Document:

ex10-1.htm

     

    EXHIBIT
10.1

     

     

    [COMPANY
LETTERHEAD]

    

    

    September
1, 2008

    

    

    

    John B.
Hill

    2130
Looscan Drive

    Houston,
TX 77019

    

    Re: Letter
Agreement

    

    Dear
John,

    

    On behalf
of Calpine Corporation (the “Company”), I am pleased to extend an offer of
regular, full-time employment to you for the exempt position of Executive Vice
President and Chief Commercial Officer.  Details of this offer are
provided below:

    

    
      	
              Title:

            	
              Executive
      Vice President and Chief Commercial Officer of the
  Company

            

    

    

    
      	
              Reporting
      Directly to:

            	
              President
      and Chief Executive Officer of the
Company

            

    

    

    
      	
              Place of
      Employment:

            	
              Houston,
      Texas

            

    

    

    
      	
              Annual Base
      Salary:

            	
              $600,000
      per annum (the “Base Salary”), paid bi-weekly, subject to annual review
      for increase at the discretion of the Compensation Committee (the
      “Committee”) of the Board of Directors of the
  Company.

            

    

     

    
      
        	
                Annual
      Bonus Program:

              	
                General.  With
      respect to each fiscal year of the Company during your employment, you
      will be eligible to receive a target annual cash bonus of 90% of Base
      Salary (the “Target Bonus”) with the opportunity to receive a maximum
      annual cash bonus of 200% of Base Salary, upon achievement of reasonable
      performance targets set by the Committee in consultation with you
      (“Incentive Compensation”).

              

      

    

     

    
      	
               
      

            	
              2008
      Bonus.  With respect to fiscal year 2008, you will be
      entitled to a prorated annual cash bonus (based on the period of your
      employment during such year) (the “2008 Bonus”) which shall be based on an
      annual bonus determined based on actual achievement of 2008 performance
      targets, but in no event shall be less than the amount of the prorated
      Target Bonus (or, if greater, the bonus that would have become payable
      based on the Company’s plan as of the date of this Letter
      Agreement).

            

    

    

    
      	
               
      

            	
              Terms and Conditions
      of Annual Bonus.  Annual cash bonuses shall be awarded
      under the Calpine Incentive Plan and, if applicable for annual cash
      bonuses for years after 2008, shall be subject to the provisions of such
      plan which are required for compliance with Section 162(m) of
      the

            

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
            John B.
Hill

            Page
2

          

        

      

    

    

    
      	
               
      

            	
              Internal
      Revenue Code (the “Code”).  Annual cash bonuses shall be paid in
      no event later than the 15th
      day of the third month following the end of the taxable year (of the
      Company or you, whichever is later) in which the performance targets have
      been achieved (or, for 2008, no later than such day of
      2009).  You will be required to repay to the Company the
      after-tax amount of any annual cash bonuses paid to you in respect of any
      year in which you commit a willful and intentional act which directly
      results in a material restatement of the Company’s
      earnings.  For this purpose, the term “willful” will have the
      meaning set forth in the last sentence of the definition of “Cause”
      contained in the Calpine Corporation Change in Control and Severance
      Benefits Plan (the “Severance Plan”).  The Company will have
      three years from the date on which the applicable annual cash bonus is
      paid to require such repayment.

            

    

    

    
      	
              Sign-On
      Bonus:

            	
              In
      connection with signing this Letter Agreement, you will receive a one-time
      cash sign-on bonus in the amount of $1,000,000.  This payment will be
      made to you in the first or second payroll period following your start
      date. 

            

    

     

    
      	
              Sign-On
      Equity Award:

            	
              In
      connection with signing this Letter Agreement, you will be granted on
      your start date an option to purchase shares of Company common stock (the
      “Sign-On Option”), which Sign-On Option shall have a Black-Scholes value
      (determined by the Company) of $7,500,000.  The Sign-On Option
      will be subject to the terms and conditions set forth in the award
      agreement attached as Exhibit A hereto, to the extent not inconsistent
      with the express terms herein.

            

    

    

    
      	
               
      

            	
              In
      the event you commit a willful and intentional act which directly results
      in a material restatement of the Company’s earnings, you shall be required
      to repay to the Company an amount equal to the after-tax proceeds realized
      from the exercise of any portion of the Sign On-Option which vested in the
      year in which you committed such act.  You shall be permitted to
      return the after-tax portion of the underlying stock in
      kind.  The Company shall have three years from the date of the
      relevant vesting time to require such repayment.  To the extent
      any portion of the Sign-On Option subject to the foregoing repayment
      obligation is not exercised at the time such willful and intentional act
      is discovered, such portion shall be immediately forfeited.  For
      this purpose, the term “willful” will have the meaning set forth in the
      last sentence of the definition of “Cause” contained in the Severance
      Plan.

            

    

    

    
      	
              Stock
      Ownership

            	
               

            

    

    
      	
              Requirement:

            	
              You
      agree that you will continue to hold common stock equal to at least fifty
      percent (50%) of the after tax proceeds of each Sign-On Option exercise
      until your termination of
employment.

            

    

    

    
      	
              Benefits:

            	
              Calpine
      offers a competitive, comprehensive benefits package.  You will
      be eligible to participate in Company benefit plans on the same basis as
      other senior executives of the
Company.

            

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
            John B.
Hill

            Page
3

          

        

      

    

    

    
      	
               
      

            	
              Commencing
      on January 30, 2009, you will be granted no less than 20 vacation days per
      year to be accrued and used in accordance with applicable Company
      policy.  You will be granted 10 vacation days in respect of 2008
      which may be used prior to January 30,
2009.

            

    

    

    
      	
              Severance
      Benefits:

            	
              Within
      30 days of your date of hire, you will be designated as a Tier 3
      Participant in the Severance Plan.  Notwithstanding anything to
      the contrary contained in the Severance Plan, (a) the requirements of
      Sections 4.02 and 5.03 of such plan shall not be applicable to you (as
      such matters are covered by the Restrictive Covenant Agreement described
      below) and (b) you shall only be required to execute a release of claims
      (substantially in the form attached hereto as Exhibit C) as a condition to
      payment following termination of employment by the Company without Cause
      or by you for Good Reason which occurs prior to a Change in Control of the
      Company.  All capitalized terms in this paragraph shall have the
      meanings ascribed to them in the Severance Plan.  Amendments to
      the Severance Plan following the date hereof shall not be effective with
      respect to your participation in such plan to the extent that they either
      reduce the amount of benefits payable or are otherwise adverse to
      you.

            

    

    

    
      	
               
      

            	
              In
      addition to the payments and benefits provided in the Severance Plan, in
      the event you are terminated by the Company without “Cause” or you
      terminate employment for “Good Reason” (as defined in the Severance Plan),
      the Company shall pay you an amount equal to the annual cash bonus that
      you would have been entitled to receive in respect of the fiscal year in
      which your termination date occurs, had you continued in employment until
      the end of such fiscal year, which amount shall be determined based on
      actual performance for such year relative to the performance goals
      applicable to you, with the amount of such bonus being multiplied by a
      fraction (A) the numerator of which is the number of days in such fiscal
      year through the termination date and (B) the denominator of which is
      365.

