Document:

exv10w5w3w2

 

Exhibit 10.5.3.2

Detroit New York Chicago Dallas

November 3, 2006

Robert May

Calpine Corporation

50 West San Fernando Street

San Jose, CA 95113

Re: Agreement for Restructuring Services

This letter is the first amendment of the Agreement dated December 17, 2005 (the “Agreement”),
between AP Services LLC, a Michigan limited liability company (“APS”) and Calpine Corporation
(“Calpine” or the “Company”). Unless otherwise modified herein, the terms and conditions of the
Agreement remain in full force and effect.

Tasks

The following tasks are added to those stated in the Agreement:

	•	 	Assist in the review and assessment of executory contracts to identify rejection opportunities.
	 
	•	 	Collaborate with internal and external legal counsel to develop strategies for dealing with uneconomic contracts that
cannot be rejected due to jurisdictional issues.
	 
	•	 	Support Company process to evaluate and sell certain plants and assets that are no longer strategically relevant to
Calpine.
	 
	•	 	Assist in the development and process for completing the monthly operating reports and other reporting required during
the bankruptcy.
	 
	•	 	Assist the Company in analyzing and reconciling Chapter 11 bankruptcy claims, including reclamation analysis and
potential preferences.
	 
	•	 	Advising the Company’s accounting department on certain reporting requirements and evaluating the closing process to
accelerate the reporting of financial results.
	 
	•	 	Support US company and evaluate issues related to the Canadian chapter 11 filing.
	 
	•	 	Develop analysis to assess solvency of CES, LP and the trading operations, including evaluating interco transactions.

2000 Town Center | Suite 2400 | Southfield, MI | 48075 | 248.358.4420 | 248.358.1969 fax | www.alixpartners.com

 

 

Calpine Corporation

November 3, 2006

Page 2

	•	 	Work with the Company to identify the total population of inter-company general ledger accounts and to understand the
purpose and nature of activity for each inter-company account.
	 
	•	 	Work with management and the Company’s outside counsel to review a sample of structured finance transactions, assess
the economic value of the transactions, and identify potential pre and post-petition claims for the respective
transactions.
	 
	•	 	Maintain a controlled and repeatable forecasting methodology for the Debtors’ trading operations to provide a forecast
of cash flows based on current commodity prices and dispatch trends rather than historical trends.
	 
	•	 	Develop a model whereby contractual toll payments indexed to power and gas prices can be updated on a weekly basis to
account for changes in the commodity price index.
	 
	•	 	Assist the Company by providing an analyst in the Treasury department responsible for maintaining a daily bank
reconciliation between forecasted and actual cash flow activity for all cash accounts that sweep to Corp (over 20
accounts).
	 
	•	 	Assist the Company by providing an analyst in the Credit Department responsible for interacting with all counterparties
on a daily basis, assessing the net exposure between the counterparty and Calpine, and determining if any cash
collateral will need to posted or can be colleted. This analyst maintains the information and documentation that will
allow the Director of Credit the ability to help minimize the working capital required in the trading organization.
	 
	•	 	Assist the Company and its legal advisors in identifying possible substantive consolidation scenarios, as well as
support the Company in understanding both the third-party and intercompany affiliate claims associated with each legal
entity and scenario
	 
	•	 	Managing the transition of accounting and finance functions from San Jose to Houston, to include:

	 	•	 	Retentions of key San Jose staff through an appropriate transition period
	 
	 	•	 	Recruiting, retention and training of new staff in Houston
	 
	 	•	 	Transitioning of duties from San Jose staff to Houston staff

	•	 	Diagnosis and develop strategies and tactics to enhance processes surrounding accounting close and consolidation

 

 

Calpine Corporation

November 3, 2006

Page 3

Staffing

The Staffing section of the Agreement is replaced in its entirety by the following:

APS will provide Lisa Donahue to serve as the Company’s Chief Financial Officer, reporting to the
Company’s Chief Executive Officer. Working collaboratively with the senior management team, the
Board of Directors and other Company professionals, Ms. Donahue will assist the Company in
evaluating and implementing strategic and tactical options through the restructuring process. She
will be assisted by Michael Feder and a staff of professionals at various levels as provided on
Exhibit A, all of whom have a wide range of skills and abilities related to this type of
assignment. In addition, we have relationships with and periodically retain independent
contractors with specialized skills and abilities to assist us.

