performance or notice of intention to sell or of time or place of sale
(except such notice which under applicable law cannot be waived) it being agreed
that Administrative Agent may be a purchaser on behalf of the Banks or on its
own behalf at any such sale and that Administrative Agent, any Bank or any other
Person who may be a bona fide purchaser for value and without notice of any
claims of any or all of the Collateral so sold shall thereafter hold the same
absolutely free from any claim or right of whatsoever kind, including any equity
of redemption, of Pledgor or the Pledged Portfolio Entity, any such demand,
notice or right and equity being hereby expressly waived and released; (v) incur
expenses, including reasonable attorneys' fees, reasonable consultants' fees,
and other costs appropriate to the exercise of any right or power under this
Agreement; (vi) perform any obligation of Pledgor hereunder or under the
Constituent Agreement; (vii) secure the appointment of a receiver for Pledgor
without notice to the Pledged Portfolio Entity or Pledgor; or (viii) exercise
any other or additional rights or remedies granted to a secured party under the
UCC. If, pursuant to applicable law, prior notice of any such action is required
to be given to Pledgor or the Pledged Portfolio Entity, Pledgor and the Pledged
Portfolio Entity hereby acknowledge and agree that the minimum time required by
such applicable law, or if no minimum is specified, of 10 Banking Days, shall be
deemed a reasonable notice period.

            7.2   In addition to the foregoing remedies, Administrative Agent
may, but shall not be obligated to, cure any Event of Default and incur
reasonable fees, costs and expenses in doing so, in which event the Pledged
Portfolio Entity shall immediately reimburse Administrative Agent on demand for
all such fees, costs and expenses, together with interest thereon at the Default
Rate from the date incurred until the date repaid in full.

            7.3   All costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by Administrative Agent in
connection with exercising any remedy provided for herein or at law, curing any
Event of Default or any Constituent Agreement Default, performing any of
Pledgor's agreements contained herein or in the Constituent Agreement or in
respect of any part of the Collateral, together with interest thereon (to the
extent permitted by law) computed at a rate per annum equal to the Default Rate
from the date on which such costs or expenses are incurred to the date of
payment thereof, shall constitute indebtedness secured by this Agreement and
shall be paid by the Pledged Portfolio Entity to Administrative Agent on demand.

            7.4   If Administrative Agent shall decide to exercise its right to
sell any or all of the Collateral, and if in the opinion of counsel for the
Administrative Agent it is necessary to have such Collateral, or that portion
thereof to be sold, registered under the provisions of the Securities Act of
1933, as amended, or otherwise registered or qualified under any federal or
state securities laws or regulations (collectively, the "Securities Laws")
Pledgor and the Pledged Portfolio Entity will execute and deliver, all at
Pledgor's and the Pledged Portfolio Entity's expense, all such instruments and
documents which, in the opinion of Administrative Agent, are necessary to
register or qualify such Collateral, or that portion thereof to be sold, under
the provisions of the Securities Laws. Pledgor and the Pledged Portfolio Entity
will execute and will use best efforts to cause any registration statement
relating thereto to become effective and to remain effective for a period of not
less than six months from the date of the first public offering of such
Collateral, or that portion thereof to be sold, and to make all amendments
thereto and/or


                                       9
<PAGE>   516
to any related prospectus or similar document which, in the reasonable opinion
of Administrative Agent, are necessary, all in conformity with the Securities
Laws applicable thereto. Without limiting the generality of the foregoing, the
Pledged Portfolio Entity agrees to comply with the provisions of the securities
or "Blue Sky" laws of any jurisdiction(s) which Administrative Agent shall
reasonably designate and to make available to its security holders, as soon as
practicable, an earnings statement which will satisfy the provisions of Section
11(a) of the Securities Act of 1933.

            7.5   So long as no Event of Default has occurred and is continuing,
Pledgor reserves the right to exercise all of its rights under the Constituent
Agreement (except as limited by the Credit Documents) and to receive all income
and other distributions from the Collateral (except as limited by the Credit
Documents).

      8.    REMEDIES CUMULATIVE; DELAY NOT WAIVER.

            8.1   No right, power or remedy herein conferred upon or reserved to
Administrative Agent or the Banks is intended to be exclusive of any other
right, power or remedy, and every such right, power and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right,
power and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy. Resort to any or all security now or hereafter held
by Administrative Agent, may be taken concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
nonjudicial proceedings, or both.

            8.2   No delay or omission of Administrative Agent to exercise any
right or power accruing upon the occurrence and during the continuance of any
Event of Default as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein. Every power and remedy given by this Agreement may be exercised from
time to time, and as often as shall be deemed expedient, by Administrative
Agent.

      9.    APPLICATION OF PROCEEDS. Upon the occurrence and during the
continuation of an Event of Default, the proceeds of any sale of or other
realization upon, all or any part of the Collateral shall be applied: first, to
all fees, costs and expenses incurred by and due and owing to Administrative
Agent and the Banks with respect to the Credit Agreement, the other Credit
Documents or the Collateral Documents; second, to accrued and unpaid interest on
the Obligations (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts); third, to the principal
amounts of the Obligations outstanding; fourth, to any other Obligations of the
Pledged Portfolio Entity or Pledgor owing to Administrative Agent or the Banks;
and fifth, to or as directed by Pledgor.

      10.   CERTAIN CONSENTS AND WAIVERS.

            10.1  [INSERT IF OTHER OWNERS OF PLEDGED PORTFOLIO ENTITY: PLEDGOR
HEREBY CONSENTS TO THE EXECUTION, BY THE OTHER PARTNER OR PARTNERS IN THE
PLEDGED PORTFOLIO ENTITY, OF AN AGREEMENT SIMILAR TO THIS AGREEMENT IN FAVOR OF


                                       10
<PAGE>   517
ADMINISTRATIVE AGENT FOR THE BENEFIT OF ADMINISTRATIVE AGENT AND THE BANKS.
PLEDGOR SPECIFICALLY AGREES THAT SUCH OTHER AGREEMENT MAY, AMONG OTHER THINGS,
ASSIGN OR DELEGATE TO ADMINISTRATIVE AGENT RIGHTS TO CURE DEFAULTS UNDER THE
CONSTITUENT AGREEMENT, TO EXERCISE VOTING RIGHTS AND OTHER RIGHTS TO MANAGE OR
CONTROL THE PLEDGED PORTFOLIO ENTITY, AND TO ACT AS SUCH OTHER PARTNER'S
ATTORNEY IN FACT IN A MANNER SIMILAR TO THE ASSIGNMENT AND DELEGATION OF SUCH
RIGHTS PROVIDED HEREIN AND THAT PLEDGOR WILL RECOGNIZE AND ACCEPT SUCH
ASSIGNMENT AND DELEGATION AND THE EXERCISE OF SUCH RIGHTS BY ADMINISTRATIVE
AGENT IN CONNECTION WITH ANY ACTIONS BY OR BUSINESS OF THE PLEDGED PORTFOLIO
ENTITY.]

            10.2  Pledgor hereby waives, to the maximum extent permitted by law
(i) all rights under any law limiting remedies, including recovery of a
deficiency, under an obligation secured by a mortgage or deed of trust on real
property if the real property is sold under a power of sale contained in the
mortgage, and all defenses based on any loss whether as a result of any such
sale or otherwise, of Pledgor's right to recover any amount from any Portfolio
Entity or any other Person, whether by right of subrogation or otherwise; (ii)
all rights under any law to require Administrative Agent to pursue any Portfolio
Entity or any other Person, any security which Administrative Agent may hold, or
any other remedy before proceeding against Pledgor; (iii) all rights of
reimbursement or subrogation, all rights to enforce any remedy that
Administrative Agent or the Banks may have against any Portfolio Entity or any
other Person, and all rights to participate in any security held by
Administrative Agent until the Obligations have been paid and the covenants of
the Credit Documents have been performed in full; (iv) all rights to require
Administrative Agent to give any notices of any kind, including, without
limitation, notices of nonpayment, nonperformance, protest, dishonor, default,
delinquency or acceleration, or to make any presentments, demands or protests,
except as set forth herein or expressly provided in the Credit Agreement; (v)
all rights to assert the bankruptcy or insolvency of any Portfolio Entity or any
other Person as a defense hereunder or as the basis for rescission hereof; (vi)
subject to Section 16 hereof, all rights under any law purporting to reduce
Pledgor's obligations hereunder if the Obligations are reduced; (vii) all
defenses based on the disability or lack of authority of any Portfolio Entity or
any other Person, the repudiation of the Credit Documents by any Portfolio
Entity or any other Person, the failure by Administrative Agent or the Banks to
enforce any claim against any Portfolio Entity or any other Person, or the
unenforceability in whole or in part of any Credit Documents; (viii) all
suretyship and guarantor's defenses generally; (ix) all rights to insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets, redemption or
similar law, or exemption, whether now or at any time hereafter in force, which
may delay, prevent or otherwise affect the performance by Pledgor of its
obligations under, or the enforcement by Administrative Agent of, this
Agreement; (x) any requirement on the part of Administrative Agent or the holder
of any of the Notes to mitigate the damages resulting from any default; and (xi)
except as otherwise specifically set forth herein, all rights of notice and
hearing of any kind prior to the exercise of rights by Administrative Agent upon
the occurrence and during the continuation of an Event of Default to repossess
with judicial process or to replevy, attach or levy upon the Collateral. To the
extent permitted by law, Pledgor waives the posting of any bond otherwise
required of Administrative Agent in connection with any judicial process or
proceeding to obtain possession of, replevy, attach, or levy upon the
Collateral, to enforce any judgment or other security for the Obligations, to
enforce any judgment or other court order entered in favor of Administrative
Agent, or to enforce by specific performance, temporary restraining order,
preliminary or permanent injunction, this Agreement or any other agreement or
document


                                       11
<PAGE>   518
between Pledgor, Administrative Agent and Banks. Pledgor further agrees that
upon the occurrence and during the continuation of an Event of Default under the
Credit Agreement, Administrative Agent may elect to nonjudicially or judicially
foreclose against any real or personal property security it holds for the
Obligations or any part thereof, or to exercise any other remedy against any
Portfolio Entity or any other Person, any security or any guarantor, even if the
effect of that action is to deprive Pledgor of the right to collect
reimbursement from any Portfolio Entity or any other Person for any sums paid by
Pledgor to Administrative Agent or any Bank.

            10.3  If Administrative Agent may, under applicable law, proceed to
realize its benefits under any of the Credit Documents giving Administrative
Agent a Lien upon any Collateral, whether owned by any Portfolio Entity or by
any other Person, either by judicial foreclosure or by nonjudicial sale or
enforcement, Administrative Agent may, at its sole option, determine which of
its remedies or rights it may pursue without affecting any of the rights and
remedies of Administrative Agent under this Agreement. If, in the exercise of
any of such rights and remedies, Administrative Agent shall forfeit any of its
rights or remedies, including any right to enter a deficiency judgment against
any Portfolio Entity or any other Person, whether because of any applicable laws
pertaining to "election of remedies" or the like, Pledgor hereby consents to
such action by Administrative Agent and, to the extent permitted by applicable
law, waives any claim based upon such action, even if such action by
Administrative Agent shall result in a full or partial loss of any rights of
subrogation, indemnification or reimbursement which Pledgor might otherwise have
had but for such action by Administrative Agent or the terms herein. Any
election of remedies which results in the denial or impairment of the right of
Administrative Agent to seek a deficiency judgment against any of the parties to
any of the Credit Documents or Security Documents shall not, to the extent
permitted by applicable law, impair Pledgor's obligation hereunder. In the event
Administrative Agent shall bid at any foreclosure or trustee's sale or at any
private sale permitted by law or the Credit Documents, Administrative Agent may
bid all or less than the amount of the Obligations. To the extent permitted by
applicable law, the amount of the successful bid at any such sale, whether
Administrative Agent or any other party is the successful bidder, shall be
conclusively deemed to be the fair market value of the Collateral and the
difference between such bid amount and the remaining balance of the Obligations
shall be conclusively deemed to be the amount of the Obligations.

      11.   THE PLEDGED PORTFOLIO ENTITY'S CONSENT. The Pledged Portfolio Entity
hereby consents to the assignment of and grant of a security interest in the
Collateral to Administrative Agent and to the exercise by Administrative Agent
of all rights and powers assigned or delegated to Administrative Agent by
Pledgor hereunder, including, without limitation, the rights upon and during an
Event of Default to exercise Pledgor's voting rights and other rights under the
Constituent Agreement to manage or control the Pledged Portfolio Entity.

      12.   ATTORNEY-IN-FACT. Pledgor hereby irrevocably constitutes and
appoints Administrative Agent its true and lawful attorney-in-fact with full
power and authority in the place and stead of Pledgor and in the name of
Pledgor, Administrative Agent or otherwise, from time to time in the
Administrative Agent's discretion to take any action and to execute any
instrument to enforce all rights of Pledgor with respect to the Collateral,
including, without limitation, the right to ask, require, demand, receive and
give acquittance for any and all moneys and claims for money due and to become
due under or arising out of the Collateral; to elect


                                       12
<PAGE>   519
remedies thereunder, to endorse any checks or other instruments or orders in
connection therewith; to vote, demand, receive and enforce Pledgor's rights with
respect to the Collateral; to give appropriate receipts, releases and
satisfactions for and on behalf of and in the name of Pledgor or, at the option
of Administrative Agent, in the name of Administrative Agent, with the same
force and effect as Pledgor could do if this Agreement had not been made; and to
file any claims or take any action or institute any proceedings in connection
therewith which Administrative Agent may reasonably deem to be necessary or
advisable; provided, however, Administrative Agent shall not exercise such
rights unless upon the occurrence and during the continuation of an Event of
Default. This power of attorney is a power coupled with an interest and shall be
irrevocable.

      13.   PERFECTION; FURTHER ASSURANCES.

            13.1  Pledgor agrees that from time to time, at the expense of
Pledgor, Pledgor shall promptly execute and deliver all instruments and
documents, and take all action, that may be reasonably necessary, or that
Administrative Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or intended to be granted hereby or to
enable Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor shall (i) deliver the Collateral or any part thereof to
Administrative Agent, as Administrative Agent may request, accompanied by such
duly executed instruments of transfer or assignment as Administrative Agent may
request, and (ii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments, endorsements or notices, as may
be reasonably necessary or desirable or as Administrative Agent may reasonably
request, in order to perfect and preserve the assignments and security interests
granted or purported to be granted hereby.

            13.2  Pledgor hereby authorizes Administrative Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Pledgor where
permitted by law.

            13.3  Pledgor shall, promptly upon request, provide to
Administrative Agent all information and evidence it may reasonably request
concerning the Collateral to enable Administrative Agent to enforce the
provisions of this Agreement.

            13.4  Pledgor and the Pledged Portfolio Entity shall pay all filing,
registration and recording fees and all refiling, re-registration and
re-recording fees, and all reasonable expenses incident to the execution and
acknowledgment of this Agreement, any assurance, and all federal, state, county
and municipal stamp taxes and other taxes, duties, imports, assessments and
charges arising out of or in connection with the execution and delivery of this
Agreement, any agreement supplemental hereto, any financing statements, and any
instruments of further assurance.

            13.5  To the extent it may do so under applicable law, Pledgor, for
itself, its successors and assigns, agrees that it shall not cast any vote as an
owner in the Pledged Portfolio Entity (i) in favor of the commencement of a
voluntary case or other proceeding seeking liquidation, reorganization,
rehabilitation or other relief with respect to the Pledged Portfolio


                                       13
<PAGE>   520
Entity or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect in any jurisdiction or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of the owners of the
Pledged Portfolio Entity or any substantial part of the Pledged Portfolio
Entity's property, (ii) to authorize the Pledged Portfolio Entity to consent to
any such aforesaid relief or to the appointment of or taking possession by any
such aforesaid official in an involuntary case or other proceeding commenced
against the Pledged Portfolio Entity or (iii) to authorize the Pledged Portfolio
Entity to make a general assignment for the benefit of creditors.

            13.6  Pledgor will take all actions within its power to obtain like
title to and the right to pledge any other property at any time hereafter
pledged by it to Administrative Agent as Collateral hereunder.

            13.7  Pledgor will pay, before any fine, penalty, interest or cost
attaches thereto, all taxes, assessments and other governmental or
non-governmental charges or levies (other than those taxes that it is contesting
in good faith and by appropriate proceedings, and in respect of which it has
established adequate, reserves for such taxes) now or hereafter assessed, levied
against the Collateral pledged by it hereunder (or against the Collateral in
which Pledgor has granted to Administrative Agent a security interest of first
priority) or upon the Liens for taxes and assessments not then delinquent or
subject to a contest and shall retain copies of, and, upon request, permit
Administrative Agent or any Bank to examine receipts showing payment of any of
the foregoing.

      14.   PLACE OF BUSINESS; LOCATION OF RECORDS. Unless Administrative Agent
is otherwise notified under Section 6.10, Pledgor's state of organization is and
will be the state of Delaware and the places of business and chief executive
offices of Pledgor are, and all records of Pledgor concerning the Collateral are
and will be, located at the address set forth on Schedule 4.24 of the Credit
Agreement with respect to Pledgor.

      15.   CONTINUING ASSIGNMENT AND SECURITY INTEREST; TRANSFER OF NOTES. This
Agreement shall create a continuing pledge and assignment of and security
interest in the Collateral and shall (a) remain in full force and effect until
payment in full of the Obligations; (b) be binding upon the Pledged Portfolio
Entity, Pledgor, and their respective successors and assigns; and (c) inure,
together with the rights and remedies of Administrative Agent, to the benefit of
Administrative Agent, the Banks and their respective successors, transferees and
assigns. Without limiting the generality of the foregoing, Administrative Agent
or any of the Banks may assign or otherwise transfer all or any part of or
interest in the Notes or other evidence of indebtedness held by them to any
other Person to the extent permitted by and in accordance with the Credit
Agreement, and such other Person shall thereupon become vested with all or an
appropriate part of the benefits in respect thereof granted to the Banks herein
or otherwise. The release of the security interest in any or all of the
Collateral, the taking or acceptance of additional security, or the resort by
Administrative Agent to any security it may have in any order it may deem
appropriate, shall not affect the liability of any person on the indebtedness
secured hereby.

      16.   TERMINATION OF SECURITY INTEREST. Upon the indefeasible payment and
performance in full of the Obligations, this Agreement and the security interest
and all other


                                       14
<PAGE>   521
rights granted hereby shall terminate and all rights to the Collateral shall
revert to Pledgor. Upon any such termination, Administrative Agent will return
all certificates evidencing ownership interests in the Pledged Portfolio Entity,
and all Ownership Powers executed hereunder, to Pledgor and will, at Pledgor's
expense, execute and, subject to Section 26 hereof, deliver to Pledgor such
documents (including, without limitation, UCC-3 termination statements) as the
Pledged Portfolio Entity or Pledgor shall reasonably request to evidence such
termination.

      17.   SECURITY INTEREST ABSOLUTE. All rights of Administrative Agent and
the Banks and the security interests hereunder, and all obligations of Pledgor
hereunder, shall be absolute and unconditional irrespective of:

            17.1  Any lack of validity or enforceability of the Credit
Agreement, any Credit Documents or any other agreement or instrument relating
thereto;

            17.2  Any change in the time, manner or place of payment of, or in
any other term of the Obligations (including any increase in the amount
thereof), or any other amendment or waiver of or any consent to any departure
from the Credit Agreement or any other Credit Document;

            17.3  Any exchange, surrender, release or non-perfection of any
Collateral, or any release, amendment or waiver of or consent to departure from
any guaranty, for all or any of the Obligations;

            17.4  Any bankruptcy or insolvency of Pledgor or any other Person;
or

            17.5  Any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor or a third party pledgor.

      18.   LIMITATION ON DUTY OF ADMINISTRATIVE AGENT WITH RESPECT TO THE
COLLATERAL. The powers conferred on Administrative Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty on it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for monies actually received by it hereunder,
Administrative Agent shall have no duty with respect to any Collateral.
Administrative Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment that is substantially equivalent to that which
Administrative Agent accords its own property, it being expressly agreed, to the
maximum extent permitted by law, that Administrative Agent shall have no
responsibility for (a) taking any necessary steps to preserve rights against any
parties with respect to any Collateral, but Administrative Agent may do so and
all expenses incurred in connection therewith shall be part of the Obligations
or (b) taking any action to protect against any diminution in value of the
Collateral.

      19.   LIABILITY. Recourse against Pledgor and any other Portfolio Entity
and their respective Affiliates, members, partners, stockholders, officers,
directors and employees under this Agreement shall be limited to the extent
provided in Article 9 of the Credit Agreement.


                                       15
<PAGE>   522
      20.   AMENDMENTS; WAIVERS; CONSENTS. No amendment, modification,
termination or waiver of any provision of this Agreement, or consent to any
departure by Pledgor therefrom, shall in any event be effective without the
written concurrence of Administrative Agent, the Pledged Portfolio Entity and
Pledgor.

      21.   NOTICES. All notices required or permitted under the terms and
provisions hereof shall be in writing and any such notice shall be effective if
given in accordance with the provisions of Section 12.1 of the Credit Agreement.
Notices to Administrative Agent may be given at the address set forth in such
Section 12.1. Notices to Pledgor or the Pledged Portfolio Entity may be given at
the following addresses:

                                    _____________________
                                    [ADDRESS]


or such other address as notified by a party pursuant to the terms hereof.