            

    

    

    
      	
              Termination
      of Employment

            	
               

            

    

    
      	
              By
      Reason of Death

            	
               

            

    

    
      	
              or
      Disability:

            	
              In
      the event that your employment is terminated by the Company for Disability
      (as defined below) or by reason of your death, you will be entitled to the
      following payments and benefits:

            

    

    

    
      	
               
      

            	
              •

            	
              any
      accrued and unpaid Base Salary;

            

    

    

    
      	
               
      

            	
              •

            	
              any
      annual cash bonus earned but unpaid in respect of any completed fiscal
      year preceding the termination
date;

            

    

    

    
      	
               
      

            	
              •

            	
              reimbursement
      for any and all monies advanced or expenses incurred in connection with
      your employment for reasonable and necessary expenses incurred by you
      on

            

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
            John B.
Hill

            Page
4

          

        

      

    

    

    behalf of
the Company for the period ending on the termination date;

    

    
      	
               
      

            	
              •

            	
              any
      accrued and unpaid vacation pay;

            

    

    

    
      	
               
      

            	
              •

            	
              an
      amount equal to the annual cash bonus that you would have been entitled to
      receive in respect of the fiscal year in which your termination date
      occurs, had you continued in employment until the end of such fiscal year,
      which amount shall be determined based on actual performance for such year
      relative to the applicable performance goals and shall be paid at the time
      such annual bonus would otherwise have become
  payable;

            

    

    

    
      	
               
      

            	
              •

            	
              the
      Sign-On Option shall become immediately vested and exercisable and shall
      remain exercisable for its full original term;
  and

            

    

    

    
      	
               
      

            	
              •

            	
              the
      Company shall provide you (or, if your employment is terminated by reason
      of your death, your dependents) with continued coverage under any health,
      medical, dental, vision or life insurance program or policy in which you
      were eligible to participate as of the time of your termination of
      employment, which coverage shall (i) continue for 18 months following such
      termination, (ii) be on terms no less favorable to you and your dependents
      (including with respect to payment for the costs thereof) than those in
      effect for executive officers of the Company immediately prior to such
      termination, and (iii) become secondary to any coverage provided to you by
      a subsequent employer and to any Medicare coverage for which you become
      eligible.

            

    

    

    
      	
              Disability:

            	
              The
      Company may terminate your employment, on written notice to you after
      having reasonably established your Disability.  For purposes of
      this Letter Agreement, you will be deemed to have a “Disability” if, as a
      result of any medically determinable physical or mental impairment that
      can be expected to result in death or is reasonably expected to last for a
      continuous period of not less than twelve (12) months, you are unable to
      perform the core functions of your position (with or without reasonable
      accommodation) for a period of six (6) consecutive months or more, or are
      receiving income replacement benefits for a period of six (6) consecutive
      months or more under an accident and health plan covering employees of the
      Company.  You shall be entitled to the compensation and benefits
      provided for in this Letter Agreement for any period prior to your
      termination by reason of Disability during which you are unable to work
      due to a physical or mental infirmity in accordance with the Company’s
      policies for similarly-situated executives.  If any question
      shall arise as to whether, during any period you are disabled so as to be
      unable to perform the core functions of
your

            

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
            John B.
Hill

            Page
5

          

        

      

    

    

    
      	
               
      

            	
              then
      existing position with or without reasonable accommodation, you may, and
      at the request of the Company shall, submit to the Company a certification
      in reasonable detail by a physician selected by the Company, to whom you
      or your guardian has no reasonable objection, as to whether you are so
      disabled and how long such disability is expected to continue, and such
      certification shall for the purposes of this Letter Agreement be
      conclusive of the issue.  You shall cooperate with any
      reasonable request of the physician in connection with such
      certification.  If such question shall arise and you shall fail
      to submit such certification, the Company’s determination of such issue
      shall be binding on you.  Nothing contained herein shall be
      construed to waive your rights, if any, under existing law, including,
      without limitation, the Family and Medical Leave Act of 1933, 29 U.S.C.
      ss.2601 et seq. and the Americans With Disabilities Act, 424 S.C. ss.12101
      et seq.

            

    

    

    
      	
              Definitions

            	
              For
      the avoidance of doubt, Cause, Change in Control, and Good Reason shall
      have the meanings ascribed to them in the Severance
  Plan.

            

    

     

    
      	
              Restrictive
      Covenants:

            	
              
                In
      connection with entering into this Letter Agreement, you agree that you
      shall execute and abide by and be subject to the restrictive covenants set
      forth in the Restrictive Covenant Agreement attached hereto as Exhibit B
      (the “Restrictive Covenants”).  You acknowledge that the Company
      will suffer irreparable injury, not readily susceptible of valuation in
      monetary damages, if you breach your obligations under such Restrictive
      Covenants.  Accordingly, you agree that the Company will be
      entitled, in addition to any other available remedies, to obtain
      injunctive relief against any breach or prospective breach by you or your
      obligations under such Restrictive
  Covenants.

              

            

    

     

    
      	
              Indemnification
      and

            	
               

            

    

    
      	
              Insurance:

            	
              The
      Company shall indemnify you, to the fullest extent permitted by applicable
      law, against all costs, charges and expenses incurred or sustained by you,
      including the cost and expenses of legal counsel, in connection with any
      action, suit or proceeding to which you may be made a party by reason of
      your being or having been an officer, director, or employee of the Company
      or any of its subsidiaries or affiliates (“Proceeding”).  Such
      indemnification shall continue as to you even if you have ceased to be a
      director, officer, member, employee, agent, manager, trustee, consultant
      or representative of the Company and shall inure to the benefit of your
      heirs, executors and administrators.  You shall be entitled to
      prompt advancement of any and all costs and expenses (including, without
      limitation, attorneys’ and other professional fees and charges) reasonably
      incurred by you in connection with any such Proceeding, any such
      advancement to be made within 15 days after you give written notice,
      supported by reasonable documentation, requesting such
      advancement.  Such notice shall include an undertaking by you to
      repay the amounts advanced to the extent that you are ultimately
      determined not to be entitled to indemnification against such costs and
      expenses.  Nothing in this Letter Agreement or elsewhere shall
      operate to limit or extinguish any right
to

            

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
            John B.
Hill

            Page
6

          

        

      

    

    

    
      	
               
      

            	
              indemnification,
      advancement of expenses, or contribution that you would otherwise have
      (including, without limitation, by agreement or under applicable law). You
      shall be covered during your period of employment with the Company and
      thereafter for as long as any executive is covered (but in no event for
      less than six (6) years) by officer and director liability insurance, in
      amounts and on terms no less favorable than those in effect on your date
      of hire, which insurance shall be paid by the
  Company.

            

    

    

    
      	
              Representations:

            	
              You
      represent and warrant to the Company that the execution and delivery by
      you of this Letter Agreement does not, and the performance by you of your
      obligations hereunder will not, with or without the giving of notice or
      the passage of time, or both:  (a) violate any judgment, writ,
      injunction, or order of any court, arbitrator, or governmental agency
      applicable to you; or (b) conflict with, result in the breach of any
      provisions of or the termination of, or constitute a default under, any
      agreement to which you are a party or by which you are or may be
      bound.