Staffing levels and assignments shall be determined through consultation between the Company and
APS. The staff may be assisted by or replaced by other professionals at various levels, as
required. APS will keep the Company informed as to APS’ staffing and will add additional staff to
the assignment after consulting with the Company.

If APS finds it desirable to augment its professional staff with independent contractors (an “I/C”)
in this case, it shall do so consistent with applicable bankruptcy law.

Schedule 1, Fees and Expenses

Section 2, Contingent Success Fee, of Schedule 1 is replaced in its entirety with the following:

APS shall be eligible to receive an Emergence Incentive Bonus of up to $6.0 million earned upon
consummation of a confirmed plan of reorganization. The threshold at which such bonus shall be
earned and the maximum amount of the Emergence Incentive Bonus shall be as specified in the
schedule attached hereto; provided that it shall remain within the sole discretion of the CEO to
reduce the Emergence Incentive Bonus below the maximum amount specified in the schedule.

Please see the attached schedule for a detailed analysis of the APS Incentive Bonuses.

APS reviews and revises its billing rates on January 1 of each year. However, rates were not
revised for the Temporary Staff in place on the engagement at January 1, 2006. Therefore, APS will
be returning to standard rates effective January 1, 2007

Exhibit A

The attached Exhibit A replaces in its entirety the Exhibit A attached to the Agreement.

 

 

Calpine Corporation

November 3, 2006

Page 4

APS reviews and revises its billing rates on January 1 of each year. However, rates were not
revised for the Temporary Staff in place on the engagement at January 1, 2006. Therefore, APS will
be returning to standard rates effective January 1, 2007

Exhibit A

The attached Exhibit A replaces in its entirety the Exhibit A attached to the Agreement.

* * *

This letter is supplemental to, and not in lieu of, the Agreement, and, except as modified herein,
the Agreement shall remain in full force and effect.

Sincerely yours,

AP Services, LLC

/s/ Lisa J. Donahue

Lisa J. Donahue

Managing Director

Acknowledged and Agreed to:

CALPINE CORPORATION

	 	 	 	 	 
	By: 

Its:

	 	/s/ Robert P. May
 

	 	 
	Dated:

	 	 

	 	 
	 

	 	 

	 	 

 

 

AP Services, LLC

Employment by Calpine Corporation

Exhibit A — Temporary Employees

Individuals with Executive Officer Positions

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Commitment
	Name	 	Description	 	Hourly Rate	 	Full1 or Part Time
	 
	Lisa Donahue
	 	Chief Financial Officer	 	$670	 	Full
	 

Additional Temporary Employees

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Commitment
	Name	 	Description	 	Hourly Rate	 	Full1 or Part2Time
	Amanda Knudsen
	 	Claims Resolution	 	$220	 	Full
	 
