exv10w5w2



 







Exhibit 10.5.2




EXECUTION COPY




EMPLOYMENT AGREEMENT




          This Employment Agreement (the “Agreement”) is entered into effective as of December 12, 2005,
between CALPINE CORPORATION, a Delaware corporation (the “Company”), and ROBERT P. MAY
(“Executive”) to provide the terms and conditions for Executive’s employment with the Company and
its affiliates from time to time (together, the “Group”).




          The Board of Directors of the Company (the “Board”) named Executive as Chief Executive Officer
of the Company and a member of the Board on December 12, 2005 (the “Start Date”).




          The Company and Executive have agreed that Executive will be employed by the Company and will
serve as the Company’s Chief Executive Officer, upon the terms and conditions set forth below.




          Accordingly, and in consideration of the mutual obligations set forth in this Agreement, which
Executive and the Company agree are sufficient, Executive and the Company agree as follows:




1       Term of Employment.




     Subject to the provisions of paragraph 4 below, Executive’s term of employment (“Term of
Employment”) consists of the initial term and any subsequent term for which the Agreement is
renewed. The initial term of this Agreement begins on December 12, 2005, and ends on December 31,
2007, subject to the termination provisions of paragraph 4 below. No later than 150 days prior to
the end of the initial Term of Employment, the Company shall inform Executive if it intends to
renew this Agreement for a subsequent Term of Employment. If no notice is given, and Executive’s
employment continues after the Term of Employment, Executive’s continued employment and any
subsequent termination thereof shall not be subject to the terms of this Agreement.



2       Position and Responsibilities.




     During the Term of Employment, Executive shall have the position and responsibilities
described below. Executive shall be employed as the Company’s Chief Executive Officer, with the
general executive powers and authority that accompany that position. Executive shall report
directly to the Board and shall have the duties and responsibilities that are typically performed
by the chief executive officer of a public company, as well as any other duties consistent with his
position that are assigned to Executive by the Board. Unless and until the Board elects a
President of the Company, Executive shall also have the powers, duties and responsibilities that
the Company’s Bylaws confer on the President of the Company. Executive agrees to comply with such
lawful policies of the Company as may be adopted from time to time. Although Executive may be
reasonably required to travel from time to time for business reasons, his principal place of
employment shall be the Company’s corporate offices wherever located.




	 	(a)	 	Executive shall devote all of his full business time and his best efforts,
skill, and attention to the Company’s business and affairs and to promoting the Company’s
best interests.





 









 






	 	(b)	 	Executive shall serve as a non-chairman member of the Board for as long as
Executive continues to be nominated and elected.
	 
	 	(c)	 	Notwithstanding the foregoing, nothing herein shall preclude Executive from (i)
serving on the boards of directors of other corporations and/or charitable organizations
(subject to the approval of the Board, such approval not to be unreasonably withheld),
(ii) engaging in charitable activities and community affairs, and (iii) managing his
personal investments and affairs, provided that any such activities listed in (i) and
(ii) above do not interfere in more than a de minimis manner with the proper performance
of his duties and responsibilities hereunder and comply with the limitations set forth in
paragraph 5.a.





3       Compensation.




          For all of his services during the Term of Employment, Executive shall receive the following
compensation:





	 	(a)	 	Base Salary. Executive’s annual base salary shall be $1,500,000 (as may be
increased from time to time, the “Base Salary”). The Board will review the Base Salary
at least annually and may increase it at any time for any reason, in its sole
discretion; however, it shall have no obligation to do so.
	 
	 	(b)	 	Bonus. In addition to his Base Salary, Executive shall be eligible to receive
an annual cash performance bonus (the “Bonus”) for each fiscal year ending during the
Term of Employment if, and to the extent that, (x) except with respect to any Bonus
payable earlier as severance under paragraph 4.b.ii.1, Executive remains employed by the
Company on the last day of such fiscal year and (y) corporate performance objectives
established by the Board are achieved, as determined by the Board or a committee thereof
in its sole discretion. Payment of the Bonus shall be made at the same time that other
senior-level executives receive their bonuses, and no later than March 15th of the
calendar year after the calendar year in which the Bonus is earned. The target level
for Executive’s Bonus shall be established by the Board (or a committee thereof) in its
sole discretion, provided that the minimum target level for any year shall be 100% of
the Base Salary (the “Target Annual Bonus”). However, subject to the minimum Bonuses
for the Company’s fiscal years ending December 31, 2006, and December 31, 2007, set
forth below, Executive’s actual Bonus in any year may range from 0% to 200% of the
Target Annual Bonus:






	 	(i)	 	For the Company’s fiscal year ending December 31, 2006, Executive shall
be entitled to receive a minimum Bonus of $2,250,000, to be paid no later than
March 15, 2007 but no earlier than January 1, 2007.
	 
	 	(ii)	 	For the Company’s fiscal year ending December 31, 2007, Executive shall
be entitled to receive a minimum Bonus of $1,500,000, to be paid no later than
March 15, 2008 but no earlier than January 1, 2008.





