This
Employment Agreement (the “Agreement”) is entered into
effective as of December 12, 2005, between CALPINE
CORPORATION, a Delaware corporation (the “Company”),
and ROBERT P. MAY (“Executive”) to provide the terms
and conditions for Executive’s employment with the Company
and its affiliates from time to time (together, the
“Group”).
The
Board of Directors of the Company (the “Board”) named
Executive as Chief Executive Officer of the Company and a member of
the Board on December 12, 2005 (the “Start
Date”).
The
Company and Executive have agreed that Executive will be employed
by the Company and will serve as the Company’s Chief
Executive Officer, upon the terms and conditions set forth
below.
Accordingly,
and in consideration of the mutual obligations set forth in this
Agreement, which Executive and the Company agree are sufficient,
Executive and the Company agree as follows:
Subject to the
provisions of paragraph 4 below, Executive’s term of
employment (“Term of Employment”) consists of the
initial term and any subsequent term for which the Agreement is
renewed. The initial term of this Agreement begins on
December 12, 2005, and ends on December 31, 2007, subject
to the termination provisions of paragraph 4 below. No later than
150 days prior to the end of the initial Term of Employment,
the Company shall inform Executive if it intends to renew this
Agreement for a subsequent Term of Employment. If no notice is
given, and Executive’s employment continues after the Term of
Employment, Executive’s continued employment and any
subsequent termination thereof shall not be subject to the terms of
this Agreement.
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Position and
Responsibilitie s.
During the Term of
Employment, Executive shall have the position and responsibilities
described below. Executive shall be employed as the Company’s
Chief Executive Officer, with the general executive powers and
authority that accompany that position. Executive shall report
directly to the Board and shall have the duties and
responsibilities that are typically performed by the chief
executive officer of a public company, as well as any other duties
consistent with his position that are assigned to Executive by the
Board. Unless and until the Board elects a President of the
Company, Executive shall also have the powers, duties and
responsibilities that the Company’s Bylaws confer on the
President of the Company. Executive agrees to comply with such
lawful policies of the Company as may be adopted from time to time.
Although Executive may be reasonably required to travel from time
to time for business reasons, his principal place of employment
shall be the Company’s corporate offices wherever
located.
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(a)
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Executive shall devote all of his
full business time and his best efforts, skill, and attention to
the Company’s business and affairs and to promoting the
Company’s best interests.
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(b)
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Executive shall serve as a
non-chairman member of the Board for as long as Executive continues
to be nominated and elected.
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(c)
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Notwithstanding the foregoing,
nothing herein shall preclude Executive from (i) serving on the
boards of directors of other corporations and/or charitable
organizations (subject to the approval of the Board, such approval
not to be unreasonably withheld), (ii) engaging in charitable
activities and community affairs, and (iii) managing his
personal investments and affairs, provided that any such activities
listed in (i) and (ii) above do not interfere in more
than a de minimis manner with the proper performance of his duties
and responsibilities hereunder and comply with the limitations set
forth in paragraph 5.a.
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For
all of his services during the Term of Employment, Executive shall
receive the following compensation:
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(a)
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Base Salary . Executive’s annual base
salary shall be $1,500,000 (as may be increased from time to time,
the “Base Salary”). The Board will review the Base
Salary at least annually and may increase it at any time for any
reason, in its sole discretion; however, it shall have no
obligation to do so.
