Document:

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                                                                  EXHIBIT 10.4.1
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                                  MASTER POWER
                                 PURCHASE & SALE
                                    AGREEMENT
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[EEI LOGO]                                          [SEAL OF NATIONAL ENERGY
                                                     MARKETERS ASSOCIATION]

                         Version 2.1 (modified 4/25/00)
        (C)COPYRIGHT 2000 by the Edison Electric Institute and National
                          Energy Marketers Association

ALL RIGHTS RESERVED UNDER U.S. AND FOREIGN LAW, TREATIES AND CONVENTIONS
AUTOMATIC LICENSE - PERMISSION OF THE COPYRIGHT OWNERS IS GRANTED FOR
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THE WORK. NO AUTHORIZED COPY MAY BE SOLD. THE INDUSTRY IS ENCOURAGED TO USE THIS
MASTER POWER PURCHASE AND SALE AGREEMENT IN ITS TRANSACTIONS. ATTRIBUTION TO THE
COPYRIGHT OWNERS IS REQUESTED.

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                    MASTER POWER PURCHASE AND SALES AGREEMENT

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                <C>
COVER SHEET.....................................................................................................    1

GENERAL TERMS AND CONDITIONS....................................................................................    6

ARTICLE ONE:               GENERAL DEFINITIONS..................................................................    6

ARTICLE TWO:               TRANSACTION TERMS AND CONDITIONS.....................................................   11
         2.1      Transactions..................................................................................   11
         2.2      Governing Terms...............................................................................   11
         2.3      Confirmation..................................................................................   12
         2.4      Additional Confirmation Terms.................................................................   12
         2.5      Recording.....................................................................................   12

ARTICLE THREE:             OBLIGATIONS AND DELIVERIES...........................................................   13
         3.1      Seller's and Buyer's Obligations..............................................................   13
         3.2      Transmission and Scheduling...................................................................   13
         3.3      Force Majeure.................................................................................   13

ARTICLE FOUR:              REMEDIES FOR FAILURE TO DELIVER/RECEIVE..............................................   13
         4.1      Seller Failure................................................................................   13
         4.2      Buyer Failure.................................................................................   14

ARTICLE FIVE:              EVENTS OF DEFAULT; REMEDIES..........................................................   14
         5.1      Events of Default.............................................................................   14
         5.2      Declaration of an Early Termination Date and Calculation of Settlement Amounts................   15
         5.3      Net Out of Settlement Amounts.................................................................   16
         5.4      Notice of Payment of Termination Payment......................................................   16
         5.5      Disputes With Respect to Termination Payment..................................................   16
         5.6      Closeout Setoffs..............................................................................   16
         5.7      Suspension of Performance.....................................................................   17

ARTICLE SIX:               PAYMENT AND NETTING..................................................................   17
         6.1      Billing Period................................................................................   17
         6.2      Timeliness of Payment.........................................................................   17
         6.3      Disputes and Adjustments of Invoices..........................................................   17
         6.4      Netting of Payments...........................................................................   18
         6.5      Payment Obligation Absent Netting.............................................................   18
         6.6      Security......................................................................................   18
         6.7      Payment for Options...........................................................................   18
         6.8      Transaction Netting...........................................................................   18
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<TABLE>
<S>                                                                                                                <C>
ARTICLE SEVEN:             LIMITATIONS..........................................................................   19
         7.1      Limitation of Remedies, Liability and Damages.................................................   19

ARTICLE EIGHT:             CREDIT AND COLLATERAL REQUIREMENTS...................................................   20
         8.1      Party A Credit Protection.....................................................................   20
         8.2      Party B Credit Protection.....................................................................   21
         8.3      Grant of Security Interest/Remedies...........................................................   23

ARTICLE NINE:              GOVERNMENTAL CHARGES.................................................................   24
         9.1      Cooperation...................................................................................   24
         9.2      Governmental Charges..........................................................................   24

ARTICLE TEN:               MISCELLANEOUS........................................................................   24
         10.1     Term of Master Agreement......................................................................   24
         10.2     Representations and Warranties................................................................   24
         10.3     Title and Risk of Loss........................................................................   26
         10.4     Indemnity.....................................................................................   26
         10.5     Assignment....................................................................................   26
         10.6     Governing Law.................................................................................   26
         10.7     Notices.......................................................................................   27
         10.8     General.......................................................................................   27
         10.9     Audit.........................................................................................   27
         10.10    Forward Contract..............................................................................   28
         10.11    Confidentiality...............................................................................   28

SCHEDULE M:  GOVERNMENTAL ENTITY OR PUBLIC POWER SYSTEMS........................................................   29

SCHEDULE P:  PRODUCTS AND RELATED DEFINITIONS...................................................................   33

EXHIBIT A:  CONFIRMATION LETTER.................................................................................   40
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                    MASTER POWER PURCHASE AND SALE AGREEMENT

                                  COVER SHEET

This Master Power Purchase and Sale Agreement ("Master Agreement" ) is made as
of the following date: _________________ ("Effective Date"). The Master
Agreement, together with the exhibits, schedules and any written supplements
hereto, the Party A Tariff, if any, the Party B Tariff, if any, any designated
collateral, credit support or margin agreement or similar arrangement between
the Parties and all Transactions (including any confirmations accepted in
accordance with Section 2.3 hereto) shall be referred to as the "Agreement." The
Parties to this Master Agreement are the following:

Name ("___________" or "Party A")        Name ("Counterparty" or "Party B")

All Notices:                             All Notices:

Street:_____________________________     Street:________________________________

City:_____________________Zip:______     City:_________________    Zip:_________

Attn: Contract Administration            Attn: Contract Administration
Phone:______________________________     Phone:_________________________________
Facsimile:__________________________     Facsimile:_____________________________
Duns:_______________________________     Duns:__________________________________
Federal Tax ID Number:______________     Federal Tax ID Number:_________________

INVOICES:                                INVOICES:
    Attn:___________________________         Attn:______________________________
    Phone:__________________________         Phone:_____________________________
    Facsimile:______________________         Facsimile:_________________________

SCHEDULING:                              SCHEDULING:
    Attn:___________________________         Attn:______________________________
    Phone:__________________________         Phone:_____________________________
    Facsimile:______________________         Facsimile:_________________________

PAYMENTS:                                PAYMENTS:
    Attn:___________________________         Attn:______________________________
    Phone:__________________________         Phone:_____________________________
    Facsimile:______________________         Facsimile:_________________________

WIRE TRANSFER:                           WIRE TRANSFER:
    BNK:____________________________         BNK:_______________________________
    ABA:____________________________         ABA:_______________________________
    ACCT:___________________________         ACCT:______________________________

CREDIT AND COLLECTIONS:                  CREDIT AND COLLECTIONS:
    Attn:___________________________         Attn:______________________________
    Phone:__________________________         Phone:_____________________________
    Facsimile:______________________         Facsimile:_________________________

With additional Notices of an            With additional Notices of an
Event of Default or                      Event of Default or
Potential Event of Default to:           Potential Event of Default to:
   Attn:____________________________         Attn:______________________________
   Phone:___________________________         Phone:_____________________________
   Facsimile:_______________________         Facsimile:_________________________

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The Parties hereby agree that the General Terms and Conditions are incorporated
herein, and to the following provisions as provided for in the General Terms and
Conditions:

Party A Tariff    Tariff____________   Dated____________  Docket Number_________

Party B Tariff    Tariff____________   Dated____________  Docket Number_________
________________________________________________________________________________

ARTICLE TWO

Transaction Terms and []  Optional provision in Section 2.4.
Conditions                If not checked, inapplicable.
________________________________________________________________________________

ARTICLE FOUR

Remedies for Failure  []  Accelerated Payment of Damages.
to Deliver or Receive     If not checked, inapplicable.
________________________________________________________________________________

ARTICLE FIVE          []  Cross Default for Party A:

Events of Default;    []  Party A:____________       Cross Default Amount $____
Remedies
                      []  Other Entity:_______       Cross Default Amount $____

                      []  Cross Default for Party B:

                      []  Party B:____________       Cross Default Amount $____

                      []  Other Entity:_______       Cross Default Amount $____

                      5.6  Closeout Setoff

                           [] Option A (Applicable if no other selection is
                              made.)

                           [] Option B - Affiliates shall have the meaning set
                              forth in the Agreement unless otherwise
                              specified as follows:____________________________
                              _________________________________________________

                           [] Option C (No Setoff)
________________________________________________________________________________
ARTICLE 8             8.1  Party A Credit Protection:

Credit and Collateral      (a)  Financial Information:

Requirements                       []   Option A
                                   []   Option B   Specify:______________
                                   []   Option C   Specify:______________

                           (b) Credit Assurances:

                                   []   Not Applicable
                                   []   Applicable

                           (c)  Collateral Threshold:

                                   []   Not Applicable
                                   []   Applicable

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                       If applicable, complete the following:

                       Party B Collateral Threshold: $ __________; provided,
                       however, that Party B's Collateral Threshold shall be
                       zero if an Event of Default or Potential Event of
                       Default with respect to Party B has occurred and is
                       continuing.

                       Party B Independent Amount: $_________

                       Party B Rounding Amount: $____________

                       (d) Downgrade Event:

                           []       Not Applicable

                           []       Applicable

                        If applicable, complete the following:

                           []       It shall be a Downgrade Event for Party B if
                                    Party B's Credit Rating falls below
                                    __________ from S&P or __________ from
                                    Moody's or if Party B is not rated by either
                                    S&P or Moody's

                           []       Other:
                                    Specify:____________________________________

                       (e) Guarantor for Party B:_______________________________

                                    Guarantee Amount:___________________________

                       8.2 Party B Credit Protection:

                           (a) Financial Information:

                                    []   Option A

                                    []   Option B Specify:______________________

                                    []   Option C Specify:______________________

                           (b) Credit Assurances:

                                    []   Not Applicable

                                    []   Applicable

                           (c) Collateral Threshold:

                                    []   Not Applicable

                                    []   Applicable

                       If applicable, complete the following:

                       Party A Collateral Threshold: $ __________; provided,
                       however, that Party A's Collateral Threshold shall be
                       zero if an Event of Default or Potential Event of
                       Default with respect to Party A has occurred and is
                       continuing.

                       Party A Independent Amount: $____________________________

                       Party A Rounding Amount: $_______________________________

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                           (d) Downgrade Event:

                                    []       Not Applicable

                                    []       Applicable

                         If applicable,complete the following:

                                    []       It shall be a Downgrade Event for
                                             Party A if Party A's Credit Rating
                                             falls below __________ from S&P or
                                             __________ from Moody's or if Party
                                             A is not rated by either S&P or
                                             Moody's

                                    []       Other:
                                             Specify:___________________________

                         (e) Guarantor for Party A:

                                             Guarantee Amount:__________________
________________________________________________________________________________
ARTICLE 10

Confidentiality          []  Confidentiality    If not checked, inapplicable.
                             Applicable
________________________________________________________________________________
SCHEDULE M

                         []  Party A is a Governmental Entity or Public
                             Power System
                         []  Party B isa Governmental Entity or Public Power
                             System
                         []  Add Section 3.6. If not checked, inapplicable
                         []  Add Section 8.6. If not checked, inapplicable

OTHER CHANGES            Specify, if any:_______________________________________

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IN WITNESS WHEREOF, the Parties have caused this Master Agreement to be duly
executed as of the date first above written.

Party A Name                        Party B Name

By:_________________________        By:_________________________________________
Name:_______________________        Name:_______________________________________
Title:______________________        Title:______________________________________

DISCLAIMER: THIS MASTER POWER PURCHASE AND SALE AGREEMENT WAS PREPARED BY A
COMMITTEE OF REPRESENTATIVES OF EDISON ELECTRIC INSTITUTE ("EEI") AND NATIONAL
ENERGY MARKETERS ASSOCIATION ("NEM") MEMBER COMPANIES TO FACILITATE ORDERLY
TRADING IN AND DEVELOPMENT OF WHOLESALE POWER MARKETS. NEITHER EEI NOR NEM NOR
ANY MEMBER COMPANY NOR ANY OF THEIR AGENTS, REPRESENTATIVES OR ATTORNEYS SHALL
BE RESPONSIBLE FOR ITS USE, OR ANY DAMAGES RESULTING THEREFROM. BY PROVIDING
THIS AGREEMENT EEI AND NEM DO NOT OFFER LEGAL ADVICE AND ALL USERS ARE URGED TO
CONSULT THEIR OWN LEGAL COUNSEL TO ENSURE THAT THEIR COMMERCIAL OBJECTIVES WILL
BE ACHIEVED AND THEIR LEGAL INTERESTS ARE ADEQUATELY PROTECTED.

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                          GENERAL TERMS AND CONDITIONS

                        ARTICLE ONE: GENERAL DEFINITIONS

      1.1 "Affiliate" means, with respect to any person, any other person (other
than an individual) that, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such person. For this purpose, "control" means the direct or indirect ownership
of fifty percent (50%) or more of the outstanding capital stock or other equity
interests having ordinary voting power.

      1.2 "Agreement" has the meaning set forth in the Cover Sheet.

      1.3 "Bankrupt" means with respect to any entity, such entity (i) files a
petition or otherwise commences, authorizes or acquiesces in the commencement of
a proceeding or cause of action under any bankruptcy, insolvency, reorganization
or similar law, or has any such petition filed or commenced against it, (ii)
makes an assignment or any general arrangement for the benefit of creditors,
(iii) otherwise becomes bankrupt or insolvent (however evidenced), (iv) has a
liquidator, administrator, receiver, trustee, conservator or similar official
appointed with respect to it or any substantial portion of its property or
assets, or (v) is generally unable to pay its debts as they fall due.

      1.4 "Business Day" means any day except a Saturday, Sunday, or a Federal
Reserve Bank holiday. A Business Day shall open at 8:00 a.m. and close at 5:00
p.m. local time for the relevant Party's principal place of business. The
relevant Party, in each instance unless otherwise specified, shall be the Party
from whom the notice, payment or delivery is being sent and by whom the notice
or payment or delivery is to be received.

      1.5 "Buyer" means the Party to a Transaction that is obligated to purchase
and receive, or cause to be received, the Product, as specified in the
Transaction.

      1.6 "Call Option" means an Option entitling, but not obligating, the
Option Buyer to purchase and receive the Product from the Option Seller at a
price equal to the Strike Price for the Delivery Period for which the Option may
be exercised, all as specified in the Transaction. Upon proper exercise of the
Option by the Option Buyer, the Option Seller will be obligated to sell and
deliver the Product for the Delivery Period for which the Option has been
exercised.

      1.7 "Claiming Party" has the meaning set forth in Section 3.3.

      1.8 "Claims" means all third party claims or actions, threatened or filed
and, whether groundless, false, fraudulent or otherwise, that directly or
indirectly relate to the subject matter of an indemnity, and the resulting
losses, damages, expenses, attorneys' fees and court costs, whether incurred by
settlement or otherwise, and whether such claims or actions are threatened or
filed prior to or after the termination of this Agreement.

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      1.9 "Confirmation" has the meaning set forth in Section 2.3.

      1.10 "Contract Price" means the price in $U.S. (unless otherwise provided
for) to be paid by Buyer to Seller for the purchase of the Product, as specified
in the Transaction.

      1.11 "Costs" means, with respect to the Non-Defaulting Party, brokerage
fees, commissions and other similar third party transaction costs and expenses
reasonably incurred by such Party either in terminating any arrangement pursuant
to which it has hedged its obligations or entering into new arrangements which
replace a Terminated Transaction; and all reasonable attorneys' fees and
expenses incurred by the Non-Defaulting Party in connection with the termination
of a Transaction.

      1.12 "Credit Rating" means, with respect to any entity, the rating then
assigned to such entity's unsecured, senior long-term debt obligations (not
supported by third party credit enhancements) or if such entity does not have a
rating for its senior unsecured long-term debt, then the rating then assigned to
such entity as an issues rating by S&P, Moody's or any other rating agency
agreed by the Parties as set forth in the Cover Sheet.

      1.13 "Cross Default Amount" means the cross default amount, if any, set
forth in the Cover Sheet for a Party.

      1.14 "Defaulting Party" has the meaning set forth in Section 5.1.

      1.15 "Delivery Period" means the period of delivery for a Transaction, as
specified in the Transaction.

      1.16 "Delivery Point" means the point at which the Product will be
delivered and received, as specified in the Transaction.

      1.17 "Downgrade Event" has the meaning set forth on the Cover Sheet.

      1.18 "Early Termination Date" has the meaning set forth in Section 5.2.

      1.19 "Effective Date" has the meaning set forth on the Cover Sheet.

      1.20 "Equitable Defenses" means any bankruptcy, insolvency, reorganization
and other laws affecting creditors' rights generally, and with regard to
equitable remedies, the discretion of the court before which proceedings to
obtain same may be pending.

      1.21 "Event of Default" has the meaning set forth in Section 5.1.

      1.22 "FERC" means the Federal Energy Regulatory Commission or any
successor government agency.

      1.23 "Force Majeure" means an event or circumstance which prevents one
Party from performing its obligations under one or more Transactions, which
event or circumstance was not anticipated as of the date the Transaction was
agreed to, which is not within the reasonable control of, or the result of the
negligence of, the Claiming Party, and which, by the exercise of

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due diligence, the Claiming Party is unable to overcome or avoid or cause to be
avoided. Force Majeure shall not be based on (i) the loss of Buyer's markets;
(ii) Buyer's inability economically to use or resell the Product purchased
hereunder; (iii) the loss or failure of Seller's supply; or (iv) Seller's
ability to sell the Product at a price greater than the Contract Price. Neither
Party may raise a claim of Force Majeure based in whole or in part on
curtailment by a Transmission Provider unless (i) such Party has contracted for
firm transmission with a Transmission Provider for the Product to be delivered
to or received at the Delivery Point and (ii) such curtailment is due to "force
majeure" or "uncontrollable force" or a similar term as defined under the
Transmission Provider's tariff; provided, however, that existence of the
foregoing factors shall not be sufficient to conclusively or presumptively prove
the existence of a Force Majeure absent a showing of other facts and
circumstances which in the aggregate with such factors establish that a Force
Majeure as defined in the first sentence hereof has occurred. The applicability
of Force Majeure to the Transaction is governed by the terms of the Products and
Related Definitions contained in Schedule P.

      1.24 "Gains" means, with respect to any Party, an amount equal to the
present value of the economic benefit to it, if any (exclusive of Costs),
resulting from the termination of a Terminated Transaction, determined in a
commercially reasonable manner.

      1.25 "Guarantor" means, with respect to a Party, the guarantor, if any,
specified for such Party on the Cover Sheet.

      1.26 "Interest Rate" means, for any date, the lesser of (a) the per annum
rate of interest equal to the prime lending rate as may from time to time be
published in The Wall Street Journal under "Money Rates" on such day (or if not
published on such day on the most recent preceding day on which published), plus
two percent (2%) and (b) the maximum rate permitted by applicable law.

      1.27 "Letter(s) of Credit" means one or more irrevocable, transferable
standby letters of credit issued by a U.S. commercial bank or a foreign bank
with a U.S. branch with such bank having a credit rating of at least A- from S&P
or A3 from Moody's, in a form acceptable to the Party in whose favor the letter
of credit is issued. Costs of a Letter of Credit shall be borne by the applicant
for such Letter of Credit.

      1.28 "Losses" means, with respect to any Party, an amount equal to the
present value of the economic loss to it, if any (exclusive of Costs), resulting
from termination of a Terminated Transaction, determined in a commercially
reasonable manner.

      1.29 "Master Agreement" has the meaning set forth on the Cover Sheet.

      1.30 "Moody's" means Moody's Investor Services, Inc. or its successor.

      1.31 "NERC Business Day" means any day except a Saturday, Sunday or a
holiday as defined by the North American Electric Reliability Council or any
successor organization thereto. A NERC Business Day shall open at 8:00 a.m. and
close at 5:00 p.m. local time for the relevant Party's principal place of
business. The relevant Party, in each instance unless

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otherwise specified, shall be the Party from whom the notice, payment or
delivery is being sent and by whom the notice or payment or delivery is to be
received.

      1.32 "Non-Defaulting Party" has the meaning set forth in Section 5.2.

      1.33 "Offsetting Transactions" mean any two or more outstanding
Transactions, having the same or overlapping Delivery Period(s), Delivery Point
and payment date, where under one or more of such Transactions, one Party is the
Seller, and under the other such Transaction(s), the same Party is the Buyer.

      1.34 "Option" means the right but not the obligation to purchase or sell a
Product as specified in a Transaction.

      1.35 "Option Buyer" means the Party specified in a Transaction as the
purchaser of an option, as defined in Schedule P.

      1.36 "Option Seller" means the Party specified in a Transaction as the
seller of an option , as defined in Schedule P.

      1.37 "Party A Collateral Threshold" means the collateral threshold, if
any, set forth in the Cover Sheet for Party A.

      1.38 "Party B Collateral Threshold" means the collateral threshold, if
any, set forth in the Cover Sheet for Party B.

      1.39 "Party A Independent Amount" means the amount , if any, set forth in
the Cover Sheet for Party A.

      1.40 "Party B Independent Amount" means the amount , if any, set forth in
the Cover Sheet for Party B.

      1.41 "Party A Rounding Amount" means the amount, if any, set forth in the
Cover Sheet for Party A.

      1.42 "Party B Rounding Amount" means the amount, if any, set forth in the
Cover Sheet for Party B.

      1.43 "Party A Tariff" means the tariff, if any, specified in the Cover
Sheet for Party A.

      1.44 "Party B Tariff" means the tariff, if any, specified in the Cover
Sheet for Party B.

      1.45 "Performance Assurance" means collateral in the form of either cash,
Letter(s) of Credit, or other security acceptable to the Requesting Party.

      1.46 "Potential Event of Default" means an event which, with notice or
passage of time or both, would constitute an Event of Default.

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      1.47 "Product" means electric capacity, energy or other product(s) related
thereto as specified in a Transaction by reference to a Product listed in
Schedule P hereto or as otherwise specified by the Parties in the Transaction.

      1.48 "Put Option" means an Option entitling, but not obligating, the
Option Buyer to sell and deliver the Product to the Option Seller at a price
equal to the Strike Price for the Delivery Period for which the option may be
exercised, all as specified in a Transaction. Upon proper exercise of the Option
by the Option Buyer, the Option Seller will be obligated to purchase and receive
the Product.

      1.49 "Quantity" means that quantity of the Product that Seller agrees to
make available or sell and deliver, or cause to be delivered, to Buyer, and that
Buyer agrees to purchase and receive, or cause to be received, from Seller as
specified in the Transaction.

      1.50 "Recording" has the meaning set forth in Section 2.4.

      1.51 "Replacement Price" means the price at which Buyer, acting in a
commercially reasonable manner, purchases at the Delivery Point a replacement
for any Product specified in a Transaction but not delivered by Seller, plus (i)
costs reasonably incurred by Buyer in purchasing such substitute Product and
(ii) additional transmission charges, if any, reasonably incurred by Buyer to
the Delivery Point, or at Buyer's option, the market price at the Delivery Point
for such Product not delivered as determined by Buyer in a commercially
reasonable manner; provided, however, in no event shall such price include any
penalties, ratcheted demand or similar charges, nor shall Buyer be required to
utilize or change its utilization of its owned or controlled assets or market
positions to minimize Seller's liability. For the purposes of this definition,
Buyer shall be considered to have purchased replacement Product to the extent
Buyer shall have entered into one or more arrangements in a commercially
reasonable manner whereby Buyer repurchases its obligation to sell and deliver
the Product to another party at the Delivery Point.

      1.52 "S&P" means the Standard & Poor's Rating Group (a division of
McGraw-Hill, Inc.) or its successor.

      1.53 "Sales Price" means the price at which Seller, acting in a
commercially reasonable manner, resells at the Delivery Point any Product not
received by Buyer, deducting from such proceeds any (i) costs reasonably
incurred by Seller in reselling such Product and (ii) additional transmission
charges, if any, reasonably incurred by Seller in delivering such Product to the
third party purchasers, or at Seller's option, the market price at the Delivery
Point for such Product not received as determined by Seller in a commercially
reasonable manner; provided, however, in no event shall such price include any
penalties, ratcheted demand or similar charges, nor shall Seller be required to
utilize or change its utilization of its owned or controlled assets, including
contractual assets, or market positions to minimize Buyer's liability. For
purposes of this definition, Seller shall be considered to have resold such
Product to the extent Seller shall have entered into one or more arrangements in
a commercially reasonable manner whereby Seller repurchases its obligation to
purchase and receive the Product from another party at the Delivery Point.

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      1.54 "Schedule" or "Scheduling" means the actions of Seller, Buyer and/or
their designated representatives, including each Party's Transmission Providers,
if applicable, of notifying, requesting and confirming to each other the
quantity and type of Product to be delivered on any given day or days during the
Delivery Period at a specified Delivery Point.

      1.55 "Seller" means the Party to a Transaction that is obligated to sell
and deliver, or cause to be delivered, the Product, as specified in the
Transaction.

      1.56 "Settlement Amount" means, with respect to a Transaction and the
Non-Defaulting Party, the Losses or Gains, and Costs, expressed in U.S. Dollars,
which such party incurs as a result of the liquidation of a Terminated
Transaction pursuant to Section 5.2.

      1.57 "Strike Price" means the price to be paid for the purchase of the
Product pursuant to an Option.

      1.58 "Terminated Transaction" has the meaning set forth in Section 5.2.

      1.59 "Termination Payment" has the meaning set forth in Section 5.3.

      1.60 "Transaction" means a particular transaction agreed to by the Parties
relating to the sale and purchase of a Product pursuant to this Master
Agreement.

      1.61 "Transmission Provider" means any entity or entities transmitting or
transporting the Product on behalf of Seller or Buyer to or from the Delivery
Point in a particular Transaction.

                 ARTICLE TWO: TRANSACTION TERMS AND CONDITIONS

      2.1 Transactions. A Transaction shall be entered into upon agreement of
the Parties orally or, if expressly required by either Party with respect to a
particular Transaction, in writing, including an electronic means of
communication. Each Party agrees not to contest, or assert any defense to, the
validity or enforceability of the Transaction entered into in accordance with
this Master Agreement (i) based on any law requiring agreements to be in writing
or to be signed by the parties, or (ii) based on any lack of authority of the
Party or any lack of authority of any employee of the Party to enter into a
Transaction.

      2.2 Governing Terms. Unless otherwise specifically agreed, each
Transaction between the Parties shall be governed by this Master Agreement. This
Master Agreement (including all exhibits, schedules and any written supplements
hereto), , the Party A Tariff, if any, and the Party B Tariff, if any, any
designated collateral, credit support or margin agreement or similar arrangement
between the Parties and all Transactions (including any Confirmations accepted
in accordance with Section 2.3) shall form a single integrated agreement between
the Parties. Any inconsistency between any terms of this Master Agreement and
any terms of the Transaction shall be resolved in favor of the terms of such
Transaction.

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      2.3 Confirmation. Seller may confirm a Transaction by forwarding to Buyer
by facsimile within three (3) Business Days after the Transaction is entered
into a confirmation ("Confirmation") substantially in the form of Exhibit A. If
Buyer objects to any term(s) of such Confirmation, Buyer shall notify Seller in
writing of such objections within two (2) Business Days of Buyer's receipt
thereof, failing which Buyer shall be deemed to have accepted the terms as sent.
If Seller fails to send a Confirmation within three (3) Business Days after the
Transaction is entered into, a Confirmation substantially in the form of Exhibit
A, may be forwarded by Buyer to Seller. If Seller objects to any term(s) of such
Confirmation, Seller shall notify Buyer of such objections within two (2)
Business Days of Seller's receipt thereof, failing which Seller shall be deemed
to have accepted the terms as sent. If Seller and Buyer each send a Confirmation
and neither Party objects to the other Party's Confirmation within two (2)
Business Days of receipt, Seller's Confirmation shall be deemed to be accepted
and shall be the controlling Confirmation, unless (i) Seller's Confirmation was
sent more than three (3) Business Days after the Transaction was entered into
and (ii) Buyer's Confirmation was sent prior to Seller's Confirmation, in which
case Buyer's Confirmation shall be deemed to be accepted and shall be the
controlling Confirmation. Failure by either Party to send or either Party to
return an executed Confirmation or any objection by either Party shall not
invalidate the Transaction agreed to by the Parties.

      2.4 Additional Confirmation Terms. If the Parties have elected on the
Cover Sheet to make this Section 2.4 applicable to this Master Agreement, when a
Confirmation contains provisions, other than those provisions relating to the
commercial terms of the Transaction (e.g., price or special transmission
conditions), which modify or supplement the general terms and conditions of this
Master Agreement (e.g., arbitration provisions or additional representations and
warranties), such provisions shall not be deemed to be accepted pursuant to
Section 2.3 unless agreed to either orally or in writing by the Parties;
provided that the foregoing shall not invalidate any Transaction agreed to by
the Parties.

      2.5 Recording. Unless a Party expressly objects to a Recording (defined
below) at the beginning of a telephone conversation, each Party consents to the
creation of a tape or electronic recording ("Recording") of all telephone
conversations between the Parties to this Master Agreement, and that any such
Recordings will be retained in confidence, secured from improper access, and may
be submitted in evidence in any proceeding or action relating to this Agreement.
Each Party waives any further notice of such monitoring or recording, and agrees
to notify its officers and employees of such monitoring or recording and to
obtain any necessary consent of such officers and employees. The Recording, and
the terms and conditions described therein, if admissible, shall be the
controlling evidence for the Parties' agreement with respect to a particular
Transaction in the event a Confirmation is not fully executed (or deemed
accepted) by both Parties. Upon full execution (or deemed acceptance) of a
Confirmation, such Confirmation shall control in the event of any conflict with
the terms of a Recording, or in the event of any conflict with the terms of this
Master Agreement.

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                   ARTICLE THREE: OBLIGATIONS AND DELIVERIES

      3.1 Seller's and Buyer's Obligations. With respect to each Transaction,
Seller shall sell and deliver, or cause to be delivered, and Buyer shall
purchase and receive, or cause to be received, the Quantity of the Product at
the Delivery Point, and Buyer shall pay Seller the Contract Price; provided,
however, with respect to Options, the obligations set forth in the preceding
sentence shall only arise if the Option Buyer exercises its Option in accordance
with its terms. Seller shall be responsible for any costs or charges imposed on
or associated with the Product or its delivery of the Product up to the Delivery
Point. Buyer shall be responsible for any costs or charges imposed on or
associated with the Product or its receipt at and from the Delivery Point.

      3.2 Transmission and Scheduling. Seller shall arrange and be responsible
for transmission service to the Delivery Point and shall Schedule or arrange for
Scheduling services with its Transmission Providers, as specified by the Parties
in the Transaction, or in the absence thereof, in accordance with the practice
of the Transmission Providers, to deliver the Product to the Delivery Point.
Buyer shall arrange and be responsible for transmission service at and from the
Delivery Point and shall Schedule or arrange for Scheduling services with its
Transmission Providers to receive the Product at the Delivery Point.

      3.3 Force Majeure. To the extent either Party is prevented by Force
Majeure from carrying out, in whole or part, its obligations under the
Transaction and such Party (the "Claiming Party") gives notice and details of
the Force Majeure to the other Party as soon as practicable, then, unless the
terms of the Product specify otherwise, the Claiming Party shall be excused from
the performance of its obligations with respect to such Transaction (other than
the obligation to make payments then due or becoming due with respect to
performance prior to the Force Majeure). The Claiming Party shall remedy the
Force Majeure with all reasonable dispatch. The non-Claiming Party shall not be
required to perform or resume performance of its obligations to the Claiming
Party corresponding to the obligations of the Claiming Party excused by Force
Majeure.

             ARTICLE FOUR: REMEDIES FOR FAILURE TO DELIVER/RECEIVE

      4.1 Seller Failure. If Seller fails to schedule and/or deliver all or part
of the Product pursuant to a Transaction, and such failure is not excused under
the terms of the Product or by Buyer's failure to perform, then Seller shall pay
Buyer, on the date payment would otherwise be due in respect of the month in
which the failure occurred or, if "Accelerated Payment of Damages" is specified
on the Cover Sheet, within five (5) Business Days of invoice receipt, an amount
for such deficiency equal to the positive difference, if any, obtained by
subtracting the Contract Price from the Replacement Price. The invoice for such
amount shall include a written statement explaining in reasonable detail the
calculation of such amount.

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      4.2 Buyer Failure. If Buyer fails to schedule and/or receive all or part
of the Product pursuant to a Transaction and such failure is not excused under
the terms of the Product or by Seller's failure to perform, then Buyer shall pay
Seller, on the date payment would otherwise be due in respect of the month in
which the failure occurred or, if "Accelerated Payment of Damages" is specified
on the Cover Sheet, within five (5) Business Days of invoice receipt, an amount
for such deficiency equal to the positive difference, if any, obtained by
subtracting the Sales Price from the Contract Price. The invoice for such amount
shall include a written statement explaining in reasonable detail the
calculation of such amount.

                   ARTICLE FIVE: EVENTS OF DEFAULT; REMEDIES

      5.1 Events of Default. An "Event of Default" shall mean, with respect to a
Party (a "Defaulting Party"), the occurrence of any of the following:

            (a)   the failure to make, when due, any payment required pursuant
                  to this Agreement if such failure is not remedied within three
                  (3) Business Days after written notice;

            (b)   any representation or warranty made by such Party herein is
                  false or misleading in any material respect when made or when
                  deemed made or repeated;

            (c)   the failure to perform any material covenant or obligation set
                  forth in this Agreement (except to the extent constituting a
                  separate Event of Default, and except for such Party's
                  obligations to deliver or receive the Product, the exclusive
                  remedy for which is provided in Article Four) if such failure
                  is not remedied within three (3) Business Days after written
                  notice;

            (d)   such Party becomes Bankrupt;

            (e)   the failure of such Party to satisfy the
                  creditworthiness/collateral requirements agreed to pursuant to
                  Article Eight hereof;

            (f)   such Party consolidates or amalgamates with, or merges with or
                  into, or transfers all or substantially all of its assets to,
                  another entity and, at the time of such consolidation,
                  amalgamation, merger or transfer, the resulting, surviving or
                  transferee entity fails to assume all the obligations of such
                  Party under this Agreement to which it or its predecessor was
                  a party by operation of law or pursuant to an agreement
                  reasonably satisfactory to the other Party;

            (g)   if the applicable cross default section in the Cover Sheet is
                  indicated for such Party, the occurrence and continuation of
                  (i) a default, event of default or other similar condition or
                  event in respect of such Party or any

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                  other party specified in the Cover Sheet for such Party under
                  one or more agreements or instruments, individually or
                  collectively, relating to indebtedness for borrowed money in
                  an aggregate amount of not less than the applicable Cross
                  Default Amount (as specified in the Cover Sheet), which
                  results in such indebtedness becoming, or becoming capable at
                  such time of being declared, immediately due and payable or
                  (ii) a default by such Party or any other party specified in
                  the Cover Sheet for such Party in making on the due date
                  therefor one or more payments, individually or collectively,
                  in an aggregate amount of not less than the applicable Cross
                  Default Amount (as specified in the Cover Sheet);

            (h)   with respect to such Party's Guarantor, if any:

                  (i)   if any representation or warranty made by a Guarantor in
                        connection with this Agreement is false or misleading in
                        any material respect when made or when deemed made or
                        repeated;

                  (ii)  the failure of a Guarantor to make any payment required
                        or to perform any other material covenant or obligation
                        in any guaranty made in connection with this Agreement
                        and such failure shall not be remedied within three (3)
                        Business Days after written notice;

                  (iii) a Guarantor becomes Bankrupt;

                  (iv)  the failure of a Guarantor's guaranty to be in full
                        force and effect for purposes of this Agreement (other
                        than in accordance with its terms) prior to the
                        satisfaction of all obligations of such Party under each
                        Transaction to which such guaranty shall relate without
                        the written consent of the other Party; or

                  (v)   a Guarantor shall repudiate, disaffirm, disclaim, or
                        reject, in whole or in part, or challenge the validity
                        of any guaranty.

      5.2 Declaration of an Early Termination Date and Calculation of Settlement
Amounts. If an Event of Default with respect to a Defaulting Party shall have
occurred and be continuing, the other Party (the "Non-Defaulting Party") shall
have the right (i) to designate a day, no earlier than the day such notice is
effective and no later than 20 days after such notice is effective, as an early
termination date ("Early Termination Date") to accelerate all amounts owing
between the Parties and to liquidate and terminate all, but not less than all,
Transactions (each referred to as a "Terminated Transaction") between the
Parties, (ii) withhold any payments due to the Defaulting Party under this
Agreement and (iii) suspend performance. The Non-Defaulting Party shall
calculate, in a commercially reasonable manner, a Settlement Amount for each
such Terminated Transaction as of the Early Termination Date (or, to the extent
that in the reasonable opinion of the Non-Defaulting Party certain of such
Terminated Transactions are commercially impracticable to liquidate and
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and terminated under applicable law on the Early Termination Date, as soon
thereafter as is reasonably practicable).

      5.3 Net Out of Settlement Amounts. The Non-Defaulting Party shall
aggregate all Settlement Amounts into a single amount by: netting out (a) all
Settlement Amounts that are due to the Defaulting Party, plus, at the option of
the Non-Defaulting Party, any cash or other form of security then available to
the Non-Defaulting Party pursuant to Article Eight, plus any or all other
amounts due to the Defaulting Party under this Agreement against (b) all
Settlement Amounts that are due to the Non-Defaulting Party, plus any or all
other amounts due to the Non-Defaulting Party under this Agreement, so that all
such amounts shall be netted out to a single liquidated amount (the "Termination
Payment") payable by one Party to the other. The Termination Payment shall be
due to or due from the Non-Defaulting Party as appropriate.

      5.4 Notice of Payment of Termination Payment. As soon as practicable after
a liquidation, notice shall be given by the Non-Defaulting Party to the
Defaulting Party of the amount of the Termination Payment and whether the
Termination Payment is due to or due from the Non-Defaulting Party. The notice
shall include a written statement explaining in reasonable detail the
calculation of such amount. The Termination Payment shall be made by the Party
that owes it within two (2) Business Days after such notice is effective.

      5.5 Disputes With Respect to Termination Payment. If the Defaulting Party
disputes the Non-Defaulting Party's calculation of the Termination Payment, in
whole or in part, the Defaulting Party shall, within two (2) Business Days of
receipt of Non-Defaulting Party's calculation of the Termination Payment,
provide to the Non-Defaulting Party a detailed written explanation of the basis
for such dispute; provided, however, that if the Termination Payment is due from
the Defaulting Party, the Defaulting Party shall first transfer Performance
Assurance to the Non-Defaulting Party in an amount equal to the Termination
Payment.

      5.6 Closeout Setoffs.

      Option A: After calculation of a Termination Payment in accordance with
Section 5.3, if the Defaulting Party would be owed the Termination Payment, the
Non-Defaulting Party shall be entitled, at its option and in its discretion, to
(i) set off against such Termination Payment any amounts due and owing by the
Defaulting Party to the Non-Defaulting Party under any other agreements,
instruments or undertakings between the Defaulting Party and the Non-Defaulting
Party and/or (ii) to the extent the Transactions are not yet liquidated in
accordance with Section 5.2, withhold payment of the Termination Payment to the
Defaulting Party. The remedy provided for in this Section shall be without
prejudice and in addition to any right of setoff, combination of accounts, lien
or other right to which any Party is at any time otherwise entitled (whether by
operation of law, contract or otherwise).

      Option B: After calculation of a Termination Payment in accordance with
Section 5.3, if the Defaulting Party would be owed the Termination Payment, the
Non-Defaulting Party shall be entitled, at its option and in its discretion, to
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amounts due and owing by the Defaulting Party or any of its Affiliates to the
Non-Defaulting Party or any of its Affiliates under any other agreements,
instruments or undertakings between the Defaulting Party or any of its
Affiliates and the Non-Defaulting Party or any of its Affiliates and/or (ii) to
the extent the Transactions are not yet liquidated in accordance with Section
5.2, withhold payment of the Termination Payment to the Defaulting Party. The
remedy provided for in this Section shall be without prejudice and in addition
to any right of setoff, combination of accounts, lien or other right to which
any Party is at any time otherwise entitled (whether by operation of law,
contract or otherwise).

      Option C: Neither Option A nor B shall apply.

      5.7 Suspension of Performance. Notwithstanding any other provision of this
Master Agreement, if (a) an Event of Default or (b) a Potential Event of Default
shall have occurred and be continuing, the Non-Defaulting Party, upon written
notice to the Defaulting Party, shall have the right (i) to suspend performance
under any or all Transactions; provided, however, in no event shall any such
suspension continue for longer than ten (10) NERC Business Days with respect to
any single Transaction unless an early Termination Date shall have been declared
and notice thereof pursuant to Section 5.2 given, and (ii) to the extent an
Event of Default shall have occurred and be continuing to exercise any remedy
available at law or in equity.

                        ARTICLE SIX: PAYMENT AND NETTING

      6.1 Billing Period. Unless otherwise specifically agreed upon by the
Parties in a Transaction, the calendar month shall be the standard period for
all payments under this Agreement (other than Termination Payments and, if
"Accelerated Payment of Damages" is specified by the Parties in the Cover Sheet,
payments pursuant to Section 4.1 or 4.2 and Option premium payments pursuant to
Section 6.7). As soon as practicable after the end of each month, each Party
will render to the other Party an invoice for the payment obligations, if any,
incurred hereunder during the preceding month.

      6.2 Timeliness of Payment. Unless otherwise agreed by the Parties in a
Transaction, all invoices under this Master Agreement shall be due and payable
in accordance with each Party's invoice instructions on or before the later of
the twentieth (20th) day of each month, or tenth (10th) day after receipt of the
invoice or, if such day is not a Business Day, then on the next Business Day.
Each Party will make payments by electronic funds transfer, or by other mutually
agreeable method(s), to the account designated by the other Party. Any amounts
not paid by the due date will be deemed delinquent and will accrue interest at
the Interest Rate, such interest to be calculated from and including the due
date to but excluding the date the delinquent amount is paid in full.

      6.3 Disputes and Adjustments of Invoices. A Party may, in good faith,
dispute the correctness of any invoice or any adjustment to an invoice, rendered
under this Agreement or adjust any invoice for any arithmetic or computational
error within twelve (12) months of the date the invoice, or adjustment to an
invoice, was rendered. In the event an invoice or portion thereof, or any other
claim or

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adjustment arising hereunder, is disputed, payment of the undisputed portion of
the invoice shall be required to be made when due, with notice of the objection
given to the other Party. Any invoice dispute or invoice adjustment shall be in
writing and shall state the basis for the dispute or adjustment. Payment of the
disputed amount shall not be required until the dispute is resolved. Upon
resolution of the dispute, any required payment shall be made within two (2)
Business Days of such resolution along with interest accrued at the Interest
Rate from and including the due date to but excluding the date paid. Inadvertent
overpayments shall be returned upon request or deducted by the Party receiving
such overpayment from subsequent payments, with interest accrued at the Interest
Rate from and including the date of such overpayment to but excluding the date
repaid or deducted by the Party receiving such overpayment. Any dispute with
respect to an invoice is waived unless the other Party is notified in accordance
with this Section 6.3 within twelve (12) months after the invoice is rendered or
any specific adjustment to the invoice is made. If an invoice is not rendered
within twelve (12) months after the close of the month during which performance
of a Transaction occurred, the right to payment for such performance is waived.

      6.4 Netting of Payments. The Parties hereby agree that they shall
discharge mutual debts and payment obligations due and owing to each other on
the same date pursuant to all Transactions through netting, in which case all
amounts owed by each Party to the other Party for the purchase and sale of
Products during the monthly billing period under this Master Agreement,
including any related damages calculated pursuant to Article Four (unless one of
the Parties elects to accelerate payment of such amounts as permitted by Article
Four), interest, and payments or credits, shall be netted so that only the
excess amount remaining due shall be paid by the Party who owes it.

      6.5 Payment Obligation Absent Netting. If no mutual debts or payment
obligations exist and only one Party owes a debt or obligation to the other
during the monthly billing period, including, but not limited to, any related
damage amounts calculated pursuant to Article Four, interest, and payments or
credits, that Party shall pay such sum in full when due.

      6.6 Security. Unless the Party benefiting from Performance Assurance or a
guaranty notifies the other Party in writing, and except in connection with a
liquidation and termination in accordance with Article Five, all amounts netted
pursuant to this Article Six shall not take into account or include any
Performance Assurance or guaranty which may be in effect to secure a Party's
performance under this Agreement.

      6.7 Payment for Options. The premium amount for the purchase of an Option
shall be paid within two (2) Business Days of receipt of an invoice from the
Option Seller. Upon exercise of an Option, payment for the Product underlying
such Option shall be due in accordance with Section 6.1.

      6.8 Transaction Netting. If the Parties enter into one or more
Transactions, which in conjunction with one or more other outstanding
Transactions, constitute Offsetting Transactions, then all such Offsetting
Transactions may by agreement of the Parties, be netted into a single
Transaction under which:

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            (a)   the Party obligated to deliver the greater amount of Energy
                  will deliver the difference between the total amount it is
                  obligated to deliver and the total amount to be delivered to
                  it under the Offsetting Transactions, and

            (b)   the Party owing the greater aggregate payment will pay the net
                  difference owed between the Parties.

Each single Transaction resulting under this Section shall be deemed part of the
single, indivisible contractual arrangement between the parties, and once such
resulting Transaction occurs, outstanding obligations under the Offsetting
Transactions which are satisfied by such offset shall terminate.

                           ARTICLE SEVEN: LIMITATIONS

      7.1 Limitation of Remedies, Liability and Damages. EXCEPT AS SET FORTH
HEREIN, THERE IS NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, AND ANY AND ALL IMPLIED WARRANTIES ARE DISCLAIMED. THE PARTIES CONFIRM
THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT
SATISFY THE ESSENTIAL PURPOSES HEREOF. FOR BREACH OF ANY PROVISION FOR WHICH AN
EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE
OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THE OBLIGOR'S LIABILITY SHALL
BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES OR DAMAGES AT
LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY
PROVIDED HEREIN OR IN A TRANSACTION, THE OBLIGOR'S LIABILITY SHALL BE LIMITED TO
DIRECT ACTUAL DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND
EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE
WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS
OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER
ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE
LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT
REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY
PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR
PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED,
THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO
DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE
DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM
OR LOSS.

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               ARTICLE EIGHT: CREDIT AND COLLATERAL REQUIREMENTS

      8.1 Party A Credit Protection. The applicable credit and collateral
requirements shall be as specified on the Cover Sheet. If no option in Section
8.1(a) is specified on the Cover Sheet, Section 8.l(a) Option C shall apply
exclusively. If none of Sections 8.1(b), 8.1(c) or 8.1(d) are specified on the
Cover Sheet, Section 8.1(b) shall apply exclusively.

            (a) Financial Information. Option A: If requested by Party A, Party
B shall deliver (i) within 120 days following the end of each fiscal year, a
copy of Party B's annual report containing audited consolidated financial
statements for such fiscal year and (ii) within 60 days after the end of each of
its first three fiscal quarters of each fiscal year, a copy of Party B's
quarterly report containing unaudited consolidated financial statements for such
fiscal quarter. In all cases the statements shall be for the most recent
accounting period and prepared in accordance with generally accepted accounting
principles; provided, however, that should any such statements not be available
on a timely basis due to a delay in preparation or certification, such delay
shall not be an Event of Default so long as Party B diligently pursues the
preparation, certification and delivery of the statements.

      Option B: If requested by Party A, Party B shall deliver (i) within 120
days following the end of each fiscal year, a copy of the annual report
containing audited consolidated financial statements for such fiscal year for
the party(s) specified on the Cover Sheet and (ii) within 60 days after the end
of each of its first three fiscal quarters of each fiscal year, a copy of
quarterly report containing unaudited consolidated financial statements for such
fiscal quarter for the party(s) specified on the Cover Sheet. In all cases the
statements shall be for the most recent accounting period and shall be prepared
in accordance with generally accepted accounting principles; provided, however,
that should any such statements not be available on a timely basis due to a
delay in preparation or certification, such delay shall not be an Event of
Default so long as the relevant entity diligently pursues the preparation,
certification and delivery of the statements.