          
(c) Benefits. Executive shall be eligible to participate in all Company benefit
plans and programs as are generally available for its senior executives, and his
benefits shall be based on the terms of the applicable plan as established by the
Company



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from time to time. Nothing in this Agreement shall restrict the Company’s ability to
change or terminate any or all of its employee benefit plans and programs from time to
time; nor shall anything in this Agreement prevent any such change from affecting
Executive.




	 	(d)	 	Signing Bonus. In addition to the Base Salary and Bonus, Executive shall be
entitled to receive a one-time payment of $2,000,000, payable within 15 days of the
Start Date. If Executive resigns his employment without Good Reason or Executive’s
employment is terminated by the Company for Cause, Executive shall repay a pro rata
portion (based on the number of full calendar months remaining in the initial 24 month
term divided by 24 months) of the signing bonus (net of any associated income and
employment taxes) within 10 days after such resignation or termination of employment.
Within 10 days after the filing of Executive’s federal income tax return for the year in
which such repayment is made, Executive shall pay to the Company the amount by which
Executive’s federal and state income tax liability for such year was reduced as a result
of such repayment. If Executive resigns for Good Reason, dies or becomes Disabled or if
Executive’s employment is terminated by the Company without Cause, Executive shall be
entitled to retain the full amount of the signing bonus. The Company acknowledges and
agrees that the payment of Executive’s signing bonus is unrelated to any services that
he performed in the State of California.
	 
	 	(e)	 	Success Fee. When a plan of reorganization that is confirmed by the Bankruptcy
Court becomes effective (the “Plan Effective Date”) during Executive’s tenure as Chief
Executive Officer of the Company, Executive shall be entitled to receive a one-time
payment in an amount equal to the amount set forth on Exhibit A attached hereto (the
“Success Fee”). If at any time after the Start Date, Executive resigns his employment
with Good Reason or Executive’s employment is terminated by the Company without Cause
before the Plan Effective Date, Executive shall be entitled to payment of the Success
Fee if the Plan Effective Date occurs within 12 months after the date of termination of
employment. In any case such Success Fee shall be due and payable on the Plan Effective
Date. Executive shall not be entitled to all or any portion of the Success Fee if the
Company terminates his employment for Cause, Executive resigns his employment without
Good Reason or Executive’s employment terminates due to death or Disability before the
Plan Effective Date.
	 
	 	(f)	 	Guaranteed Minimum Success Fee. Executive shall be entitled to receive the
guaranteed minimum success fee (the “Guaranteed Minimum Success Fee”) described in this
paragraph 3.f; provided, however, to the extent the Success Fee is paid, the Success Fee
shall be reduced by the Guaranteed Minimum Success Fee, or any portion thereof, paid to
Executive and shall be paid as promptly as practicable in a lump sum. In such case, no
further payment shall be made with respect to the Guaranteed Minimum Success Fee. The
Guaranteed Minimum Success Fee shall be deemed earned as of the date this Agreement is
approved by the Bankruptcy Court.





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	 	(i)	 	Amount and Payment Schedule. Executive’s Guaranteed Minimum Success Fee
(in addition to the other payments specifically contemplated in this Agreement
including, without limitation, the minimum emergence bonus set forth on Exhibit A
attached hereto) shall be an annual amount equal to the sum of his (x) annual
Base Salary and (y) Target Annual Bonus as of the earlier of (a) the date his
term of employment under this Agreement terminates or (b) the Plan Effective
Date, for one year, provided that if Executive is terminated in calendar year
2006 or 2007, in lieu of the Target Annual Bonus referenced in (y) above,
Executive shall receive his minimum Bonus for the applicable year as set forth in
paragraph 3(b), above. The Guaranteed Minimum Success Fee shall be paid to
Executive on the earliest of (1) the date Executive is terminated by the Company
without Cause, (2) the date Executive terminates his employment for Good Reason
and (3) the Plan Effective Date. Subject to the timing rule described in
paragraph 3.f.ii, below, all payments shall be made as promptly as practicable.
Subject to paragraph 3.f above, if the Guaranteed Minimum Success Fee is paid on
any date prior to the Plan Effective Date, the Guaranteed Minimum Success Fee
shall be paid ratably on the same payment schedule that applied to Executive’s
salary as of such date. If the Guaranteed Minimum Success Fee is paid on the
Plan Effective Date, Executive shall be entitled to a lump sum payment.
	 
	 	(ii)	 	Timing. To the extent necessary to comply with the restriction in
Section 409A(a)(2)(B) of the Internal Revenue Code of 1986, as amended (the
“Code”) concerning payments to specified employees, the first Guaranteed Minimum
Success Fee payment (if the Guaranteed Minimum Success Fee is paid ratably) to
Executive shall be made on the first installment date (determined under paragraph
3.f.i, above) that is at least six months after Executive’s termination date.
The first payment shall include any installments that would have been paid
previously under paragraph 3.f.i were it not for this special timing rule, plus
interest on the delayed installments at an annual rate (compounded monthly) equal
to the federal short-term rate (as in effect under Section 1274(d) of the Code on
Executive’s termination date).