            

    

    

    
      	
              Section
      409A:

            	
              To
      the extent applicable, it is intended that this Letter Agreement comply
      with the provisions of Code Section 409A and this Letter Agreement will be
      administered and interpreted in a manner consistent with this
      intent.  Notwithstanding anything contained herein to the
      contrary, for all purposes of this Letter Agreement, you shall not be
      deemed to have had a termination of employment unless you have incurred a
      separation from service from the Company within the meaning of Code
      Section 409A and, to the extent required to avoid accelerated taxation
      and/or tax penalties under Code Section 409A, payments under this Letter
      Agreement that would otherwise be payable during the six-month period
      after the date of termination shall instead be paid on the first business
      day after the expiration of such six-month period.  In addition,
      for purposes of this Letter Agreement, each amount to be paid and each
      installment payment shall be construed as a separate identified payment
      for purposes of Code Section 409A.  With respect to expenses
      eligible for reimbursement under the terms of this Letter Agreement, (i)
      the amount of such expenses eligible for reimbursement in any taxable year
      shall not affect the expenses eligible for reimbursement in another
      taxable year and (ii) any reimbursements of such expenses shall be made no
      later than the end of the calendar year following the calendar year in
      which the related expenses were incurred, except, in each case, to the
      extent that the right to reimbursement does not provide for a “deferral of
      compensation” within the meaning of Code Section 409A.  With
      respect to any payments of tax gross ups to which you become entitled
      under the terms of this Letter Agreement, such payments shall be made by
      the Company no later than the end of the calendar year following the
      calendar year in which you remit the related tax, except to the extent
      earlier payment is provided for
herein.

            

    

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
            John B.
Hill

            Page
7

          

        

      

    

    

    
      	
              Miscellaneous:

            	
              This
      Letter Agreement shall be governed by and construed and enforced in
      accordance with the laws of the State of Delaware applicable to contracts
      executed in and to be performed entirely within such State, without giving
      effect to the conflict of law principles thereof.  Amounts
      payable hereunder shall be subject to all applicable
      withholding.

            

    

    

    Employment
with the Company may be terminated by either party, at will, and this Letter
Agreement shall not be construed to alter the at-will status of your anticipated
employment with the Company.  In order to be in compliance with the
Federal Immigration Law, this offer is contingent upon your providing
verification of your eligibility to work in the United States and satisfactory
completion of Calpine’s Pre-Employment Background Check.

    

    [SIGNATURES
FOLLOW]

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

          
            John B.
Hill

            Page
8

          

        

      

    

    

    Please
sign both copies of this Letter Agreement, retain one for your files and return
one to Human Resources in the attached self-addressed stamped
envelope.

    

    John, we
look forward to your joining our team.

    

    

    Very
truly yours,

    

    CALPINE
CORPORATION

    

    

    /s/  Jack A. Fusco

    

    Jack A.
Fusco

    President and Chief Executive Officer

    

    

    AGREED
AND ACCEPTED

    

    

    
      	 /s/  Thad
      Hill	 
      	 September
      1, 2008
	
              John
      B. Hill

            	 
      	
              Date

            

    

    

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
A

    

     

    CALPINE
CORPORATION

     

    EXECUTIVE
SIGN ON

     

    NON-QUALIFIED
STOCK OPTION AGREEMENT

     

    

     

    OPTION
granted on September 1, 2008 (the “Grant Date”), by
Calpine Corporation, a Delaware corporation (the “Company”), to John B. Hill
(the “Grantee”)
pursuant to this Non-Qualified Stock Option Agreement (“Stock Option
Agreement”).

     

    
      	
              1.

            	
              GRANT
      OF OPTION.  The Company hereby grants to the Grantee the
      irrevocable Option to purchase, on the terms and subject to the conditions
      set forth herein and in the letter agreement between the Company and the
      Grantee, dated September 1, 2008 (the “Letter
      Agreement”), and (except as otherwise provided herein) the Plan (as
      defined below), 1,314,734 fully paid and nonassessable shares of the
      Company’s Common Stock, par value $.001 per share.  The Company
      grants the Option to the Grantee in four (4) tranches (each a “Tranche”).  The
      corresponding number of shares of Company Common Stock and the
      corresponding exercise price per share for each Tranche is set forth
      below.

            

    

     

    

    
      	
              Tranche

            	
              Number of
      Shares

            	
              Exercise
      Price

            
	
              Tranche
      1

            	
              262,083

            	
              $18.00

            
	
              Tranche
      2

            	
              309,920

            	
              $21.60

            
	
              Tranche
      3

            	
              349,705

            	
              $24.30

            
	
              Tranche
      4

            	
              393,026

            	
              $27.00

            

    

     

    
      
        	
                 
      

              	
                Options
      in Tranches 1, 2 and 3, and 328,292 of those Options in Tranche 4 which
      are scheduled to vest on the first anniversary of the Grant Date in
      accordance with Section 3 below are granted pursuant to the Company’s 2008
      Equity Incentive Plan (the “Plan”), a copy
      of which is attached hereto.  The remaining Options shall be
      granted outside of the Plan but shall be deemed and treated for all
      purposes hereunder as though granted under the Plan and subject to its
      terms and conditions to the same extent as the Options granted hereunder
      which are granted pursuant to the Plan.  Except as otherwise set
      forth herein, the Option is subject, or deemed subject, as applicable, in
      its entirety to all the applicable provisions of the Plan as in effect on
      the Grant Date, which are hereby incorporated herein by
      reference.  The Option is not intended to qualify as an
      “incentive stock option” within the meaning of Section 422 of the Code.
      Except as provided in Section 15 herein, or unless the context clearly
      indicates otherwise, capitalized terms not otherwise defined herein shall
      have the same definitions as provided in the
  Plan.

              

      

    

     

     

    
      
        
          
            A-1

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

     

    
      	
              2.

            	
              PERIOD
      OF OPTION. The period of the Option shall commence on the Grant Date and
      shall expire on the seventh (7th) anniversary of the Grant Date (the
      “Option
      Period”). The Option (or any lesser amount thereof) may be
      exercised from time to time during the Option Period as to the number of
      Total Shares allowable under Section 3 below and the
  Plan.

            

    

     

     

    
      	
              3.

            	
              EXERCISE
      OF OPTION.  Except to the extent otherwise provided in the
      Letter Agreement or herein, each Tranche of the Option shall vest ratably
      on each of the first, second, third, fourth, and fifth anniversaries of
      the Grant Date; provided, however, that
      the Grantee must be continuously employed by the Company beginning on the
      Grant Date through each applicable vesting
date.

            

    

     

     

    
      	
              4.

            	
              TERMINATION
      OF EMPLOYMENT.  In the event that the Grantee’s employment with
      the Company is terminated by the Company without Cause or by the Grantee
      for Good Reason, in each case, prior to a Change in Control, the portion
      of the Option scheduled to vest within a period of thirty-six (36) months
      following the Grantee’s date of termination shall become immediately
      vested and exercisable and shall remain exercisable for a period of two
      (2) years following the Grantee’s date of termination but in no event
      beyond its original term; and the remaining portion of the Option shall be
      forfeited as of the date of the Grantee’s termination of
      employment.  In the event that the Grantee’s employment with the
      Company is terminated for Disability or by reason of the Grantee’s death,
      the Option shall become immediately vested and exercisable and shall
      remain exercisable for its full original term.  In the event
      that the Grantee’s employment with the Company is terminated by the
      Company for Cause, any portion of the Option that remains outstanding,
      whether vested or unvested, shall immediately terminate as of the date of
      such termination.  In the event of termination of employment by
      the Grantee without Good Reason, any unvested portion of the Option shall
      immediately terminate, and any vested portion of the Option shall remain
      exercisable for a period of 90 days following such termination and shall
      terminate thereafter.

            

    

     

     

    
      	
              5.