      Option C: Party A may request from Party B the information specified in
the Cover Sheet.

            (b) Credit Assurances. If Party A has reasonable grounds to believe
that Party B's creditworthiness or performance under this Agreement has become
unsatisfactory, Party A will provide Party B with written notice requesting
Performance Assurance in an amount determined by Party A in a commercially
reasonable manner. Upon receipt of such notice Party B shall have three (3)
Business Days to remedy the situation by providing such Performance Assurance to
Party A. In the event that Party B fails to provide such Performance Assurance,
or a guaranty or other credit assurance acceptable to Party A within three (3)
Business Days of receipt of notice, then an Event of Default under Article Five
will be deemed to have occurred and Party A will be entitled to the remedies set
forth in Article Five of this Master Agreement.

            (c) Collateral Threshold. If at any time and from time to time
during the term of this Agreement (and notwithstanding whether an Event of
Default has occurred), the

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Termination Payment that would be owed to Party A plus Party B's Independent
Amount, if any, exceeds the Party B Collateral Threshold, then Party A, on any
Business Day, may request that Party B provide Performance Assurance in an
amount equal to the amount by which the Termination Payment plus Party B's
Independent Amount, if any, exceeds the Party B Collateral Threshold (rounding
upwards for any fractional amount to the next Party B Rounding Amount) ("Party B
Performance Assurance"), less any Party B Performance Assurance already posted
with Party A. Such Party B Performance Assurance shall be delivered to Party A
within three (3) Business Days of the date of such request. On any Business Day
(but no more frequently than weekly with respect to Letters of Credit and daily
with respect to cash), Party B, at its sole cost, may request that such Party B
Performance Assurance be reduced correspondingly to the amount of such excess
Termination Payment plus Party B's Independent Amount, if any, (rounding upwards
for any fractional amount to the next Party B Rounding Amount). In the event
that Party B fails to provide Party B Performance Assurance pursuant to the
terms of this Article Eight within three (3) Business Days, then an Event of
Default under Article Five shall be deemed to have occurred and Party A will be
entitled to the remedies set forth in Article Five of this Master Agreement.

      For purposes of this Section 8.1(c), the calculation of the Termination
Payment shall be calculated pursuant to Section 5.3 by Party A as if all
outstanding Transactions had been liquidated, and in addition thereto, shall
include all amounts owed but not yet paid by Party B to Party A, whether or not
such amounts are due, for performance already provided pursuant to any and all
Transactions.

            (d) Downgrade Event. If at any time there shall occur a Downgrade
Event in respect of Party B, then Party A may require Party B to provide
Performance Assurance in an amount determined by Party A in a commercially
reasonable manner. In the event Party B shall fail to provide such Performance
Assurance or a guaranty or other credit assurance acceptable to Party A within
three (3) Business Days of receipt of notice, then an Event of Default shall be
deemed to have occurred and Party A will be entitled to the remedies set forth
in Article Five of this Master Agreement.

            (e) If specified on the Cover Sheet, Party B shall deliver to Party
A, prior to or concurrently with the execution and delivery of this Master
Agreement a guarantee in an amount not less than the Guarantee Amount specified
on the Cover Sheet and in a form reasonably acceptable to Party A.

      8.2 Party B Credit Protection. The applicable credit and collateral
requirements shall be as specified on the Cover Sheet. If no option in Section
8.2(a) is specified on the Cover Sheet, Section 8.2(a) Option C shall apply
exclusively. If none of Sections 8.2(b), 8.2(c) or 8.2(d) are specified on the
Cover Sheet, Section 8.2(b) shall apply exclusively.

            (a) Financial Information. Option A: If requested by Party B, Party
A shall deliver (i) within 120 days following the end of each fiscal year, a
copy of Party A's annual report containing audited consolidated financial
statements for such fiscal year and (ii) within 60 days after the end of each of
its first three fiscal quarters of each fiscal year, a copy of such Party's
quarterly report containing unaudited consolidated financial statements for such
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quarter. In all cases the statements shall be for the most recent accounting
period and prepared in accordance with generally accepted accounting principles;
provided, however, that should any such statements not be available on a timely
basis due to a delay in preparation or certification, such delay shall not be an
Event of Default so long as such Party diligently pursues the preparation,
certification and delivery of the statements.

      Option B: If requested by Party B, Party A shall deliver (i) within 120
days following the end of each fiscal year, a copy of the annual report
containing audited consolidated financial statements for such fiscal year for
the party(s) specified on the Cover Sheet and (ii) within 60 days after the end
of each of its first three fiscal quarters of each fiscal year, a copy of
quarterly report containing unaudited consolidated financial statements for such
fiscal quarter for the party(s) specified on the Cover Sheet. In all cases the
statements shall be for the most recent accounting period and shall be prepared
in accordance with generally accepted accounting principles; provided, however,
that should any such statements not be available on a timely basis due to a
delay in preparation or certification, such delay shall not be an Event of
Default so long as the relevant entity diligently pursues the preparation,
certification and delivery of the statements.

      Option C: Party B may request from Party A the information specified in
the Cover Sheet.

            (b) Credit Assurances. If Party B has reasonable grounds to believe
that Party A's creditworthiness or performance under this Agreement has become
unsatisfactory, Party B will provide Party A with written notice requesting
Performance Assurance in an amount determined by Party B in a commercially
reasonable manner. Upon receipt of such notice Party A shall have three (3)
Business Days to remedy the situation by providing such Performance Assurance to
Party B. In the event that Party A fails to provide such Performance Assurance,
or a guaranty or other credit assurance acceptable to Party B within three (3)
Business Days of receipt of notice, then an Event of Default under Article Five
will be deemed to have occurred and Party B will be entitled to the remedies set
forth in Article Five of this Master Agreement.

            (c) Collateral Threshold. If at any time and from time to time
during the term of this Agreement (and notwithstanding whether an Event of
Default has occurred), the Termination Payment that would be owed to Party B
plus Party A's Independent Amount, if any, exceeds the Party A Collateral
Threshold, then Party B, on any Business Day, may request that Party A provide
Performance Assurance in an amount equal to the amount by which the Termination
Payment plus Party A's Independent Amount, if any, exceeds the Party A
Collateral Threshold (rounding upwards for any fractional amount to the next
Party A Rounding Amount) ("Party A Performance Assurance"), less any Party A
Performance Assurance already posted with Party B. Such Party A Performance
Assurance shall be delivered to Party B within three (3) Business Days of the
date of such request. On any Business Day (but no more frequently than weekly
with respect to Letters of Credit and daily with respect to cash), Party A, at
its sole cost, may request that such Party A Performance Assurance be reduced
correspondingly to the amount of such excess Termination Payment plus Party A's
Independent Amount, if any, (rounding upwards for any fractional amount to the
next Party A Rounding Amount). In the event that Party A fails to provide Party
A Performance Assurance pursuant to the terms of this Article Eight within three
(3) Business Days, then an Event of Default under Article Five shall be

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deemed to have occurred and Party B will be entitled to the remedies set forth
in Article Five of this Master Agreement.

      For purposes of this Section 8.2(c), the calculation of the Termination
Payment shall be calculated pursuant to Section 5.3 by Party B as if all
outstanding Transactions had been liquidated, and in addition thereto, shall
include all amounts owed but not yet paid by Party A to Party B, whether or not
such amounts are due, for performance already provided pursuant to any and all
Transactions.

            (d) Downgrade Event. If at any time there shall occur a Downgrade
Event in respect of Party A, then Party B may require Party A to provide
Performance Assurance in an amount determined by Party B in a commercially
reasonable manner. In the event Party A shall fail to provide such Performance
Assurance or a guaranty or other credit assurance acceptable to Party B within
three (3) Business Days of receipt of notice, then an Event of Default shall be
deemed to have occurred and Party B will be entitled to the remedies set forth
in Article Five of this Master Agreement.

            (e) If specified on the Cover Sheet, Party A shall deliver to Party
B, prior to or concurrently with the execution and delivery of this Master
Agreement a guarantee in an amount not less than the Guarantee Amount specified
on the Cover Sheet and in a form reasonably acceptable to Party B.

      8.3 Grant of Security Interest/Remedies. To secure its obligations under
this Agreement and to the extent either or both Parties deliver Performance
Assurance hereunder, each Party (a "Pledgor") hereby grants to the other Party
(the "Secured Party") a present and continuing security interest in, and lien on
(and right of setoff against), and assignment of, all cash collateral and cash
equivalent collateral and any and all proceeds resulting therefrom or the
liquidation thereof, whether now or hereafter held by, on behalf of, or for the
benefit of, such Secured Party, and each Party agrees to take such action as the
other Party reasonably requires in order to perfect the Secured Party's
first-priority security interest in, and lien on (and right of setoff against),
such collateral and any and all proceeds resulting therefrom or from the
liquidation thereof. Upon or any time after the occurrence or deemed occurrence
and during the continuation of an Event of Default or an Early Termination Date,
the Non-Defaulting Party may do any one or more of the following: (i) exercise
any of the rights and remedies of a Secured Party with respect to all
Performance Assurance, including any such rights and remedies under law then in
effect; (ii) exercise its rights of setoff against any and all property of the
Defaulting Party in the possession of the Non-Defaulting Party or its agent;
(iii) draw on any outstanding Letter of Credit issued for its benefit; and (iv)
liquidate all Performance Assurance then held by or for the benefit of the
Secured Party free from any claim or right of any nature whatsoever of the
Defaulting Party, including any equity or right of purchase or redemption by the
Defaulting Party. The Secured Party shall apply the proceeds of the collateral
realized upon the exercise of any such rights or remedies to reduce the
Pledgor's obligations under the Agreement (the Pledgor remaining liable for any
amounts owing to the Secured Party after such application), subject to the
Secured Party's obligation to return any surplus proceeds remaining after such
obligations are satisfied in full.

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                       ARTICLE NINE: GOVERNMENTAL CHARGES

      9.1 Cooperation. Each Party shall use reasonable efforts to implement the
provisions of and to administer this Master Agreement in accordance with the
intent of the parties to minimize all taxes , so long as neither Party is
materially adversely affected by such efforts.

      9.2 Governmental Charges. Seller shall pay or cause to be paid all taxes
imposed by any government authority("Governmental Charges") on or with respect
to the Product or a Transaction arising prior to the Delivery Point. Buyer shall
pay or cause to be paid all Governmental Charges on or with respect to the
Product or a Transaction at and from the Delivery Point (other than ad valorem,
franchise or income taxes which are related to the sale of the Product and are,
therefore, the responsibility of the Seller). In the event Seller is required by
law or regulation to remit or pay Governmental Charges which are Buyer's
responsibility hereunder, Buyer shall promptly reimburse Seller for such
Governmental Charges. If Buyer is required by law or regulation to remit or pay
Governmental Charges which are Seller's responsibility hereunder, Buyer may
deduct the amount of any such Governmental Charges from the sums due to Seller
under Article 6 of this Agreement. Nothing shall obligate or cause a Party to
pay or be liable to pay any Governmental Charges for which it is exempt under
the law.

                           ARTICLE TEN: MISCELLANEOUS

      10.1 Term of Master Agreement. The term of this Master Agreement shall
commence on the Effective Date and shall remain in effect until terminated by
either Party upon (thirty) 30 days' prior written notice; provided, however,
that such termination shall not affect or excuse the performance of either Party
under any provision of this Master Agreement that by its terms survives any such
termination and, provided further, that this Master Agreement and any other
documents executed and delivered hereunder shall remain in effect with respect
to the Transaction(s) entered into prior to the effective date of such
termination until both Parties have fulfilled all of their obligations with
respect to such Transaction(s), or such Transaction(s) that have been terminated
under Section 5.2 of this Agreement.

      10.2 Representations and Warranties. On the Effective Date and the date of
entering into each Transaction, each Party represents and warrants to the other
Party that:

            (i)   it is duly organized, validly existing and in good standing
                  under the laws of the jurisdiction of its formation;

            (ii)  it has all regulatory authorizations necessary for it to
                  legally perform its obligations under this Master Agreement
                  and each Transaction (including any Confirmation accepted in
                  accordance with Section 2.3);

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            (iii) the execution, delivery and performance of this Master
                  Agreement and each Transaction (including any Confirmation
                  accepted in accordance with Section 2.3) are within its
                  powers, have been duly authorized by all necessary action and
                  do not violate any of the terms and conditions in its
                  governing documents, any contracts to which it is a party or
                  any law, rule, regulation, order or the like applicable to it;

            (iv)  this Master Agreement, each Transaction (including any
                  Confirmation accepted in accordance with Section 2.3), and
                  each other document executed and delivered in accordance with
                  this Master Agreement constitutes its legally valid and
                  binding obligation enforceable against it in accordance with
                  its terms; subject to any Equitable Defenses.

            (v)   it is not Bankrupt and there are no proceedings pending or
                  being contemplated by it or, to its knowledge, threatened
                  against it which would result in it being or becoming
                  Bankrupt;

            (vi)  there is not pending or, to its knowledge, threatened against
                  it or any of its Affiliates any legal proceedings that could
                  materially adversely affect its ability to perform its
                  obligations under this Master Agreement and each Transaction
                  (including any Confirmation accepted in accordance with
                  Section 2.3);

            (vii) no Event of Default or Potential Event of Default with respect
                  to it has occurred and is continuing and no such event or
                  circumstance would occur as a result of its entering into or
                  performing its obligations under this Master Agreement and
                  each Transaction (including any Confirmation accepted in
                  accordance with Section 2.3);

            (viii) it is acting for its own account, has made its own
                  independent decision to enter into this Master Agreement and
                  each Transaction (including any Confirmation accepted in
                  accordance with Section 2.3) and as to whether this Master
                  Agreement and each such Transaction (including any
                  Confirmation accepted in accordance with Section 2.3) is
                  appropriate or proper for it based upon its own judgment, is
                  not relying upon the advice or recommendations of the other
                  Party in so doing, and is capable of assessing the merits of
                  and understanding, and understands and accepts, the terms,
                  conditions and risks of this Master Agreement and each
                  Transaction (including any Confirmation accepted in accordance
                  with Section 2.3);

            (ix)  it is a "forward contract merchant" within the meaning of the
                  United States Bankruptcy Code;

            (x)   it has entered into this Master Agreement and each Transaction
                  (including any Confirmation accepted in accordance with
                  Section 2.3) in connection with the conduct of its business
                  and it has the capacity or ability to make

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                  or take delivery of all Products referred to in the
                  Transaction to which it is a Party;

            (xi)  with respect to each Transaction (including any Confirmation
                  accepted in accordance with Section 2.3) involving the
                  purchase or sale of a Product or an Option, it is a producer,
                  processor, commercial user or merchant handling the Product,
                  and it is entering into such Transaction for purposes related
                  to its business as such; and

            (xii) the material economic terms of each Transaction are subject to
                  individual negotiation by the Parties.

      10.3 Title and Risk of Loss. Title to and risk of loss related to the
Product shall transfer from Seller to Buyer at the Delivery Point. Seller
warrants that it will deliver to Buyer the Quantity of the Product free and
clear of all liens, security interests, claims and encumbrances or any interest
therein or thereto by any person arising prior to the Delivery Point.

      10.4 Indemnity. Each Party shall indemnify, defend and hold harmless the
other Party from and against any Claims arising from or out of any event,
circumstance, act or incident first occurring or existing during the period when
control and title to Product is vested in such Party as provided in Section
10.3. Each Party shall indemnify, defend and hold harmless the other Party
against any Governmental Charges for which such Party is responsible under
Article Nine.

      10.5 Assignment. Neither Party shall assign this Agreement or its rights
hereunder without the prior written consent of the other Party, which consent
may be withheld in the exercise of its sole discretion; provided, however,
either Party may, without the consent of the other Party (and without relieving
itself from liability hereunder), (i) transfer, sell, pledge, encumber or assign
this Agreement or the accounts, revenues or proceeds hereof in connection with
any financing or other financial arrangements, (ii) transfer or assign this
Agreement to an affiliate of such Party which affiliate's creditworthiness is
equal to or higher than that of such Party, or (iii) transfer or assign this
Agreement to any person or entity succeeding to all or substantially all of the
assets whose creditworthiness is equal to or higher than that of such Party;
provided, however, that in each such case, any such assignee shall agree in
writing to be bound by the terms and conditions hereof and so long as the
transferring Party delivers such tax and enforceability assurance as the
non-transferring Party may reasonably request.

      10.6 Governing Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH PARTY WAIVES ITS RESPECTIVE RIGHT TO ANY JURY TRIAL
WITH RESPECT TO ANY LITIGATION ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT.

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      10.7 Notices. All notices, requests, statements or payments shall be made
as specified in the Cover Sheet. Notices (other than scheduling requests) shall,
unless otherwise specified herein, be in writing and may be delivered by hand
delivery, United States mail, overnight courier service or facsimile. Notice by
facsimile or hand delivery shall be effective at the close of business on the
day actually received, if received during business hours on a Business Day, and
otherwise shall be effective at the close of business on the next Business Day.
Notice by overnight United States mail or courier shall be effective on the next
Business Day after it was sent. A Party may change its addresses by providing
notice of same in accordance herewith.

      10.8 General. This Master Agreement (including the exhibits, schedules and
any written supplements hereto), the Party A Tariff, if any, the Party B Tariff,
if any, any designated collateral, credit support or margin agreement or similar
arrangement between the Parties and all Transactions (including any Confirmation
accepted in accordance with Section 2.3) constitute the entire agreement between
the Parties relating to the subject matter. Notwithstanding the foregoing, any
collateral, credit support or margin agreement or similar arrangement between
the Parties shall, upon designation by the Parties, be deemed part of this
Agreement and shall be incorporated herein by reference. This Agreement shall be
considered for all purposes as prepared through the joint efforts of the parties
and shall not be construed against one party or the other as a result of the
preparation, substitution, submission or other event of negotiation, drafting or
execution hereof. Except to the extent herein provided for, no amendment or
modification to this Master Agreement shall be enforceable unless reduced to
writing and executed by both Parties. Each Party agrees if it seeks to amend any
applicable wholesale power sales tariff during the term of this Agreement, such
amendment will not in any way affect outstanding Transactions under this
Agreement without the prior written consent of the other Party. Each Party
further agrees that it will not assert, or defend itself, on the basis that any
applicable tariff is inconsistent with this Agreement. This Agreement shall not
impart any rights enforceable by any third party (other than a permitted
successor or assignee bound to this Agreement). Waiver by a Party of any default
by the other Party shall not be construed as a waiver of any other default. Any
provision declared or rendered unlawful by any applicable court of law or
regulatory agency or deemed unlawful because of a statutory change (individually
or collectively, such events referred to as "Regulatory Event") will not
otherwise affect the remaining lawful obligations that arise under this
Agreement; and provided, further, that if a Regulatory Event occurs, the Parties
shall use their best efforts to reform this Agreement in order to give effect to
the original intention of the Parties. The term "including" when used in this
Agreement shall be by way of example only and shall not be considered in any way
to be in limitation. The headings used herein are for convenience and reference
purposes only. All indemnity and audit rights shall survive the termination of
this Agreement for twelve (12) months. This Agreement shall be binding on each
Party's successors and permitted assigns.

      10.9 Audit. Each Party has the right, at its sole expense and during
normal working hours, to examine the records of the other Party to the extent
reasonably necessary to verify the accuracy of any statement, charge or
computation made pursuant to this Master Agreement. If requested, a Party shall
provide to the other Party statements evidencing the Quantity delivered at the
Delivery Point. If any such examination reveals any inaccuracy in any statement,
the necessary adjustments in such statement and the

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payments thereof will be made promptly and shall bear interest calculated at the
Interest Rate from the date the overpayment or underpayment was made until paid;
provided, however, that no adjustment for any statement or payment will be made
unless objection to the accuracy thereof was made prior to the lapse of twelve
(12) months from the rendition thereof, and thereafter any objection shall be
deemed waived.

      10.10 Forward Contract. The Parties acknowledge and agree that all
Transactions constitute "forward contracts" within the meaning of the United
States Bankruptcy Code.

      10.11 Confidentiality. If the Parties have elected on the Cover Sheet to
make this Section 10.11 applicable to this Master Agreement, neither Party shall
disclose the terms or conditions of a Transaction under this Master Agreement to
a third party (other than the Party's employees, lenders, counsel, accountants
or advisors who have a need to know such information and have agreed to keep
such terms confidential) except in order to comply with any applicable law,
regulation, or any exchange, control area or independent system operator rule or
in connection with any court or regulatory proceeding; provided, however, each
Party shall, to the extent practicable, use reasonable efforts to prevent or
limit the disclosure. The Parties shall be entitled to all remedies available at
law or in equity to enforce, or seek relief in connection with, this
confidentiality obligation.

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                                   SCHEDULE M

(THIS SCHEDULE IS INCLUDED IF THE APPROPRIATE BOX ON THE COVER SHEET IS MARKED
INDICATING A PARTY IS A GOVERNMENTAL ENTITY OR PUBLIC POWER SYSTEM)

      A.    The Parties agree to add the following definitions in Article One.

                  "Act" means ______________________________.(1)

                  "Governmental Entity or Public Power System" means a
            municipality, county, governmental board, public power authority,
            public utility district, joint action agency, or other similar
            political subdivision or public entity of the United States, one or
            more States or territories or any combination thereof.

                  "Special Fund" means a fund or account of the Governmental
            Entity or Public Power System set aside and or pledged to satisfy
            the Public Power System's obligations hereunder out of which amounts
            shall be paid to satisfy all of the Public Power System's
            obligations under this Master Agreement for the entire Delivery
            Period.

      B.    The following sentence shall be added to the end of the definition
of "Force Majeure" in Article One.

            If the Claiming Party is a Governmental Entity or Public Power
            System, Force Majeure does not include any action taken by the
            Governmental Entity or Public Power System in its governmental
            capacity.

      C.    The Parties agree to add the following representations and
warranties to Section 10.2:

                  Further and with respect to a Party that is a Governmental
            Entity or Public Power System, such Governmental Entity or Public
            Power System represents and warrants to the other Party continuing
            throughout the term of this Master Agreement, with respect to this
            Master Agreement and each Transaction, as follows: (i) all acts
            necessary to the valid execution, delivery and performance of this
            Master Agreement, including without limitation, competitive bidding,
            public notice, election, referendum, prior appropriation or other
            required procedures has or will be taken and performed as required
            under the Act and the Public Power System's ordinances, bylaws or
            other regulations, (ii) all persons making up the governing body of
            Governmental Entity or Public Power System are the

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            duly elected or appointed incumbents in their positions and hold
            such positions in good standing in accordance with the Act and other
            applicable law, (iii) entry into and performance of this Master
            Agreement by Governmental Entity or Public Power System are for a
            proper public purpose within the meaning of the Act and all other
            relevant constitutional, organic or other governing documents and
            applicable law, (iv) the term of this Master Agreement does not
            extend beyond any applicable limitation imposed by the Act or other
            relevant constitutional, organic or other governing documents and
            applicable law, (v) the Public Power System's obligations to make
            payments hereunder are unsubordinated obligations and such payments
            are (a) operating and maintenance costs (or similar designation)
            which enjoy first priority of payment at all times under any and all
            bond ordinances or indentures to which it is a party, the Act and
            all other relevant constitutional, organic or other governing
            documents and applicable law or (b) otherwise not subject to any
            prior claim under any and all bond ordinances or indentures to which
            it is a party, the Act and all other relevant constitutional,
            organic or other governing documents and applicable law and are
            available without limitation or deduction to satisfy all
            Governmental Entity or Public Power System' obligations hereunder
            and under each Transaction or (c) are to be made solely from a
            Special Fund, (vi) entry into and performance of this Master
            Agreement and each Transaction by the Governmental Entity or Public
            Power System will not adversely affect the exclusion from gross
            income for federal income tax purposes of interest on any obligation
            of Governmental Entity or Public Power System otherwise entitled to
            such exclusion, and (vii) obligations to make payments hereunder do
            not constitute any kind of indebtedness of Governmental Entity or
            Public Power System or create any kind of lien on, or security
            interest in, any property or revenues of Governmental Entity or
            Public Power System which, in either case, is proscribed by any
            provision of the Act or any other relevant constitutional, organic
            or other governing documents and applicable law, any order or
            judgment of any court or other agency of government applicable to it
            or its assets, or any contractual restriction binding on or
            affecting it or any of its assets.

      D.    The Parties agree to add the following sections to Article Three:

                  Section 3.4 Public Power System's Deliveries. On the Effective
            Date and as a condition to the obligations of the other Party under
            this Agreement, Governmental Entity or Public Power System shall
            provide the other Party hereto (i) certified copies of all
            ordinances, resolutions, public notices and other documents
            evidencing the necessary authorizations with respect to the
            execution, delivery and performance by Governmental Entity or Public
            Power System of this Master Agreement and (ii) an opinion of counsel
            for Governmental Entity or Public Power System, in form and
            substance reasonably satisfactory to the Other Party, regarding the
            validity, binding effect and enforceability of this Master

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            Agreement against Governmental Entity or Public Power System in
            respect of the Act and all other relevant constitutional organic or
            other governing documents and applicable law.

                  Section 3.5 No Immunity Claim. Governmental Entity or Public
            Power System warrants and covenants that with respect to its
            contractual obligations hereunder and performance thereof, it will
            not claim immunity on the grounds of sovereignty or similar grounds
            with respect to itself or its revenues or assets from (a) suit, (b)
            jurisdiction of court (including a court located outside the
            jurisdiction of its organization), (c) relief by way of injunction,
            order for specific performance or recovery of property, (d)
            attachment of assets, or (e) execution or enforcement of any
            judgment.

      E.    If the appropriate box is checked on the Cover Sheet, as an
alternative to selecting one of the options under Section 8.3, the Parties agree
to add the following section to Article Three:

                  Section 3.6 Governmental Entity or Public Power System
            Security. With respect to each Transaction, Governmental Entity or
            Public Power System shall either (i) have created and set aside a
            Special Fund or (ii) upon execution of this Master Agreement and
            prior to the commencement of each subsequent fiscal year of
            Governmental Entity or Public Power System during any Delivery
            Period, have obtained all necessary budgetary approvals and
            certifications for payment of all of its obligations under this
            Master Agreement for such fiscal year; any breach of this provision
            shall be deemed to have arisen during a fiscal period of
            Governmental Entity or Public Power System for which budgetary
            approval or certification of its obligations under this Master
            Agreement is in effect and, notwithstanding anything to the contrary
            in Article Four, an Early Termination Date shall automatically and
            without further notice occur hereunder as of such date wherein
            Governmental Entity or Public Power System shall be treated as the
            Defaulting Party. Governmental Entity or Public Power System shall
            have allocated to the Special Fund or its general funds a revenue
            base that is adequate to cover Public Power System's payment
            obligations hereunder throughout the entire Delivery Period.

      F.    If the appropriate box is checked on the Cover Sheet, the Parties
agree to add the following section to Article Eight:

                  Section 8.4 Governmental Security. As security for payment and
            performance of Public Power System's obligations hereunder, Public
            Power System hereby pledges, sets over, assigns and grants to the
            other Party a security interest in all of Public Power System's
            right, title and interest in and to [specify collateral].

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      G.    The Parties agree to add the following sentence at the end of
Section 10.6 - Governing Law:

            NOTWITHSTANDING THE FOREGOING, IN RESPECT OF THE APPLICABILITY OF
            THE ACT AS HEREIN PROVIDED, THE LAWS OF THE STATE OF ___________ (2)
            SHALL APPLY.

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                  SCHEDULE P: PRODUCTS AND RELATED DEFINITIONS

         "Ancillary Services" means any of the services identified by a
Transmission Provider in its transmission tariff as "ancillary services"
including, but not limited to, regulation and frequency response, energy
imbalance, operating reserve-spinning and operating reserve-supplemental, as may
be specified in the Transaction.

         "Capacity" has the meaning specified in the Transaction.

         "Energy" means three-phase, 60-cycle alternating current electric
energy, expressed in megawatt hours.

         "Firm (LD)" means, with respect to a Transaction, that either Party
shall be relieved of its obligations to sell and deliver or purchase and receive
without liability only to the extent that, and for the period during which, such
performance is prevented by Force Majeure. In the absence of Force Majeure, the
Party to which performance is owed shall be entitled to receive from the Party
which failed to deliver/receive an amount determined pursuant to Article Four.

         "Firm Transmission Contingent - Contract Path" means, with respect to a
Transaction, that the performance of either Seller or Buyer (as specified in the
Transaction) shall be excused, and no damages shall be payable including any
amounts determined pursuant to Article Four, if the transmission for such
Transaction is interrupted or curtailed and (i) such Party has provided for firm
transmission with the transmission provider(s) for the Product in the case of
the Seller from the generation source to the Delivery Point or in the case of
the Buyer from the Delivery Point to the ultimate sink, and (ii) such
interruption or curtailment is due to "force majeure" or "uncontrollable force"
or a similar term as defined under the applicable transmission provider's
tariff. This contingency shall excuse performance for the duration of the
interruption or curtailment notwithstanding the provisions of the definition of
"Force Majeure" in Section 1.23 to the contrary.

         "Firm Transmission Contingent - Delivery Point" means, with respect to
a Transaction, that the performance of either Seller or Buyer (as specified in
the Transaction) shall be excused, and no damages shall be payable including any
amounts determined pursuant to Article Four, if the transmission to the Delivery
Point (in the case of Seller) or from the Delivery Point (in the case of Buyer)
for such Transaction is interrupted or curtailed and (i) such Party has provided
for firm transmission with the transmission provider(s) for the Product, in the
case of the Seller, to be delivered to the Delivery Point or, in the case of
Buyer, to be received at the Delivery Point and (ii) such interruption or
curtailment is due to "force majeure" or "uncontrollable force" or a similar
term as defined under the applicable transmission provider's tariff. This
transmission contingency excuses performance for the duration of the
interruption or curtailment, notwithstanding the provisions of the definition of
"Force Majeure" in Section 1.23 to the contrary. Interruptions or curtailments
of transmission other than the transmission either immediately to or from the
Delivery Point shall not excuse performance

         "Firm (No Force Majeure)" means, with respect to a Transaction, that if
either Party fails to perform its obligation to sell and deliver or purchase and
receive the Product, the Party to

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which performance is owed shall be entitled to receive from the Party which
failed to perform an amount determined pursuant to Article Four. Force Majeure
shall not excuse performance of a Firm (No Force Majeure) Transaction.

         "Into ______________ (the "Receiving Transmission Provider"), Seller's
Daily Choice" means that, in accordance with the provisions set forth below, (1)
the Product shall be scheduled and delivered to an interconnection or interface
("Interface") either (a) on the Receiving Transmission Provider's transmission
system border or (b) within the control area of the Receiving Transmission
Provider if the Product is from a source of generation in that control area,
which Interface, in either case, the Receiving Transmission Provider identifies
as available for delivery of the Product in or into its control area; and (2)
Seller has the right on a daily prescheduled basis to designate the Interface
where the Product shall be delivered. An "Into" Product shall be subject to the
following provisions:

         1.       Prescheduling and Notification. Subject to the provisions of
Section 6, not later than the prescheduling deadline of 11:00 a.m. CPT on the
Business Day before the next delivery day or as otherwise agreed to by Buyer and
Seller, Seller shall notify Buyer ("Seller's Notification") of Seller's
immediate upstream counterparty and the Interface (the "Designated Interface")
where Seller shall deliver the Product for the next delivery day, and Buyer
shall notify Seller of Buyer's immediate downstream counterparty.

         2.       Availability of "Firm Transmission" to Buyer at Designated
Interface; "Timely Request for Transmission," "ADI" and "Available
Transmission." In determining availability to Buyer of next-day firm
transmission ("Firm Transmission") from the Designated Interface, a "Timely
Request for Transmission" shall mean a properly completed request for Firm
Transmission made by Buyer in accordance with the controlling tariff procedures,
which request shall be submitted to the Receiving Transmission Provider no later
than 30 minutes after delivery of Seller's Notification, provided, however, if
the Receiving Transmission Provider is not accepting requests for Firm
Transmission at the time of Seller's Notification, then such request by Buyer
shall be made within 30 minutes of the time when the Receiving Transmission
Provider first opens thereafter for purposes of accepting requests for Firm
Transmission.

         Pursuant to the terms hereof, delivery of the Product may under certain
circumstances be redesignated to occur at an Interface other than the Designated
Interface (any such alternate designated interface, an "ADI") either (a) on the
Receiving Transmission Provider's transmission system border or (b) within the
control area of the Receiving Transmission Provider if the Product is from a
source of generation in that control area, which ADI, in either case, the
Receiving Transmission Provider identifies as available for delivery of the
Product in or into its control area using either firm or non-firm transmission,
as available on a day-ahead or hourly basis (individually or collectively
referred to as "Available Transmission") within the Receiving Transmission
Provider's transmission system.

         3.       Rights of Buyer and Seller Depending Upon Availability
of/Timely Request for Firm Transmission.

                  A.       Timely Request for Firm Transmission made by Buyer,
         Accepted by the Receiving Transmission Provider and Purchased by Buyer.
         If a Timely Request for Firm

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         Transmission is made by Buyer and is accepted by the Receiving
         Transmission Provider and Buyer purchases such Firm Transmission, then
         Seller shall deliver and Buyer shall receive the Product at the
         Designated Interface.

                       i.   If the Firm Transmission purchased by Buyer within
                  the Receiving Transmission Provider's transmission system from
                  the Designated Interface ceases to be available to Buyer for
                  any reason, or if Seller is unable to deliver the Product at
                  the Designated Interface for any reason except Buyer's
                  non-performance, then at Seller's choice from among the
                  following, Seller shall: (a) to the extent Firm Transmission
                  is available to Buyer from an ADI on a day-ahead basis,
                  require Buyer to purchase such Firm Transmission from such
                  ADI, and schedule and deliver the affected portion of the
                  Product to such ADI on the basis of Buyer's purchase of Firm
                  Transmission, or (b) require Buyer to purchase non-firm
                  transmission, and schedule and deliver the affected portion of
                  the Product on the basis of Buyer's purchase of non-firm
                  transmission from the Designated Interface or an ADI
                  designated by Seller, or (c) to the extent firm transmission
                  is available on an hourly basis, require Buyer to purchase
                  firm transmission, and schedule and deliver the affected
                  portion of the Product on the basis of Buyer's purchase of
                  such hourly firm transmission from the Designated Interface or
                  an ADI designated by Seller.

                       ii.  If the Available Transmission utilized by Buyer
                  as required by Seller pursuant to Section 3A(i) ceases to be
                  available to Buyer for any reason, then Seller shall again
                  have those alternatives stated in Section 3A(i) in order to
                  satisfy its obligations.

                       iii. Seller's obligation to schedule and deliver the
                  Product at an ADI is subject to Buyer's obligation referenced
                  in Section 4B to cooperate reasonably therewith. If Buyer and
                  Seller cannot complete the scheduling and/or delivery at an
                  ADI, then Buyer shall be deemed to have satisfied its receipt
                  obligations to Seller and Seller shall be deemed to have
                  failed its delivery obligations to Buyer, and Seller shall be
                  liable to Buyer for amounts determined pursuant to Article
                  Four.

                       iv.  In each instance in which Buyer and Seller must
                  make alternative scheduling arrangements for delivery at the
                  Designated Interface or an ADI pursuant to Sections 3A(i) or
                  (ii), and Firm Transmission had been purchased by both Seller
                  and Buyer into and within the Receiving Transmission
                  Provider's transmission system as to the scheduled delivery
                  which could not be completed as a result of the interruption
                  or curtailment of such Firm Transmission, Buyer and Seller
                  shall bear their respective transmission expenses and/or
                  associated congestion charges incurred in connection with
                  efforts to complete delivery by such alternative scheduling
                  and delivery arrangements. In any instance except as set forth
                  in the immediately preceding sentence, Buyer and Seller must
                  make alternative scheduling arrangements for delivery at the
                  Designated Interface or an ADI under Sections 3A(i) or (ii),
                  Seller shall be responsible for any additional

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                  transmission purchases and/or associated congestion charges
                  incurred by Buyer in connection with such alternative
                  scheduling arrangements.

                  B.       Timely Request for Firm Transmission Made by Buyer
         but Rejected by the Receiving Transmission Provider. If Buyer's Timely
         Request for Firm Transmission is rejected by the Receiving Transmission
         Provider because of unavailability of Firm Transmission from the
         Designated Interface, then Buyer shall notify Seller within 15 minutes
         after receipt of the Receiving Transmission Provider's notice of
         rejection ("Buyer's Rejection Notice"). If Buyer timely notifies Seller
         of such unavailability of Firm Transmission from the Designated
         Interface, then Seller shall be obligated either (1) to the extent Firm
         Transmission is available to Buyer from an ADI on a day-ahead basis, to
         require Buyer to purchase (at Buyer's own expense) such Firm
         Transmission from such ADI and schedule and deliver the Product to such
         ADI on the basis of Buyer's purchase of Firm Transmission, and
         thereafter the provisions in Section 3A shall apply, or (2) to require
         Buyer to purchase (at Buyer's own expense) non-firm transmission, and
         schedule and deliver the Product on the basis of Buyer's purchase of
         non-firm transmission from the Designated Interface or an ADI
         designated by the Seller, in which case Seller shall bear the risk of
         interruption or curtailment of the non-firm transmission; provided,
         however, that if the non-firm transmission is interrupted or curtailed
         or if Seller is unable to deliver the Product for any reason, Seller
         shall have the right to schedule and deliver the Product to another ADI
         in order to satisfy its delivery obligations, in which case Seller
         shall be responsible for any additional transmission purchases and/or
         associated congestion charges incurred by Buyer in connection with
         Seller's inability to deliver the Product as originally prescheduled.
         If Buyer fails to timely notify Seller of the unavailability of Firm
         Transmission, then Buyer shall bear the risk of interruption or
         curtailment of transmission from the Designated Interface, and the
         provisions of Section 3D shall apply.

                  C.       Timely Request for Firm Transmission Made by Buyer,
         Accepted by the Receiving Transmission Provider and not Purchased by
         Buyer. If Buyer's Timely Request for Firm Transmission is accepted by
         the Receiving Transmission Provider but Buyer elects to purchase
         non-firm transmission rather than Firm Transmission to take delivery of
         the Product, then Buyer shall bear the risk of interruption or
         curtailment of transmission from the Designated Interface. In such
         circumstances, if Seller's delivery is interrupted as a result of
         transmission relied upon by Buyer from the Designated Interface, then
         Seller shall be deemed to have satisfied its delivery obligations to
         Buyer, Buyer shall be deemed to have failed to receive the Product and
         Buyer shall be liable to Seller for amounts determined pursuant to
         Article Four.

                  D.       No Timely Request for Firm Transmission Made by
         Buyer, or Buyer Fails to Timely Send Buyer's Rejection Notice. If Buyer
         fails to make a Timely Request for Firm Transmission or Buyer fails to
         timely deliver Buyer's Rejection Notice, then Buyer shall bear the risk
         of interruption or curtailment of transmission from the Designated
         Interface. In such circumstances, if Seller's delivery is interrupted
         as a result of transmission relied upon by Buyer from the Designated
         Interface, then Seller shall be deemed to have satisfied its delivery
         obligations to Buyer, Buyer shall be deemed to have

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         failed to receive the Product and Buyer shall be liable to Seller for
         amounts determined pursuant to Article Four.

         4.       Transmission.

                  A.       Seller's Responsibilities. Seller shall be
         responsible for transmission required to deliver the Product to the
         Designated Interface or ADI, as the case may be. It is expressly agreed
         that Seller is not required to utilize Firm Transmission for its
         delivery obligations hereunder, and Seller shall bear the risk of
         utilizing non-firm transmission. If Seller's scheduled delivery to
         Buyer is interrupted as a result of Buyer's attempted transmission of
         the Product beyond the Receiving Transmission Provider's system border,
         then Seller will be deemed to have satisfied its delivery obligations
         to Buyer, Buyer shall be deemed to have failed to receive the Product
         and Buyer shall be liable to Seller for damages pursuant to Article
         Four.

                  B.       Buyer's Responsibilities. Buyer shall be responsible
         for transmission required to receive and transmit the Product at and
         from the Designated Interface or ADI, as the case may be, and except as
         specifically provided in Section 3A and 3B, shall be responsible for
         any costs associated with transmission therefrom. If Seller is
         attempting to complete the designation of an ADI as a result of
         Seller's rights and obligations hereunder, Buyer shall co-operate
         reasonably with Seller in order to effect such alternate designation.

         5.       Force Majeure. An "Into" Product shall be subject to the
"Force Majeure" provisions in Section 1.23.

         6.       Multiple Parties in Delivery Chain Involving a Designated
Interface. Seller and Buyer recognize that there may be multiple parties
involved in the delivery and receipt of the Product at the Designated Interface
or ADI to the extent that (1) Seller may be purchasing the Product from a
succession of other sellers ("Other Sellers"), the first of which Other Sellers
shall be causing the Product to be generated from a source ("Source Seller")
and/or (2) Buyer may be selling the Product to a succession of other buyers
("Other Buyers"), the last of which Other Buyers shall be using the Product to
serve its energy needs ("Sink Buyer"). Seller and Buyer further recognize that
in certain Transactions neither Seller nor Buyer may originate the decision as
to either (a) the original identification of the Designated Interface or ADI
(which designation may be made by the Source Seller) or (b) the Timely Request
for Firm Transmission or the purchase of other Available Transmission (which
request may be made by the Sink Buyer). Accordingly, Seller and Buyer agree as
follows:

                  A.   If Seller is not the Source Seller, then Seller
         shall notify Buyer of the Designated Interface promptly after Seller is
         notified thereof by the Other Seller with whom Seller has a contractual
         relationship, but in no event may such designation of the Designated
         Interface be later than the prescheduling deadline pertaining to the
         Transaction between Buyer and Seller pursuant to Section 1.

                  B.   If Buyer is not the Sink Buyer, then Buyer shall
         notify the Other Buyer with whom Buyer has a contractual relationship
         of the Designated Interface promptly

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         after Seller notifies Buyer thereof, with the intent being that the
         party bearing actual responsibility to secure transmission shall have
         up to 30 minutes after receipt of the Designated Interface to submit
         its Timely Request for Firm Transmission.

                       C.   Seller and Buyer each agree that any other
         communications or actions required to be given or made in connection
         with this "Into Product" (including without limitation, information
         relating to an ADI) shall be made or taken promptly after receipt of
         the relevant information from the Other Sellers and Other Buyers, as
         the case may be.

                       D.   Seller and Buyer each agree that in certain
         Transactions time is of the essence and it may be desirable to provide
         necessary information to Other Sellers and Other Buyers in order to
         complete the scheduling and delivery of the Product. Accordingly,
         Seller and Buyer agree that each has the right, but not the obligation,
         to provide information at its own risk to Other Sellers and Other
         Buyers, as the case may be, in order to effect the prescheduling,
         scheduling and delivery of the Product

         "Native Load" means the demand imposed on an electric utility or an
entity by the requirements of retail customers located within a franchised
service territory that the electric utility or entity has statutory obligation
to serve.

         "Non-Firm" means, with respect to a Transaction, that delivery or
receipt of the Product may be interrupted for any reason or for no reason,
without liability on the part of either Party.

         "System Firm" means that the Product will be supplied from the owned or
controlled generation or pre-existing purchased power assets of the system
specified in the Transaction (the "System") with non-firm transmission to and
from the Delivery Point, unless a different Transmission Contingency is
specified in a Transaction. Seller's failure to deliver shall be excused: (i) by
an event or circumstance which prevents Seller from performing its obligations,
which event or circumstance was not anticipated as of the date the Transaction
was agreed to, which is not within the reasonable control of, or the result of
the negligence of, the Seller; (ii) by Buyer's failure to perform; (iii) to the
extent necessary to preserve the integrity of, or prevent or limit any
instability on, the System; (iv) to the extent the System or the control area or
reliability council within which the System operates declares an emergency
condition, as determined in the system's, or the control area's, or reliability
council's reasonable judgment; or (v) by the interruption or curtailment of
transmission to the Delivery Point or by the occurrence of any Transmission
Contingency specified in a Transaction as excusing Seller's performance. Buyer's
failure to receive shall be excused (i) by Force Majeure; (ii) by Seller's
failure to perform, or (iii) by the interruption or curtailment of transmission
from the Delivery Point or by the occurrence of any Transmission Contingency
specified in a Transaction as excusing Buyer's performance. In any of such
events, neither party shall be liable to the other for any damages, including
any amounts determined pursuant to Article Four.

         "Transmission Contingent" means, with respect to a Transaction, that
the performance of either Seller or Buyer (as specified in the Transaction)
shall be excused, and no damages shall be payable including any amounts
determined pursuant to Article Four, if the transmission for such Transaction is
unavailable or interrupted or curtailed for any reason, at any time, anywhere
from the Seller's proposed generating source to the Buyer's proposed ultimate
sink, regardless of

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whether transmission, if any, that such Party is attempting to secure and/or has
purchased for the Product is firm or non-firm. If the transmission (whether firm
or non-firm) that Seller or Buyer is attempting to secure is from source to sink
is unavailable, this contingency excuses performance for the entire Transaction.
If the transmission (whether firm or non-firm) that Seller or Buyer has secured
from source to sink is interrupted or curtailed for any reason, this contingency
excuses performance for the duration of the interruption or curtailment
notwithstanding the provisions of the definition of "Force Majeure" in Article
1.23 to the contrary.

         "Unit Firm" means, with respect to a Transaction, that the Product
subject to the Transaction is intended to be supplied from a generation asset or
assets specified in the Transaction. Seller's failure to deliver under a "Unit
Firm" Transaction shall be excused: (i) if the specified generation asset(s) are
unavailable as a result of a Forced Outage (as defined in the NERC Generating
Unit Availability Data System (GADS) Forced Outage reporting guidelines) or (ii)
by an event or circumstance that affects the specified generation asset(s) so as
to prevent Seller from performing its obligations, which event or circumstance
was not anticipated as of the date the Transaction was agreed to, and which is
not within the reasonable control of, or the result of the negligence of, the
Seller or (iii) by Buyer's failure to perform. In any of such events, Seller
shall not be liable to Buyer for any damages, including any amounts determined
pursuant to Article Four.

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                                   EXHIBIT A

                    MASTER POWER PURCHASE AND SALE AGREEMENT
                               CONFIRMATION LETTER

         This confirmation letter shall confirm the Transaction agreed to on
___________, ___ between __________________________ ("Party A") and
_____________________ ("Party B") regarding the sale/purchase of the Product
under the terms and conditions as follows:

Seller:_________________________________________________________________________

Buyer:__________________________________________________________________________

Product:

[]   Into _________________, Seller's Daily Choice

[]   Firm (LD)

[]   Firm (No Force Majeure)

[]   System Firm

     (Specify System:__________________________________________________________)

[]   Unit Firm

     (Specify Unit(s):_________________________________________________________)

[]   Other______________________________________________________________________

[]   Transmission Contingency (If not marked, no transmission contingency)

     []  FT-Contract Path Contingency    [] Seller   [] Buyer

     []  FT-Delivery Point Contingency   [] Seller   [] Buyer

     []  Transmission Contingent         [] Seller   [] Buyer

     []  Other transmission contingency

     (Specify:_________________________________________________________________)

Contract Quantity:______________________________________________________________

Delivery Point:_________________________________________________________________

Contract Price:

Energy Price:___________________________________________________________________

Other Charges:__________________________________________________________________

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Confirmation Letter
Page  2

Delivery Period:________________________________________________________________

Special Conditions:_____________________________________________________________

Scheduling:_____________________________________________________________________

Option Buyer:___________________________________________________________________

Option Seller:__________________________________________________________________

         Type of Option:________________________________________________________

         Strike Price:__________________________________________________________

         Premium:_______________________________________________________________

         Exercise Period:_______________________________________________________

         This confirmation letter is being provided pursuant to and in
accordance with the Master Power Purchase and Sale Agreement dated
______________ (the "Master Agreement") between Party A and Party B, and
constitutes part of and is subject to the terms and provisions of such Master
Agreement. Terms used but not defined herein shall have the meanings ascribed to
them in the Master Agreement.