	 	(g)	 	Relocation. Executive shall be reimbursed for the following costs associated
with relocating to the area in which the Company’s headquarters is located:






	 	(i)	 	All reasonable transaction costs (including any real estate brokerage
fees Executive incurs) and reasonable moving expenses incurred by Executive, in
each case while an employee of the Company, in connection with moving his
household goods from Executive’s current residence to area in which the Company’s
headquarters is located, provided that Executive provides appropriate
documentation (the “Reimbursement”). Reimbursements under this paragraph 3(f)
below shall be paid on or before March 15th of the calendar year after the
calendar year in which the applicable expenses were incurred. In





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connection with such payment, during the calendar year after the calendar
year in which the applicable expenses are incurred, the Company shall pay
Executive an additional payment in an amount such that after the actual
payment by Executive of an taxes, if any, imposed in connection with the
Reimbursement, Executive retains an amount equal to the Reimbursement;




	 	(ii)	 	Reimbursement of all reasonable temporary housing and living expenses
incurred by Executive, in each case while an employee of the Company, for the
shorter of (A) 9 months or (B) the period from the Start Date until Executive
moves to a residence of his choosing in the area in which the Company’s
headquarters is located; provided, that the Board may extend such period from
time to time. Reimbursements under this paragraph 3(f) below shall be paid on or
before March 15th of the calendar year after the calendar year in which the
applicable expenses were incurred.






	 	(h)	 	Legal Fees. On or before March 30, 2006, or such later date to which Executive
and Company mutually agree, the Company shall pay Executive’s reasonable legal fees that
are directly related to the negotiation, entry and approval by the Bankruptcy Court of
this Agreement and were actually incurred during such negotiation, entry or approval, in
an amount not to exceed $50,000.





4       Termination





	 	(a)	 	Termination of Employment.






	 	(i)	 	Termination by the Company for Cause. The Board may terminate
Executive’s employment for Cause at any time after (x) providing Executive with 5
business days’ advance written notice explaining the circumstances that justify
the termination (a “Termination Notice”); and (y) except in the case of
termination for an event covered by (2) below, providing Executive with the
opportunity to appear before the Board prior to any vote to terminate Executive’s
employment for Cause, which opportunity may occur during the 5-business-day
notice period. “Cause” means any of the following: (1) Executive’s breach of
any material term of this Agreement that is not corrected within 10 days after
delivery of a Termination Notice to Executive with respect to such breach; (2)
Executive’s commission of, or formal prosecutorial charge or indictment alleging
commission of, a felony or any crime of similar status, any crime involving
fraud, or any crime involving moral turpitude (other than motor vehicle related)
(it being agreed that in the case of a crime involving moral turpitude, only to
the extent such crime materially and adversely affects the business, standing or
reputation of the Company or any other member of the Group); (3) Executive’s
breach of fiduciary duty to the Company or any other member of the Group that has
any material and adverse impact on the Company that is not corrected within 10
days after delivery of a Termination Notice to Executive with respect to such
breach; (4) Executive’s misappropriation of funds or material property of the
Company or any other member of the Group; (5)





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Executive’s refusal to follow the lawful directives of the Board without a
materially valid business justification that is not corrected within 10 days
after delivery of a Termination Notice to Executive with respect to such
refusal; (6) Executive’s fraud related to the Company that is not corrected
within 10 days after delivery of a Termination Notice to Executive with
respect to such fraud; (7) Executive’s material dishonesty, disloyalty, gross
negligence or willful misconduct, where such dishonesty, disloyalty, gross
negligence or willful misconduct is reasonably likely to result, in
substantial and material damage to the Company or any other member of the
Group and that is not corrected within 10 days after delivery of a
Termination Notice to Executive with respect to such event; (8) Executive’s
willful and material violation of any of the Company’s Code of Conduct or
employment policies that is not corrected within 10 days after delivery of a
Termination Notice to Executive with respect to such violation; or (9)
Executive’s material violation of any federal, state or local laws that could
result in a direct or indirect financial loss to the Company or any other
member of the Group or damage the reputation of the Company or any other
member of the Group.




For this definition, no act or omission by the Executive will be “willful”
unless it is made by him in bad faith or without a reasonable belief that his
act or omission was in the best interests of the Company or the Group. Any
act, or failure to act, based upon the advice of counsel to the Company or
any member of the Group shall be presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the Company and
the Group.




	 	(ii)	 	Termination by the Company without Cause. The Company may terminate
Executive’s employment under this Agreement without Cause upon at least 20 days’
prior written notice to Executive.
	 
	 	(iii)	 	Death or Disability. Executive’s employment by the Company will
immediately terminate upon Executive’s death and at the option of either
Executive or the Company, exercisable upon written notice to the other party, may
terminate upon the Executive’s Disability. For purposes of this Agreement,
“Disability” will occur if (A) Executive becomes eligible for benefits under a
long-term disability policy provided by the Company, if any, or (B) Executive has
become unable, due to physical or mental illness or incapacity, to substantially
perform the essential duties of his employment with reasonable accommodation for
a period of 90 days or an aggregate of 180 days during any consecutive 12 month
period, as determined by an independent physician approved by the Company and
Executive.
	 