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(b)
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Bonus . In addition to his Base Salary,
Executive shall be eligible to receive an annual cash performance
bonus (the “Bonus”) for each fiscal year ending during
the Term of Employment if, and to the extent that, (x) except
with respect to any Bonus payable earlier as severance under
paragraph 4.b.ii.1, Executive remains employed by the Company on
the last day of such fiscal year and (y) corporate performance
objectives established by the Board are achieved, as determined by
the Board or a committee thereof in its sole discretion. Payment of
the Bonus shall be made at the same time that other senior-level
executives receive their bonuses, and no later than March 15th
of the calendar year after the calendar year in which the Bonus is
earned. The target level for Executive’s Bonus shall be
established by the Board (or a committee thereof) in its sole
discretion, provided that the minimum target level for any year
shall be 100% of the Base Salary (the “Target Annual
Bonus”). However, subject to the minimum Bonuses for the
Company’s fiscal years ending December 31, 2006, and
December 31, 2007, set forth below, Executive’s actual
Bonus in any year may range from 0% to 200% of the Target Annual
Bonus:
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(i)
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For
the Company’s fiscal year ending December 31, 2006,
Executive shall be entitled to receive a minimum Bonus of
$2,250,000, to be paid no later than March 15, 2007 but no
earlier than January 1, 2007.
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(ii)
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For
the Company’s fiscal year ending December 31, 2007,
Executive shall be entitled to receive a minimum Bonus of
$1,500,000, to be paid no later than March 15, 2008 but no
earlier than January 1, 2008.
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(c) Benefits . Executive shall be eligible to participate in
all Company benefit plans and programs as are generally available
for its senior executives, and his benefits shall be based on the
terms of the applicable plan as established by the
Company
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from time to
time. Nothing in this Agreement shall restrict the Company’s
ability to change or terminate any or all of its employee benefit
plans and programs from time to time; nor shall anything in this
Agreement prevent any such change from affecting
Executive.
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(d)
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Signing Bonus
. In addition to the
Base Salary and Bonus, Executive shall be entitled to receive a
one-time payment of $2,000,000, payable within 15 days of the
Start Date. If Executive resigns his employment without Good Reason
or Executive’s employment is terminated by the Company for
Cause, Executive shall repay a pro rata portion (based on the
number of full calendar months remaining in the initial
24 month term divided by 24 months) of the signing bonus
(net of any associated income and employment taxes) within
10 days after such resignation or termination of employment.
Within 10 days after the filing of Executive’s federal
income tax return for the year in which such repayment is made,
Executive shall pay to the Company the amount by which
Executive’s federal and state income tax liability for such
year was reduced as a result of such repayment. If Executive
resigns for Good Reason, dies or becomes Disabled or if
Executive’s employment is terminated by the Company without
Cause, Executive shall be entitled to retain the full amount of the
signing bonus. The Company acknowledges and agrees that the payment
of Executive’s signing bonus is unrelated to any services
that he performed in the State of California.
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(e)
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Success Fee. When a plan of reorganization that
is confirmed by the Bankruptcy Court becomes effective (the
“Plan Effective Date”) during Executive’s tenure
as Chief Executive Officer of the Company, Executive shall be
entitled to receive a one-time payment in an amount equal to the
amount set forth on Exhibit A attached hereto (the
“Success Fee”). If at any time after the Start Date,
Executive resigns his employment with Good Reason or
Executive’s employment is terminated by the Company without
Cause before the Plan Effective Date, Executive shall be entitled
to payment of the Success Fee if the Plan Effective Date occurs
within 12 months after the date of termination of employment.
In any case such Success Fee shall be due and payable on the Plan
Effective Date. Executive shall not be entitled to all or any
portion of the Success Fee if the Company terminates his employment
for Cause, Executive resigns his employment without Good Reason or
Executive’s employment terminates due to death or Disability
before the Plan Effective Date.
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(f)
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Guaranteed Minimum Success
Fee .
Executive shall be entitled to receive the guaranteed minimum
success fee (the “Guaranteed Minimum Success Fee”)
described in this paragraph 3.f; provided, however, to the extent
the Success Fee is paid, the Success Fee shall be reduced by the
Guaranteed Minimum Success Fee, or any portion thereof, paid to
Executive and shall be paid as promptly as practicable in a lump
sum. In such case, no further payment shall be made with respect to
the Guaranteed Minimum Success Fee. The Guaranteed Minimum Success
Fee shall be deemed earned as of the date this Agreement is
approved by the Bankruptcy Court.