[Party A]                                [Party B]

Name:_______________________             Name:__________________________________

Title:______________________             Title:_________________________________

Phone No:___________________             Phone No:______________________________

Fax:________________________             Fax:___________________________________

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                                                                  EXECUTION COPY

                    MASTER POWER PURCHASE AND SALE AGREEMENT
                        AMENDED AND RESTATED COVER SHEET

This Master Power Purchase and Sale Agreement (Version 2.1; modified 4/25/00)
("Master Agreement") is made as of the following date: April 22, 2002 and is
effective May 1, 2002. The Master Agreement, together with the exhibits,
schedules and any written supplements hereto, any designated collateral, credit
support or margin agreement or similar arrangement between the Parties, any
other Performance Assurances and all Transactions (including any confirmations
accepted in accordance with Section 2.3 hereto) shall be referred to as the
"Agreement." The Parties to this Master Agreement are the following:

<TABLE>
<S>                                                        <C>
NAME: Calpine Energy Services, L.P. ("CES" or "Party A")   NAME: State of California Department of Water
                                                                 Resources separate and apart from its powers and
                                                                 responsibilities with respect to the
                                                                 State Water Resources Development System ("DWR" or
                                                                 "Party B")

ALL NOTICES: Calpine Energy Services, L.P.                 ALL NOTICES: California Department of Water Resources
             50 West San Fernando Street                                1416 Ninth Street
             San Jose, California 95113                                 Sacramento, California 95814
             Attn: General Counsel                                      Attn: Office of the Chief Counsel

             with a duplicate copy to:

Street: 700 Louisiana Avenue, Suite 2700                   Street: 1416 Ninth Street

City: Houston, TX Zip: 77002                               City: Sacramento, CA     Zip: 95814

Attn: Contract Administration                              Attn: Executive Manager, Power Systems
   Phone: (713) 830-8608                                   Phone: (916) 653-5913
   Facsimile: (713) 830-8740                               Facsimile: (916) 653-0267
   Duns: 11-271-0876                                       Duns___________________________________
   Federal Tax ID Number: 7705216913                       Federal Tax ID Number: 52-1693634

INVOICES:                                                  INVOICES:
   Attn: Power Accounting                                     Attn: Contracts Payable
   Phone:(713) 830-2000                                       Phone: (916) 653-6404
   Facsimile: (713) 830-8740                                  Facsimile: (916) 654-9882

SCHEDULING:                                                SCHEDULING:
   Attn: Scheduling                                           Attn: Chief Water and Power Dispatcher
   Phone: (713) 830-8642                                      Phone: (916)574-2693
   Facsimile: (713) 830-8722                                  Facsimile: (916) 574-2569

PAYMENTS:                                                  PAYMENTS:
   Attn: Power Accounting                                     Attn: Cash Receipts Section
   Phone: (713) 830-2000                                      Phone: (916) 653-6892
   Facsimile: (713) 830-8740                                  Facsimile: (916) 654-9882

WIRE TRANSFER:                                             WIRE TRANSFER:
   BNK: Union Bank of California                              BNK: Bank of America (Sacramento Main)
   ABA: 122 000 496                                                for: Department of Water Resources
   ACCT:316 001 9726                                            ABA: 121 000 358
                                                              ACCT: 14365-80598
</TABLE>

<PAGE>

<TABLE>
<S>                                                        <C>
CREDIT AND COLLECTIONS:                                    CREDIT AND COLLECTIONS:
Attn: Corporate Credit Manager                                Attn: Deputy Controller
Phone: (408) 995-5115                                         Phone: (916) 653-6148
Facsimile: (408) 995-0505                                     Facsimile: (916) 653-8230

WITH ADDITIONAL NOTICES OF AN EVENT OF                     WITH ADDITIONAL NOTICES OF AN EVENT OF DEFAULT OR
DEFAULT OR POTENTIAL EVENT OF DEFAULT TO:                  POTENTIAL EVENT OF DEFAULT TO:
      Attn: Risk Management Counsel                           Attn: Deputy Controller
      Phone: (713)830-2000                                    Phone: (916)653-6148
      Facsimile: (713) 830-8740                               Facsimile: (916)653-8230

      with copy to:

      Attn: General Counsel
      Phone: (408)995-5115
      Facsimile: (408) 975-4648
</TABLE>

The Parties hereby agree that the General Terms and Conditions are incorporated
herein, and to the following provisions as provided for in the General Terms and
Conditions:

<TABLE>
<S>              <C>              <C>          <C>
Party A Tariff   Not Applicable   Dated  N/A   Docket Number N/A
Party B Tariff   Not Applicable   Dated  N/A   Docket Number N/A
</TABLE>

ARTICLE TWO

<TABLE>
<S>                                <C>                                    <C>
Transaction Terms and Conditions   [X] Optional provision in Section 2.4. If not checked, inapplicable.
</TABLE>

ARTICLE FOUR

<TABLE>
<S>                                    <C>                                 <C>
Remedies for Failure to Deliver or     [ ] Accelerated Payment of Damages. If not checked, inapplicable.
Receive
</TABLE>

ARTICLE FIVE

<TABLE>
<S>                                    <C>                                  <C>
                                       [ ] Cross Default for Party A: N/A
Events of Default; Remedies            [ ] Party A: N/A                     Cross Default Amount: $ N/A
                                       [ ] Other Entity: N/A                Cross Default Amount: $ N/A
                                       [ ] Cross Default for Party B: N/A
                                       [ ] Party B: N/A                     Cross Default Amount: $ N/A
                                       [ ] Other Entity: N/A                Cross Default Amount: $ N/A
                                       5.6 Closeout Setoff
                                          [ ] Option A (Applicable if no other selection is made.).
                                          [ ] Option B - Affiliates shall have the meaning set forth in  the Agreement
                                              unless otherwise specified as follows:__________________________
                                          [X] Option C (No Setoff)
</TABLE>

ARTICLE 8

<TABLE>
<S>                                    <C>
                                       8.1 Party A Credit Protection:

Credit and Collateral Requirements        (a) Financial Information:
                                              [ ] Option A
                                              [ ] Option B  Specify:
</TABLE>

                                        2

<PAGE>

<TABLE>
<S>                                    <C>
                                          [X] Option C Specify: (1) All financial reports of any kind  distributed to the
                                              holders of any  bonds issued by DWR under Water Code Section 80130 et seq.
                                              (the "Bonds"). (2) Annual audit, annual budget and all financial  information
                                              sent to any seller  under a power purchase agreement;  Party B shall use
                                              reasonable commercial efforts to periodically  prepare and make available to
                                              all sellers under power sales agreements, but not more frequently  than
                                              quarterly, financial  information reasonably intended to apprise all such
                                              sellers of the financial condition of the Fund.

                                          (b) Credit Assurances:

                                                [X] Not Applicable
                                                [ ] Applicable

                                          (c) Collateral Threshold:

                                                [X] Not Applicable
                                                [ ] Applicable

                                       If applicable, complete the following:

                                       Party B Collateral Threshold:___________; provided, however, that Party  B's
                                       Collateral  Threshold shall be zero if an Event of Default or Potential Event of
                                       Default with respect to Party B has occurred and is continuing.

                                       Party B Independent Amount: $ N/A
                                       Party B Rounding Amount: $ N/A
                                       (d) Downgrade Event:
                                          [E] Not Applicable
                                          [ ] Applicable

                                       If applicable, complete the following:

                                          [ ]
                                          [ ] Other:
                                              Specify:____________________________________

                                       (e) Guarantor for Party B: N/A

                                              Guarantee Amount: $ N/A

                                       8.2 Party B Credit Protection:

                                          (a) Financial Information:

                                                [ ] Option A
                                                [X] Option B Calpine Corporation
                                                [ ] Option C Specify:

                                          (b) Credit Assurances:

                                                [X] Not Applicable
                                                [ ] Applicable

                                          (c) Collateral Threshold:

                                                [ ] Not Applicable
</TABLE>

                                        3

<PAGE>

<TABLE>
<S>                                    <C>
                                                [ ] Applicable

                                       If applicable, complete the following:

                                       Party A Collateral Threshold: _______; provided, however, that Party A' s Collateral
                                       Threshold shall be zero if an Event of Default or Potential Event of Default
                                       with respect to Party A has occurred and is continuing.

                                       Party A Independent Amount: $ N/A
                                       Party A Rounding Amount: $ N/A
                                       (d) Downgrade Event:

                                           [X]   Not Applicable
                                           [ ]   Applicable

                                       If applicable, complete the following:

                                          [ ]
                                          [ ] Other:
                                              Specify:____________________________________

                                       (e) Guarantor for Party A: Calpine Corporation ("Corporation")

                                                Guarantee Amount: From time to time, with respect to each Transaction
                                                hereunder, the guarantee under which Corporation is liable for an
                                                amount up to the greater of (a) the amount of the Termination Payment
                                                and any other payment payable by Party A at such time in the event such
                                                Transaction were terminated and Party A were the Defaulting Party and
                                                (b) $12,500,000 (or in the case of Calpine 3, the amount of any
                                                unearned capacity payment that has been paid in advance)(the amount
                                                specified in clause (b) being the "Minimum Amount").
</TABLE>

ARTICLE 10

<TABLE>
<S>                                    <C>                                 <C>
Confidentiality                        [ ] Confidentiality Applicable      If not checked, inapplicable.
</TABLE>

<TABLE>
<S>                                    <C>                                 <C>
SCHEDULE M                             [ ] Party A is a Governmental Entity or Public Power System
                                       [X] Party B is a Governmental Entity or Public Power System
                                       [ ] Add Section 3.6. If not checked, inapplicable
                                       [ ] Add Section 8.4. If not checked, inapplicable

OTHER CHANGES                          Specify, if any: The following changes shall apply:
</TABLE>

      (a) DEFINITIONS. (1) Sections 1.6, 1.24, 1.28, 1.33, 1.34, 1.35, 1.36,
      1.43, 1.44, 1.48 and 1.56 are amended by deleting the text in each of such
      sections and substituting therefore "[Intentionally omitted.]"

      (2)   Section 1.11 is amended by adding the following sentence at the end
            of the current definition: "The Non-Defaulting Party shall use
            commercially reasonable efforts to mitigate or eliminate these
            Costs."

      Section 1.23 is amended by deleting the text thereof and substituting the
      following: Force Majeure" means an event or circumstance which prevents
      one Party from performing its obligations under one or more Transactions,
      which event or circumstance was not reasonably foreseeable as of the date
      the Transaction was agreed to, which is not within the reasonable control
      of, or the result of the negligence of, the Claiming Party, and which, by
      the exercise of due diligence, the Claiming Party is unable to overcome or
      avoid or cause to be avoided, including, but not limited to: shortages of
      materials or supplies (except if caused by Seller's failure to maintain
      sufficient inventories and stores of spare parts), strikes or labor
      disruptions (except strikes or labor disputes resulting from unsafe
      working environment or unfair labor practices), interruptions of fuel
      supply, water supply or transmission, damages or breakdown of machinery,
      drought, flood, earthquake, storm, fire, lightning, epidemic, war, riot,
      civil disturbance, sabotage, inability to obtain and maintain applicable
      governmental approvals from a governmental authority resulting solely from
      the enactment, repeal or amendment in any applicable law or in the
      interpretation or application of any applicable law by such governmental
      authority, in each case occurring after the effective date hereof, or the
      failure of such governmental authority to comply with statutorily mandated
      permitting time requirements. Force Majeure shall not include any events
      such as, but not limited to, events arising from the failure to operate
      and maintain the Project in accordance with Prudent Industry Practices;
      economic factors including the price of gas or gas transmission,

                                        4

<PAGE>

      curtailment of interruptible gas transportation if firm gas transportation
      is available or the cost of variable and fixed operation and maintenance
      costs; events that merely increase the cost of a Party's performance;
      failure of third parties to provide goods or services essential to a
      Party's performance except to the extent caused by an event of Force
      Majeure; or the inability of a Party to obtain financing. If the Claiming
      Party is a Governmental Entity, Force Majeure does not include any action
      taken by the Governmental Entity in its governmental capacity. The
      definition of "Force Majeure" with respect to a particular Transaction may
      be varied by the Confirmation relating to such Transaction.

      (3)   Section 1.59 is amended by changing "Section 5.3" to "Section 5.2."

      (4)   Sections 1.62 through 1.71 are added to Article One as follows:

      1.62  "Fund" means the Department of Water Resources Electric Power Fund
            established by Section 80200 of the Water Code.

      1.63  Forced Outage" means forced outage or forced derating (as defined in
            the NERC Generating Unit Availability Data System (GADS) Forced
            Outage reporting guidelines) of a generating unit (but only, in the
            case of a partial forced outage or force derating, to the extent
            thereof). This definition shall supercede any other definition of
            Forced Outage used elsewhere in this Agreement or in any Transaction
            or Confirmation.

      1.64  "Market Quotation Average Price" shall mean the average of the good
            faith quotations solicited from not less than three (3) Reference
            Market-makers; provided, however, that the Party soliciting such
            quotations shall use commercially reasonable efforts to obtain good
            faith quotations from at least five (5) Reference Market-makers and,
            if at least five (5) such quotations are obtained, the Market
            Quotation Average Price shall be determined disregarding the highest
            and lowest quotations.

      1.65  "Market Value" shall have the meaning set forth in Section 5.3.

      1.66  "Per Unit Market Price" means the applicable price per MWh
            determined in accordance with Section 5.3.

      1.67  "Prudent Industry Practices" shall mean those practices, methods and
            acts engaged in or approved by a significant portion of the
            independent electric power industry which, in the exercise of
            reasonable judgment at the time the decision was made, would
            reasonably have been expected to achieve the desired results
            consistent with good business practices, reliability criteria,
            safety considerations and expediency; provided, however, that
            Prudent Industry Practices is not limited to any particular practice
            or practices, but instead includes a range of acceptable practices
            methods and acts.

      1.68  "Qualified Electric Corporation" means an electrical corporation, as
            defined by the Act, whose long-term unsecured senior debt is rated
            BBB or better by Standard & Poor's Corporation and Baa2 or better by
            Moody's Investor Services.

      1.69  "Reference Market-maker" means any marketer, trader or seller of or
            dealer in firm energy products whose long-term unsecured senior debt
            is rated BBB or better by Standard & Poor's and Baa2 or better by
            Moody's Investor Services.

      1.70  "Replacement Agreement" means any agreement identical to this
            Agreement excluding Schedule M and such other provisions as may be
            specifically excluded from a Replacement Agreement pursuant a
            Confirmation, together with such additional changes as Party A and
            Party B shall mutually agree. Such Replacement Agreement shall state
            that it is a Replacement Agreement within the meaning of this
            Agreement and that it constitutes a novation for which there is
            adequate consideration.

      1.71  "Replacement Contract" means a contract having a term, quantity,
            delivery rate, delivery point and product substantially similar to
            the remaining term, quantity, delivery rate, Delivery Point and
            Product to be provided under a Transaction.

      1.72  "Trust Estate" means all revenues under any obligation entered into,
            and rights to receive the same, and moneys on deposit in the Fund
            and income or revenue derived from the investment thereof.

(b) TRANSACTIONS. All Transactions shall be in writing and this agreement may
not be orally amended or modified, including by Recording pursuant to Section
2.5.

(c) GOVERNING TERMS. Section 2.2 is amended by adding the following sentence at
the end of the current section:

      "Notwithstanding any other provision of this Agreement or any Confirmation
      entered into hereunder, each Transaction shall be treated as a stand-alone
      Transaction and accordingly (a) provisions in the Master Agreement
      referring to offsetting, netting

                                        5

<PAGE>

      suspension or exercise of remedies among multiple Transactions shall not
      be applicable, (b) an Event of Default or Potential Event of Default with
      respect to a Transaction shall not independently constitute an Event of
      Default or Potential Event of Default under any other Transaction and (c)
      subject to the requirements of this Agreement relating to assignment, each
      Transaction may be separately assigned or pledged. Each Transaction
      Confirmation shall be considered a separate contract between Party A and
      Party B (or, to the extent applicable, their respective successors and
      assigns) into which the terms and conditions of this Master Agreement have
      been incorporated. No provision of any Confirmation entered into pursuant
      to Section 2.4 with respect to a Transaction shall affect any other
      Transaction."

(d) INTENT OF PARTIES; CONDITIONS PRECEDENT. Section 3.7 is added to the
Agreement as follows:

      3.7 Intent of Parties: Effectiveness of Agreement, (a) It is the intent of
      the Parties that this Amended and Restated Master Power Purchase and Sale
      Agreement and the amended and restated Transaction Confirmations being
      executed concurrently herewith constitute amendments and novations of the
      Amended and Restated Master Power Purchase and Sale Agreement dated as of
      February 26, 2001 and the Transaction Confirmations subject thereto,
      including the confirmation dated February 6, 2001 (the "Existing
      Agreements"), and "Priority Long Term Power Contracts" under the Rate
      Agreement described in Section 3. 17.

      (b) The Amended and Restated Master Power Purchase and Sale Agreement and
      the amended and restated Transaction Confirmations being executed
      concurrently herewith shall be effective May 1, 2002. The Existing
      Agreement shall continue in full force and effect until April 30, 2002.

(e) EVENTS OF DEFAULT. (a) Section 5.l(c) is amended to read as follows:

      "(c) the failure to perform any material covenant or obligation set forth
      in this Agreement (except to the extent constituting a separate Event of
      Default and except for such Party's obligations to deliver or receive the
      Product, the exclusive remedy for which is provided in Article Four unless
      otherwise provided in a Confirmation with respect to a Transaction) if
      such failure is not remedied within thirty (30) days after written notice,
      or, if such failure cannot, with the exercise of commercially reasonable
      efforts and due diligence, be cured within such thirty (30) day period,
      such additional period, not to exceed sixty (60) days in total, as may be
      reasonably necessary to cure such failure; provided, however, that such
      cure periods may be varied with respect to a particular Transaction by the
      Confirmation related thereto; provided, further, however, that the cure
      periods set forth in this Section 5.1(c) shall not be in addition to any
      cure periods with respect to a particular Transaction or particular
      provisions thereof as expressly set forth in the Confirmation related
      thereto, such cure periods as may be expressly set forth in a Confirmation
      with respect to a particular Transaction or particular provisions thereof
      being the exclusive cure periods for defaults to which they apply under
      such Transaction."

(b) The following language shall be deleted from Section 5.1(g): ", or becoming
capable at such time of being declared."

(f) DECLARATION OF AN EARLY TERMINATION DATE AND CALCULATION OF TERMINATION
PAYMENT.

(1) Section 5.2 is replaced in its entirety by the following: "If an Event of
Default with respect to a Defaulting Party shall have occurred and be continuing
with respect to a particular Transaction (the "Defaulted Transaction"), the
other Party (the "Non- Defaulting Party") shall have the right (i) to designate
a day, no earlier than the day such notice is effective and no later than 20
days after such notice is effective, as an early termination date ("Early
Termination Date") to liquidate and terminate the Defaulted Transaction (each
referred to as a "Terminated Transaction") between the Parties, (ii) withhold
any payments due to the Defaulting Party under this Agreement with respect to
the Defaulted Transaction, and (iii) suspend performance with respect to the
Defaulted Transaction. In addition to any Termination Payment hereunder, if
Party A is the Defaulting Party, then Party A shall return to Party B the
unearned portion of any payment that Party B has paid in advance, including
without limitation, the unearned portion of any annual capacity payment. The
Non-Defaulting Party shall be entitled to a payment upon termination of a
Defaulted Transaction as the result of an Event of Default (the "Termination
Payment") which shall be the aggregate of the Market Value and Costs calculated
in accordance with Section 5.3 which shall be paid no later than one hundred
eighty (180) days after receipt of written notice of an Early Termination Date,
together with interest on such Termination Payment from the date of such notice
through the date of payment at an annual rate equal to the "Prime Rate"
published in the Wall Street Journal under "Money Rates" (as such rate may be
adjusted from time to time), but not in excess of the maximum rate permitted by
law. Prior to receipt of such notice of termination by the Defaulting Party, the
Non-Defaulting Party may exercise any remedies available to it at law or
otherwise, including, but not limited to, the right to seek injunctive relief to
prevent irreparable injury to the Non-Defaulting Party. An Event of Default with
respect to one Transaction shall not, in and of itself, constitute an Event of
Default with respect to another Transaction or give the Non-Defaulting Party the
right to terminate any Transaction other than the Defaulted Transaction. If
Party B is the Defaulting Party, the unearned portion of any payment that Party
B has paid in advance, including without limitation, the unearned portion of any
annual capacity payment shall off set any Termination Payment. "

                                        6

<PAGE>

(2) The following shall be added to the end of Section 5.2 (as amended by clause
(1) immediately above): "Notwithstanding the other provisions of this Agreement,
if the Non-Defaulting Party has the right to liquidate or terminate a
Transaction under this Agreement under the provisions of this Article 5 because
the Defaulting Party either (a) is the subject of a bankruptcy, insolvency, or
similar proceeding, or (b) applies for, seeks, consents to, or acquiesces in the
appointment of a receiver, custodian, trustee, liquidator, or similar official
for all or a substantial portion of its assets, then such Transaction shall
automatically terminate, without notice, as if the Early Termination Date was
the day immediately preceding the events listed in Section 5.1."

(3) Section 5.3 is replaced in its entirety by the following:

      "5.3. Termination Pavment Calculations. The Non-Defaulting Party shall
      calculate the Termination Payment as follows:

      (a)   Market Value shall be (i) in the case Party B is the Non-Defaulting
            Party, the present value of the positive difference, if any, of (A)
            payments under a Replacement Contract based on the Per Unit Market
            Price, and (B) payments under this Agreement, or (ii) in the case
            Party A is the Non-Defaulting Party, the present value of the
            positive difference, if any, of (A) payments under this Agreement,
            and (B) payments under a Replacement Contract based on the Per Unit
            Market Price, in each case using the Present Value Rate as of the
            time of termination (to take account of the period between the time
            notice of termination was effective and when such amount would have
            otherwise been due pursuant to the relevant transaction). The
            "Present Value Rate" shall mean the sum of 0.50% plus the yield
            reported on page "USD" of the Bloomberg Financial Markets Services
            Screen (or, if not available, any other nationally recognized
            trading screen reporting on-line intraday trading in United States
            government securities) at 11:00 a.m. (New York City, New York time)
            for the United States government securities having a maturity that
            matches (or most closely approximates) the average remaining term of
            this Agreement. It is expressly agreed that the Non-Defaulting Party
            shall not be required to enter into a Replacement Contract in order
            to determine the Termination Payment.

      (b)   To ascertain the Per Unit Market Price of a Replacement Contract
            with a term of less than one year, the Non-Defaulting Party may
            consider, among other valuations, quotations from leading dealers in
            energy contracts, the settlement prices on established, actively
            traded power exchanges, other bona fide third party offers and other
            commercially reasonable market information.

      (c)   To ascertain the Per Unit Market Price of a Replacement Contract
            with a term of one year or more, the Non-Defaulting Party shall use
            the Market Quotation Average Price; provided, however, that if there
            is an actively traded market for such Replacement Contract or if the
            Non-Defaulting Party is unable to obtain reliable quotations from at
            least three (3) Reference Market-makers, the Non-Defaulting Party
            shall use the methodology set forth in paragraph (b).

      (d)   In no event, however, shall a party's Market Value or Costs include
      any penalties, ratcheted demand charges or similar charges imposed by the
      Non-Defaulting Party.

      If the Defaulting Party disagrees with the calculation of the Termination
      Payment and the parties cannot otherwise resolve their differences, the
      calculation issue shall be submitted to dispute resolution as provided in
      Section 10.12 of this Agreement. Pending resolution of the dispute, the
      Defaulting Party shall pay the undisputed portion of the Termination
      Payment calculated by the Non-Defaulting Party no later than one hundred
      eighty (180) days after receipt of written notice of an Early Termination
      Date and shall pay any unpaid disputed amount determined to be due by the
      later of (i) one hundred eighty (180) days after receipt of written notice
      of an Early Termination Date and (ii) fifteen (15) days after resolution
      of the dispute."

(4) Sections 5.4, 5.5, 5.6, 6.7 and 6.8 are amended by deleting the text in each
of such sections and substituting therefor "[Intentionally omitted.]"

(5) Section 5.7 is revised by replacing "any or all Transactions" in clause (i)
thereof with "the Defaulted Transaction."

(g) GOVERNMENTAL CHARGES. The following sentence shall be added to the end of
Section 9.2:

                        "Seller shall be entitled to pass through to Buyer any
                        liability, loss, cost, damage and expense, including
                        gross-up (collectively, "Expense"), arising out of a tax
                        or other imposition enacted by the California state
                        legislature after the date of this Agreement that is not
                        of general applicability and is instead directed at the
                        generation, sale, purchase, ownership and/or
                        transmission of electric power, natural gas and/or other
                        utility or energy goods and services, but only insofar
                        as the Expense in question relates to a Transaction
                        hereunder or reflects an increase in Seller's cost of
                        service in connection therewith. Buyer shall be entitled
                        to the benefit of a reduction of or credit with respect
                        to any such tax or other imposition enacted by the
                        California state legislature after the date of this
                        Agreement, but only insofar as such reduction or credit
                        relates to a Transaction hereunder or reflects a
                        decrease in Seller's cost of service in connection
                        therewith. In the event any such tax or other imposition
                        in enacted after the date of this Agreement, or there
                        occurs any reduction

                                        7

<PAGE>

                        of or credit with respect to same, then, without
                        prejudice to the rights of Seller and Buyer under this
                        paragraph, Seller and Buyer shall attempt to reach
                        agreement on appropriate adjustments to the contract
                        price (either the energy price or the capacity charge,
                        depending on the nature of the tax or imposition) in
                        order to reasonably compensate the Seller or Buyer, as
                        the case may be, for the Expense in question or the
                        reduction or credit with respect to same, as the case
                        may be."

(h) REPRESENTATIONS AND WARRANTIES.

      (1) The following language shall be deleted from the new subsection (a) to
      Section 10.2: (i) the phrase "or any of its Affiliates" in Section
      10.2(vi), and (ii) the phrase "or Potential Event of Default" in Section
      10.2(vii).

      (2) Party B shall not be deemed to make the representations set forth in
      clauses (ix) and (xi) of the new subsection (a) of Section 10.2.

(i) INDEMNITY. The phrase "To the fullest extent allowed by law" is added at the
beginning of the first two sentences of Section 10.4, and the following sentence
is added at the end of Section 10.4: "To the extent that either Party is excused
by law from the foregoing indemnity obligations, the other Party shall also be
excused to the same extent."

(j) ASSIGNMENT. (1) The phrase "(A) if the guaranty provided by the Guarantor
remains in effect with respect to such assignee or (B)" is inserted in clause
(ii) of Section 10.5 after the phrase "transfer or assign this Agreement to an
affiliate of such Party."

(2) Insert the phrase "(or, with respect to clause (iv), Party B)" after the
phrase "provided, however, either Party" in the third line of Section 10.5,
insert the phrase "(except with respect to clause (iv), for which consent will
be required to the extent provided therein)" after "without the consent of the
other Party" on the third and fourth lines of Section 10.5, and add the
following clause (iv) in the first proviso in Section 10.5: "or (iv) transfer
and assign this Agreement to (A) another governmental entity created or
designated by law for the purpose of carrying out Party B's obligations under
this Agreement and similar agreements with other sellers of power to Party B and
under the Bonds if Party B demonstrates to Party A's reasonable satisfaction
that such transfer will not adversely affect Party A's right to or likelihood of
payment and will not otherwise have a material adverse impact on Party A, or (B)
a privately owned utility company if (1) such company's long term senior
unsecured indebtedness is rated at least A by Standard & Poor's and A2 by
Moody's Investors Services, (2) such assignment is made as part of a general
assignment of all or substantially all of the power purchase agreements relying
on the Fund to one or more privately owned utility companies, and (3) Party A is
satisfied in its sole discretion that such assignment will not have a material
adverse effect on the performance of Party B's obligations hereunder or on any
federal, state or local regulatory or other governmental requirements relating
to Party A;"

      (3) Add the following proviso to the end of Section 10.5: "; provided,
further, however, that in the event this Agreement is pledged or assigned to a
bond trustee pursuant to clause (i) as collateral for bonds issued by Party B,
such bond trustee shall not be required to agree in writing to be bound by the
terms and conditions hereof, but any person or entity that succeeds to Party B's
rights with respect to the Fund or that acquires Party B's rights to receive
Products under this Agreement, whether by foreclosure or otherwise, shall be
bound, and shall be required to agree in writing to be bound, by the terms and
conditions of this Agreement."

      (4) The provisions of Section 10.5(i), (ii) and (iii) of the Master
Agreement may be applied separately to each Transaction. Party B agrees to enter
into a consent to the collateral assignment of any Transaction pursuant to
Section 10.5(i) of the Master Agreement in substantially the form of Schedule 1
attached hereto

(k) NOVATION. At the end of Section 10.5, add the following: "Notwithstanding
the foregoing limitations on assignment, at any time after January 1, 2003,
Party A shall, upon the written request of Party B, enter into a Replacement
Agreement with one or more Qualified Electric Corporations. This Agreement shall
terminate upon execution of the Replacement Agreement except for such provisions
that survive the termination of this Agreement by their terms as set forth in a
Confirmation with respect to a Transaction. The execution of the Replacement
Agreement shall constitute a novation that shall relieve Party B of any
liability or obligation arising after the date of termination of this Agreement.
Party A's obligation to enter into a Replacement Agreement shall be subject to
the condition precedent that the California Public Utilities Commission shall
have conducted a just and reasonable review under Section 451 of the Public
Utilities Code with respect to such Replacement Agreement and shall have issued
an order determining that the charges under such Replacement Agreement are just
and reasonable."

(l) GOVERNING LAW. In Section 10.6, "New York" shall be replaced with
"California".

(m) DISPUTE RESOLUTION. Add a new section 10.12 to Article 10 as follows:

      10.12 Dispute Resolution.

            (a) If a dispute shall arise between the Parties relating to the
      interpretation of this Agreement or to performance of any Transaction
      under it, the Party desiring resolution of the dispute shall notify the
      other Party in writing. The notice shall set forth the matter in dispute
      in reasonable detail and a proposed solution.

                                        8

<PAGE>

            (b) The Parties shall attempt to resolve any dispute within 10
      calendar days after delivery of the written notice referred to above. Any
      disputes not so resolved shall be referred by each Party to an officer (or
      the officer's designee) for resolution. If the Parties fail to reach an
      agreement within 10 days after such referral, each Party shall have the
      right to pursue any and all remedies provided in this Agreement and as
      afforded by law.

            (c) The existence of any dispute or controversy under this Agreement
      or the pendancy of the dispute settlement or resolution procedures set
      forth herein shall not in and of themselves relieve or excuse either Party
      from its ongoing duties and obligations under this Agreement.

            (d) The forum and venue for all actions related to the matters which
      are the subject of this Agreement shall be a court of competent
      jurisdiction in the County of Sacramento, State of California.

(n) GENERAL. (1) The phrase "Except to the extent herein provided for," shall be
deleted from the fourth sentence of Section 10.8, and the phrase "and this
agreement may not be orally amended or modified, including by Recording pursuant
to Section 2.5" shall be added to the end of such fourth sentence.

            (2) For the avoidance of doubt, it is understood and agreed that (a)
wherever this Agreement or any Transaction Confirmation refers to Party A's
generating assets, such reference includes generating assets owned or controlled
by Party A or by its Affiliates that are direct or indirect wholly-owned
subsidiaries of Calpine Corporation, and (b) any obligations of Party A under
this Agreement or the Transactions entered into hereunder to operate or maintain
certain generating assets or to deliver energy from certain generating assets
may also be performed by any such Affiliate that owns or controls, or that is
responsible for the operation or maintenance of, the generating assets in
question, in satisfaction of such obligations of Party A; provided, however,
that nothing in this Section (n)(2) shall be deemed to relieve Party A from, or
otherwise modify or diminish, Party A's obligations under this Agreement or any
Transaction Confirmation hereunder except to the extent expressly so provided
herein or therein.

(o) ADDITIONAL PROVISIONS. New Sections 10.15 and 10.16 are added to Article 10
as follows:

            10.15. No Dedication of Facilities. Party A's undertaking hereunder
      shall not constitute the dedication of the electric system or any portion
      thereof of Party A to the public or to the other Party, and it is
      understood and agreed that any undertaking under this Agreement by Party A
      shall cease upon the termination of Party A's obligations under this
      Agreement. The foregoing provision shall not impair the Parties' ability
      to enter into Transactions providing for the delivery of "Unit Firm" or
      "System Firm" Products.

            10.16. No Retail Services; No Agency. (a) Nothing contained in this
      Agreement shall grant any rights to or obligate Party A to provide any
      services hereunder directly to or for retail customers of any person.

            (b) In performing their respective obligations hereunder, neither
      Party is acting, or is authorized to act, as agent of the other Party.

(p) SCHEDULE M. Schedule M shall be amended as follows:

      (1) In Section A, "Act" will mean those sections of the California Water
      Code authorizing, establishing and empowering the Department of Water
      Resources, including Division 27 (beginning with Section 80000) of the
      Water Code, and the definition of "Special Fund" shall be replaced by the
      following: "Special Fund" means the Fund.

      (2) In Section A, the definition of "Governmental Entity" shall be amended
      by replacing the current language with the following: "Governmental
      Entity" means the State of California Department of Water Resources.

      (3) In Section B, the following phrase is added before the phrase "in its
      governmental capacity": "or by the State of California or any of its
      agencies, departments, instrumentalities or subdivisions".

      (4) Delete all references to "Public Power System" in Schedule M.

      (5) In Section D, delete Section 3.5 and replace it with the following:

            "3.5 No Immunity Claim. California law authorizes suits based on
            contract against the State or its agencies, and Party B agrees that
            it will not assert any immunity it may have as a state agency
            against such lawsuits filed in state court."

      (6) In Section G, specify that the laws of the State of California will
      apply.

                                        9

<PAGE>

      (7) Add a new Section H, which shall read as follows:

            "3.8 No Reduction of Payments. Section Party B covenants and agrees
            that it will not take any action that will reduce the payments
            required to be made by the Party B hereunder or that prevents Party
            A from collecting such payments from Party B or that prevents the
            Party B from making such payments to Party A hereunder.

      (8) Add a new Section I, which shall read as follows:

            "3.9. Payments Under Agreement an Operating Expense. Payments under
            this Agreement shall constitute an operating expense of the Fund
            payable prior to all bonds, notes or other indebtedness secured by a
            pledge or assignment of the Trust Estate or payments to the general
            fund."

      (9) Add a new Section J, which shall read as follows:

            "3.10. Rate Covenant: No Impairment. In accordance with Section
            80134 of the Water Code, Party B covenants that it will, at least
            annually, and more frequently as required, establish and revise
            revenue requirements sufficient, together with any moneys on deposit
            in the Fund, to provide for the timely payment of all obligations
            which it has incurred, including any payments required to be made by
            Party B pursuant to this Agreement. As provided in Section 80200 of
            the Water Code, while any obligations of Party B pursuant to this
            Agreement remain outstanding and not fully performed or discharged,
            the rights, powers, duties and existence of Party B and the Public
            Utilities Commission shall not be diminished or impaired in any
            manner that will affect adversely the interests and rights of Party
            A under this Agreement."

      (10) Add a new Section K, which shall read as follows:

            "3.11. No More Favorable Terms. Party B shall not provide in any
            power purchase agreement payable from the Trust Estate for (i)
            collateral or other security or credit support with respect thereto,
            (ii) a pledge or assignment of the Trust Estate for the payment
            thereof, or (iii) payment priority with respect thereto superior to
            that of Party A, without in each case offering such arrangements to
            Party A."

      (11) Add a new Section L, which shall read as follows:

            "3.12. Sources of Payment; No Debt of State. Party B's obligation to
            make payments hereunder shall be limited solely to the Fund. Any
            liability of Party B arising in connection with this Agreement or
            any claim based thereon or with respect thereto, including, but not
            limited to, any Termination Payment arising as the result of any
            breach or Potential Event of Default or Event of Default under this
            Agreement, and any other payment obligation or liability of or
            judgment against Party B hereunder, shall be satisfied solely from
            the Fund. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF
            THE STATE OF CALIFORNIA ARE OR MAY BE PLEDGED FOR ANY PAYMENT UNDER
            THIS AGREEMENT. Revenues and assets of the State Water Resources
            Development System shall not be liable for or available to make any
            payments or satisfy any obligation arising under this Agreement."

      (12) Add a new Section M, which shall read as follows:

            "3.13. Collection Efforts. Party B agrees that it will exercise all
            rights and use all remedies available to it to collect from retail
            end use customers all amounts necessary to fund Party B's revenue
            requirements described in Section 80134 of the Water Code or
            otherwise owed to Party B for such power."

      (13) Add a new Section N, which shall read as follows:

            "3.14. Application of Government Code and the Public Contracts Code.
            Party A has stated that, because of the administrative burden and
            delays associated with such requirements, it would not enter into
            this Agreement if the provisions of the Government Code and the
            Public Contracts Code applicable to state contracts, including, but
            not limited to, advertising and competitive bidding requirements and
            prompt payment requirements would apply to or be required to be
            incorporated in this Agreement. Accordingly, pursuant to Section
            80014(b) of the Water Code, Party B has determined that it would be
            detrimental to accomplishing the purposes of Division 27 (commencing
            with Section 80000) of the Water Code to make such provisions
            applicable to this Agreement and that such provisions and
            requirements are therefore not applicable to or incorporated in this
            Agreement."

                                       10

<PAGE>

      (14) Add a new Section O, which shall read as follows:

            "3.15. Effect on Fund. Party B agrees that it will not take any
            actions with respect to the Fund which materially and adversely
            affects the ability of Party B to pay and perform all of its
            obligations under this Agreement, including all Transactions
            hereunder; provided, however, that any actions taken by Party B or a
            bond trustee in accordance with the provisions of the resolution or
            indenture providing for the issuance of the Bonds shall not be
            considered a breach or violation of this provision. "

      (15) Add a new Section P, which shall read as follows:

            "3.16. Actions With Respect to Section 3.10. In addition to any
            other remedies available to Party A, Party A may, in its sole
            discretion, seek to enforce the provisions of Section 3.10 by an
            action for mandamus or specific performance, and the exercise of
            such remedy shall not require any demonstration of irreparable
            injury by Party A or of the inadequacy of a remedy at law."

(q) SCHEDULE P. The definition of "Firm (LD)" in Schedule P shall be amended by
adding the following language at the end of the existing definition: "The Firm
(LD) Product may be provided in the California market as a schedule coordinator
to schedule coordinator transaction pursuant to the applicable tariff and
protocol provisions of the California Independent System Operator ("CAISO")
tariff, as amended from time to time, or a successor or replacement tariff, for
which the only excuse for failure to deliver or receive is an "Uncontrollable
Force" as defined in the CAISO tariff."

(r) CAISO AND WSCC. References to CAISO and WSCC shall include their successors.
Scheduling standards of each Transaction must conform to the requirements of the
CAISO or its successor.

(s) INVOICES. Party A shall provide invoice data to Party B, disaggregated by
transaction components, in a template format to be specified by Party B.

(t) GUARANTEES. As soon as reasonably practicable following the effective date
of this Amended and Restated Master Power Purchase and Sale Agreement, Party A
shall cause Corporation to execute and deliver to Party B its guarantees of each
of the Transactions, each such guarantee to be in an amount equal to the Minimum
Amount. Thereafter, on or about the first business day of each calendar quarter,
either Party A or Party B may deliver to the other Party its written calculation
of the Termination Payment, calculated in accordance with Section 5.3 hereof,
payable by Party A as of such date in connection with any Transaction in the
event such Transaction were terminated as of such date and Party A were the
Defaulting Party. If either Party delivers such a calculation, such Party shall
also deliver to the other Party such supporting data and information as the
other Party may reasonably request to evaluate such calculation and, if the
other Party reasonably disputes such calculation, such dispute shall be resolved
in accordance with Section 5.3. If, as of any such date, the Termination Payment
with respect to any Transaction is greater or less than the amount of the
corresponding guarantee then in effect, Party A shall cause Corporation to
execute and deliver to Party B a new guarantee (or a supplement to the
then-existing guarantee) increasing or decreasing, as the case may be, the
amount guaranteed to an amount equal to such Termination Payment amount (but
always at least equal to the Minimum Amount). If the amount of any guarantee is
to be decreased, then, upon Party A's request (and delivery to Party B of a
guarantee in the correct amount), Party B shall return to Party A any
previously-delivered guarantee in a greater amount.

                     [The next page is the signature page.]

                                       11

<PAGE>

Effective May 1, 2002, this Master Agreement constitutes an amendment and
restatement of the Master Power Purchase and Sale Agreement (Version 2.1;
modified 4/25/00) made as of the following date: February 26, 2001.

IN WITNESS WHEREOF, the Parties have caused this Master Agreement to be duly
executed as of the date first above written.

                                            Party B - State of California

Party A - Calpine Energy Services, L.P.     DEPARTMENT of Water Resources

By: /s/ E. James Macias                     By: /s/ Peter S. Garris
    --------------------------------            --------------------------------
Name: E. James Macias                          Name: Peter S. Garris
Title: Executive Vice President                Title: Deputy Director

                                      12
<PAGE>

                                                                      SCHEDULE 1

                              CONSENT AND AGREEMENT

      This CONSENT AND AGREEMENT ("Consent and Agreement") is entered into as of
[INSERT THE EXECUTION DATE], among California Department of Water Resources,
acting solely under the authority and powers created by AB1-X, codified as
Sections 80000 through 80270 of the California Water Code, and not under its
powers and responsibilities with respect to the California State Water Resources
Development System (the "Consenting Party"), [INSERT THE NAME OF THE AGENT FOR
THE LENDERS], as agent on behalf of the lenders under the Loan Agreement (as
defined below) (the "Assignee") and [Calipne Energy Services, L.P., a Delaware
limited partnership] (the "Assignor").

      WHEREAS, subject to the terms of [INSERT THE NAME OF THE LOAN AGREEMENT],
dated as of [INSERT THE EXECUTION DATE] among the Assignor, [INSERT NAME OF THE
AGENT FOR THE LENDERS], as agent on behalf of the lenders [ENTER APPROPRIATE
DESCRIPTION] (the "Lenders") (as the same may be amended, modified or
supplemented from time to time, the "Credit Agreement"), the Lenders have agreed
to make certain loans to the Assignor to enable the Assignor to finance the
development, construction, operation and maintenance of the Project (as defined
in the Credit Agreement);

      WHEREAS, pursuant to the Amended and Restated Master Power Purchase and
Sale Agreement dated April _, 2002 [and that certain Amended and Restated
Transaction Confirmation (Calpine __)] between Assignor and the Consenting Party
(as the same may be amended, modified or supplemented from time to time, the
"Assigned Agreement") [step-in rights to be excluded] the Consenting Party has
agreed to purchase electric capacity and energy from Assignor; and

      WHEREAS, the Assignor is required to assign the Assigned Agreement to the
Assignee as collateral security pursuant to [INSERT THE NAME OF THE SECURITY
DOCUMENT], dated as of [INSERT THE EXECUTION DATE] between Assignor and Assignee
(as the same may be amended, modified or supplemented from time to time, the
"Security Agreement") and the Consenting Party has agreed pursuant to the
Assigned Agreement to execute and deliver this Consent and Agreement to the
Assignee.

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto agree as
follows:

            Section 1: Definitions. Any capitalized term used but not defined
herein shall have the meaning specified for such term in the Assigned Agreement.

            Section 2: Consent and Agreement, (a) The Consenting Party consents
to and approves the assignment of the Assigned Agreement pursuant to the
Security Agreement (i) to the Assignee as collateral security for the payment of
all amounts payable by the Assignor under the Loan Documents, and (ii) to any
nominee, transferee or assignee of, or successor to, the Assignee; a and (iii)
to the subsequent transfer of the Assigned Agreement to any person in connection
with the Assignee's or any successor transferee's exercise of its rights and
remedies under the Credit Agreement and related documents following the
occurrence of an Event of Default by the Assignor under the Credit Agreement.

            (b) The Assignee (and any successor transferee's) shall have no
rights with respect to the Assigned Agreement until the transfer thereof to
Assignee or a successor transferee. The Assignee's (and any successor
transferee's) rights hereunder following transfer of the Assigned Agreement to
Assignee or a successor transferee shall be subject to the conditions that (i)
the Assignee, including any successor assignee, shall have assumed in writing
all of the duties and obligations of the Assignor under the Assigned Agreement
arising on or after the date of such assumption, and (ii) no default shall have
occurred and be continuing under the Assigned Agreement except for any such
default which has been cured or is in the process of being cured within the
applicable cure period in accordance with Section 4.

            Section 3: No Current Defaults. The Consenting Party hereby
acknowledges and agrees that as of the date hereof (a) the Assigned Agreement is
in full force and effect as to the Consenting Party and there are no amendments,
modifications or supplements thereto, either oral or written, (b) the Consenting
Party has not assigned, transferred, pledged or hypothecated the Assigned
Agreement or any interest therein except for a transfer, sale, pledge,
encumbrance or assignment of a security interest solely to a bond trustee as
security for payment of bonds issued by the Consenting Party, (c) the Consenting
Party has no knowledge of any default by the Assignor in any respect in the
performance of any provision of the Assigned Agreement or an event or condition
which would, with the giving of notice or lapse of time or both, constitute a
default under the Assigned Agreement and (d) none of the Assignor's rights under
the Assigned Agreement have been expressly waived in writing by the Consenting
Party.

Section 4:  Notice of Assignor's Default and Termination. (a) Notwithstanding
anything to the contrary contained in the Assigned Agreement, so long as any
loans, letters of credit, commitments or other obligations are outstanding under
the Credit

                                       13

<PAGE>

Agreement or any of the other Loan Documents and until the same have been
terminated or satisfied in full, as the case may be, except as provided in the
Assigned Agreement under [enumerate provisions] [Calpine 1: Special Condition
(3); Calpine 2: Special Condition (7); Calpine 3: Special Condition 13(g); and
Calpine 4: Special Condition 12(g)], the Consenting Party shall not exercise any
right it may have under the Assigned Agreement, at law or in equity, to cancel,
suspend or terminate the Assigned Agreement or any of its obligations under the
Assigned Agreement, other than as the result of any default or other action or
omission of the Assignor; provided that the Consenting Party shall not, except
as provided in the Assigned Agreement, exercise any such right that may arise as
a result of a default or other act or omission of the Assignor without first
giving a copy of a notice of default to the Assignee, such notice to be coupled
with an opportunity to (i) cure any such default, action or omission within
thirty (30) days after the last day of the cure period available to the Assignor
in the Assigned Agreement (except with respect to payment defaults, which cure
must be made within ten (10) days after the last day of the cure period
available to the Assignor in the Assigned Agreement with respect to payment
defaults), such cure period to commence upon receipt of notice by the Assignee),
(ii) if such Event of Default (other than a payment default) cannot reasonably
be cured within 30 days, to commence in a diligent manner to cure the Event of
Default if such Event of Default is capable of being cured (for so long as the
Assignor diligently continues such efforts) or (iii) if such Event of Default
(other than a payment default) cannot reasonably be cured without possession of
the generating units that produce the Product (as defined in the Assigned
Agreement) to commence in a diligent manner to prosecute efforts to gain
possession of the generating units that produce the Product (for so long as the
Assignor diligently continues such efforts); provided that the aggregate cure
period available to the Assignee under (i), (ii) and (iii), together with the
cure period available to the Assignor in the Assigned Agreement shall not exceed
one hundred eighty (180) days (or, in the case of payment defaults, 15 days
after notice is given to the Assignee) Consenting Party shall not be obligated
to make any capacity payments to the Assignee under the Assigned Agreement while
the Consenting Party is not receiving Product from the generating units referred
to in the Assigned Agreement in accordance with the terms thereof. Consenting
Party shall be entitled to a credit on future capacity payments for capacity
payments made to Assignor that are allocable to any period after an Event of
Default during which Consenting Party has not received Product under the
Assigned Agreement.