	 	(iv)	 	Termination by Executive for Good Reason. Executive may terminate his
employment for Good Reason at any time. “Good Reason” shall mean the occurrence,
during the Term of Employment, of any of the





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following actions or failures to act, but in each case only if it is not
consented to by Executive in writing: (A) a material adverse change in
Executive’s duties, reporting responsibilities, titles or elected or
appointed offices (including the failure to be elected to the Company’s
Board) as in effect immediately prior to the effective date of such change
(including but not limited to the appointment of any person to an executive
position at the Company that is co-equal or senior to that of Executive); (B)
any reduction or failure to pay when due the Executive’s Base Salary, the
minimum 2006 and 2007 Bonus, Signing Bonus or Success Fee; (C) any reduction
by the Company in Executive’s Target Annual Bonus opportunity; (D) the
Company’s failure to timely renew this Agreement; (E) the Company’s breach of
any material term of this Agreement that is not corrected within 10 days
after delivery of a notice to the Company with respect to such breach or (F)
the failure of the Company to obtain the assumption in writing of this
Agreement by any successor to or an acquirer of all or substantially all of
the assets of the Company on or prior to a merger, consolidation, sale or
similar transaction. For purposes of this definition, none of the actions
described in clauses (A) through (F) above shall constitute “Good Reason”
with respect to Executive if it was an isolated and inadvertent action not
taken in bad faith by the Company and if it is remedied by the Company within
10 days after receipt of written notice thereof given by Executive.




	 	(v)	 	Termination by Executive without Good Reason. Executive may terminate
his employment under this Agreement without Good Reason upon at least 20 days’
prior written notice to the Company.






	 	(b)	 	Consequences of Termination of Employment.






	 	(i)	 	Termination by the Company without Cause or by Executive for Good
Reason prior to the Plan Effective Date. Executive shall receive the benefits
described in this paragraph 4.b (excluding the severance benefits set forth in
paragraphs 4.b.ii.1 and 4.b.ii.2) if the Company terminates Executive’s
employment without Cause (under paragraph 4.a.ii) at any time during the Term of
Employment or if Executive terminates his employment at any time during the Term
of Employment for Good Reason (under paragraph 4.a.iv) prior to the Plan
Effective Date. For a period of one year following the date of termination of
Executive’s employment from the Company, the Company shall at its sole cost and
expense (but disregarding any individual tax liability of Executive), and at the
election of COBRA by Executive, provide Executive (and his spouse and eligible
dependents) with group health benefits substantially similar to those benefits
that Executive (and his spouse and eligible dependents) were receiving
immediately before his termination (which may at the Company’s election be
pursuant to reimbursement of the applicable COBRA





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premium). Such coverage shall be provided to Executive as COBRA benefits and
shall terminate prior to the end of the one-year period if Executive, his
spouse or eligible dependents are no longer eligible for COBRA coverage. To
the extent possible, the benefits under this section 4.b.i.3 shall be made in
a manner that is tax efficient for the Executive so long as there is no
adverse tax consequences to the Company.




	 	(ii)	 	Termination by the Company without Cause or by Executive for Good
Reason after the Plan Effective Date. Executive shall receive the benefits
described in this paragraph 4.b (including the benefits set forth in paragraph
4.b.i.) if the Company terminates Executive’s employment without Cause (under
paragraph 4.a.ii) at any time during the Term of Employment or if Executive
terminates his employment at any time during the Term of Employment for Good
Reason (under paragraph 4.a.iv) after the Plan Effective Date. If Executive
receives the benefits set forth in this paragraph 4.b.ii, Executive shall not be
eligible for severance benefits from any other plan, program or policy of the
Company then in effect.






	 	1.	 	Amount and Payment Schedule. Executive’s
severance benefit (in addition to the other payments specifically
contemplated in this Agreement) shall be an annual amount equal to the
sum of his (x) annual Base Salary and (y) Target Annual Bonus as of the
date his employment terminates, paid for one year, provided that if
Executive is terminated in calendar year 2006 or 2007, in lieu of the
Target Annual Bonus referenced in (y) above, Executive shall receive his
minimum Bonus for the applicable year as set forth in paragraph 3(b),
above. Subject to the timing rule described in paragraph 4.b.ii.2,
below, the severance benefit shall be paid ratably on the same payment
schedule that applied to Executive’s salary at the time of his
termination.
	 
	 	2.	 	Timing. To the extent necessary to comply with
the restriction in Section 409A(a)(2)(B) of the Internal Revenue Code of
1986, as amended (the “Code”) concerning payments to specified
employees, the first severance payment to Executive shall be made on the
first installment date (determined under paragraph 4.b.ii.1, above) that
is at least six months after Executive’s termination date. The first
payment shall include any installments that would have been paid
previously under paragraph 4.b.ii.1 were it not for this special timing
rule, plus interest on the delayed installments at an annual rate
(compounded monthly) equal to the federal short-term rate (as in effect
under Section 1274(d) of the Code on Executive’s termination date).