            	
              CHANGE
      IN CONTROL.  In the event of a Change in Control, each Option
      shall become fully vested and shall immediately be cancelled, and, in
      exchange therefor, the Grantee shall be entitled to receive an amount per
      share equal to the excess, if any, of the per share merger consideration,
      over the per share exercise price of such Option.  The Grantee
      shall in all cases be entitled to receive such amount fully in
      cash.

            

    

     

     

    
      	
              6.

            	
              SECURITIES
      ACT REQUIREMENTS. In addition to the requirements set forth herein and in
      the Plan, (i) the Option shall not be exercisable in whole or in part, and
      the Company shall not be obligated to issue any shares of Common Stock
      subject to any such Option, if such exercise and sale or issuance would,
      in the opinion of counsel for the Company, violate the Securities Act of
      1933 (the “1933
      Act”) or other Federal or state statutes having similar
      requirements, as they may be in effect at that time; and (ii) each Option
      shall be subject to the further requirement that, at any time that the
      Committee shall determine, in its discretion, that the listing,
      registration or qualification of the shares of Common Stock subject to
      such Option under any securities exchange requirements or under any
      applicable law, or the consent or approval of any governmental regulatory
      body, is necessary or desirable as a condition of, or in connection with,
      the issuance of shares of Common Stock, such Option may not be exercised
      in whole or in part

            

    

    

    
      
        
          
            A-2

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      

       

      
        	
                 
      

              	
                unless
      such listing, registration, qualification, consent or approval shall have
      been effected or obtained free of any conditions not acceptable to the
      Committee.

              

      

    

     

    
      	
              7.

            	
              METHOD
      OF EXERCISE OF OPTION. Subject to the provisions of the Plan and Section 6
      hereof, the exercise price of Common Stock acquired pursuant to an Option
      shall be paid, to the extent permitted by applicable statutes and
      regulations, either (i) in cash or by certified or bank check at the time
      the Option is exercised or (ii) upon such reasonable terms as the
      Committee shall approve, the exercise price may be paid, in the discretion
      of the Grantee: (A) by delivery to the Company of other Common Stock, duly
      endorsed for transfer to the Company, with a Fair Market Value on the date
      of delivery equal to the exercise price (or portion thereof) due for the
      number of shares being acquired, or by means of attestation whereby the
      Grantee identifies for delivery specific shares of Common Stock that have
      a Fair Market Value on the date of attestation equal to the exercise price
      (or portion thereof) and receives a number of shares of Common Stock equal
      to the difference between the number of shares thereby purchased and the
      number of identified attestation shares of Common Stock (a “Stock for Stock
      Exchange”); (B) a “cashless” exercise program established with a
      broker, if such a program is in place; (C) by reduction in the number of
      shares of Common Stock otherwise deliverable upon exercise of such Option
      with a Fair Market Value equal to the aggregate exercise price at the time
      of exercise, or (D) in any other form of legal consideration that may be
      acceptable to the Committee. The purchase price of Common Stock acquired
      pursuant to the Option that is paid by delivery (or attestation) to the
      Company of other Common Stock acquired, directly or indirectly from the
      Company, shall be paid only by shares of the Common Stock of the Company
      that have been held for more than six months (or such longer or shorter
      period of time required to avoid a charge to earnings for financial
      accounting purposes). Notwithstanding the foregoing, during any period for
      which the Common Stock is publicly traded (i.e., the Common Stock is
      listed on any established stock exchange or a national market system) an
      exercise by the Grantee that involves or may involve a direct or indirect
      extension of credit or arrangement of an extension of credit by the
      Company, directly or indirectly, in violation of Section 402(a) of the
      Sarbanes-Oxley Act (codified as Section 13(k) of the Exchange Act) shall
      be prohibited with respect to this
award.

            

    

     

     

    
      	
              8.

            	
              OTHER
      LIMITATIONS, REQUIREMENTS, PROTECTIONS, ETC.  The Grantee shall
      be subject to all other terms and conditions relating to the Option as set
      forth in the Letter Agreement, including but not limited to, the potential
      repayment and share ownership requirements set forth
      therein.  It is expressly acknowledged and agreed that nothing
      in this Stock Option Agreement or the Plan shall be inconsistent in a
      manner adverse to the Grantee with, or otherwise limit adversely to the
      Grantee, the express terms of the Letter Agreement, and, in the case of
      any conflict between the Letter Agreement, on the one hand, and this Stock
      Option Agreement or the Plan, on the other, the Letter Agreement shall
      control to the extent favorable to the Grantee.  For purposes of
      the foregoing sentence, the “Letter Agreement” excludes any attachments
      thereto of a form of stock option agreement, whether or not identical to
      this Stock Option Agreement.  Notwithstanding any provision
      hereof or of the Plan, any provision in the Plan giving the Company or any
      committee or other affiliate thereof the right, authority or discretion to
      interpret this Stock Option Agreement shall be of no force or effect in
      respect of this Stock Option
Agreement.

            

    

    

    
      
        
          
            A-3

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

     

    
      	
              9.

            	
              TRANSFERABILITY.
      The Option is not transferable otherwise than by will or pursuant to the
      laws of descent and distribution, and is exercisable during the Grantee’s
      lifetime only by the Grantee.

            

    

     

     

    
      	
              10.

            	
              BINDING
      AGREEMENT. This Stock Option Agreement shall be binding upon and shall
      inure to the benefit of any successor or assign of the Company, and, to
      the extent herein provided, shall be binding upon and inure to the benefit
      of the Grantee’s beneficiary or legal representatives, as they case may
      be.

            

    

     

     

    
      	
              11.

            	
              ENTIRE
      AGREEMENT. This Stock Option Agreement, the Plan, and the Letter Agreement
      set forth the entire agreement of the parties with respect to the Option
      granted hereby and may not be changed orally but only by an instrument in
      writing signed by the party against whom enforcement of any change,
      modification or extension is sought.  Without limiting any
      protection the Grantee may otherwise have, the Plan shall not be amended
      in any way that adversely affects the Grantee or the Option without the
      prior written consent of the
Grantee.

            

    

     

     

    
      	
              12.

            	
              ELECTRONIC
      DELIVERY AND SIGNATURES. The Company may, in its sole discretion, decide
      to deliver any documents related to the Option or to participation in the
      Plan or to future options that may be granted under the Plan by electronic
      means or to request the Grantee’s consent to participate in the Plan by
      electronic means. The Grantee hereby consents to receive such documents by
      electronic delivery and, if requested, to agree to participate in the Plan
      through an on-line or electronic system established and maintained by the
      Company or another third party designated by the Company. If the Company
      establishes procedures of an electronic signature system for delivery and
      acceptance of Plan documents (including any Award Agreement like this
      Option), the Grantee hereby consents to such procedures and agrees that
      his or her electronic signature is the same as, and shall have the same
      force and effect as, his or her manual
  signature.

            

    

     

     

    
      	
              13.

            	
              WITHHOLDING
      OF TAX. To the extent that the exercise of the Option or the disposition
      of shares of Company’s Common Stock acquired by exercise of the Option
      results in compensation income to the Grantee for federal or state income
      tax purposes, the Grantee shall pay to the Company at the time of such
      exercise or disposition such amount of money or, if the Company so
      determines, shares of Common Stock, as the Company may require to meet its
      obligation under applicable tax laws or regulations and, if the Grantee
      fails to do so, the Company is authorized to withhold from any cash
      remuneration then or thereafter payable to the Grantee, any tax required
      to be withheld by reason of such resulting compensation income or the
      Company may otherwise refuse to issue or transfer any shares otherwise
      required to be issued or transferred pursuant to the terms
      hereof.