      (b) [Applicable only to Calpine 3 and 4: An Event of Default under
[Calpine 3: Special Condition 13(g); and Calpine 4: Special Condition 12(g)]
cannot be cured. The Assignee or its designee may, but shall not be obligated
to, preserve the Assigned Agreement by exercising the step-in rights set forth
set forth in this subsection (b), subject to the terms and conditions thereof.
Consenting Party will not terminate the Assigned Agreement so long as Assignee
or its designee complies with the provisions of this subsection (b). If the
Assignee or its designee elects to exercise its step-in rights with respect to
the Assigned Agreement, upon the occurrence of an Event of Default under
[Calpine 3: Special Condition 13(g); and Calpine 4: Special Condition 12(g)],
Assignee or its designee shall within one hundred eighty (180) days after
written notice to the Assignee of the occurrence of such Event of Default (i)
gain control of the generating units that produce the Product, or the output
thereof, either through foreclosure proceedings, appointment of a receiver or
any other means to the exclusion of the Assignor, and (ii) shall assume
Assignor's interest and obligations under the Assigned Agreement or become a
party to a new agreement as provided in Section 7(a). To the extent Assignee or
its designee succeeds to Assignor's interest under the Assigned Agreement or
becomes a party to a new agreement as provided in Section 7(a), the second
violation of [Calpine 3: Special Condition 13(g); and Calpine 4: Special
Condition 12(g)] shall constitute an Event of Default thereunder.

            (c) Such notice of default, act or omission shall be in writing and
shall be deemed to have been given (i) when presented personally to the Assignee
at the address indicated below (or such other address as the Assignee may have
specified by written notice delivered in accordance herewith), (ii) one (1)
business day after being deposited for overnight delivery with a nationally
recognized overnight courier service or such later date as demonstrated by a
bona fide receipt therefor at the address indicated below (or such other address
as the Assignee may have specified by written notice delivered in accordance
herewith), (iii) when received by the Assignee, if deposited in a regularly
maintained receptacle for the United States Postal Service, postage prepaid,
registered or certified mail, return receipt requested, addressed to the
Assignee at the address indicated below (or such other address as the Assignee
may have specified by written notice delivered in accordance herewith) or (iv)
when transmitted by telecopy to the number specified below and the receipt
thereof is confirmed telephonically by the recipient, provided that such
telecopy is then promptly followed by a copy of such notice delivered by a
method specified in clauses (i), (ii) or (iii) immediately above.

            Notice to Assignee:

                 [INSERT NAME OF THE AGENT FOR THE LENDERS],
                 as agent...

                 _____________________________________
                 _____________________________________

                 Attention: ________

                 Tel:_____

                                       14

<PAGE>

                 Fax:_______________

Except to the extent that automatic cancellation, suspension or termination
occurs pursuant to the Assigned Agreement (including without limitation pursuant
to Section [insert appropriate section references] [Calpine 1: Special Condition
(3); Calpine 2: Special Condition (7); Calpine 3: Special Condition 13(g); and
Calpine 4: Special Condition 12(g)], of the Assigned Agreement, subject to
subparagraph (b) above), no cancellation, suspension or termination of the
Assigned Agreement by the Consenting Party, or any of the other actions taken by
the Consenting Party under the Assigned Agreement, shall be binding upon the
Assignee without such notice and the opportunity to cure during the applicable
extended cure periods specified in this Section 4. The Assignee shall not be
liable for the performance or observance of any of the obligations or duties of
the Assignor under the Assigned Agreement, nor shall the assignment thereof give
rise to any duties or obligations whatsoever on the part of the Assignee owing
to the Consenting Party except that, insofar as the Assignee exercises any of
its rights under the Assigned Agreement or makes any claims with respect to any
payments, deliveries or other obligations under the Assigned Agreement, the
terms and conditions of the Assigned Agreement, including related obligations,
otherwise applicable in respect of such rights being exercised or such claims
being made shall apply to the Assignee and require the Assignee's performance of
such related obligations to the same extent as they would otherwise apply to the
Assignor; provided, however, that Assignee or a successor transferee shall have
no rights with respect to the Assigned Agreement until the transfer thereof to
Assignee or a successor transferee and shall not exercise any rights or make any
claims under the Assigned Agreement following transfer of the Assigned Agreement
to Assignee or a successor transferee until Assignee shall have complied with
Section 2(b); provided, further, however, that neither any exercise of any
rights nor any making of any claims by the Assignee or any nominee, transferee,
assignor or successor to or of the Assignee shall prejudice the rights of the
Consenting Party against the Assignor in respect of any obligations or
liabilities of the Assignor under the Assigned Agreement (or any offsets or
claims of the Consenting Party against the Assignor thereunder) occuring prior
to the time such Person shall have acquired and assumed the rights and
obligations of the Assignor thereunder. If the Assignee fails to cure or rectify
the effect of a default, action or omission within the extended cure periods
specified in this Section 4, the Consenting Party shall have all its rights and
remedies with respect to such default, action or omission as set forth in the
Assigned Agreement.

            Section 5: No Amendments Without Consent. The Consenting Party shall
not amend the Assigned Agreement without the Assignee's prior written consent.

            Section 6: Payments to Revenue Account. The Consenting Party hereby
agrees that, so long as any loans, letters of credit, commitments or other
Obligations are outstanding under the Credit Agreement or any of the other Loan
Documents and until the same have been terminated or satisfied in full, as the
case may be, all payments to be made by the Consenting Party pursuant to the
Assigned Agreement shall be made in lawful money of the United States of
America, by check or in immediately available funds. The Assignor directs the
Consenting Party to make and the Consenting Party hereby agrees to make all such
payments (after giving effect to all netting and offset provisions, if any, set
forth in the Assigned Agreement) pursuant to the Assigned Agreement directly to
the Assignee, for deposit into the Revenue Account (Account No. __), or to such
other person and/or at such other address or account as the Assignee may from
time to time specify in writing to the Consenting Party.

            Section 7: Protection of Assignee. (a) Subject to the provisions of
Section 2(b), in the event that either (i) any of the Assignor's interest in the
Project shall be sold, assigned or otherwise transferred pursuant to the
exercise of any right,,power or remedy by the Assignee or pursuant to judicial
proceedings, or (ii) the Assigned Agreement is rejected under Title 11, United
States Code, or other similar Federal or state statute and such rejection is
approved by the appropriate court or is otherwise effective pursuant to such
statute, and in either such case the Assignee shall have arranged for the curing
of any default, action or omission under the Assigned Agreement susceptible of
being corrected by the Assignee or by a permitted purchaser at any judicial or
non-judicial sale, then the Consenting Party shall, within fifteen (15) days
after receipt of written request therefor, which request shall be made not more
than thirty (30) days after the Assignee's receipt of notice-of the event
described in clause (i) or (ii) above, as applicable, execute and deliver an
agreement to the Assignee, or its nominee, permitted purchaser, assignee, or
transferee, as the case may be, for the remainder of the term of the Assigned
Agreement, and with substantially the same terms as are contained in the
Assigned Agreement. References in this Consent and Agreement to "Assigned
Agreement" shall be deemed also to refer to such new agreement. Such new
agreement shall not be effective unless and until such defaults under the
Assigned Agreement have been cured. It is the intent of the Parties that any
such new agreement constitutes an amendment and novation of the Assigned
Agreement and a "Priority Long Term Power Contract" under the Rate Agreement.
Nothing herein shall relieve the Assignor from any obligations to the Consenting
Party arising under the Assigned Agreement before or after the Consenting Party
and the Assignee enter into any such new agreement.

      (b) In the event that Assignee elects to perform Assignor's obligations
under the Assigned Agreement or succeeds to Assignor's interest under the
Assigned Agreement or becomes party to a new agreement as provided in Section
7(a), the Consenting Party's recourse against Assignee (but not any subsequent
purchaser, assignee or transferee) under the Assigned Agreement or such new
agreement shall be limited to any guaranty or security provided in connection
with the Assigned Agreement or new agreement and Assignee's interests in the
generating units that produce the Product(s) sold under the Assigned Agreement
or new agreement.

                                       15

<PAGE>

Assignee's recourse against Consenting Party under the Assigned Agreement or
such new agreement shall be limited as set forth in the Assigned Agreement.

      (c) If Assignee or any successor transferee succeeds to Assignor's
interest under the Assigned Agreement, Assignee or such successor transferee may
substitute, in lieu of any guaranty provided on behalf of Assignor with respect
to the Assigned Agreement, either (i) a guaranty from another entity whose long
term unsecured senior debt is rated the greater of (x) at least BBB by Standard
& Poor's and Baa2 by Moody's Investors Services, or (y) the rating of Consenting
Party's bonds (excluding credit enhancement), or (ii) a letter of credit issued
by a financial institution rated at least A by Standard & Poor's and A2 by
Moody's Investors Services, each in the amount of the Termination Payment that
would be payable to Consenting Party under the Assigned Agreement. In the event
such substitution is made, the provisions of Section 5.1 (h) of the Master
Agreement incorporated into the Assigned Agreement would only apply with respect
to the substitute guaranty provided by or on behalf of Assignee or such other
transferee.

            Section 8: Acknowledgment of Assignee's Obligations and Rights. The
Assignee has no obligation hereunder to extend credit to the Consenting Party at
any time for any purpose solely as a result or execution and delivery of this
Consent and Agreement. The Assignee shall have no obligation to the Consenting
Party under the Assigned Agreement until such time as the Assignee notifies the
Consenting Party in writing of the Assignee's election to assume, or cause an
assignee or designee to assume, the Assignor's obligations under the Assigned
Agreement as contemplated in Section 2(a). If the Assignor defaults in the
performance of any of its covenants to the Assignee in any of the Loan
Documents, the Assignee shall have the right, inter alia, to (a) declare all
amounts due to the Assignee under the Loan Documents immediately due and
payable, (b) take possession of the Project and complete and operate the same,
(c) sell or otherwise transfer its interest in the Project to a permitted
purchaser and any purchaser at such sale shall succeed to the Assignee's rights
hereunder, provided that such permitted purchaser shall cure any defaults by the
Assignor under the Assigned Agreement, and assume, or cause an assignee or
designee to assume, and continue to perform the Assignor's obligations under the
Assigned Agreement, and (d) provided that it or any designee or assignee thereof
agrees to be bound by the terms and conditions of the Assigned Agreement as
contemplated in Section 2(b), exercise all rights of the Assignor under the
Assigned Agreement in accordance with the terms thereof. Without limiting the
generality of the foregoing, if an Event of Default occurs and is continuing
under any of the Loan Documents, the Assignee or any of its designees or
assignees shall (provided that it or any designee or assignee thereof agrees to
be bound by the terms and conditions of the Assignment Agreement as contemplated
in Section 2(b)), upon notices thereof to the Consenting Party, have the full
right and power to enforce directly against the Consenting Party all obligations
of the Consenting Party under the Assigned Agreement and otherwise to exercise
all remedies of the Assignor thereunder, and to make all demands and give all
notices and make all requests required or permitted to be made by the Assignor
under the Assigned Agreement and the Consenting Party shall have no liability to
the Assignor for acting in response to demands and requests of the Assignee. The
Assignee or any of its designees shall have the right, but not the obligation,
to perform any act, duty or obligation required of the Assignor under the
Assigned Agreement at any time prior to any assumption pursuant to Section 2(b)
and nothing herein shall require the Assignee or any of its designees or
assignees to cure any default, action or omission of the Assignor under the
Assigned Agreement or to perform any act, duty or obligation of the Assignor
under the Assigned Agreement prior to any such assumption pursuant to Section
2(b).

            Section 9: Binding Upon Successors. All agreements, covenants,
conditions and provisions of this Consent and Agreement shall be binding upon
and inure to the benefit of the successors and assigns of each of the parties
hereto.

            Section 10: Captions. The captions or headings at the beginning of
each Section of this Consent and Agreement are for convenience only and are not
a part of this Consent and Agreement.

            Section 11: Governing Law. This Consent and Agreement shall be
governed by and construed in accordance with the laws of the State of
California.

            Section 12: Amendment. This Consent and Agreement may be modified,
amended or rescinded only by writing expressly referring to this Consent and
Agreement and signed by all the parties hereto.

            Section 13: Assignment of Claims. If the Assignee makes any payment
to the Consenting Party pursuant to this Consent and Agreement or the Assigned
Agreement originally required to be made by the Assignor, the Consenting Party
shall, within ten (10) days after receipt of written request therefor, execute
and deliver to the Assignee an assignment of the Consenting Party's claims
against the Assignor for such payment in form and substance reasonably
satisfactory to the Consenting Party and the Assignee.

            Section 14: Severability. Every provision of this Consent and
Agreement is intended to be severable. If any term or provision hereof is
declared by a court of competent jurisdiction to be illegal, invalid or
unenforceable for any reason whatsoever, such illegality, invalidity or
unenforceability shall not affect the other terms and provisions hereof, which
terms and provisions shall remain binding and enforceable, and to the extent
possible all of such other provisions shall remain in full force and effect.

                                       16

<PAGE>

            Section 15: Counterparts. This Consent and Agreement may be executed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.

      IN WITNESS WHEREOF, each of the Consenting Party, Assignee and Assignor
has duly executed this Consent and Agreement as of the date first above written.

                              CALIFORNIA DEPARTMENT OF WATER RESOURCES
                              [Insert Caption]

                              By: ______________________________________________
                              Name:
                              Title:

                              CALPINE ENERGY SYSTEMS, L.P.

                              By: ______________________________________________
                              Name:
                              Title:

                              [INSERT NAME OF THE AGENT FOR THE LENDERS],
                              as agent...

                              By: ______________________________________________
                              Name:
                              Title:

                              By: ______________________________________________
                              Name:
                              Title:

                                       17

<PAGE>

                                                                  EXECUTION COPY

                    MASTER POWER PURCHASE AND SALE AGREEMENT
                    AMENDED AND RESTATED CONFIRMATION LETTER

      This amended and restated confirmation letter shall confirm the
Transaction agreed to on April 22, 2002 and effective May 1, 2002 between
Calpine Energy Services, L.P. ("Party A") and State of California Department of
Water Resources with respect to its responsibilities pursuant to California
Water Code Section 80000 et seq. regarding the Department of Water Resources
Electric Power Fund separate and apart from its powers and responsibilities with
respect to the State Water Resources Development System ("Party B") regarding
the sale/purchase of the Product under the terms and conditions as follows:

Seller: Calpine Energy Services, L.P.

Buyer: State of California Department of Water Resources

Product:

[]    Into __________________, Seller's Daily Choice

[]

[]    Firm (No Force Majeure)

[]    System Firm

      (Specify System: ________________________________________________________)

[]    Unit Firm

      (Specify Unit(s): See "Special Conditions" below.)

[X]   Other

      Product 1: Firm (LD) at 100% load factor, 24 hours per day, 7 days per
      week. If delivered, Buyer must take and pay for energy.

      Product 2: Firm (LD), subject to and scheduled in accordance with "Special
      Conditions" below.

[]    Transmission Contingency (If not marked, no transmission contingency)

      []   FT-Contract Path Contingency     []     Seller      []      Buyer

      []   FT-Delivery Point Contingency    []     Seller      []      Buyer

      []   Transmission Contingent          []     Seller      []      Buyer

      []   Other transmission contingency

      (Specify: _______________________________________________________________)

Contract Quantity:

<PAGE>

      Product 1:

                    May 1, 2002, - December 31, 2002: 350 MW
                    January 1, 2003 -December 31, 2003: 600MW
                    January 1, 2004 - December 31, 2009: 1000MW

      Product 2:

                    May 1, 2002 - May 31, 2002: 200MW on-peak hours
                    June 1, 2002 - June 30, 2002: 50MW on-peak hours
                    July 1, 2002 - May 31, 2003: 650MW on-peak hours
                    June 1, 2003 - December 31, 2003: 400MW on-peak hours and
                    May 1, 2002 - December 31,2003: 400 MW off-peak hours

                    "On-peak hours" are the hours from the hour ending 0700
                    through the hour ending 2200, Monday through Saturday
                    (except for official NERC holidays). "Off-peak hours" are
                    all hours on Sunday and any other day that is a NERC holiday
                    and the hours from the hour ending 0100 through the hour
                    ending 0600, and the hour ending 2300 through the hour
                    ending 0000) Monday through Saturday (excluding NERC
                    holidays).

                    Contract Quantity for Product 2 is set forth on Schedule 1
                    for illustrative purposes.

                    (Above Contract Quantities, and the Contract Quantity for
                    Product 2 as set forth on Schedule 1, are subject to
                    "Special Conditions" below.) In the event of a conflict
                    between the provisions of this Confirmation and Schedule 1,
                    the provisions of this Confirmation shall prevail.

Delivery Point:  Any point or points designated by Seller on North Path
                 15, except as the Parties may otherwise agree. Seller may
                 schedule one or more different delivery points on an hourly
                 basis pursuant to CAISO protocols (or any successor protocols).

Contract Price

      Energy Price:

      Product 1:     $58.60 per MWh

      Product 2: For each month, Buyer shall pay Seller the Monthly Fuel Costs
      plus $1.50 per MWh scheduled by Buyer and delivered for variable operation
      and maintenance costs in arrears.

      Monthly Fuel Cost = sum of Daily Fuel Costs for each day in a given month;
      provided, however, that, if and to the extent that Buyer and Seller
      mutually agree on a fuel plan for supplying the fuel for Product 2, the
      Monthly Fuel Cost shall be the cost of fuel pursuant to such agreed fuel
      plan.

      Daily Fuel Cost = (7.75 Mmbtu/MWh x number of MWh scheduled during such
      day) x Daily Gas Index for such day (in $/Mmbtu)

                                        2

<PAGE>

      Daily Gas index = Price equal to the daily Midpoint price for PG&E
      Citygate for the applicable Flow Date as published in Platt's Gas Daily or
      successor publication mutually satisfactory to Buyer and Seller, plus all
      applicable PG&E local distribution company gas distribution charges in
      accordance with PG&E's tariff, plus all applicable PG&E tariff surcharges,
      if any.

      Other Charges:

      Product 1: N/A

      Product 2: A monthly capacity payment, payable in arrears, of $12.50 per
      kW-month times the on-peak capacity, for all Product 2 capacity.

      Capacity Payments for Product 2 are set forth on Schedule 1 for
      illustrative purposes.

      (Above capacity payments for Product 2, and the capacity payments set
      forth on Schedule 1, are subject to "Special Conditions" below.) In the
      event of a conflict between the provisions of this Confirmation and
      Schedule 1, the provisions of this Confirmation shall prevail.

      Delivery Period:

      Product 1: May 1, 2002 - December 31, 2009

      Product 2: May 1, 2002 - December 31, 2003

                    Special Conditions:

                    (1) See Cover Sheet to Master Agreement.

                    (2) (a) Notwithstanding anything to the contrary herein,
                    Seller shall arrange and be responsible for transmission
                    service to the Delivery Point, if any, and shall obtain
                    Schedule Coordinator services necessary to deliver the
                    Product to the Delivery Point.

                    (b) As to Product 2 only, Seller shall be responsible for
                    all charges due to the CAISO, and entitled to receive all
                    payments from the CAISO, related to schedule deviations;
                    provided, however, if a schedule change is directed by
                    Buyer, Buyer shall be responsible for all charges due to the
                    CAISO, and entitled to receive all payments from the CAISO,
                    related to such schedule deviations.

                    (3) (a) An Event of Default shall exist under this
                    Transaction if Seller schedules through CAISO or delivers
                    less than 95% of the Contract Quantity energy scheduled by
                    Buyer in any two consecutive calendar months (the "Default
                    Months"). For the purposes of the preceding sentence,
                    deliveries shall include deliveries of Contract Quantity
                    energy through the CAISO imbalance energy market as the
                    result of any scheduling coordinator other than Seller
                    failing to deliver under a schedule but shall not include
                    the use by Seller of the CAISO uninstructed

                                        3

<PAGE>

                    imbalance energy markets to effect a scheduled delivery of
                    the Contract Quantity energy from any of its units except
                    with respect to (i) any underdelivery resulting from a unit
                    Forced Outage or Force Majeure events and where Seller has
                    submitted a schedule change as soon thereafter as reasonably
                    practical and (ii) any underdeliveries resulting from
                    instructed deviations from schedules directed by Buyer or
                    the CAISO.

                    (b) Seller shall (consistent with the requirements or
                    definitions of CAISO or its successor) provide Buyer with
                    revenue quality data daily with respect to all deliveries of
                    Contract Quantity energy and allow Buyer upon reasonable
                    notice to test all meters providing such data. Buyer shall
                    have ten (10) days after the end of each month to determine
                    whether Seller has scheduled or delivered 95% of the
                    Contract Quantity energy scheduled by Buyer during such
                    month in accordance with subsection (a). If Buyer does not
                    respond within such ten (10) day period, Seller shall be
                    conclusively deemed to have scheduled or delivered 95% of
                    the Contract Quantity energy scheduled by Buyer during such
                    month; provided, however, that such ten (10) day period
                    shall be extended day for day for each day after the end of
                    such month that Seller has not provided to Buyer revenue
                    quality data daily with respect to all deliveries of
                    Contract Quantity energy during such month or allowed Buyer
                    to test meters providing such data.

                    Failures to schedule or deliver Contract Quantity energy for
                    the purpose of subsection (a) shall not include any failures
                    resulting from metering failure or malfunction that is not
                    the result of Seller's negligence; provided that Seller
                    shall act promptly to repair or replace any such meter.

                    (c) Upon occurrence of an Event of Default pursuant to this
                    Special Condition 3, Buyer may elect to terminate this
                    Transaction pursuant to Section 5.2 of the Master Agreement,
                    obtain damages pursuant to Article IV of the Master
                    Agreement or exercise any other remedies available to it
                    under the Master Agreement. Except as otherwise set forth in
                    this Special Condition 3, Buyer's sole remedy for Seller's
                    failure to schedule or deliver Product shall be as set forth
                    in Article IV of the Master Agreement. Buyer must exercise
                    any right it may have to terminate this Transaction upon an
                    Event of Default pursuant to this Special Condition 3 not
                    later than 30 days after the close of the first calendar
                    quarter following the Default Months.

                    (4) Upon request of Buyer, Seller will provide Buyer with
                    sufficient information to enable Buyer to determine whether

                                        4

<PAGE>

                    Seller's scheduling coordinators are effecting delivery of
                    scheduled Contract Quantity market energy purchases through
                    the CAISO imbalance energy markets. Seller authorizes Buyer
                    to obtain such information from CAISO as may be necessary to
                    determine compliance with the provisions hereof or to
                    determine whether Seller's scheduling coordinators are
                    effecting delivery of scheduled Contract Quantity market
                    energy purchases through the CAISO imbalance energy markets,
                    and Seller hereby waives its right to object to CAISO
                    providing such information to Buyer; provided, however, that
                    Buyer shall only use such information for the purposes of
                    monitoring Seller's compliance with the provisions hereof.
                    The Parties elect to make Section 10.11 of the Master
                    Agreement applicable to such information. Seller will not
                    submit any negative decremental bids to CAISO with respect
                    to the Contract Quantity unless mutually agreed nor claim
                    unavailability of Seller-owned generating capacity based on
                    Forced Outage or Force Majeure when in fact none exists.

Scheduling:

      Product 1:N/A

      Product 2: Conforming to CAISO and WSCC standards. Up to 100% of Contract
      Quantity may be scheduled by Buyer on a day-ahead basis. Buyer will
      schedule such day-ahead Contract Quantity by delivering a preliminary
      schedule to Seller by not later than 5:30pm PPT two days prior to the
      delivery date which preliminary schedule may be adjusted not later than
      7:00am PPT on the day prior to the delivery date. Up to 30% of Contract
      Quantity may be scheduled by Buyer on an intraday basis upon notice one
      hour in advance of the CAISO intraday scheduling notice requirement or
      equipment limitations, whichever is greater. Buyer shall have no minimum
      purchase obligation for Product 2. Seller will attempt to mitigate any
      charges, if any, associated with system wide or customer specific
      Operational Flow Order or Emergency Flow Order conditions; provided, that
      such mitigation shall be at no cost to Seller. Buyer will be responsible
      for reimbursing Seller for such charges assessed by PG&E or its successor
      for such conditions that cannot be reasonably mitigated by Seller without
      cost to Seller. Buyer may change the scheduled Contract Quantity from one
      hour to the next in an amount equal to 25 percent of the on-peak Contract
      Quantity for Product 2.

Option Buyer: N/A

Option Seller: N/A

      Type of Option: N/A

      Strike Price: N/A

      Premium: N/A

                                        5

<PAGE>

      Exercise Period: N/A

      This amended and restated confirmation letter is being provided pursuant
to and in accordance with the Amended and Restated Master Power Purchase and
Sale Agreement dated April 22, 2002 (the "Master Agreement") between Party A and
Party B, and constitutes part of and is subject to the terms and provisions of
such Master Agreement. This amended and restated confirmation letter constitutes
an amendment and restatement of the Confirmation dated February 6, 2001,
effective as of May 1, 2002. Terms used but not defined herein shall have the
meanings ascribed to them in the Master Agreement.

Calpine Energy Services, L.P.            State of California Department of Water
                                         Resources separate and apart from its
                                         powers and responsibilities with
                                         respect to the State Water Resources
                                         Development System

By: /s/ E. James Macias                  By: /s/ Peter S. Garris
    --------------------------------         -----------------------------------
Name: E. James Macias                    Name: Peter S. Garris
Title Executive Vice President           Title: Deputy Director
Phone No: (408)792-1124                  Phone No: (916)574-2733
Fax: (408)995-0505                       Fax: (916)574-2512

                                        6

<PAGE>

                                   SCHEDULE 1

CALPINE #1, PRODUCT 2 CONTRACT QUANTITY

<TABLE>
<CAPTION>
         On
        Peak           Offpeak
 Date   (MW)             (MW)
------  ----      ---------------------
<S>     <C>       <C>
May-02  200                         400
Jun-02   50                         400
Jul-02  650                         400
Aug-02  650                         400
Sep-02  650                         400
Oct-02  650                         400
Nov-02  650                         400
Dec-02  650                         400
Jan-03  650                         400
Feb-03  650                         400
Mar-03  650                         400
Apr-03  650                         400
May-03  650                         400
Jun-03  400                         400
Jul-03  400                         400
Aug-03  400                         400
Sep-03  400                         400
Oct-03  400                         400
Nov-03  400                         400
Dec-03  400                         400
</TABLE>

CALPINE #7, CAPACITY PAYMENT TABLE

<TABLE>
<CAPTION>
             Capacity
             Payment
 Date          ($)
------     -----------
<S>        <C>
May-02     $ 2,500,000
Jun-02     $   625,000
Jul-02     $ 8,125,000
Aug-02     $ 8,125,000
Sep-02     $ 8,125,000
Oct-02     $ 8,125,000
Nov-02     $ 8,125,000
Dec-02     $ 8,125,000
Jan-03     $ 8,125,000
Feb-03     $ 8,125,000
Mar-03     $ 8,125,000
Apr-03     $ 8,125,000
May-03     $ 8,125,000
Jun-03     $ 5,000,000
Jul-03     $ 5,000,000
Aug-03     $ 5,000,000
Sep-03     $ 5,000,000
Oct-03     $ 5,000,000
Nov-03     $ 5,000,000
Dec-03     $ 5,000,000
</TABLE>

                                        7

<PAGE>

                                                                  EXECUTION COPY

                    MASTER POWER PURCHASE AND SALE AGREEMENT
                    AMENDED AND RESTATED CONFIRMATION LETTER

      This amended and restated confirmation letter shall confirm the
Transaction agreed to on April 22, 2002 and effective May 1, 2002 between
Calpine Energy Services, L.P. ("Party A") and State of California Department of
Water Resources with respect to its responsibilities pursuant to California
Water Code Section 80000 et seq. regarding the Department of Water Resources
Electric Power Fund separate and apart from its powers and responsibilities with
respect to the State Water Resources Development System ("Party B") regarding
the sale/purchase of the Product under the terms and conditions as follows:

Seller: Calpine Energy Services, L.P.

Buyer:  State of California Department of Water Resources

Product:

[]    Into__________________, Seller's Daily Choice

[]    Firm (No Force Majeure)

[]    System Firm

      (Specify System: ________________________________________________________)

[]    Unit Firm

      (Specify Unit(s): See "Special Conditions" below.)

[X]   Other

      Product 1: Firm (LD) at 100% load factor, 24 hours per day, 7 days per
      week, subject to "Special Conditions" below. If delivered, Party B must
      take and pay for energy.

      Product 2: Firm (LD), subject to, scheduled and dispatchable by Party B in
      accordance with "Special Conditions" below.

      Product 3: Firm (LD), subject to, scheduled and dispatchable by Party B in
      accordance with "Special Conditions" below.

      Product 4: Firm (LD), subject to, scheduled and dispatchable by Party B in
      accordance with "Special Conditions" below.

      [] Transmission Contingency (If not marked, no transmission contingency)

      [] FT-Contract Path Contingency       []    Seller      []     Buyer

      [] FT-Delivery Point Contingency      []    Seller      []     Buyer

<PAGE>

      [ ] Transmission Contingent            [ ]    Seller      [ ]     Buyer

      [ ] Other transmission contingency

      (Specify: _______________________________________________________________)

Contract Quantity:

      Product 1:

                    May 1, 2002 - June 30, 2002: 200 MW
                    July 1, 2002 - December 31, 2009: 1000 MW

      Product 2:

                    May 1, 2002 - June 30, 2002: 800 MW on-peak hours

      Product 3:
                   June 1, 2002 - December 31, 2002: 500 MW on-peak hours
                   June, July, August, September 2003: 500 MW on-peak hours

      Product 4:

                    May 1, 2002 - December 31, 2003: 400 MW off-peak hours

                    "On-peak hours" are the hours from the hour ending 0700
                    through the hour ending 2200, Monday through Saturday
                    (except for official NERC holidays). "Off-peak hours" are
                    all hours on Sunday and any other day that is a NERC holiday
                    and the hours from the hour ending 0100 through the hour
                    ending 0600, and from the hour ending 2300 through the hour
                    ending 0000 Monday through Saturday (excluding NERC
                    holidays).

                    Contract Quantity for Product 2 and 3 are set forth on
                    Schedule 1 for illustrative purposes.

                    (Above Contract Quantities, and the Contract Quantity for
                    Product 2 and 3 as set forth on Schedule 1, are subject to
                    "Special Conditions" below.) In the event of a conflict
                    between the provisions of this Confirmation and Schedule 1,
                    the provisions of this Confirmation shall prevail.

Delivery Point:

                    Any point or points designated by Seller on North Path 15,
                    except as the Parties may otherwise agree. Seller may
                    schedule one or more different delivery points on an hourly
                    basis pursuant to CAISO protocols (or any successor
                    protocols).

Contract Price:

      Energy Price:

      Product 1: $59.60 per MWh

                                        2

<PAGE>

      Product 2: For each month, Buyer shall pay Seller the Monthly Fuel Costs
                 plus $1.50 per MWh scheduled by Buyer and delivered for
                 variable operation and maintenance costs in arrears

      Product 3: For each month, Buyer shall pay Seller the Monthly Fuel Costs
                 plus $1.50 per MWh scheduled by Buyer and delivered for
                 variable operation and maintenance costs in arrears

      Product 4: For each month, Buyer shall pay Seller the Monthly Fuel Costs
                 plus $1.50 per MWh scheduled by Buyer and delivered for
                 variable operation and maintenance costs in arrears

                 Monthly Fuel Costs and Gas Index for Products 2, 3 and 4:

                 Monthly Fuel Cost = sum of Daily Fuel Costs for each day in a
                 given month; provided, however, that, if and to the extent
                 that Buyer and Seller mutually agree on a fuel plan for
                 supplying the fuel for Product 2, 3 and/or 4 the Monthly Fuel
                 Cost shall be the cost of fuel pursuant to such agreed fuel
                 plan.

                 Daily Fuel Cost = (7.75 Mmbtu/MWh x number of MWh scheduled
                 during such day) x Daily Gas Index for such day (in $/Mmbtu)

                 Daily Gas index = Price equal to the daily Midpoint price for
                 PG&E Citygate for the applicable Flow Date as published in
                 Platt's Gas Daily or successor publication mutually
                 satisfactory to Buyer and Seller, plus all applicable PG&E
                 local distribution company gas distribution charges in
                 accordance with PG&E's tariff, plus all applicable PG&E tariff
                 surcharges, if any.

      Other Charges:

      Product 1: N/A

      Product 2: A monthly capacity payment, payable in arrears, of $12.50 per
      kW-month times the on-peak capacity, for all capacity under this
      Transaction for such month.

      Product 3: A monthly capacity payment, payable in arrears, of $12.50 per
      kW-month times the on-peak capacity, for all capacity under this
      Transaction for such month.

      Product 4: N/A

      Capacity Payments for Product 2 and 3 are set forth on Schedule 1 for
                 illustrative purposes.

                                        3

<PAGE>

      (Above capacity payments, and the capacity payments set forth on Schedule
      1 for Product 2 and 3, are subject" to "Special Conditions" below.) In the
      event of a conflict between the provisions of this Confirmation and
      Schedule 1, the provisions of this Confirmation shall prevail.

Delivery Period:

      Product 1: May 1, 2002 - December 31, 2009

      Product 2: May 1, 2002 - June 30, 2002

      Product 3: June 1, 2002 - December 31, 2002 and June, July, August,
      September 2003

      Product 4: May 1, 2002 - December 31, 2003

Special Conditions: (1) See Cover Sheet to Master Agreement.

                    (2) Seller, for each Project (as defined in Special
                    Condition (4) below), shall provide monthly reports to Buyer
                    which set forth the status of pre-construction activities
                    (including permitting, licensing, financing, equipment
                    acquisition and similar pre-construction activities),
                    construction activities, progress toward compliance with any
                    milestone dates established in the California Energy
                    Commission ("CEC") or other applicable siting permit and
                    this Confirmation, and the then expected commercial
                    operation dates. Such reports shall include the status of
                    accomplishing major development and construction milestones
                    including obtaining all permits, securing project financing,
                    acquisition and installation of major equipment, and
                    start-up testing. Buyer may inspect the Projects, any
                    Project construction site or on-site Seller data and
                    information pertaining to the Projects reasonably necessary
                    to verify the information provided pursuant to the first
                    sentence of this Special Condition (2) during business hours
                    upon reasonable notice. Seller will not materially decrease
                    the nameplate capacity below that which is referenced in the
                    applicable permit or change the design of the units in a
                    manner that materially impairs Seller's obligations or
                    materially alters Buyer's rights or obligations hereunder
                    without the written approval of Buyer, not to be
                    unreasonably withheld.

                    (3) With respect to Product 1 only:

                    (a) If for any day the On-Peak Market Heat Rate and/or the
                    Off-Peak Market Heat Rate is projected (on a day ahead
                    basis) to be greater than 7,000Btu/kWh, the Seller shall,
                    for the applicable on peak hours and/or the applicable off
                    peak hours, as the case may be, deliver the then applicable
                    amount of Contract Quantity energy for such day from its
                    Western Generation Assets into the California markets
                    subject to Forced Outages that reduce the available Western
                    Generation Assets below, or Force Majeure events that would
                    prevent Seller from making available, 1000

                                        4

<PAGE>

                    MW; provided, however, nothing herein shall relieve the
                    Seller of the obligation to provide Contract Quantity energy
                    to the Buyer pursuant to this Transaction to the extent
                    required by the definition of Product 1. If for any day the
                    On-Peak Market Heat Rate or the Off-Peak Market Heat Rate is
                    projected (on a day ahead basis) to be equal to or less than
                    7,000Btu/kWh, the Seller may deliver the then applicable
                    Contract Quantity energy for the applicable on peak hours
                    and/or the applicable off peak hours, as the case may be,
                    for such day from any source, including its Western
                    Generation Assets and market purchases, subject to excuse
                    for Force Majeure events; provided, however, nothing herein
                    shall relieve the Seller of the obligation to provide
                    Contract Quantity energy to the Buyer pursuant to this
                    Transaction to the extent required by the definition of
                    Product 1. For the purpose of paragraph (a) of this Special
                    Condition 3, the following definitions shall apply:

                    "On peak hours" and "off peak hours" shall have the meanings
                    set forth above under "Contract Quantity."

                    "On-Peak Market Heat Rate" shall mean (i) the day ahead on
                    peak energy price for North Path 15, as listed in Platt's
                    Megawatt Daily, Index for NP15, in the table entitled
                    "Trades for Standard 16 Hour Daily Product," (or any
                    successor index thereto as mutually agreed by the Parties)
                    divided by (ii) the Daily Gas Index as described above under
                    "Contract Price," determined on a day ahead basis.

                    "Off-Peak Market Heat Rate" shall mean (i) the day ahead off
                    peak energy price for North Path 15, as listed in Platt's
                    Megawatt Daily, Index for NP15, in the table entitled
                    "Ranges for Indexes of Trades for Standard Off-Peak
                    Product," (or any successor index thereto as mutually agreed
                    by the Parties) divided by (ii) the Daily Gas Index as
                    described above under "Contract Price," determined on a day
                    ahead basis.

                    "Western Generation Assets" shall mean generating assets or
                    portions or output thereof located in the WSCC and owned or
                    controlled by Seller or its Affiliates which are direct or
                    indirect wholly-owned subsidiaries of Calpine Corporation
                    which are not under contract as "qualifying facilities"
                    (within the meaning of the Public Utility Regulatory
                    Policies Act). An asset or portion or output thereof is
                    controlled by Seller or an Affiliate for the purposes of
                    this definition to the extent that Seller or Affiliate has
                    the ability to direct the use of such asset or portion or
                    output thereof pursuant to an agreement.

                    (b) Buyer shall be entitled to remedies under Article IV of
                    the Master Power Purchase and Sale Agreement if it does not
                    receive the applicable Contract Quantity of Product 1
                    hereunder. Subject to the preceding sentence, Buyer's sole
                    remedy for Seller's failure

                                        5

<PAGE>

                    to comply with the requirements of paragraph (a) of this
                    Special Condition (3) in any hour shall be the payment of an
                    amount equal to (i) 10% times (ii) the absolute value of the
                    difference, if any, between the Market Price and the
                    Contract Price times (iii) the positive difference, if any,
                    between 1000 MW.h and the amount of energy delivered (or
                    which, but for the occurrence of a Force Majeure event or
                    Forced Outage, could have been delivered) from Seller's
                    Western Generation Assets (in MWh, not to exceed 1000 MWh)
                    into the California markets during such hour. For the
                    purpose of paragraph (b) of this Special Condition (3),
                    "Market Price" means, for any hour, the average of the CAISO
                    incremental supplemental prices for energy delivered into NP
                    15 for each period during such hour.

                    (c) From time to time (but not more frequently than monthly)
                    at Buyer's request, Seller shall provide Buyer information
                    reasonably satisfactory to Buyer in sufficient detail to
                    enable Buyer to verify the amount and sources of Western
                    Generation Assets that were on line during each hour and
                    delivered energy into the California markets for the
                    purposes of meeting its obligations under paragraph (a) of
                    this Special Condition (3). If energy necessary to satisfy
                    Seller's obligations under paragraph (a) of this Special
                    Condition (3) was delivered from its Western Generation
                    Assets located outside of California, Seller will provide
                    evidence that it had acquired and had utilized intertie
                    capacity sufficient to deliver energy from any of its
                    Western Generation Assets outside of California to supply
                    the amount of energy from such Western Generation Assets
                    necessary (together with energy supplied from its Western
                    Generation Assets in California) to meet its obligations
                    hereunder. Upon request of Buyer, Seller will provide Buyer
                    with sufficient information to enable Buyer to determine
                    whether Seller's scheduling coordinators are effecting
                    delivery of scheduled Contract Quantity market energy
                    purchases through the CAISO imbalance energy markets. Seller
                    authorizes Buyer to obtain such information from CAISO as
                    may be necessary to determine compliance with the provisions
                    hereof or to determine whether Seller's scheduling
                    coordinators are effecting delivery of scheduled Contract
                    Quantity market energy purchases through the CAISO imbalance
                    energy markets, and Seller hereby waives its right to object
                    to CAISO providing such information to Buyer; provided,
                    however, that Buyer shall only use such information for the
                    purposes of monitoring Seller's compliance with the
                    provisions hereof. Parties elect to make Section 10.11 of
                    the Master Agreement applicable to such information. Seller
                    will not submit any negative decremental bids with respect
                    to the Contract Quantity to CAISO unless mutually agreed nor
                    claim

                                        6

<PAGE>

                    unavailability of Seller-owned generating capacity based on
                    Forced Outage or Force Majeure when in fact none exists.

                    (d) Notwithstanding the foregoing, subject to Forced Outages
                    or Force Majeure events that reduce the available Western
                    Generation Assets below 1000 MW, upon the issuance of any
                    day-ahead CAISO warning of a potential stage alert then
                    during hours of any warning or stage alert occurring during
                    the following day, Seller shall provide the Contract
                    Quantity from its Western Generation Assets and not from
                    market energy purchases. Subject to Forced Outages or Force
                    Majeure events with respect to Western Generation Assets,
                    during the hours of any CAISO warning or alert other than as
                    set forth in the preceding sentence, Seller will bid its
                    unutilized Western Generation Assets located in California,
                    and its other unutilized Western Generation Assets subject
                    to prior use of such assets (or local control area rules and
                    regulations) in connection with a warning or stage alert in
                    the state in which such assets are located, into the CAISO
                    imbalance energy market at just and reasonable rates.

                    (4) (a) Seller will use commercially reasonable efforts to
                    complete its Otay Mesa (estimated installed capacity of 510
                    MW), Metcalf (estimated installed capacity of 600 MW), East
                    Altamont (proposed installed capacity of 1100 MW) projects
                    and a project designated in accordance with subsection
                    (a)(iv) (collectively, the "Projects", each a "Project").
                    For any of the Projects, at the request of Buyer, which
                    Buyer may elect to make in its sole discretion, Seller will,
                    subject to the terms and conditions set forth below, assign
                    or otherwise transfer to Buyer, free and clear of any liens
                    or encumbrances created by Seller or its Affiliates, all of
                    its right, title and interest in any such Project
                    (including, without limitation, all permits, consents and
                    approvals, engineering and design drawings, contracts and
                    equipment entered into or acquired for the Project, and all
                    other Project assets), to the extent that such rights,
                    titles, interests or assets are assignable or transferable,
                    if:

                        (i)     With respect to any Project, Seller permanently
                                elects not to proceed with construction,
                                development or commercial operation of the
                                Project; or

                        (ii)    (A) With respect to the Otay Mesa Project,
                                Seller fails to achieve any of the following
                                major milestones for the Otay Mesa Project or
                                (B) with respect to the Metcalf Project, Seller
                                fails to achieve any of the following major
                                milestones for the Metcalf Project by the major
                                milestone dates set forth below:

                                        7

<PAGE>

                                     Metcalf

<TABLE>
<S>                       <C>
Commence                  11/30/02
Construction

Begin Pouring Major       06/30/03
Foundation Concrete

Begin Installation of     09/30/03
Major Equipment

Achieve Commercial        12/31/04
Operation
</TABLE>

                                    Otay Mesa

<TABLE>
<S>                       <C>
Commence                  12/31/02
Construction

Begin Pouring Major        7/31/03
Foundation Concrete

Begin Installation of     10/31/03
Major Equipment

Achieve Commercial        12/31/04
Operation
</TABLE>

                        (iii) With respect to Seller's East Altamont Project,
                        Seller fails to obtain the CEC permit for the East
                        Altamont Project by November 30, 2002, or Seller fails
                        to commence construction of the East Altamont Project
                        within one year of the date by which the order issuing
                        such CEC permit and all other permits necessary for the
                        start of construction become final and non-appealable
                        through the passage of time or by the exhaustion of any
                        appeals; or

                        (iv) With respect to the Project designated pursuant to
                        this subparagraph (iv), Seller fails to obtain the Start
                        Permit for the Designated Project by a Permit Start
                        Date, or Seller fails to commence construction of the
                        Designated Project within one year of the date the Start
                        Permit and all other permits necessary for the start of
                        construction become final and non-appealable through the
                        passage of time or by the exhaustion of any appeals.

                        For the purpose of this subparagraph (iv):

                        "Designated Project" means either the Teayawa Project
                        with a proposed installed capacity of 600 MW
                        ("Teayawa"), the Inland Empire Combined Cycle Project
                        with a proposed installed capacity of 670MW ("Inland")
                        or the San Joaquin Valley Energy Center with a proposed
                        installed capacity of 1100 MW ("San Joaquin"), as
                        selected

                                        8

<PAGE>

                        by Buyer within forty-five (45) days of the date of this
                        Transaction. If Buyer does not make any selection by
                        such date, the Designated Project shall be Teayawa and
                        such right to select any other project as a Designated
                        Project pursuant to this subsection (a)(iv) shall expire
                        and be of no further force and effect. Seller shall have
                        no further obligations and Buyer shall have no further
                        rights under this Agreement with respect to the projects
                        listed in this definition other than the Designated
                        Project so selected or deemed selected.

                        "Permit Start Date" means with respect to Teayawa, April
                        30, 2003; Inland, April 30, 2003 and San Joaquin,
                        November 30, 2002.

                        "Start Permit" means in the case of Teayawa, all
                        applicable siting permits required to start construction
                        and in the case of either Inland or San Joaquin, the CEC
                        permit.

                    (b) For purposes of this Special Condition (4),

                    (i) to "commence construction" means (A) actively to
                    commence site excavation, (B) to make a significant
                    commitment of resources designed to achieve construction and
                    commercial operation of the Projects by the dates set forth
                    in this Special Condition (4), including without limitation
                    the execution of sufficient contracts for necessary
                    materials and supply, and (C) to cause sustained activity to
                    occur on a daily basis at the Project site, with full crews,
                    that is designed to achieve construction and commercial
                    operation of the Projects by the dates set forth in this
                    Special Condition (4).

                    (ii) to "achieve commercial operation" of a Project means
                    that such Project has been completed, has passed all
                    material performance tests, Seller or the owner of the
                    Project has all necessary permits to operate the Project at
                    the output level for which it was designed, the Project is
                    capable of operating on a sustained basis at substantially
                    the output level for which it was designed, and all
                    interconnections, the capacity rating of the interconnection
                    facilities, the interconnection agreement, and transmission
                    connection are sufficient for the delivery of the full
                    output of the Project to the CAISO-controlled grid.

                    (c) Seller shall have 90 days to cure any failure to meet
                    any of the deadlines set forth above in subparagraphs
                    (a)(ii), (iii) and (iv); provided, further, that with
                    respect to the deadlines to obtain permits set forth in
                    subparagraphs (a)(iii) or (iv) above, such 90-day period
                    shall be extended day by day for permit delays if Seller is
                    diligently seeking to obtain the permits referred to in said
                    subparagraphs (a)(iii) or (iv), as determined by the CEC. If
                    any dispute arises concerning whether Seller is diligently
                    seeking to

                                        9

<PAGE>

                    obtain the permits referred to in said subparagraphs
                    (a)(iii) or (iv), Seller shall file a letter with the Chair
                    of the CEC's Energy Infrastructure and Siting Committee and
                    the CEC Chief Counsel requesting a determination that it is
                    diligently seeking to obtain permits in accordance with the
                    provisions of the preceding sentence. If Teayawa is selected
                    by Buyer as the Designated Project pursuant to subsection
                    (a)(iv), the determination of whether the Seller is
                    diligently seeking to obtain the permits referred to in said
                    subparagraph (a)(iv) shall be determined by the lead
                    permitting agency. Within 5 business days after each of the
                    deadlines set forth above in subparagraphs (a)(ii), (iii)
                    and (iv), Seller shall notify Buyer in writing whether the
                    deadline has been met, and if it has not been met, Seller
                    shall further notify Buyer whether and how Seller plans to
                    cure within 90 days. The deadlines set forth in
                    subparagraphs (a)(ii), (iii) and (iv), shall be extended by
                    a period equal to the duration of any period of Force
                    Majeure. In addition, the milestone date set forth for
                    "Achieve Commercial Operation" in subparagraph (a)(ii) for a
                    Project (and not any other milestone date in subparagraph
                    (a)(ii)), shall be extended day for day for each day Seller
                    is unable to achieve physical interconnection to water
                    supply or discharge, gas transportation or electric
                    transmission facilities necessary for such Project if Seller
                    is diligently seeking to obtain such interconnections. In
                    addition to the foregoing, any milestone set forth in
                    subparagraph (a)(ii) shall be extended day for day as the
                    result of any court ordered stay of the construction,
                    development or commercial operation of the Project resulting
                    from the challenge of any permit that was issued prior to
                    the effective date of this Confirmation and is necessary for
                    the start of construction of such Project.