	 	(iii)	 	Death or Disability. In the event of termination of Executive’s
employment due to death or Disability (under paragraph 4.a.ii),





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Executive shall be entitled to receive (in addition to any other payments
specifically contemplated in this Agreement) a pro rata portion of his Target
Annual Bonus for the portion of the calendar year before the date of
termination of employment, as promptly as practicable and in any event
payable on or before March 15th of the calendar year after the calendar year
in which such termination of employment occurs; but Executive shall not be
eligible to receive any other severance benefit under this paragraph 4.
Executive’s eligibility (if any) to receive a severance or retirement benefit
under any other severance or retirement plan or program maintained by the
Company shall be determined by the terms of that plan or program as in effect
on his termination date.




	 	(iv)	 	Termination for Cause or Voluntary Termination. If the Company
terminates Executive’s employment for Cause (under paragraph 4.a.i), or if
Executive terminates his employment without Good Reason (under paragraph 4.a.v),
Executive shall not be eligible to receive any severance benefit under this
paragraph 4.b.iv. Executive’s eligibility (if any) to receive a severance or
retirement benefit under any other severance or retirement plan or program
maintained by the Company shall be determined by the terms of that plan or
program as in effect on his termination date. The foregoing shall not limit the
remedies available to the Group, at law or in equity, for any loss or other
injury caused directly or indirectly by Executive.
	 
	 	(v)	 	Earned but Unpaid Bonus. In addition to any other amounts owed to
Executive under this paragraph 4.b, if the Company terminates the Executive’s
employment for any reason other than Cause or if Executive terminates employment
after December 31 of any year, Executive shall be entitled to receive any Bonus
earned by Executive for the preceding year as calculated in accordance with
paragraph 3(b) but not yet paid as of the termination date.
	 
	 	(vi)	 	Release. The Company will not be required to make the payments
stated in this paragraph 4 unless the Executive executes and delivers to the
Company an agreement releasing from all liability (other than Executive’s rights
under this Agreement and any indemnification arrangement of the Company with
respect to Executive) the Group and any of their respective past or present
directors, officers, employees, shareholders, controlling persons or agents of
the Group. No payment will be made until the period for revocation of the
release has ended and unless Executive has not revoked the release. This
agreement will be substantially in the form attached hereto as Exhibit B.





5       Restrictive Covenants.





	 	(a)	 	Non-Competition. During the time Executive is employed by the Company and for
12 months thereafter, Executive shall not directly or indirectly manage, operate,
participate in, be employed by, perform consulting services for, or otherwise be
connected with NRG Energy, Inc., Mirant Corporation, Reliant





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Energy, Dynegy Inc., Edison Mission Energy/Edison International, Constellation Energy
Group, Inc. (FPL Group, Inc.) and Pacific Gas & Electric Company (each a “Competitive
Enterprise”); nor shall Executive receive compensation from any other company or
business during the time Executive is employed with the Company unless the arrangement
giving rise to such compensation has been (i) disclosed to and approved by the Board
in advance or (ii) is otherwise permitted by the terms of this Agreement. Executive
may invest in any Competitive Enterprise, provided that Executive and his immediate
family members (as defined in Section 1361(c)(B) of the Code) do not own collectively
more than three percent of the voting securities of any such entity at any time.




	 	(b)	 	Use and Disclosure of Proprietary Information.






	 	(i)	 	Definition of Proprietary Information. “Proprietary Information”
means confidential or proprietary information, knowledge or data concerning (1)
the Group’s businesses, strategies, operations, financial affairs, organizational
matters, personnel matters, budgets, business plans, marketing plans, studies,
policies, procedures, products, ideas, processes, software systems, trade secrets
and technical know-how, (2) any other matter relating to the Group, (3) any
matter relating to clients of the Group or other third parties having
relationships with the Group and (4) any confidential information from which the
Group derives business advantage or economic value. Proprietary Information
includes (A) the names, addresses, phone numbers and buying habits and
preferences and other information concerning clients and prospective clients of
the Group, and (B) information and materials concerning the personal affairs of
employees of the Group. In addition, Proprietary Information may include
information furnished to Executive orally or in writing (whatever the form or
storage medium) or gathered by inspection, in each case before or after the date
of this Agreement. Proprietary Information does not include information (X) that
was or becomes generally available to Executive on a non-confidential basis, if
the source of this information was not reasonably known to Executive to be bound
by a duty of confidentiality, (Y) that was or becomes generally available to the
public, other than as a result of a disclosure by Executive, directly or
indirectly, or (Z) that Executive can establish was independently developed by
Executive without reference to Proprietary Information.
	 