      22.   FINANCIAL STATUS. Pledgor hereby assumes responsibility for keeping
itself informed of the financial condition of each other Portfolio Entity and
any and all endorsers and/or other guarantors of any instrument or document
evidencing all or any part of the Obligations and of all other circumstances
bearing upon the risk of nonpayment of the Obligations or any part thereof that
diligent inquiry would reveal. Pledgor hereby agrees that Administrative Agent
shall have no duty to advise Pledgor of information known to Administrative
Agent regarding such condition or any such circumstances or of any changes or
potential changes affecting the Collateral. In the event Administrative Agent,
in its discretion, undertakes at any time or from time to time to provide any
such information to Pledgor, Administrative Agent shall be under any no
obligation (i) to undertake any investigation not a part of its regular business
routine, or reasonable commercial lending practices or (iii) to make any other
or future disclosure of such information to any other information to Pledgor.

      23.   MODIFICATION OF OBLIGATIONS. If Administrative Agent shall at any
time or from time to time, with or without the consent of, or notice to,
Pledgor:

            23.1  Change or extend the manner, place or terms of payment of, or
renew or alter all or any portion of, the Obligations;

            23.2  Take any action under or in respect of the Credit Documents in
the exercise of any remedy, power or privilege contained therein or available at
law, equity or otherwise, or waive or refrain from exercising any such remedies,
power or privileges;

            23.3  Amend or modify, in any manner whatsoever, the Credit
Documents;

            23.4  Extend or waive the time for Pledgor's, any other Portfolio
Entity's or any other Person's performance of, or compliance with, any term,
covenant or agreement on its part to be performed or observed under the Credit
Documents, or waive such performance or compliance or consent to a failure of,
or departure from, such performance or compliance;


                                       16
<PAGE>   523
            23.5  Take and hold security or collateral for the payment of the
Obligations, or sell, exchange, release, dispose of, or otherwise deal with, any
property pledged, mortgaged or conveyed, or in which Administrative Agent has
been granted a Lien, to secure any indebtedness associated with the Credit
Documents of Pledgor, any other Portfolio Entity or any other Person to
Administrative Agent;

            23.6  Release or limit the liability of anyone who may be liable in
any manner for the payment of any amounts under the Credit Documents owed by
Pledgor, any other Portfolio Entity or any other Person to Administrative Agent;

            23.7  Modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of Pledgor,
any other Portfolio Entity or any other Person are subordinated to the claims of
Administrative Agent under the Credit Documents; or

            23.8  Apply any sums by whomever paid or however realized to any
amounts owing pursuant to the Credit Documents by Pledgor, any other Portfolio
Entity or any other Person to Administrative Agent in such manner as
Administrative Agent shall determine in its discretion in accordance with the
Credit Documents;

then, subject to Section 16 hereof, neither Administrative Agent nor any Bank
shall incur any liability to Pledgor pursuant hereto as a result thereof and no
such action shall impair or release the obligations of Pledgor under this
Agreement.

      24.   DELIVERY OF COLLATERAL. All certificates or instruments representing
or evidencing the Collateral shall be delivered to and held by or on behalf of
Administrative Agent pursuant hereto. All such certificates or instruments shall
be in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance acceptable to Administrative Agent. Administrative Agent shall have
the right, at any time in its discretion and without prior notice to Pledgor,
following the occurrence and during the continuation of an Event of Default, to
transfer to or to register in the name of Administrative Agent or any of its
nominees any or all of the Collateral and to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations; provided that Administrative
Agent shall promptly notify Pledgor of any such transfer or registration; but
the failure to provide such notice shall not invalidate the effectiveness of
such transfer or registration provided, further, that once such Event of Default
has been cured, Administrative Agent will promptly transfer to or register in
the name or cause its nominees to transfer to or register in the name Pledgor
all such Collateral. In furtherance of the foregoing, Pledgor shall further
execute and deliver to Administrative Agent an ownership power in the form of
Exhibit A attached hereto with respect to the ownership interest(s) of the
Pledged Portfolio Entity owned by Pledgor that are represented by certificates
or other instruments.

      25.   GOVERNING LAW. This Agreement, including all matters of
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the state of New York,
without reference to conflicts of law (other than Section 5-1401 of the New


                                       17
<PAGE>   524
York General Obligations Law), except as required by mandatory provisions of law
and except to the extent that the validity or perfection of the lien and
security interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the state of
New York.

      26.   REINSTATEMENT. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by
Administrative Agent in respect of the Obligations is rescinded or must
otherwise be restored or returned by Administrative Agent upon the insolvency,
bankruptcy, reorganization, liquidation of Pledgor, the Member or any Portfolio
Entity (including the Pledged Portfolio Entity) or upon the dissolution of, or
appointment of any intervenor or conservator of, or trustee or similar official
for, Pledgor, the Member or any Portfolio Entity (including the Pledged
Portfolio Entity) or any substantial part of Pledgor's, the Member's or any
Portfolio Entities' (including the Pledged Portfolio Entity's) assets, or
otherwise, all as though such payments had not been made.

      27.   SEVERABILITY. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.

      28.   SURVIVAL OF PROVISIONS. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the Credit Agreement and the making of the Loans and extensions of
credit thereunder. Notwithstanding anything in this Agreement or implied by law
to the contrary, the agreements, representations and warranties of Pledgor set
forth herein shall terminate only upon payment of the Obligations, and the
termination of all Commitments and other obligations of the Banks under the
Credit Documents.

      29.   HEADINGS DESCRIPTIVE. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

      30.   ENTIRE AGREEMENT. This Agreement, together with any other agreement
executed in connection herewith, is intended by the parties as a final
expression of their agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.

      31.   TIME. Time is of the essence of this Agreement.

      32.   COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.

      33.   ATTORNEYS' FEES. In the event any legal action or proceeding
(including, without limitation, any of the remedies provided for herein or at
law) is commenced to enforce or interpret this Agreement or any provision
hereof, unless Pledgor is the prevailing party, Pledgor shall indemnify each of
Administrative Agent and the Banks for their reasonable attorneys' fees and
other costs and expenses incurred therein, and if a judgment or award is entered
in any such


                                       18
<PAGE>   525
action or proceeding, such reasonable attorneys' fees and other costs and
expenses may be made a part of such judgment or award.

      34.   CONSENT TO JURISDICTION. The Banks and Pledgor agree that any legal
action or proceeding by or against Pledgor or with respect to or arising out of
this Agreement, or any other Credit Document or Security Document may be brought
in or removed to the courts of the State of New York, in and for the County of
New York, or of the United States of America for the Southern District of New
York, as Administrative Agent may elect. By execution and delivery of the
Agreement, the Banks and Pledgor accept, for themselves and in respect of their
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The Banks and Pledgor irrevocably consent to the service of process out
of any of the aforementioned courts in any manner permitted by law. Nothing
herein shall affect the right of Administrative Agent to bring legal action or
proceedings in any other competent jurisdiction, including judicial or
non-judicial foreclosure. Notwithstanding the foregoing, service of process
shall not be deemed served or mailed to Administrative Agent or the Banks until
a copy of all matters to be served have be mailed to Latham & Watkins, 701 B
Street, Suite 2100, San Diego, California 92101, Attn: Andrew Singer or such
other Person as Administrative Agent or the Banks may hereafter designate by
notice given pursuant to Section 12.1 of the Credit Agreement. The Banks and
Pledgor further agree that the aforesaid courts of the State of New York and of
the United States of America shall have exclusive jurisdiction with respect to
any claim or counterclaim of Pledgor based upon the assertion that the rate of
interest charged by the Banks on or under this Agreement, the Loans and/or the
other Credit Documents is usurious. The Banks and Pledgor hereby waive any right
to stay or dismiss any action or proceeding under or in connection with any or
all of the Project, this Agreement or any other Credit Document or Security
Document brought before the foregoing courts on the basis of forum
non-conveniens.

      35.   WAIVER OF JURY TRIAL. PLEDGOR AND ADMINISTRATIVE AGENT HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP AMONG PLEDGOR AND
ADMINISTRATIVE AGENT THAT IS BEING ESTABLISHED. PLEDGOR AND ADMINISTRATIVE AGENT
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. PLEDGOR AND ADMINISTRATIVE AGENT FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       19
<PAGE>   526
            IN WITNESS WHEREOF, each of the undersigned has caused this Pledge
and Security Agreement (Pledged Equity Interests) to be duly executed and
delivered as of the day and year first above written.

                                    ___________________,
                                    a Delaware _______________,
                                    as Pledgor


                                    By:   ____________________________________
                                          Name:  _____________________________
                                          Title: _____________________________


                                    _______________________,
                                    a Delaware ________________,
                                    as Pledged Portfolio Entity


                                    By:   ____________________________________
                                          Name:
                                          Title:




                                    CREDIT SUISSE FIRST BOSTON,
                                    acting through its New York Branch,
                                    as Administrative Agent


                                    By:   ____________________________________
                                          Name:
                                          Title:


                                    By:   ____________________________________
                                          Name:
                                          Title:
<PAGE>   527
                                    EXHIBIT A
                                OWNERSHIP POWER

      FOR VALUE RECEIVED, _____________________, a Delaware ______________,
hereby sells, assigns and transfers unto _______________________ all of its
ownership interest(s) of _________________, a Delaware ___________________,
standing in its name on the books of _______________________, a Delaware
________________________, represented by the following certificate(s): _______,
and irrevocably appoints ___________________ as attorney to transfer the
ownership interest(s) with full power of substitution in the premises.

DATED:   ___________________________         _____________________,
                                             a Delaware ___________________

                                             By:  ______________________________
                                                  Name:
                                                  Title:


In the presence of:
____________________________________
<PAGE>   528
                                                                     Exhibit D-9
                                                             to Credit Agreement



            PLEDGE AND SECURITY AGREEMENT (PLEDGED EQUITY INTERESTS)

                          Dated as of __________, 200__



                                      among


                    ________________________,
                           a Delaware ________________


                    ________________________,
                           a Delaware ________________


                                       and


                           CREDIT SUISSE FIRST BOSTON,
                       acting through its New York Branch
                             as Administrative Agent
<PAGE>   529
                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

1.  Definitions................................................................2
2.  Assignment, Pledge and Grant of Security Interest..........................2
3.  Obligations Secured........................................................3
4.  Events of Default..........................................................3
5.  Representations and Warranties of Pledgor..................................4
6.  Covenants of Pledgor.......................................................7
7.  Remedies Upon Event of Default.............................................8
8.  Remedies Cumulative; Delay Not Waiver.....................................10
9.  Application of Proceeds...................................................10
10. Certain Consents and Waivers..............................................10
11. The Pledged Portfolio Entity's Consent....................................12
12. Attorney-in-Fact..........................................................12
13. Perfection; Further Assurances............................................13
14. Place of Business; Location of Records....................................14
15. Continuing Assignment and Security Interest; Transfer of Notes............14
16. Termination of Security Interest..........................................14
17. Security Interest Absolute................................................15
18. Limitation on Duty of Administrative Agent with Respect to
    the Collateral............................................................15
19. Liability.................................................................15
20. Amendments; Waivers; Consents.............................................16
21. Notices...................................................................16
22. Financial Status..........................................................16
23. Modification of Obligations...............................................16
24. Delivery of Collateral....................................................17
25. Governing Law.............................................................17
26. Reinstatement.............................................................18
27. Severability..............................................................18
28. Survival of Provisions....................................................18
29. Headings Descriptive......................................................18
30. Entire Agreement..........................................................18
31. Time......................................................................18
32. Counterparts..............................................................18
33. Attorneys' Fees...........................................................18
34. Consent to Jurisdiction...................................................19
35. Waiver of Jury Trial......................................................19

EXHIBITS
Exhibit A -Ownership Power


                                       i
<PAGE>   530
                                                             EXHIBIT D-10
                                                             to Credit Agreement

                          FORM OF PORTFOLIO ENTITY NOTE

                              PORTFOLIO ENTITY NOTE

Note Number: ____                                                      [Date]

            FOR VALUE RECEIVED, the undersigned ("Payor") promises to pay to the
order of , a Delaware ("Payee"), on demand, in lawful money of the United States
of America, in immediately available funds and at the appropriate office of the
Payee, the aggregate unpaid principal amount of all loans and advances
heretofore and hereafter made by Payee to Payor as shown either on Schedule A
attached hereto (and any continuation thereof) or in the books and records of
Payee, including loans and advances made by Payee to Payor pursuant to Section
7.14 of the Credit Agreement (as defined below). Capitalized terms used herein
but not otherwise defined herein shall have the meanings ascribed such terms in
the Credit Agreement (the "Credit Agreement") dated as of October 16, 2000 among
________, as Borrower, the financial institutions listed on Exhibit H thereto
(the "Banks"), Credit Suisse First Boston, acting through its New York Branch,
as Lead Arranger and Administrative Agent ("Administrative Agent"), The Bank of
Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of
America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital
LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale,
as Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent.

            The unpaid principal amount hereof from time to time outstanding
shall bear interest at a rate equal to the rate as may be agreed upon from time
to time by Payor and Payee. Interest shall be due and payable at such times as
may be agreed upon from time to time by Payor and Payee. Upon demand for payment
of any principal amount hereof, accrued but unpaid interest on such principal
amount shall also be due and payable. Interest shall be paid in lawful money of
the United States of America and in immediately available funds. Interest shall
be computed for the actual number of days elapsed on the basis of a year
consisting of 365 or 366 days, as the case may be.

            Payor hereby waives presentment, demand, protest and notice of any
kind. No failure to exercise, and no delay in exercising, any rights hereunder
on the part of the holder hereof shall operate as a waiver of such rights.

            This Portfolio Entity Note has been pledged by Payee to
Administrative Agent for the benefit of the Banks, as security for Payee's
Obligations under the Credit Documents to which Payee is a party. Payor
acknowledges and agrees that Administrative Agent may exercise all the rights of
Payee under this Portfolio Entity Note and will not be subject to any abatement,
reduction, recoupment, defense, setoff or counterclaim available to Payor. Payor
and Payee each
<PAGE>   531
agrees that until Payee's Obligations under the Credit Documents to which Payee
is a party have been performed and paid in full and the Credit Documents have
been terminated neither Payor nor Payee shall amend, modify, supplement or
waiver any provision of this Portfolio Entity Note.

            Payee agrees that any and all claims of Payee against Payor or any
endorser of this Portfolio Entity Note, or against any of their respective
properties, shall be subordinate and subject in right of payment to the prior
performance and payment, in full and in cash, of all Obligations of Payor to
Administrative Agent pursuant to the Credit Documents to which Payor is a party;
provided, that Payor may make payments to Payee at any time or times when Payor
does not have any outstanding Obligations under the Credit Documents to which
Payor is a party which are then due and payable; provided, further, that all
such payments shall be received by Payee subject to the provisions of the Credit
Documents. Notwithstanding any right of Payee to ask, demand, sue for, take or
receive any payment from Payor, all rights, liens and security interests of
Payee, whether now or hereafter arising and howsoever existing, in any assets of
Payor shall be and hereby are subordinated to the rights of Administrative Agent
in those assets.

            If all or any part of the assets of Payor, or the proceeds thereof,
are subject to any distribution, division or application to the creditors of
Payor, whether partial or complete, voluntary or involuntary, and whether by
reason of liquidation, bankruptcy, arrangement, receivership, assignment for the
benefit of creditors or any other action or proceeding, or if the business of
Payor is dissolved or if (except as expressly permitted by the Credit Documents)
substantially all of the assets of Payor are sold, then, and in any such event,
any payment or distribution of any kind or character, either in cash, securities
or other investment property or any other property whatsoever, which shall be
payable or deliverable upon or with respect to any Debt of Payor to Payee
("Payor Indebtedness") shall be paid or delivered directly to Administrative
Agent for application on any of the Obligations of Payor pursuant to the Credit
Documents to which Payor is a party, due or to become due, until such
Obligations shall have first been fully performed and paid. Payee irrevocably
authorizes and empowers Administrative Agent to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
make and present for and on behalf of Payee such proofs of claim and take such
other action, in Administrative Agent's own name or in the name of Payee or
otherwise, as Administrative Agent may deem necessary or advisable for the
enforcement of this Portfolio Entity Note. Administrative Agent may vote such
proofs of claim in any such proceeding, receive and collect any and all
dividends or other payments or disbursements made on Payor Indebtedness in
whatever form the same may be paid or issued and apply the same on account of
any of Payor's Obligations pursuant to the Credit Documents to which Payor is a
party.

            Recourse under this Note shall be limited as provided in Article 9
of the Credit Agreement.

            THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PORTFOLIO
ENTITY NOTE AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
SUBORDINATED PROMISSORY NOTE, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR
OTHERWISE, SHALL BE GOVERNED


                                       2
<PAGE>   532
BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE
STATE OF NEW YORK.

                            [Signature Page Follows]


                                       3
<PAGE>   533
            IN WITNESS WHEREOF, Payor has caused this Portfolio Entity Note to
be executed and delivered by its proper and duly authorized officer as of the
date set forth above.

                                    "PAYOR"

                                    [NAME]

                                    By_______________________________________
                                    Name_____________________________________
                                    Title:___________________________________


                                       4
<PAGE>   534
                                                                      SCHEDULE A
                                                                      ----------


                                  TRANSACTIONS

                                       ON

                              PORTFOLIO ENTITY NOTE


<TABLE>
<CAPTION>
                                                Outstanding
                                 Amount of       Principal
                Amount of        Principal      Balance from
                 Advance           Paid        Payor to Payee      Notation
    Date        This Date        This Date       This Date          Made By
--------------------------------------------------------------------------------
<S>             <C>              <C>           <C>                 <C>
--------------------------------------------------------------------------------

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</TABLE>

                                       5
<PAGE>   535
                                   ENDORSEMENT


            FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ___________________________ all of its right, title and interest in
and to the Portfolio Entity Note dated _______________, made by _______________
_____________________________________, and payable to the undersigned. This
endorsement is intended to be attached to the Portfolio Entity Note and, when so
attached, shall constitute an endorsement thereof.

            Dated:  ________________



                              ____________________________________________,
                              ___, a Delaware __________

                              By: _____________________________
                                  Name:
                                  Title:







<PAGE>   536

                                                             EXHIBIT E-1
                                                             to Credit Agreement



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


                                     FORM OF
                              CONSENT AND AGREEMENT
                                  [(CONTRACT)]


                           Dated as of _________, 200_

                                       by

                               [CONTRACTING PARTY]


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

<PAGE>   537

                          FORM OF CONSENT AND AGREEMENT


         This FORM OF CONSENT AND AGREEMENT (this "Consent"), dated as of
___________, 200_ is executed by [CONTRACTING PARTY], a _______________
corporation (the "Undersigned"), and [NAME OF RELEVANT PROJECT OWNER OR TURBINE
OWNER], a Delaware [TYPE OF ENTITY] ("Owner"), for the benefit of CREDIT SUISSE
FIRST BOSTON, acting through its New York Branch, as Administrative Agent
("Administrative Agent") for the Banks under the Credit Agreement (as defined
below).

                                    RECITALS

         A. Calpine Construction Finance Company II, LLC, a Delaware limited
liability company ("Borrower"), has entered into that certain Credit Agreement,
dated as of October 16, 2000 (the "Credit Agreement"), by and among Borrower,
the financial institutions listed on Exhibit H thereto (the "Banks"), Credit
Suisse First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. Unless otherwise defined, all terms used herein
which are defined in the Credit Agreement, shall have their respective meanings
as used therein.

         B. The Undersigned and Owner have entered into that certain [CONTRACT]
dated as of ________, 200_ (as amended, supplemented or modified from time to
time in accordance with its terms and the terms hereof, the "Contract"), with
respect to the [NAME OF PROJECT] Project (the "Project"). [IF CONTRACT ENTERED
INTO BY A TURBINE OWNER, THIS RECITAL AND OTHER RELEVANT PROVISIONS TO BE
AMENDED ACCORDINGLY]

         C. [IF PROJECT OWNER CONSENT] [OWNER AND ADMINISTRATIVE AGENT ON BEHALF
OF THE BANKS HAVE ENTERED INTO THE PROJECT OWNER GUARANTY DATED AS OF _________,
200__ (THE "GUARANTY") PURSUANT TO WHICH OWNER HAS GUARANTEED THE OBLIGATIONS OF
EACH OF THE OTHER PORTFOLIO ENTITIES UNDER THE CREDIT DOCUMENTS, INCLUDING
BORROWER'S OBLIGATIONS UNDER THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS
TO WHICH BORROWER IS A PARTY.

         D. PURSUANT TO THE PROJECT/TURBINE OWNER SECURITY AGREEMENT DATED AS OF
_____________, 200__ (THE "SECURITY AGREEMENT"), BETWEEN OWNER AND
ADMINISTRATIVE AGENT, OWNER HAS ASSIGNED ITS INTEREST UNDER THE CONTRACT TO
ADMINISTRATIVE AGENT ON BEHALF OF THE BANKS AS SECURITY FOR OWNER'S OBLIGATIONS
UNDER THE GUARANTY AND THE OTHER CREDIT DOCUMENTS TO WHICH IT IS A PARTY.]


<PAGE>   538

[IF TURBINE OWNER CONSENT] [PURSUANT TO THE PROJECT/TURBINE OWNER SECURITY
AGREEMENT DATED AS OF _____________, 200__ (THE "SECURITY AGREEMENT"), BETWEEN
OWNER AND ADMINISTRATIVE AGENT, OWNER HAS ASSIGNED ITS INTEREST UNDER THE
CONTRACT TO ADMINISTRATIVE AGENT ON BEHALF OF THE BANKS AS SECURITY FOR THE
OBLIGATIONS OF EACH OF THE OTHER PORTFOLIO ENTITIES UNDER THE CREDIT DOCUMENTS,
INCLUDING BORROWER'S OBLIGATIONS UNDER THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS TO WHICH BORROWER IS A PARTY.]