                    (d) If Seller shall fail to meet any of the deadlines set
                    forth in subparagraphs (a)(ii), (iii) or (iv) within the
                    90-day cure period, Buyer shall have 60 days following the
                    expiration of the 90-day cure period to request assignment
                    of Seller's right, title and interest in the applicable
                    Project, which request shall be by written notice thereof to
                    Seller. In addition, Buyer shall have 60 days following any
                    election by Seller under subparagraph (a)(i) or any notice
                    from Seller that it does not intend to cure within the
                    90-day cure period to request assignment of Seller's right,
                    title and interest in the applicable Project, which request
                    shall be by written notice thereof to Seller.

                    (e) Buyer's rights hereunder with respect to the Teayawa
                    Project shall be subject to the consent of the
                    Torres-Martinez Desert Cahuilla Indian Tribe, pursuant to
                    the terms of the "Ground Lease between the Torres-Martinez
                    Desert Cahuilla Indian Tribe, A Federally Recognized Indian
                    Tribe 'Landlord' and Calpine

                                       10

<PAGE>

                    Corporation, a Delaware Corporation, 'Tenant'" dated May 22,
                    2000 and the provisions of the Site Development Agreement,
                    dated November 30, 1999, between Adair International Oil and
                    Gas, Inc. and Calpine Corporation, the terms and provisions
                    of which are confidential and will not be disclosed except
                    as permitted by such agreement. Seller represents, warrants
                    and covenants with respect to all other Projects (other than
                    as set forth above with respect to Teayawa) that, except for
                    rights and liens granted in connection with the financing of
                    any Project (i) it has not conveyed and will not convey,
                    prior to the commercial operation date of a given Project,
                    any ownership interests in or any interests in the profits
                    of such Projects to any person other than a direct or
                    indirect wholly-owned subsidiary of Calpine Corporation, and
                    (ii) it has not conveyed and will not convey, prior to the
                    commercial operation date of a given Project, any rights or
                    options to acquire such ownership or profit-sharing
                    interests to any person other than a direct or indirect
                    wholly-owned subsidiary of Calpine Corporation. Seller
                    further represents, warrants and covenants with respect to
                    all other Projects (other than as set forth above with
                    respect to Teayawa) that it has or will have sufficient
                    control of all property rights that are necessary to develop
                    the Projects in a commercially reasonable manners and,
                    except for rights and liens granted in connection with the
                    financing of any Project, it has not agreed and will not
                    agree to, or acquire any such Project subject to, any terms
                    or provisions in any agreement with respect to such Projects
                    that would (A) allow any person other than a direct or
                    indirect wholly-owned subsidiary of Calpine Corporation
                    rights to take over such Projects that are senior and
                    superior to Buyer's rights under this Special Condition (4),
                    or (B) have the effect of materially impairing Buyer's
                    rights under this Special Condition (4) through the
                    imposition of burdens, liabilities, obligations or financial
                    disincentives on any party succeeding to Seller's rights
                    with respect to the Projects and are not incurred in the
                    normal course of Seller's business.

                    (f) If Buyer exercises its right to request assignment of
                    Seller's right, title and interest in a Project, such
                    assignment shall be on the following terms and conditions:
                    (i) all assignments and transfers of any such right, title,
                    interest, asset or other property shall be made by Seller on
                    an "as is, where is" basis, without warranty of any kind,
                    express or implied, other than Seller's warranty in
                    subparagraph (e) of this Special Condition (4) and a
                    warranty that Seller has not previously transferred its
                    right, title or interest in such Project to another person
                    or entity, (ii) all assignments and transfers shall be
                    subject to the then existing rights of record or otherwise
                    disclosed prior to the effective date of the assignment of
                    any person, entity or governmental agency or authority with

                                       11
<PAGE>

                    respect to the property assigned or transferred, (iii) if
                    the consent of any third party or governmental agency or
                    authority is required to effect such assignment or transfer,
                    it shall be Seller's obligation to cooperate with Buyer and
                    use commercially reasonable efforts to obtain all such
                    necessary consents and, with respect to all prospective
                    agreements related to the Project, use commercially
                    reasonable efforts to provide for such consent in such
                    agreements, and (iv) concurrently with such assignment and
                    transfer, Buyer shall assume any installment purchase
                    agreement with respect to any equipment for the Project, and
                    any interconnection agreement with respect to the Project,
                    entered into by Seller or any of its Affiliates; provided,
                    however, that any payments due under the installment
                    purchase agreement or interconnection agreement must be
                    current as of the effective date of such assignment and
                    provided further that the interconnection agreement
                    furnishes sufficient capacity for delivery of the output of
                    the Project.

                    (g) In consideration for such assignment, Buyer shall
                    reimburse Seller the latter's actual, verifiable and, with
                    respect to affiliated parties, reasonable, costs without
                    interest or carrying charges, for the acquisition of real
                    estate and real estate interests, including the cost of real
                    estate options, and for all material, supplies and equipment
                    (including installment payments for such equipment
                    previously made by Seller pursuant to an installment sales
                    agreement) purchased for the Project; if Buyer exercises its
                    right of assignment after the commencement of construction,
                    Buyer will also reimburse Seller the latter's actual,
                    verifiable and, with respect to affiliated parties,
                    reasonable, costs of construction, through the date of such
                    exercise, including labor costs, without interest or
                    carrying charges. The assets being purchased by the Buyer
                    with respect to any Project do not include, and Buyer shall
                    not be required to purchase, any emissions reduction credits
                    for a Project; provided, however, that Buyer shall have the
                    option to purchase such credits at fair market value,
                    subject to the right of Seller to retain such credits for
                    use in the same California air district to the extent Seller
                    reasonably expects that it will need such credits in
                    connection with the construction or operation of power
                    plants in such district. In no event, however, shall Buyer
                    be required to pay Seller any additional consideration for
                    the cost of obtaining permits, preparing engineering
                    drawings, or acquiring similar documents, or for any other
                    Project development costs. If the Parties are unable to
                    agree as to the assets to be conveyed or amount to be
                    reimbursed as defined in this Special Condition (4), they
                    shall agree to have PricewaterhouseCoopers, Ernst & Young,
                    or KPMG (or any of their successors) examine the books of
                    Seller and within 30 days determine the assets to be
                    conveyed or amount to be reimbursed. The determination of
                    such accountant shall be

                                       12
<PAGE>

                    final, non-appealable and binding on the Parties, who shall
                    promptly effectuate the assignment or conveyance of such
                    assets in exchange for payment of the amount so determined.
                    At Seller's request, Buyer shall execute any consents,
                    subordination agreements or similar agreements reasonably
                    requested by Seller's lenders in connection with the
                    financing of such Project, so long as such consents,
                    subordination agreements or other agreements do not
                    materially and adversely affect Buyer's rights hereunder;
                    provided, however, Buyer agrees that its rights hereunder
                    shall be subordinate to those of Seller's lenders unless
                    Buyer shall agree with Seller's lender(s) that the
                    reimbursement upon exercise of its right to assignment
                    hereunder shall at a minimum be not less than the full
                    amount of any debt secured by or utilized to finance such
                    Project. Except as permitted in subsection (e), Seller shall
                    not sell, assign, convey, transfer or otherwise dispose of
                    its right, title or interest in any of the Projects
                    (including, without limitation, all permits, consents and
                    approvals, engineering and design drawings, contracts and
                    equipment entered into or acquired for the Project, and all
                    other Project assets), other than with respect to financing
                    of the Project, to any person or entity other than Buyer,
                    without the express written consent of Buyer, which shall
                    not be unreasonably withheld; provided, further, that such
                    assignment, conveyance, disposition or transfer shall be
                    made subject to Buyer's rights under this Special Condition
                    (4), and the transferee shall acknowledge in writing that it
                    is bound by the terms of this Special Condition (4). Seller
                    can substitute for any of the Projects an alternate project
                    of similar size and location (e.g. NP 15 or SP 15) with the
                    consent of Buyer, which consent shall not be unreasonably
                    withheld.

                    (h) Failure of Seller to meet the requirements of subsection
                    (a) with respect to any Project shall allow Buyer to
                    exercise its rights under this Special Condition (4) only
                    with respect to such Project and shall not allow Buyer to
                    exercise such rights with respect to any other Project or
                    Projects unless Seller independently fails to meet the
                    requirements of subsection (a) with respect to such other
                    Project or Projects. Buyer's rights under this Special
                    Condition (4) shall be Buyer's sole remedy for Seller's
                    failure to meet its obligations under this Special Condition
                    (4) with respect to any Project. It is the intention and
                    agreement of the Parties that Buyer retain its rights under
                    this Special Condition (4) after any assignment or transfer
                    of Buyer's rights to a Qualified Electric Corporation
                    pursuant to Section 10.5 of the Master Agreement and that
                    Buyer's rights under this Special Condition (4) not be
                    assigned to any a Qualified Electric Corporation in
                    connection with any such assignment or transfer. A
                    Replacement Agreement shall not include the provisions of
                    this Special Condition (4). The provisions

                                       13
<PAGE>

                    of this Special Condition (4) shall survive termination of
                    the Agreement until December 31, 2009 in the event Seller
                    enters into a Replacement Agreement with a Qualified
                    Electric Corporation in accordance with Section 10.5 of the
                    Master Agreement and this Confirmation is accordingly
                    terminated. Except as expressly provided herein, including
                    without limitation clause (d) of this Special Condition (4),
                    no delay or failure of Buyer to exercise any right under
                    this Special Condition (4) shall exhaust or impair any such
                    rights or prevent the exercise thereof during the term
                    hereof. No waiver by Buyer of any failure of Seller to
                    perform under subsection (a) shall affect any subsequent
                    failure of Seller to perform under said subsection, or
                    impair the rights of Buyer with respect thereto. Buyer's
                    rights and Seller's obligations under this Special Condition
                    (4) with respect to any Project shall terminate when Seller
                    has met all of its obligations with respect to such Project
                    under Special Condition (4)(a) or when Seller has assigned
                    its rights in such Project to Buyer.

                    (i) Seller shall cooperate with any reasonable due diligence
                    request of Buyer to enable Buyer to consider whether to
                    exercise its rights under this Special Condition (4).

                    (5) The meter for Product 1 shall be on the high side of the
                    Delivery Point transformer. Any generation meter multiplier
                    (GMM) adjustments shall be for Buyer's account (i.e.
                    notwithstanding any required GMM adjustments, Seller shall
                    be deemed to have delivered the full metered amount of
                    energy from each Unit). Metering shall conform to CAISO
                    standards or the equivalent. Seller shall provide CAISO
                    metering settlement data to Buyer on a monthly basis, and,
                    at Buyer's option and expense, real-time access to meter
                    data via appropriate telemetering equipment.

                    (6) (a) Notwithstanding anything to the contrary herein,
                    Seller shall arrange and be responsible for transmission
                    service to the Delivery Point, if any, and shall obtain
                    Schedule Coordinator services necessary to deliver the
                    Product to the Delivery Point.

                    (b) As to Product 2, 3 and 4 only, Seller shall be
                    responsible for all charges due to CAISO, and entitled to
                    receive all payments from CAISO, related to schedule
                    deviations; provided, however, if a schedule change is
                    directed by Buyer, Buyer shall be responsible for all
                    charges due to CAISO, and entitled to receive all payments
                    from CAISO, related to such schedule deviations.

                    (7) (a) An Event of Default shall exist under this
                    Transaction if Seller schedules through CAISO or delivers
                    less than 95% of the Contract Quantity energy scheduled by
                    Buyer in any two

                                       14
<PAGE>

                    consecutive calendar months (the "Default Months"). For the
                    purposes of the preceding sentence, deliveries shall include
                    deliveries of Contract Quantity energy through the CAISO
                    imbalance energy market as the result of any scheduling
                    coordinator other than Seller failing to deliver under a
                    schedule but shall not include the use by Seller of the
                    CAISO uninstructed imbalance energy markets to effect a
                    scheduled delivery of the Contract Quantity energy from any
                    of its units except with respect to (i) any underdelivery
                    resulting from a unit Forced Outage or Force Majeure events
                    and where Seller has submitted a schedule change as soon
                    thereafter as reasonably practical and (ii) any
                    underdeliveries resulting from instructed deviations from
                    schedules directed by Buyer or CAISO.

                    (b) Seller shall (consistent with the requirements or
                    definitions of CAISO or its successor) provide Buyer with
                    revenue quality data daily with respect to all deliveries of
                    Contract Quantity energy and allow Buyer upon reasonable
                    notice to test all meters providing such data. Buyer shall
                    have ten (10) days after the end of each month to determine
                    whether Seller has scheduled or delivered 95% of the
                    Contract Quantity energy scheduled by Buyer during such
                    month in accordance with subsection (a). If Buyer does not
                    respond within such ten (10) day period, Seller shall be
                    conclusively deemed to have scheduled or delivered 95% of
                    the Contract Quantity energy scheduled by Buyer during such
                    month; provided, however, that such ten (10) day period
                    shall be extended day for day for each day after the end of
                    such month that Seller has not provided to Buyer revenue
                    quality data daily with respect to all deliveries of
                    Contract Quantity energy during such month or allowed Buyer
                    to test meters providing such data.

                    Failures to schedule or deliver Contract Quantity energy for
                    the purpose of subsection (a) shall not include any failures
                    resulting from meter failure or malfunction that is not the
                    result of Seller's negligence; provided that Seller shall
                    act promptly to repair or replace any such meter.

                    (c) Upon occurrence of an Event of Default pursuant to this
                    Special Condition (7), Buyer may elect to terminate this
                    Transaction pursuant to Section 5.2 of the Master Agreement,
                    obtain damages pursuant to Article IV of the Master
                    Agreement or exercise any other remedies available to it
                    under the Master Agreement. Except as otherwise set forth in
                    this Special Condition (7), Buyer's sole remedy for Seller's
                    failure to schedule and deliver Product shall be as set
                    forth in Article IV of the Master Agreement. Buyer must
                    exercise any right it may have to terminate this

                                       15
<PAGE>

                    Transaction upon an Event of Default pursuant to this
                    Special Condition (7) not later than 30 days after the close
                    of the first calendar quarter following the Default Months.

      Scheduling:

      Product 1: N/A

      Product 2, 3 or 4: Conforming to CAISO and WSCC standards. Buyer may
      schedule up to 100% of Contract Quantity on a day ahead basis. Buyer will
      schedule such day-ahead Contract Quantity by delivering a preliminary
      schedule to Seller by not later than 5:30pm PPT two days prior to the
      delivery date which preliminary schedule may be adjusted not later than
      7:00am PPT on the day prior to the delivery date. Up to 30% of Contract
      Quantity may be scheduled by Buyer on an intraday basis upon notice one
      hour in advance of the CAISO intraday scheduling notice requirement or
      equipment limitations, whichever is greater. Buyer has no minimum energy
      purchase obligation for Product 2, 3 or 4, as appropriate. Seller will
      attempt to mitigate any charges, if any, associated with system wide or
      customer specific Operational Flow Order or Emergency Flow Order
      conditions provided, however, that such mitigation shall be at no cost to
      Seller. Buyer will be responsible for reimbursing Seller for such charges
      assessed by PG&E or its successor for such conditions that cannot be
      reasonably mitigated by Seller without cost to Seller. Buyer may change
      the scheduled Contract Quantity from one hour to the next in an amount
      equal to 25 percent of the on-peak Contract Quantity for Product 2, 3 or
      4.

Option Buyer: N/A

Option Seller: N/A

      Type of Option: N/A

      Strike Price: N/A

      Premium: N/A

      Exercise Period: N/A

                     [The next page is the signature page.]

                                       16
<PAGE>

      This amended and restated confirmation letter is being provided pursuant
to and in accordance with the Amended and Restated Master Power Purchase and
Sale Agreement dated April 22, 2002 (the "Master Agreement") between Party A and
Party B, and constitutes part of and is subject to the terms and provisions of
such Master Agreement. This amended and restated confirmation letter constitutes
an amendment and restatement of the Confirmation (Long Term Commodity Sale)
dated February 26, 2001 effective as of May 1, 2002. Terms used but not defined
herein shall have the meanings ascribed to them in the Master Agreement.

Calpine Energy Services, L.P.  State of California Department of Water Resources
                               separate and apart from its powers
                               and responsibilities with respect to
                               the State Water Resources
                               Development System

By: /s/ E. James Macias                         By: /s/ Peter S. Gams
    --------------------------                      ----------------------------
Name: E. James Macias                           Name: Peter S. Gams
Title: Executive Vice President                 Title: Deputy Director
Phone No: (408)792-1124                         Phone No: (916)574-2733
Fax: (408) 995-0505                             Fax: (916)574-2512

                                       17
<PAGE>

                                   SCHEDULE 1

<TABLE>
<CAPTION>
           CALPINE #2 CONTRACT QUANTITY
-----------------------------------------------------
        Product 2-  Product 3-   Total     Product 4-
         On peak      On peak   Onpeak      Offpeak
 DATE      (MW)        (MW)      (MW)        (MW)
------  ----------  ----------  -------   -----------
<S>     <C>         <C>         <C>       <C>
May-02    800            0        800        400
Jun-02    800          500       1300        400
Jul-02      0          500        500        400
Aug-02      0          500        500        400
Sep-02      0          500        500        400
Oct-02      0          500        500        400
Nov-02      0          500        500        400
Dec-02      0          500        500        400
Jan-03      0            0          0        400
Feb-03      0            0          0        400
Mar-03      0            0          0        400
Apr-03      0            0          0        400
May-03      0            0          0        400
Jun-03      0          500        500        400
Jul-03      0          500        500        400
Aug-03      0          500        500        400
Sep-03      0          500        500        400
Oct-03      0            0          0        400
Nov-03      0            0          0        400
Dec-03      0            0          0        400
</TABLE>

<TABLE>
<CAPTION>
        CALPINE #2, CAPACITY PAYMENT TABLE
-----------------------------------------------------
           Product 2-       Product 3-     Product 4-
            Capacity         Capacity       Capacity
            Payment           Payment       Payment
Date          ($)              ($)            ($)
------    ------------     ------------    ----------
<S>       <C>              <C>         <C>
May-02    $ 10,000,000     $      -           0
Jun-02    $ 10,000,000     $  6,250,000       0
Jul-02    $      -         $  6,250,000       0
Aug-02    $      -         $  6,250,000       0
Sep-02    $      -         $  6,250,000       0
Oct-02    $      -         $  6,250,000       0
Nov-02    $      -         $  6,250,000       0
Dec-02    $      -         $  6,250,000       0
Jan-03    $      -         $      -           0
Feb-03    $      -         $      -           0
Mar-03    $      -         $      -           0
Apr-03    $      -         $      -           0
May-03    $      -         $      -           0
Jun-03    $      -         $  6,250,000       0
Jul-03    $      -         $  6,250,000       0
Aug-03    $      -         $  6,250,000       0
Sep-03    $      -         $  6,250,000       0
Oct-03    $      -         $        -         0
Nov-03    $      -         $        -         0
Dec-03    $      -         $        -         0
</TABLE>

                                       18
<PAGE>

                                                                  EXECUTION COPY

                    MASTER POWER PURCHASE AND SALE AGREEMENT
                    AMENDED AND RESTATED CONFIRMATION LETTER

      This amended and restated confirmation letter shall confirm the
Transaction agreed to on April 22, 2002 and effective May 1, 2002 between
Calpine Energy Services, L.P. ("Party A") and State of California Department of
Water Resources with respect to its responsibilities pursuant to California
Water Code Section 80000 et seq. regarding the Department of Water Resources
Electric Power Fund separate and apart from its powers and responsibilities with
respect to the State Water Resources Development System ("Party B") regarding
the sale/purchase of the Product under the terms and conditions as follows:

Seller: Calpine Energy Services, L.P.

Buyer: State of California Department of Water Resources

Product:

[]    Into______________________________, Seller's Daily Choice

[]    Firm (LD)

[]    Firm (No Force Majeure)

[]    System Firm

      (Specify System: ____________________________________)

[]    Unit Firm.

      (Specify Unit(s): See "Special Conditions" below.)

[x]   Other

      Obligation to provide the Contract Quantity as scheduled in accordance
      with "Scheduling" below which shall be satisfied (a) from the Units,
      except that such obligation shall be excused: (i) if the Unit(s) are
      unavailable as a result of a Forced Outage or (ii) by an event or
      circumstance that affects the Unit(s) so as to prevent Seller from
      performing its obligations, which event or circumstance was not
      anticipated as of the date the Transaction was agreed to, and which is not
      within the reasonable control of, or the result of the negligence of, the
      Seller, (iii) by Buyer's failure to perform its obligations in connection
      with this Transaction, including without limitation failure to schedule
      energy or deliver fuel in accordance with the provisions of this
      Confirmation, or (iv) to the extent of under-deliveries resulting from
      physical variations in the operating levels of the generation equipment
      which are not caused by Seller and are beyond the reasonable control of
      the Seller, or (b) by delivering or offering to deliver substitute energy,
      but only to the extent Buyer has scheduled Contract Quantity energy
      hereunder and the Unit(s) are unavailable for the reasons set forth in
      clause (a).

<PAGE>

      Seller shall not be obligated to offer substitute energy as provided in
      the preceding clause (b). If Seller does not offer substitute energy as
      provided in the preceding clause (b), (i) such unoffered energy shall be
      treated as undelivered for the purposes of Special Condition (9)(a), and
      (ii) Special Condition (9)(b) shall not apply to such unoffered energy. If
      Seller offers to provide substitute energy and Buyer accepts such offer,
      Seller shall thereafter be obligated to schedule such substitute energy
      and any failure to schedule or deliver such energy shall be subject to
      Special Condition (9)(b) and such energy shall be treated as undelivered
      for the purposes of Special Condition (9)(a).

      The sole remedies for failure to meet obligations hereunder shall be as
      set forth in Special Condition (9) or Special Condition 13.

      Seller shall give Buyer notice of its intention to provide substitute
      energy, and Buyer shall promptly respond to Seller as to whether or not it
      will accept such offer of substitute energy. Buyer may, at its sole
      election, choose not to accept such offer of substitute energy pursuant to
      (b). Notwithstanding the preceding sentence, Buyer shall accept delivery
      of imbalance energy from the CAISO uninstructed imbalance energy market
      resulting from events arising after the close of the CAISO hour-ahead
      scheduling window. Buyer shall not be obligated to pay the Energy Price
      for any (i) substitute energy for which it does not accept Seller's offer,
      or (ii) uninstructed imbalance energy resulting from a failure to adjust a
      schedule or other events occurring prior to (but excluding uninstructed
      imbalance energy resulting from events arising after) the close of the
      CAISO hour-ahead scheduling window unless otherwise agreed to by the
      Parties in connection with the event giving rise to such imbalance energy.

      Substitute energy offered by Seller shall be treated as delivered for the
      purpose of Special Condition (9)(a) regardless of whether Buyer accepts
      such offer. If Buyer does accept Seller's offer of substitute energy,
      Buyer shall schedule and receive the amount of such substitute energy in
      accordance with this Confirmation. If Buyer fails to schedule and receive
      the amount of such substitute energy in accordance with this Confirmation,
      the provisions of Special Condition (9)(b) shall apply to the substitute
      energy that Buyer so fails to schedule and receive.

      If accepted, substitute energy shall be scheduled and delivered in
      accordance with the requirements of this Confirmation applicable to energy
      scheduled and delivered from the Units, including without limitation the
      provisions under "Scheduling" below and in Special Condition (6).
      Substitute energy delivered to Buyer in accordance with the requirements
      of clause (b) above is referred to as "Substitute Energy," and Substitute
      Energy, together with any substitute energy offered to Buyer in accordance
      with the requirements of clause (b) above which Buyer elects not to take
      in accordance with the preceding sentence is referred to as "Availability
      Substitute Energy".

[]    Transmission Contingency (If not marked, no transmission contingency)

      []    FT-Contract Path Contingency     []    Seller      []     Buyer

      []    FT-Delivery Point Contingency    []    Seller      []     Buyer

      []    Transmission Contingent          []    Seller      []     Buyer

                                       2
<PAGE>

      []    Other transmission contingency

      (Specify:________________________________________________________________)

Contract Quantity:

            May 1, 2002 - July 31, 2002: 450 MW

            August 1, 2002 - July 31, 2011: 495 MW

            (Above Contract Quantities are subject to "Special Conditions"
            below.)

Delivery Point: With respect to each Unit, the high side of a substation in
                reasonable proximity of such Unit. The Delivery Point for any
                Substitute Energy shall be into North Path 15 or as otherwise
                agreed. The Delivery Point shall be a point that connects to the
                transmission system managed by the California Independent System
                Operator ("CAISO") or any successor to the CAISO. Seller may
                schedule one or more different delivery points meeting the
                foregoing requirements on an hourly basis pursuant to CAISO
                protocols (or any successor protocols).

Contract Price

      Energy Price:

      For each month, Buyer shall pay Seller (i) the Monthly Fuel Costs as
      described below plus (ii) $4.00 per MWh scheduled by Buyer and delivered
      during such month for variable operation and maintenance costs, as
      follows:

      (a) If fuel is supplied under a Buyer Fuel Plan (as defined below under
          "Fuel Plan"), the Monthly Fuel Costs will be determined as follows:

      Monthly Fuel Costs = the sum of all applicable local distribution company
            ("LDC") gas distribution charges, including applicable surcharges,
            if any, calculated in accordance with the LDC's applicable tariff
            with respect to Daily Fuel Quantity for each day in such month

      Daily Fuel Quantity = the product of (i) all energy, including Substitute
            Energy, scheduled for such day, times (ii) the Guaranteed Heat Rate

      Guaranteed Heat Rate = 10,500 Btu/kWh

      (b)If fuel is supplied under a Seller Fuel Plan (as defined below under
      "Fuel Plan"), the Monthly Fuel Costs will be determined as follows:

      Monthly Fuel Costs = the sum of (i) the product of (A) the Daily Fuel
      Price times (B) the Daily Fuel Quantity for each day of such month, plus
      (ii) all applicable LDC gas distribution charges including applicable
      surcharges, if any, calculated in accordance with the IDC's applicable
      tariff with respect to Daily Fuel Quantity for each day in such month

      Daily Fuel Price = the daily fuel price defined in the Seller Fuel Plan

      Daily Fuel Quantity = the product of (i) all energy, including Substitute
            Energy, scheduled for such day, times (ii) the Guaranteed Heat Rate

      Guaranteed Heat Rate = 10,500 Btu/kWh

                                       3
<PAGE>
            Fuel Plan:

            Seller shall submit an interim fuel plan covering the period from
            the effective date of such interim fuel plan to February 28, 2003
            within 15 days of the execution hereof and Buyer shall have 15 days
            after receipt of such proposed interim fuel plan to accept or reject
            such interim plan. By March 1, 2003 and by each March 1 thereafter
            during the term of this Transaction, Seller shall provide to Buyer a
            proposed Annual Fuel Plan detailing prices or pricing methodologies
            for the acquisition of fuel by Seller on Buyer's account for the
            next 12 month period beginning on the ensuing June 1 through the
            following May 31 (each such 12 month period being a "Contract
            Year"). By April 1, 2003 and by each April 1 thereafter during the
            term of this Transaction, Buyer shall notify Seller if Buyer accepts
            Seller's proposed Annual Fuel Plan (or a negotiated revision
            thereto). If such a plan, including an interim fuel plan, is
            accepted, it shall become a Seller Fuel Plan for the acquisition of
            fuel by Seller on Buyer's account. During the term of any Seller
            Fuel Plan, Buyer shall not be responsible for any fuel imbalance
            charges or any other charges other than those resulting from any
            system wide or customer specific Operational Flow Order ("OFO") or
            Emergency Flow Order ("EFO") conditions. Seller will attempt to
            mitigate any charges, if any, associated with system wide or
            customer specific Operational Flow Order or Emergency Flow Order
            conditions; provided, that such mitigation shall be at no cost to
            Seller. Other than as set forth in the preceding sentence or
            elsewhere in this Confirmation, Seller shall be solely responsible
            for any fuel imbalance charges assessed by such LDC during the term
            of a Seller Fuel Plan. If no Seller Fuel Plan is accepted, Buyer
            shall acquire fuel on its own account pursuant to a Buyer Fuel Plan.
            In that event, Buyer shall be solely responsible for gas supply
            (including all imbalances), gas must be delivered to Seller at the
            PG&E Citygate or other mutually agreed upon point, Buyer shall be
            solely responsible for any LDC charges (including all surcharges, if
            any, and all imbalance charges) and all charges relating to system
            wide or customer specific OFOs or EFOs incurred to deliver that gas
            to the Units, and Seller shall have no obligations to deliver gas or
            to deliver energy where Buyer fails to deliver the required gas.
            Notwithstanding the foregoing, any fuel imbalance charges assessed
            by the LDC resulting under either a Seller Fuel Plan or a Buyer Fuel
            Plan as a result of actions or omissions of Seller or Buyer shall be
            borne by the party to which the fuel imbalances are attributable.
            Fuel imbalance charges resulting from Force Majeure in respect of
            the Units shall be borne equally by Buyer and Seller. Seller shall
            be solely responsible to acquire and pay for any and all gas used to
            generate energy other than Buyer's scheduled energy (including all
            surcharges, if any, all imbalance charges and all charges relating
            to system wide or customer specific OFOs or EFOs). Buyer shall not
            be required to pay any fees or charges which are not specifically
            set forth in the Seller Fuel Plan. When Buyer supplies gas to the
            Units it shall have a pro rata share (calculated on the basis of the
            total hours scheduled by Buyer in a period as compared to the total
            hours in such period) of the daily and monthly rights, benefits and
            obligations that would be available to it as if it were acting as
            fuel manager, including nominations, balancing rights and imbalance
            charges assessed within the applicable period under the
            then-effective applicable LDC tariff or month end imbalance
            tolerances permitted by such tariff, and fees for services. In
            exercising such rights, Buyer shall follow customary practices and
            procedures with respect to nominations, balancing rights and
            imbalance charges and tolerances as provided in the applicable LDC
            tariff. If Buyer exceeds its pro

                                       4
<PAGE>

            rata share of the permitted limits and tolerances under the
            applicable LDC tariff and fails to promptly bring its activities
            within such limits and tolerances, Seller shall have the right
            within one day after notice to make corresponding adjustments to its
            nominations, volumes and monthly imbalances or, if in effect, daily
            imbalances, to bring Buyer's activities within the prorata limits
            and tolerances in the applicable LDC tariff, and if Buyer is
            deficient (short) gas, Buyer shall promptly pay Seller Platt's Gas
            Daily PG&E Citygate Common high, or successor index, for the amount
            of such imbalance gas and if Buyer is excess (long) gas, Seller
            shall promptly pay Buyer the Platt's Gas Daily PG&E Citygate Common
            low, or successor index, for such imbalance gas.

            Other Charges: The capacity payments payable in the amounts and at
            the times as follows (such payments to be prorated within a calendar
            month):

            FOR THE PERIOD MAY 1,2002 TO JULY 31,2002

            A monthly capacity payment payable on the first day of each month
            equal to the product of $15,151.52 times the Aggregate Capacity of
            the Units which have achieved commercial operation as of the first
            day of such month and the capacity (in MW) of substitute Units
            designated by Seller pursuant to Special Condition (3)(a) prior to
            the first day of such month.

            FOR THE PERIOD AUGUST 1,2002 TO JULY 31,2003

            (a) A capacity payment payable August 1, 2002 equal to the sum of
            (1) and (2) below calculated as follows:

                (1) For the period from August 1, 2002 to December 31, 2002,
                  $75,757.57 times the Aggregate Capacity as of August 1, 2002
                  and the capacity that Seller has designated by no later than
                  July 15, 2002 as substitute Units pursuant to Special
                  Condition (3)(a) for Units that have not achieved or will not
                  achieve commercial operation by August 1, 2002; and

                (2) For the period from January 1, 2003 to July 31, 2003,
                  $106,060.61 times the Aggregate Capacity of the Units which
                  have achieved commercial operation by August 1, 2002; and

            (b) A capacity payment payable on the first day of each month from
            January 1, 2003 through June 1, 2003 (or if a Unit comes on line
            during any month, a prorata portion of such capacity payment payable
            three Business Days after the COD for such Unit) with respect to the
            Units which had achieved commercial operation in the period after
            August 1, 2002 and before June 1, 2003, equal to the product of
            $15,151.52 times the Aggregate Capacity of such Units; and

            (c) A capacity payment payable on July 1, 2003 (and if a Unit comes
            on line during the month of June or July, a prorata portion of such
            capacity payment for such partial month payable three Business Days
            after the COD for such Unit) (i) with respect to the Units which had
            achieved commercial operation in the period after August 1, 2002 and
            before June 1 2003, equal to the product of $15,151.52 times the
            Aggregate Capacity of such Units, plus (ii) with respect to Units
            that achieved commercial operation in the period from June 1, 2003
            through June 30, 2003, equal to the product of $10,000 times the
            Aggregate Capacity of such Units, plus (iii) with respect to Units
            that achieved

                                       5
<PAGE>

            commercial operation in the period from July 1, 2003 to July 31,
            2003 a prorata payment for July equal to the prorata portion of the
            product of $10,000 times the Aggregate Capacity of such the Units.

            FOR THE PERIOD AUGUST 1, 2003 TO JULY 31, 2006

            (a) A capacity payment payable on August 1, 2003 equal to the sum of
            (i) the product of Aggregate Capacity of the Units that achieved
            commercial operation prior to June 1, 2003 times $181,818.18, and
            (ii) the product of Aggregate Capacity of the Units that achieved
            commercial operation on and after June 1, 2003 but on or prior to
            July 31, 2003 times $120,000;

            (b) A capacity payment payable on the first day of each month from
            September 1, 2003 through December 31, 2003 (or if a Unit comes on
            line during any month, a prorata portion of such capacity payment
            payable three Business Days after the COD for such Unit) with
            respect to the Units that achieved commercial operation in the
            period after August 1, 2003 and on or before December 31, 2003,
            equal to the product of $10,000 times the Aggregate Capacity of such
            Units;

            (c) A capacity payment payable on January 1, 2004 for the period
            from January 1, 2004 through July 31, 2004 equal to the Aggregate
            Capacity as of January 1, 2004 of the Units that achieved commercial
            operation between August 1, 2003 and December 31, 2003, equal to the
            product of $70,000 times the Aggregate Capacity of such Units; and

            (d) A capacity payment payable on August 1, 2004 and August 1, 2005
            equal to the sum of (i) the product of Aggregate Capacity of the
            Units that achieved commercial operation prior to June 1, 2003 times
            $181,818.18, and (ii) the product of Aggregate Capacity of the Units
            that achieved commercial operation on and after June 1, 2003 but on
            or prior to December 31, 2003 times $120,000.

            FOR THE PERIOD AUGUST 1, 2006 TO JULY 31, 2011

            A capacity payment payable each August 1 of the Delivery Period
            after August 1, 2005 equal to the sum of (a) the product of
            Aggregate Capacity of the Units that achieved commercial operation
            prior to June 1, 2003 times $161,616.16, and (b) the product of
            Aggregate Capacity of the Units that achieved commercial operation
            on and after June 1, 2003 but on or prior to December 31,2003 times
            $120,000.

            "Aggregate Capacity" shall mean the aggregate capacity as of any
            specified date or during any specified period of the Units in MWs
            determined pursuant to Special Condition (10) and Special Condition
            (12) for those Units that have achieved commercial operation as of
            such specified date or during such specified period; provided,
            however, that as of any specified date from and after January 1,
            2003, the Aggregate Capacity allocable to Units achieving commercial
            operation prior to June 1, 2003 shall not be more than the product
            of 45MW times the number of Units which have achieved commercial
            operation by such date prior to June 1, 2003 and the Aggregate
            Capacity allocable to Units achieving commercial operation from and
            after June 1, 2003 shall not be more than the product of 45MW times
            the number of Units which have achieved commercial operation by such
            date from and after June 1, 2003 to and including December 31,2003.

                                       6
<PAGE>

      For the purposes of the foregoing the capacity of the Units shall be
      determined in accordance with Special Condition (10) and Special Condition
      (12).

      Delivery Period: May 1, 2002 - July 31, 2011

Special Conditions: (1) See Cover Sheet to Master Agreement.

                    (2) To resolve any and all disputes between them concerning
                    rights to substitute capacity under the prior Confirmation
                    Letter for this Product (dated February 27, 2001), now
                    superseded by this Confirmation, Buyer agrees to pay a
                    one-time capacity payment of $15,102,807.86 for the period
                    from December 1, 2001 through April 30, 2002 within three
                    days after the effective date of this Confirmation. Buyer's
                    payment is for the resolution of claims that are doubtful or
                    are in dispute, and is not in any way, implicitly or
                    explicitly, an admission concerning Buyer's or Seller's
                    rights under the prior Confirmation Letter. Seller's
                    acceptance of this payment constitutes a full and final
                    release by Seller, its parents, subsidiaries, divisions,
                    affiliates or associates and anyone who may claim through
                    any of them (including their former and present officers,
                    directors, employees, shareholders or any of their assigns)
                    of DWR and its successors and assigns, from any and all
                    claims that Seller had, has, or ever shall have, whether
                    known or unknown, asserted or unasserted, suspected or
                    unsuspected, contingent or non-contingent, liquidated or
                    unliquidated, based on, arising out of, or relating in any
                    way to the prior Confirmation Letter.

                    (3) Seller will supply energy to be delivered under this
                    Transaction from one or more generation assets (each a
                    "Unit," collectively, and together with the replacement
                    generation assets designated as provided below, the "Units")
                    located within NP 15, including at one or more of the
                    following sites: King City, Gilroy, Feather River, Lambie,
                    Creed, Goosehaven, Pajaro Valley, Wolfskill and Yuba City;
                    provided, however, that (a) if any Unit will be located at a
                    site other than said specified sites, Seller shall first
                    consult with Buyer as to such location, and (b) all
                    interconnections, the capacity rating of the interconnection
                    facilities, the interconnection agreement, and transmission
                    connection are sufficient for the delivery of the full
                    output of the Unit at such site to the CAISO-controlled
                    grid. Seller may elect which Unit or Units are to be
                    operated from time to time to supply energy hereunder;
                    provided, however, Buyer may direct that Units in a
                    constraint zone be operated to supply energy hereunder to
                    the extent necessary to assure reliability and to prevent
                    any system instability in such zone. Each Unit will have a
                    nominal capacity of 45 MW, and a total of 11 LM 6000 Units
                    will be designated as provided herein. Not less than 15 days
                    before the date of increase in Contract Quantity described
                    above, Seller will designate the Unit or Units that will
                    supply the Contract Quantities required to be delivered by
                    such dates. Seller may (a) with respect to any Unit which
                    has not achieved commercial operation, without the approval
                    of the Buyer, designate one or more alternative generating

                                        7
<PAGE>

                    facilities (which need not be LM 6000s) from which energy
                    will be delivered hereunder during the period commencing May
                    1, 2002 and ending December 31, 2002, so long as such
                    alternate generating facilities deliver energy into North
                    Path 15 or (b) with respect to any Units which have achieved
                    commercial operation hereunder, with the approval of Buyer,
                    which approval may not be unreasonably withheld, from and
                    after January 1, 2003, designate replacement Unit(s) from
                    time to time upon not less than 15 days notice to Buyer but
                    in no case may Seller designate replacement Unit(s) under
                    this clause (b) unless (i) Seller has designated sufficient
                    Unit(s) to supply the then required Contract Quantity and
                    (ii) the replacement Unit(s) deliver energy into the same
                    zone (i.e. North Path 15) as the original Unit(s).

                    (4) Subject to Seller's rights under clause (a) of the fifth
                    sentence of Special Condition (3), the Parties' obligations
                    hereunder with respect to the energy to be supplied from any
                    Unit are also subject to and contingent on such Unit having
                    achieved "commercial operation" before Seller is obligated
                    to supply energy from such Unit. As used herein, "commercial
                    operation" of a Unit means that such Unit has been
                    completed, has passed all material performance tests
                    pursuant to Special Condition (10), Seller or the owner of
                    the Unit has all necessary permits to operate the Unit at
                    the output level for which it was designed not less than 40
                    MW, the Unit is capable of operating on a sustained basis at
                    substantially the output level for which it was designed,
                    and all interconnections, the capacity rating of the
                    interconnection facilities, the interconnection agreement,
                    and transmission connection are sufficient for the delivery
                    of the full output of the Unit to the CAISO-controlled grid.
                    Commercial operation shall not occur until Seller provides
                    written certifications, including a written report of test
                    performance results, signed by a duly authorized officer, to
                    Buyer that the requirements for commercial operation have
                    been achieved and Buyer concurs in writing with such
                    certification. Buyer shall have twenty (20) business days
                    within which to respond to Seller's certification of
                    commercial operation and failure to respond within such
                    period shall be deemed an acceptance of Seller's
                    certification. If Buyer concurs that commercial operation
                    has occurred or fails to respond within twenty (20) business
                    days as provided in the preceding sentence or if such
                    commercial operation is disputed and such dispute is
                    resolved in favor of the Seller, the date of commercial
                    operation shall be the date Seller provides such written
                    certifications that the requirements for commercial
                    operation have been achieved. Seller agrees to use
                    commercially reasonable efforts (considering among other
                    things the availability, receipt and cost of necessary
                    permits and regulatory approvals, third party services and
                    consents, real estate rights and similar matters and
                    regulatory changes) to cause the designated Unit(s) to
                    achieve commercial operation on or before the date(s) that
                    power is to be supplied by such Unit(s) hereunder, but
                    Seller shall not otherwise be liable to Buyer or be
                    obligated to provide the quantity of energy to be provided
                    from such Unit(s) unless and until

                                        8
<PAGE>

                    commercial operation is achieved for such Unit(s), and the
                    Contract Quantities described above shall be appropriately
                    reduced until such Unit(s) achieve commercial operation.
                    Seller represents and Buyer agrees that the following Units
                    have achieved commercial operation: Gilroy 1, Gilroy 2,
                    Gilroy 3, and King City. With respect to the remaining
                    Units, to the extent the Seller does not achieve commercial
                    operation of such Units by December 31, 2002, any
                    substitution made for any such Unit pursuant to clause (a)
                    of Special Condition (3) shall terminate. To the extent the
                    Seller does not achieve commercial operation of any such
                    Unit by December 31, 2003, the Contract Quantity shall be
                    reduced by the amount of MW allocable to such Units.

                    From time to time (but not more frequently than monthly) at
                    Buyer's request, Seller shall provide information to Buyer
                    regarding the status of construction activities and the then
                    expected commercial operation dates of the Units. Such
                    information shall include status of accomplishing major
                    development and construction milestones including obtaining
                    all permits, securing project financing, acquisition and
                    installation of major equipment, and start-up testing. Buyer
                    may inspect the Units, the Unit construction site or on-site
                    Seller data and information pertaining to the Units
                    reasonably necessary to verify the information provided
                    pursuant to this Special Condition (4) during business hours
                    upon reasonable notice. Seller will not materially decrease
                    the nameplate capacity below that which is referenced in the
                    applicable permit or change the design of the units in a
                    manner that materially impairs Seller's obligations or
                    materially alters Buyer's rights or obligations hereunder
                    without the written approval of Buyer, not to be
                    unreasonably withheld.

                    (5) Seller agrees that it will operate and maintain the
                    Units in accordance with Prudent Industry Practices.

                    (6) Seller shall only be required to deliver the energy
                    described in this Transaction if Buyer schedules energy from
                    the Units as provided herein. Subject to the terms and
                    conditions set forth herein, Buyer may schedule such energy
                    only for hours within the Peak Period (as hereinafter
                    defined) and only up to (i) through December 31, 2002, the
                    then applicable Contract Quantity (including the capacity of
                    any substitute Units designated by Seller as provided in
                    clause (a) of the fifth sentence of Special Condition (3)),
                    and (ii) from and after January 1, 2003, the lesser of (a)
                    the then applicable Contract Quantity (i.e. the sum of the
                    tested capacities of all Units that have achieved commercial
                    operation, subject to the limitations set forth in this
                    Confirmation) and (b) the number of Units that have at that
                    time achieved commercial operation multiplied by 45 MW;
                    provided, however, that the quantity of energy which is
                    scheduled must be an amount which will permit all Units
                    required to supply such amount to operate between 80% and
                    100% of capacity (e.g. between 36

                                        9
<PAGE>

                    MW and 45 MW assuming a 45 MW plant). As used herein, "Peak
                    Period" means the hours from the hour ending 0700 through
                    the hour ending 2200, Pacific time, Monday through Saturday
                    (excluding NERC holidays), during the months of June, July,
                    August, September, October, December and January during the
                    Delivery Period; provided, however, that in addition to the
                    months of June, July, August, September, October, December
                    and January, the Peak Period in calendar years 2002 and 2003
                    shall include the month of November. Each Peak Period will
                    begin on June 1 of a given calendar year and end on January
                    31 of the following calendar year.

                    (7) Subject to the limitations set forth in Special
                    Condition (11), in the event that the output of a designated
                    Unit is partially reduced or curtailed as provided in the
                    definition of the Product, including Forced Outage or Force
                    Majeure, Seller shall be entitled to reduce energy
                    deliveries to Buyer from such Unit to the extent of such
                    reduction or curtailment without penalty or cost except as
                    may result under Special Condition (9).

                    (8) The meter for the Units shall be on the high side of the
                    Unit transformer. Any generation meter multiplier (GMM)
                    adjustments shall be for Buyer's account (i.e
                    notwithstanding any required GMM adjustments, Seller shall
                    be deemed to have delivered the full metered amount of
                    energy from each Unit). Metering shall conform to CAISO
                    standards or the equivalent. Seller shall provide CAISO
                    metering settlement data to Buyer on a monthly basis, and,
                    at Buyer's option and expense, real-time access to meter
                    data via appropriate telemetering equipment.

                    (9) (a) After the end of each month, the capacity payment
                    paid or payable with respect to that month shall be adjusted
                    (by Buyer making an additional payment or Seller paying a
                    rebate which may be offset by Buyer against any other
                    payments due Seller hereunder) to equal the Adjusted
                    Capacity Payment ("ACP").

                    Where:

                    ACP = [1+(EA-Target EA) x prorated capacity payment
                    attributable to such month]

                    EA = (Summation of Hourly Availability Factors for Non-Force
                    Majeure Peak Hours) / (Number of Non-Force Majeure Peak
                    Hours in month)

                    Hourly Availability Factor is determined for each Peak Hour
                    that is not excused by Force Majeure as follows (such
                    quotients not to exceed 1.0):

                    i)    For hours in which Buyer has scheduled energy, the
                          quotient of (1) energy actually or deemed delivered
                          (in accordance with this

                                       10
<PAGE>

                          Confirmation) by Seller to Buyer from the Unit(s)
                          plus, any Availability Substitute Energy, and, if a
                          Buyer Fuel Plan is in effect, any scheduled energy
                          that was undeliverable solely due to the non-delivery
                          of gas, divided by (2) total energy scheduled in
                          accordance with this Confirmation less any scheduled
                          energy that is unavailable during any ramp up of a
                          Unit in accordance with Scheduling below;

                    ii)   For hours in which Buyer has not scheduled energy, the
                          quotient of 1) the then applicable Contract Quantity
                          that was actually schedulable for delivery from the
                          Units or which Seller has committed as Availability
                          Substitute Energy, divided by 2) the then applicable
                          Contract Quantity. The energy generated by any Unit
                          (at capacity of such Units determined pursuant to, and
                          not in excess of the limitations of, Special Condition
                          (10)) pursuant to a must offer bid made by Seller into
                          the CAISO supplemental energy market and accepted by
                          CAISO shall be treated as schedulable for the purposes
                          of this clause (ii) for the period of such bid.

                    Target EA = .98 for the Summer Season or .92 for the Winter
                    Season.