	 	(ii)	 	Acknowledgements. Executive acknowledges that he will obtain or
create Proprietary Information in the course of Executive’s involvement in the
Group’s activities and may already have Proprietary Information. Executive
agrees that the Proprietary Information is the exclusive property of the Group.
In addition, nothing in this Agreement will operate to weaken or waive any rights
the Group may have under statutory or common law, or any other agreement, to the
prohibition of





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unfair competition or the protection of trade secrets, confidential business
information and other confidential information.




	 	(iii)	 	During Employment. Executive will use and disclose Proprietary
Information only for the Group’s benefit and in accordance with any restrictions
placed on its use or disclosure by the Group.
	 
	 	(iv)	 	Post-Employment. After the termination of Executive’s employment,
Executive will not use or disclose any Proprietary Information for any purpose.
For the avoidance of doubt, but without limitation of the foregoing, after
termination of Executive’s employment, Executive will not directly or indirectly
use Proprietary Information from which the Group derives business advantage or
economic benefit to solicit, impair or interfere with, or attempt to solicit,
impair or interfere with, any person or entity, who, at the time of the
termination of Executive’s employment, is then a customer, vendor or business
relationship of the Group (or who Executive knew was a potential customer, vendor
or business relationship of the Company within the six months prior to the
termination of his Employment).






	 	(c)	 	Non-Solicitation of Employees. During the Term of Employment and for an 18
month period after termination of Executive’s employment, Executive will not directly or
indirectly solicit or attempt to solicit anyone who, at the time of the termination of
Executive’s employment, is then an employee of the Group (or who was an employee of the
Group within the six months prior to the termination of his Employment) to resign from
the Group or to apply for or accept employment with any company or other enterprise.
	 
	 	(d)	 	Non-Disparagement. During and after Executive’s employment with the Company,
the parties mutually covenant and agree that neither will directly or indirectly
disparage the other, or make or solicit any comments, statements, or the like to any
clients, competitors, suppliers, employees or former employees of the Company, the
press, other media, or others that may be considered derogatory or detrimental to the
good name or business reputation of the other party. Nothing herein shall be deemed to
constrain either party’s cooperation in any Board authorized investigation or
governmental action. In the event of Executive’s termination or the non-renewal of this
Agreement, Executive and Company shall agree on any press release relating to such
termination or non-renewal and the Company and Executive shall not publicly discuss or
comment on Executive’s termination or non-renewal in any manner other than as mutually
agreed in the press release.






	6	 	Excise Tax. If, (I) in the written opinion of the Company’s independent accountants, (x) any
payment or benefit to Executive under this Agreement or otherwise contingent upon a change of
control (including without limitation, the Success Fee, the Guaranteed Minimum Success Fee and
any payments under paragraph 4.b above) is an “excess parachute payment” as defined in Section
280G(b) of the Code, and (y) such excess parachute payment is subject to the excise tax
imposed by Section 4999 of the Code (or




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	 	 	any similar tax under state or local law) or (II) the Internal Revenue Service determines
that any payment or benefit to Executive under this Agreement is an excess parachute payment
that is subject to the excise tax imposed by Section 4999 of the Code, the Company shall pay
to Executive such amount or amounts necessary to place Executive in the same after-tax
position in which Executive would have been if such excise tax (together with any interest
and penalties) had not been imposed (the “Gross-Up”). The Gross-Up shall be in an amount
determined by the Company’s independent accountants and shall be paid on or prior to the date
the applicable withholding taxes are due. For purposes of determining the amount of the
Gross-Up, the Executive shall be deemed to pay federal, state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-Up is to be made.
Notwithstanding anything to the contrary, the Gross-Up obligation of the Company under this
Section shall survive any termination of this Agreement or Executive’s termination of
employment.






	7	 	Employment Taxes. All payments and other compensation under this Agreement shall be subject
to withholding of the applicable income and employment taxes.
	 
	8	 	Nonduplication of Benefits. No term or other provision of this Agreement may be interpreted
to require the Company to duplicate any payment or other compensation that Executive is
already entitled to receive under a compensation or benefit plan, program, or other
arrangement maintained by the Company.
	 
	9	 	Indemnification. To the fullest extent permitted by applicable law, the Company shall
provide indemnification for Executive under its Articles of Incorporation and Bylaws.
Executive shall be covered by the Company’s standard indemnification agreement and by any
director’s and officer’s liability insurance policy maintained by the Company.
	 
	10	 	Successors. Any successor to the Company or to all or substantially all of the Company’s
business and/or assets (whether a direct or indirect successor, and whether by purchase,
lease, merger, consolidation, liquidation, or otherwise) shall assume the obligations under
this Agreement. In case of any succession, the term “Company” shall refer to the successor.
The terms of this Agreement and all of Executive’s rights hereunder shall inure to the benefit
of, and be enforceable by, Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees.
	 
	11	 	No Third-Party Beneficiaries. Except as provided in paragraph 9 above, nothing in this
Agreement may confer upon any person or entity not a party to this Agreement any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement.
	 
	12	 	No Duty to Mitigate. Executive shall not be required to seek new employment or otherwise to
mitigate the payments contemplated by this Agreement. The payments contemplated by this
Agreement shall not be reduced by earnings that Executive may receive from any other source;
provided, however, that COBRA payments may cease in accordance with the provisions of this
Agreement.
	 