[IF CONTRACT ENTERED INTO BY AN EQUIPMENT FINANCE COMPANY, THIS RECITAL AND
OTHER RELEVANT PROVISIONS TO BE AMENDED ACCORDINGLY]

                                    AGREEMENT

         NOW THEREFORE, the Undersigned hereby agrees as follows:

         1. The Undersigned acknowledges receipt of the Security Agreement and
consents to the Owner's transfer, assignment, grant of a security interest and
all other provisions described therein, and agrees with Administrative Agent for
the benefit of the Banks as follows:

                  (a) Administrative Agent shall be entitled (but not obligated)
to exercise all rights and to cure any defaults of Owner under the Contract.
Upon receipt of notice from Administrative Agent, the Undersigned agrees to
accept such exercise and cure by Administrative Agent and to render all
performance due by it under the Contract and this Consent to the Banks. The
Undersigned agrees to make all payments to be made by it under the Contract
directly to Administrative Agent for the benefit of the Banks upon receipt of
Administrative Agent's written instructions.

                  (b) The Undersigned will not, without the prior written
consent of Administrative Agent (such consent not to be unreasonably withheld),
(i) cancel or terminate the Contract or suspend performance of its services
thereunder except as provided in the Contract and in accordance with paragraph
1(c) hereof, or consent to or accept any cancellation, termination or suspension
thereof by Owner, (ii) sell, assign or otherwise dispose (by operation of law or
otherwise) of any part of its interest in the Contract, or (iii) amend or modify
the Contract in any material respect. The Undersigned agrees to deliver
duplicates or copies of all notices of default delivered under or pursuant to
the Contract to Administrative Agent promptly upon receipt or delivery thereof.

                  (c) The Undersigned will not terminate the Contract on account
of any default or breach of Owner thereunder without written notice to
Administrative Agent and first providing to Administrative Agent (i) thirty (30)
days from the date notice of default or breach is delivered to Administrative
Agent to cure such default if such default is the failure to pay amounts to the
Undersigned which are due and payable under the Contract or (ii) a reasonable
opportunity, but not fewer than ninety (90) days, to cure such breach or default
if the breach or default cannot be cured by the payment of money to the
Undersigned so long as Administrative Agent or its designee shall have commenced
to cure the breach or default within such ninety (90)-day period and thereafter
diligently pursues such cure to completion and continues to perform any monetary
obligations under the Contract


                                       2
<PAGE>   539

and all other obligations under the Contract are performed by Owner or
Administrative Agent. If possession of the Project is necessary to cure such
breach or default, and Administrative Agent or its designee(s) or assignee(s)
declare Owner in default and commence foreclosure proceedings, Administrative
Agent or its designee(s) or assignee(s) will be allowed a reasonable period to
complete such proceedings. If Administrative Agent or its designee(s) or
assignee(s) are prohibited by any court order or bankruptcy or insolvency
proceedings from curing the default or from commencing or prosecuting
foreclosure proceedings, the foregoing time periods shall be extended by the
period of such prohibition. The Undersigned consents to the transfer of Owner's
interest under the Contract to the Banks or any of them or a purchaser or
grantee at a foreclosure sale by judicial or nonjudicial foreclosure and sale or
by a conveyance by Owner in lieu of foreclosure and agrees that upon such
foreclosure, sale or conveyance, the Undersigned shall recognize the Banks or
any of them or other purchaser or grantee as the applicable party under the
Contract (provided that such Banks or purchaser or grantee assumes the
obligations of Owner under the Contract).

                  (d) In the event that the Contract is rejected by a trustee or
debtor-in-possession in any bankruptcy or insolvency proceeding, or if the
Contract is terminated for any reason other than a default which could have been
but was not cured by Administrative Agent as provided in paragraph 1(c) above,
and if, within forty-five (45) days after such rejection or termination, the
Banks or their successors or assigns shall so request, the Undersigned will
execute and deliver to the Banks a new Contract, which Contract shall be on the
terms and conditions as the original Contract for the remaining term of the
Contract before giving effect to such termination.

                  (e) In the event the Banks or their designee(s) or assignee(s)
elect to perform Owner's obligations under the Contract or to enter into a new
Contract as provided in subparagraph (c) or (d) respectively above, the Banks,
their designee(s) and assignee(s), shall have no personal liability to the
Undersigned for the performance of such obligations, and the sole recourse of
the Undersigned in seeking the enforcement of such obligations shall be to such
parties' interest in the Project.

                  (f) In the event the Banks or their designee(s) or assignee(s)
succeed to Owner's interest under the Contract or enter into a new Contract, the
Banks or their designee(s) or assignee(s) shall cure any defaults for failure to
pay amounts owed under the Contract, but shall not otherwise be required to
perform or be subject to any defenses or offsets by reason of any of Owner's
other obligations under the Contract that were unperformed at such time. The
Banks shall have the right to assign all or a pro rata interest in the Contract
or a new Contract entered into pursuant to subparagraph (d) to [IF CONSENT
RELATED TO A FUNDED PROJECT: a person or entity to whom the Project is
transferred][IF CONSENT RELATED TO A TURBINE FUNDING: any person or entity],
provided such transferee assumes the obligations of Owner (or the Banks) under
the Contract. Upon such assignment, Administrative Agent and, if applicable, the
Banks (including their Administrative Agents and employees) shall be released
from any further liability thereunder to the extent of the interest assigned.

                  (g) The warranties provided by the Undersigned under the
Contract shall continue in full force and effect (until the expiration of the
warranty periods set forth in the


                                       3
<PAGE>   540

Contract) in the event that the Banks or their designee(s) or assignee(s)
succeed to Owner's interest in the Contract (whether by foreclosure, sale or
other assignment) and upon the further assignment or sale of the Contract by the
Banks or their designee(s) or assignee(s).

                  [(h) The Undersigned hereby assigns to Owner (and Owner's
assigns) all its interest in any subcontracts and purchase orders in excess of
$____________ now existing or hereinafter entered into by the Undersigned for
performance of any part of the Undersigned's obligations under the Contract (the
"Subcontracts"). Such assignment shall be effective only upon the occurrence of
a breach or default (after the expiration of any applicable cure period) by the
Undersigned under the Contract or upon the termination of the Contract, and then
only as to those Subcontracts which Owner (or its assigns) at such time accepts
in writing. The Undersigned hereby further assigns to Owner (and Owner's
assigns) all of its rights with respect to any warranties under all
Subcontracts. Each Subcontract hereinafter entered into by the Undersigned shall
contain a consent by the subcontractor thereunder to the foregoing assignments
set forth in this Section 1(h).]

         2. The Undersigned hereby represents and warrants that:

                  (a) The execution, delivery and performance by the Undersigned
of the Contract and this Consent has been duly authorized by all necessary
corporate action, and does not and will not require any further consents or
approvals which have not been obtained, or violate any provision of any law,
regulation, order, judgment, injunction or similar matters or breach any
agreement presently in effect with respect to or binding on the Undersigned;

                  (b) This Consent and the Contract are legal, valid and binding
obligations of the Undersigned, enforceable against the Undersigned in
accordance with their respective terms;

                  (c) All government approvals necessary for the execution,
delivery and performance by the Undersigned of its obligations under the
Contract have been obtained and are in full force and effect;

                  (d) As of the date hereof, the Contract is in full force and
effect and has not been amended, supplemented or modified;

                  (e) Owner has fulfilled all of its obligations under the
Contract, and there are no breaches or unsatisfied conditions presently existing
(or which would exist after the passage of time and/or giving of notice) that
would allow the Undersigned to terminate the Contract; and

                  (f) The Contract constitutes the only agreement between the
Undersigned and Owner with respect to the matters and interests described
therein.

         3. [THE UNDERSIGNED ACKNOWLEDGES THAT OWNER HAS SUCCEEDED BY ASSIGNMENT
TO THE INTERESTS, RIGHTS, DUTIES, OBLIGATIONS AND LIABILITIES OF ______________
IN THE CONTRACT, AND HEREBY CONSENTS TO SUCH ASSIGNMENT.]


                                       4
<PAGE>   541

         4. All Notices required or permitted hereunder shall be in writing and
shall be effective (a) upon receipt if hand delivered, (b) upon receipt if sent
by facsimile and (c) if otherwise delivered, upon the earlier of receipt or two
(2) Banking Days after being sent registered or certified mail, return receipt
requested, with proper postage affixed thereto, or by private courier or
delivery service with charges prepaid, and addressed as specified below:

                           If to the Undersigned:

                           ______________________________
                           ______________________________
                           ______________________________

                           Telecopy No:  ________________
                           Telephone No:  _______________

                           If to Administrative Agent:

                           Credit Suisse First Boston,
                           New York Branch
                           Eleven Madison Avenue
                           New York, NY 10010-3629
                           Attn: Portfolio Management
                           Telecopy No.:  (212) 325-9126
                           Telephone No.: (212) 325-8321

                           If to Owner:

                           [NAME OF OWNER]
                           [REGIONAL OFFICE]
                           Attn:  Asset Optionization
                           Telecopy No:  ________________
                           Telephone No:  _______________

                           [NAME OF OWNER]
                           c/o Calpine Corporation
                           50 W. San Fernando Street, 5th Floor
                           San Jose, CA  95113
                           Attn:  Asset Management
                           Telecopy No: (408) 995-0505
                           Telephone No: (408) 995-5115

         5. This Consent shall be binding upon and inure to the benefit of the
Undersigned, the Owner, the Banks and their respective successors, transferees
and assigns (including without limitation, any entity that refinances all or any
portion of the Obligations under the Credit Agreement). The Undersigned agrees
to confirm such continuing obligation in writing upon the reasonable request of
Owner, the Banks or any of their respective successors,


                                       5
<PAGE>   542

transferees or assigns. No termination, amendment, variation or waiver of any
provisions of this Consent shall be effective unless in writing and signed by
the Undersigned, Administrative Agent and Owner. This Consent shall be governed
by the internal laws of the State of [PROJECT LOCATION], without reference to
principles of conflict of laws.

         6. This Consent may be executed in one or more duplicate counterparts,
and when executed and delivered by all the parties listed below, shall
constitute a single binding agreement.

         7. All references in this Consent to any document, instrument or
agreement (a) shall include all exhibits, schedules and other attachments
thereto, (b) shall include all documents, instruments or agreements issued or
executed in replacement thereof, and (c) shall mean such document, instrument or
agreement, or replacement or predecessor thereto, as amended, modified and
supplemented from time to time and in effect at any given time.


                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       6
<PAGE>   543

         IN WITNESS WHEREOF, the Undersigned by its officer thereunto duly
authorized, has duly executed this Consent as of the date first set forth above.


                                        [THE UNDERSIGNED] a _______________
                                        corporation


                                        By _________________________________
                                           Name:
                                           Title:


Accepted and agreed to:

CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
as Administrative Agent for Banks


By: ___________________________
    Name:
    Title:

By: ___________________________
    Name:
    Title:


[NAME OF PROJECT/TURBINE OWNER]
[TYPE OF ENTITY]


By: ___________________________
    Name:
    Title:


                                       7
<PAGE>   544

                                                             EXHIBIT F-1
                                                             to Credit Agreement

                         BORROWER'S CLOSING CERTIFICATE

         Pursuant to the Credit Agreement (as defined below), the undersigned
hereby certifies on this __ day of _____ 2000 to Credit Suisse First Boston,
acting through its New York Branch, as Administrative Agent under that certain
Credit Agreement dated as of October 16, 2000 (the "Credit Agreement") among
Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto, (the "Banks"), Credit Suisse First Boston, acting through its New
York Branch, as Lead Arranger and Administrative Agent ("Administrative Agent"),
The Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner,
Banc of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, that:

         1. No Portfolio Entity is and, to Borrower's knowledge, no other party
to any Operative Document in existence as of the Closing Date is, or, but for
the passage of time or the giving of notice or both will be, in breach of any
obligation thereunder which could reasonably expected to have a Material Adverse
Effect on Borrower.

         2. Each representation and warranty of the Member, Calpine and the
Portfolio Entities under the Credit Documents is true and correct in all
material respects as of the Closing Date.

         3. There exists no Event of Default or Inchoate Default or, with
respect to any Initial Project, Non-Fundamental Project Default or
Non-Fundamental Project Inchoate Default as of the Closing Date.

         4. The conditions precedent set forth in Section 3.1 of the Credit
Agreement have been satisfied or have been waived in writing by Administrative
Agent with the consent of the Banks.

         5. The copies of the annual and quarterly financial statements of the
Portfolio Entities delivered by Borrower pursuant to Section 3.1.12 of the
Credit Agreement are true and correct in all material respects and are the most
recent annual and quarterly financial statements of the Member, Calpine and the
Portfolio Entities. As of the Closing Date, no material adverse change in the
consolidated assets, liabilities, operations or financial condition of the
Member, Calpine and the Portfolio Entities has occurred from those set forth on
such financial statements, or the balance sheet, as the case may be.

         All capitalized terms used herein which are defined in the Credit
Agreement shall have the meaning given to them in the Credit Agreement unless
otherwise defined herein.


<PAGE>   545

         IN WITNESS WHEREOF, the undersigned has duly executed this certificate
on behalf of the Borrower as of the date first written above.

                                CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                                a Delaware limited liability company


                                By: _________________________________
                                    Name:
                                    Title:

<PAGE>   546


                                                             EXHIBIT F-2
                                                             to Credit Agreement

                     BORROWER'S PROJECT FUNDING CERTIFICATE

         Pursuant to the Credit Agreement (as defined below), the undersigned
hereby certifies on this __ day of _____ 2000 to Credit Suisse First Boston,
acting through its New York Branch, as Administrative Agent under that certain
Credit Agreement dated as of October 16, 2000 (the "Credit Agreement") among
Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto, (the "Banks"), Credit Suisse First Boston, acting through its New
York Branch, as Lead Arranger and Administrative Agent ("Administrative Agent"),
The Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner,
Banc of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, that:

         1. Attached hereto are true, complete and correct copies of each
Project Document in existence with respect to the _______ Project (the
"Project") as of the Funding Date, and any supplements or amendments thereto,
and such Project Documents are in full force and effect in accordance with their
terms and all conditions precedent to the respective parties' performances
thereunder required to have been performed by the Funding Date have been
satisfied.

         2. No Portfolio Entity is and, to Borrower's knowledge, no other party
to any Operative Document in existence as of the Funding Date is, or, but for
the passage of time or the giving of notice or both will be, in breach of any
obligation thereunder which is reasonably expected to have Material Adverse
Effect on Borrower or the Project.

         3. Each representation and warranty of Borrower, the Portfolio Entities
with respect to the Project, the Member, Calpine and the Non-Affiliated Parents
with respect to the Project, if any, and under the Credit Documents and each
representation and warranty of Borrower and the Project Owner with respect to
such Project under the other Operative Documents, in each case with respect to
itself or the Project, are true and correct in all material respects as if made
on the Funding Date, unless such representation or warranty expressly relates
solely to another time.

         4. There exists no Event of Default or Inchoate Default or, with
respect to any Initial Project or Funded Subsequent Project, Non-Fundamental
Project Default or Non-Fundamental Project Inchoate Default as of the Closing
Date.

         5. The conditions precedent set forth in Section [3.2] [3.3] of the
Credit Agreement have been satisfied or have been waived in writing by
[ADMINISTRATIVE AGENT WITH THE CONSENT OF THE BANKS][THE TECHNICAL COMMITTEE].


<PAGE>   547


         6. The copies of the annual and quarterly financial statements of the
Project Owner and the Affiliated Major Project Participants delivered by
Borrower pursuant to Section [3.2.22] [3.3.23] of the Credit Agreement are true
and correct in all material respects and are the most recent annual and
quarterly financial statements of the relevant Project Owner and the Affiliated
Major Project Participants. As of the Funding Date, no material adverse change
in the consolidated assets, liabilities, operations or financial condition of
such Persons has occurred from those set forth on such financial statements or
balance sheet, as the case may be.

         7. Each Applicable Permit listed in Part 1(A) of the Permit Schedule
with respect to the Project is in full force and effect, and except as disclosed
therein, is not subject to appeals or further proceedings or to any unsatisfied
condition that could reasonably be expected to have a Material Adverse Effect on
Borrower or the Project. Borrower has no reason to believe that any Permit
identified in Part II(A) of such Permit Schedule will be obtained at a cost
inconsistent with the applicable Project Budget or with material difficulty or
delay by the time they are needed except where there exists alternative
solutions (the expected cost of which is reflected in the Project Budget) which
will eliminate the need for such Permit.

         All capitalized terms used herein which are defined in the Credit
Agreement shall have the meaning given to them in the Credit Agreement unless
otherwise defined herein.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       2
<PAGE>   548

         IN WITNESS WHEREOF, the undersigned has duly executed this certificate
on behalf of the Borrower as of the date first written above.

                                 CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                                 a Delaware limited liability company


                                 By: ________________________________
                                     Name:
                                     Title:


<PAGE>   549

                                                             EXHIBIT F-3
                                                             to Credit Agreement

                     BORROWER'S TURBINE FUNDING CERTIFICATE

         Pursuant to the Credit Agreement (as defined below), the undersigned
hereby certifies on this __ day of _____ 2000 to Credit Suisse First Boston,
acting through its New York Branch, as Administrative Agent under that certain
Credit Agreement dated as of October 16, 2000 (the "Credit Agreement") among
Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto, (the "Banks"), Credit Suisse First Boston, acting through its New
York Branch, as Lead Arranger and Administrative Agent ("Administrative Agent"),
The Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner,
Banc of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.)
Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent and TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, that:

         1. Attached hereto is a true, complete and correct copy of the Turbine
Purchase Contract with respect to the relevant Turbine (the "Turbine"), and any
supplements or amendments thereto, and such Turbine Purchase Contract is in full
force and effect in accordance with its terms and all conditions precedent to
the parties' performances thereunder required to have been performed by the
Turbine Funding Date have been satisfied.

         2. No Portfolio Entity is and, to Borrower's knowledge, no other party
to any Operative Document in existence as of the Turbine Funding Date is, or,
but for the passage of time or the giving of notice or both will be, in breach
of any obligation thereunder which is reasonably expected to have Material
Adverse Effect on Borrower. Neither the Turbine Owner with respect to the
Turbine nor, to Borrower's knowledge, the relevant Turbine Purchase Contractor
is or, but for the passage of time or giving of notice or both will be, in the
breach of any material obligation under the relevant Turbine Purchase Contract.

         3. Each representation and warranty of the Member, Calpine and the
Portfolio Entities with respect to such Turbine under the Credit Documents and
each representation and warranty of the Borrower and Turbine Owner with respect
to such Turbine under the relevant Turbine Purchase Contract, in each case with
respect to itself or the Turbine, shall be true and correct in all material
respects as if made on the Turbine Funding Date, unless such representation or
warranty expressly relates solely to another time.

         4. There exists no Event of Default or Inchoate Default.

         5. The conditions precedent set forth in Section 3.5 of the Credit
Agreement have been satisfied or have been waived in writing by Administrative
Agent with the consent of the Banks.

<PAGE>   550

         6. The Turbine is owned by _____, the Turbine Owner with respect to the
Turbine, and the Turbine Delivery Date with respect to the Turbine is _____.

         All capitalized terms used herein which are defined in the Credit
Agreement shall have the meaning given to them in the Credit Agreement unless
otherwise defined herein.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       2
<PAGE>   551

         IN WITNESS WHEREOF, the undersigned has duly executed this certificate
on behalf of the Borrower as of the date first written above.

                                  CALPINE CONSTRUCTION FINANCE COMPANY II, LLC,
                                  a Delaware limited liability company


                                  By: ________________________________
                                      Name:
                                      Title:


<PAGE>   552

                                                             EXHIBIT F-4
                                                             to Credit Agreement
                           [MARSH USA INC. LETTERHEAD]

______, 200_

Credit Suisse First Boston,
New York Branch,
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

                  Re:  The _______ Project (the "Project")

Ladies and Gentlemen:

         The undersigned, a duly authorized officer of Marsh USA, Inc., a
Delaware corporation ("Insurance Consultant"), hereby provides this letter to
you in accordance with Section [3.2.10] [3.3.11] of that certain Credit
Agreement dated as of October 16, 2000 (the "Credit Agreement"), among Calpine
Construction Finance Company II, LLC, a Delaware limited liability company, as
Borrower ("Borrower"), the financial institutions listed on Exhibit H thereto
(the "Banks"), Credit Suisse First Boston, acting through its New York Branch,
as Lead Arranger and Administrative Agent ("Administrative Agent"), The Bank of
Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of
America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital
LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale,
as Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. Except as provided herein, all
terms used herein which are defined in the Credit Agreement shall have the
meanings given therein.

         Insurance Consultant acknowledges that pursuant to the Credit
Agreement, the Banks will be providing financing to Borrower for, among other
things, the construction of the Project and in so doing will be relying on this
certificate and the Insurance Consultant's report dated _________. Such report
represents Insurance Consultant's professional opinion with respect to the
Project as of such date and as of the date hereof. Attached hereto as Exhibit A
is a true, correct and complete list of the coverages which have been obtained
to date in connection with the Project as evidenced by certificates of insurance
and cover notes supplied by Borrower.

         Upon delivery of the original certificates of insurance, copies of
which are attached as Appendix A, Borrower will have provided satisfactory
evidence of compliance with the provisions of Exhibit K to the Credit Agreement.


                                         Sincerely,


                                         [MARSH USA, INC.]

<PAGE>   553

                                                             EXHIBIT F-5
                                                             to Credit Agreement

                           [R.W. BECK INC. LETTERHEAD]

______, 2000

Credit Suisse First Boston,
New York Branch,
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

         Re:      The Initial Projects

Ladies and Gentlemen:

                  The undersigned, a duly authorized representative of R.W.
Beck, Inc., a Washington corporation ("Independent Engineer"), hereby provides
this letter to you in accordance with Section 3.1.21 of that certain Credit
Agreement dated as of October 16, 2000 (the "Credit Agreement"), among Calpine
Construction Finance Company II, LLC, a Delaware limited partnership, as
Borrower ("Borrower"), the financial institutions listed on Exhibit H thereto,
Credit Suisse First Boston, acting through its New York Branch, as Lead Arranger
and Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as
Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities
LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger
and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. Except as provided herein, all terms used herein
which are defined in the Credit Agreement shall have the meanings given therein.