            

    

     

     

    
      	
              14.

            	
              ADJUSTMENTS/CHANGES
      IN CAPITALIZATION. This award is subject to the adjustment provisions set
      forth in the Plan.

            

    

     

    

    
      
        
          
            A-4

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      

       

      
        	
                15.

              	
                DEFINITIONS.  As
      used herein, the terms “Cause,” “Change in Control” and “Good Reason”
      shall have the meanings ascribed to them in the Calpine Corporation Change
      in Control and Severance Benefits Plan and the term “Disability” shall
      have the meaning ascribed to it in the Letter
  Agreement.

              

      

    

     

     

    [SIGNATURE
PAGE FOLLOWS]

    

    
      
        
          
            A-5

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

     

    Subject
to Section 12 above, if the foregoing is in accordance with your understanding
and approved by you, please so confirm by signing and returning the duplicate of
this Stock Option Agreement enclosed for that purpose.

    

    

    
      	 
      	
              CALPINE
      CORPORATION

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	 
      

    

    

    The
foregoing is in accordance with my understanding and is hereby confirmed and
agreed to as of the Grant Date.

    

    

    
      	 
      	 
      
	 
      	 
      
	 
      	
              Grantee

            

    

    

    

    

    

    
      
        
          
            A-6

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
B

    

    CALPINE
CORPORATION

    RESTRICTIVE
COVENANT AGREEMENT

    

    The
following agreement (this “Agreement”) is hereby entered into as of September 1,
2008, by and between Calpine Corporation (the “Company”) and John B. Hill
(“Executive”).  In connection with Executive’s employment with the
Company and for and in consideration of the payments and benefits provided in
the letter agreement between Executive and the Company dated as of September 1,
2008, Executive hereby agrees to abide by the following restrictive
covenants:

     

    
      	
              1.

            	
              Proprietary
      Information and Records.

            

    

     

    
      	
               
      

            	
              (a)

            	
              “Proprietary
      Information” means confidential or proprietary information, knowledge or
      data concerning (1) the 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 of the
      Company and its affiliates (the “Group”), (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.

            

    

     

    
      	
               
      

            	
              (b)

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

            

    

     

    
      	
               
      

            	
              (c)

            	
              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.

            

    

     

    
      	
               
      

            	
              (d)

            	
              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

            

    

    

    
      
        
          
            B-1

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

     

    
       

      
        	
                 
      

              	
                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 Executive’s
      employment).

              

      

    

     

     

    
      	
               
      

            	
              (e)

            	
              Within
      five (5) business days following the termination of Executive’s
      employment, Executive will on request return to the Company all written
      Proprietary Information that has been provided to Executive and Executive
      will destroy all copies of any analyses, compilations, studies or other
      documents prepared by Executive or for Executive’s use containing or
      reflecting any Proprietary Information (provided that Executive may retain
      a copy of his contacts list and the contents
  thereof).

            

    

     

    
      	
              2.

            	
              Covenant Not to
      Solicit, Not to Compete, Not to Disparage and to Cooperate in
      Litigation.

            

    

     

    
      	
               
      

            	
              (a)

            	
              Covenant Not to
      Solicit.  During Executive’s employment with the Company
      and for period of twelve (12) months after termination of Executive’s
      employment, Executive will not directly or indirectly, (i) 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
      Executive’s Employment) to resign from the Group or to apply for or accept
      employment with any company or other enterprise, (ii) solicit any Customer
      to transact business with a competitive enterprise or to reduce or refrain
      from doing any business with the Company, (iii) transact business with any
      Customer that would cause Executive to be a competitive enterprise, or
      (iv) interfere with or damage any relationship between the Group and a
      Customer.  For purposes of this Agreement, (i) a “Customer”
      means any customer of the Group or prospective customer of the Group
      contacted and materially and specifically pursued during Executive’s
      employment by the Group to whom Executive provided services, or for whom
      Executive transacted business, or whose identity became known to Executive
      in connection with Executive ‘s relationship or employment with the Group,
      and (ii) “solicit” means any communication of any kind, regardless of who
      initiates it, that in any invites, advises, encourages or requests any
      person to take or refrain from taking any action.  The provisions of
      this Section 2(a) shall not apply following a termination of Executive’s
      employment which occurs on or after a Change in Control (as such term is
      defined in the Calpine Corporation Change in Control and Severance
      Benefits Plan).

            

    

     

    
      	
               
      

            	
              (b)

            	
              Covenant Not to
      Compete.  During Executive’s employment with the Company
      and for a period of twelve (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 any
      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 does not own more
      than five (5) percent of the voting securities of any such entity at
      any time. The provisions of this Section 2(b) shall not apply following a
      termination of Executive’s employment which occurs on or after
      a

            

    

    

    
      
        
          
            B-2

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      

       

      
        	
                 
      

              	
                Change
      in Control (as such term is defined in the Calpine Corporation Change in
      Control and Severance Benefits
Plan).

              

      

    

     

    
      	
               
      

            	
              (c)

            	
              Nondisparagement.  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, or to prohibit competition otherwise permitted
      hereunder.  In the event of Executive’s termination, Executive
      and Company shall agree on any press release relating to such termination
      and the Company and Executive shall not publicly discuss or comment on
      Executive’s termination in any manner other than as mutually agreed in the
      press release.

            

    

     

    
      	
               
      

            	
              (d)

            	
              Cooperation in Any
      Investigations and Litigation.  For a period of no more
      than one year after termination of employment, Executive agrees that
      Executive will reasonably cooperate with the Company, and its counsel, in
      connection with any investigation, inquiry, administrative proceeding or
      litigation relating to any matter in which Executive was involved or of
      which Executive has knowledge as a result of Executive’s service with the
      Company by providing truthful information.  The Company agrees
      promptly to reimburse Executive for reasonable expenses reasonably
      incurred by Executive, together with hourly charges at the rate of $1,000
      per hour, in connection with Executive’s cooperation pursuant to this
      Section 2(d).  Nothing herein shall require Executive to devote
      more than six (6) hours per week or four (4) days per month of time to
      such matters, to travel material distances in connection therewith or to
      take any action that would materially interfere with Executives duties for
      a subsequent recipient of his services.  Executive agrees that,
      in the event Executive is subpoenaed by any person or entity (including,
      but not limited to, any government agency) to give testimony (in a
      deposition, court proceeding or otherwise) which in any way relates to
      Executive’s employment by the Company, Executive will, to the extent not
      legally prohibited from doing so, give prompt notice of such request to
      the Chief Legal Officer of the Company so that the Company may contest the
      right of the requesting person or entity to such disclosure before making
      such disclosure.  Nothing in this provision shall require
      Executive to violate Executive’s obligation to comply with valid legal
      process.

            

    

     

    
      	
               
      

            	
              (e)

            	
              Work Product.  Executive
      agrees that all programs, inventions, innovations, improvements,
      developments, methods, designs, analyses, reports and all similar or
      related information which relate to the business of the Group, actual or
      anticipated, or to any actual or anticipated research and development
      conducted in connection with the business of the Group, and all existing
      or future products or services, which are conceived, developed or made by
      Executive (alone or with others) during the term of this Agreement for the
      Group (“Work Product”) belong to the Company.  Executive will
      reasonably cooperate fully, without cost to Executive, in the
      establishment and maintenance of all rights of the Group in such Work
      Product.  The provisions of this Section 2(e) will survive
      indefinitely to the extent necessary to require actions to be taken by
      Executive after the termination of this Agreement with respect to Work
      Product created during the term of this
  Agreement.