                    The Summer Season is the Peak Period of the months June
                    through October. The Winter Season is the Peak Period of the
                    months December and January and in calendar years 2002 and
                    2003, November. Peak Hours are any hours in the Peak Period.

                    For the purposes of (i)(1), Availability Substitute Energy
                    shall include uninstructed imbalance energy described in
                    clauses (ii), (iv) and (v) of Special Condition (13)(b) and
                    any underdeliveries resulting from instructed deviations
                    directed by CAISO but shall specifically exclude
                    uninstructed imbalance energy described in clauses (i) and
                    (iii) of Special Condition (13)(b) and all other
                    uninstructed imbalance energy not permitted under Special
                    Condition (13)(b).

                    Seller shall notify Buyer each day of the Peak Period prior
                    to the CAISO day-ahead notification deadline of the then
                    applicable Contract Quantity that is schedulable for each
                    hour of the next day from the Units or which Seller would
                    commit as Availability Substitute Energy for each hour of
                    the next day.

                    (b) In addition, the provisions of Article IV of the Master
                    Agreement shall apply to any unexcused failure of the (1)
                    Seller to (i) schedule or deliver the Product described in
                    clause (a) of "Other" or (ii) schedule or deliver the
                    Product described in clause (b) of "Other" after Buyer has
                    accepted Seller's offer to provide Substitute Energy as
                    provided in this Confirmation, or (2) any unexcused failure
                    of the Buyer to receive Substitute Energy.

                                       11
<PAGE>

                    (c) In addition to any adjustment to ACP under (a) of this
                    Special Condition (9), the ACP for any month shall be
                    reduced in accordance with the following formula provided
                    that such reduction shall not reduce the ACP below zero:

                    Amount of Reduction of ACP = capacity payment allocable to
                    such month x [(Warning/Stage Alert Hours x 4) / 286]

                    Warning/Stage Alert Hours = sum of Hourly Factors for hours
                    during which Seller fails to provide any or all Contract
                    Quantity from the Units as scheduled by Buyer in accordance
                    with this Confirmation when the Unit(s) are available for
                    such hours and a day-ahead CAISO warning of a potential
                    stage alert has been issued or any stage alert is in effect
                    for such hours. Hourly Factors shall be the ratio, in any
                    such hour, of: (a) energy scheduled by Buyer in accordance
                    with this Confirmation that was not delivered or deemed
                    delivered from the Units (and for which delivery was not
                    excused hereunder), to (b) energy scheduled by Buyer in
                    accordance with this Confirmation.

                    (10) The MWs allocable to each Unit (at no more than 50 MW
                    per Unit) for purposes of determining the Aggregate Capacity
                    and adjusting the Contract Quantity will be established by
                    testing and adjustment as follows: Not less than five days
                    prior to the scheduled commercial operation date of a Unit,
                    and thereafter during the period beginning March 1 and
                    ending May 31 in each Contract Year, unless otherwise
                    agreed, Seller will conduct a four hour performance test of
                    each Unit during operations using installed instrumentation,
                    calibrated by Seller (except the Electric Metering Equipment
                    which will be calibrated in accordance with CAISO
                    Requirements) to determine the maximum MW output of each
                    Unit as measured at the Delivery Point for such Unit. Tests
                    shall be conducted pursuant to ASME Performance Test Code
                    22. In addition, each of Buyer and Seller may request up to
                    two additional tests per year (at any time) utilizing the
                    same four hour test procedures. After each test, Seller will
                    use performance curves certified by the original equipment
                    manufacturer/architect engineer/vendor to adjust the test
                    results to ISO Conditions. The ISO Condition-adjusted test
                    results will be the MWs allocable to the Unit (at no more
                    than 50 MW per Unit), effective on the first day of the
                    month following the month in which Buyer receives written
                    notice of the test results or as of the commercial operation
                    date, as the case may be. Seller will provide forty-eight
                    (48) hours notice to Buyer prior to each test, and provide
                    Buyer with a written report of the test results and
                    subsequent adjustment to the Contract Quantity within the
                    later of five (5) Business Days of each test or as soon as
                    practicable. Buyer is entitled to witness any test of a
                    Unit. Buyer may request third party calibration of
                    instrumentation used in any test, and in the event that a
                    deviation equal to or more than 2% is found, Seller shall
                    bear the cost of such calibration, and if the
                    instrumentation is within 2% deviation then Buyer shall bear
                    such cost.

                                       12
<PAGE>

                    (11) Notwithstanding anything to the contrary herein, Seller
                    shall arrange and be responsible for transmission service to
                    the Delivery Point, if any, and shall obtain Schedule
                    Coordinator services necessary to deliver the Product to the
                    Delivery Point. Seller shall be responsible for all charges
                    due to the CAISO and entitled to receive all payments from
                    the CAISO, related to schedule deviations; provided,
                    however, if a schedule change is directed by Buyer, Buyer
                    shall be responsible for all charges due to the CAISO, and
                    entitled to receive all payments from the CAISO, related to
                    such schedule deviations.

                    (12) Seller shall, at its expense, acquire and maintain in
                    effect, from any and all government agencies with
                    jurisdiction over Seller and/or the construction or
                    operation of the Units, all required governmental approvals,
                    in each case necessary at that time (i) for the construction
                    of the Units in accordance with this Agreement; and (ii) for
                    the operation of the Units to produce the Contract Quantity.
                    Seller shall cause the Units to be operated in compliance
                    with the Units' governmental approvals. Failure of Seller to
                    comply with the provisions of this Special Condition (12)
                    shall not be an Event of Default. Buyer's sole remedy for
                    any failure of Seller to comply with the provisions of this
                    Special Condition (12), shall be to reduce the Contract
                    Quantity by the amount of MW allocable to such Units that
                    are or become subject to any curtailment, reduction or
                    restriction as the result of a failure of Seller to comply
                    with this Special Condition (12). Buyer shall not direct
                    more than four (4) starts per Unit per day. A start shall be
                    any Buyer schedule change from zero to greater than zero.
                    Failure of Buyer to comply with the provisions of this
                    Special Condition (12) shall not be an Event of Default.
                    Seller's sole remedy for any failure of Buyer to comply with
                    the provisions of this Special Condition (12) shall be to
                    refuse a direction to start that violates this Special
                    Condition (12).

                    (13) (a) Copies of all day-ahead and hour-ahead schedules
                    with respect to Substitute Energy market purchases with
                    scheduling coordinators other than Seller shall be delivered
                    by Seller to Buyer by the end of the next day(redacted to
                    remove confidential information, but in all events showing
                    dates, times and volumes). Upon request of Buyer, Seller
                    will provide Buyer with sufficient information to enable
                    Buyer to determine whether Seller's scheduling coordinators
                    are effecting delivery of scheduled Contract Quantity market
                    energy purchases through the CAISO imbalance energy markets.
                    Seller authorizes Buyer to obtain such information from
                    CAISO as may be necessary to determine compliance with the
                    provisions hereof or to determine whether Seller's
                    scheduling coordinators are effecting delivery of scheduled
                    Contract Quantity market energy purchases through the CAISO
                    imbalance energy markets and Seller hereby waives its right
                    to object to CAISO providing such information to

                                       13
<PAGE>

                    Buyer; provided, however, that Buyer shall only use such
                    information for the purposes of monitoring Seller's
                    compliance with the provisions hereof. Parties elect to make
                    Section 10.11 of the Master Agreement applicable to such
                    information.

                    (b) Seller will not use the CAISO uninstructed imbalance
                    energy markets to deliver the Contract Quantity except with
                    respect to any (i) under-deliveries resulting from a Unit
                    Forced Outage or an event or circumstance that affects the
                    Unit(s) so as to prevent Seller from performing its
                    obligations, which event or circumstance was not anticipated
                    as of the date the Transaction was agreed to, and which is
                    not within the reasonable control of, or the result of the
                    negligence of, the Seller, (ii) deliveries of amounts
                    scheduled by Buyer in accordance with this Transaction if
                    the notice given by Buyer is less than the minimum notice
                    required by the CAISO to schedule deliveries of energy under
                    the applicable CAISO tariff and rules, (iii) subject to the
                    provisions of subsection (c) and in addition to
                    under-deliveries resulting from an event described in
                    (b)(i), under-deliveries resulting from variations of 3% or
                    less between the amount of energy scheduled and the amount
                    of energy delivered on a monthly basis due to physical
                    variations in the operating levels of the generation
                    equipment which are not caused by Seller or are beyond the
                    reasonable control of the Seller, (iv) failure of a
                    scheduling coordinator other than Seller to deliver
                    Substitute Energy hereunder, and (v) any under-deliveries
                    resulting from instructed deviations directed by Buyer. In
                    connection with generation from the Units, Seller shall not
                    willfully submit infeasible schedules so as to create
                    phantom congestion and then submit decremental bids in
                    connection therewith. Seller shall not submit any negative
                    decremental bids with respect to the Contract Quantity to
                    CAISO unless mutually agreed or claim unavailability of the
                    Units based on Forced Outage or Force Majeure when in fact
                    none exists.

                    (c) Seller shall cooperate with Buyer and provide Buyer such
                    information relating to the operation of the Units as may
                    reasonably be necessary to determine compliance with the
                    provisions of subsection (b) and this subsection (c). Seller
                    shall (i) notify Buyer prior to the CAISO day-ahead
                    notification deadline for each day in which a Peak Hour
                    occurs of the capacity expected to be available from the
                    Units, (ii) on a day-ahead basis, schedule any energy as
                    requested by Buyer in accordance with this Confirmation from
                    such Units on the basis of such estimate, (iii) adjust such
                    schedules to reflect any update to the expected capacity of
                    such Units prior to the close of the CAISO hour-ahead
                    scheduling window for such hour, and (iv) submit a schedule
                    change as soon as possible upon the occurrence of any
                    under-deliveries. To the extent Seller has complied with the
                    provisions of the second sentence of this subsection (c),
                    Seller may, in determining the underdelivery percentage for
                    any hour in any month for the purposes of subsection
                    (b)(iii), take into account the output from any

                                       14
<PAGE>

                    Generation Assets in such hour after the close of CAISO
                    hour-ahead scheduling deadline for such hour. For the
                    purpose of this subsection (c), "Generation Assets" shall
                    mean generating assets or portions thereof located in
                    California and owned or controlled by Seller or its
                    Affiliates which are direct or indirect wholly-owned
                    subsidiaries of Calpine Corporation which are not under
                    contract as "qualifying facilities" (within the meaning of
                    the Public Utility Regulatory Policies Act). An asset or
                    portion thereof is controlled by Seller or an Affiliate for
                    the purposes of this definition to the extent that Seller or
                    Affiliate has the ability to direct the use of such asset or
                    portion or output thereof pursuant to an agreement.

                    (d) In the event that the underdelivery percentage in a
                    month under clause (iii) of Special Condition (13)(b), as
                    calculated below, exceeds 3%, the following remedies shall
                    apply:

                    The total of ACP payable for a month with respect to the
                    Units scheduled by Buyer during that month shall be reduced
                    as follows:

                    When the underdelivery percentage for the month is greater
                    than 3.0% and less than or equal to 5.0%, such reduction
                    shall be equal to the underdelivery percentage times the
                    amount of capacity payments allocable to the month;

                    When the underdelivery percentage is greater than 5.0%, such
                    reduction shall be equal to four times the underdelivery
                    percentage, times the amount of capacity payments allocable
                    to the month; provided that such reduction shall not reduce
                    the ACP below zero.

                    Where:

                    Underdelivery percentage for a month equals 1- (Monthly
                    Delivered Energy / Monthly Scheduled Energy);

                    Monthly Delivered Energy is the MWh delivered pursuant to
                    Buyer's schedules during the month, including imbalance
                    energy described in clauses (i), (ii), (iv) and (v) of
                    Special Condition (13)(b) plus any underdeliveries resulting
                    from instructed deviations directed by CAISO, but excluding
                    any other uninstructed imbalance energy;

                    Monthly Scheduled Energy is the MWh scheduled by Buyer
                    during the month in accordance with this Confirmation.

                    (e) In the event of any violation of subsection (b) of this
                    Special Condition (13) other than as provided in (d) and
                    (f), in the event there is any uninstructed imbalance energy
                    in a month not described in clauses (i), (ii), (iii), (iv)
                    or (v) of Special Condition (13)(b)(without regard to the 3%
                    limit in clause (iii)), the ACP payable for the month with
                    respect to the Units scheduled by Buyer in that month shall
                    be reduced by an amount equal to:

                                       15
<PAGE>

                    (i) when the underdelivery percentage for the month
                    applicable to such uninstructed imbalance energy is less
                    than or equal to 5.0%, the underdelivery percentage times
                    the amount of capacity payments allocable to the month, or
                    (ii) when the underdelivery percentage for the month
                    applicable to such uninstructed imbalance energy is greater
                    than 5.0%, four times the underdelivery percentage, times
                    the amount of capacity payments allocable to the month;
                    provided that such reduction shall not reduce the ACP below
                    zero; provided, further, that for the purpose of this
                    paragraph, Monthly Delivered Energy shall equal the MWh
                    delivered pursuant to Buyer's schedules during the month,
                    including uninstructed imbalance energy described in clauses
                    (i), (ii), (iii), (iv) and (v) of Special Condition
                    (13)(b)(without regard to the 3% limit in clause (iii)) plus
                    under deliveries resulting from instructed deviations
                    directed by CAISO but excluding any other uninstructed
                    imbalance energy.

                    (f) In the event of any willful violation of subsection (b)
                    of this Special Condition (13), in the event there is any
                    uninstructed imbalance energy in a month not described in
                    clauses (i), (ii), (iii), (iv) or (v) of Special Condition
                    (13)(b)(without regard to the 3% limit in clause (iii)), the
                    ACP payable for the month with respect to the Units
                    scheduled by Buyer in that month shall be reduced by an
                    amount equal to (1) four times the under delivery percentage
                    applicable to such uninstructed imbalance energy for the
                    first violation, and five times the under delivery
                    percentage applicable to such uninstructed imbalance energy
                    for the second violation, multiplied by (2) the amount of
                    capacity payments allocable to the month in which such
                    willful violation occurred; provided that such reduction
                    shall not reduce the ACP below zero; provided, further, that
                    for the purpose of this paragraph, Monthly Delivered Energy
                    shall equal the MWh delivered pursuant to Buyer's schedules
                    during the month, including uninstructed imbalance energy
                    described in clauses (i), (ii), (iii), (iv) and (v) of
                    Special Condition (13)(b)(without regard to the 3% limit in
                    clause (iii)) plus under deliveries resulting from
                    instructed deviations directed by CAISO but excluding any
                    other uninstructed imbalance energy. Buyer shall promptly
                    notify Seller in writing of any event subject to this
                    subsection (f).

                    (g) A third willful violation of subsection (b) of this
                    Special Condition (13) shall be an Event of Default that
                    cannot be cured.

                    (h) Buyer may elect to take any capacity payment reduction
                    as a rebate or as an offset to other amounts payable to
                    Seller.

                    (i) The Parties agree that Buyer's actual damages in the
                    event Seller fails to schedule or deliver Product in
                    accordance with the terms of this Confirmation or comply
                    with the provisions of Special Condition (13)(b) would be
                    extremely difficult or impracticable to determine and that,
                    after negotiation, the Parties have agreed that the
                    liquidated amounts set forth in Special Conditions (9) and
                    (13) are a reasonable estimate of the damages that Buyer
                    would incur as a result of such failures.

                                       16
<PAGE>

Scheduling: Conforming to CAISO and WSCC standards. Subject to the other terms
            and conditions of this Transaction, Buyer shall be entitled to
            schedule up to 2000 Scheduled Hours (as hereinafter defined) during
            each Peak Period during the Delivery Period. Buyer's right to
            schedule energy during a Peak Period may not be carried forward or
            backward between Peak Periods (i.e. Scheduled Hours which are not
            scheduled in one Peak Period may not be carried forward into the
            next Peak Period, and Buyer may not schedule Scheduled Hours in
            excess of the foregoing quantities in a Peak Period by "borrowing"
            them from future Peak Periods). Subject to the next succeeding
            sentence, Buyer shall have full day-ahead and intraday scheduling
            rights. All energy scheduled from a Unit must be scheduled in
            minimum 2 hour flat blocks. All energy not scheduled through the
            CAISO day-ahead or hour-ahead scheduling process shall be scheduled
            on the basis of the greater of (a) a 30-minute ahead basis, and (b)
            the operational limitations of a Unit. In the event Buyer submits a
            schedule for any hour hereunder and the Unit(s) are or will be
            operating to deliver energy to the CAISO supplemental energy market
            during such hour, such energy shall be deemed (a) delivered
            hereunder for the purposes of Special Condition (9) and Special
            Condition (13), (b) a Scheduled Hour under "Scheduling," (c) not to
            result in a start for purposes of Special Condition (12), and Seller
            shall pay to Buyer the positive difference, if any, between the
            market clearing price of CAISO supplemental energy for such delivery
            and the average Energy Price under this Confirmation for the day in
            which such hour occurs under this Confirmation.

            As used herein, "Scheduled Hour" means each hour for which energy is
            scheduled to be delivered hereunder, whether the energy is supplied
            from one or more of the designated Units or from Substitute Energy.

Option Buyer: N/A

Option Seller: N/A
       Type of Option: N/A
       Strike Price: N/A
       Premium: N/A
       Exercise Period: N/A

                     [The next page is the signature page.]

                                       17
<PAGE>

      This amended and restated confirmation letter is being provided pursuant
to and in accordance with the Master Power Purchase and Sale Agreement and the
Amended and Restated Cover Sheet dated April 22, 2002 (the "Master Agreement")
between Party A and Party B, and constitutes part of and is subject to the terms
and provisions of such Master Agreement. This amended and restated confirmation
letter supersedes the Confirmation Letter (Peaking Capacity) dated February 27,
2001 effective as of May 1, 2002. Terms used but not defined herein shall have
the meanings ascribed to them in the Master Agreement.

Calpine Energy Services, L.P.   State of California Department of Water
                                Resources separate and apart from its powers and
                                responsibilities with respect to the State Water
                                Resources Development System

By: /s/ E. James Macias                         By: /s/ Peter S. Garris
   ------------------------------                   ---------------------------
Name: E. James Macias                           Name: Peter S. Garris
Title: Executive Vice President                 Title: Deputy Director
Phone No: (408)792-1124                         Phone No: (916)574-2733
Fax: (408)995-0505                              Fax: (916)574-2512

                                       18
<PAGE>

                                                                  EXECUTION COPY

                    MASTER POWER PURCHASE AND SALE AGREEMENT
                    AMENDED AND RESTATED CONFIRMATION LETTER

      This amended and restated confirmation letter shall confirm the
Transaction agreed to on April 22, 2002 and effective May 1, 2002 between
Calpine Energy Services, L.P. ("Party A") and State of California Department of
Water Resources with respect to its responsibilities pursuant to California
Water Code Section 80000 et seq. regarding the Department of Water Resources
Electric Power Fund separate and apart from its powers and responsibilities with
respect to the State Water Resources Development System ("Party B") regarding
the sale/purchase of the Product under the terms and conditions as follows:

Seller: Calpine Energy Services, L.P.

Buyer: State of California Department of Water Resources

Product:

[]    Into_______________________, Seller's Daily Choice

[]    Firm (LD)

[]    Firm (No Force Majeure)

[]    System Firm

      (Specify System: ________________________________________________________)

[x]   Unit Firm - See "Special Conditions" below. Except as set forth in Special
      Condition (10), the sole remedies for failure to meet such obligations
      shall be as set forth in Special Condition (8) and Special Condition (12).

     (Specify Unit(s): See "Special Conditions" below.)

[]    Other_____________________________________________________________________

[]    Transmission Contingency (If not marked, no transmission contingency)

      []    FT-Contract Path Contingency      []    Seller    []    Buyer

      []    FT-Delivery Point Contingency     []    Seller    []    Buyer

      []    Transmission Contingent           []    Seller    []    Buyer

      []    Other transmission contingency

     (Specify _________________________________________________________________)

<PAGE>

      Contract Quantity:The Contract Quantity shall be determined monthly
                        throughout the Delivery Period (as defined below) and
                        shall be, as of any date, the aggregate capacity of all
                        Units determined pursuant to Special Condition (9) that
                        have achieved commercial operation (not to exceed four
                        (4) designated Units without the approval of Buyer)
                        where

                        "SCCOD" means the date by which any Unit has achieved
                        commercial operation in simple cycle;

                        "CCCOD" means the date on which any Unit has achieved
                        commercial operation in combined cycle; and

                        "Start Date" means SCCOD for the first Unit that has
                        achieved commercial operation in simple cycle.

                        It is expected that the Contract Quantity will be 45 MW
                        for each Unit that has achieved commercial operation in
                        simple cycle and 180MW for all four of the IDUs and
                        56.25 MW for each Unit that has achieved commercial
                        operation in combined cycle and 225 MW for all four of
                        the IDUs.

                        For the purpose of this Confirmation, except as
                        otherwise specified in Special Condition (8) and Special
                        Condition (12)(d), (e), and (f) deliveries shall be
                        deemed to include uninstructed imbalance energy from the
                        CAISO uninstructed imbalance energy market resulting
                        from events arising after the close of the CAISO
                        hour-ahead scheduling window. Buyer shall not be
                        obligated to pay the Energy Price for any uninstructed
                        imbalance energy resulting from a failure to adjust a
                        schedule or other events occurring prior to (but
                        excluding imbalance energy resulting from events arising
                        after) the close of the CAISO hour-ahead scheduling
                        window unless otherwise agreed to by the Parties in
                        connection with the event giving rise to such imbalance
                        energy.

Delivery Point:   With respect to the IDUs, either the Nortech or Los Esteros
                  substation located in or adjacent to the City of San Jose or
                  such other point of interconnection as determined by PG&E to
                  serve the Los Esteros power plant site, and with respect to
                  replacement Units, the high side of any substation or
                  substations in North Path 15 designated by Seller in
                  reasonable proximity of such Units. The Delivery Point shall
                  be a point that connects to the transmission system managed by
                  the California Independent System Operator ("CAISO") or any
                  successor to the CAISO. Seller may schedule one or more
                  different delivery points meeting the foregoing requirements
                  on an hourly basis pursuant to CAISO protocols (or any
                  successor protocols). (See "Special Conditions" below)

                                        2
<PAGE>

Contract Price:

      Energy Price:

      For each month, Buyer shall pay Seller (i) $4.00 per MWh scheduled by
      Buyer and delivered during such month for variable operation and
      maintenance costs, plus (ii) the Monthly Fuel Costs as follows (negative
      Monthly Fuel Costs reflect a payment due from Seller to Buyer resulting
      from an excessive heat rate and Buyer-supplied fuel):

      Monthly Fuel Costs:

            Gross Fuel Costs x Heat Rate Factor

      Gross Fuel Costs = Monthly Fuel Quantity x Monthly Fuel Price

      Monthly Fuel Quantity = Monthly metered usage of gas (Mmbtu) for the
      Unit(s) to generate power scheduled by Buyer in accordance with the
      "Special Conditions" below, plus equivalent gas at the Guaranteed Heat
      Rate for any replacement energy, including CAISO imbalance energy. Such
      monthly metered usage of gas shall be determined based on the ratio of 1)
      the actual output of the Unit(s) to supply Buyer's scheduled energy (but
      not any energy generated in excess of Buyer's hourly schedules) to 2) the
      actual total output of the Unit(s).

      Monthly Fuel Price = Gas cost ($/Mmbtu) as determined under either the
      Seller Fuel Plan or the Buyer Fuel Plan, as applicable.

      Heat Rate Factor:

            Under a Seller Fuel Plan:

                  Minimum of: 1.0, and (Guaranteed Heat Rate/Monthly Effective
      Heat Rate)

            Under a Buyer Fuel Plan:

                  [Minimum of: 1.0, and (Guaranteed Heat Rate/Monthly Effective
      Heat Rate)]-1

      Guaranteed Heat Rate =           10,500 Btu/kWh to the earlier of CCCOD
                                       and June 30, 2003, and

                                       8,500 Btu/kWh from the earlier of CCCOD
                                       and July 1, 2003

      Monthly Effective Heat Rate = (Monthly Fuel Quantity/Monthly Scheduled
      Energy)

      Monthly Scheduled Energy = Total energy during a month scheduled by Buyer
      in accordance with "Special Conditions" for delivery by Seller from
      Unit(s) on Buyer's account

      Other Charges:

                                        3
<PAGE>

         Subject to "Special Conditions" below, a monthly capacity charge,
      payable in arrears, calculated as follows:

         During the first Contract Year:     $20 per kW-month multiplied by the
                                             Contract Quantity that month;

         During the second Contract Year:    $18 per kW-month multiplied by the
                                             Contract Quantity that month; and

         During the third Contract Year:     $16 per kW-month multiplied by the
                                             Contract Quantity for that month

         where "Contract Year" is any 12 month period ending on an anniversary
         of the Start Date. Notwithstanding the foregoing, if the Start Date
         occurs before December 31, 2002, the monthly capacity charge for the
         period from the Start Date to December 31, 2002 shall be $22 per
         kW-month multiplied by the Contract Quantity (or if a Unit comes on
         line during any month, a prorata portion of such capacity payment
         payable three Business Days after such Unit achieves commercial
         operation).

      Fuel Plan: By not later than three months before best estimate of the
      Start Date, and thereafter each year three months before the anniversary
      of the Start Date, Seller shall provide to Buyer a proposed Annual Fuel
      Plan detailing prices or pricing methodologies for the acquisition of fuel
      by Seller on Buyer's account for the next Contract Year. By 30 days after
      provision by Seller of the proposed first Annual Fuel Plan, and thereafter
      each year two months before the anniversary of the Start Date, Buyer shall
      notify Seller if Buyer accepts Seller's proposed Annual Fuel Plan (or a
      negotiated revision thereto). If such a plan is accepted, it shall become
      a Seller Fuel Plan for the acquisition of fuel by Seller on Buyer's
      account. During the term of any Seller Fuel Plan, Buyer shall not be
      responsible for any fuel imbalance charges or any other charges other than
      those resulting from any system wide or customer specific Operational Flow
      Order ("OFO") or Emergency Flow Order ("EFO") conditions. Seller will
      attempt to mitigate any charges, if any, associated with system wide or
      customer specific Operational Flow Order or Emergency Flow Order
      conditions; provided, that such mitigation shall be at no cost to Seller.
      Other than as set forth in the preceding sentence or elsewhere in this
      Confirmation, Seller shall be solely responsible for any fuel imbalance
      charges assessed by the local distribution company (the "LDC") during the
      term of a Seller Fuel Plan. If no Seller Fuel Plan is accepted, Buyer
      shall acquire fuel on its own account pursuant to a Buyer Fuel Plan. In
      that event, Buyer shall be solely responsible for gas supply (including
      all imbalances), gas must be delivered to Seller at the PG&E Citygate or
      other mutually agreed upon point, Buyer shall be solely responsible for
      any LDC charges (including all surcharges, if any, and all imbalance
      charges) and all charges relating to system wide or customer specific OFOs
      or EFOs incurred to deliver that gas to the Units, and Seller shall have
      no obligations to deliver gas or to deliver energy where Buyer fails to
      deliver the required gas. Notwithstanding the foregoing, any fuel
      imbalance charges assessed by the LDC resulting under either a Seller Fuel
      Plan

                                        4
<PAGE>

      or a Buyer Fuel Plan as a result of actions or omissions of Seller or
      Buyer shall be borne by the party to which the fuel imbalances are
      attributable. Fuel imbalance charges resulting from Force Majeure in
      respect of the Units shall be borne equally by Buyer and Seller. Seller
      shall be solely responsible to acquire and pay for any and all gas used to
      generate energy other than Buyer's scheduled energy (including all
      surcharges, if any, all imbalance charges and all charges relating to
      system wide or customer specific OFOs or EFOs). Buyer shall not be
      required to pay any fees or charges which are not specifically set forth
      in the Seller Fuel Plan. When Buyer supplies gas to the Units it shall
      have a pro rata share (calculated on the basis of the total hours
      scheduled by Buyer in a period as compared to the total hours in such
      period) of the daily and monthly rights, benefits and obligations that
      would be available to it as if it were acting as fuel manager, including
      nominations, balancing rights and imbalance charges assessed within the
      applicable period under the then-effective applicable LDC tariff or month
      end imbalance tolerances permitted by such tariff, and fees for services.
      In exercising such rights, Buyer shall follow customary practices and
      procedures with respect to nominations, balancing rights and imbalance
      charges and tolerances as provided in the applicable LDC tariff. If Buyer
      exceeds its pro rata share of the permitted limits and tolerances under
      the applicable LDC tariff and fails to promptly bring its activities
      within such limits and tolerances, Seller shall have the right within one
      day after notice to make corresponding adjustments to its nominations,
      volumes and monthly imbalances or, if in effect, daily imbalances, to
      bring Buyer's activities within the pro rata limits and tolerances in the
      applicable LDC tariff, and if Buyer is deficient (short) gas, Buyer shall
      promptly pay Seller Platt's Gas Daily PG&E Citygate Common high, or
      successor index, for the amount of such imbalance gas and if Buyer is
      excess (long) gas, Seller shall promptly pay Buyer the Platt's Gas Daily
      PG&E Citygate Common low, or successor index, for such imbalance gas.

Delivery Period:    Start Date until the 3rd anniversary thereof.

Special Conditions: (1) See Cover Sheet to Master Agreement.

                    (2) Seller will supply energy to be delivered under this
                    Transaction from one or more generation assets (each a
                    "Unit," or as cancelled pursuant to Special Condition
                    (3)(a), and collectively, together with the replacement
                    generation assets designated as provided below, the "Units")
                    located at the Los Esteros power plant site owned by
                    Affiliates of Seller. Seller shall ensure that the capacity
                    rating of the interconnection facilities, interconnection
                    agreement, and transmission connection with the
                    CAISO-controlled grid, is at least equal to the tested
                    capacity of all Units at such site. In simple cycle, a Unit
                    is a single LM 6000. In combined cycle, a Unit is a single
                    LM 6000 and associated steam turbine. The initial four Units
                    will each have a nominal capacity of 45 MW in simple cycle
                    and 56.25 MW in combined cycle. The Units will be installed
                    at the US DataPort North San Jose Project or any successor
                    project at the Los Esteros power plant site (the "Project")
                    (such initial 4

                                        5
<PAGE>

                    Units being herein defined as the "Initial Designated Units"
                    or "IDUs"). If and to the extent that Seller is experiencing
                    availability problems with the designated Unit(s) due to
                    Forced Outage or Force Majeure, or the Project requires
                    power for use at the Project as a data center and related
                    power uses and not as scheduling coordinator, Seller may,
                    with the approval of the Buyer, change the Unit(s)
                    designated hereunder from time to time upon not less than 15
                    days notice to Buyer but in no case may Seller change such
                    designation unless: (i) Seller has designated sufficient
                    Unit(s) to supply the then required Contract Quantity; (ii)
                    the replacement Unit(s) deliver energy into the same zone
                    (e.g. North Path 15) as the original Unit; (iii) such
                    replacement Unit(s) shall be designated hereunder for no
                    longer than the duration of the Forced Outage or Force
                    Majeure affecting the original Unit(s) or the power needs of
                    the Project; and (iv) to the extent Seller can choose from
                    different Units in making the designation, in the notice to
                    Buyer the Seller shall advise Buyer of the Options and up to
                    5 days prior to the expiry of the notice period, Buyer by
                    notice to Seller may select from one of the Options.
                    "Options" means an ordered list of available capacity from
                    other Seller generating assets. If and to the extent that
                    Seller is experiencing availability problems with the
                    designated Units due to Forced Outage or Force Majeure, or
                    the Project requires power, for use at the Project as a data
                    center and related power uses and not as scheduling
                    coordinator, Seller may, with the approval of the Buyer, but
                    shall not be obligated to, supply energy to Buyer under this
                    Transaction from generation assets delivering energy into
                    North Path 15 other than the designated Unit(s) or from
                    energy purchased by Seller in the market, but in no case may
                    Seller supply substitute energy unless the energy from such
                    alternative generation assets or the market is delivered
                    into the same zone as it would have been from the designated
                    Unit(s), subject to provisos (i) through (iv) above.

                    (3) (a) Seller's obligations hereunder with respect to the
                    energy to be supplied from any Unit are also subject to and
                    contingent on such Unit having achieved "commercial
                    operation" before Seller is obligated to supply energy from
                    such Unit. Buyer's obligations hereunder with respect to
                    capacity and energy to be received from any Unit are subject
                    to and conditioned on such Unit having achieved "commercial
                    operation" before Buyer's obligations to receive energy from
                    such Unit. At least two of the IDUs must achieve commercial
                    operation in simple cycle by March 31, 2003. If none or only
                    one of the IDUs has achieved commercial operation in simple
                    cycle by March 31, 2003, this Transaction shall
                    automatically terminate on April 1, 2003. All of the IDUs
                    must achieve commercial operation by April 30, 2003. If all
                    IDUs have not achieved commercial operation in simple cycle
                    by April 30,

                                        6
<PAGE>

                    2003, Buyer may, on notice to Seller within 15 days after
                    May 1, 2003, cancel all of its obligations with respect to
                    the designated Unit(s) that has not achieved commercial
                    operation on or prior to March 31, 2003 and its obligations
                    hereunder with respect to such designated Unit(s) shall
                    thereby terminate. (As used herein, "commercial operation"
                    of a Unit means that such Unit has been completed, has
                    passed all material performance tests pursuant to Special
                    Condition (9), Seller or the owner of the Unit has all
                    necessary permits to operate the Unit at the output level
                    for which it was designed not less than 40 MW, the Unit is
                    capable of operating on a sustained basis at substantially
                    the output level for which it was designed, and all
                    interconnections, the capacity rating of the interconnection
                    facilities, the interconnection agreement, and transmission
                    connection are sufficient for the delivery of the full
                    output of the Unit to the CAISO-controlled grid, and shall
                    include reestablishment of commercial operation after the
                    conversion of one or more Units from simple cycle to
                    combined cycle operation). Commercial operation shall not
                    occur until Seller provides written certifications,
                    including a written report of performance test results,
                    signed by a duly authorized officer, to Buyer that the
                    requirements for commercial operation have been achieved and
                    Buyer concurs in writing with such certification. Buyer
                    shall have twenty (20) business days within which to respond
                    to Seller's certification of commercial operation, and
                    failure to respond within such period shall be deemed an
                    acceptance of Seller's certification. If Buyer concurs that
                    commercial operation has occurred or fails to respond within
                    twenty (20) business days as provided in the preceding
                    sentence or if such commercial operation is disputed and
                    such dispute is resolved in favor of the Seller, the date of
                    commercial operation shall be the date Seller provides such
                    written certifications that the requirements for commercial
                    operation have been achieved. Seller agrees to use
                    commercially reasonable efforts (considering among other
                    things cost or availability of financing or cost of the
                    project, the availability, receipt and cost of necessary
                    permits and regulatory approvals, third party services and
                    consents, real estate rights and similar matters and
                    regulatory changes) to cause the IDUs to achieve commercial
                    operation in simple cycle, but Seller shall not otherwise be
                    liable to Buyer or be obligated to provide the quantity of
                    energy to be provided from a Unit unless and until
                    commercial operation is achieved for such Unit. Seller
                    agrees to use commercially reasonable efforts to cause each
                    Unit to achieve commercial operation in combined cycle by
                    fourteen months after SCCOD.

                    (b) From time to time (but not more frequently than monthly)
                    at Buyer's request, Seller shall provide information to
                    Buyer

                                        7
<PAGE>

                    regarding the status of construction activities and the then
                    expected commercial operation dates of the Units. Such
                    information shall include status of accomplishing major
                    development and construction milestones including obtaining
                    all permits, securing project financing, acquisition and
                    installation of major equipment, and start-up testing. Buyer
                    may inspect the Units, the Unit construction site or on-site
                    Seller data and information pertaining to the Units
                    reasonably necessary to verify the information provided
                    pursuant to this Special Condition (3)(b) during business
                    hours upon reasonable notice. Seller will not materially
                    decrease the nameplate capacity below that which is
                    referenced in the applicable permit or change the design of
                    the units in a manner that materially impairs Seller's
                    obligations or materially alters Buyer's rights or
                    obligations hereunder without the written approval of Buyer,
                    not to be unreasonably withheld.

                    (4) The terms and conditions relating to the "Unit Firm"
                    Product will apply separately to each Unit and the energy to
                    be supplied from such Unit.

                    (5) Seller shall only be required to deliver the energy
                    described in this Transaction if Buyer schedules energy from
                    the Units as provided herein. Subject to the terms and
                    conditions set forth herein, Buyer may schedule such energy
                    only for hours within the Peak Period (as hereinafter
                    defined) and only up to the then applicable Contract
                    Quantity; provided, however, that the quantity of energy
                    which is scheduled must be an amount which will permit all
                    Units necessary to supply such amount to operate between 80%
                    and 100% of capacity and otherwise comply with the ramp
                    times, minimum run times, shut down times and other
                    operating specifications of the manufacturer. As used
                    herein, "Peak Period" means the hours from the hour ending
                    at 0700 through the hour ending at 2200, Pacific Time,
                    Monday through Saturday, excluding NERC holidays, during the
                    Delivery Period.

                    (6) In the event that the output of a designated Unit is
                    reduced or curtailed for any reason, including a Forced
                    Outage or Force Majeure event, Seller shall be entitled to
                    reduce energy deliveries to Buyer from such Unit to the
                    extent of such reduction or curtailment, without penalty or
                    cost except as may result under Special Condition (8), and
                    such Unit may not be scheduled until such event ends.

                    (7) The meter for the Units shall be on the high side of the
                    Unit transformer. Any generation meter multiplier (GMM)
                    adjustments shall be for Buyer's account (i.e.
                    notwithstanding any required GMM adjustments, Seller shall
                    be deemed to have delivered the

                                        8
<PAGE>

                    full metered amount of energy from each Unit). Metering
                    shall conform to CAISO standards or the equivalent. Seller
                    shall provide CAISO metering settlement data to Buyer on a
                    monthly basis, and, at Buyer's option and expense, real-time
                    access to meter data via appropriate telemetering equipment.

                    (8) (a) After the end of each month, the capacity payment
                    paid or payable that month shall be adjusted (by Buyer
                    making an additional payment or Seller paying a rebate which
                    may be offset by Buyer against any other payments due Seller
                    hereunder) to equal the Adjusted Capacity Payment (" ACP").

                    Where:

                    ACP = [1+(EA-Target EA) x capacity payment paid or payable]

                    EA = (Summation of Hourly Availability Factors for Non-Force
                    Majeure Peak Hours) / (# of Non-Force Majeure Peak Hours in
                    month)

                    Hourly Availability Factor is determined for each Peak Hour
                    that is not excused by Force Majeure as follows (such
                    quotients not to exceed 1.0):

                    i)  For hours in which Buyer has scheduled energy, the
                        quotient of 1) energy actually or deemed delivered (in
                        accordance with this Confirmation) by Seller to Buyer
                        from the Unit(s) (excluding all replacement energy)
                        plus, if a Buyer Fuel Plan is in effect, any scheduled
                        energy that was undeliverable solely due to the
                        non-delivery of gas, divided by 2) total energy
                        scheduled in accordance with this Confirmation plus any
                        energy delivered from the Units to the Project that
                        Buyer attempted to schedule in accordance with this
                        Confirmation less any scheduled energy that is
                        unavailable during any ramp up of a Unit in accordance
                        with Scheduling below;

                    ii) For hours in which Buyer has not scheduled energy, the
                        quotient of 1) Contract Quantity that was actually
                        schedulable for delivery, divided by 2) Contract
                        Quantity. The energy generated by any Unit pursuant to a
                        must offer bid made by Seller into the CAISO
                        supplemental energy market and accepted by CAISO shall
                        be treated as schedulable for the purposes of this
                        clause (ii) for the period of such bid.

                                        9
<PAGE>

                    Target EA = .98 for the Summer Season or .92 for the Winter
                    Season.

                    The Summer Season is the Peak Period of the months June
                    through October. The Winter Season is the Peak Period of the
                    months November through May. Peak Hours are any hours in the
                    Peak Period.

                    For the purposes of (i)(l), energy actually delivered shall
                    include uninstructed imbalance energy described in clauses
                    (ii), (iv) and (v) of Special Condition (12)(b) and any
                    underdeliveries resulting from instructed deviations
                    directed by CAISO but shall specifically exclude
                    uninstructed imbalance energy described in clauses (i),
                    (iii) and (vi) of Special Condition (12)(b) and all other
                    uninstructed imbalance energy not permitted under Special
                    Condition (12)(b).

                    (b) In addition, the provisions of Article IV of the Master
                    Agreement shall apply to any failure of the Seller to
                    schedule or deliver, or of the Buyer to receive, the Product
                    as provided in this Confirmation.

                    (c) In addition to any adjustment to ACP under (a) of this
                    Special Condition (8), the ACP for any month shall be
                    reduced in accordance with the following formula provided
                    that such reduction shall not reduce the ACP below zero:

                    Amount of Reduction of ACP = capacity payment allocable to
                    such month x [(Warning/Stage Alert Hours x 4) / 333]

                    Warning/Stage Alert Hours = sum of Hourly Factors for hours
                    during which Seller fails to provide any or all Contract
                    Quantity from the Units as scheduled by Buyer in accordance
                    with this Confirmation when the Unit(s) are available for
                    such hours and a day-ahead CAISO warning of a potential
                    stage alert has been issued or any stage alert is in effect
                    for such hours. Units(s) shall not be deemed available for
                    the purposes of this subsection (c) to the extent they are
                    supplying Project load. Hourly Factors shall be the ratio,
                    in any such hour, of: (a) energy scheduled by Buyer in
                    accordance with this Confirmation that was not delivered or
                    deemed delivered from the Units (and for which delivery was
                    not excused hereunder), to (b) energy scheduled by Buyer in
                    accordance with this Confirmation.

                    (9) The Contract Quantity for each Unit for purposes of
                    determining the capacity payment will be the capacity (in
                    MW) established by testing and adjustment as follows: Not
                    less than five days prior to SCCOD and CCCOD, and thereafter
                    during the

                                       10
<PAGE>

                    period beginning April 1 and ending April 30 in each
                    Contract Year, Seller will conduct a four hour performance
                    test of each Unit during operations using installed
                    instrumentation, calibrated by Seller (except the Electric
                    Metering Equipment which will be calibrated in accordance
                    with CAISO Requirements) to determine the maximum MW output
                    of each Unit as measured at the Delivery Point for such
                    Unit. Tests shall be conducted pursuant to ASME Performance
                    Test Code 22 in simple cycle mode and ASME Performance Test
                    Code 46 in combined cycle mode. In addition, each of Buyer
                    and Seller may request up to two additional tests per year
                    (at any time) utilizing the same four hour test procedures.
                    After each test, Seller will use performance curves
                    certified by the original equipment manufacturer/architect
                    engineer/vendor to adjust the test results to ISO
                    Conditions. The ISO Condition-adjusted test results will be
                    the "Contract Quantity" for the Unit, effective on the first
                    day of the month following the month in which Buyer receives
                    written notice of the test results, excepting the test
                    results for SCCOD which shall be effective on SCCOD and the
                    test results for CCCOD which shall be effective on CCCOD.
                    Seller will provide forty-eight (48) hours notice to Buyer
                    prior to each test, and provide Buyer with a written report
                    of the test results and subsequent adjustment to the
                    Contract Quantity within the later of five (5) Business Days
                    of each test or as soon as practicable. Buyer is entitled to
                    witness any test of a Unit. Buyer may request third party
                    calibration of instrumentation used in any test, and in the
                    event that a deviation equal to or more than 2% is found,
                    Seller shall bear the cost of such calibration, and if the
                    instrumentation is within 2% deviation then Buyer shall bear
                    such cost.

                    (10) Notwithstanding anything to the contrary herein, Seller
                    shall arrange and be responsible for transmission service to
                    the Delivery Point, if any, and shall obtain Schedule
                    Coordinator services necessary to deliver the Product to the
                    Delivery Point. Seller shall be responsible for all charges
                    due to the CAISO, and entitled to receive all payments from
                    the CAISO, related to deviations; provided, however, if a
                    schedule change is directed by Buyer, Buyer shall be
                    responsible for all charges due to the CAISO, and entitled
                    to receive all payments from the CAISO, related to such
                    schedule deviations.

                    (11) (a) Scheduling shall conform to CAISO and WSCC
                    standards. Subject to the other terms and conditions of this
                    Transaction, Buyer shall be entitled to schedule up to 4000
                    Scheduled Hours (as hereinafter defined) during the Peak
                    Period of each Contract Year during the Delivery Period.
                    Buyer's right to schedule energy

                                       11
<PAGE>

                    during a Contract Year may not be carried forward or
                    backward between Contract Years (i.e. Scheduled Hours which
                    are not scheduled in one Contract Year may not be carried
                    forward into the next Contract Year, and Buyer may not
                    schedule Scheduled Hours in excess of the foregoing
                    quantities in a Contract Year by "borrowing" them from a
                    future Contract Year).

                    (b)All energy scheduled from a Unit must be scheduled in
                    minimum 4 hour flat blocks. Except as set forth in
                    subsection (c) and (d), Buyer may only schedule energy that
                    can be scheduled with and deemed delivered by the CAISO or
                    its successor.

                    (c) All energy shall be scheduled through the CAISO
                    day-ahead or hour-ahead scheduling process; provided,
                    however, that Buyer may schedule up to 2000 Scheduled Hours
                    during each Contract Year during the Delivery Period on the
                    basis of the greater of (a) a 30-minute ahead basis, and (b)
                    the operational limitations of a Unit ("30 Minute Scheduled
                    Hours"); provided, further, however, that when Units are in
                    simple cycle mode Buyer may schedule up to 1000 hours of the
                    30 Minute Scheduled Hours (the "Real Time Minute Scheduled
                    Hours") as provided in subsection (d).

                    (d) The Buyer may schedule the Real Time Minute Scheduled
                    Hours based on the operating status of each Unit as follows:
                    (i) when a Unit is operating at at least 80% of the
                    capacity, such Unit may be dispatched on a 10 minute ahead
                    basis at no incremental cost to Buyer (provided, that
                    nothing herein shall relieve Buyer of the obligation to pay
                    other amounts as provided in this Confirmation), and (ii)
                    when a Unit is not operating but is schedulable, Buyer may
                    reserve a block of hours for a Unit upon 2 hours notice and
                    may schedule during such hours on the basis of the lesser of
                    (a) a 15 minute ahead basis and (b) the operational
                    limitations of a Unit provided that Buyer shall pay Seller
                    the Hot Standby Costs for schedules subject to (a) and (b)
                    and any additional costs mutually agreed to by the Parties
                    with respect to (b). "Hot Standby Costs" shall be the cost
                    per hour for such Contract Year based on the estimated cost
                    of auxiliary power at the PG&E electric tariff rate for the
                    Los Esteros power plant. Prior to the beginning of each
                    Contract Year, Seller shall provide a schedule of such Hot
                    Standby Costs for such Contract Year.

                    (e) In the event Buyer submits a schedule for any hour
                    hereunder and the Unit(s) are or will be operating to
                    deliver energy to the CAISO supplemental energy market
                    during such hour, such energy shall be deemed (a) delivered
                    hereunder for the purposes of Special Condition (8) and
                    Special Condition (12), and (b) a 30 Minute Scheduled Hour
                    under Special Condition (11), and Seller shall pay to Buyer
                    the positive difference, if any, between the market clearing
                    price of CAISO supplemental energy for such delivery

                                       12
<PAGE>

                    and the average Energy Price under this Confirmation for the
                    day in which such hour occurs under this Confirmation. As
                    used herein, "Scheduled Hour" means each hour for which
                    energy is scheduled to be delivered hereunder, whether the
                    energy is supplied from one or more of the designated Units
                    or from other generation assets or the market as permitted
                    under paragraph (2) of Special Conditions. Scheduled Hours
                    shall count against the hour limitations set forth in
                    subparagraphs (a), (c) or (d) of this Special Condition (11)
                    on the basis of the last schedule submitted or direction
                    made by Buyer. Notwithstanding the foregoing, Seller shall
                    have the right, upon not less than 15 days' notice to Buyer,
                    to designate one period (not to exceed two weeks in
                    duration) during the Delivery Period during which Buyer may
                    not schedule any Scheduled Hours, and such period shall be
                    deemed time under Force Majeure. If, for any reason, the
                    energy actually delivered differs from the energy scheduled
                    by Buyer pursuant hereto, the Parties will cooperate in
                    making a scheduling adjustment as soon as practical in
                    accordance with the procedures of the CAISO or its
                    successor.