                  R.W. Beck, Inc. has been retained by the Lead Arrangers as the
Independent Engineer and it has prepared an Independent Engineer's Report dated
[_________, 2000] addressing the feasibility of the Initial Projects (the
"Independent Engineer's Report").

                  The Independent Engineer's Report was prepared pursuant to the
scope of services under our Professional Services Agreement with the Lead
Arrangers and those services were provided in accordance with generally accepted
engineering practices.

                  In connection with the preparation of the Independent
Engineer's Report, personnel of the Independent Engineer have participated in
meetings or telephone discussions with representatives of Calpine Corporation
and it's affiliates, Borrower, counsel to Borrower, the Lead Arrangers and
counsel to the Lead Arrangers in regard to the Initial Projects.


<PAGE>   554

                  This letter is solely for the information of, and assistance
to, the Lead Arrangers in conducting and documenting their investigation of the
matters covered by the Independent Engineer's Report in connection with the
Initial Projects and is not to be used, circulated, quoted or otherwise referred
to within or without the lending group for any purpose, nor is it to be referred
to in whole or in part in any other document, except that reference may be made
to it in the Credit Agreement or in any list of closing documents pertaining to
the Initial Projects.



                                               Sincerely,


                                               [R.W. BECK INC.]

<PAGE>   555

                                                             EXHIBIT F-6
                                                             to Credit Agreement

                           [R.W. BECK INC. LETTERHEAD]

______, 200_

Credit Suisse First Boston,
New York Branch,
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

         Re:      The ____ Project (the "Project")

Ladies and Gentlemen:

                  The undersigned, a duly authorized representative of R.W.
Beck, Inc., a Washington corporation ("Independent Engineer"), hereby provides
this letter to you in accordance with Section [3.2.12] [3.3.13] of that certain
Credit Agreement dated as of October 16, 2000 (the "Credit Agreement"), among
Calpine Construction Finance Company II, LLC, a Delaware limited liability
company, as Borrower ("Borrower"), the financial institutions listed on Exhibit
H thereto, Credit Suisse First Boston, acting through its New York Branch, as
Lead Arranger and Administrative Agent ("Administrative Agent"), The Bank of
Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of
America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital
LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale,
as Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. Except as provided herein, all
terms used herein which are defined in the Credit Agreement shall have the
meanings given therein.

                  R.W. Beck, Inc. has been retained by the Lead Arrangers as the
Independent Engineer and it has prepared an Independent Engineer's Report dated
_________, 200__ with respect to the Project (the "Independent Engineer's
Report").

                  The Independent Engineer's Report was prepared pursuant to the
scope of services under our Professional Services Agreement with the Lead
Arrangers and those services were provided in accordance with generally accepted
engineering practices.

                  In connection with the preparation of the Independent
Engineer's Report, personnel of the Independent Engineer have participated in
meetings or telephone discussions with representatives of Calpine Corporation
and it's affiliates, Borrower, counsel to Borrower, the Lead Arrangers and
counsel to the Lead Arrangers in regard to the Project.

<PAGE>   556

                  This letter is solely for the information of, and assistance
to, the Technical Committee in conducting and documenting their investigation of
the matters covered by the Independent Engineer's Report in connection with the
Project and is not to be used, circulated, quoted or otherwise referred to
within or without the lending group for any purpose, nor is it to be referred to
in whole or in part in any other document, except that reference may be made to
it in the Credit Agreement or in any list of closing documents pertaining to the
Project.



                                               Sincerely,


                                               [R.W. BECK INC.]

<PAGE>   557

                                                             EXHIBIT F-7
                                                             to Credit Agreement

                           [R.W. BECK INC. LETTERHEAD]

______, 200_

Credit Suisse First Boston,
New York Branch,
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

         Re:      The ______ Turbine (the "Turbine")

Ladies and Gentlemen:

                  The undersigned, a duly authorized representative of R.W.
Beck, Inc., a Washington corporation ("Independent Engineer"), hereby provides
this letter to you in accordance with Section 3.5.11 of that certain Credit
Agreement dated as of October 16, 2000 (the "Credit Agreement"), among Calpine
Construction Finance Company II, LLC, a Delaware limited liability company, as
Borrower ("Borrower"), the financial institutions listed on Exhibit H thereto,
Credit Suisse First Boston, acting through its New York Branch, as Lead Arranger
and Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as
Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities
LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger
and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. Except as provided herein, all terms used herein
which are defined in the Credit Agreement shall have the meanings given therein.

                  R. W. Beck, Inc. has been retained by the Lead Arrangers as
the Independent Engineer and it has prepared an Independent Engineer's Report
dated __________, 200__ addressing the technology and size of the Turbine (the
"Independent Engineer's Turbine Report"). The Independent Engineer's Turbine
Report was prepared pursuant to the scope of services under our Professional
Services Agreement with the Lead Arrangers and those services were provided in
accordance with generally accepted engineering practices.

                  In connection with the issuance of this certificate, personnel
of the Independent Engineer have participated, to the extent determined
necessary by the Independent Engineer, in meetings or telephone discussions with
representatives of Calpine Corporation and it's affiliates, Borrower, counsel to
Borrower, the Lead Arrangers and counsel to the Lead Arrangers in regard to the
Turbine.

<PAGE>   558

                  This letter is solely for the information of, and assistance
to, the Technical Committee in conducting and documenting their investigation of
the matters covered by this Certificate in connection with the Turbine and is
not to be used, circulated, quoted or otherwise referred to within or without
the lending group for any purpose, nor is it to be referred to in whole or in
part in any other document, except that reference may be made to it in the
Credit Agreement or in any list of closing documents pertaining to the Turbine.



                                              Sincerely,


                                              [R.W. BECK INC.]

<PAGE>   559

                                                             EXHIBIT F-8
                                                             to Credit Agreement


                          [FUEL CONSULTANT LETTERHEAD]


_______________, 200_

Credit Suisse First Boston,
New York Branch,
    as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York 10010
Attn: Manager, Project Finance

         Re:      The [____________] Project (the "Project")

Ladies and Gentlemen:

                  The undersigned, a duly authorized officer of
__________________, ("Fuel Consultant"), hereby provides this letter to you in
accordance with Section [3.2.14] [3.3.15] of that Credit Agreement dated as of
October 16, 2000 (the "Credit Agreement"), among Calpine Construction Finance
Company II, LLC, a Delaware limited liability company, as Borrower ("Borrower"),
the financial institutions listed on Exhibit H thereto (the "Banks"), Credit
Suisse First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. Except as provided herein, all terms used herein
which are defined in the Credit Agreement shall have the meanings given therein.

                  Fuel Consultant acknowledges that pursuant to the Credit
Agreement, the Banks will be providing financing to the Borrower for, among
other things, the construction of the Project and in so doing will be relying on
this Certificate and Fuel Consultant's report dated _____________. Fuel
Consultant certifies that attached hereto as Exhibit A is a true, correct and
complete copy of Fuel Consultant's report with respect to the Project, and that
said report represents Fuel Consultant's professional opinion as of the date
hereof. Further, Fuel Consultant confirms, as of the date hereof, the
evaluation, estimates, projections, conclusions and recommendations contained in
such report.


                                            Sincerely,


                                            [FUEL CONSULTANT]

<PAGE>   560

                                                             EXHIBIT F-9
                                                             to Credit Agreement

               [INDEPENDENT POWER MARKETING CONSULTANT LETTERHEAD]

___________, 200_

Credit Suisse First Boston,
New York Branch,
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance
Attn: Manager, Project Finance

         Re:      The ____________ Project (the "Project")

Ladies and Gentlemen:

                  The undersigned, a duly authorized representative of _______,
("Independent Power Marketing Consultant"), hereby provides this letter to you
in accordance with Section [3.2.15] [3.3.16] of that certain Credit Agreement
dated as of October 16, 2000 (the "Credit Agreement"), among Calpine
Construction Finance Company II, LLC, a Delaware limited liability company, as
Borrower ("Borrower"), the financial institutions listed on Exhibit H thereto
(the "Banks"), Credit Suisse First Boston, acting through its New York Branch,
as Lead Arranger and Administrative Agent ("Administrative Agent"), The Bank of
Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of
America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital
LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale,
as Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America
Services LLC, as Arranger and Co-Documentation Agent and TD Securities (USA)
Inc., as Arranger and Co-Documentation Agent. Except as provided herein, all
terms used herein which are defined in the Credit Agreement shall have the
meanings given therein.

                  Independent Power Marketing Consultant acknowledges that
pursuant to the Credit Agreement, the Banks will be providing financing to the
Borrower for, among other things, the construction of the Project and in so
doing will be relying on this certificate and Independent Power Marketing
Consultant's report dated ____________. Independent Power Marketing Consultant
certifies that attached hereto as Exhibit A is a true, correct and complete copy
of Independent Power Marketing Consultant's report with respect to the Project,
and that said report represents Independent Power Marketing Consultant's
professional opinion as of such date and as of the date hereof. Further, since
the date of the aforementioned Independent Power Marketing Consultant's report,
nothing has come to our attention which would cause us to change that report.


                                       Sincerely,
                                       [INDEPENDENT POWER MARKETING CONSULTANT]

<PAGE>   561

                                                                    EXHIBIT G-1
                                                             to Credit Agreement



                         DESCRIPTION OF INITIAL PROJECTS


                                      [*]


                                       1
<PAGE>   562
CCFC II SUBSEQUENT PROJECT LIST
EXHIBIT G2

[*]
<PAGE>   563
                                     CCFC II
                            DESCRIPTION OF TURBINES
                                   EXHIBIT G3


MANUFACTURER: WESTINGHOUSE


<TABLE>
<CAPTION>
                                 CONTRACT/UNIT      ONSITE          PMTS.          PMT. FOR        PMT. FOR       BALANCE
PROJECT NAME           CTG#         PRICE            DATES        THRU 9/00         OCT-00           NOV-00      REMAINING
-----------------     ------    --------------     ---------    ------------      ----------       ---------    ------------
<S>                  <C>        <C>               <C>          <C>                <C>             <C>           <C>
Baytown               1F9807     $ 27,900,500      #########    $ 26,228,981                                    $  1,671,519
Baytown               1F9821       31,512,300      #########      26,785,455                       1,575,615       3,151,230
Baytown               1F9822       31,512,300      #########      26,785,455                       1,575,615       3,151,230
Channel               1F9818       29,682,600      #########       5,936,520                       1,484,130      22,261,950
Channel               1F9823       30,237,600      #########      25,701,960                       3,023,760       1,511,880
Decatur (Solutia)     IF9906       32,760,670      #########       8,225,000       1,603,201       6,552,134      16,380,335
Decatur (Solutia)     IF9907       32,760,670      #########       8,225,000       1,603,201       6,552,134      16,380,335
Decatur (Solutia)     1F9949       32,760,670      #########       8,225,000       1,603,201       6,552,134      16,380,335
Morgan (Amoco)        1F9819       31,704,337      #########       4,750,000       1,590,867                      25,363,469
Morgan (Amoco)        1F9820       31,704,337      #########       4,750,000       1,590,867                      25,363,469
Morgan (Amoco)        1F9950       31,704,337      #########       4,750,000       1,590,867                      25,363,469
                                 ============                    ============      ==========     ===========    ============
                       Total     $344,240,320                    $150,363,371      $9,582,205     $27,315,522    $156,979,222
</TABLE>



<PAGE>   564

                                  APPENDIX G-4A

                           LOS MEDANOS PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   565

                                  APPENDIX G-4B

                             BAYTOWN PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   566

                                  APPENDIX G-4C
                             CARVILLE PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   567

                                  APPENDIX G-4D
                              PANDA PROJECT BUDGET

                                     (000's)



                                      [*]
<PAGE>   568

                                  Appendix G-4E
                            SANTA ROSA PROJECT BUDGET

                                     (000's)


                                      [*]

<PAGE>   569

                                  APPENDIX G-4F
                              DELTA PROJECT BUDGET

                                     (000's)


                                      [*]


<PAGE>   570

                                  APPENDIX G-4G
                            FREESTONE PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   571

                                  APPENDIX G-4H
                           BROAD RIVER PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   572

                                  APPENDIX G-4I
                             CHANNEL PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   573

                                  APPENDIX G-4J
                              CORPUS PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   574

                                  APPENDIX G-4K
                             DECATUR PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   575

                                  APPENDIX G-4L
                              MORGAN PROJECT BUDGET

                                     (000's)


                                      [*]
<PAGE>   576

                                  APPENDIX G-4M
                                 BORROWER BUDGET

                               Non Allocated Costs

                                     (000's)


<TABLE>
<S>                                                        <C>
            Land                                           $     --
            Development Costs                                    --
            Construction                                         --
            Power Island                                         --
            Insurance                                            --
            EPC                                                  --
            Project Enhancements                                 --
            Sales Tax                                            --
            Construction Management
            Startup                                              --
            Pending Change Orders                                --
            Title Insurance                                      --
                                                           --------
            SUBTOTAL                                       $     --

            Interest Expense                                176,505
            Commitment Fees                                   8,799
            Legal/Bank/Engineering/Admin Fee                 45,900
                                                           --------
            TOTAL                                          $231,204
</TABLE>






<PAGE>   577


                                                                     EXHIBIT G-5
                                                             to Credit Agreement



                   INITIAL PROJECT SCHEDULED COMPLETION DATES



<TABLE>
                                                                 CONSTRUCTION
     PROJECT NAME                         LOCATION                   START                   COD
----------------------------            --------------           ------------              ------
<S>                                    <C>                          <C>                   <C>
Los Medanos Energy Center               Pittsburg, CA                Aug-99                Jul-01
Baytown Energy Center                   Baytown, TX                  Jan-00                Jan-02
Channel Energy Center                   Channel, TX                  Apr-00                Jun-01
Delta Energy Center                     Pittsburg, CA                Apr-00                Jun-02
Broad River Energy Center II            Gaffney, SC                  Aug-00                Jul-O1
Carville Energy Center                  St. Gabriel, LA              Sep-00                Jul-02
Santa Rosa Energy Center I              Milton, FL                   Sep-00                Jun-02
Freestone Energy Center                 Freestone, TX                Sep-00                Jun-02
Decatur Energy Center                   Decatur, AL                  Sep-00                Jun-02
Morgan Energy Center                    Decatur, AL                  Sep-00                Jun-02
Oneta Energy Center                     Coweta, OK                   Oct-00                Jun-02
Corpus Christi Energy Center I          Corpus, TX                   Oct-00                May-02
</TABLE>


<PAGE>   578

                                                                     EXHIBIT G-6
                                                             to Credit Agreement


                                      [*]


                                                                     EXHIBIT G-7
                                                             to Credit Agreement



                               PENDING LITIGATION

Complaint filed on April 14, 2000 with the Environmental Protection Agency's
Office of Civil Rights by Michael Boyd, Joe Hawkins and Jim MacDonald of
Californians for Renewable Energy, relating to the Los Medanos Energy Center
Project.



<PAGE>   579

                                                                     EXHIBIT G-8
                                                             to Credit Agreement


                        HAZARDOUS SUBSTANCES DISCLOSURE


None, except as disclosed in,

BAYTOWN ENERGY CENTER

        -       Phase I and II Environmental Site Assessment conducted by
                Arcadis, Geraghty & Mille for Bayer Corporation, dated November
                3, 1999

BROAD RIVER ENERGY CENTER II

        -       Phase I Environmental Site Assessment conducted by Roy F.
                Weston, Inc

        -       Limited Phase II Environmental Site Assessment conducted by Roy
                F. Weston, Inc

CARVILLE ENERGY CENTER

        -       Phase I Environmental Site Assessment conducted by C-K
                Associates, Inc. for Polsky Energy Commission, dated August
                1998.

        -       Phase I Environmental Site Assessment Update by C-K Associates,
                Inc. for Skygen Energy, LLC, dated August 16, 2000.

CHANNEL ENERGY CENTER

        -       Phase I and Limited Phase II Environmental Site Assessment
                Report for Calpine Construction Finance Company, L.P. dated
                January 2000.

CORPUS CHRISTI ENERGY CENTER I

        -       Phase I Environmental Site Assessment conducted by JD Consulting
                for Skygen Energy LLC dated August 1999.

        -       Limited Phase II Environmental Site Assessment conducted by JD
                Consulting for Skygen Energy LLC dated September 20, 2000.

DECATUR ENERGY CENTER

        -       Phase I Environmental Site Assessment dated December 1999,
                regarding Solutia Decatur Plant Site.

        -       Phase II Environmental Site Assessment Report by RMT dated
                February 25, 2000, regarding Solutia, Inc. Site.


<PAGE>   580

        -       Phase II Environmental Site Assessment Report by RMT dated June
                2000, regarding Utility Corridors and Lay-Down Area.

DELTA ENERGY CENTER

        -       Environmental Site Assessment prepared by Environmental
                Resources Management for Calpine Corporation dated May 29, 1998.

FREESTONE ENERGY CENTER

        -       Phase I Environmental Site Assessment regarding Bonner Property
                Site, Freestone County, by the WCM Group, Inc. for Entergy Power
                Group, Inc.

        -       Phase I Environmental Site Assessment regarding Hill Property
                Site, Freestone County, by the WCM Group, Inc. for Entergy Power
                Group, Inc dated June 2000.

LOS MEDANOS ENERGY CENTER

        -       Phase I Environmental Site Assessment regarding 12 Acre Parcel,
                by URS Greiner Woodward Clyde on behalf of Enron Capital and
                Trade Resources, dated April 30, 1998.

        -       Phase I Environmental Site Assessment regarding Enron
                Cogeneration Facility Alternate Linear Routes, by URS Greiner
                Woodward Clyde on behalf of Enron Capital and Trade Resources,
                dated July 8, 1999.

        -       Phase II Environmental Site Investigation regarding 8th Street
                Corridor, by URS Greiner Woodward Clyde on behalf of Enron
                Capital and Trade Resources, dated May 10, 1999.

        -       Phase I Site Assessment for 8th Street, by URS Greiner Woodward
                Clyde on behalf of Enron Capital and Trade Resources, dated July
                9, 1999.

        -       Phase I Environmental Site assessment regarding Two Acre Parcel
                - Corner Harbor Road and Santa Fe Avenue, by URS Greiner
                Woodward Clyde on behalf of Enron Capital and Trade Resources,
                dated June 23, 1999.

        -       Phase I Environmental Site Assessment regarding Pittsburg
                District Energy Facility Proposed Truck Bypass Roadway East 3rd
                Street, by URS Greiner Woodward Clyde on behalf of Enron Capital
                and Trade Resources, dated June 23, 1999.

        -       Phase I Environmental Site Assessment for Enron regarding
                Offsite Linear Routes, by URS Greiner Woodward Clyde on behalf
                of Enron Capital and Trade Resources, dated June 11, 1999.

        -       Phase I Environmental Site Assessment regarding Proposed Truck
                Bypass Roadway, Santa Fe and Columbia Avenue, by URS Greiner
                Woodward Clyde on behalf of Enron Capital and Trade Resources,
                dated June 14, 1999


<PAGE>   581

        -       Phase I Environmental Site Assessment regarding Diablo Services,
                East 3rd Street, by URS Greiner Woodward Clyde on behalf of
                Enron Capital and Trade Resources, dated July 8, 1999.

        -       Phase II Environmental Site Assessment for Pittsburg District
                Energy Facility, Proposed Truck Bypass Roadway and Two Acre
                Parcel, by URS Greiner Woodward Clyde on behalf of Enron Capital
                and Trade Resources, dated August 10, 1999

        -       Phase II Environmental Site Assessment, regarding USS POSCO
                Industries Recreational Ballpark Site, by URS Greiner Woodward
                Clyde on behalf of Enron Capital and Trade Resources, dated
                September 15, 1999

MORGAN ENERGY CENTER

        -       Phase I Environmental Site Assessment by Environmental
                Consulting and Technology, Inc. dated April 2000.

        -       Phase II Environmental Site Assessment submitted by Malcolm
                Pinrie, Inc. dated July 2000.

ONETA ENERGY CENTER

        -       Phase I Environmental Site Assessment by Environmental
                Consulting & Technology, Inc. for Panda Energy International,
                Inc. dated June 2000.

SANTA ROSA ENERGY CENTER

        -       Phase I Environmental Site Assessment Report by Sterling Fibers,
                Inc for Polsky Energy Corporation dated July 1998.

        -       Phase I Environmental Site Assessment Update by Sterling Fibers,
                Inc. for Skygen Energy, LLC dated August 2000.

        -       Phase II Environmental Site Assessment by Roy F. Weston, Inc.
                for Polsky Energy Commission dated September 3, 1999.