            

    

    

    
      
        
          
            B-3

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

     

    
      	
               
      

            	
              (f)

            	
              Blue
      Pencil. It
      is the intent and desire of Executive and the Company that the provisions
      of this Section 2 be enforced to the fullest extent permissible under the
      laws and public policies as applied in each jurisdiction in which
      enforcement is sought. If any particular provision of this Section 2 shall
      be determined to be invalid or unenforceable, such covenant shall be
      amended, without any action on the part of either party hereto, to delete
      therefrom the portion so determined to be invalid or unenforceable, such
      deletion to apply only with respect to the operation of such covenant in
      the particular jurisdiction in which such adjudication is
      made.

            

    

     

    
      	
               
      

            	
              (g)

            	
              Survive.  Executive’s
      obligations hereunder shall survive, in accordance with their terms,
      termination of his employment with the
Company.

            

    

     

    

     

    IN
WITNESS WHEREOF, Executive and the Company have executed the Release as of the
date and year first written above.

    

    
      	 
      /s/  Thad Miller	 
      	 
      /s/  Thad Hill
	Executive
      Vice President and  	 
      	 
      
	Chief
      Legal Officer	 
      	 
      
	
              CALPINE
      CORPORATION

            	 
      	
              EXECUTIVE

            

    

     

    

     

    

    

    
      
        
          
            B-4

            

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
C

    

     

    FORM
OF RELEASE AGREEMENT

     

    THIS
RELEASE AGREEMENT (the “Release”) is made as
of this ____ day of _________, ____, by and between ______________ (“Executive”) and
Calpine Corporation (the “Company”).

     

     

    
      	
              3.

            	
              FOR
      AND IN CONSIDERATION of the payments and benefits provided in the offer
      letter between Executive and the Company dated as of [_____________, 2008],
      (the “Letter Agreement”), Executive, for himself and his successors and
      assigns, executors and administrators, now and forever hereby releases and
      discharges the Company, together with all of its past and present parents,
      subsidiaries, and affiliates, together with each of their officers,
      directors, stockholders, partners, employees, agents, representatives and
      attorneys, and each of their subsidiaries, affiliates, estates,
      predecessors, successors, and assigns (hereinafter collectively referred
      to as the “Releasees”)
      from any and all rights, claims, charges, actions, causes of action,
      complaints, sums of money, suits, debts, covenants, contracts, agreements,
      promises, obligations, damages, demands or liabilities of every kind
      whatsoever, in law or in equity, whether known or unknown, suspected or
      unsuspected (collectively, “Claims”) which
      Executive or Executive’s executors, administrators, successors or assigns
      ever had, now has or may hereafter claim to have by reason of any matter,
      cause or thing whatsoever:  (i) arising from the beginning of
      time up to the date of the Release including, but not limited to (a) any
      such Claims relating in any way to Executive’s employment relationship
      with the Company or any of the Releasees, and (b) any such Claims arising
      under any federal, local or state statute or regulation, including,
      without limitation, the Age Discrimination in Employment Act of 1967, as
      amended by the Older Workers Benefit Protection Act, Title VII of the
      Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the
      Employee Retirement Income Security Act of 1974, and/or the applicable
      state law against discrimination, each as amended, (ii) the termination of
      Executive’s employment relationship with the Company or any of the
      Releasees; (iii) arising under or relating to the Letter Agreement; (iv)
      relating to wrongful employment termination; or (v) arising under or
      relating to any policy, agreement, understanding or promise, written or
      oral, formal or informal, between the Company and any of the Releasees and
      Executive; provided, however, that
      notwithstanding the foregoing, nothing contained in the Release shall in
      any way diminish or impair:  (A) any rights Executive may
      have, from and after the date the Release is executed, under the Letter
      Agreement and the Calpine Corporation Change in Control and Severance
      Benefits Plan; (B) any rights to indemnification or advancement that
      may exist from time to time under the Company’s certificate of
      incorporation or bylaws, or state law or under any policy or agreement
      (and, without limiting the foregoing, any and all rights under Section
      2(c) of the Restrictive Covenant Agreement); (C) any rights Executive
      may have to benefits under employee benefit plans or incentive
      compensation plans of the Company in accordance with their terms; (D)
      Executive’s ability to bring appropriate proceedings to enforce the
      Release; (E) any rights under the provisions of the Letter Agreement or
      the Stock Option Agreement referred to therein which in accordance with
      their terms continue in effect or otherwise apply after the date hereof
      (including without limitation rights under the gross-up provisions of the
      Calpine Corporation Change in Control and Severance Benefits Plan and
      rights under Section 2(g) of the Restrictive Covenant Agreement); or (F)
      any Claims Executive may have that cannot be waived under applicable law
      (collectively, the “Excluded
      Claims”).  Executive further
      acknowledges and agrees that, except with respect to
    Excluded

            

    

    

    
      
        
          
            C-1

          

           

        

        
           

          
            

          

        

        
           

        

      

    

     

    
       

      
        	
                 
      

              	
                Claims,
      the Company and the Releasees have fully satisfied any and all obligations
      whatsoever owed to Executive arising out of Executive’s employment with
      the Company or any of the Releasees, and that no further payments or
      benefits are owed to Executive by the Company or any of the
      Releasees.

              

      

    

     

    
      	
              4.

            	
              Executive
      understands and agrees that, except for the Excluded Claims, Executive has
      knowingly relinquished, waived and forever released any and all rights to
      any personal recovery in any action or proceeding that may be commenced on
      Executive’s behalf arising out of the aforesaid employment relationship or
      the termination thereof, including, without limitation, claims for
      backpay, front pay, liquidated damages, compensatory damages, general
      damages, special damages, punitive damages, exemplary damages, costs,
      expenses and attorneys’ fees.

            

    

     

    
      	
              5.

            	
              Executive
      acknowledges and agrees that Executive has been advised to consult with an
      attorney of Executive’s choosing prior to signing the
      Release.  Executive understands and agrees that Executive has
      the right and has been given the opportunity to review the Release with an
      attorney of Executive’s choice should Executive so
      desire.  Executive also agrees that Executive has entered into
      the Release freely and voluntarily. Executive further acknowledges and
      agrees that Executive has had at least [twenty-one (21)] [forty-five (45)]
      calendar days to consider the Release, although Executive may sign it
      sooner if Executive wishes.  In addition, once Executive has
      signed the Release, Executive shall have seven (7) additional days from
      the date of execution to revoke Executive’s consent and may do so by
      writing to:  ___________.  The Release shall not be
      effective, and no payments shall be due hereunder, until the eighth (8th)
      day after Executive shall have executed the Release and returned it to the
      Company, assuming that Executive had not revoked Executive’s consent to
      the Release prior to such date.

            

    

     

    
      	
              6.

            	
              It
      is understood and agreed by Executive that the payment made to Executive
      is not to be construed as an admission of any liability whatsoever on the
      part of the Company or any of the other Releasees, by whom liability is
      expressly denied.

            

    

     

    
      	
              7.

            	
              The
      Release is executed by Executive voluntarily and is not based upon any
      representations or statements of any kind made by the Company or any of
      the other Releasees as to the merits, legal liabilities or value of
      Executive’s claims.  Executive further acknowledges that
      Executive has had a full and reasonable opportunity to consider the
      Release and that Executive has not been pressured or in any way coerced
      into executing the Release.

            

    

     

    
      	
              8.