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(i)
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Amount and Payment
Schedule .
Executive’s Guaranteed Minimum Success Fee (in addition to
the other payments specifically contemplated in this Agreement
including, without limitation, the minimum emergence bonus set
forth on Exhibit A attached hereto) shall be an annual amount
equal to the sum of his (x) annual Base Salary and
(y) Target Annual Bonus as of the earlier of (a) the date
his term of employment under this Agreement terminates or
(b) the Plan Effective Date, for one year, provided that if
Executive is terminated in calendar year 2006 or 2007, in lieu of
the Target Annual Bonus referenced in (y) above, Executive
shall receive his minimum Bonus for the applicable year as set
forth in paragraph 3(b), above. The Guaranteed Minimum Success Fee
shall be paid to Executive on the earliest of (1) the date
Executive is terminated by the Company without Cause, (2) the
date Executive terminates his employment for Good Reason and
(3) the Plan Effective Date. Subject to the timing rule
described in paragraph 3.f.ii, below, all payments shall be made as
promptly as practicable. Subject to paragraph 3.f above, if the
Guaranteed Minimum Success Fee is paid on any date prior to the
Plan Effective Date, the Guaranteed Minimum Success Fee shall be
paid ratably on the same payment schedule that applied to
Executive’s salary as of such date. If the Guaranteed Minimum
Success Fee is paid on the Plan Effective Date, Executive shall be
entitled to a lump sum payment.
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(ii)
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Timing . To the extent necessary to comply
with the restriction in Section 409A(a)(2)(B) of the Internal
Revenue Code of 1986, as amended (the “Code”)
concerning payments to specified employees, the first Guaranteed
Minimum Success Fee payment (if the Guaranteed Minimum Success Fee
is paid ratably) to Executive shall be made on the first
installment date (determined under paragraph 3.f.i, above) that is
at least six months after Executive’s termination date. The
first payment shall include any installments that would have been
paid previously under paragraph 3.f.i were it not for this special
timing rule, plus interest on the delayed installments at an annual
rate (compounded monthly) equal to the federal short-term rate (as
in effect under Section 1274(d) of the Code on Executive’s
termination date).
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(g)
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Relocation . Executive shall be reimbursed for
the following costs associated with relocating to the area in which
the Company’s headquarters is located:
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(i)
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All
reasonable transaction costs (including any real estate brokerage
fees Executive incurs) and reasonable moving expenses incurred by
Executive, in each case while an employee of the Company, in
connection with moving his household goods from Executive’s
current residence to area in which the Company’s headquarters
is located, provided that Executive provides appropriate
documentation (the “Reimbursement”). Reimbursements
under this paragraph 3(f) below shall be paid on or before
March 15th of the calendar year after the calendar year in
which the applicable expenses were incurred. In
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connection with
such payment, during the calendar year after the calendar year in
which the applicable expenses are incurred, the Company shall pay
Executive an additional payment in an amount such that after the
actual payment by Executive of an taxes, if any, imposed in
connection with the Reimbursement, Executive retains an amount
equal to the Reimbursement;
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(ii)
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Reimbursement of all reasonable
temporary housing and living expenses incurred by Executive, in
each case while an employee of the Company, for the shorter of
(A) 9 months or (B) the period from the Start Date
until Executive moves to a residence of his choosing in the area in
which the Company’s headquarters is located; provided, that
the Board may extend such period from time to time. Reimbursements
under this paragraph 3(f) below shall be paid on or before
March 15th of the calendar year after the calendar year in
which the applicable expenses were incurred.
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(h)
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Legal Fees . On or before March 30, 2006,
or such later date to which Executive and Company mutually agree,
the Company shall pay Executive’s reasonable legal fees that
are directly related to the negotiation, entry and approval by the
Bankruptcy Court of this Agreement and were actually incurred
during such negotiation, entry or approval, in an amount not to
exceed $50,000.