<PAGE>   582
                                                                     EXHIBIT G-9
                                                             to Credit Agreement

                          FORM OF POWER MARKETING PLAN


                                      [*]



                                        1
<PAGE>   583
                                                                       EDIT G-10
                                                             to Credit Agreement

                               FORM OF FUEL PLAN

                                      [*]



                                       1
<PAGE>   584

                                                             EXHIBIT H
                                                             to Credit Agreement

                        SCHEDULE OF BANK/LENDING OFFICES

<TABLE>
<CAPTION>
Bank                                             Percentage of Loans                  Allocation
----                                             -------------------                  ----------
<S>                                              <C>                               <C>
1.  CREDIT SUISSE FIRST BOSTON,                         12.5%                        $312,500,000
    NEW YORK BRANCH
    Eleven Madison Avenue
    New York, New York  10010

2.  THE BANK OF NOVA SCOTIA                             12.5%                        $312,500,000
    One Liberty Plaza, 26th Floor
    New York, New York 10006

3.  BANK OF AMERICA, N.A.                               12.5%                        $312,500,000
    600 Montgomery, 9th Floor
    San Francisco, California  94104

4.  ING (U.S.) CAPITAL LLC                              12.5%                        $312,500,000
    c/o ING Barings
    55 East 52nd Street
    New York, New York   10055

5.  BAYERISCHE LANDESBANK GIROZENTRALE                  12.5%                        $312,500,000
    560 Lexington Avenue, 17th Floor
    New York, New York   10022

6.  CIBC INC.                                           12.5%                        $312,500,000
    425 Lexington Avenue
    New York, New York   10017

7.  DRESDNER BANK AG, NEW YORK AND                      12.5%                        $312,500,000
    GRAND CAYMAN BRANCHES
    75 Wall Street
    New York, New York   10005

8.  TORONTO DOMINION (TEXAS) INC.                       12.5%                        $312,500,000
    909 Fannin Street, 17th Floor
    Houston, Texas   77010
                                                        ----                        -------------
                      TOTAL                             100%                        2,500,000,000
</TABLE>

<PAGE>   585

                                                             EXHIBIT I
                                                             to Credit Agreement


                          Annual Insurance Certificate

                   [LETTERHEAD OF BORROWER'S INSURANCE BROKER]

                                     [DATE]

Credit Suisse First Boston,
New York Branch,
   as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance


Ladies and Gentlemen:

                The undersigned, a duly authorized officer of _______________ a
_______________ ("Insurance Broker"), hereby provides this letter to you in
accordance with Section 5.8.8 of that certain Credit Agreement dated as of
October 16, 2000 (the "Credit Agreement"), among Calpine Construction Finance
Company II, LLC, a Delaware limited liability company, as Borrower ("Borrower"),
the financial institutions listed on Exhibit H thereto (the "Banks"), Credit
Suisse First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent. Except as provided herein, all terms used herein
which are defined in the Credit Agreement shall have the meanings given therein.

                  Insurance Broker acknowledges that pursuant to the Credit
Agreement, the Banks are providing financing to Borrower for the construction
and/or operation of the Initial Projects, the Funded Subsequent Projects and the
purchase of the Funded Turbines and in so doing are relying on Borrower's and/or
the other applicable Portfolio Entities, as the case may be, continued
compliance with the provisions of Exhibit K to the Credit Agreement.

                  Insurance Broker hereby certifies that, as of the date hereof,
Borrower and/or the other applicable Portfolio Entities, as the case may be,
have obtained and are maintaining in full force and effect insurance policies
conforming, in all material respects, to the requirements set forth in Exhibit K
to the Credit Agreement.


                                          Respectfully submitted,

<PAGE>   586

                                                             EXHIBIT J-1
                                                             to Credit Agreement

                      BANK WITHHOLDING CERTIFICATE (TREATY)

                                     [DATE]

CALPINE CONSTRUCTION FINANCE COMPANY II, LLC
a Delaware limited liability company
c/o Calpine Corporation
50 W. San Fernando Street
San Jose, CA  95113
Attn:  Manager, Project Finance

CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn:  Manager, Project Finance

                  In connection with the Credit Agreement dated as of October
16, 2000 (the "Credit Agreement"), among Calpine Construction Finance Company
II, LLC, a Delaware limited liability company, as Borrower, the financial
institutions listed on Exhibit H thereto, Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, the undersigned hereby certifies, represents and
warrants that [NAME OF RELEVANT BANK OR AGENT] is a [NAME OF COUNTRY]
corporation and is currently exempt from any U.S. federal withholding tax on
amounts paid to it from U.S. sources under the Credit Agreement by virtue of
compliance with the provisions of the Income Tax Convention between the United
States and [NAME OF COUNTRY], signed [DATE], [AS AMENDED]. Our fiscal year is
the twelve months ending [_____________________].

                  The undersigned (a) is a corporation organized under the laws
of [NAME OF COUNTRY] whose registered business is managed or controlled in [NAME
OF COUNTRY], (b) [DOES NOT HAVE A PERMANENT ESTABLISHMENT OR FIXED BASE IN THE
UNITED STATES/DOES HAVE A PERMANENT ESTABLISHMENT OR FIXED BASE IN THE UNITED
STATES BUT THE CREDIT AGREEMENT IS NOT EFFECTIVELY CONNECTED WITH SUCH PERMANENT
ESTABLISHMENT OR FIXED BASE], (c) is not exempt from tax on the income in [NAME
OF COUNTRY] and (d) is the beneficial owner of the income.

                  We enclose two signed copies of Form 1001 of the U.S. Internal
Revenue Service.


                                    Yours faithfully,

                                    [NAME OF RELEVANT BANK]

                                    By: _______________________________
                                        Name:
                                        Title:

<PAGE>   587

                                                             EXHIBIT J-2
                                                             to Credit Agreement


              BANK WITHHOLDING CERTIFICATE (EFFECTIVELY CONNECTED)

                                     [DATE]


CALPINE CONSTRUCTION FINANCE COMPANY II, LLC
a Delaware limited liability company
c/o Calpine Corporation
50 W. San Fernando Street
San Jose, CA  95113
Attn:  Manager, Project Finance


CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH,
  as Administrative Agent for the Banks
Eleven Madison Avenue
New York, New York  10010
Attn: Manager, Project Finance


                  In connection with the Credit Agreement dated as of October
16, 2000 (the "Credit Agreement"), among Calpine Construction Finance Company
II, LLC, a Delaware limited liability company, as Borrower, the financial
institutions listed on Exhibit H thereto, Credit Suisse First Boston, acting
through its New York Branch, as Lead Arranger and Administrative Agent
("Administrative Agent"), The Bank of Nova Scotia, as Lead Arranger,
Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger
and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication
Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent
and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent,
Dresdner Kleinwort Benson North America Services LLC, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, the undersigned hereby certifies, represents and
warrants that [NAME OF RELEVANT BANK OR AGENT] is entitled to exemption from
withholding tax on payments to it under the provisions of Section 1441(c) of the
Internal Revenue Code of 1986, as amended, of the United States of America.

                  We enclose two signed copies of Form 4224 of the U.S. Internal
Revenue Service.


                                           Yours faithfully,

                                           [NAME OF RELEVANT BANK]

                                           By: _____________________________
                                               Name:
                                               Title:

<PAGE>   588
                                                                       EXHIBIT K
                                                             to Credit Agreement

                             INSURANCE REQUIREMENTS

      Defined terms used in this Exhibit K not otherwise defined herein shall
have the meanings set forth in that certain Credit Agreement dated as of October
16, 2000, by and among Calpine Construction Finance Company II, LLC., a Delaware
limited liability company ("Borrower"), Credit Suisse First Boston, as Lead
Arranger and Administrative Agent ("Administrative Agent"), The Bank of Nova
Scotia as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America
Securities, LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC,
as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as
Arranger, Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as
Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson, as Arranger and
Co-Documentation Agent and TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent and the Banks parties thereto.

      1. With respect to each Project having Initial Contributions, Funded
Project and Funded Turbine, Borrower shall, without cost to the Banks, maintain
or cause to be maintained on its behalf in effect at all times the types of
insurance required by the following provisions together with any other types
of insurance, in form acceptable to Administrative Agent, required hereunder,
with insurance companies rated "A-" or better, with a minimum size rating of
"IX," by Best's Insurance Guide and Key Ratings, (or an equivalent rating by
another nationally recognized insurance rating agency of similar standing if
Best's Insurance Guide and Key Ratings shall no longer be published) or other
insurance companies of recognized responsibility satisfactory to Administrative
Agent, the following insurance coverages until all obligations of Borrower and
the other Portfolio Entities pursuant to the Credit Agreement and the other
Credit Documents have been fully discharged:

            a. Commercial general liability insurance for such Project on an
"occurrence" policy form or AEGIS claims-first-made form, including coverage for
premises/operations, explosion, collapse and underground hazards,
products/completed operations, broad form property damage, blanket contractual
liability for both oral and written contracts, independent contractor's and
personal injury, for the appropriate Portfolio Entities and for contractors,
with primary coverage limits of no less than $1,000,000 for injuries or death
to one or more persons or damage to property resulting from any one occurrence
and a $1,000,000 annual aggregate limit.

            The commercial general liability policy shall also include a
severability of interest clause and a cross liability clause in the event more
than one entity is "named insured" under the liability policy. Policy exclusions
which are not standard to the commercial general liability coverage form or are
added by manual endorsements or are proposed to be added after the Funding Date
for each Funded Project, that restrict coverage, are to be approved by
Administrative Agent. Work performed by others for the


                               Exhibit K - page 1
<PAGE>   589
appropriate Portfolio Entities at any such Project shall not commence until a
certificate of insurance has been delivered verifying coverages outlined above
to be in place and naming Borrower and the other applicable Portfolio Entities
as insured or additional insured and Administrative Agent as additional insured.
Deductibles in excess of $50,000 shall be subject to review and approval by
Administrative Agent.

            b. Automobile liability insurance, including coverage for owned,
non-owned and hired automobiles for both bodily injury and property damage and
containing appropriate no-fault insurance provisions or other endorsements in
accordance with state legal requirements, with limits of no less than
$1,000,000 per accident with respect to bodily injury, property damage or death.

            c. Worker's compensation insurance and employer's liability
insurance, with a limit of not less than $1,000,000, disability benefits
insurance and such other forms of insurance which Borrower or the other
applicable Portfolio Entities are required by law to provide for any such
Project, providing statutory benefits and other states' endorsement and USL&H
Act coverage and Jones Act (if any exposure exists), covering loss resulting
from injury, sickness, disability or death of the employees of Borrower and the
other applicable Portfolio Entities. Work performed by others for any Portfolio
Entity at any such Project shall not commence until a certificate of insurance
has been delivered verifying coverages outlined above to be in place.

            d. From the point of groundbreaking for each Project and through the
date of Completion for such Project, builder's risk insurance covering each such
Project separately on an "all risk basis" on a completed value form with
"extended coverage" (including earthquake (subject to the next paragraph),
flood, collapse, sinkhole and subsidence) and "soft cost coverage" on a no
coinsurance basis and providing (i) coverage for such Project site, including
removal of debris, insuring the buildings, structures, machinery, equipment,
facilities, fixtures and other properties constituting a part of each such
Project in a minimum aggregate amount not less than the full replacement value
of each such Project, and in any case subject to a construction term aggregate
limit of $100,000,000 for flood coverage and for earthquake coverage, but in no
event an amount less than the limit necessary to satisfy the other related
Project contracts; (ii) off-site coverage with a per occurrence limit of
$5,000,000 or such higher amount as is sufficient to cover off-site equipment
associated with such Project; (iii) transit coverage with a per occurrence limit
of not less than the greater of $5,000,000 or an amount sufficient to cover the
full insurable value of any item in transit; (iv) coverage for operational
testing and startup with the same dollar coverage and modifications as set out
in (i) above; (v) delay in opening coverage for interest during construction,
debt service and continuing expenses in an amount not less than an 18 month
indemnification period limit, on an "all risk" basis, as set forth in (i)
through (iv) above. Builder's risk insurance shall not contain an exclusion for
freezing, mechanical breakdown, or resultant damage caused by faulty
workmanship, design or materials and shall remain in effect until replaced by
property insurance coverage and boiler and machinery coverage as specified


                               Exhibit K - page 2
<PAGE>   590
in Section I(e) below. All such policies may have deductibles of not greater
than $250,000 per loss; earthquake and flood coverage shall have a deductible of
not greater than $250,000 with the exception of California earthquake (for which
the deductible may be 5% of values at risk), coastal windstorm (2% deductible)
and any such Project located in a 100 year flood zone ($500,000 deductible); and
delay in opening coverage shall have a deductible not greater than a 45 day
period; operational testing shall have a deductible of not greater than
$750,000; and transit coverage shall have a deductible of not greater than
$100,000. Builders risk policy shall include first party cleanup, hazardous
materials, subject to a sublimit of $250,000.

            At least 45 days prior to the shipment of equipment for any Project
or Funded Turbine manufactured outside the United States, ocean cargo coverage
shall be secured in an amount not less than the full replacement costs of the
value of equipment shipped. Such coverage shall apply to all equipment which is
valued in excess of $500,000 and has a lead time to replace exceeding five (5)
months. The ocean cargo policy shall attach coverage prior to equipment
departing the premises of the manufacturer and shall continue in force until the
shipment arrives at the applicable Project site including 60 days storage, or is
insured under the builders risk policy. Marine delay in opening or advanced loss
of profits shall be insured in an amount not less than the equivalent of
interest during construction, debt service and continuing expenses subject to an
indemnification period not less than twelve months or such additional time
required to repair/replace the equipment being shipped. The waiting period shall
not exceed 45 days. The ocean cargo policy shall not be subject to cancellation
with the exception of wars and strikes preventing passage to the United States
and nonpayment of premium.

            Earthquake coverage shall include coverage for movement,
earthquakes, shocks, tremors, landslides, subsidence, volcanic activity,
sinkhole coverage, mud-flow or rock-fall, or any other earth movement, all
whether direct or indirect, approximate or remote or in whole or in part caused
by, contributed to or aggravated by any physical damage insured against by such
policy regardless of any other cause or event that contributes, concurrently or
in sequence, to the loss.

            Flood coverage shall include, but not be limited to, coverage for
waves, tide or tidal water, inundation, rainfall and/or resulting runoff or the
rising (including the overflowing or breaking boundaries) of lakes, ponds,
reservoirs, rivers, harbors, streams, or other bodies of water, whether or not
driven by wind.

            e. From and after the date of Completion for each such Project, "all
risk" property insurance coverage in the amount not less than the full
replacement value of such Project, including a full replacement cost endorsement
(no co-insurance) with no deduction for depreciation, providing, without
limitation, (i) coverages against loss or damage by fire, lightning, windstorm,
hail, explosion, riot, civil commotion, aircraft, vehicles, smoke, other risks
from time to time included under "all risk" or "extended coverage" policies,
earthquake, flood (provided, however, that earthquake and


                               Exhibit K - page 3
<PAGE>   591
flood coverage may be subject to an annual aggregate limit of not less than
$100,000,000 with the exception of California (for which the limit shall be as
agreed to by Administrative Agent and Borrower and which in Administrative
Agent's reasonable discretion, after consultation with the Banks, is
commercially feasible), collapse, sinkhole, subsidence and such other perils as
Administrative Agent, after consultation with the Banks and Borrower, may from
time to time require to be insured, with a sublimit of not less than $250,000
for on-site clean-up required as a result of the occurrence of an insured risk;
(ii) off-site coverage with a per occurrence limit of $2,000,000 or such higher
amount as is sufficient to cover off-site equipment for which there have been
progress payments; (iii) transit coverage (including ocean cargo where ocean
transit will be required) with a per occurrence limit of not less than
$2,000,000; and (iv) boiler and machinery coverage on a "comprehensive" basis
including breakdown and repair with limits not less than the full replacement
cost of the insured objects. Property insurance coverage shall not contain an
exclusion for freezing, mechanical breakdown or resultant damage caused by
faulty workmanship, design or materials. Borrower shall also maintain or cause
to be maintained with respect to each such Project, from and after the date of
Completion of such Project, business interruption insurance on an "all risk"
basis as set forth in (i) through (iv) above, in an amount equal to satisfy
policy coinsurance conditions, but not less than the sum of 12 months scheduled
Debt Service attributable to such Project, continuing expenses and profits.
Borrower shall also maintain or cause to be maintained, expediting or extra
expense coverage in an amount not less than $3,000,000. Borrower shall also
maintain or cause to be maintained with respect to each such Project contingent
business interruption insurance on a blanket basis in an amount not less than
six months scheduled Debt Service attributable to such Project and continuing
expenses and profits of such Project. The policy/policies shall include
increased cost of construction coverage, debris removable, and building
ordinance coverage to pay for loss of "undamaged" property which may be required
to be replaced due to enforcement of local, state, or federal ordinances subject
to a sublimit of $10,000,000. All such policies may have deductibles of not
greater than $250,000 per loss with the exception of the combustion turbine
($1,000,000); windstorm if located in a coastal area (2%), earthquake if located
in California (for which the deductible may be 5% of values at risk) and flood
if located in a 100 year zone ($500,000); business interruption coverage shall
have a waiting period of not greater than 45 days. In the event the all risk
property and the boiler and machinery coverage are not written in the same
policy, each policy shall be endorsed to provide a joint loss agreement.

            f. Umbrella/excess liability insurance of not less than
$50,000,000 per occurrence and in the aggregate during the construction and the
operation of each such Project. Such coverages shall be on a per occurrence
policy form or AEGIS claims-first-made form and over and above coverage provided
by the policies described in paragraphs (a), (b) and (c) above whose limits
shall apply toward the $50,000,000 limits set forth in this section. The
umbrella and/or excess policies shall not contain endorsements which restrict
coverages as set forth in paragraphs (a), (b) and (c) above, and which are
provided in the underlying policies. The limit applying for each such


                               Exhibit K - page 4
<PAGE>   592
Project can be satisfied by insuring multiple Projects under one policy subject
to a per Project aggregate endorsement. If the policy or policies provided under
this paragraph contain(s) aggregate limits applying to other operations of
Borrower, the other applicable Portfolio Entities, the Contractor or the
Operator other than with respect to each individual Project, and such limits are
diminished below $25,000,000 by any incident, occurrence, claim, settlement or
judgment against such insurance which has caused the carrier to establish a
reserve, Borrower shall take or cause immediate steps be taken to restore such
aggregate limits or shall provide other equivalent insurance protection for such
aggregate limits.

            g. Watercraft liability and protection and indemnity, to the extent
exposure exists, in an amount not less than $10,000,000 for all owned, non-owned
and hired watercraft used in connection with the construction and operation of
each such Project. Such coverage can be accomplished under policies provided
pursuant to general liability policies, protection and indemnity policies or
separate watercraft liability policies.

            h. Aircraft liability, to the extent exposure exists, in an amount
not less than $10,000,000 for all owned, non-owned and hired aircraft, fixed
wing or rotary, used in connection with the operation of each such Project.

            i. Such other or additional insurance (as to risks covered, policy
amounts, policy provisions or otherwise) as, under Prudent Utility Practices,
are from time to time insured against for property and facilities similar in
nature, use and location to the Funded Projects which Administrative Agent may
reasonably require.

            j. All Major Contractors and Major Subcontractors and the Operator
(unless covered under the applicable Portfolio Entities' insurances) at each
such Project shall, prior to performing work at each such Project site, supply
proper evidence of insurance as set forth in paragraphs 1.a., 1.b., and 1.c.
above. In addition, excess liability or umbrella liability limits of not less
than $5,000,000 for Major Contractors and Major Subcontractors and Operators
shall be certified. Such insurance, with the exception of workers compensation,
supplied by these parties shall:

            (i)   add Borrower, applicable Portfolio Entities, Administrative
                  Agent and the Banks, as additional insureds;

            (ii)  be primary as respects insurance provided by Borrower,
                  applicable Portfolio Entities and Administrative Agent,

            (iii) waive rights of subrogation against Borrower, applicable
                  Portfolio Entities and Administrative Agent;

            (iv)  continue in force until obligations of Contractors and
                  Subcontractors or the Operator are fulfilled at each such
                  Project.


                               Exhibit K - page 5
<PAGE>   593
            Contractors and Subcontractors shall be responsible for tools and
equipment brought onto each Project site unless such tools and equipment are
financed by one of the Portfolio Entities; all such financed tools and equipment
shall be covered under the builders risk policy.

            2. All insurance coverage shall be on a "no coinsurance or self
insurance/replacement cost" basis and in such form (including the form of the
loss payable clauses) as shall be acceptable to Administrative Agent (which
acceptance shall not be unreasonably withheld). Borrower shall submit certified
copies of all policies received pursuant to the requirements of this Exhibit to
Administrative Agent for its review and approval.

            3. All policies wherein the Banks party to this Agreement have an
insurable interest shall insure the interests of the Banks as well as Borrower
and/or the other applicable Portfolio Entities and all policies, with the
exception of workers compensation insurance, and shall name Administrative Agent
and the Banks as additional insured, unless Administrative Agent and/or the
Banks are named as an insured under the policy. All policies covering real or
personal property or business interruption shall name Administrative Agent or
its assigns as First Loss Payee in accordance with Lender's Loss Payable
Endorsement 438 BFU or equivalent and shall provide that any payment thereunder
for any loss or damage with respect to the applicable Project shall be made to
Administrative Agent and paid into the Loss Proceeds Account, except that such
policies may provide that any payments of less than $1,000,000 (not to exceed
$2,000,000 in any year) made in respect of any single casualty or other
occurrence may be paid solely to Borrower, unless Administrative Agent shall
have notified the insurer that an Event of Default or a related Non-Fundamental
Project Default has occurred there under and shall be continuing. Upon payment
and satisfaction of all of Borrower's and the other Portfolio Entities'
obligations under, and termination of, the Credit Documents, Administrative
Agent will instruct the insurers to name Borrower, or such successor credit
provider or other Person as Borrower shall specify, as loss payee. Each policy
shall expressly provide that all provisions thereof, except the limits of
liability (which shall be applicable to all insureds as a group) and liability
for premiums (which shall be solely a liability of the applicable Portfolio
Entities) shall operate in the same manner as if there were a separate policy
covering each such insured. Each policy shall waive subrogation against
Administrative Agent, the Banks, Borrower and the other Portfolio Entities and
shall waive any right of the insurers to any setoff or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of
Borrower, the other Portfolio Entities or the Banks. Each such policy shall
provide that if any premium or installment is not paid when due, or if such
insurance is to be cancelled, terminated or materially changed for any reason
whatsoever, the insurers (or their representatives) will promptly notify
Borrower and Administrative Agent, and any such cancellation, termination or
change shall not be effective until 30 days after receipt of such notice by
Administrative Agent, and that appropriate certification shall be made to
Borrower by


                               Exhibit K - page 6
<PAGE>   594
each insurer with respect thereto. Policies of insurance, provided in accordance
with this Exhibit K shall be primary with respect to any other insurance carried
by the Banks.