	Timothy Rosolio
	 	Claims Resolution	 	$220	 	Full
	 
	Christopher Anderson
	 	Contract Resolution	 	$260	 	Full
	 
	Aleksandra Bozic
	 	Contract Resolution	 	$280	 	Full
	 
	Adam Hollerbach
	 	Treasury Analyst	 	$300	 	Full
	 
	Robert Albergotti
	 	Restructuring	 	$300	 	Full
	 
	Andrew Baker
	 	Intercompany claims	 	$300	 	Full
	 
	Ryan Thurber-Dean
	 	Contract Resolution	 	$300	 	Part
	 
	Robb McWilliams
	 	Claims Management	 	$300	 	Full
	 
	Lauren Schulman
	 	Intercompany Claims	 	$300	 	Full
	 
	Terry Singla
	 	Cash Management and Forecasting	 	$320	 	Full
	 
	Meaghan Frawley
	 	Intercompany Claims	 	$330	 	Full
	 
	Drew Lockard
	 	Claims Management	 	$330	 	Full
	 
	Kevin Montague
	 	Restructuring	 	$350	 	Full
	 
	Kyle Braden
	 	Cash Management and Forecasting	 	$380	 	Full
	 
	Salvador Caputto
	 	Accounts Payable	 	$380	 	Full
	 
	Jeffrey Webb
	 	Credit Analyst	 	$380	 	Full
	 
	Heather Stack
	 	Intercompany Claims	 	$380	 	Full
	 
	Tamie Vitek
	 	Accounting	 	$425	 	Full
	 
	Jon Shell
	 	Accounting	 	$430	 	Full
	 
	Henry Colvin
	 	Restructuring	 	$440	 	Full
	 
	David Johnston
	 	Restructuring	 	$460	 	Full
	 
	Bryan Porter
	 	Claims Management	 	$460	 	Full
	 
	Thomas Osmun
	 	Business Plan/Restructuring	 	$480	 	Full
	 
	Deborah Rieger-Paganis
	 	Contract Resolution	 	$480	 	Full
	 
	Barry Folse
	 	Claims Management	 	$480	 	Full
	 
	Doug Jung
	 	Intercompany Claims	 	$495	 	Full
	 
	Michael Tinsely
	 	Contract Resolution	 	$495	 	Full
	 
	Jamie Lisac
	 	Contract Resolution	 	$495	 	Full
	 
	Robert Rakowski
	 	Contract Resolution	 	$495	 	Full
	 
	John Castellano
	 	Cash Management, Forecasting and Restructuring	 	$510	 	Full
	 
	Jared Yerian
	 	Restructuring	 	$590	 	Part
	 
	Michael Feder
	 	Restructuring	 	$630	 	Full
	 

	 	 	 
	The parties agree that Exhibit A can be amended by APS from time to time to add or delete staff,
and the Monthly Staffing Reports shall be treated by the parties as such amendments.
	 
	1 	 	Full time is defined as substantially full time.
	 
	2 	 	 Part time is defined as approximately 2-3 days per week, with some weeks more or less
depending on the needs and issues facing the Company at that time.

 

 

Calpine Corporation

AP Services, LLC Compensation Summary

($MM)

	 	 	 	 	 
	Additional Emergence Incentive Component

	 	-
	 	At the discretion of the CEO, upon consummation of a confirmed plan of reorganization, earned 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 $133,334 for each $100 million increase in market AEV over $4.5 billion(3) provided that payments do
not exceed $4.0 million and Total Incentive Bonus does not exceed $6.0 million.

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
	 	 	*	 	 	 	*	 	 	 	*	 	 	$	2.00	 	 	$	2.00	 	 	$	2.00	 	 	$	2.00	 	 	$	2.00	 	 	$	2.00	 	 	$	2.00	 	 	$	2.00	 	 	$	2.00	 
	Valuation Component
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.67	 	 	 	1.33	 	 	 	2.00	 	 	 	2.67	 	 	 	3.33	 	 	 	4.00	 	 	 	4.00	 	 	 	4.00	 	 	 	4.00	 
	% of Valuation Increase
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.13	%	 	 	0.13	%	 	 	0.13	%	 	 	0.13	%	 	 	0.13	%	 	 	0.13	%	 	 	0.00	%	 	 	0.00	%	 	 	0.00	%
	 	 	 
	Total Incentive Bonus
	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	2.67	 	 	$	3.33	 	 	$	4.00	 	 	$	4.67	 	 	$	5.33	 	 	$	6.00	 	 	$	6.00	 	 	$	6.00	 	 	$	6.00	 

 

			
	(1)	 	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 or
Reorganization (other than any restricted cash held by direct or indirect
subsidiaries posted in favor of trading counterparties, cash posted to
collateralize letters of credit and pre-petition asset sales proceeds in
escrow); plus the market value of reorganized Calpine’s common stock (and
any other equity-link 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, Market 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 issues at reorganized Calpine used to refinance
Project-Level Debt.
	 
	(2)	 	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 9a) 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 13.3 bps for each
incremental $100 million in AEV achieved.
	 
	*	 	APS will have the same threshhold as for the senior executives in the
Emergence Incentive Plan.exv10w5w11

 

Exhibit 10.5.11

CALPINE CORPORATION

Calpine Incentive Plan

	I.	 	Effective Date
	 
	 	 	The Calpine Incentive Plan (the “CIP” or the “Plan”) is effective as of January 1, 2006
and supersedes and replaces all previously implemented Management Incentive Plans and
Business Unit Incentive Plans of Calpine (or the “Company”).
	 
	II.	 	Plan Purpose
	 
	 	 	The CIP is a key element of the Company’s total compensation program and is designed to
attract, motivate, retain and reward eligible employees. The plan rewards eligible
employees by allowing them to receive bonuses based upon both how well the Company
performs against certain financial objectives as well as how the individual personally
performs. In order for any bonuses to be earned and paid, the Company must meet
minimally acceptable performance targets. If those targets are not met, no bonuses will
be paid. If those targets are met, then bonuses will be paid based on a combination of
Company performance and individual performance.
	 