	13	 	Notice. Notices and other communications between the parties to this Agreement shall be
delivered in writing and shall be deemed to have been given when personally




12









 






	 	 	delivered or on the third business day after mailing by U.S. registered or certified mail,
return receipt requested and postage prepaid.






	 	(a)	 	Notices and other communications to Executive shall be addressed to Executive,
at the most recent home address that he provided in writing to the Company.
	 
	 	(b)	 	Notices and other communications to the Company shall be addressed to the
Company’s corporate headquarters, to the attention of the Company’s Secretary.






	14	 	Waiver and Amendments. No provision of this Agreement may be modified, waived, or
discharged, unless the modification, waiver, or discharge is agreed to in writing signed by
Executive and by an authorized representative of the Company (other than Executive). Unless
specifically characterized as a continuing waiver, no waiver of a condition or provision at
anyone time may be considered a waiver of the same provision or condition (or any different
provision or condition) at any other time.
	 
	15	 	Costs. In the event that Executive is a prevailing party in any dispute or disagreement with
the Company relating to this Agreement and/or the Company’s obligations under this Agreement,
the Company will reimburse any expenses, including reasonable attorney’s fees (and such fees
incurred at Executive’s attorney’s normal hourly rates will be presumed reasonable), incurred
by Executive as a result of, or in connection with, any such dispute or disagreement. Nothing
herein shall adversely impair or limit any rights Executive has under the Company’s Articles
of Incorporation, Bylaws and directors’ and officers’ liability insurance policies.
Notwithstanding anything to the contrary, the obligation of the Company under this Section
shall survive any termination of this Agreement or Executive’s termination of employment.
	 
	16	 	Ability to Enter this Agreement. Executive represents and warrants that neither the
execution and delivery of this Agreement nor the performance of Executive’s services hereunder
will conflict with, or result in a breach of any employment or other agreement to which
Executive is a party or by which Executive might be bound or affected. Executive further
represents and warrants that Executive has full right, power, and authority to enter into and
carry out the provisions of this Agreement.
	 
	17	 	Remedy at Law Inadequate. Executive acknowledges that a remedy at law for any breach or
attempted breach of the covenants described in paragraph 5 of this Agreement will be
inadequate and agrees that the Group shall be entitled to specific performance and injunctive
and other equitable relief in the case of any such breach or attempted breach.
	 
	18	 	American Jobs Creation Act of 2004. This Agreement shall be construed, administered and
interpreted in accordance with a good-faith interpretation of Section 409A of the Code and
Section 885 of the American Jobs Creation Act of 2004. If the Company or Executive determines
that any provision of this Agreement is or might be inconsistent with such provisions
(including any administrative guidance issued thereunder), the parties shall make their best
efforts in good faith to agree to such amendments to this Agreement as may be necessary or
appropriate to comply with such provisions.
	 
	19	 	Choice of Law. This Agreement (including its validity, interpretation, construction, and




13









 












performance) shall be governed by the laws of the State of New York, without regard to any
concerning conflicts or choice of law that might otherwise refer construction or
interpretation to the substantive law of another jurisdiction.




	20	 	Section Headings. All headings in this Agreement are inserted for convenience only.
Headings do not constitute a part of the Agreement and may not affect the meaning or
interpretation of any term or other provision of this Agreement.
	 
	21	 	Severability and Reformation. Each substantive provision of this Agreement is a separate
agreement, independently supported by good and adequate consideration, and is severable from
the other provisions of the Agreement. If a court of competent jurisdiction determines that
any term or provision of this Agreement is unenforceable, then the other terms and provisions
of this Agreement shall remain in full force and effect, and the unenforceable terms or
provisions shall be equitably modified to the extent necessary to achieve the underlying
purpose in an enforceable way.
	 
	22	 	Whole Agreement. This Agreement reflects the entire understanding and agreement between the
Company and Executive regarding Executive’s employment. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings, and agreements,
whether oral or written, relating to Executive’s employment with the Company. The respective
rights and obligations of the parties to this Agreement shall survive the termination of
Executive’s employment to the extent necessary to give such rights and obligations their
intended effect.
	 
	23	 	Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed
an original, but all of which together shall constitute a single instrument.





* * *



IN WITNESS
WHEREOF, the parties to this Agreement have executed this Agreement
on May 18, 2006.



CALPINE CORPORATION:




	 	 	 	 	 
	By:
	 	/s/ Kenneth T. Derr	 	/s/ Robert P. May
	 

	 	 
	 	 
	 

	 	Kenneth T. Derr
	 	Robert P. May, in his individual capacity
	 

	 	Chairman of the Board of Directors	 	 







14










 







EXHIBIT A





 









 








Calpine Corporation

Bob May Compensation Summary

($MM)




	 	 	 
	Fixed Component:

	 	$4.5 million
	 
	 	 
	Incentive
Component:

	 	Based on achievement of Market
Adjusted Enterprise Value (“Market AEV”)(1) and Plan Adjusted Enterprise Value
(“Plan AEV”) metrics(2)
	 

	 	To be earned beginning at Initial
Market AEV hurdle of $5.0 billion provided that Plan AEV
is greater than $5.0 billion.