            4. In the event that any of the Portfolio Entities (or Contractor as
appropriate) fail to respond in a timely and appropriate manner (as reasonably
determined by Administrative Agent) to take any steps necessary or reasonably
requested by Administrative Agent to collect from any insurers for any loss
covered by any insurance required to be maintained by this Exhibit K,
Administrative Agent shall have the right to make all proofs of loss, adjust
all claims and/or receive all or any part of the proceeds of the foregoing
insurance policies, either in its own name or the name of the applicable
Portfolio Entities; provided, however, that the Portfolio Entities shall, upon
Administrative Agent's request and at the Portfolio Entities' own cost and
expense, make all proofs of loss and take all other steps necessary or
reasonably requested by Administrative Agent to collect from insurers for any
loss covered by any insurance required to be obtained by this Exhibit K.

            5. On or before December 30th of each year, Borrower shall furnish
to Administrative Agent, with a copy for each Bank, a certificate signed by a
Responsible Officer of Borrower or authorized insurance representative, showing
the insurance then maintained by or on behalf of the Portfolio Entities pursuant
to this Exhibit K and stating that such insurance complies in all material
aspects with the terms hereof, together with evidence of payment of the premiums
thereon. In the event that at any time the insurance as herein provided shall be
reduced or cease to be maintained, then (without limiting the rights of
Administrative Agent hereunder in respect of the Event of Default or a related
Non-Fundamental Project Default which arises as a result of such failure)
Administrative Agent may at its option maintain the insurance required hereby
and, in such event, Borrower shall reimburse Administrative Agent upon demand
for the cost thereof together with interest thereon at a rate per annum equal to
the Default Rate, but in no event shall the rate of interest exceed the maximum
rate permitted by law.

            6. In the event any insurance (including the limits or deductibles
thereof) hereby required to be maintained, other than insurance required by law
to be maintained and the builder's risk insurance described in paragraph l (d)
above, shall not be available and commercially feasible in the commercial
insurance market, Administrative Agent, with the approval of the Insurance
Consultant, shall not unreasonably withhold its agreement to waive such
requirement to the extent the maintenance thereof is not so available; provided,
however, that (i) Borrower shall first request any such waiver in writing, which
request shall be accompanied by written reports prepared by an independent
insurance advisor of recognized national standing certifying that such insurance
is not reasonably available and commercially feasible in the commercial
insurance market for electric generating plants of similar type and capacity
(and, in any case where the required amount is not so available, certifying as
to the maximum amount which is so available) and explaining in detail the basis
for such conclusions, such insurance advisers and the form and substance of such
reports to be reasonably acceptable


                               Exhibit K - page 7
<PAGE>   595
to Administrative Agent; (ii) at any time after the granting of any such waiver,
Administrative Agent may request, and Borrower shall furnish to Administrative
Agent within 15 days after such request, supplemental reports reasonably
acceptable to Administrative Agent from such insurance advisers updating their
prior reports and reaffirming such conclusion; and (iii) any such waiver shall
be effective only so long as such insurance shall not be available and
commercially feasible in the commercial insurance market, it being understood
that the failure of Borrower to timely furnish any such supplemental report
shall be conclusive evidence that such waiver is no longer effective because
such condition no longer exists, but that such failure is not the only way to
establish such non-existence.

            7. The Portfolio Entities shall at all times maintain or cause to be
maintained the insurance coverage required under the terms of each of the
Project Documents to which they are a party. As a specific, limited exception to
the requirement that insurance be placed with companies of recognized
responsibility as described in 1. above, it is agreed that insurance may be
placed with other insurance companies or self-insured to the extent that the
Person first named insured on such policies of insurance or self-insuring shall
(i) maintain a S&P credit rating of BBB or better, (ii) comply with all other
requirements prescribed by this Schedule, (iii) maintain other insurance or
self-insurance that, in the aggregate, shall at no time exceed 1% of such
Person's net worth and (iv) the applicable Portfolio Entities shall provide
written notice thereof to the Administrative Agent along with evidence
reasonably satisfactory to the Administrative Agent of appropriate
indemnification of the Portfolio Entities and the Banks by such Person.

            8. In the event that any policy is written on a "claims-made" basis
and such policy is not renewed or the retroactive date of such policy is to be
changed, Borrower shall obtain or cause to be obtained for each such policy or
policies the broadest basic and supplemental extended reporting period coverage
or "tail" reasonably available in the commercial insurance market for each such
policy or policies and shall provide Administrative Agent with proof that such
basic and supplemental extended reporting period coverage or "tail" has been
obtained.


                               Exhibit K - page 8
<PAGE>   596

                                                         EXHIBIT L
                                                         to the Credit Agreement

                       ASSIGNMENT AND ASSUMPTION AGREEMENT


         This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is entered
into as of ______, 200__ (the "Effective Date"), between _______________ (the
"Transferor") and _____________ (the "Transferee").

                                    RECITALS

         A. The parties refer to the Credit Agreement dated as of October 16,
2000 among Calpine Construction Finance Company II, LLC ("Borrower"), the
financial institutions listed on Exhibit H thereto (the "Banks"), Credit Suisse
First Boston, acting through its New York Branch, as Lead Arranger and
Administrative Agent ("Administrative Agent"), The Bank of Nova Scotia, as Lead
Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC,
as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and
Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent and TD Securities (USA) Inc., as Arranger
and Co-Documentation Agent (as amended, modified or supplemented prior to, and
as in effect on, the date hereof, the "Credit Agreement").

         B. The Transferor wishes to assign and sell certain rights and delegate
certain obligations with respect to the credit provided to Borrower pursuant to
the Credit Agreement (the "Credit Exposure"), and the Transferee wishes to
purchase and accept such rights and assume such duties, all as set forth below.

                                    AGREEMENT

         NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

         1. Definition and References. Capitalized terms not defined in this
Agreement shall have the meanings given in the Credit Agreement, and the Rules
of Interpretation attached as such to the Credit Agreement shall apply equally
to this Agreement. The term "assign" as used herein means, without limitation,
assign, delegate, transfer and sell; and the terms "assignment" and "assigned"
have corresponding meanings.

         2. Assignment.

                  2.1 The Transferor hereby irrevocably sells and assigns to the
Transferee, effective as of the Effective Date, a percentage of the outstanding
Loans, the Total Loan Commitment, the Total Turbine Purchase Loan Commitment and
the Total Letter of Credit Commitment as set forth in Schedule 1, including such
percentage interest in and to all rights and obligations under the Credit
Agreement and the other Credit Documents (other than the Interest

<PAGE>   597

Rate Agreements) (such transferred rights and obligations being referred to
herein as the "Interest"). The amount of outstanding Loans (including
Construction Loans and Turbine Purchase Loans) and aggregate Stated Amount of
all issued and outstanding Letters of Credit will, as of the Effective Date, be
as set forth on Schedule 2 attached hereto. On and after the Effective Date, the
Transferee shall have the same rights, benefits and obligations as the
Transferor had, as a Bank, under the Credit Agreement with respect to the
Interest, all determined as if the Transferee was a "Bank" originally named in
the Credit Agreement and the other Credit Documents (other than the Interest
Rate Agreements) with respect to the Interest, and the Transferor shall be
irrevocably released from its obligations, liabilities and responsibilities with
respect to the Interest. The assignment to the Transferee hereunder shall
include the Transferee's Proportionate Share of all interest, fees and other
amounts owed by Borrower with respect to the Interest which accrue on and after
(but not before) the Effective Date.

                  2.2 The Transferee acknowledges and agrees that the assignment
hereunder is made entirely without recourse to the Transferor, and that, except
to the extent set forth in Section 6 below, the Transferor does not make any
representation or warranty of any kind to the Transferee and, in particular, the
Transferor shall not be responsible for (i) the due execution, legality,
validity, enforceability, genuineness, value or sufficiency of the Credit
Agreement or any other Credit Document, (ii) the collectibility of the Interest,
(iii) any representation, warranty or statement made in or in connection with
any of the Credit Documents, (iv) the financial condition or creditworthiness of
Borrower or any guarantor or any affiliate, partner or shareholder of Borrower
or any guarantor, (v) the performance of or compliance with any of the terms or
provisions of any of the Credit Documents by Borrower or any other Person (other
than the Transferor), (vi) the validity, enforceability, perfection, priority,
condition, value or sufficiency of any documents granting the Transferor and the
other Banks a security interest in assets of Borrower (or any guarantor) or any
collateral securing or purporting to secure the Credit Exposure or any part
thereof, (vii) inspecting any of the property, books or records of Borrower or
any other Person, or (viii) providing any credit or other information concerning
the affairs of Borrower or any Person which may come into the possession of the
Transferor or any of its affiliates.

                  2.3 Except as expressly set forth in the Credit Agreement,
neither the Transferor nor any of its affiliates, officers, directors,
employees, agents or attorneys (collectively, the "Transferor Parties") shall be
liable for any mistake, error of judgment, or action taken or omitted to be
taken in connection with the Interest or the Credit Documents. Except as
expressly set forth in the Credit Agreement, the Transferor Parties shall incur
no liability hereunder to the Transferee by reason of the fact that the
Transferor is, or as a consequence of the Transferor's duties as, a Bank[, or in
the case of the Administrative Agent, Lead Arrangers, Syndication Agent,
Bookrunner or LC Bank, as Administrative Agent, Lead Arrangers, Syndication
Agent, Bookrunner or LC Bank,] under the Credit Agreement.

         3. Assumption and Agreement to be Bound. The Transferee hereby accepts,
effective as of the Effective Date, the assignment of rights and delegation of
obligations referred to in Section 2, and assumes and agrees to perform fully
all of the obligations of the Transferor under the Credit Agreement and the
other Credit Documents (other than the Interest Rate Agreements) with respect to
the Interest, including, without limitation, the obligation to fund the

                                       2
<PAGE>   598

presently unfunded portion of the Interest subject to satisfaction of the
applicable conditions in the Credit Agreement and the other Credit Documents.
The Transferee agrees to be bound by the terms and conditions of the Credit
Agreement and the other Credit Documents (other than the Interest Rate
Agreements) as if it were a "Bank" originally named therein with respect to the
Interest.

         4. Notices. Notices shall be given under this Agreement in the manner
set forth in the Credit Agreement.

         5. Conditions Precedent. The Transferor's obligation to transfer the
Interest to the Transferee hereunder is expressly conditioned upon payment by
the Transferee to the Transferor of the amount set forth in Schedule 1.

         6. Representations and Warranties.

                  6.1 The Transferor hereby represents and warrants to the
Transferee that as of the Effective Date:

                           6.1.1 The Transferor is the owner of the Interest,
free and clear of any rights of others;

                           6.1.2 The Transferor is duly authorized to assign the
Interest and has obtained all consents and given all notices required under the
Credit Documents; and

                           6.1.3 This Agreement is valid and binding on the
Transferor and enforceable against the Transferor in accordance with its terms.

                  6.2 The Transferee hereby represents and warrants to the
Transferor that as of the Effective Date:

                           6.2.1 The Transferee is duly authorized and qualified
to purchase and accept the Interest;

                           6.2.2 This Agreement is valid and binding on the
Transferee and enforceable against the Transferee in accordance with its terms;

                           6.2.3 The Transferee has made its own credit analysis
of Borrower, its own credit and legal analysis of the Credit Documents and the
transactions described therein, and its own decision to purchase and accept the
Interest and to assume the duties and obligations of the Transferor with respect
to the Interest as set forth hereunder, and has done so independently and
without reliance on the Transferor, except that the Transferee has relied on the
Transferor's representations contained in Section 6.1 hereof; and

                           6.2.4 The Transferor has made no representations or
warranties to the Transferee with respect to the Interest except as set forth in
this Agreement.


                                       3
<PAGE>   599

         7. Miscellaneous.

                  7.1 Headings. Headings are for reference only and are to be
ignored in interpreting this Agreement.

                  7.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, United States of
America, without giving effect to principles of conflicts of laws (other than
Section 5-1401 of the New York General Obligations Law).

                  7.3 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings between the parties relating to the subject matter
hereof.

                  7.4 Further Assurances. Each of the Transferor and the
Transferee hereby agrees to execute and deliver such other instruments, and take
such other action, as any party may reasonably request in furtherance of the
transactions contemplated by this Agreement.

                  7.5 Counterparts. This Agreement may be executed in
counterparts.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]


                                       4
<PAGE>   600

         IN WITNESS WHEREOF, the parties hereto have executed this Assignment
and Assumption Agreement by their duly authorized officers as of the date first
above written.

TRANSFEROR:

__________________________

By: _____________________________
Name: ___________________________
Title: __________________________

By: _____________________________
Name: ___________________________
Title: __________________________

TRANSFEREE:

__________________________

By: _____________________________
Name: ___________________________
Title: __________________________

By: _____________________________
Name: ___________________________
Title: __________________________



Acknowledged and approved:


ADMINISTRATIVE AGENT:                       BORROWER:

CREDIT SUISSE FIRST BOSTON,                 CALPINE CONSTRUCTION FINANCE
NEW YORK BRANCH                             COMPANY II, LLC

By: _____________________________           By: _____________________________
Name: ___________________________           Name: ___________________________
Title: __________________________           Title: __________________________

By: _____________________________
Name: ___________________________
Title: __________________________


                                       5
<PAGE>   601

                                                            Schedule 1
                                                            to Assignment and
                                                            Assumption Agreement


<TABLE>
<S>                                                                          <C>
Percentage Interest in the outstanding Loans, the Total Loan Commitment,
the Total Turbine Purchase Loan Commitment and the Total Letter of
Credit Commitment being Transferred:                                         ___________%

Payment to the Transferor Hereunder:                                         $__________
</TABLE>


                                       6
<PAGE>   602

                                                            Schedule 2
                                                            to Assignment and
                                                            Assumption Agreement

                       DESCRIPTION OF THE CREDIT EXPOSURE


<TABLE>
<S>                                                                             <C>
Principal Amount of all Loans Outstanding:                                      $___________

Unfunded Amount of the Total Loan Commitment:                                   $___________

Total Loan Commitment:                                                          $___________

Principal Amount of all Construction Loans Outstanding:                         $___________

Principal Amount of all Turbine Purchase Loans Outstanding:                     $___________

Available Amount of the Total Turbine Purchase Loan Commitment:                 $___________

Total Turbine Purchase Loan Commitment:                                         $___________

Aggregate Stated Amount of all Letters of Credit Issued and Outstanding:        $___________

Available Amount of the Total Letter of Credit Commitment:                      $___________

Total Letter of Credit Commitment:                                              $___________
</TABLE>


                                       7
<PAGE>   603


                                   SCHEDULE 1

                       REQUIRED CONTRIBUTION PERCENTAGE*


                                      [*]
<PAGE>   604

                                  Schedule 3.2

                          Special Conditions Precedent

                                      [*]



                                       1
<PAGE>   605

                                 SCHEDULE 3.3.41

                MODIFIED CONDITIONS PRECEDENT TO INITIAL FUNDING

1. Joint Venture Projects. In the case of a Subsequent Project that is only
partially owned by the relevant Project Owner, (a) Administrative Agent on
behalf of the Banks shall have received the Joint Venture Agreement which shall
include provisions (i) requiring the Joint Venturers to fund their respective
obligations in connection with the development, construction and operation of
such Subsequent Project, providing reasonable remedies for a Joint Venturer's
failure to fund, and permitting the relevant Project Owner to fund such
obligations if any of the Joint Venturers fail to do so, (ii) permitting the
relevant Project Owner to grant a Lien on its interest in such Subsequent
Project in favor of the Banks pursuant to this Agreement, and (iii) prohibiting
any of the other Joint Venturers from granting a Lien on or otherwise
encumbering the relevant Project Owner's interest in such Subsequent Project and
(b) if required by applicable law, such Joint Venture Agreement or the relative
rights of the Joint Venturers in such Subsequent Project (or a memorandum
thereof) shall have been recorded or filed, as applicable, in the appropriate
public records in order to give third parties notice of such Joint Venture
Agreement.

2. Operative Documents.

         (a) Delivery to Administrative Agent on behalf of the Banks of executed
originals of:

                  (i) Amendments, supplements or modifications to each of the
Collateral Documents with respect to such Subsequent Project (or additional
Collateral Documents if reasonably requested by the Technical Committee,
including a Project Owner Guaranty and a Project/Turbine Owner Security
Agreement executed by the Project Owner with respect to such Subsequent Project,
an Equipment Finance Company Security Agreement executed by the Equipment
Finance Company with respect to such Subsequent Project, if applicable, and
Pledge Agreements (Pledged Equity Interests) executed by each Portfolio Entity
with respect to such Subsequent Project (other than the relevant Project Owner
and Equipment Finance Company, if any) and the Non-Affiliated Parents with
respect to such Subsequent Project, if any) considered necessary by the
Technical Committee to ensure that all rights and assets related to such
Subsequent Project, including all real property and personal property comprising
such Subsequent Project and all rights of the relevant Project Owner under any
Joint Venture Agreement relating to such Subsequent Project, have been pledged
to Administrative Agent and the Banks; provided, however, as set forth in the
relevant Project/Turbine Owner Security Agreement, Equipment Finance Company
Security Agreement, Pledge Agreements (Pledged Equity Interests) and Deed of
Trust, the Lien on the Collateral comprising such Subsequent Project and the
ownership interests in the relevant Portfolio Entities shall not secure those
Obligations relating to or arising from Projects that have achieved Operation
prior to the Funding Date.

                  (ii) Consents to assignment in substantially the form of
Exhibit E-1 or otherwise in form and substance reasonably satisfactory to the
Technical Committee from the counterparties to each Major Project Document
(Major Gas Supply Contracts, Major Power Purchase Agreements and Major Gas
Transportation Agreements only to the extent then in


                                       1
<PAGE>   606

existence), electric transmission and interconnection agreements and material
water supply agreements in respect of such Subsequent Project.

                  (iii) Affiliated Subordination Agreements substantially in the
form of Exhibit D-8 or otherwise in form and substance reasonably satisfactory
to the Technical Committee (or, if applicable, amendments to existing Affiliated
Subordination Agreements) executed by each Affiliate of Calpine (other than the
relevant Project Owner and Equipment Finance Company, if any) entering into
Project Documents with respect to such Subsequent Project considered necessary
by the Technical Committee to subordinate certain O&M Costs that the relevant
Project Owner may incur pursuant to such Project Documents to the Obligations.
Such O&M Costs shall only include amounts payable to such Affiliate which do not
represent reimbursement of costs payable to third parties not Affiliates of
Calpine and shall be subordinated to the Obligations to the same extent as O&M
Costs are subordinated to the Obligations in the corresponding documents
furnished by Borrower pursuant to Section 3.2.8 or otherwise to the extent
satisfactory to the Technical Committee.

         (b) Borrower shall have delivered to Administrative Agent the federal
employer number and all other information requested by Administrative Agent with
respect to the Portfolio Entities and the Non-Affiliated Parents, if any, with
respect to such Subsequent Project and all actions shall have been taken to
provide the Banks with a valid and perfected first priority Lien on the
Collateral in respect of such Subsequent Project (except as otherwise approved
by the Technical Committee, including all personal property comprising such
Subsequent Project) including, without limitation, to the extent necessary, the
execution, delivery and recordation of the Deed of Trust and fixture filings
with respect to such Subsequent Project in the appropriate locations, the filing
of UCC-1, UCC-2 or UCC-3 financing statements, as applicable, with respect to
such Collateral with the Secretary of State and/or other appropriate filing
office in the states in which such Subsequent Project is located, the states of
formation of the relevant Portfolio Entities or Non-Affiliated Parents or the
states in which such Portfolio Entities' or Non-Affiliated Parents' principal
places of business are located, the delivery of the Pledged Equity Interests of
the Portfolio Entities with respect to such Subsequent Project in accordance
with the relevant Pledge Agreements (Pledged Equity Interests) and the delivery
of a Portfolio Entity Note executed by the relevant Project Owner and Equipment
Finance Company, if any.

         (c) Delivery to Administrative Agent on behalf of the Banks of a
certified list of, and true and correct copies of, each Project Document with
respect to such Subsequent Project then in effect (including all the Major
Project Documents (other than Major Gas Supply Contracts (other than Gas Supply
Contracts with Affiliates of Borrower) and Major Power Purchase Agreements),
electric transmission and interconnection agreements and material water supply
agreements), and, in each case, any supplements or amendments thereto, and all
of which Project Documents shall be certified by a Responsible Officer of
Borrower as being true, complete and correct and in full force and effect on the
Funding Date and a Responsible Officer of Borrower shall deliver to
Administrative a certificate stating that neither the relevant Project Owner
nor, to Borrower's knowledge, any other party to any such Project Document is
or, but for the passage of time or giving of notice or both will be, in breach
of any material obligation thereunder, and that all conditions precedent to the
performance of the parties under such Project Documents then required to have
been performed have been satisfied.