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(a)
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Termination of Employment
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(i)
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Termination by the Company for
Cause . The
Board may terminate Executive’s employment for Cause at any
time after (x) providing Executive with 5 business days’
advance written notice explaining the circumstances that justify
the termination (a “Termination Notice”); and
(y) except in the case of termination for an event covered by
(2) below, providing Executive with the opportunity to appear
before the Board prior to any vote to terminate Executive’s
employment for Cause, which opportunity may occur during the
5-business-day notice period. “Cause” means any of the
following: (1) Executive’s breach of any material term
of this Agreement that is not corrected within 10 days after
delivery of a Termination Notice to Executive with respect to such
breach; (2) Executive’s commission of, or formal
prosecutorial charge or indictment alleging commission of, a felony
or any crime of similar status, any crime involving fraud, or any
crime involving moral turpitude (other than motor vehicle related)
(it being agreed that in the case of a crime involving moral
turpitude, only to the extent such crime materially and adversely
affects the business, standing or reputation of the Company or any
other member of the Group); (3) Executive’s breach of
fiduciary duty to the Company or any other member of the Group that
has any material and adverse impact on the Company that is not
corrected within 10 days after delivery of a Termination Notice to
Executive with respect to such breach; (4) Executive’s
misappropriation of funds or material property of the Company or
any other member of the Group; (5)
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Executive’s refusal to follow the lawful
directives of the Board without a materially valid business
justification that is not corrected within 10 days after
delivery of a Termination Notice to Executive with respect to such
refusal; (6) Executive’s fraud related to the Company
that is not corrected within 10 days after delivery of a
Termination Notice to Executive with respect to such fraud;
(7) Executive’s material dishonesty, disloyalty, gross
negligence or willful misconduct, where such dishonesty,
disloyalty, gross negligence or willful misconduct is reasonably
likely to result, in substantial and material damage to the Company
or any other member of the Group and that is not corrected within
10 days after delivery of a Termination Notice to Executive
with respect to such event; (8) Executive’s willful and
material violation of any of the Company’s Code of Conduct or
employment policies that is not corrected within 10 days after
delivery of a Termination Notice to Executive with respect to such
violation; or (9) Executive’s material violation of any
federal, state or local laws that could result in a direct or
indirect financial loss to the Company or any other member of the
Group or damage the reputation of the Company or any other member
of the Group.
For this
definition, no act or omission by the Executive will be
“willful” unless it is made by him in bad faith or
without a reasonable belief that his act or omission was in the
best interests of the Company or the Group. Any act, or failure to
act, based upon the advice of counsel to the Company or any member
of the Group shall be presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the
Company and the Group.
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(ii)
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Termination by the Company without
Cause . The
Company may terminate Executive’s employment under this
Agreement without Cause upon at least 20 days’ prior
written notice to Executive.
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(iii)
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Death or Disability
. Executive’s
employment by the Company will immediately terminate upon
Executive’s death and at the option of either Executive or
the Company, exercisable upon written notice to the other party,
may terminate upon the Executive’s Disability. For purposes
of this Agreement, “Disability” will occur if
(A) Executive becomes eligible for benefits under a long-term
disability policy provided by the Company, if any, or
(B) Executive has become unable, due to physical or mental
illness or incapacity, to substantially perform the essential
duties of his employment with reasonable accommodation for a period
of 90 days or an aggregate of 180 days during any
consecutive 12 month period, as determined by an independent
physician approved by the Company and Executive.
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(iv)
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Termination by Executive for Good
Reason .
Executive may terminate his employment for Good Reason at any time.
“Good Reason” shall mean the occurrence, during the
Term of Employment, of any of the
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following
actions or failures to act, but in each case only if it is not
consented to by Executive in writing: (A) a material adverse
change in Executive’s duties, reporting responsibilities,
titles or elected or appointed offices (including the failure to be
elected to the Com
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