                    (12) (a) Copies of all day-ahead and hour-ahead schedules
                    with respect to substitute energy market purchases with
                    scheduling coordinators other than Seller shall be delivered
                    by Seller to Buyer by the end of the next day (redacted to
                    remove confidential information, but in all events showing
                    dates, times and volumes). Upon request of Buyer, Seller
                    will provide Buyer with sufficient information to enable
                    Buyer to determine whether Seller's scheduling coordinators
                    are effecting delivery of scheduled Contract Quantity market
                    energy purchases through the CAISO imbalance energy markets.
                    Seller authorizes Buyer to obtain such information from
                    CAISO as may be necessary to determine compliance with the
                    provisions hereof or to determine whether Seller's
                    scheduling coordinators are effecting delivery of scheduled
                    Contract Quantity market energy purchases through the CAISO
                    imbalance energy markets, and Seller hereby waives its right
                    to object to CAISO providing such information to Buyer;
                    provided, however, that Buyer shall only use such
                    information for the purposes of monitoring Seller's
                    compliance with the provisions hereof. Parties elect to make
                    Section 10.11 of the Master Agreement applicable to such
                    information.

                    (b) Seller will not use the CAISO uninstructed imbalance
                    energy markets to deliver the Contract Quantity except with
                    respect to any (i) under-deliveries resulting from a Unit
                    Forced Outage or an event or circumstance that affects the
                    Unit(s) so as to prevent Seller from performing its
                    obligations, which event or

                                       13
<PAGE>

                    circumstance was not anticipated as of the date the
                    Transaction was agreed to, and which is not within the
                    reasonable control of, or the result of the negligence of,
                    the Seller, (ii) deliveries of amounts scheduled by Buyer in
                    accordance with this Transaction if the notice given by
                    Buyer is less than the minimum notice required by the CAISO
                    to schedule deliveries of energy under the applicable CAISO
                    tariff and rules, (iii) subject to the provisions of
                    subsection (c) and in addition to under-deliveries resulting
                    from an event described in (b)(i) and (b)(vi),
                    under-deliveries resulting from variations of 3% or less
                    between the amount of energy scheduled and the amount of
                    energy delivered on a monthly basis due to physical
                    variations in the operating levels of the generation
                    equipment which are not caused by Seller and are beyond the
                    reasonable control of the Seller, (iv) failure of a
                    scheduling coordinator other than Seller to deliver
                    substitute energy hereunder, (v) under-deliveries resulting
                    from instructed deviations directed by Buyer, and (vi)
                    under-deliveries resulting from variations between the
                    amount of energy scheduled and the amount of energy
                    delivered due to changes in load for the Project as measured
                    at the Project meter . In connection with generation from
                    the Units, Seller shall not willfully submit infeasible
                    schedules so as to create phantom congestion and then submit
                    decremental bids in connection therewith. Seller shall not
                    submit any negative decremental bids with respect to the
                    Contract Quantity to CAISO unless mutually agreed or claim
                    unavailability of the Units based on Forced Outage or Force
                    Majeure when in fact none exists.

                    (c) Seller shall cooperate with Buyer and provide Buyer such
                    information relating to the operation of the Units as may
                    reasonably be necessary to determine compliance with the
                    provisions of subsection (b) and this subsection (c). Seller
                    shall (i) notify Buyer prior to the CAISO day-ahead
                    notification deadline for each day in which a Peak Hour
                    occurs of the capacity expected to be available from the
                    Units, net of capacity expected to be utilized by the
                    Project, (ii) on a day-ahead basis, schedule any energy as
                    requested by Buyer in accordance with this Confirmation from
                    such Units on the basis of such estimate, (iii) adjust such
                    schedules to reflect any update to the expected capacity of
                    such Units, net of expected capacity to be utilized by the
                    Project, prior to the close of the CAISO hour-ahead
                    scheduling window for such hour, and (iv) submit a schedule
                    change as soon as possible upon the occurrence of any
                    under-deliveries. To the extent Seller has complied with the
                    provisions of the second sentence of this subsection (c),
                    Seller may, in determining the underdelivery percentage for
                    any hour in any month for the purposes of

                                       14
<PAGE>

                    subsection (b)(iii), take into account the output from any
                    Generation Assets in such hour after the close of CAISO
                    hour-ahead scheduling deadline for such hour. For the
                    purpose of this subsection (c), "Generation Assets" shall
                    mean generating assets or portions thereof located in
                    California and owned or controlled by Seller or its
                    Affiliates which are direct or indirect wholly-owned
                    subsidiaries of Calpine Corporation which are not under
                    contract as "qualifying facilities" (within the meaning of
                    the Public Utility Regulatory Policies Act). An asset or
                    portion thereof is controlled by Seller or an Affiliate for
                    the purposes of this definition to the extent that Seller or
                    Affiliate has the ability to direct the use of such asset or
                    portion or output thereof pursuant to an agreement.

                    (d) In the event that the underdelivery percentage in a
                    month under clause (iii) of Special Condition (12)(b), as
                    calculated below, exceeds 3%, the following remedies shall
                    apply:

                    The ACP payable for a month with respect to the Units
                    scheduled by Buyer during that month shall be reduced as
                    follows:

                    When the underdelivery percentage for the month is greater
                    than 3.0% and less than or equal to 5.0%, such reduction
                    shall be equal to the underdelivery percentage times the
                    amount of capacity payments allocable to the month;

                    When the underdelivery percentage is greater than 5.0%, such
                    reduction shall be equal to four times the underdelivery
                    percentage, times the amount of capacity payments allocable
                    to the month; provided that such reduction shall not reduce
                    the ACP below zero.

                    Where:

                    Underdelivery Percentage for a month equals 1- (Monthly
                    Delivered Energy / Monthly Scheduled Energy);

                    Monthly Delivered Energy is the MWh delivered pursuant to
                    Buyer's schedules during the month, including delivered
                    imbalance energy described in clauses (i), (ii), (iv), (v)
                    and (vi) of Special Condition (12)(b) and any
                    underdeliveries resulting from instructed deviations
                    directed by CAISO, but excluding any other uninstructed
                    imbalance energy;

                    Monthly Scheduled Energy is the MWh scheduled by Buyer
                    during the month in accordance with this Confirmation.

                    (e) In the event of any violation of subsection (b) of this
                    Special Condition (12) other than as provided in (d) and
                    (f), in the event

                                       15
<PAGE>

                    there is any uninstructed imbalance energy in a month not
                    described in clauses (i), (ii), (iii), (iv), (v) or (vi) of
                    Special Condition (12)(b)(without regard to the 3% limit in
                    clause (iii)), the ACP payable for the month with respect to
                    the Units scheduled by Buyer in that month shall be reduced
                    by an amount equal to(i) when the underdelivery percentage
                    for the month applicable to such uninstructed imbalance
                    energy is less than or equal to 5.0%, the underdelivery
                    percentage times the amount of capacity payments allocable
                    to the month, or (ii) when the underdelivery percentage for
                    the month applicable to such uninstructed imbalance energy
                    is greater than 5.0%, four times the underdelivery
                    percentage, times the amount of capacity payments allocable
                    to the month; provided that such reduction shall not reduce
                    the ACP below zero; provided, further, that for the purpose
                    of this paragraph, Monthly Delivered Energy shall equal the
                    MWh delivered pursuant to Buyer's schedules during the
                    month, including uninstructed imbalance energy described in
                    clauses (i), (ii), (iii), (iv), (v) and (vi) of Special
                    Condition (12)(b)(without regard to the 3% limit in clause
                    (iii)) plus under deliveries resulting from instructed
                    deviations directed by CAISO but excluding any other
                    uninstructed imbalance energy.

                    (f) In the event of any willful violation of subsection (b)
                    of this Special Condition (12), in the event there is any
                    uninstructed imbalance energy in a month not described in
                    clauses (i), (ii), (iii), (iv), (v) or (vi) of Special
                    Condition (12)(b)(without regard to the 3% limit in clause
                    (iii)), the ACP payable for the month with respect to the
                    Units scheduled by Buyer in that month shall be reduced by
                    an amount equal to (1) four times the under delivery
                    percentage applicable to such uninstructed imbalance energy
                    for the first violation, and five times the under delivery
                    percentage applicable to such uninstructed imbalance energy
                    for the second violation, multiplied by (2) the amount of
                    capacity payments allocable to a month; provided that such
                    reduction shall not reduce the ACP below zero; provided,
                    further, that for the purpose of this paragraph, Monthly
                    Delivered Energy shall equal the MWh delivered pursuant to
                    Buyer's schedules during the month, including uninstructed
                    imbalance energy described in clauses (i), (ii), (iii),
                    (iv), (v) and (vi) of Special Condition (12)(b)(without
                    regard to the 3% limit in clause (iii)) plus under
                    deliveries resulting from instructed deviations directed by
                    CAISO but excluding any other uninstructed imbalance energy.
                    Buyer shall promptly notify Seller in writing of any event
                    subject to this subsection (f).

                    (g) A third willful violation of subsection (b) of this
                    Special Condition (12) shall be an Event of Default that
                    cannot be cured.

                                       16
<PAGE>

                    (h) Buyer may elect to take any capacity payment reduction
                    as a rebate or as an offset to other amounts payable to
                    Seller.

                    (g) The Parties agree that Buyer's actual damages in the
                    event Seller fails to schedule or deliver Product in
                    accordance with the terms of this Confirmation or comply
                    with the provisions of Special Condition (12)(b) would be
                    extremely difficult or impracticable to determine and that,
                    after negotiation, the Parties have agreed that the
                    liquidated amounts set forth in Special Conditions (8) and
                    (12) are a reasonable estimate of the damages that Buyer
                    would incur as a result of such failures.

Option Buyer: N/A

Option Seller: N/A

      Type of Option: N/A

      Strike Price: N/A

      Premium: N/A

      Exercise Period: N/A

                     [The next page is the signature page.]

                                       17
<PAGE>

      This amended and restated confirmation letter is being provided pursuant
to and in accordance with the Amended and Restated Master Power Purchase and
Sale Agreement dated April 22, 2002 (the "Master Agreement") between Party A and
Party B, and constitutes part of and is subject to the terms and provisions of
such Master Agreement. This amended and restated confirmation letter supersedes
the Confirmation Letter (Peaking Capacity) dated June 11, 2001 effective May 1,
2002. Terms used but not defined herein shall have the meanings ascribed to them
in the Master Agreement.

Calpine Energy Services, L.P.           State of California Department of Water
                                        Resources separate and apart from its
                                        powers and responsibilities with respect
                                        to the State Water Resources
                                        Development System

By: /s/ E. James Macias                          By: /s/ Peter S. Garris
    -----------------------------                   ----------------------------
Name: E. James Macias                            Name: Peter S. Garris
Title: Executive Vice President                  Title: Deputy Director
Phone No: (408)792-1124                          Phone No: (916)574-2733
Fax: (408)995-0505                               Fax: (916)574-2512

                                       18<PAGE>

                                                                    EXHIBIT 10.8

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

                             CO-PROMOTION AGREEMENT

THIS CO-PROMOTION AGREEMENT ("Agreement") is entered into as of July 14, 2004
("Effective Date") by and between Cardinal Health PTS, LLC, with an office at
7000 Cardinal Place, Dublin, Ohio 43017 and Bone Care International, Inc.,
having a principal place of business at Bone Care Center, 1600 Aspen Commons,
Middleton, Wisconsin 53562 ("BCI") hereinafter collectively referred to as the
"Parties".

                                    RECITALS

      WHEREAS, Cardinal Health's Pharmaceutical Technologies and Services
("PTS") segment offers, among other things, health care marketing services,
including without limitation, medical education, marketing, and contract sales
services; and

      WHEREAS, BCI owns a pharmaceutical product called Hectorol(R) which is
currently available in 0.5 mcg capsule and 2.5 mcg capsule dosage forms for the
following indications, respectively: secondary hyperparathyroidism in Stage 3-4
Chronic Kidney Disease; and secondary hyperthyroidism in Stage 5 Chronic Kidney
Disease (CKD); and

      WHEREAS, BCI has recently received approval of the 0.5 mcg dosage form;
and

      WHEREAS, BCI wants to generate increased demand for Hectorol(R) 0.5 mcg
capsules through increased medical education, Product Detailing, and other
marketing of the 0.5 mcg Product; and

      WHEREAS, Cardinal Health's PTS segment will provide a certain level of
healthcare marketing services, including a contract sales force and promotional
services, at its own expense in exchange for a share of Quarterly Net Sales
(defined below) of the 0.5 mcg Product, subject to the terms and conditions
provided in this Agreement; and

      WHEREAS, BCI will commit to a certain level of spending on promotion, at
its own expense, in order to supporting the marketing of the 0.5 mcg Product and
to induce Cardinal Health to enter into this Agreement, subject to the terms and
conditions provided herein.

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions
set forth below, the Parties agree as follows:

<PAGE>

                                    ARTICLE 1
                                   DEFINITIONS

1.1   Definitions. The following terms when used in this Agreement and the
attached schedules shall, except where the context otherwise requires, have the
following meanings:

      (a)   "Act" means the Federal Food, Drug and Cosmetic Act, as amended, and
the regulations promulgated thereunder from time to time.

      (b)   "Affiliate" means any corporate or non-corporate business entity
that controls, is controlled by, or is under common control with a party to this
Agreement. A corporation or non-corporate business entity shall be regarded as
in control of another corporation if it owns or directly or indirectly controls
at least forty percent (40%) of the voting stock of the other corporation, or
(i) in the absence of the ownership of at least forty percent (40%) of the
voting stock of a corporation or (ii) in the case of a non-corporate business
entity, if it possesses directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation or non-corporate
business entity, as applicable.

      (c)   "Applicable Laws" means all federal, state and local laws, rules,
regulations, guidances, ordinances applicable to the obligations of a party
under this Agreement.

      (d)   "Cardinal Promotional Spend" means collectively the total amount
spent by Cardinal Health in connection with promotion of the Product as set
forth on Schedule 3.1 and Schedule 5.1, as such amounts are amended from time to
time upon the mutual written agreement of the Parties or as otherwise set forth
in this Agreement.

      (e)   "Confidential Information" shall have the meaning set forth in
Section 9.2.

      (f)   "Contract Sales Services" means those services provided by Cardinal
Health pursuant to Article 5 of this Agreement.

      (g)   "Coordinators" shall have the meaning set forth in Section 13 of
Schedule 5.3.

      (h)   "Co-Promote Fee" has the meaning set forth in Section 6.1.

      (i)   "Damages" shall have the meaning set forth in Section 12.1.

      (j)   "Direct Expenses" shall have the meaning set forth in Section
4.5(a).

      (k)   "FDA" means the United States Food and Drug Administration and any
successor agency having substantially the same functions.

      (l)   "Detail" means a legally compliant, interactive, and face-to-face
visit by a Representative with a Target Physician during which the FDA-approved
indicated uses, safety, effectiveness, contraindications, side effects, warnings
and other relevant characteristics of the Products are described by the
Representative in a fair and balanced manner consistent with the

                                                                               2
<PAGE>

requirements of the Act, and using, as necessary or desirable, the Product
Labeling and the Product Promotional Materials. "Product Detail" means Detail of
a Product between Target Physician and Representative. When used as a verb,
"Detail" or "Detailing" shall mean to engage in a Detail as defined in this
definition.

      (m)   "Employee Selection Period" shall have the meaning set forth in
Section 5.7(d).

      (n)   "Fiscal Quarter" means each successive three month period beginning
on July 1 of each fiscal year, such that (i) Q1 of a year represents July
through September, Q2 represents October through December, Q3 represents January
through March, and Q4 represents April through June, and (ii) fiscal year 2004
begins on July 1 of 2003, fiscal year 2005 begins on July of 2004 and so on.

      (o)   "Force Majeure Event" shall have the meaning set forth in Section
15.11.

      (p)   "Forecasted Quarterly Net Sales" shall be the forecasted Quarterly
Net Sales for a particular Fiscal Quarter, as set forth on Schedule 6.1.

      (q)   "JCC" has the meaning set forth in Section 2.1 of this Agreement.

      (r)   "Indemnitee" shall have the meaning set forth in Section 12.4.

      (s)   "Indemnitor" shall have the meaning set forth in Section 12.4.

      (t)   "Manager" means any individuals hired by and retained by Cardinal
Health as an employee in a managerial position over the Representatives.

      (u)   "Medical Education Services" shall mean the services to be provided
by Cardinal Health pursuant to Article 4 of this Agreement.

      (v)   "Medical Education Standards" shall have the meaning set forth in
Section 4.3.

      (w)   "Net Cost" shall mean the gross amount charged by a supplier, less
all available discounts and allowances recognized by Cardinal Health, and less
any Cardinal Health discount directly attributable to BCI.

      (x)   "OIG" means the Office of the Inspector General of the Department of
Health and Human Services.

      (y)   "Other Expenses" shall have the meaning set forth in Section 4.5(b).

      (z)   "PDMA" means the Prescription Drug Marketing Act of 1987, as
amended, and the regulations promulgated thereunder from time to time.

      (aa)  "Product" shall mean BCI's Hectorol(R) product in the 0.5 mcg dosage
form.

                                                                               3
<PAGE>

      (bb)  "Product Labeling" means all labels and other written, printed, or
graphic matter provided by BCI including (i) any container or wrapper utilized
with a Product, or (ii) any written material accompanying a Product, including,
without limitation, Product package inserts.

      (cc)  "Product Promotional Materials" means all written, printed or
graphic material provided by BCI, including Product Labeling, intended for use
by Representatives during a Detail, including visual aids, file cards, premium
items, clinical studies, reprints, drug information updates and any other
promotional support items that BCI deems necessary or appropriate to conduct the
Contract Sales Services. Product Promotional Materials shall include FDA
approved indicated uses, safety, effectiveness, contraindications, side effects,
warnings and other relevant characteristics of each of the Products.

      (dd)  "Quarterly Net Sales" means the gross sales of Product as recorded
by BCI, its Affiliates or its sublicensees in accordance with Generally Accepted
Accounting Principles ("GAAP") in a particular Fiscal Quarter, less reasonable
and customary deductions for (i) ordinary and customary trade discounts in
connection with third party sales, (ii) sales and excise taxes, customs duties
and compulsory payments to governmental authorities actually paid or deducted in
connection with such sales, and (iii) credits given to customers for rejects and
returns of the Product.

      (ee)  "Regulatory Authority" means any governmental regulatory authority
responsible for granting approvals for the sale or maintaining regulatory
oversight of the Products or the marketing, reimbursement, or other issues
affecting the Products, including, without limitation, the FDA.

      (ff)  "Representative" and "Representatives" mean an individual hired by
and retained as an employee of Cardinal Health to conduct Detailing of Products
in connection with the Contract Sales Services. As sometimes used in this
Agreement, "Representatives" shall also include "Managers."

      (gg)  "Specialty Pharmaceutical Services" means services rendered by
Cardinal Health pursuant to the Distribution Services Agreement between Cardinal
Health PTS, LLC (successor by merger to CORD Logistics, Inc.) and BCI dated Oct.
5, 1999, as amended.

      (hh)  "Target" or "Target Physician" means a physician or other specialist
identified by BCI.

      (ii)  "Targeted Employees" shall have the meaning set forth in Section
5.7(d).

      (jj)  "Taxes" shall have the meaning set forth in Section 6.6.

      (kk)  "Term" shall have the meaning set forth in Section 14.1.

      (ll)  "Termination Fee" shall have the meaning set forth in Section
14.4(b).

                                                                               4
<PAGE>

      (mm)  "Training Program" shall have the meaning set forth in Schedule 5.3,
Section 9(a).

                                    ARTICLE 2
                               PROJECT MANAGEMENT

2.1   Joint Commercialization Committee.

      (a)   Within thirty (30) days of the Effective Date of this Agreement, the
Parties shall form a committee to assist in overseeing and implementing the
sales, marketing and co-promotion of the Products in accordance with the terms
and conditions of this Agreement ("JCC"). The JCC shall consist of an equal
number of representatives from each Party and each party will have an equal
number of votes with respect to any decisions made by the JCC.

      (b)   The JCC shall meet at least once monthly to (i) develop, approve and
amend (as necessary) a marketing plan for the Product for each year of this
Agreement ("Yearly Marketing Plan"), (ii) review the status of all sales,
marketing and co-promotion efforts relating to the Product, (iii) review and
approve strategies, budgets and allocation of all promotional efforts to be
funded out of the commitments made by each Party pursuant to Article 3 of this
Agreement, and (iv) make any other decisions required of the JCC under this
Agreement. JCC meetings shall be held at mutually agreed upon dates, times, and
places, or by conference call if all members of the JCC agree.

      (c)   The JCC shall have the authority to request an increase in the
promotional spend incurred by each party under Article 3. Any such increase
shall only be effective upon the mutual written agreement of both Parties. The
JCC will have the authority to decrease the Cardinal Promotional Spend and BCI
Promotional Spend as mutually agreed upon by the JCC after the first six months
of this Agreement, if the Quarterly Net Sales for any Fiscal Quarter are ten
percent or more less than the forecast of Quarterly Net Sales for that quarter,
as set forth on Schedule 6.1. If the JCC cannot agree upon such decrease, the
Cardinal Promotional Spend and the BCI Promotional Spend shall automatically
decrease in accordance with the schedule set forth on Schedule 2.1(c) of this
Agreement.

      (d)   In the event the JCC is unable to reach agreement with respect to
any material issue related to its obligations under this Article 2, either party
may present the issue to the President of BCI and the President of the
Healthcare Marketing Services group of Cardinal Health, who shall negotiate in
good faith to resolve such dispute. Except as provided in 2.1(c), in the event
they are unable to resolve the dispute within thirty (30) days of receipt of
substantive written information and materials relating to the dispute, the final
decision will be made by the President of BCI. Disagreements which are purely
legal in nature will be handled in accordance with Section 15.13 of this
Agreement.

2.2   Business Managers. Each party will provide a business manager to oversee
activities under this Agreement and to act as a primary contact for day to day
activities under the Agreement.

                                                                               5
<PAGE>

                                    ARTICLE 3
                                PROMOTIONAL SPEND

3.1   Cardinal Health. Cardinal Health shall provide (i) Medical Education
Services and Specialty Pharmaceutical Services in connection with the Product
and in that regard, shall spend at least the amounts set forth on Schedule 3.1
during the Term of the Agreement with respect to such services ("Cardinal
Flexible Promotional Spend"), and (ii) Contract Sales Services in accordance
with Article 5 and Schedule 5.1. Appropriation of the Cardinal Flexible
Promotional Spend toward any particular activity shall be approved by the JCC
substantially in accordance with Schedule 3.1 unless otherwise agreed to by the
Parties in writing.

3.2   BCI. BCI or its designated agent or subcontractor shall provide a
promotional investment in connection with the Product and in that regard, shall
spend the amounts set forth on Schedule 3.2 during the Term of the Agreement
("BCI Promotional Spend"). The BCI Promotional Spend shall be approved by the
JCC substantially in accordance with Schedule 3.2 unless otherwise agreed to by
the Parties in writing. The Parties agree that amounts paid to Cardinal Health
under the Distribution Services Agreement between Cardinal Health PTS, LLC
(successor by merger to CORD Logistics, Inc.) and BCI dated Oct. 5, 1999, as
amended, for sampling of the 0.5 mcg Product may count towards satisfaction of
the BCI Promotional Spend as agreed upon by the JCC.

                                    ARTICLE 4
                           MEDICAL EDUCATION SERVICES

4.1   Proposals. Cardinal Health shall perform such medical education and
promotional services as are approved by the JCC and mutually agreed upon by the
Parties (the "Medical Education Services"). All such services shall be
specifically set forth in a written document approved by the JCC, signed by the
Parties, and shall be performed in accordance with this Agreement.

4.2   Previously Approved Indications. This Agreement does not cover services
provided by Cardinal Health with respect to the 2.5 mcg Product or products for
indications approved by the FDA prior to April 1, 2004.

4.3   BCI Review and Approval of Medical Education Services. BCI shall be solely
responsible for preparing and reviewing the content of all materials prepared
for and intended for use in provision of Medical Education Services and related
materials prior to the performance of such Medical Education Services. BCI shall
ensure that all materials prepared for and intended for use in Medical Education
Services and any and all related materials comply with all Applicable Laws and
all applicable industry standards and practices generally applicable to the
pharmaceutical industry, including, without limitation, the research guidelines,
ethics and standards established by the American Medical Association, the FDA,
the standards and guidelines outlined in the PhRMA Code, and the standards and
guidelines outlined in the OIG Guidance (collectively, "Medical Education
Standards"). BCI hereby acknowledges that Cardinal Health will not conduct a
legal review of the materials prepared for and intended for use

                                                                               6
<PAGE>

in the Medical Education Services and/or related materials and that Cardinal
Health is relying solely on BCI to make certain that such materials comply with
all Applicable Laws and Medical Education Standards. BCI personnel who manage
Medical Education Services shall be solely responsible for insuring that BCI's
counsel have an opportunity to review all legal issues and matters as BCI may
deem appropriate related to the Medical Education Services, and shall, upon
request, inform Cardinal Health of the results of same review either orally or
in writing. Notwithstanding the foregoing, Cardinal Health shall be solely
responsible for ensuring that the Medical Education Services are performed in a
manner consistent with Medical Education Standards and that it shall not deviate
from the scope and content of the Materials prepared by BCI and intended for use
in the performance of the Medical Education Services.

4.4   Additional Medical Education Services. The Parties contemplate that
Cardinal Health may perform additional Medical Education Services for BCI
relating to the Product that are not part of the Cardinal Promotional Spend. In
such cases, the Parties shall agree in writing on the scope of work to be
performed, additional or modified terms, and discounted payment for such work.
Nothing in this Section 4.4 or in Article 4 or the remainder of this Agreement
obliges either Party to enter into negotiations with respect to such an
additional agreement, nor do the parties contemplate that such an additional
agreement shall have any effect on the other rights or obligations of the
parties under this Agreement.

4.5   Pricing and Payment Terms. In the event that BCI engages Cardinal Health
to provide Medical Education Services that are not included in the Cardinal
Promotional Spend, the discounted pricing and payment terms for such Medical
Education Services shall be as set forth in proposals mutually agreed to by the
Parties in writing and shall include the following, unless otherwise agreed to
by BCI and Cardinal Health:

      (a)   Direct Expenses. The Direct Expenses set forth in any proposal for
Medical Education Services represent a good faith estimate of Direct Expenses to
be incurred by Cardinal Health in the performance of Medical Education Services.
Notwithstanding the foregoing, BCI shall reimburse Cardinal Health for all
reasonable out-of-pocket expenses (the "Direct Expenses") actually incurred by
Cardinal Health in the performance of the Medical Education Services whether or
not such Direct Expenses actually exceed the amount estimated in good faith in
any proposal. Direct Expense items shall include, but not be limited to, the
following:

            (1)   Travel (including mileage at the IRS approved rate of 36.5
cents per mile, if travel is by car), living expenses when authorized by BCI,
and long-distance telephone charges incurred in the conduct of BCI's business;

            (2)   Net Cost of postage, express, courier, overnight and freight
on all shipments of materials, including, but not limited to proofs, artwork,
videotapes, slides, props, transcriptions, computer disks, etc., as appropriate
to the timeline and delivery schedule agreed to by the Parties;

            (3)   Net Cost of unusual charges incurred at the special request of
BCI or if necessary to the rendering of special or abnormal service, or to meet
emergencies, or departure from the regular routine of business. These charges
must be specified in writing (may be

                                                                               7
<PAGE>

handwritten at the scene) and signed off by BCI at the correct signing level or
thereby delegated to by their supervisor; and

            (4)   Reimbursement for the Net Cost of freelance labor use.

BCI shall not be required to reimburse Cardinal Health for (i) facsimile,
telephone and postage charges incurred in the normal conduct of business; and
(ii) unapproved Cardinal Health-initiated travel.

      (b)   Other Expenses. In addition to those items set forth in a proposal
for Medical Education Services or any other proposal, BCI shall also reimburse
Cardinal Health for certain costs for enduring materials and related services,
including but not limited to research authorized by BCI and incurred through the
efforts of Cardinal Health on behalf of BCI (the "Other Expenses").

      (c)   Discounts. Cardinal Health shall use commercially reasonable efforts
to obtain all prompt payment, volume, frequency or other similar discounts from
media and suppliers from which it makes purchases of Direct Expenses in the
performance of the Medical Education Services hereunder.

      (d)   Vendor/Cardinal Health Affiliation. In the event that any Medical
Education Services are to be performed or materials purchased from a supplier in
which Cardinal Health or Cardinal Health personnel have any financial interest,
disclosure of the relationship shall be made to BCI and Cardinal Health shall
obtain BCI's prior approval of the engagement of or purchase from such supplier.

      (e)   Advance Payment for Certain Expenses. In accordance with the
principle that Cardinal Health is not expected to finance Direct Expenses and
Other Expenses, BCI will be billed and invoices will be paid so that Cardinal
Health will have such funds in hand before payment is due to all third party
suppliers, including, but not limited to airlines, hotels, suppliers of goods
and services purchased on behalf of BCI, at BCI's request, honoraria, and any
other substantial (more than $1,000) expenses. All invoices for Direct Expenses
and Other Expenses are payable to Cardinal Health within (30) days after receipt
by BCI unless otherwise mutually agreed.

4.6   Audits. A certified public accounting firm of BCI's choice and acceptable
to Cardinal Health may conduct an annual audit of Cardinal Health's books,
records and accounts pertaining only to the Medical Education Services
undertaken for BCI pursuant to this Agreement and shall certify that such
records are kept in accordance with generally accepted industry standards
consistently applied and that the allocation of fees hours to BCI or the
Cardinal Promotional Spend are accurate and as provided in this Agreement and
the proposal agreed upon by the Parties.

                                    ARTICLE 5
                             CONTRACT SALES SERVICES

                                                                               8
<PAGE>

5.1   Furnishing Representatives. Cardinal Health shall recruit and hire
Representatives in such numbers as are set forth on Schedule 5.1 of this
Agreement to engage in Product Detail activities to Target Physicians in
accordance with the terms of this Agreement and the attached Schedules. In the
event that BCI engages Cardinal Health to provide Contract Sales Services at
levels greater than those specified on Schedule 5.1, the discounted pricing and
payment terms for such additional Contract Sales Services ("Additional CSO
Services") shall be as set forth in proposals mutually agreed to by the Parties
in writing which incorporate this Agreement by reference.

5.2   Assignment of Representatives. Cardinal Health shall assign
Representatives for the Target Physicians in such numbers and in such
territories as shall be agreed upon by the JCC. Each Representative shall make
Product Details on his or her assigned Target Physicians based on the general
direction given by the JCC. The duties of such Representatives shall be
exclusively to Detail the Products and perform other related activities deemed
necessary for the establishment and maintenance of new and existing customers
for the Products. All Product Details shall be undertaken consistent with the
Medical Education Standards.

5.3   Scope of Activities. Each of the Parties shall have the specific duties
set forth in Schedule 5.3, as applicable, in connection with the Contract Sales
Services.

5.4   Orders for Products. BCI shall be solely responsible for establishing the
terms and conditions of the sale of the Products to any third party customers,
including without limitation, the price at which the Products will be sold,
whether sales of the Products will be subject to any discounts, the method of
distribution of the Products, and whether any credit will be granted or refused
in connection with the sale or return of any Product. Except as otherwise
expressly provided in this Agreement, BCI or its agent shall be exclusively
responsible for accepting and filling all purchase orders for the Products,
billing and returns for the Products, and all other activities in connection
with the sale and delivery of the Products, other than Detailing. If Cardinal
Health or the Representatives receive an order for the Products, they shall
immediately transmit such order to BCI for further handling and communications
with the submitter of the order, including acceptance or rejection, which shall
be in BCI's sole discretion.

5.5   Representatives' Activity. Subject to BCI's obligations and
representations and warranties in this Agreement, any negligent or wrongful act
or omission on the part of the Representatives (both individually and as a
group) that occur during the Term of this Agreement and that arise during the
course and within the scope of their employment with Cardinal Health pursuant to
this Agreement shall be deemed to be negligent or wrongful acts or omissions of
Cardinal Health; provided, however, that any acts or omissions of the
Representatives pursuant to the specific direction, control or supervision of
BCI or its employees or agents (other than Cardinal Health) shall not be deemed
to be negligent or wrongful acts or omissions of Cardinal Health. Each party
shall notify the other in writing as promptly as practicable of any such
material alleged negligent or wrongful acts or omissions on the part of the
Representatives of which it becomes aware along with a plan to remedy such acts
or omissions, and BCI shall provide Cardinal Health with a reasonable
opportunity to remedy such acts or omissions, and if indicated, to replace the
involved Representatives.

                                                                               9
<PAGE>

5.6   Vacancies/Turnover. In the event of a Representative vacancy due to
resignation, reassignment or termination of a Representative, Cardinal Health
shall use its commercially reasonable best efforts to fill any such vacancy
within an eight (8) week period. Expenses for filling such vacancy shall be
included in the cost of the Contract Sales Services as set forth in Schedule
5.1. In addition, if BCI desires to interview any candidates, BCI shall bear its
own cost of attending any final interview conducted by Cardinal Health or the
costs of any separate interview arranged for by BCI.

5.7   BCI's Termination, Removal, or Hiring of Representatives.

      (a)   BCI agrees not to hire any Representative, directly or indirectly,
during the first twelve months of the Term of this Agreement unless this
Agreement is terminated in accordance with Section 14.2(b) (due to uncured
breach by Cardinal Health), Section 14.2(e), Section 14.4(b), Section 14.5 or
BCI buys out the Contract Sales Service portion of this Agreement in accordance
with Section 5.7(c). BCI and Cardinal Health acknowledge that Cardinal Health
would suffer damages upon breach of this Section and such damages would be
difficult to ascertain and are not susceptible of ready proof. As a result, the
Parties agree that BCI shall pay Cardinal Health liquidated damages of $250,000
per representative and $350,000 per Manager hired by BCI in violation of this
Section.

      (b)   If BCI requests termination or removal from the Program of any
Representative and such Representative is in fact so terminated or removed by
Cardinal Health, then BCI shall be responsible for severance and related
expenses for each such Representative so terminated or removed unless (for a
reason other than BCI's negligence, willful misconduct or breach of this
Agreement) such termination or removal is (i) pursuant to the last sentence of
Section 5.5, (ii) due to a failure of the Representative to comply with the
obligations set forth in Schedule 5.3, (iii) due to such Representative's
failure to adequately achieve the performance goals of the Program, or (iv)
failure to comply with all Applicable Laws and any BCI Detailing requirements
which are consistent with labeled indications and the guidelines promulgated by
PhRMA and the OIG.. Cardinal Health shall fill any vacancy created by BCI's
hiring of Representatives or Managers pursuant to this Section as provided in
Section 5.6. BCI agrees that it will not, for a period of eighteen (18) months
following termination or removal of a Representative or Manager in accordance
with this Section, hire, retain or otherwise solicit, directly or indirectly,
any such Representative or Manager.

      (c)   BCI shall have the right to buy out the Contract Sales Services
portion of this Agreement by hiring the Representatives as its own employees and
paying to Cardinal Health the Contract Sales Services Buyout Fee set forth in
Schedule 5.7(c). BCI shall provide Cardinal Health at least ninety (90) days
notice of a buy out in accordance with this Section. In the event that this
option is exercised and BCI buys out the Contract Sales Services portion of this
Agreement, the applicable Co Promote fee will be reduced in accordance with
Schedule 6.1.

      (d)   During the six (6) month period immediately prior to the end of the
Term, BCI shall identify all those Representatives BCI desires to hire
(collectively, the "Targeted Employees") after the completion of the Term and to
negotiate with any Targeted Employee

                                                                              10
<PAGE>

concerning the terms on which BCI might hire that Targeted Employee. At the end
of the Term, BCI shall have a period of thirty (30) days (the "Employee
Selection Period") to hire some or all of the Targeted Employees. Cardinal
Health agrees not to interfere with BCI's solicitation and hiring of the
Targeted Employees prior to or during the Employee Selection Period, and
Cardinal Health will assist BCI in the transition of Targeted Employees from
Cardinal Health to BCI.

      (e)   For a period of twelve (12) months after the expiration of the
Employee Selection Period: (i) BCI shall not hire or retain as an employee or as
agent or independent contractor any Representatives that are not Targeted
Employees or are not actually hired by BCI during the Employee Selection Period,
and (iii) BCI agrees that it will not, for a period of twelve months following
the expiration or termination of this Agreement, hire, retain or otherwise
solicit any Manager of Cardinal Health to be an employee either of BCI or any of
its Affiliates. Cardinal Health will not solicit for hire as an employee, agent
or independent contractor any Representative hired by BCI if such hiring is
allowed by this Section 5.7.

5.8   No BCI Benefits. Employees of Cardinal Health and Representatives are not
eligible to participate in any benefits programs or sales bonuses offered by BCI
to its employees, or in any pension plans, profit sharing plans, insurance plans
or any other employee benefit plans offered from time to time by BCI to its
employees, provided that the Representatives shall be eligible to participate in
BCI sales contests if so requested by BCI and approved by Cardinal Health.
Cardinal Health acknowledges and agrees that BCI does not, and will not,
maintain or procure any worker's compensation or unemployment compensation
insurance for or on behalf of the Representatives while they are employees of
Cardinal Health. Cardinal Health acknowledges and agrees that it shall be solely
responsible for paying all salaries, wages, benefits, bonuses, pension plans,
profit sharing plans and other compensation or benefits which its employees
(including Representatives) may be entitled to receive in connection with the
performance of the services hereunder.

                                    ARTICLE 6
                                      FEES

6.1   Co-Promote Fee. In further consideration of Cardinal Health's efforts and
performance hereunder, BCI shall pay Cardinal Health a variable percentage of
all Quarterly Net Sales of the Product during each Fiscal Quarter, as such
percentages are set forth in Schedule 6.1 ("Co-Promote Fee") during the Term of
this Agreement. In the event BCI buys out the Contract Sales Service portion of
this Agreement as provided in Section 5.7(c), BCI shall pay a reduced Co-Promote
Fee as provided in Schedule 6.1.

6.2   Product Supply. BCI shall use reasonable commercial efforts to maintain an
adequate level of inventory to supply orders for Product from third party
customers; provided, however, that BCI shall not be responsible to the extent
any failure to maintain inventory results from a failure of Cardinal Health to
provide services in accordance with the terms of a separate manufacturing,
packaging, analytical, distribution or logistics agreement which are necessary
to release finished Product for commercial sale.

                                                                              11
<PAGE>

6.3   Payment. BCI shall pay the Co-Promote Fee to Cardinal Health within
forty-five (45) days following end of each Fiscal Quarter ("Co-Promote
Payment").

6.4   Audit. BCI shall include with each Co-Promote Payment a statement setting
forth in reasonable detail its calculation of the Co-Promote Payment for the
period covered by such Co-Promote Payment along with a reconciliation detailing
the reasons for any differences between the Quarterly Net Sales reported to
Cardinal Health and the revenue reported in BCI's quarterly SEC 10Q filings.
Cardinal Health or its designee shall be entitled, upon reasonable advance
notice to BCI, to audit BCI's books and records relating to the Quarterly Net
Sales for any one or more payments periods under this Agreement. Cardinal Health
and BCI will attempt in good faith to settle any dispute within thirty (30) days
after Cardinal Health's delivery of audit findings to BCI. If such audit reveals
that there is an underpayment of any amounts owed to Cardinal Health, BCI shall
pay such amounts in full within ten (10) days of such determination, and if such
amount is in excess of ten percent (10%) or more of the amount paid by BCI for
any period, BCI shall reimburse Cardinal Health for all reasonable out-of-pocket
costs incurred in performing such audit. Cardinal Health's right to perform an
audit in accordance with this Section shall continue for a period of two years
following termination or expiration of this Agreement for any reason.

6.5   Price Normalization. BCI acknowledges that (i) the current wholesale
acquisition cost (WAC) for the 0.5 mcg Product is $*** per tablet and the
current WAC for the 2.5 mcg product is $*** and (ii) this pricing arrangement
may lead to prescriptions of the 2.5 mcg Product where a higher daily/weekly
dosage is required. As a result, Cardinal Health would not realize the full
value of the Co-Promote Fee for sales of Product under this Agreement.
Notwithstanding the terms of Section 6.1, in order to account for this pricing
arrangement, the Co-Promote fee shall be determined in accordance with (a) the
row entitled "Co Promote Fee % (if price normalization applies)" as set forth in
Schedule 6.1 if the Contract Sales Services portion of this Agreement is still
in effect or (b) the row entitled "Co Promote Fee % after Contract Sales Service
Buy Out (if price normalization applies)" as set forth in Schedule 6.1 if the
Contract Sales Services portion of this Agreement has been bought out, for each
Fiscal Quarter in which the actual volume of capsules of the Hectorol 2.5 mcg
product sold in such Fiscal Quarter exceed by ***% or more the baseline forecast
projected for that Fiscal Quarter as set forth on Schedule 6.1.

6.6   Sales, Use and Excise Taxes. If any state or local government or other
taxing authority determines that sales, use or excise Taxes ("Taxes") are
applicable to any Cardinal Health services provided under this Agreement which
are not paid for by Cardinal Health as part of the Cardinal Promotional Spend,
BCI shall reimburse Cardinal Health for any such Taxes paid by Cardinal Health
to the appropriate taxing authorities.

6.7   Past Due Amounts. BCI's failure to timely make any payment to Cardinal
Health under this Agreement (including without limitation, this Article and
Articles 4 and 5) will constitute a material breach of this Agreement by BCI.
All amounts owing by BCI to Cardinal Health pursuant to this Agreement that are
not timely paid by BCI will bear interest from the due date, at the lower of (i)
one and one-half percent per month, or (ii) the maximum rate permitted by law.

                                                                              12
<PAGE>

6.8   Setoff. Without limiting Cardinal Health's rights under law or in equity,
Cardinal Health and its affiliates, parent or related entities, collectively or
individually, may exercise a right of set-off against any and all amounts due to
Cardinal Health from BCI. For purposes of this Section 6.8, Cardinal Health, its
affiliates, parent or related entities shall be deemed to be a single creditor.

                                    ARTICLE 7
                               REGULATORY MATTERS

7.1   Government Agencies. All communications with Regulatory Authorities,
including the FDA, concerning the Products shall be the sole responsibility of
BCI. Cardinal Health shall assist BCI with respect to such communications with
Regulatory Authorities to the extent requested by BCI. Cardinal Health shall use
its best efforts to provide BCI with any documents or information reasonably
requested by BCI for purposes of responding to any communications with
Regulatory Authorities within 72 hours of BCI's request. Each party shall
promptly notify the other party of any communication it receives from Regulatory
Authorities concerning the Products or any services furnished under this
Agreement.

7.2   Maintenance of Records. Cardinal Health and BCI each agree that throughout
the Term of this Agreement and for a period of six years after the termination
of this Agreement, each party will maintain records and otherwise establish
procedures to assure compliance with all Applicable Laws which relate to the
Detailing and marketing of the Products.

                                    ARTICLE 8
                    REPRESENTATIONS, WARRANTIES AND COVENANTS

8.1   By Cardinal Health. Cardinal Health represents, warrants, and covenants to
BCI that, as of the date of this Agreement and during the Term of this
Agreement:

      (a)   Cardinal Health and the Representatives shall perform the Detailing
in a professional and timely manner;

      (b)   Cardinal Health shall comply with all Applicable Laws to the extent
that such laws apply to the performance of services under this Agreement,
including but not limited to the PDMA, the Medicare and Medicaid Anti-Kickback
Act (42 U.S.C. Section  1320a-7b(a)), the Civil False Claims Act (31 U.S.C.
Section 3729(a)), Sections 1128A, 1128B, and 1877 of the Social Security Act (42
U.S.C. Sections 1320a-7a, -7b, and 1395nn), the Health Care Fraud Act (18 U.S.C.
Section 1347), the Criminal False Claims Act (18 U.S.C. Section 287), and the
Health Insurance Portablility and Accountability Act of 1996, as amended from
time to time, as well as similar applicable state laws; and

                                                                              13
<PAGE>

      (c)   When on BCI's premises or on the premises of BCI's customers,
Cardinal Health and the Representatives shall comply with all of BCI's or BCI's
customer's policies regarding the conduct of visitors of which Cardinal Health
and the Representatives are aware.

8.2   By BCI. BCI represents, warrants, and covenants to Cardinal Health that,
as of the date of this Agreement and during the Term of this Agreement:

      (a)   All Product supplied to Cardinal Health under this Agreement for use
as samples in Details shall be manufactured and delivered to Cardinal Health in
conformity with the Act, as amended, and all other Applicable Laws and such
Product shall not be adulterated or misbranded with the meaning of the Act;

      (b)   It shall confirm that all materials prepared by BCI in accordance
with Section 4.3 will comply with all Applicable Laws and Medical Education
Standards prior to authorizing Cardinal Health to perform the Medical Education
Services;

      (c)   To its knowledge, there are no trade secrets or other proprietary
rights of others related to the Products which would be infringed or misused by
Cardinal Health's performance of this Agreement;

      (d)   BCI shall comply with all Applicable Laws that apply to the Products
and their sale and BCI's performance of its obligations under this Agreement,
including but not limited to the Act, the PDMA, the Medicare and Medicaid
Anti-Kickback Act (42 U.S.C. Section 1320a-7b(a)), the Civil False Claims Act
(31 U.S.C. Section 3729(a)), Sections 1128A, 1128B, and 1877 of the Social
Security Act (42 U.S.C. Sections 1320a-7a, -7b, and 1395nn), the Health Care
Fraud Act (18 U.S.C. Section 1347), and the Criminal False Claims Act (18 U.S.C.
Section 287), as amended from time to time, as well as similar applicable state
laws;

      (e)   The Product Labeling and Product Promotional Materials are accurate,
complete, and in compliance with the Act and all Applicable Laws; and

      (f)   The use and sale of the Products in accordance with the terms of
this Agreement do not and will not during the Term of this Agreement, infringe
any patent or other proprietary rights of third Parties, and the Products have
all necessary governmental approvals and may be lawfully Detailed and sold by
BCI and the Representatives.

8.3   Mutual. Each party represents, warrants, and covenants to the other party
that, as of the date of this Agreement and during the Term of this Agreement:

      (a)   It shall comply with all Applicable Laws applicable to its
operations, including but not limited to, those dealing with employment
opportunity and affirmative action including Executive Order 11246 (Equal
Opportunity), 38 U.S.C. Section 4212(a) (Affirmative Action for Disabled
Veterans and Veterans of the Vietnam Era), and 29 U.S.C. Section 793
(Affirmative Action for Workers with Disabilities), and any amendment and
applicable regulations pertaining thereto;

                                                                              14
<PAGE>

      (b)   In accordance with the provisions of 48 C.F.R. Section 52.209-6, it
certifies that neither it nor its principals was or is debarred, suspended,
proposed for debarment or otherwise determined to be ineligible to participate
in federal health care programs (as that term is defined in 42 U.S.C.
1320a-7b(f)) or convicted of a criminal offense related to the provision of
health care items or services, but has not yet been debarred, suspended,
proposed for debarment or otherwise determined to be ineligible to participate
in federal health care programs. In the event that either party, or any of its
principals, is debarred, suspended, proposed for debarment or otherwise
determined to be ineligible to participate in federal health care programs or
convicted of a criminal offense related to the provision of health care items or
services, each party shall notify the other party immediately;

      (c)   It complies with all Applicable Laws, conventions or treaties
prohibiting any form of child labor or other exploitation of children in the
manufacturing and delivery of its products or services;

      (d)   Such party (i) is duly organized, validly existing and in good
standing under the laws of the state in which it is organized, (ii) has the
power and authority and the legal right to own and operate its property and
assets, and to carry on its business as it is now being conducted, and (iii) is
in compliance with all requirements of Applicable Law, except to the extent that
any noncompliance would not materially adversely affect such party's ability to
perform its obligations under the Agreement;

      (e)   Such party (i) has the power and authority and the legal right to
enter into this Agreement and to perform its obligations hereunder and
thereunder and (ii) has taken all necessary action on its part to authorize the
execution and delivery of the Agreement and the performance of its obligations
hereunder. The Agreement has been duly executed and delivered on behalf of such
party, and constitutes a legal, valid, binding obligation, enforceable against
such party in accordance with its terms;

      (f)   All necessary consents, approvals and authorizations of all agencies
and other persons required to be obtained by such party in connection with the
Agreement have been obtained; and

      (g)   The execution and delivery of this Agreement and the performance of
such party's obligations hereunder (i) do not conflict with or violate any
requirement of Applicable Laws or any material contractual obligation of such
party and (ii) do not materially conflict with, or constitute a material default
or require any consent under, any material contractual obligation of such party.