	III.	 	Plan Eligibility
	 
	 	 	Participants eligible to participate in the Plan are defined in Exhibit A.
	 
	IV.	 	Bonus Pool Determination
	 
	 	 	The aggregate CIP bonus pool amount approved by the Compensation Committee of the Board
of Directors (the “Committee”), is determined in the following steps:

	 	1.	 	Prior to the start of, or early in each performance period, the Company
shall confirm the business/performance goals (“Corporate Goals”) for that period.
The Corporate Goals for the current performance period are attached hereto as
Exhibit B.
	 
	 	2.	 	During the fiscal quarter following the performance period (which in
some situations is the first half of a calendar year, and in others, the entire
calendar year), the Plan Administrator shall review how the actual results for the
period compared to the Corporate Goals for that period and determine the level of
achievement of the various goals, expressed as a

 

 

	 	 	 	percentage. As required, the
Committee will review and approve, modify, adjust or cancel the achievement in its
sole discretion.
	 
	 	3.	 	The sum each participant’s “Annual Cash Bonus Target” which is each
participant’s Target Percentage (described in Section V (1) below) multiplied by
his or her base salary, for the calendar year to which Corporate Goals (as defined
in Section IV(1) above) and Individual Goals (as defined in Section V(4)) apply
(“Base Salary”), establishes the target aggregate CIP bonus pool (“Aggregate Target
CIP Bonus Pool”).
	 
	 	4.	 	The percentage of goal achievement shall be applied to the Aggregate
Target CIP Bonus Pool, and may result in a final actual aggregate CIP bonus pool
(“Final Aggregate CIP Bonus Pool”) greater than, or less than, the sum each
participant’s Annual Cash Bonus Target. As a general rule, the level of the Final
Aggregate CIP Bonus Pool shall be consistent with the Company’s level of Corporate
Goal achievement.
	 
	 	 	 	For example, if the Company achieved 100% of the established Corporate Goals, the
Final Aggregate CIP Bonus Pool will be 100% of the Aggregate Target CIP Bonus Pool.
	 
	 	 	 	Based upon the achievement of the Corporate Goals, the Aggregate Target CIP Bonus
Pool may be adjusted upward or downward within a range of 90% to 110% of the sum of
the Annual Cash Bonus Targets.

	V.	 	Participant Bonus Determination
	 
	 	 	Although participant bonus determinations are completely at the discretion of the Plan
Administrator and subject to the achievement of Corporate Goals, many factors are taken
into consideration in determining an individual participant’s earned bonus under the
Plan.
	 
	 	 	The bonus amount allocated to a participant (“Earned Bonus”) is generally determined by
the following factors:

	 	1.	 	Position – Each eligible position is associated with a job code that is
assigned a target percentage based on the level of responsibility and market
practices for the position (“Target Percentage”). The Target Percentage will be
communicated to each participant upon hire, placement in, or promotion to any CIP
eligible position.
	 
	 	2.	 	Base Salary – The amount of a participant’s Base Salary earned in a CIP
eligible position during a performance period is directly related to a
participant’s Earned Bonus.

2

 

	 	3.	 	Company Performance – The level of Company Corporate Goal achievement
and the resulting funding level as determined by the Committee and described in
Section IV (3) is one factor used in determining a participant’s Earned Bonus. The
portion of a participant’s Annual Cash Bonus Target attributable to Company
performance generally will be adjusted by the same percentage by which the
Aggregate Target CIP Bonus Pool is adjusted as described in Section IV (4).
	 
	 	4.	 	Participant Job Performance – An additional component in calculating a
participant’s Earned Bonus is the attainment of specific individual goals and
objectives, which are established by the participant along with the participant’s
respective manager at the beginning of the measurement period (“Individual Goals”).
	 
	 	5.	 	Mix of Corporate Goals and Individual Goals – Earned Bonuses are
determined based on a combination, or mix, of the achievement of Corporate Goals
and Individual Goals that is determined by Job Level, and is included in Exhibits A
attached hereto.
	 
	 	6.	 	Other Factors Considered:

	 	•	 	Foremost are Calpine’s overriding principles of ethical conduct and
integrity. It is expected that each participant will conduct Calpine’s
business in an open and honest fashion and actions, and that decisions will
represent the Company with honor and distinction in the face of public
scrutiny.
	 