                                       2
<PAGE>   607

         (d) Delivery to Administrative Agent of (i) all shared use agreements
and/or joint ownership agreements reasonably requested by the Technical
Committee evidencing the relevant Project Owner's interests, rights and
obligations with respect to any shared facilities incorporated into or used with
respect to such Subsequent Project, (ii) all intercreditor agreements and/or
non-disturbance agreements reasonably requested by the Technical Committee
establishing the relative rights and remedies between Administrative Agent on
behalf of the Banks and any other Persons with interests in any such shared
facilities or other properties incorporated into or used with respect to such
Subsequent Project and (iii) in the case of a Subsequent Project where the
relevant Project Owner is directly or indirectly partially owned by Borrower,
all joint venture, joint operating or other documents relating to the joint
ownership or joint governance of such Project Owner between the Portfolio
Entities and the Non-Affiliated Parents with respect to such Subsequent Project.

3. Insurance. Insurance with respect to such Subsequent Project complying with
Exhibit K to the Credit Agreement (as the same may be modified to include such
Subsequent Project) shall be in full force and effect and Administrative Agent
on behalf of the Banks shall have received (a) a certificate from Borrower's
insurance broker(s), dated as of the Funding Date and identifying underwriters,
type of insurance, insurance limits and policy terms, listing the special
provisions required as set forth in Exhibit K, describing the insurance obtained
and stating that such insurance is in full force and effect and that all
premiums due thereon have been paid and that, in the opinion of such broker(s),
such insurance complies with Exhibit K, and (b) certified copies of all policies
evidencing such insurance (or a binder, commitment or certificates signed by the
insurer or a broker authorized to bind the insurer).

4. Certificate of the Independent Engineer. Delivery to Administrative Agent on
behalf of the Banks of the Independent Engineer's certificate with respect to
such Subsequent Project, in substantially the form of Exhibit F-6, with the
Independent Engineer's report with respect to such Subsequent Project attached
thereto, confirming that the revenue assumptions approved by the Power Marketing
Consultant in its report delivered to Administrative Agent on behalf of the
Banks pursuant to this Schedule 3.3.41 and fuel price assumptions approved by
the Fuel Consultant in its report delivered to Administrative Agent on behalf of
the Banks pursuant to this Schedule 3.3.41 have been properly incorporated into
the Base Case Project Projections and that the Project Schedule with respect to
such Subsequent Project is consistent with the applicable Project Budget, and
the Technical Committee shall be satisfied that the projected O&M Costs and the
projected performance (including output, heat rate, environmental and Permit
compliance, and availability, individually or taken as a whole) of such
Subsequent Project as reflected in the Base Case Project Projections delivered
to Administrative Agent on behalf of the Banks as contemplated in this Schedule
3.3.41 and the design and other technical aspects of, such Subsequent Project,
are reasonable and achievable in a manner consistent with the applicable Project
Budget and Project Schedule.


                                       3
<PAGE>   608

5. Reports of the Environmental Consultant. Delivery to Administrative Agent on
behalf of the Banks of Borrower's Environmental Consultant's Phase I reports
with respect to such Subsequent Project and, if a Phase II environmental review
is warranted by any of such Phase I reports, as reasonably determined by the
Technical Committee, delivery to Administrative Agent on behalf of the Banks of
a Phase II report, in each case, along with the corresponding reliance letters
from such Environmental Consultant either (i) confirming that no Hazardous
Substances were found in, on or under the Site or Easements of such Subsequent
Project or (ii) disclosing matters that are otherwise satisfactory to the
Technical Committee.

6. Certificate of the Fuel Consultant. Delivery to Administrative Agent on
behalf of the Banks of the Fuel Consultant's certificate with respect to such
Subsequent Project, in substantially the form of Exhibit F-8, with the Fuel
Consultant's report with respect to such Subsequent Project attached thereto,
confirming that there is sufficient fuel available to such Subsequent Project to
operate such Subsequent Project in the manner contemplated by, and in accordance
with the fuel price assumptions incorporated in the Base Case Project
Projections delivered to Administrative Agent on behalf of the Banks as
contemplated in this Schedule 3.3.41 and that the Fuel Plan delivered to
Administrative Agent on behalf of the Banks as contemplated in this Schedule
3.3.41 for such Subsequent Project constitutes a reasonable plan for the supply
and transportation of fuel for such Project under existing and expected market
conditions affecting such Subsequent Project and consistent with the intended
operation thereof.

7. Certificate of Power Marketing Consultant. Delivery to Administrative Agent
on behalf of the Banks of a Power Marketing Consultant's certificate with
respect to such Subsequent Project, in substantially the form of Exhibit F-9,
with a Power Marketing Consultant's report with respect to such Subsequent
Project attached thereto, confirming that the revenue assumptions incorporated
in the Base Case Project Projections delivered to Administrative Agent on behalf
of the Banks as contemplated in this Schedule 3.3.41 are reasonable in light of
existing and expected market conditions affecting such Subsequent Project.

8. Power Marketing Plan. Delivery to Administrative Agent on behalf of the Banks
of a plan with respect to power marketing setting forth Borrower's good faith
assessment of the projected sales of power with respect to such Subsequent
Project, which plan shall not in any way be construed to modify or limit
Borrower's rights and obligations set forth herein, substantially in the form of
the Power Marketing Plans furnished by Borrower pursuant to Section 3.2.16 and
with such additional changes as may be appropriate under the circumstances.

9. Fuel Plan. Delivery to Administrative Agent on behalf of the Banks of a plan
with respect to fuel setting forth Borrower's good faith assessment of such
Subsequent Project's projected fuel consumption needs and fuel supply and
transportation strategy, which plan shall not in any way be construed to modify
or limit Borrower's rights and obligations set forth herein, substantially in
the form of the Fuel Plans delivered furnished by Borrower pursuant to Section
3.2.17 and with such additional changes satisfactory in form and substance to
the Fuel Consultant as may be appropriate under the circumstances.

10. No Change in Tax Laws. No change shall have occurred, since the date upon
which this Agreement was executed and delivered, in any law or regulation or
interpretation thereof that would subject any Bank to any material unreimbursed
Tax or Other Tax.


                                       4
<PAGE>   609

11. Absence of Litigation. (a) No action, suit, proceeding or investigation
shall have been instituted or threatened against any Portfolio Entity in respect
of such Subsequent Project which could reasonably be expected to have a Material
Adverse Effect on Borrower or such Subsequent Project, and (b) except for the
applicability of the FPA solely by reason of the relevant Project Owner being an
Exempt Wholesale Generator, no order, judgment or decree shall have been issued
or proposed to be issued by any Governmental Authority that, as a result of the
construction, ownership, leasing or operation of such Subsequent Project, the
sale of electricity or steam therefrom or the entering into of any Operative
Document with respect to such Subsequent Project or any transaction contemplated
hereby or thereby, would cause or deem the Banks, any Portfolio Entity or any
Affiliate of any of them to be subject to, or not exempted from, regulation
under the FPA or PUHCA or under state laws and regulations respecting the rates
or the financial or organizational regulation of electric utilities.

12. Payment of Filing Fees. All amounts required to be paid to or deposited with
the Banks (including the Activation Fee) in respect of such Subsequent Project,
and all taxes, fees and other costs payable in connection with the execution,
delivery, recordation and filing of the documents and instruments referred to in
this Schedule 3.3.41, shall have been paid in full or, as approved by the
Technical Committee, provided for.

13. UCC Reports. Administrative Agent on behalf of the Banks shall have received
a UCC report of a date reasonably close to the Funding Date for each of the
jurisdictions in which any UCC-1 financing statements or amendments thereto are
intended to be filed in respect of the Collateral with respect to such
Subsequent Project, showing that upon due filing (assuming such filing or
recordation occurred on the date of such respective reports), the security
interests created under the Collateral Documents with respect to such Subsequent
Project will be prior to all other financing statements or other security
documents wherein the security interest is perfected by filing in respect of
such Collateral.

14. Project Budgets. Borrower shall have furnished Administrative Agent on
behalf of the Banks budgets in substantially the form of the Project Budgets
delivered pursuant to Section 3.1.14 but with such changes as are required to
address the specifics of such Subsequent Project for all anticipated costs to be
incurred in connection with the construction and start-up of such Subsequent
Project, including in such budgets all construction and non-construction costs,
and including all interest, taxes and other carrying costs, together with a
balanced statement of sources (including an allocation between Construction Loan
proceeds and Contributions) and uses of proceeds (and any other funds necessary
to complete such Subsequent Project), broken down as to separate construction
phases and components.

15. Project Schedule. Borrower shall have furnished Administrative Agent a
project schedule with respect to such Subsequent Project in substantially the
form of the Project Schedules delivered pursuant to Section 3.2.25 but with such
changes as are required to address the specifics of such Subsequent Project and
showing a guaranteed completion date for such Subsequent Project that is on or
before the Loan Maturity Date and which is consistent with the Base Case Project
Projections delivered pursuant to Section 16 of this Schedule 3.3.41 and the
Independent Engineer's report delivered pursuant to Section 4 of this Schedule
3.3.41.


                                       5
<PAGE>   610

16. Base Case Project Projections. Borrower shall have furnished to
Administrative Agent on behalf of the Banks the combined Base Case Project
Projections of operating expenses and cash flow for all Funded Initial Projects
and Funded Subsequent Projects (including such Subsequent Project) showing, for
each year in such projections, a projected annual Four-Quarter Portfolio
Interest Coverage Ratio equal to or exceeding 2.25 to 1.00 (which ratio shall be
supported by the projections set forth in the Independent Consultant's reports
delivered pursuant to Sections 3.2 and 3.3 with respect to such Projects) in
substantially the form (including the duration thereof) of those projections
delivered pursuant to Section 3.1.16.

17. No Material Adverse Change. No event or circumstance having a Material
Adverse Effect with respect to Borrower has occurred since the Closing Date,
and, with respect to such Subsequent Project, no event or circumstance having a
Material Adverse Effect with respect to such Subsequent Project shall have
occurred.

18. Title Policies. Borrower shall have delivered to Administrative Agent on
behalf of the Banks a lender's A.L.T.A. policy of title insurance, together with
such endorsements as are required by the Technical Committee (without a
mechanics' and materialmen's exception included in such title policy, except
where applicable Governmental Rules prevent the deletion of such exception), or
commitment to issue such policy, dated as of the Funding Date (x) in an amount
equal to 50% of the aggregate amount of Project Costs set forth in the Project
Budget for such Subsequent Project (or such other amount as is reasonably
acceptable to the Technical Committee) and (y) with such reinsurance as is
satisfactory to the Technical Committee, issued by the Title Insurer in form and
substance satisfactory to the Technical Committee, insuring (or agreeing to
insure) that:

         (a) the relevant Project Owner has a good, marketable and insurable fee
or leasehold title to or right to control, occupy and use the Site and the
Easements with respect to such Subsequent Project, free and clear of liens,
encumbrances or other exceptions to title except Permitted Liens described in
clause (a), (b) or (e) of the definition thereof, those otherwise permitted
pursuant to this Section 18 of Schedule 3.3.41 and those satisfactory to the
Technical Committee and specified on such policy; and

         (b) the Deed of Trust with respect to such Subsequent Project is (or
will be when recorded) a valid first lien on the Mortgaged Property with respect
to such Subsequent Project, free and clear of all liens, encumbrances and
exceptions to title whatsoever, other than those encumbrances permitted pursuant
to clause (a) above.

19. Regulatory Status. Such Subsequent Project shall (a) have complied with the
requirements of 18 C.F.R. Section 292.207 required to be complied with as of the
Funding Date and delivered to Administrative Agent on behalf of the Banks either
(i) a certificate of FERC certifying such Subsequent Project as a Qualifying
Facility, or (ii) documentation evidencing the self-certification of such
Subsequent Project as a Qualifying Facility and a legal opinion of counsel to
the Portfolio Entities with respect to the effectiveness of such documentation
to qualify such Subsequent Project as a Qualifying Facility or (b) be or be
capable of becoming an Eligible Facility, and (x) if the relevant Project Owner
has previously filed an application with FERC for a determination that such
Project Owner is an Exempt Wholesale Generator, Borrower shall have delivered to
the Technical Committee a copy of an additional or supplemental application


                                       6
<PAGE>   611

regarding Exempt Wholesale Generator with respect to such Subsequent Project
filed by such Project Owner with FERC and (y) the Technical Committee shall have
received a legal opinion of counsel to the Portfolio Entities to the effect that
(i) if FERC has previously determined that such Project Owner is an Exempt
Wholesale Generator, such Subsequent Project will not adversely impact such
Project Owner's status as an Exempt Wholesale Generator or (ii) if FERC has not
yet determined that such Project Owner is an Exempt Wholesale Generator, there
exists no reasonable basis for FERC to deny an application filed by such Project
Owner pursuant to Section 5.12.1 for Exempt Wholesale Generator status.

20. Calpine Compliance. No "event of default" (as defined therein) that are
greater than $10,000,000 under any agreement or instrument documenting or
evidencing any of Calpine's Debt obligations shall have occurred and be
continuing.

21. Calpine Guaranties. Calpine shall have executed (a) an acknowledgement, in
form and substance satisfactory to the Technical Committee, that such Subsequent
Project shall be included with the obligations undertaken pursuant to the
Project Completion Guaranty and (b) (i) in the case of each Person party to a
Project Document that is directly or indirectly more than 50% owned by Calpine
(other than the relevant Project Owner and Equipment Finance Company, if any),
an Affiliated Party Agreement Guaranty in respect of each Project Document
(guarantying 100% of such Person's obligations under each such Project Document)
entered into between the relevant Project Owner and such Person for such
Subsequent Project or (ii) in the case of each Person party to a Project
Document that is directly or indirectly 50% owned by Calpine (other than the
relevant Project Owner and Equipment Finance Company, if any), an Affiliated
Party Agreement Guaranty in respect of each Project Document (guarantying at
least Calpine's percentage ownership interest of such Person's obligations under
each such Project Document) entered into between the relevant Project Owner and
such Person for such Subsequent Project; provided, in the case of clause (b)(ii)
of this Section 21 of this Schedule 3.3.41, Borrower shall also deliver to
Administrative Agent a guaranty agreement in favor of the relevant Project Owner
in respect of each such Project Document, executed by a guarantor satisfactory
to the Technical Committee and in form and substance satisfactory to the
Technical Committee, guarantying those obligations of such Person under each
such Project Document not otherwise addressed in the Affiliated Party Agreement
Guaranty delivered pursuant to such clause.

22. Updated Exhibits. Borrower shall have delivered to Administrative Agent
supplements to (a) Exhibit G-8 (Hazardous Substances) referencing the
environmental reports in respect of such Subsequent Project that were delivered
to Administrative Agent on behalf of the Banks pursuant to this Schedule 3.3.41,
(b) Exhibit D-6 reflecting the filings and recordings required to be made to
perfect security interests in the Collateral in respect of such Subsequent
Project, and (c) Exhibit K reflecting any additional or revised insurance
policies or coverages required by the Insurance Consultant to account for such
Subsequent Project.

23. Diversification Requirements. Such Subsequent Project satisfies the
Diversification Requirements.

24. Calpine Corporation Credit Rating. Calpine shall be rated at least Ba2 by
Moody's and BB by S&P.


                                       7
<PAGE>   612
                                  Schedule 4.24

                  Chief Executive Offices of Portfolio Entities

As used in this Schedule 4.24, the following terms shall apply

      "Chief Executive Office" shall mean the chief executive office or chief
place of business as that term is used in Article 9 of the Uniform Commercial
Code as in effect in each state where the Projects are located and the States of
California and New York from time to time

      "Corporate" shall mean the Corporate Headquarters of Calpine Corporation,
located at 50 West San Fernando Street, San Jose, California 95113.

      "CRO" shall mean the Central Regional Office of Calpine Corporation,
located at 700 Louisiana, Suite 2700, Houston, Texas 77002.

      "ERO" shall mean the Eastern Regional Office of Calpine Corporation,
located at The Pilot House, 2nd Floor, Lewis Wharf, Boston, Massachusetts 02110.

      "FEIN" shall mean federal employer identification number

      "WRO" shall mean the Western Regional Office of Calpine Corporation,
located at 6700 Koll Center Parkway, Suite 200, Pleasanton, California 94566.


Portfolio Entities Chief Executive Office and FEIN

Calpine Construction Finance Company, II LLC
        Chief Executive Office: Corporate
        FEIN: 77-0555128

CCFC II Development Company, LLC
        Chief Executive Office: Corporate
        FEIN: 77-0555127

CCFC II Equipment Finance Holdings, LLC
        Chief Executive Office: Corporate
        FEIN: 77-0555519

CCFC II Equipment Finance Company, LLC
        Chief Executive Office: Corporate
        FEIN: 77-0555523

CCFC II Project Equipment Finance Company One, LLC
        Chief Executive Office: Corporate
        FEIN: 77-0556245


                                       1
<PAGE>   613
Los Medanos Energy Center, LLC
        Chief Executive Office Corporate, WRO
        FEIN: 77-0553164

Delta Energy Center, LLC
        Chief Executive Office: Corporate, WRO
        FEIN: 77-0555126

CPN Delta Holdings LLC
        Chief Executive Office: Corporate, WRO
        FEIN: 77-0549685

Corpus Christi Cogeneration LP
        Chief Executive Office: Corporate, CRO
        FEIN: 36-4337040

SkyGen SouthCoast Investors LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 36-4337045

Nueces Bay Energy LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 36-4216016

Decatur Energy Center, LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0555708

Morgan Energy Center, LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0555141

Baytown Energy Center, LP
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0555134

Calpine Baytown Energy Center GP, LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0555133

Calpine Baytown Energy Center LP, LLC I
        Chief Executive Office: Corporate, CRO
        FEIN:77-0555138

Carville Energy LLC
        Chief Executive Office: Corporate, CRO


                                       2
<PAGE>   614
        FEIN 36-4309608

Calpine Oneta Power, L.P.
        Chief Executive Office: Corporate, CRO
        FEIN: 75-2815392

Calpine Oneta Power I, LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 75-2815390

Calpine Oneta Power II, LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 75-2815394

Freestone Power Generation, LP
        Chief Executive Office: Corporate, CRO
        FEIN: 76-0608559

Calpine Power Equipment LP
        Chief Executive Office: Corporate, CRO
        FEIN: 76-0645514

CPN Freestone, Inc.
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0545937

Calpine Freestone, Inc.
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0546242

Channel Energy Center, LP
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0555137

Calpine Channel Energy Center GP, LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0555139

Calpine Channel Energy Center LP, LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 77-0555140

Nueces Bay Energy LLC
        Chief Executive Office: Corporate, CRO
        FEIN: 36-4216016


                                       3
<PAGE>   615
Broad River Investors LLC
       Chief Executive Office: Corporate, ERO
       FEIN 36-4311004

Santa Rosa Energy LLC
       Chief Executive Office: Corporate, ERO
       FEIN: 36-4216066


                                       4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>20
<FILENAME>f70293ex12-1.txt
<DESCRIPTION>EXHIBIT 12.1
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 12.1

                          STATEMENT ON COMPUTATION OF
                       RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                        ----------------------------------------------------
                                         1996       1997       1998       1999       2000
                                        -------   --------   --------   --------   ---------
(in thousands)
<S>                                     <C>       <C>        <C>        <C>        <C>
COMPUTATION OF EARNINGS:
-----------------------
Pretax income before adjustment
  for minority interests in
  consolidated subsidiaries and
  income or loss from equity
  investees .........................   $21,219   $ 37,340   $ 48,133   $121,623   $ 521,683
Fixed charges .......................    48,672     72,718    100,015    153,268     331,023
Amortization of capitalized
  interest ..........................        --         --        136        331         447
Distributed income of equity
  investees .........................     1,274     21,042     27,717     43,318      29,979
Interest capitalized ................        --     (6,200)    (7,000)   (47,300)   (206,973)
Minority interest in pretax income
  of subsidiaries that have not
  incurred fixed charges ............        --         --         --        265        (895)
                                        -------   --------   --------   --------   ---------
Total earnings ......................   $71,165   $124,900   $169,001   $271,505   $ 675,264
                                        =======   ========   ========   ========   =========

COMPUTATION OF FIXED CHARGES:
----------------------------
Interest expensed and capitalized ...   $45,294   $ 67,666   $ 93,726   $138,462   $ 263,673
Estimate of interest within rental
  expense ...........................     3,378      5,052      6,289     12,241      23,140
Distributions on HIGH TIDES .........        --         --         --      2,565      44,210
                                        -------   --------   --------   --------   ---------
Total fixed charges .................   $48,672   $ 72,718   $100,015   $153,268   $ 331,023
                                        =======   ========   ========   ========   =========
Ratio of earnings to fixed charges ..      1.46x      1.72x      1.69x      1.77x       2.04x
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>21
<FILENAME>f70293ex21.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>

