We consider delayed , volumetric heating in a magnetized outflow that has broken out of a confining medium and expanded to a high Lorentz factor ( \Gamma \sim 10 ^ { 2 } -10 ^ { 3 } ) and low optical depth to scattering ( \tau _ { T } \sim 10 ^ { -3 } -10 ^ { -2 } ) .
The energy flux at breakout is dominated by the magnetic field , with a modest contribution from quasi-thermal gamma rays whose spectrum was calculated in Paper I .
We focus on the case of extreme baryon depletion in the magnetized material , but allow for a separate baryonic component that is entrained from a confining medium .
Dissipation is driven by relativistic motion between these two components , which develops once the photon compactness drops below 4 \times 10 ^ { 3 } ( Y _ { e } / 0.5 ) ^ { -1 } .
We first calculate the acceleration of the magnetized component following breakout , showing that embedded MHD turbulence provides significant inertia , the neglect of which leads to unrealistically high estimates of flow Lorentz factor .
After re-heating begins , the pair and photon distributions are evolved self-consistently using a one-zone kinetic code that incorporates an exact treatment of Compton scattering , pair production and annihilation , and Coulomb scattering .
Heating leads to a surge in pair creation , and the scattering depth saturates at \tau _ { T } \sim 1 -4 .
The plasma maintains a very low ratio of particle to magnetic pressure , and can support strong anisotropy in the charged particle distribution , with cooling dominated by Compton scattering .
High-energy power-law spectra with photon indices in the range observed in GRBs ( -3 < \beta < -3 / 2 ) are obtained by varying the ratio of heat input to the seed energy in quasi-thermal photons .
We contrast our results with those for continuous heating across an expanding photosphere , and show that the latter model produces soft-hard evolution that is inconsistent with observations of GRBs .