	 	•	 	Furthermore, a participant’s compliance with all applicable laws and Company
policies, procedures and standards (including, but not limited to, the Code of
Conduct, the Risk Management Procedures Manual, the Antitrust Policy, the
Safety and Health Policy, and the Equal Employment Opportunity Policy) is an
essential consideration in determining bonus eligibility and amount. In
addition, a participant’s Earned Bonus under the Plan may be adjusted for his
or her individual performance and contribution, as determined by the
participant’s manager.

	VI.	 	Payment of Earned Bonus
	 
	 	 	Each Earned Bonus under the Plan will be calculated based on attainment of goals and
paid as follows:

	 	•	 	Participants in positions at the Director, Manager and Individual Contributor
levels: Provided the Corporate Goals are achieved, participants in the
aforementioned levels will receive two payments per year. The first payment, equal
to one-third of their Annual Cash Bonus

3

 

	 	 	 	Target, will be earned for the performance
in the first half of the year. Payout will occur within 75 days after the end of
the first half of the year (June 30).
	 
	 	 	 	The second payment will be an amount equal to the Earned Bonus less any amount paid
out after the first half of the year (as described in the preceding paragraph) and
will be determined based on the criteria as described in Exhibit B. Any resulting
payout will occur within 75 days after the end of the plan year — December 31.
	 
	 	 	 	If Company performance does not meet the Corporate Goal performance threshold for
the year or the employee voluntarily or involuntarily terminates, no
repayment will be required by the participant to the Company for the 1/3 bonus
payment nor will there be any offset of future bonus payments.
	 
	 	•	 	Participants in positions at or above the level of Vice President: Provided the
Corporate Goals are achieved, one-hundred (100%) percent of the Earned Bonus will
be paid within 75 days after the end of the Plan Year – December 31.
	 
	 	•	 	Participants in the Transition Incentive Award program of the CIP: The CIP also
provides a limited number of awards to participants under the Transition Incentive
Provision (“Exhibit C”). These employees are engaged in activities such as asset
sales, plant closings, etc. which may, by the nature of the activity, result in the
elimination of their jobs. Employees in this classification will be advised of
their respective participation based on criteria determined by the Company from
time to time.
	 
	 	•	 	In all cases, bonus payments will be subject to all applicable taxes and any
applicable and appropriate deductions for garnishments, 401(k) Retirement Savings
Plan, and other deductions or withholdings.

	VII.	 	Transfers and New Hires
	 
	 	 	In the event that a participant transfers from one position to another during the course
of the performance period, or is a new hire, his/her Plan bonus for the year will be
calculated on a pro-rated basis to reflect the actual time spent in each position and
the bonus target for each position during the performance period. An employee hired
between November 1 and December 31 is not eligible to participate in the CIP for the
calendar year in which he or she was hired.
	 
	VIII.	 	Retirements, Disability, Death and Terminations

4

 

	 	 	Except as provided below, participants are eligible to receive a bonus under this Plan
provided they remain actively employed on the day bonus payments are paid. Participants
in the Transition Incentive Award program of the CIP are exempt from this provision.
	 
	 	 	Notwithstanding the foregoing, in the event of a participant’s retirement (provided such
participant qualified under the Company’s retirement policy), long-term disability or
death during a Plan year, his/her Earned Bonus will be pro-rated to reflect the actual
time in active service during the Plan year. If a Plan participant dies, retires or
becomes subject to long-term disability after the conclusion of a performance period,
but prior to the bonus payout for such period, he or she will still be eligible to
receive the entire Earned Bonus under the Plan for such period.
	 
	 	 	Except as otherwise provided hereunder, any participant whose employment is terminated
by the Company for any reason (including such termination by the Company after a
participant becomes eligible for retirement) or who voluntarily resigns (except for
retirement) prior to the Earned Bonus payout is not eligible to receive a bonus payment
under such program.
	 
	IX 	 	Administration
	 
	 	 	The Plan will be administered by the Plan Administrator who shall be Calpine’s Chief
Executive, or the Company officer designated by the Chief Executive Officer from time to
time (i.e., SVP Human Resources, etc.). The Plan Administrator shall have broad
authority to interpret the terms and conditions of the Plan, subject to the following
decisions reserved for the Committee:
	 
	 	 	1. As required, the approval of the Company’s financial and non-financial goals
discussed in Section IV above;
	 
	 	 	2. Interpretation of the Plan on any matters in which the Chief Executive Officer or the
Plan Administrator is not a disinterested party.
	 
