ex10-4.htm


    EXHIBIT
      10.4

     

    
       

      
         

        


        


        September
          20, 2007

        


        


        


        Mr.
          Gregory Doody

        Calpine
          Corporation

        717
          Texas Avenue

        Houston,
          TX 77002

        


        Re:        
          Calpine Emergence Compensation

        


        Dear
          Greg:

        
 

        As
          you may be aware, on May 15, 2006, Calpine Corporation (“Calpine”) and its
          debtor affiliates (collectively, the “Debtors”) received Bankruptcy Court
          approval of the Emergence Incentive Plan (the “EIP”), which provides variable
          cash awards to approximately twenty select senior employees.  Pursuant
          to the terms of the EIP, an incentive pool will be created according to
          certain
          metrics related to the valuation of Calpine both under the Debtors’ plan of
          reorganization and based on market value during a certain period after
          the
          effective date of the plan (the “EIP Pool”), which, once created, will be
          distributed to eligible employees solely at my discretion as chief executive
          officer of Calpine.

        


        This
          letter is intended to serve as notice to you that you have been chosen
          to be a
          participant in the EIP.  This letter is further intended to set forth
          my intentions regarding distributions under the EIP.  Accordingly, as
          of the date hereof, you are eligible to receive a minimum of 16% of the
          EIP Pool
          so long as the EIP Pool is funded.  The actual percentage of the EIP
          Pool that is ultimately paid out could be greater.

        


        This
          proposed distribution percentage is a final and binding decision and cannot
          be
          altered except in the event that you are terminated by Calpine for “Cause” or
          you voluntarily terminate without “Good Reason” (as each of such terms are
          defined on Exhibit A attached hereto), in which case you will forfeit any
          right to any distribution from the EIP Pool.  You will remain eligible
          to receive the proposed distribution set forth herein if you resign for
“Good
          Cause” or are terminated without “Cause,” as those terms are defined in your
          employment agreement, to the extent you have an employment
          agreement.  Any distribution out of the EIP Pool will be made during
          the 2008 calendar year.

        


        Additionally,
          we have recommended that you participate in two equity grants that we intend
          to
          make upon our emergence from bankruptcy – assuming of course that we emerge from
          bankruptcy as a publicly traded company.  The first grant will be a
          normal annual grant and the second grant will be a one-time emergence
          grant.  The specific terms and conditions of the grants – vesting
          criteria, treatment of unvested equity in various termination scenarios,
          etc.
          remain


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

                

          

        


        subject
          to the consent of our Official Committee of Unsecured Creditors (the
“OCUC”).  Therefore, your participation is not yet finalized and is
          contingent upon approval of our overall management equity plan by the
          OCUC.  With that said, the amounts below have been approved by the
          Board of Directors; however, they remain subject to the consent of the
          OCUC.

        


        Annual
          Grant
          Shares                62,400
          = 70% Stock Options/30% Restricted Stock

        


        Emergence
          Grant Shares          138,000
          = 25% Stock Options/75% Restricted Stock

        


        I
          believe the Emergence Incentive Plan allows Calpine to recognize and reward
          your
          efforts toward a successful exit from bankruptcy in amounts that are more
          than
          competitive.  I also believe the equity grants upon our emergence
          appropriately positions you to significantly share in the future success
          of the
          company.

        


        I
          look forward to our continued shared
          success.  Should you have any questions regarding the foregoing,
          please do not hesitate to contact me.

        


        Sincerely,

        


        /s/ Robert P. May


        


        Robert
          P. May

        Chief
          Executive Officer