Increase by $239,000 for each $100 million increase in Market AEV over $4.5 billion (3)






Plan Adjusted Enterprise Value < $5,000




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Market Adjusted Enterprise Value	 
	 	 	$3,500	 	 	$4,000	 	 	$4,500	 	 	$5,000	 	 	$5,500	 	 	$6,000	 	 	$6,500	 	 	$7,000	 	 	$7,500	 	 	$8,000	 	 	$8,500	 	 	$9,000	 
	Minimum Emergence Bonus
	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 
	Valuation Component
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	% of Valuation Increase
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Incentive Bonus
	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 






Plan Adjusted Enterprise Value 3 $5,000




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Market Adjusted Enterprise Value	 
	 	 	$3,500	 	 	$4,000	 	 	$4,500	 	 	$5,000	 	 	$5,500	 	 	$6,000	 	 	$6,500	 	 	$7,000	 	 	$7,500	 	 	$8,000	 	 	$8,500	 	 	$9,000	 
	Minimum Emergence Bonus
	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 
	Valuation Component
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1.20	 	 	 	2.39	 	 	 	3.59	 	 	 	4.78	 	 	 	5.98	 	 	 	7.17	 	 	 	8.37	 	 	 	9.56	 	 	 	10.76	 
	% of Valuation Increase
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.24	%	 	 	0.24	%	 	 	0.24	%	 	 	0.24	%	 	 	0.24	%	 	 	0.24	%	 	 	0.24	%	 	 	0.24	%	 	 	0.24	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Incentive Bonus
	 	$	4.50	 	 	$	4.50	 	 	$	4.50	 	 	$	5.70	 	 	$	6.89	 	 	$	8.09	 	 	$	9.28	 	 	$	10.48	 	 	$	11.67	 	 	$	12.87	 	 	$	14.06	 	 	$	15.26	 








 




			
	(1)	 	Market-Based Adjusted Enterprise Value (“Market AEV”) shall be equal to: The market
value of debt that is primarily the obligation of reorganized Calpine Corporation (“Calpine”)
(i.e., debt other than all project-level debt and guarantees thereon
including, without limitation,
notes payable, capital leases, project loans, project-level preferred interests, and sale lease
back obligations (collectively, “Project-Level Debt”); plus the market value of preferred equity at
reorganized Calpine; minus cash on the balance sheet of reorganized Calpine upon the
effective date of a Plan of Reorganization (other than any restricted cash held by direct or
indirect subsidiaries of reorganized Calpine, including but not limited to, project-level cash that
is not readily available for use by Calpine Corporation (e.g., project-level construction
accounts, project-level debt service reserves), collateral posted in favor of trading
counterparties, cash posted to collateralize letters of credit and
pre-petition asset sale proceeds
in escrow); plus the market value of reorganized Calpine’s common stock (and any other
equity-linked securities including warrants) excluding non-vested equity (including options)
issued as part of the management incentive compensation pursuant to a Plan of Reorganization.
All market prices shall be calculated as a 10-day average beginning on the
60th trading day following the consummation date and for the following nine (9) trading
days. Prices for debt and preferred equity shall be calculated as an average price based on
AdvantageData (ADI quote), Factset, Markit Loans (LoanX) and Bloomberg. The average market price
for any given debt, preferred or convertible security on any given day shall be equal to the
average of the trade prices for all trades recorded on that day greater than or equal to $1
million of said security. Any corporate-level debt, equity or equity-linked security
(“Corporate-Level Securities”) for which there is no publicly quoted price shall be
valued at face value. Volume weighted-average prices for common equity shall be determined by
reference to Bloomberg’s AQR function. Market AEV shall be further adjusted for the exclusion of
any debt or other securities issued at reorganized Calpine used to refinance Project-Level Debt.
	 
	(2)	 	Plan-Based Adjusted Enterprise Value (“Plan AEV”) shall be equal to: Total Enterprise Value, as
set forth in a confirmed Plan of Reorganization and/or its accompanying Disclosure
Statement, plus cash (excluding cash escrowed from pre-petition asset sales) which will be
distributed on or around the effective date in accordance with said Plan of Reorganization
(excluding any cash raised through any and all post-petition and exit
financing transactions);
minus the book value of all Project-Level Debt. Plan AEV shall be further adjusted upward, to
include (a) cash received from asset sales consummated post-petition used to repay any
Corporate-Level
Securities prior to the consummation of the Plan of Reorganization; and (b) corporate-level
cash used to repay Corporate-Level Securities during the pendency of the chapter
11 cases (excluding any cash raised through all pre- or post-petition financing and
cash held in escrow from pre-petition asset sales).
	 
	(3)	 	Equivalent to 23.9 bps for each incremental $100 million in AEV achieved.