	 	 	Furthermore, the Plan Administrator must approve any modifications, amendments, or
adjustments to the Plan or any of its key provisions and all bonus payments. In
addition, all bonus payments under this Plan are subject to the review and the approval
of the Chief Executive Officer. Any decisions of the Plan Administrator in the
interpretation of the Plan may be appealed in writing to the Committee. However, any
decision of the majority of the Committee is final and binding on all parties.
	 
	X 	 	Disputes

5

 

	 	 	If a Plan participant disputes a bonus payment or the absence of a payment under such
program, he or she must submit a claim in writing describing the claim to the Plan
Administrator. The Plan Administrator will respond to the claim within a reasonable
time. Any decisions of the Plan Administrator may be appealed in writing to the
Committee. However, any decision of a majority of the Committee is final and binding on
all parties.
	 
	XI 	 	Discretion in Amendment/Termination
	 
	 	 	Distribution and payout of all Earned Bonus amounts under the CIP are at the sole
discretion of the Plan Administrator. The Plan Administrator may at any time and for any
reason, amend, alter, suspend or terminate this Plan, subject to the approval of the
Committee. Any amendment, supplement, or exception to this Plan must be in writing and
will be communicated to all eligible participants. Likewise, any superseding management
incentive plan must be in writing and expressly state that it supersedes this Plan. The
Committee may in its discretion suspend any and all payments under the Plan.
	 
	XII 	 	No Employment Rights
	 
	 	 	Notwithstanding anything to the contrary herein, each Plan participant’s employment with
the Company is and shall continue to be at-will. A participant’s employment with the
Company may be terminated at any time by the participant or the Company, with or without
cause and with or without notice, as permitted by law.
	 
	XIII	 	Governing Law
	 
	 	 	The validity, interpretation, construction and performance of this Plan shall be
governed in accordance with Texas law, except for its conflict of laws provisions,
unless a superseding federal law is applicable or, in the case of Canada, unless a
superseding law under Canadian jurisdiction is applicable.
	 
	XIV 	 	No Assignment
	 
	 	 	Without the written consent of the Plan Administrator, no participant may assign any
right or obligation under this Plan to any other person or entity. Notwithstanding the
foregoing, the terms of this Plan and all rights of the participant hereunder shall
inure to the benefit of, and be enforceable by, the participant’s personal and legal
representatives, executors, administrators, successors, heirs, distributes, devisees or
legatees.
	 
	XV 	 	Integration
	 
	 	 	This document and each exhibit hereto represent the entire agreement and understanding
between the Company and the participants in the Plan as to the

6

 

	 	 	subject matter herein,
and therefore supersede all prior or contemporaneous agreements, whether written or
oral.
	 
	XVI 	 	Severability
	 
	 	 	The invalidity of unenforceability of any provision or provisions of this Plan shall not
affect the validity or enforceability of any other provision hereof, which shall remain
in full force and effect.

7

 

EXHIBIT A

2006

Calpine Incentive Plan – Eligible Participants

I. Power Operations, Central Operations and Corporate Staff as listed below

     Participants in the Calpine Incentive Plan (“CIP”) will include employees at the following
levels:

	 	•	 	Executive Vice President
	 
	 	•	 	Senior Vice President
	 
	 	•	 	Vice President and equivalent
	 
	 	•	 	Director and equivalent
	 
	 	•	 	Managers and equivalent
	 
	 	•	 	Individual Contributors as determined by the Plan Administrator

Eligible participants will be notified by the Plan Administrator and will receive a plan document
at the time they are nominated for participation.

A. Six Month Bonus

Provided that the six month (through June 30, 2006) Corporate Cash Flow objective of ($350) million
as described in Exhibit B is attained, participants in positions at the Director, Manager and
Individual Contributor levels will be eligible to receive a payment equal to one-third of their
Annual Cash Bonus Target within 75 days after the end of the first half of the calendar year.

B. Earned Bonus and Annual Goals

The Earned Bonus will be determined upon attainment of the annual Corporate Goals as described in
Exhibit B. Payout will occur within 75 days after the end of the Plan year (12/31). Participants
will receive 100% of any Earned Bonus within 75 days after the end of the plan year (12/31).

Note: Payments to participants in jobs at the Director level and below will be reduced by any
payment they may have received subject to achievement of the Corporate Cash Flow objective of ($350
million) described above in “A”.