            	
              The
      exclusive venue for any disputes arising hereunder shall be the state or
      federal courts located in the State of Delaware, and each of the parties
      hereto irrevocably waives, to the fullest extent permitted by law, any
      objection which it may now or hereafter have to the laying of the venue of
      any such proceeding brought in such a court and any claim that any such
      proceeding brought in such a court has been brought in an inconvenient
      forum.  Each of the parties hereto also agrees that any final
      and unappealable judgment against a party hereto in connection with any
      action, suit or other proceeding may be enforced in any court of competent
      jurisdiction, either within or outside of the United States.  A
      certified or exemplified copy of such award or judgment shall be
      conclusive evidence of the fact and amount of such award or
      judgment.

            

    

     

    
      	
              9.

            	
              The
      Release and the rights and obligations of the parties hereto shall be
      governed and construed in accordance with the laws of the State of
      Delaware.  If any provision hereof is unenforceable or is held
      to be unenforceable, such provision shall be fully severable, and this
      document and its terms shall be construed and enforced as if such
      unenforceable provision had never comprised
a

            

    

    

    
      
        
          
            C-2

          

           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      

       

      
        	
                 
      

              	
                part
      hereof, the remaining provisions hereof shall remain in full force and
      effect, and the court construing the provisions shall add as a part hereof
      a provision as similar in terms and effect to such unenforceable provision
      as may be enforceable, in lieu of the unenforceable
    provision.

              

      

    

     

    
      	
              10.

            	
              The
      Release shall inure to the benefit of and be binding upon the Company and
      its successors and assigns.

            

    

     

    

     

    IN
WITNESS WHEREOF, Executive and the Company have executed the Release as of the
date and year first written above.

    

    
      	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              CALPINE
      CORPORATION

            	 
      	
              EXECUTIVE

            

    

     

    

    C-3ex10-2.htm

    EXHIBIT
10.2

     

    CALPINE
CORPORATION

     

    EXECUTIVE
SIGN ON

     

    NON-QUALIFIED
STOCK OPTION AGREEMENT

     

    

     

    OPTION
granted on September 1, 2008 (the “Grant Date”), by
Calpine Corporation, a Delaware corporation (the “Company”), to John B. Hill
(the “Grantee”)
pursuant to this Non-Qualified Stock Option Agreement (“Stock Option
Agreement”).

     

    
      	
              1.

            	
              GRANT
      OF OPTION.  The Company hereby grants to the Grantee the
      irrevocable Option to purchase, on the terms and subject to the conditions
      set forth herein and in the letter agreement between the Company and the
      Grantee, dated September 1, 2008 (the “Letter
      Agreement”), and (except as otherwise provided herein) the Plan (as
      defined below), 1,314,734 fully paid and nonassessable shares of the
      Company’s Common Stock, par value $.001 per share.  The Company
      grants the Option to the Grantee in four (4) tranches (each a “Tranche”).  The
      corresponding number of shares of Company Common Stock and the
      corresponding exercise price per share for each Tranche is set forth
      below.

            

    

     

    

    
      	
              Tranche

            	
              Number of
      Shares

            	
              Exercise
      Price

            
	
              Tranche
      1

            	
              262,083

            	
              $18.00

            
	
              Tranche
      2

            	
              309,920

            	
              $21.60

            
	
              Tranche
      3

            	
              349,705

            	
              $24.30

            
	
              Tranche
      4

            	
              393,026

            	
              $27.00

            

    

     

    Options
in Tranches 1, 2 and 3, and 328,292 of those Options in Tranche 4 which are
scheduled to vest on the first anniversary of the Grant Date in accordance with
Section 3 below are granted pursuant to the Company’s 2008 Equity Incentive Plan
(the “Plan”), a
copy of which is attached hereto.  The remaining Options shall be
granted outside of the Plan but shall be deemed and treated for all purposes
hereunder as though granted under the Plan and subject to its terms and
conditions to the same extent as the Options granted hereunder which are granted
pursuant to the Plan.  Except as otherwise set forth herein, the
Option is subject, or deemed subject, as applicable, in its entirety to all the
applicable provisions of the Plan as in effect on the Grant Date, which are
hereby incorporated herein by reference.  The Option is not intended
to qualify as an “incentive stock option” within the meaning of Section 422 of
the Code. Except as provided in Section 15 herein, or unless the context clearly
indicates otherwise, capitalized terms not otherwise defined herein shall have
the same definitions as provided in the Plan.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    
      	
              2.

            	
              PERIOD
      OF OPTION. The period of the Option shall commence on the Grant Date and
      shall expire on the seventh (7th) anniversary of the Grant Date (the
      “Option
      Period”). The Option (or any lesser amount thereof) may be
      exercised from time to time during the Option Period as to the number of
      Total Shares allowable under Section 3 below and the
  Plan.

            

    

     

     

    
      	
              3.

            	
              EXERCISE
      OF OPTION.  Except to the extent otherwise provided in the
      Letter Agreement or herein, each Tranche of the Option shall vest ratably
      on each of the first, second, third, fourth, and fifth anniversaries of
      the Grant Date; provided, however, that
      the Grantee must be continuously employed by the Company beginning on the
      Grant Date through each applicable vesting
date.

            

    

     

     

    
      	
              4.

            	
              TERMINATION
      OF EMPLOYMENT.  In the event that the Grantee’s employment with
      the Company is terminated by the Company without Cause or by the Grantee
      for Good Reason, in each case, prior to a Change in Control, the portion
      of the Option scheduled to vest within a period of thirty-six (36) months
      following the Grantee’s date of termination shall become immediately
      vested and exercisable and shall remain exercisable for a period of two
      (2) years following the Grantee’s date of termination but in no event
      beyond its original term; and the remaining portion of the Option shall be
      forfeited as of the date of the Grantee’s termination of
      employment.  In the event that the Grantee’s employment with the
      Company is terminated for Disability or by reason of the Grantee’s death,
      the Option shall become immediately vested and exercisable and shall
      remain exercisable for its full original term.  In the event
      that the Grantee’s employment with the Company is terminated by the
      Company for Cause, any portion of the Option that remains outstanding,
      whether vested or unvested, shall immediately terminate as of the date of
      such termination.  In the event of termination of employment by
      the Grantee without Good Reason, any unvested portion of the Option shall
      immediately terminate, and any vested portion of the Option shall remain
      exercisable for a period of 90 days following such termination and shall
      terminate thereafter.

            

    

     

     

    
      	
              5.

            	
              CHANGE
      IN CONTROL.  In the event of a Change in Control, each Option
      shall become fully vested and shall immediately be cancelled, and, in
      exchange therefor, the Grantee shall be entitled to receive an amount per
      share equal to the excess, if any, of the per share merger consideration,
      over the per share exercise price of such Option.  The Grantee
      shall in all cases be entitled to receive such amount fully in
      cash.

            

    

     

     

    
      	
              6.

            	
              SECURITIES
      ACT REQUIREMENTS. In addition to the requirements set forth herein and in
      the Plan, (i) the Option shall not be exercisable in whole or in part, and
      the Company shall not be obligated to issue any shares of Common Stock
      subject to any such Option, if such exercise and sale or issuance would,
      in the opinion of counsel for the Company, violate the Securities Act of
      1933 (the “1933
      Act”) or other Federal or state statutes having similar
      requirements, as they may be in effect at that time; and (ii) each Option
      shall be subject to the further requirement that, at any time that the
      Committee shall determine, in its discretion, that the listing,
      registration or qualification of the
shares

            

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    of Common
Stock subject to such Option under any securities exchange requirements or under
any applicable law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the
issuance of shares of Common Stock, such Option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.