<PAGE>   1

                                                                      EXHIBIT 21

           Subsidiaries of Calpine Corporation as of December 31, 2000

     Set forth below are the names of certain subsidiaries, at least 50% owned,
directly or indirectly, of Calpine Corporation as of December 31, 2000, unless
otherwise indicated. Certain subsidiaries which when considered in the aggregate
would not constitute a significant subsidiary, are omitted from the list below.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
3044017 Nova Scotia Company                                                Nova Scotia                       100%
899510 Alberta Ltd.                                                          Alberta                         100%
Acadia Power Partners, LLC                                                   Delaware                        50%
Airport Cogen Corp.                                                          Delaware                        100%
Anacapa Land Company, LLC                                                    Delaware                        100%
Anderson Springs Energy Company                                             California                       100%
Androscoggin Energy, Inc.                                                    Illinois                        100%
Auburndale Power Partners, L.P.                                              Delaware                        100%
Augusta Energy                                                               Delaware                        100%
Aviation Funding Corporation                                                 Delaware                        100%
Bayou Verret Energy LLC                                                      Delaware                        100%
Baytown Energy Center, LP                                                    Delaware                        100%
Bellingham Cogen, Inc.                                                      California                       100%
Bethpage Cogeneration Limited Partnership                                    Delaware                        100%
Bethpage Fuel Management Inc.                                                Delaware                        100%
Broad River Energy LLC                                                       Delaware                        100%
Broad River Investors LLC                                                    Delaware                        100%
Calistoga Geothermal Partners, LP                                            Delaware                        100%
Calpine Acadia Holdings, LLC                                                 Delaware                        100%
Calpine Agnews, Inc.                                                        California                       100%
Calpine Auburndale, Inc.                                                     Delaware                        100%
Calpine Baytown Energy Center GP, LLC                                        Delaware                        100%
Calpine Baytown Energy Center LP, LLC                                        Delaware                        100%
Calpine C*Power Inc.                                                         Delaware                        100%
Calpine Calgary Energy Centre Ltd.                                           Alberta                         100%
Calpine Calgary, Inc.                                                        Delaware                        100%
Calpine Calistoga Holdings, LLC                                              Delaware                        100%
Calpine Canada Power Holdings Ltd.                                           Alberta                         100%
Calpine Canada Power, Inc.                                                   Delaware                        100%
Calpine Canada TriGas, Ltd.                                                  Alberta                         100%
Calpine Capital Trust                                                        Delaware                        100%
Calpine Capital Trust II                                                     Delaware                        100%
Calpine Capital Trust III                                                    Delaware                        100%
Calpine CCFC GP, Inc.                                                        Delaware                        100%
Calpine CCFC Holdings, Inc.                                                  Delaware                        100%
Calpine CCFC II Holdings, Inc.                                               Delaware                        100%
Calpine CCFC LP, Inc.                                                        Delaware                        100%
Calpine Central, Inc.                                                        Delaware                        100%
Calpine Central, L.P.                                                        Delaware                        100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>   2

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
Calpine Central-Texas, Inc.                                                  Delaware                        100%
Calpine Channel Energy Center GP, Inc.                                       Delaware                        100%
Calpine Channel Energy Center GP, LLC                                        Delaware                        100%
Calpine Channel Energy Center LP, Inc.                                       Delaware                        100%
Calpine Channel Energy Center LP, LLC                                        Delaware                        100%
Calpine Cogeneration Corporation                                             Delaware                        100%
Calpine Construction Finance Company I, Inc.                                 Delaware                        100%
Calpine Construction Finance Company II, Inc.                                Delaware                        100%
Calpine Construction Finance Company, L.P.                                   Delaware                        100%
Calpine Construction Management Company, Inc.                                Delaware                        100%
Calpine Coos Development Company, Inc.                                      California                       100%
Calpine Decatur Pipeline, Inc.                                               Delaware                        100%
Calpine Decatur Pipeline, L.P.                                               Delaware                        100%
Calpine Deer Park GP, LLC                                                    Delaware                        100%
Calpine Deer Park LP, LLC                                                    Delaware                        100%
Calpine Dighton Inc.                                                         Delaware                        100%
Calpine East Acquisition Corporation                                         Delaware                        100%
Calpine East Fuels, Inc.                                                     Delaware                        100%
Calpine Eastern Corporation                                                  Delaware                        100%
Calpine Edinburg, Inc.                                                       Delaware                        100%
Calpine Energy Kennedy Airport Inc.                                          Delaware                        100%
Calpine Energy Kennedy Operators Inc.                                        New York                        100%
Calpine Energy KIA Inc.                                                      New York                        100%
Calpine Energy Long Island Inc.                                              Delaware                        100%
Calpine Energy Power Inc.                                                    Delaware                        100%
Calpine Energy Services Canada Ltd.                                          Delaware                        100%
Calpine Energy Services, L.P.                                                Delaware                        100%
Calpine Energy Stony Brook Inc.                                              Delaware                        100%
Calpine Energy Stony Brook Operators Inc.                                    New York                        100%
Calpine Finance Company                                                      Delaware                        100%
Calpine Freestone Pipeline GP, Inc.                                          Delaware                        100%
Calpine Freestone, Inc.                                                      Delaware                        100%
Calpine Fuels Corporation                                                   California                       100%
Calpine Fuels Texas Corporation                                              Delaware                        100%
Calpine Gas Company                                                          Delaware                        100%
Calpine/Gentex Lost Pines, L.P.                                              Delaware                        50%
Calpine Geysers Company, L.P.                                                Delaware                        100%
Calpine Gilroy 1, Inc.                                                       Delaware                        100%
Calpine Gilroy 2, Inc.                                                       Delaware                        100%
Calpine Gilroy Cogen, L.P.                                                   Delaware                        100%
Calpine Gordonsville, Inc.                                                   Delaware                        100%
Calpine Greenleaf Holdings, Inc.                                             Delaware                        100%
Calpine Greenleaf, Inc.                                                      Delaware                        100%
Calpine Hermiston, Inc.                                                      Delaware                        100%
Calpine Hidalgo Design, L.P.                                                 Delaware                        100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>   3

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
Calpine Hidalgo Energy Center, L.P.                                          Delaware                        100%
Calpine Hidalgo Holdings, Inc.                                               Delaware                        100%
Calpine Hidalgo, Inc.                                                        Delaware                        100%
Calpine Jersey Cogen, Inc.                                                   Delaware                        100%
Calpine Kennedy Airport, Inc.                                                New York                        100%
Calpine KIA, Inc.                                                            New York                        100%
Calpine King City 1, Inc.                                                    Delaware                        100%
Calpine King City 2, Inc.                                                    Delaware                        100%
Calpine King City Cogen Inc.                                                California                       100%
Calpine King City Cogen, LLC                                                California                       100%
Calpine Leasing Inc.                                                         Delaware                        100%
Calpine Long Island, Inc.                                                    Delaware                        100%
Calpine Lost Pines Operations, Inc.                                          Delaware                        100%
Calpine Magic Valley Pipeline, Inc.                                          Delaware                        100%
Calpine Magic Valley Pipeline, L.P.                                          Delaware                        100%
Calpine Marketing, LLC                                                       Delaware                        100%
Calpine Monterey Cogeneration, Inc.                                         California                       100%
Calpine Morris, LLC                                                          Delaware                        100%
Calpine MVG, Inc.                                                            Delaware                        100%
Calpine MVP, Inc.                                                            Delaware                        100%
Calpine Natural Gas Company                                                  Delaware                        100%
Calpine Newark, Inc.                                                         Delaware                        100%
Calpine Northeast Marketing, Inc.                                            Delaware                        100%
Calpine Oneta Power I, LLC                                                   Delaware                        100%
Calpine Oneta Power II, LLC                                                  Delaware                        100%
Calpine Oneta Power, L.P.                                                    Delaware                        100%
Calpine Operating Plant Services, Inc.                                      California                       100%
Calpine Parlin, Inc.                                                         Delaware                        100%
Calpine Pasadena Cogeneration, Inc.                                          Delaware                        100%
Calpine Philadelphia, Inc.                                                   Delaware                        100%
Calpine Pittsburgh, LLC                                                      Delaware                        100%
Calpine Pittsburg, Inc.                                                      Delaware                        100%
Calpine Power Company                                                       California                       100%
Calpine Power Equipment, LP                                                   Texas                          100%
Calpine Power Management, Inc.                                               Delaware                        100%
Calpine Power Services Company                                              California                       100%
Calpine PowerAmerica, Inc.                                                   Delaware                        100%
Calpine PowerAmerica, LP                                                     Delaware                        100%
Calpine Project Investments, Inc.                                           California                       100%
Calpine Pryor, Inc.                                                          Delaware                        100%
Calpine Rumford Cogeneration Inc.                                            Delaware                        100%
Calpine Rumford, Inc.                                                        Delaware                        100%
Calpine Schuylkill, Inc.                                                     Delaware                        100%
Calpine Securities Company, L.P.                                             Delaware                        100%
Calpine Siskiyou Geothermal Partners, L.P.                                  California                       100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>   4

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
Calpine Sonoma, Inc.                                                        California                       100%
Calpine South Point, Inc.                                                    Delaware                        100%
Calpine Stony Brook Operators, Inc.                                          New York                        100%
Calpine Stony Brook, Inc.                                                    New York                        100%
Calpine Sumas, Inc.                                                         California                       100%
Calpine Sutter, Inc.                                                         Delaware                        100%
Calpine Texas Cogeneration, Inc.                                             Delaware                        100%
Calpine Texas Pipeline GP, Inc.                                              Delaware                        100%
Calpine Texas Pipeline LP, Inc.                                              Delaware                        100%
Calpine Texas Pipeline, L.P.                                                 Delaware                        100%
Calpine Thermal Power, Inc.                                                 California                       100%
Calpine Tiverton I, Inc.                                                     Delaware                        100%
Calpine Tiverton, Inc.                                                       Delaware                        100%
Calpine Tiverton, L.P.                                                       Delaware                        100%
Calpine University Power, Inc.                                               Delaware                        100%
Calpine Vapor, Inc.                                                         California                       100%
Calpine Westbrook, Inc.                                                      Delaware                        100%
Calpine-EMI Marketing LLC                                                    Delaware                        100%
Calpine/Gentex Lost Pines Operations, L.P.                                   Delaware                        100%
Carville Energy LLC                                                          Delaware                        100%
CCFC Development Company, LLC                                                Delaware                        100%
CCFC Equipment Finance Company, LLC                                          Delaware                        100%
CCFC II Development Company, LLC                                             Delaware                        100%
CCFC II Equipment Finance Company, LLC                                       Delaware                        100%
CCFC II Equipment Finance Holdings, LLC                                      Delaware                        100%
CCFC II Project Equipment Finance Company One, LLC                                                           100%
CGC Dighton, LLC                                                             Delaware                        100%
Channel Energy Center, LP                                                    Delaware                        100%
Clear Lake Cogeneration Limited Partnership                                  Delaware                        100%
Cloverdale Geothermal Partners, L.P.                                         Delaware                        100%
Columbia Energy LLC                                                          Delaware                        100%
Corpus Christi Cogeneration L.P.                                             Delaware                        100%
CPN Acadia, Inc.                                                             Delaware                        100%
CPN Aidlin, Inc.                                                             Delaware                        100%
CPN Auburndale, Inc.                                                         Delaware                        100%
CPN Bayonne, Inc.                                                            Delaware                        100%
CPN Berks Generation, Inc.                                                   Delaware                        100%
CPN Berks, LLC                                                               Delaware                        100%
CPN Calistoga, LLC                                                           Delaware                        100%
CPN Clear Lake, Inc..                                                        Delaware                        100%
CPN Decatur Pipeline, Inc.                                                   Delaware                        100%
CPN Delta Holdings LLC                                                       Delaware                        100%
CPN Delta, Inc.                                                              Delaware                        100%
CPN East Fuels Inc.                                                          Delaware                        100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>   5

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
CPN East Fuels, LLC                                                          Delaware                        100%
CPN Energy Services GP, Inc.                                                 Delaware                        100%
CPN Energy Services LP, Inc.                                                 Delaware                        100%
CPN Freestone, Inc.                                                          Delaware                        100%
CPN Funding, Inc.                                                            Delaware                        100%
CPN Gas Marketing Company                                                    Delaware                        100%
CPN Haywood Holdings, LLC                                                    Delaware                        100%
CPN Hermiston, Inc.                                                          Delaware                        100%
CPN Insurance Corporation                                                     Hawaii                         100%
CPN Morris, Inc.                                                             Delaware                        100%
CPN Osprey, Inc.                                                             Delaware                        100%
CPN Oxford, Inc.                                                             Delaware                        100%
CPN Pipeline Company                                                         Delaware                        100%
CPN Pleasant Hill Operating, LLC                                             Delaware                        100%
CPN Pleasant Hill, LLC                                                       Delaware                        100%
CPN Production Company                                                       Delaware                        100%
CPN Pryor Funding Corporation                                                Delaware                        100%
CPN Quincy Holdings, LLC                                                     Colorado                        100%
CPN Sheridan, Inc.                                                           Delaware                        100%
CPN Texas Central Fuels, L.P.                                                 Texas                          100%
CPN Westbrook I, Inc.                                                        Delaware                        100%
De Pere Energy L.L.C.                                                       Wisconsin                        100%
DEC-LMEC Pipeline, LLC                                                       Delaware                        100%
Decatur Energy Center LLC                                                    Delaware                        100%
Deer Park Energy Center, L.P.                                                Delaware                        100%
DEI Texas, Inc.                                                              Virginia                        100%
Delta Energy Center LLC                                                      Delaware                        50%
Dighton Power Associates Limited Partnership                              Massachusetts                      100%
East Altamont Energy Center, LLC                                             Delaware                        100%
EMI/Tiverton, Inc.                                                           Delaware                        100%
Energypro Construction Partners                                              Delaware                        100%
Enron Cogeneration One Company                                               Delaware                        100%
Fond Du Lac Energy Center, LLC                                               Delaware                        100%
Freestone Power Generation LP                                                 Texas                          100%
Fremont Energy Center LLC                                                    Delaware                        100%
Gas Energy Cogeneration Inc.                                                 Delaware                        100%
Gas Energy Inc.                                                              Delaware                        100%
GATX/Calpine-Agnews, Inc.                                                    Delaware                        100%
GEC Bethpage Inc.                                                            Delaware                        100%
Geothermal Energy Partners                                                  California                       100%
Geysers Finance Company                                                      Delaware                        100%
Geysers Power Co.                                                            Delaware                        100%
Geysers Power Company II, LLC                                                Delaware                        100%
Geysers Power Company, LLC                                                   Delaware                        100%
Geysers Power I Company                                                      Delaware                        100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>   6

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
Gordonsville Energy, L.P.                                                    Delaware                        50%
Greenleaf Unit One Associates, Inc.                                         California                       100%
Greenleaf Unit Two Associates, Inc.                                         California                       100%
Groveton Energy LLC                                                          Delaware                        100%
Hammond Energy LLC                                                           Delaware                        100%
Haywood Energy Center, LLC                                                   Delaware                        100%
Healdsburg Energy Company, L.P.                                              Delaware                        100%
Hermiston Power Partnership                                                  Delaware                        100%
Idlewild Fuel Management Corp.                                               Delaware                        100%
JMC Bethpage, Inc.                                                           Delaware                        100%
JOQ Canada, Inc.                                                             Delaware                        100%
Lawrence Energy Center, LLC                                                  Delaware                        100%
Livermore Falls Energy LLC                                                   Delaware                        100%
Lone Oak Energy Center, LLC                                                  Delaware                        100%
Los Medanos Energy Center LLC                                                Delaware                        100%
Magic Valley Pipeline, L.P.                                                  Delaware                        100%
MEP Investments, LLC                                                         Delaware                        100%
MEP Pleasant Hill, LLC                                                       Delaware                        50%
Moapa Paiute Energy Center, LLC                                              Delaware                        100%
Mobile Energy LLC                                                            Delaware                        100%
Modoc Power, Inc.                                                           California                       100%
Morgan Energy Center LLC                                                     Delaware                        100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>   7

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
Mount Hoffman Geothermal Company, L.P.                                       Delaware                        100%
Mt. Vernon Energy LLC                                                        Delaware                        100%
Nissequogue Cogen Partners                                                   Delaware                        100%
Northern Cogeneration One Company                                            Delaware                        100%
Northern Cogeneration Three Company                                          Delaware                        100%
Northwest Cogeneration, Inc.                                                California                       100%
Nueces Bay Energy LLC                                                        Delaware                        100%
O'Brien (Philadelphia) Cogeneration, Inc.                                    Delaware                        100%
O'Brien Biogas Producing (Suffolk), Inc.                                     Delaware                        100%
O'Brien Cogeneration Inc.                                                    Delaware                        100%
O'Brien Energy Services Company                                              Delaware                        100%
O'Brien Environmental Energy, Inc.                                           Delaware                        100%
O.L.S. Energy-Agnews, Inc.                                                   Delaware                        100%
Odyssey Land Acquisition Company                                             Delaware                        100%
OES, Inc.                                                                    Delaware                        100%
Oklahoma Loan Acquisition Corp.                                              Delaware                        100%
Pastoria Energy Center, LLC                                                  Delaware                        100%
PEC Energy Marketing, Inc.                                                   Delaware                        100%
Pine Bluff Energy, LLC                                                       Delaware                       66.67%
Polsky Energy Corporation                                                    Delaware                        100%
Polsky Energy Corporation of Maine, Inc.                                     Delaware                        100%
Polsky SCQ Services, Inc.                                                    Delaware                        100%
Portsmouth Leasing Corp.                                                     Delaware                        100%
Power Investors, L.L.C.                                                      Delaware                        100%
QMC Resources Canada Corp.                                                 Nova Scotia                       100%
Quincy Energy Center, LLC                                                    Delaware                        100%
Quintana Canada Holdings, LLC                                                Delaware                        100%
Quintana Mineral (USA) Inc.                                                  Delaware                        100%
Reliability 2000 LLC                                                         Delaware                        100%
RockGen Energy LLC                                                           Delaware                        100%
Rumford Power Associates, L.P.                                               Delaware                        100%
Russell City Energy Center, LLC                                              Delaware                        100%
Santa Rosa Energy Company                                                   California                       100%
Santa Rosa Energy LLC                                                        Delaware                        100%
Silverado Geothermal Resources, Inc.                                        California                       100%
SkyGen Energy Holdings LLC                                                   Delaware                        100%
SkyGen Energy LLC                                                            Delaware                        100%
SkyGen Energy Marketing LLC                                                  Delaware                        100%
SkyGen Gas Marketing LLC                                                     Delaware                        100%
SkyGen GulfCoast Energy LLC                                                  Delaware                        100%
SkyGen Investors LLC                                                         Delaware                        100%
SkyGen Project Holdings LLC                                                  Delaware                        100%
SkyGen Services, Inc.                                                        Delaware                        100%
SkyGen SouthCoast Investors LLC                                              Delaware                        100%
SMO Bethpage, Inc.                                                           Delaware                        100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>   8

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                            Entity                                         Jurisdiction               Ownership Interest
------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                               <C>
Sonoma Geothermal Partners, L.P.                                             Delaware                        100%
St. Francisville Energy LLC                                                  Delaware                        100%
Stony Brook Cogeneration, Inc.                                               Delaware                        100%
Stony Brook Fuel Management Corp.                                            Delaware                        100%
Suffolk Biogas Inc.                                                          Delaware                        100%
Sumas Cogen Company, L.P.                                                    Delaware                        70%
Summer Power Source, LLC                                                     Delaware                        100%
Sutter Dryers, Inc.                                                         California                       100%
TBG Cogen Partners                                                           Delaware                        100%
Texas City Cogeneration, L.P.                                                Delaware                        100%
Texas Cogeneration Company                                                   Delaware                        100%
Texas Cogeneration One Company                                               Delaware                        100%
Texas Cogeneration Three, Inc.                                               Delaware                        100%
Thermal Power Company                                                        Delaware                        100%
Tiverton Power Associates Limited Partnership                                Delaware                        100%
Towantic Energy, L.L.C.                                                      Delaware                        100%
TriGas Exploration Ltd.                                                      Alberta                         100%
Tuscarora Energy Corp.                                                       Delaware                        100%
Venture Acquisition Company                                                  Delaware                        100%
Versailles Energy LLC                                                        Delaware                        100%
Warnerville Energy Center, LLC                                               Delaware                        100%
Washington Parish Energy Center, LLC                                         Delaware                        100%
Wawayanda Energy Center, LLC                                                 Delaware                        100%
Westbrook L.L.C.                                                             Delaware                        100%
Whatcom Cogeneration Partners, L.P.                                          Delaware                        100%
Wisconsin River Energy, LLC                                                  Delaware                        100%
Zion Energy LLC                                                              Delaware                        100%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>22
<FILENAME>f70293ex23-1.txt
<DESCRIPTION>EXHIBIT 23.1
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 23.1


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated March 14, 2001 included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8 (File No. 333-16529). It
should be noted that we have not audited any financial statements of the Company
subsequent to December 31, 2000 or performed any audit procedures subsequent to
the date of our report.

San Jose, California
March 14, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>23
<FILENAME>f70293ex23-2.txt
<DESCRIPTION>EXHIBIT 23.2
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 23.2


                CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.


We hereby consent to the incorporation by reference in the Annual Report on Form
10-K of Calpine Corporation (the "Company") and to the references to this firm
for the Company's estimated domestic proved reserves contained in the Annual
Report on Form 10-K for the year ended December 31, 2000.


/s/ NETHERLAND, SEWELL & ASSOCIATES, INC.



Houston, Texas
March 13, 2001

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.3
<SEQUENCE>24
<FILENAME>f70293ex23-3.txt
<DESCRIPTION>EXHIBIT 23.3
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 23.3


               CONSENT OF McDANIEL & ASSOCIATES CONSULTANTS LTD.


We hereby consent to the incorporation by reference in the Annual Report on Form
10-K of Calpine Corporation (the "Company") and to the references to this firm
for the Company's estimated Canadian proved reserves contained in the Annual
Report on Form 10-K for the year ended December 31, 2000.


/s/ McDANIEL & ASSOCIATES CONSULTANTS LTD.



Calgary, Alberta
March, 13, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.4
<SEQUENCE>25
<FILENAME>f70293ex23-4.txt
<DESCRIPTION>EXHIBIT 23.4
<TEXT>

<PAGE>   1

                                                                    EXHIBIT 23.4


                CONSENT OF GILBERT LAUSTSEN JUNG ASSOCIATES LTD.


We hereby consent to the incorporation by reference in the Annual Report on Form
10-K of Calpine Corporation (the "Company") and to the references to this firm
for the Company's estimated Canadian proved reserves contained in the Annual
Report on Form 10-K for the year ended December 31, 2000.


/s/ GILBERT LAUSTSEN JUNG ASSOCIATES LTD.



Calgary, Alberta
March 13, 2001
</TEXT>
</DOCUMENT>
</SUBMISSION>