Participants’ Earned Bonus will be determined by the achievement of both Corporate Goals
and Individual Goals as described in the following table:

 

 

	 	 	 	 	 	 	 	 	 
	 	 	Target	 	 	 	 
	 	 	Awards as	 	 	 	 
	 	 	% of Base	 	Corporate CIP	 	Individual Goal
	Job Level	 	Salary	 	Goal Achievement	 	Achievement
	Section 16(b) Officers	 	Discretionary Review by Compensation Committee
	Executive Vice President

	 	 	100	%	 	80% of award
	 	20% of award
	Senior Vice President

	 	 	40	%	 	70% of award
	 	30% of award
	Vice President

	 	 	30	%	 	60% of award
	 	40% of award
	Director

	 	 	25	%	 	50% of award
	 	50% of award
	Manager

	 	 	20	%	 	40% of award
	 	60% of award
	Individual Contributor

	 	 	15	%	 	20% of award
	 	80% of award

 

 

EXHIBIT B

2006

Pool Funding and CIP Bonus Plan Goals/Metrics

Pool Funding

	 	•	 	Each plan participant has an Annual Cash Bonus Target that equals the product of his/her
Base Salary times the Target Percentage associated with his/her job level (see table in
Exhibit A). The Aggregate Target CIP Bonus Pool equals the sum of the participants’ Annual
Cash Bonus Targets.
	 
	 	•	 	Based upon results, the Bonus Pool may be adjusted upward or downward for a range of 90%
 — 110% of the Annual Cash Bonus Targets

* * * * *

     CIP Bonus Plan Goals/Metrics

	 	•	 	First Half Goals/Metrics:

	 	s	 	Cash Flow

	 	§	 	June 30, 2006 ($350) Million

	 	•	 	Annual Goals/Metrics

	 	s	 	Cash Flow

	 	§	 	December 31, 2006 ($316) Million

	 	s	 	Individual Goals

	 	§	 	Specific dollar goals as determined department by department to meet the
overall annualized goal of reducing expenses by $180 million
	 
	 	§	 	Personal goals as determined by each employee’s immediate supervisor and
mutually agreed

Subject to attainment of Cash Flow Goals for the first half of the 2006 Plan Year payments of
one-third (33.3%) of the Annual Cash Bonus Target will be disbursed to participants at the Director
level and below before the 75th day following June 30, 2006.

With the exception of awards paid under the Transition Incentive program (Exhibit C) that may
involve the elimination of a participant’s own position, participants must be actively employed on
the date of the payment of the Earned Bonus in order to receive payment.

 

 

EXHIBIT C

2006

Transition Incentive Plans

In connection with activities necessary to the successfully disposition of assets, closing of
plants and similar activities designed to support the restructuring of Calpine, there may be a
number of employees who, by the nature of their activities, eliminate their respective jobs. The
Transition Incentive Plans provide a program that rewards these participants for their work in
completing assignments and specific transactions that enhance Calpine’s value.

A. Transaction/Transition Bonus

To be paid to CIP eligible employees who are working on a specific assignment with a targeted end
date. In the majority of cases, the completion of the assignment will result in the affected
employee’s lay-off. Generally, the Earned Bonus for an affected employee will be calculated based
upon his/her Annual Cash Bonus Target. Any Earned Bonus may be paid during the assignment or
specific transaction, upon the assignment’s or transaction’s completion, or both. The
Transaction/Transition bonus is paid in lieu of a CIP bonus. An Earned Bonus shall be paid with 75
days of the assignment’s or transaction’s completion.

Subject to a written agreement, an employee who voluntarily resigns or is terminated by the Company
for any reason prior to successful completion of the specified assignment will not be eligible for
a Transaction/Transition bonus payout.

B. Construction Completion Bonus

To be paid to construction, engineering and commissioning employees at the level of Director and
below (including designated employees who are not eligible for the CIP) assigned to specific
capital or construction projects. Each specified project will have a construction completion bonus
pool assigned to it. An Earned Bonus will be made on a discretionary basis by management based
upon an employee’s contribution to that project. An Earned Bonus may be paid during the project,
upon completion of the construction project or both. Each Earned Bonus may be paid to employees
who are no longer employed with Calpine at the time the entire construction project is completed as
long as management deems their services to have been satisfactorily completed and no longer needed
at some time prior to the project’s completion date.

Subject to a written agreement, an employee who voluntarily resigns or is terminated by the Company
for any reason prior to completion of the construction project will not be eligible for a
Construction Completion Earned Bonus payout.

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