     

    
      	
              7.

            	
              METHOD
      OF EXERCISE OF OPTION. Subject to the provisions of the Plan and Section 6
      hereof, the exercise price of Common Stock acquired pursuant to an Option
      shall be paid, to the extent permitted by applicable statutes and
      regulations, either (i) in cash or by certified or bank check at the time
      the Option is exercised or (ii) upon such reasonable terms as the
      Committee shall approve, the exercise price may be paid, in the discretion
      of the Grantee: (A) by delivery to the Company of other Common Stock, duly
      endorsed for transfer to the Company, with a Fair Market Value on the date
      of delivery equal to the exercise price (or portion thereof) due for the
      number of shares being acquired, or by means of attestation whereby the
      Grantee identifies for delivery specific shares of Common Stock that have
      a Fair Market Value on the date of attestation equal to the exercise price
      (or portion thereof) and receives a number of shares of Common Stock equal
      to the difference between the number of shares thereby purchased and the
      number of identified attestation shares of Common Stock (a “Stock for Stock
      Exchange”); (B) a “cashless” exercise program established with a
      broker, if such a program is in place; (C) by reduction in the number of
      shares of Common Stock otherwise deliverable upon exercise of such Option
      with a Fair Market Value equal to the aggregate exercise price at the time
      of exercise, or (D) in any other form of legal consideration that may be
      acceptable to the Committee. The purchase price of Common Stock acquired
      pursuant to the Option that is paid by delivery (or attestation) to the
      Company of other Common Stock acquired, directly or indirectly from the
      Company, shall be paid only by shares of the Common Stock of the Company
      that have been held for more than six months (or such longer or shorter
      period of time required to avoid a charge to earnings for financial
      accounting purposes). Notwithstanding the foregoing, during any period for
      which the Common Stock is publicly traded (i.e., the Common Stock is
      listed on any established stock exchange or a national market system) an
      exercise by the Grantee that involves or may involve a direct or indirect
      extension of credit or arrangement of an extension of credit by the
      Company, directly or indirectly, in violation of Section 402(a) of the
      Sarbanes-Oxley Act (codified as Section 13(k) of the Exchange Act) shall
      be prohibited with respect to this
award.

            

    

     

     

    
      	
              8.

            	
              OTHER
      LIMITATIONS, REQUIREMENTS, PROTECTIONS, ETC.  The Grantee shall
      be subject to all other terms and conditions relating to the Option as set
      forth in the Letter Agreement, including but not limited to, the potential
      repayment and share ownership requirements set forth
      therein.  It is expressly acknowledged and agreed that nothing
      in this Stock Option Agreement or the Plan shall be inconsistent in a
      manner adverse to the Grantee with, or otherwise limit adversely to the
      Grantee, the express terms of the Letter Agreement, and, in the case of
      any conflict between the Letter Agreement, on the one hand, and this Stock
      Option Agreement or the Plan, on the other, the Letter
      Agreement

            

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    shall
control to the extent favorable to the Grantee.  For purposes of the
foregoing sentence, the “Letter Agreement” excludes any attachments thereto of a
form of stock option agreement, whether or not identical to this Stock Option
Agreement.  Notwithstanding any provision hereof or of the Plan, any
provision in the Plan giving the Company or any committee or other affiliate
thereof the right, authority or discretion to interpret this Stock Option
Agreement shall be of no force or effect in respect of this Stock Option
Agreement.

     

     

    
      	
              9.

            	
              TRANSFERABILITY.
      The Option is not transferable otherwise than by will or pursuant to the
      laws of descent and distribution, and is exercisable during the Grantee’s
      lifetime only by the Grantee.

            

    

     

     

    
      	
              10.

            	
              BINDING
      AGREEMENT. This Stock Option Agreement shall be binding upon and shall
      inure to the benefit of any successor or assign of the Company, and, to
      the extent herein provided, shall be binding upon and inure to the benefit
      of the Grantee’s beneficiary or legal representatives, as they case may
      be.

            

    

     

     

    
      	
              11.

            	
              ENTIRE
      AGREEMENT. This Stock Option Agreement, the Plan, and the Letter Agreement
      set forth the entire agreement of the parties with respect to the Option
      granted hereby and may not be changed orally but only by an instrument in
      writing signed by the party against whom enforcement of any change,
      modification or extension is sought.  Without limiting any
      protection the Grantee may otherwise have, the Plan shall not be amended
      in any way that adversely affects the Grantee or the Option without the
      prior written consent of the
Grantee.

            

    

     

     

    
      	
              12.

            	
              ELECTRONIC
      DELIVERY AND SIGNATURES. The Company may, in its sole discretion, decide
      to deliver any documents related to the Option or to participation in the
      Plan or to future options that may be granted under the Plan by electronic
      means or to request the Grantee’s consent to participate in the Plan by
      electronic means. The Grantee hereby consents to receive such documents by
      electronic delivery and, if requested, to agree to participate in the Plan
      through an on-line or electronic system established and maintained by the
      Company or another third party designated by the Company. If the Company
      establishes procedures of an electronic signature system for delivery and
      acceptance of Plan documents (including any Award Agreement like this
      Option), the Grantee hereby consents to such procedures and agrees that
      his or her electronic signature is the same as, and shall have the same
      force and effect as, his or her manual
  signature.

            

    

     

     

    
      	
              13.

            	
              WITHHOLDING
      OF TAX. To the extent that the exercise of the Option or the disposition
      of shares of Company’s Common Stock acquired by exercise of the Option
      results in compensation income to the Grantee for federal or state income
      tax purposes, the Grantee shall pay to the Company at the time of such
      exercise or disposition such amount of money or, if the Company so
      determines, shares of Common Stock, as the Company may require to meet its
      obligation under applicable tax laws or regulations
  and,

            

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    if the
Grantee fails to do so, the Company is authorized to withhold from any cash
remuneration then or thereafter payable to the Grantee, any tax required to be
withheld by reason of such resulting compensation income or the Company may
otherwise refuse to issue or transfer any shares otherwise required to be issued
or transferred pursuant to the terms hereof.

     

     

    
      	
              14.

            	
              ADJUSTMENTS/CHANGES
      IN CAPITALIZATION. This award is subject to the adjustment provisions set
      forth in the Plan.

            

    

     

     

    
      	
              15.

            	
              DEFINITIONS.  As
      used herein, the terms “Cause,” “Change in Control” and “Good Reason”
      shall have the meanings ascribed to them in the Calpine Corporation Change
      in Control and Severance Benefits Plan and the term “Disability” shall
      have the meaning ascribed to it in the Letter
  Agreement.

            

    

     

     

    [SIGNATURE
PAGE FOLLOWS]

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    Subject
to Section 12 above, if the foregoing is in accordance with your understanding
and approved by you, please so confirm by signing and returning the duplicate of
this Stock Option Agreement enclosed for that purpose.

    

    

    
      	 
      	
              CALPINE
      CORPORATION

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              By:

            	 
      /s/  Jack A. Fusco
	 
      	 
      	 
      

    

    

    The
foregoing is in accordance with my understanding and is hereby confirmed and
agreed to as of the Grant Date.

    

    

    
      	 
      	 
      /s/  Thad Hill
	 
      	 
      
	 
      	
              Grantee

            

    

     

     

     

    6

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