8.4   LIMITATIONS. THE WARRANTIES SET FORTH IN THIS ARTICLE 8 ARE THE SOLE
WARRANTIES MADE BY EACH PARTY TO THE OTHER AND NEITHER PARTY MAKES ANY OTHER
WARRANTIES, REPRESENTATIONS OR GUARANTEES OF ANY KIND WHATSOEVER, INCLUDING
WITHOUT LIMITATION ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT.

                                                                              15
<PAGE>

                                    ARTICLE 9
                            CONFIDENTIAL INFORMATION

9.1   Nondisclosure. During the Term of this Agreement and for a period of three
(3) years after the expiration or termination of this Agreement, neither party
shall:

      (a)   disclose, publish or otherwise make available (orally or in writing)
any Confidential Information of the other party to any third party (including
any employee of the receiving party without a need to know or to have access to
such Confidential Information or who does not agree to be bound by these terms),
except as required by Applicable Laws; or

      (b)   use any Confidential Information of the other party except in
connection with performance of this Agreement or upon express prior written
consent of the other party.

9.2   Confidential Information. For purposes of this Agreement, "Confidential
Information" means all information disclosed by a party at any time in
connection with this Agreement, except for any information which the receiving
party can establish by competent written evidence (a) was known to the receiving
party at the time of disclosure by the disclosing party, (b) was generally
available to the public at the time of disclosure by the disclosing party, (c)
after disclosure by the disclosing party, became generally available to the
public other than in breach of this Article, (d) after disclosure by the
disclosing party, became known to the receiving party from a third party
lawfully disclosing such information, or (e) is required to be disclosed by a
court of competent jurisdiction or a Federal or state administrative agency (but
only to the extent that such disclosure is required to be made and provided that
prior to making any such legally required disclosure, the party making such
disclosure shall give the other party as much prior notice of the requirement
for and the contents of such disclosure as is practicable under the
circumstances).

                                   ARTICLE 10
                              INTELLECTUAL PROPERTY

10.1  Authorship and Copyright / Ownership of Materials. BCI shall own all
right, title and interest, including copyright and/or patent, in all original
works of authorship fixed in any tangible medium of expression, including but
not limited to enduring materials and graphic representations, created by
Cardinal Health under this Agreement which solely and specifically relate to the
Product, except to the extent that Cardinal Health has advised BCI that any such
interest is already owned by a third party. For all such original works and
intellectual property specifically created for BCI under this Agreement,
Cardinal Health agrees to provide documentation satisfactory to BCI to assure
the conveyance, where necessary, of such right, title and interest, including
copyrights or patents to BCI. If such information includes materials previously
developed or copyrighted by Cardinal Health and not developed under this
Agreement, Cardinal Health grants and agrees to grant to BCI and to all
companies owned directly or indirectly by BCI, severally, a royalty-free license
to use and copy such materials solely for the purpose of providing the Medical
Education Services. Upon termination, materials specifically created by Cardinal
Health for BCI, when paid for by BCI, shall be and remain BCI's property.

                                                                              16
<PAGE>

10.2  Limited Patent License. Cardinal Health recognizes that BCI owns sole and
exclusive rights in the United States to patents that cover the Product and its
method of manufacture and desires to use such patent rights in carrying out its
obligations under this Agreement. BCI grants no licenses to Cardinal Health
under patents owned by or licensed to BCI except to the extent necessary for
Cardinal Health to carry out its obligations under the specific terms of this
Agreement.

10.3  Limited Trademark License. Cardinal Health recognizes that BCI owns sole
and exclusive rights in the trademark Hectorol(R) in respect of the Product and
desires to use such trademark pursuant to carrying out its obligations under
this agreement. BCI hereby grants to Cardinal Health a license to the trademark
Hectorol(R) solely in association with the use, marketing and sales of the
Product in accordance with the terms and conditions of this Agreement to: (i)
use the Marks; (ii) use, copy, reproduce, display, transmit, distribute the
materials prepared for use in provision of Medical Education Services; and (iii)
if agreed to by BCI on a case by case basis, modify, enhance, adapt, make
derivative works of, translate and convert the Medical Education Services.

10.4  Limitation on Patent and Trademark Licenses. The licenses granted pursuant
to paragraphs 11.2 and 11.3 shall be fully paid and nonexclusive, shall be
limited to licensed uses within the United States, and shall terminate upon
termination of this Agreement. Cardinal Health shall have no right to (i) assign
any such license rights without the written consent of BCI, (ii) manufacture
product under this Agreement for any purposes, or (iii) sublicense to any
persons any licenses granted pursuant to this paragraph. Except as expressly
provided herein or required for Cardinal Health's performance of this Agreement,
BCI does not grant to Cardinal Health under this Agreement a license, either
expressed or implied, to make use, sell, offer for sale, or import products
under any intellectual property rights, including, but not limited to patent and
trademark rights, owned by or licensed to BCI.

                                   ARTICLE 11
                                    INSURANCE

11.1  Cardinal Health.

      (a)   During the Term of this Agreement, Cardinal Health shall obtain and
maintain the following insurance with limits not less than those specified below

            (i)   Commercial General Liability insurance with a limit of One
Million Dollars ($1,000,000) per occurrence.

            (ii)  Worker's Compensation and Employers Liability Insurance with
statutory limits for Workers' Compensation and Employers' Liability limits of
One Million Dollars ($1,000,000) per accident.

            (iii) Professional Services Liability insurance with a limit of Two
Million Dollar ($2,000,000) per claim.

                                                                              17
<PAGE>

      (b)   Cardinal Health may self-insure any or a portion of the required
insurance. In the event that any of the required policies of insurance are
written on a claims made basis, then such policies shall be maintained during
the entire term of this Agreement and for a period of not less than five (5)
years following the termination or expiration of this Agreement.

      (c)   Cardinal Health shall waive subrogation rights against BCI for
workers' compensation benefits and shall obtain a waiver from any insurance
carriers with which Cardinal Health carries workers' compensation insurance
releasing their subrogation rights against BCI.

      (d)   Cardinal Health shall furnish certificates of insurance to BCI
evidencing the required insurance upon request. Such certificates shall state
that Cardinal Health's insurers will endeavor to provide thirty (30) days
written notice of any cancellation prior to the policy(ies) expiration date(s).
Each insurance policy that is required under this Section shall be obtained from
an insurance carrier with an A.M. Best rating of at least A- VII.

11.2  BCI.

      (a)   During the Term of this Agreement, BCI shall obtain and maintain the
following insurance with limits not less than those specified below.

            (i)   Commercial General Liability insurance with a limit of One
Million Dollars ($1,000,000) per occurrence.

            (ii)  Products and Completed Operations Liability insurance with a
limit of Ten Million Dollars ($10,000,000) per occurrence.

            (iii) Worker's Compensation and Employers Liability Insurance with
statutory limits for Workers' Compensation and Employers' Liability limits of
One Million Dollars ($1,000,000) per accident.

      (b)   In the event that any of the required policies of insurance are
written on a claims made basis, then such policy(ies) shall be maintained during
the entire period of this Agreement and for a period of not less than five (5)
years following the termination or expiration of this Agreement.

      (c)   BCI shall waive subrogation rights against Cardinal Health for
workers' compensation benefits and shall obtain a waiver from any insurance
carriers with which BCI carries workers' compensation insurance releasing their
subrogation rights against Cardinal Health.

      (e)   BCI shall furnish certificates of insurance to Cardinal Health
evidencing the required insurance upon request. Such certificates shall state
that BCI's insurers will endeavor to provide thirty (30) days written notice of
any cancellation prior to the policy(ies) expiration date(s). Each insurance
policy which is required under this Section shall be obtained from an insurance
carrier with an A.M. Best rating of at least A- VII.

                                                                              18
<PAGE>

                                   ARTICLE 12
                                 INDEMNIFICATION

12.1  Definitions. As used in this Article and this Agreement, "Damages" shall
mean all liabilities, damages, assessments, levies, losses, fines, penalties,
costs, and expenses, including, without limitation, reasonable attorneys',
accountants', investigators', and experts' fees and expenses, sustained or
incurred as a result of any claims, suits, liabilities, or actions of any nature
by any third party.

12.2  Indemnification by Cardinal Health. Cardinal Health shall indemnify and
hold BCI, its Affiliates, directors, officers, employees and agents harmless
from and against any and all Damages (except to the extent such damages arise
from BCI's negligence, willful misconduct, or breach of this Agreement) to the
extent such Damages arise directly or indirectly from:

      (a)   Cardinal Health's breach of this Agreement, including without
limitation, breach of any representation, warranty, or covenant made by Cardinal
Health in this Agreement;

      (b)   Any negligence or willful misconduct on the part of Cardinal Health
or its employees or agents; or

      (c)   Any federal or state claim or assessment for nonpayment or late
payment by Cardinal Health of any tax or contribution based on the status of any
Representatives as employees of Cardinal Health.

12.3  Indemnification by BCI. BCI shall indemnify and hold Cardinal Health and
its Affiliates, directors, officers, employees and agents harmless from and
against any and all Damages (except to the extent that (i) such damages arise
from Cardinal Health's negligent acts or omissions, willful misconduct or breach
of this Agreement, or (ii) Cardinal Health is precluded from indemnification
from BCI for such Damages under another agreement between the parties or between
the BCI and an Affiliate of Cardinal Health within the PTS segment of Cardinal
Health relating to the Product) to the extent such Damages arise directly or
indirectly from:

      (a)   BCI's breach of this Agreement, including without limitation, breach
of any representation, warranty, or covenant made by BCI in this Agreement;

      (b)   Any negligence or willful misconduct on the part of BCI or its
employees or agents;

      (c)   Detailing of the Products, except to the extent such Damages arise
from a negligent or wrongful act or omission of Cardinal Health.

      (d)   The accuracy or completeness of the Product Labels, Product
Promotional Materials, or the Training Program;

                                                                              19
<PAGE>

      (e)   The manufacture, testing, marketing, sale, shipping, distribution,
possession or use of the Products, or a manufacturing design or defect of the
Products, or any failure to warn or inadequacy of warning regarding the
Products;

      (f)   BCI's failure to pay when due or to reimburse Cardinal Health for
any Taxes;

      (g)   Any negligent acts or omissions on the part of BCI with respect to
Cardinal Health's employees or Representatives or those individuals who have
made application to be Representatives of Cardinal Health;

      (h)   Any federal or state claim or assessment for nonpayment or late
payment by BCI of any tax or contribution based on the status of any former
Representatives hired as employees or agents of BCI;

      (i)   Any intellectual property infringement actions (including patent,
trademark, service mark, copyright trade dress, trade secret and other
proprietary rights) brought by a third party in connection with Cardinal
Health's services under this Agreement; or

12.4  Indemnification Procedures. A party (the "Indemnitee") which intends to
claim indemnification under this Article shall promptly notify the other party
(the "lndemnitor") in writing of any action, claim or liability in respect of
which the lndemnitee or any of its employees or agents are entitled to
indemnification. The Indemnitee shall permit, and shall cause its employees and
agents to permit, the Indemnitor at its discretion, to settle any such action,
claim or liability and agrees to the complete control of such defense or
settlement by the Indemnitor; provided, however, that such settlement or defense
does not adversely affect the lndemnitee's rights hereunder or impose any
obligations on the Indemnitee in addition to those set forth in this Agreement.
The Indemnitee, its employees, and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigation and defense of any
action, claim or liability subject to indemnification. The Indemnitee shall have
the right, but not the obligation, to be represented by counsel of its own
selection and at its own expense in connection with any indemnified claim.

                                   ARTICLE 13
                            LIMITATIONS OF LIABILITY

13.1  Special Damages. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY
SPECIAL, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR OTHER SIMILAR DAMAGES ARISING
DIRECTLY OR INDIRECTLY OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

13.2  Total Cap. NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, IN NO
EVENT SHALL CARDINAL HEALTH'S TOTAL LIABILITY UNDER THIS AGREEMENT EXCEED, IN
THE AGGREGATE, FIVE MILLION DOLLARS, EXCEPT THAT CARDINAL HEALH'S LIABILITY
SHALL NOT BE CAPPED TO THE EXTENT THAT ANY LIABILITY ARISES AS A RESULT OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF CARDINAL HEALTH.

                                                                              20
<PAGE>

13.3  Applicability. THE LIMITATIONS OF LIABILITY CONTAINED IN THIS ARTICLE 13
SHALL NOT AFFECT PROVISIONS ON THE LIMITATIONS ON LIABILITY CONTAINED IN ANY
OTHER AGREEMENTS BETWEEN THE PARTIES.

                                   ARTICLE 14
                              TERM AND TERMINATION

14.1  Term. The Term of this Agreement shall commence as of the Effective Date
stated on the first page of this Agreement and shall continue through June 30,
2008 (the end of Fiscal Year 2008) ("Term").

14.2  Termination. Subject to the terms of Section 14.4, either party may
terminate this Agreement:

      (a)   Immediately upon written notice to the other party in the event of:
(a) the entry of a decree or order for relief by a court of proper jurisdiction
in an involuntary case of the other party under the Federal Bankruptcy Code, as
now constituted or hereafter amended, or any other applicable federal or state
insolvency or other similar laws, and the continuance of any such decree or
order in effect for a period of sixty (60) consecutive days; or (b) the filing
by the other party of a petition for relief under the Federal Bankruptcy Code,
as now constituted or hereafter amended, or any other applicable federal or
state insolvency or similar laws; or

      (b)   Due to a material breach by the other party of its obligations under
this Agreement, provided that such breach has not been cured within thirty (30)
days after notice thereof from the non-breaching party; or

      (c)   On thirty (30) days prior written notice to the other party, if the
Product is not being marketed due to regulatory problems, court or
administrative proceedings, product liability claims, or recalls, provided,
however, that the party terminating under this section shall not be entitled to
do so if any of the foregoing reasons for termination are the result of the
terminating party's negligence or willful misconduct, whether under this
Agreement or under any other agreement between the parties;

      (d)   Due to a Change in Control, upon thirty (30) days prior written
notice to the other party; or

      (e)   Following the completion of Q2 of Fiscal Year 2005 in the event that
the Quarterly Net Sales in any two quarters within a given 12 month period are
fifty percent (50%) or more less than the Forecasted Quarterly Net Sales for
those Fiscal Quarters as set forth in Schedule 6.1; provided that (i) written
notice is given during the quarter following the second of the said two quarters
and (ii) if Quarterly Net Sales of the Product during the quarter following the
second of the said two quarters improve to be greater than 50% of the Forecasted
Quarterly Net Sales for that quarter, the Agreement may be terminated by BCI
only if Cardinal Health provides its written agreement to such termination..

                                                                              21
<PAGE>

For purposes of this Section, a "Change in Control" means any transaction or
series of transactions which results in (i) direct or indirect ownership of more
than 50% of the voting stock of either party by persons who are not an Affiliate
of that party as of the date of this Agreement, or (ii) transfer in ownership of
or license of the Product to any third-party entity other than BCI or an entity
that is an Affiliate of BCI as of the date of this Agreement that has assumed
all of BCI's obligations under this Agreement.

14.3  Effect of Termination.

      (a)   Compensation. The termination or expiration of this Agreement shall
not affect either party's obligation to reimburse or pay the other party any
amount then due and owing to the other party under this Agreement.

      (b)   Confidential or Other Information. Upon termination or expiration of
this Agreement, the Parties shall return or destroy all Confidential Information
of the other. Cardinal Health also must return all Product Promotional Materials
and Product samples.

14.4  Early Termination/ Buyout.

      (a)   Liquidated Damages. BCI and Cardinal Health acknowledge that
Cardinal Health would suffer damages upon early termination of this Agreement
and such damages would be difficult to ascertain and are not susceptible of
ready proof. As a result, the Parties agree that the Termination Fees set forth
in this Section are a reasonable estimation of Cardinal Health's expenses in
preparing to perform under this Agreement, its expectancy interest and damages
upon early termination of this Agreement by BCI, and shall not be construed or
deemed to be a penalty.

      (b)   Additional Termination Rights, Termination by BCI, and Termination
Fee. BCI shall have the right to terminate this Agreement without cause upon
ninety (90) days prior written notice to Cardinal Health. In the event that BCI
terminates this Agreement without cause in accordance with the terms of this
subsection or if BCI terminates this Agreement pursuant to Section 14.2(c), BCI
agrees to pay Cardinal Health a "Termination Fee" calculated as set forth in
Schedule 14.4(b), provided, however, that BCI shall not be obligated to pay the
Termination Fee if BCI terminates pursuant to Section 14.2(c) due to regulatory
problems, product liability claims or recalls that are the result of Cardinal
Health's or one its Affiliates' negligence or willful misconduct. Such
Termination Fee shall be paid in full within 12 months of the date of
termination in four equal quarterly installments, the first of which shall be
paid within fifteen (15) days of termination of this Agreement.

      (c)   Termination by Cardinal Health. In the event of termination of this
Agreement by Cardinal Health pursuant to Section 14.2(a), Section 14.2(b), or
Section 14.2(c), BCI shall be obligated to pay to Cardinal Health the
Termination Fee, provided, however, that BCI shall not be obligated to pay the
Termination Fee if BCI terminates pursuant to Section 14.2(c) due to regulatory
problems, product liability claims or recalls that are the result of Cardinal
Health's or one its Affiliates' negligence or willful misconduct. Payment of the
Termination Fee due under

                                                                              22
<PAGE>

this Section shall be due within 12 months of the termination of this Agreement
in four equal quarterly installments, the first of which shall be paid within
fifteen (15) days of termination of this Agreement.

14.5  Change in Control.

      (a)   If neither party terminates this Agreement due to a Change in
Control in accordance with Section 14.2(d), then, notwithstanding Section 15.9,
this Agreement shall be binding upon and inure to the benefit of the parties,
their successors and assigns, including without limitation any successor owner,
licensee or sublicensee of the Product.

      (b)   In the event Cardinal Health terminates this Agreement due to a
Change in Control of BCI in accordance with Section 14.2(d), BCI shall have the
right to hire the Representatives upon payment of the Contract Sales Services
Buyout Fee set forth in Schedule 5.7(c), but shall not be required to pay the
Termination Fee. If BCI chooses not to hire the Representatives, BCI shall not
be obligated to pay the Termination Fee or the Contract Sales Services Buyout
Fee set forth in Schedule 5.7(c), but BCI shall instead pay a fee equal to
thirty-three percent (33%) of the aggregate base salaries of all
Representatives.

      (c)   In the event BCI terminates this Agreement due to a Change in
Control of BCI in accordance with Section 14.2(d), BCI and/or its successors or
assigns shall pay the Termination Fee. Payment of the Termination Fee due under
this Section shall be due within 12 months of the termination of this Agreement
in four equal quarterly installments, the first of which shall be paid within
fifteen (15) days of termination of this Agreement.

      (d)   In the event either party terminates this Agreement due to a Change
in Control of Cardinal Health in accordance with Section 14.2(d), BCI shall have
the right to hire the Representatives upon payment of the Contract Sales
Services Buyout Fee set forth in Schedule 5.7(c), but shall not be required to
pay the Termination Fee. If BCI chooses not to hire the Representatives, BCI
shall not be obligated to pay the Termination Fee, the Contract Sales Service
Buyout Fee or any other fee related to termination of this Agreement.

      (e)   The non-solicitation terms in Section 5.7(e) shall apply to any
Representative not hired by BCI upon termination of this Agreement due to a
Change in Control of BCI.

                                   ARTICLE 15
                                  MISCELLANEOUS

15.1  Cardinal Health Independent Contractor. Cardinal Health is being retained
and shall perform hereunder strictly as an independent contractor.
Representatives of Cardinal Health performing services hereunder shall not be,
and shall not be considered to be, employees of BCI for any purpose, and shall
at all times remain employees of Cardinal Health. Neither party shall have any
responsibility for the hiring, termination, compensation, benefits or other
conditions of employment of the other party's employees, except as otherwise
provided in this Agreement. Nothing contained in this Agreement shall be
construed as creating a joint venture or, except as

                                                                              23
<PAGE>

otherwise provided herein, as granting to either party the authority to bind or
contract any obligations in the name of or on the account of the other party or
to make any guarantees or warranties on behalf of the other party.

15.2  No Waiver: Cumulative Remedies. No failure or delay on the part of either
party in exercising any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder. No waiver of any provision hereof
shall be effective unless in writing and signed by the party giving such waiver.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.

15.3  Captions. Article and Section headings used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.

15.4  Governing Law. This Agreement shall be construed and the respective rights
of the Parties hereto determined according to the substantive laws of the State
of Ohio, exclusive of conflict of laws principles.

15.5  Severability. If any provision of this Agreement or any other document
delivered under this Agreement is prohibited or unenforceable in any
jurisdiction, it shall be ineffective in such jurisdiction only to the extent of
such prohibition or unenforceability, and such prohibition or unenforceability
shall not invalidate the balance of such provision to the extent it is not
prohibited or unenforceable nor the remaining provisions hereof, nor render
unenforceable such provision in any other jurisdiction. In the event any
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the Parties hereto shall use their best efforts to substitute a
valid, legal and enforceable provision which, insofar as practical, implements
the purposes hereof.

15.6  Entire Agreement: Modification. This Agreement contains the entire
agreement between the Parties and supersedes all prior or contemporaneous
discussions, negotiations, representations, warranties, or agreements relating
to the subject matter of this Agreement. No changes to this Agreement will be
made or be binding on either party unless made in writing and signed by each
party.

15.7  Notices. Any notice or request required or desired to be given in
connection with this Agreement shall be deemed to have been sufficiently given
if sent by (i) pre-paid registered or certified mail, (ii) facsimile
transmission, or (iii) a reliable overnight delivery service to the intended
recipient at the address set forth below or such other address as may have been
furnished in writing by the intended recipient to the sender. The date of
receipt shall be deemed to be the effective date on which notice was given,
provided that all facsimile transmissions shall contain a provision requiring
the intended recipient to confirm receipt and no facsimile transmission shall be
effective unless confirmation of its receipt is received within twenty-four
hours of its transmission.

      All notices shall be addressed to:

                                                                              24
<PAGE>

            If to BCI, to:
            Bone Care International, Inc.
            Bone Care Center
            1600 Aspen Commons
            Middleton, WI 53562
            Fax: (608) 662-7870
            Attention: President

            to Cardinal Health, to:

            Cardinal Health
            Healthcare Marketing Services
            1800 Valley Road
            Wayne, New Jersey 07470
            Fax: (973) 709-3203
            Attention: President

            with a copy to:
            Cardinal Health
            7000 Cardinal Place
            Dublin, Ohio 43017
            Fax: (614) 757-5051
            Attention: Associate General Counsel,
                       Pharmaceutical Technologies and Services

15.8  Execution in Counterparts. This Agreement may be executed in counterparts,
each of which, when executed and delivered, shall be deemed to be an original
and all of which together shall constitute one and the same document.

15.9  Assignment. Except as provided in Section 14.5, this Agreement may not be
assigned or transferred by either party without the prior written consent of the
other party hereto. Any such assignment shall not materially or adversely affect
the rights or obligations of either party to this Agreement.

15.10 Public Announcements. Neither party will make any press release or other
public disclosure regarding this Agreement or the transactions contemplated
hereby without the other party's express prior written consent, except as
required under applicable law or by any governmental agency, in which case the
party required to make the press release or public disclosure shall use
commercially reasonable efforts to obtain the approval of the other party as to
the form, nature and extent of the press release or public disclosure prior to
issuing the press release or making the public disclosure.

15.11 Force Majeure. Failure of either party hereto to fulfill or perform its
obligations under this Agreement shall not subject such party to any liability
if such failure is caused or occasioned by, without limitation, acts of God,
acts of the public enemy, fire, explosion, flood, drought, war,

                                                                              25
<PAGE>

riot, sabotage, embargo, strikes or other labor disputes (which strikes or
disputes need not be settled), compliance with any order, regulation, or request
of government, or by any other event or circumstance of like or different
character to the foregoing beyond the reasonable control and without the fault
or negligence of such party (a "Force Majeure Event") provided such party uses
reasonable efforts to remove such Force Majeure Event and gives the other party
prompt notice of the existence of such Force Majeure Event.

15.12 Survival. The obligations set forth in Sections 4.6, 5.7 and 5.8 and
Articles 1, 6, 7, 9, 10, 11, 12, 13, 14, and 15 and any other terms or
provisions expressly or implicitly intended to survive the expiration or
termination of this Agreement, shall survive the expiration or termination of
this Agreement.

15.13 Alternative Dispute Resolution. If a dispute, controversy or disagreement
("Dispute") arises between the Parties in connection with this Agreement, then
the Dispute shall be presented to the respective presidents or senior executives
of Cardinal Health and BCI for their consideration and resolution. If such
Parties cannot reach a resolution of the Dispute, then such Dispute shall be
resolved by arbitration in accordance with the then existing commercial
arbitration rules of The CPR Institute for Dispute Resolution ("CPR"), 366
Madison Avenue, New York, NY 10017. Arbitration shall be conducted in the
jurisdiction of the defendant party.

      IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized officers.

CARDINAL HEALTH PTS, LLC                          BONE CARE INTERNATIONAL, INC.

By:    /S/ STEVEN M. FREEMAN                      By:    /S/ PAUL L. BERNS
       -----------------------------                     ---------------------
Name:  Steven M. Freeman                          Name:  Paul L. Berns
Title: President, Healthcare Marketing Services   Title: President and CEO
Date:  July 13, 2004                              Date:  July 14, 2004

                                                                              26
<PAGE>

                                 SCHEDULE 2.1(c)
                          DECREASE IN PROMOTIONAL SPEND

<TABLE>
<CAPTION>
 PERCENTAGE BY WHICH THE QUARTERLY NET
SALES IN ANY FISCAL QUARTER IS LESS THAN
 THE FORECASTED QUARTERLY NET SALES FOR      DECREASE IN CARDINAL     DECREASE IN BCI
        THE SAME FISCAL QUARTER                PROMOTIONAL SPEND     PROMOTIONAL SPEND
<S>                                          <C>                     <C>
                  ***%                               ***%                  ***%
                  ***%                               ***%                  ***%
                  ***%                               ***%                  ***%
                  ***%                               ***%                  ***%
                  ***%                               ***%                  ***%
                  ***%                               ***%                  ***%
                  ***%                               ***%                  ***%
                  ***%                               ***%                  ***%
                  ***% OR MORE                       ***%                  ***%
</TABLE>

                                                                              27
<PAGE>

                                  SCHEDULE 3.1
                       CARDINAL FLEXIBLE PROMOTIONAL SPEND

                                FISCAL YEAR 2005

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2006

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2007

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2008

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

The total amount of the Cardinal Promotional Spend as set forth on this Schedule
is determined by taking Cardinal Health's fully burdened standard fees for
Medical Education Services or other services provided by Cardinal Health upon
request of the JCC and includes the total cost of any Direct Expenses that would
ordinarily be due in connection with such services. For example, in Q1 of 2005,
the total Cardinal Promotional Spend according to this Schedule is $***. If the
Direct Expenses for services to be provided by Cardinal during Q1 are expected
to be $***, the maximum fully burdened value of flexible promotion services that
Cardinal Health would be required to provide is $***, plus the $*** in
pass-through expenses, for a total required Cardinal Promotional Spend of $***
in Q1 of 2005.

                                                                              28
<PAGE>

                                  SCHEDULE 3.2
                              BCI PROMOTIONAL SPEND

                                FISCAL YEAR 2005

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2006

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2007

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2008

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                                                              29
<PAGE>

                                  SCHEDULE 5.1
                             CONTRACT SALES SERVICES

Cardinal Health shall provide a total of twenty-five (25) Representatives to
provide the Contract Sales Services as provided in this Agreement. Cardinal
Health's total cost to provide such services, which cost shall be borne by
Cardinal Health as provided in this Agreement, is set forth in the following
table:

                                FISCAL YEAR 2005

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2006

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2007

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

                                FISCAL YEAR 2008

<TABLE>
<CAPTION>
 Q1     Q2     Q3     Q4
----   ----   ----   ----
<S>    <C>    <C>    <C>
$***   $***   $***   $***
</TABLE>

The foregoing amounts include approximately $*** to upgrade BCI's sales force
automation hardware system. The Parties shall mutually agree upon the hardware
to be upgraded and the specific hardware that will be purchased to replace such
hardware. Upon expiration or termination of this Agreement for any reason
whatsoever, BCI shall pay to Cardinal Health the actual cost remaining on
Cardinal Health's books (i.e., net of depreciation) for the hardware (e.g.
personal computers, printers and handhelds) ("Book Value") utilized by the
Representatives at the time of such expiration or termination.

                                                                              30
<PAGE>

                                  SCHEDULE 5.3

                       ALLOCATION OF RESPONSIBILITIES FOR
                        CONTRACT SALES SERVICE ACTIVITIES

1.    Cardinal Health will recruit, interview and hire as its employees the
Representatives. Cardinal Health will ensure that Representatives have prior
experience and training in pharmaceutical sales or such other experience deemed
mutually acceptable by BCI and Cardinal Health. The Representatives shall have a
minimum of a four (4) year degree from a college or university, three or more
years of prior pharmaceutical sales experience, shall be professional in manner
and appearance, and shall be hired in accordance with all applicable state and
federal laws. Each Representative shall have a valid driver's license for
purposes of performing his/her obligations under this Agreement. Cardinal Health
shall ensure that the Representatives have satisfactory references from prior
employers. Cardinal Health shall have the sole authority to reject any applicant
for employment as a Representative. BCI may, at its sole cost and expense,
participate with Cardinal Health in the interviewing of Representatives, and
Cardinal Health shall not hire any Representative without the prior approval of
BCI; provided, however, that if Cardinal Health rejects an applicant for
Representative and gives written notice thereof to BCI and thereafter Cardinal
Health hires such applicant at the request of BCI, BCI shall indemnify for and
hold Cardinal Health harmless from any Damages arising as a result of such
Representative's wrongful or negligent acts or omissions.

2.    Cardinal Health shall have sole and exclusive authority to discipline or
terminate the employment of Representatives. BCI may request that a
Representative be terminated or reassigned at any time, provided that such
termination or reassignment is consistent with Cardinal Health policies and
procedures and would not be in violation of any Applicable Laws. Cardinal Health
shall comply with such request; provided that such action complies with
Applicable Laws and is in accordance with Cardinal Health's policies and
procedures, as determined by Cardinal Health's human resources manager. In the
event Cardinal Health determines that its policies and procedures or Applicable
Laws prohibit the termination or reassignment of any Representative so requested
by BCI, it shall notify BCI of such determination and submit a corrective action
plan for BCI approval.

3.    Cardinal Health shall cause each Representative to attend and successfully
complete the Training Program conducted by BCI for the Products prior to
participating in the Contract Sales Services. Any such Representative who shall
not successfully complete all such requirements shall be removed and replaced by
another Representative who shall comply with such requirements.

4.    BCI shall provide a copy of its evaluations of the Representatives to
Cardinal Health.

5.    BCI shall provide Cardinal Health without cost with sufficient quantities
of the Product Promotional Materials (to be included in the BCI Promotional
Spend) and Product Labeling for the performance and supervision of Detailing.
BCI shall be solely responsible for the preparation, content, and method of
distribution of the Product Promotional Materials and the Product Labeling. In
connection with the Detailing of the Products, the Representatives shall use

                                                                              31
<PAGE>

only the Product Labeling and the Product Promotional Materials provided by BCI;
and under no circumstances shall Cardinal Health or the Representatives develop,
create, or use any other promotional material or literature for the Detailing of
the Products. BCI shall advise Cardinal Health immediately of any inaccuracy or
incompleteness of the Product Promotional Materials or the Product Labeling, and
upon such notice Cardinal Health and the Representatives shall immediately cease
the use of any portion or all of the Product Promotional Materials or Product
Labeling so identified by BCI. Cardinal Health's Representatives will not make
any statement that is inconsistent with the Product Promotion Materials.

6.    Cardinal Health shall instruct the Representatives to limit their verbal
statements and claims regarding the Products, including efficacy and safety, to
those that are consistent with the Product Labeling and the Product Promotional
Materials. The Representatives shall not add, delete, or modify claims of
efficacy or safety in the Detailing of the Products, nor make any changes
(including underlining or otherwise highlighting any language or adding any
notes thereto) in the Product Promotional Materials. Representatives shall not
make any disparaging, untrue, or misleading statements about BCI or any of its
Affiliates, employees, competitors, or competing products. Representatives shall
Detail the Products in strict adherence to all Applicable Laws, the Act, the
Medicare and Medicaid Anti-Kickback Statute, the American Medical Association
Gifts to Physicians from Industry Guidelines, the standards and guidelines
outlined in the PhRMA Code, and the standards and guidelines outlined in the OIG
Guidance ("Industry Standards"). Cardinal Health also shall ensure that the
Representatives understand the HIPAA privacy standards and the need to maintain
the confidentiality of any individually identifiable health information that may
inadvertently be disclosed to them during Product Detailing.

7.    The Representatives shall remain under the direct authority and control of
Cardinal Health, but shall cooperate with the members of BCI and shall receive
advice and direction related to Detail activities on the Products from BCI and
Cardinal Health mutually. The JCC shall make all decisions with respect to the
overall strategy in connection with the Detailing of the Products. Any BCI
personnel interacting with Cardinal Health Representatives shall not discipline
the Representatives or implement terms or conditions of employment or personnel
policies and/or practices with respect to the Representatives or otherwise
control the daily activities of Representatives. BCI shall provide Cardinal
Health with copies of all reports, memoranda, audits and other data it develops
pertaining to the Representatives, Detailing, and the Contract Sales Services
within fifteen (15) days of the completion of such documents; provided, however,
that any such documents claiming negligent or wrongful acts or omissions of
Representatives shall, as provided in Section 5.5 of the Agreement, be sent to
Cardinal Health as promptly as practicable and nothing within this Section 7
shall be construed to require disclosure of any materials protected by the
attorney-client privilege.

8.    BCI shall provide Cardinal Health with a list of Target Physicians and
with data on prescriptions and sales for Cardinal Health's use in performing
this Agreement. BCI shall also provide Cardinal Health with such other sales and
marketing information concerning the Products that is obtained or prepared
during the Term of this Agreement.

9.    Training Programs.

                                                                              32
<PAGE>

      (a)   BCI shall conduct a suitable training program for the
Representatives prior to the commencement of the Contract Sales Services, which
shall include such medical and technical information about the Products and such
sales training as BCI, along with Cardinal Health, deems necessary and
appropriate (the "Training Program"). The Training Program shall also include
instruction on compliance with Applicable Laws and Industry Standards. Cardinal
Health shall assist BCI with the Training Program only to the extent requested
by BCI. Representatives shall adhere to the instructions provided in the
Training Program in their Detailing efforts.

      (b)   In order to qualify for assignment in a territory, a Representative
must demonstrate thorough knowledge of the Products by passing BCI approved
Product tests at a level of proficiency agreed upon by BCI and Cardinal Health.

      (c)   Training Materials. BCI shall prepare written training materials for
the Training Program and an up-to-date programmed learning unit for the
Products, to be sent to each Representative for "at home" study a minimum of
five (5) days prior to the commencement of the Training Program

      (d)   BCI Assistance. During the Term of this Agreement, BCI shall make
available to Cardinal Health, without cost, a reasonable number of, and for a
reasonable amount of time, BCI's sales training and marketing personnel to
assist Cardinal Health's Representatives with respect to the Training Program
and additional orientation and ongoing training for the Representatives.

10.   Samples.

      (a)   Provision of Samples. BCI shall provide samples of the Products to
the Representatives at BCI's option and at its expense. BCI shall determine the
quantity and types of samples to be provided to the Representatives and the
method of distribution of the samples. In the event BCI elects to have Cardinal
Health manage the storage and distribution of samples, Cardinal Health shall
pass on to BCI the actual invoice costs for storage, distribution and other
related costs and use prudent business sense in costs incurred. All samples
shall be stored and handled by BCI and Cardinal Health in compliance with the
PDMA and all other Applicable Laws.

      (b)   Sample Accountability. Cardinal Health shall prepare and provide to
BCI for approval a sample accountability program applicable to the samples
provided by BCI.

      (c)   Return of Samples. Within 30 days following the termination or
expiration of this Agreement or within 30 days from the termination or removal
of a Representative (unless such Representative has been hired or retained by
BCI), Cardinal Health shall cause the Representatives to return to BCI all
unused Product samples provided to Cardinal Health or the Representatives by
BCI. BCI shall pay or reimburse Cardinal Health for all costs and expenses in
connection with the storage and shipment of returned samples.

                                                                              33
<PAGE>

11.   Communications from Third Parties. Cardinal Health and its Representatives
shall use their best efforts to advise BCI of all comments, statements, requests
and inquiries of the medical profession or any other third parties relating to
the Products or Product claims or indications that are not addressed by either
Product Labeling or the Product Promotional Materials, of which Cardinal Health
becomes aware. All responses to such communications to the medical profession or
such other third parties shall be handled solely by BCI. Cardinal Health shall
provide reasonable assistance to BCI to the extent requested by BCI, and at
BCI's cost and expense, to fully respond to such communications.

12.   BCI Communications. In addition to Detailing, Cardinal Health shall assist
BCI with respect to customer communications (as reasonably requested by BCI and
at BCI's cost and expense) and shall regularly advise BCI of market, economic,
regulatory and other developments of which Cardinal Health may become aware
which may affect the sale of the Products.

13.   Appointment of Coordinators. The Parties shall each appoint an authorized
coordinator of the Program ("Coordinators") between whom all communications
required or desired to be given will be sent and between whom Detailing
activities will be coordinated for Contract Sales Services. Within thirty (30)
days of signing this Agreement, each party will notify the other as to the name
of its Coordinator. Each party may replace its Coordinator at any time, upon
notice to the other party.

14.   Review of Results. The Parties shall meet periodically, but at least once
per calendar quarter, to review and discuss the actual results compared to the
marketing plans for Detailing of the Products. BCI shall regularly and promptly
share with Cardinal Health all reports, audits and other data it develops
relative to the Program.

15.   Management Reports. Cardinal Health shall provide BCI with monthly reports
in the form set forth in the table below within fifteen (15) days after the end
of each month. At the request of BCI, Cardinal Health shall furnish BCI at
reasonable times such documentation as BCI reasonably requests for purposes of
verifying the accuracy of any monthly report.

<TABLE>
<CAPTION>
        Report Name                                         Description                                  Frequency
----------------------------  -----------------------------------------------------------------------    ---------
<S>                           <C>                                                                        <C>
Territory Assignment Report   Lists the individuals covering each region and territory. If a              Monthly
                              territory is vacant, the report will indicate the date when the
                              territory became vacant and what alternate coverage is being applied
                              (i.e. Adjacent Rep, etc.)
                              In addition, the report will indicate the current turnover rate.
</TABLE>

16.   Reporting of Certain Adverse Events.

      (a)   Immediate Notification. Cardinal Health and BCI agree to notify the
other party as soon as reasonably practicable of any information that each may
obtain or learn concerning any Product or package complaint or any serious
unexpected side effect, injury, toxicity, or sensitivity reaction or any
unexpected incidence of severity thereof associated with the clinical uses,
studies, investigations, tests and marketing of the Products, whether or not
determined to be

                                                                              34
<PAGE>

attributable to the Products. "Serious" as used in this Section 16(a) refers to
an experience which results in death, permanent or substantial disability,
in-patient hospitalization, prolongation of existing in-patient hospitalization,
a congenital anomaly or cancer, or a result of an overdose or life threatening
condition. "Unexpected" as used in this Section 16(a) refers to (i) conditions
or developments not previously submitted to governmental Agencies or encountered
during clinical studies of the Products and not reflected in the Product
Promotional Materials or the Product Labeling, or (ii) conditions or
developments occurring with greater frequency, severity, or specificity than
shown by information previously submitted to governmental Agencies or
encountered during clinical studies of the Products and not reflected in the
Product Promotional Materials or the Product Labeling. Each party shall also
notify the other in a timely manner of any other adverse experience, i.e., any
unfavorable and unintended change in the structure (signs), function (symptoms)
or chemistry (laboratory data) of the body temporally associated with the use of
the Products, whether or not considered related thereto.

      (b)   Threatened Regulatory Action. Cardinal Health and BCI shall each
immediately notify the other party of any information that each may obtain or
learn regarding any threatened or pending action by a Regulatory Authority which
may affect the Products. Cardinal Health shall, at the request of BCI and at the
cost and expense of BCI, cooperate with BCI in formulating a procedure for
taking appropriate action in response to such information. Unless compelled by
law, Cardinal Health shall not respond to a Regulatory Authority without the
prior written consent of BCI.

      (c)   Training. Cardinal Health and BCI shall develop appropriate
instructions in the Training Program for Representatives as to handling of
information received or obtained subject to Sections 16(a) and 16(b) of this
Schedule.

                                                                              35
<PAGE>

                                 SCHEDULE 5.7(c)
                       CONTRACT SALES SERVICES BUYOUT FEE

THE CONTRACT SALES SERVICE BUYOUT FEE SHALL BE AS FOLLOWS:

FISCAL YEAR 2005: *** PERCENT (***%) OF THE AGGREGATE BASE SALARIES OF ALL
REPRESENTATIVES

FISCAL YEAR 2006: *** PERCENT (***%) OF THE AGGREGATE BASE SALARIES OF ALL
REPRESENTATIVES

FISCAL YEAR 2007: *** PERCENT (***%) OF THE AGGREGATE BASE SALARIES OF ALL
REPRESENTATIVES

FISCAL YEAR 2008: *** PERCENT (***%) OF THE AGGREGATE BASE SALARIES OF ALL
REPRESENTATIVES

For the purposes of this Schedule 5.7(c), "base salaries" is understood to be
exclusive of benefits and bonuses.

                                                                              36
<PAGE>

                                  SCHEDULE 6.1
                                CO-PROMOTION FEE

                                FISCAL YEAR 2005

<TABLE>
<CAPTION>
                                          Q1       Q2      Q3       Q4
                                        -----    -----    -----    -----
<S>                                     <C>      <C>      <C>      <C>
FORECASTED QUARTERLY NET SALES          $***     $***     $***     $***
CO PROMOTE FEE %                         ***%     ***%     ***%     ***%
CO-PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUY OUT                    ***%     ***%     ***%      ***%
CO PROMOTE FEE % (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%     ***%      ***%
CO PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUYOUT (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%     ***%      ***%
</TABLE>

                                FISCAL YEAR 2006

<TABLE>
<CAPTION>
                                          Q1       Q2      Q3       Q4
                                        -----    -----    -----    -----
<S>                                     <C>      <C>      <C>      <C>
FORECASTED QUARTERLY NET SALES          $***     $***     $***     $***
CO PROMOTE FEE %                         ***%     ***%     ***%     ***%
CO-PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUY OUT                    ***%     ***%     ***%     ***%
CO PROMOTE FEE % (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%     ***%     ***%
CO PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUYOUT (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%     ***%     ***%
</TABLE>

                                FISCAL YEAR 2007

<TABLE>
<CAPTION>
                                          Q1       Q2      Q3       Q4
                                        -----    -----    -----    -----
<S>                                     <C>      <C>      <C>      <C>
FORECASTED QUARTERLY NET SALES          $***     $***     $***     $***
CO PROMOTE FEE %                         ***%     ***%     ***%     ***%
CO-PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUY OUT                    ***%     ***%     ***%     ***%
CO PROMOTE FEE % (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%     ***%     ***%
</TABLE>

                                                                              37
<PAGE>

<TABLE>
<S>                                      <C>      <C>       <C>     <C>
CO PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUYOUT (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%      ***%    ***%
</TABLE>

                                FISCAL YEAR 2008

<TABLE>
<CAPTION>
                                          Q1       Q2      Q3       Q4
                                        -----    -----    -----    -----
<S>                                     <C>      <C>      <C>      <C>
FORECASTED QUARTERLY NET SALES          $***     $***     $***     $***
CO PROMOTE FEE %                         ***%     ***%     ***%     ***%
CO-PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUY OUT                    ***%     ***%     ***%     ***%
CO PROMOTE FEE % (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%     ***%     ***%
CO PROMOTE FEE % AFTER CONTRACT
SALES SERVICE BUYOUT (IF PRICE
NORMALIZATION APPLIES+++)                ***%     ***%     ***%     ***%
</TABLE>

      Each of the Co Promote Fee % set forth above are in the alternative and
      not cumulative or additive. The determination of which of the four Co
      Promote % applies will be determined in accordance with Sections 5.7(c)
      and/or Section 6.5.

*     Both Parties operate on a fiscal year of July 1 through June 30.

++    The Co-Promote Fee is expressed as a percentage of the Quarterly Net
      Sales.

+++   Price normalization as defined in Section 6.5 applies only in a given
      Fiscal Quarter in which the actual capsule volume sales of the Hectorol
      2.5 mcg product exceed by ***% or more the baseline forecast projected on
      a quarterly basis, where the baseline forecast for Hectorol 2.5mcg on an
      annual basis is as follows:

                   Baseline Hectorol 2.5 mcg Capsule Forecast

<TABLE>
<CAPTION>
                      Q1        Q2       Q3       Q4       Annual
                      --        --       --       --       ------
<S>                   <C>       <C>      <C>      <C>      <C>
Fiscal Year 2005      ***       ***      ***      ***        ***
Fiscal Year 2006      ***       ***      ***      ***        ***
Fiscal Year 2007      ***       ***      ***      ***        ***
Fiscal Year 2008      ***       ***      ***      ***        ***
</TABLE>

                                                                              38
<PAGE>

                                SCHEDULE 14.4(b)
                                 TERMINATION FEE

"Termination Fee" shall be calculated as follows:

      (i)   If BCI hires the Representatives in accordance with this Agreement,
            the Termination Fee shall include an amount equal to the Contract
            Sales Force Buyout Fee set forth on Schedule 5.7(c) based on the
            year of termination but if BCI chooses not to hire the
            Representatives, the Termination Fee shall include an amount that is
            thirty-three (33%) of the aggregate yearly base salaries (understood
            to be exclusive of benefits and bonuses) of all the Representatives
            provided by Cardinal Health under this Agreement and that are still
            engaged by Cardinal Health at the time of such termination;

      (ii)  The Book Value for the sales force automation upgrade, as set forth
            on Schedule 5.1; plus

      (iii) An amount determined on an annualized basis that is equal to: (a)
            the Cardinal Promotional Spend each fiscal year through the date of
            termination of this Agreement, plus (b) an amount equal to a fifteen
            percent (15%) annualized return of the Cardinal Promotional Spend
            each fiscal year through the date of termination of this Agreement,
            less (c) the total Co-Promote Fees actually paid by BCI each fiscal
            year through the date of termination of this Agreement. For the
            avoidance of doubt, the amount is determined on an annualized basis
            by calculating (a) plus (b) less (c) separately on a stand-alone
            basis for each fiscal year up to, and including, the fiscal year
            that includes the date of termination of this Agreement. Amounts due
            for any fiscal year in which the sum of (a) and (b) is more than the
            Co-Promote Fees actually paid in that fiscal year shall not be
            offset in any way by the result for any fiscal year in which the sum
            of (a) and (b) is less than Co-Promote Fees actually paid in that
            fiscal year.

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

                                                                              39

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