EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective
as of January 1, 2005, between CALPINE CORPORATION, a Delaware Corporation (the
"Company"), and XXXXX XXXXXXXXXX ("Xx. Xxxxxxxxxx") to provide the terms and
conditions for Xx. Xxxxxxxxxx'x employment.
Xx. Xxxxxxxxxx has served as the President and Chief Executive Officer
of the Company since its inception in 1984 and has served as the Chairman of the
Board of Directors of the Company (the "Board") since September 1996. Xx.
Xxxxxxxxxx'x current employment agreement expires on December 31, 2004.
The Company and Xx. Xxxxxxxxxx have agreed that Xx. Xxxxxxxxxx will
remain employed by the Company and will continue to serve as the Company's
President and Chief Executive Officer, under the terms and conditions set forth
below.
Accordingly, and in consideration of the mutual obligations set forth
in this Agreement, which Xx. Xxxxxxxxxx and the Company agree are sufficient,
Xx. Xxxxxxxxxx and the Company agree as follows:
1. Term of Employment. Xx. Xxxxxxxxxx'x 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 January 1, 2005, and ends on
December 31, 2006. Xx. Xxxxxxxxxx and the Company may agree to renew the
Agreement for one or more of three successive one-year terms, as follows:
a. On or before June 30, 2006, Xx. Xxxxxxxxxx and the Board shall
decide whether to renew the Agreement for the first renewal term, which
would begin on January 1, 2007, and end on December 31, 2007.
b. If the Agreement is renewed for the first renewal term, Xx.
Xxxxxxxxxx and the Board shall decide on or before June 30, 2007, whether
to renew the Agreement for a second renewal term, which would begin on
January 1, 2008, and end on December 31, 2008.
c. If the Agreement is renewed for the second renewal term, Xx.
Xxxxxxxxxx and the Board shall decide on or before June 30, 2008, whether
to renew the Agreement for a third renewal term, which would begin on
January 1, 2009, and end on December 31, 2009.
d. If the Agreement is renewed for the third renewal term, Xx.
Xxxxxxxxxx'x Term of Employment shall end on December 31, 2009, unless the
Board and Xx. Xxxxxxxxxx agree to an extension of Xx. Xxxxxxxxxx'x
employment with the Company.
If Xx. Xxxxxxxxxx and the Board decide on or before June 30 of the
year preceding any renewal term not to renew the Agreement for such renewal
term, Xx. Xxxxxxxxxx'x Term of Employment shall end when the current term
expires.
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If Xx. Xxxxxxxxxx'x Agreement is not renewed for the first, second, or
third renewal term, Xx. Xxxxxxxxxx shall continue to be available to serve as
Chairman of the Board if he continues to be nominated and elected as such, and
shall provide consulting and advisory services to the Company and to the Board
to the extent requested by the Company or the Board, in each case through
December 31, 2009. Xx. Xxxxxxxxxx shall be entitled to reasonable compensation
for such services, as shall be mutually agreed between Xx. Xxxxxxxxxx and the
Board. Xx. Xxxxxxxxxx'x undertaking to provide continued services to the Board
or the Company under this paragraph shall apply only to the extent that the
undertaking does not make it necessary to delay the payment of any severance
benefit to which he is entitled under paragraph 4, in order to comply with the
distribution restrictions imposed by Section 409A of the Internal Revenue Code.
During any period in which Xx. Xxxxxxxxxx is obligated to provide continued
services to the Company or the Board, Xx. Xxxxxxxxxx shall not provide services
to any competitor of the Company.
The Board may terminate Xx. Xxxxxxxxxx'x employment for Cause at any
time after providing Xx. Xxxxxxxxxx with 10 days' advance written notice
explaining the circumstances that justify the termination. "Cause" means any of
the following: (1) material breach of any material term of this Agreement that
is not corrected within 10 days after the Board's written notice to Xx.
Xxxxxxxxxx of the breach; (2) conviction of a felony; (3) repeated unexplained
or unjustified absence; (4) willful breach of fiduciary duty under this
Agreement; or (5) gross negligence or willful misconduct, where the gross
negligence or willful misconduct has resulted, or is likely to result, in
substantial and material damage to the Company or any of its subsidiaries.
Xx. Xxxxxxxxxx may terminate his employment for Good Reason at any
time. "Good Reason" means the material breach by the Company of one or more of
its material obligations under this Agreement that is not corrected within 10
days after Xx. Xxxxxxxxxx'x written notice to the Company of the breach.
2. Position and Responsibilities. During the Term of Employment, Xx.
Xxxxxxxxxx shall have the position and responsibilities described in this
paragraph 2. Xx. Xxxxxxxxxx shall serve as the Company's Chief Executive
Officer, with the general executive powers that accompany that position. He
shall report directly to the Board and shall have the duties 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 Xx. Xxxxxxxxxx by
the Board. Although Xx. Xxxxxxxxxx may be required to travel from time to time
for business reasons, his principal place of employment shall be the Company's
corporate offices in San Jose, California.
a. Xx. Xxxxxxxxxx shall devote his full business time and his best
efforts, skill, and attention to the Company's business and affairs and to
promoting the Company's best interests.
b. Xx. Xxxxxxxxxx shall continue to serve as the Chairman of the Board
for as long as he continues to be nominated and elected.
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c. Xx. Xxxxxxxxxx shall also serve as the Company's President until
such time as he and the Board agree to name someone else as President. If
someone else is named, all of the provisions of this contract will remain
in place.
d. While employed by the Company, Xx. Xxxxxxxxxx shall not directly or
indirectly manage, operate, participate in, be employed by, perform
consulting services for, or otherwise be connected with, any company or
other enterprise that would compete with the Company's business. Xx.
Xxxxxxxxxx may invest in an entity that competes with the Company's
business, provided that Xx. Xxxxxxxxxx and his immediate family members do
not own more than one percent of the voting securities of any such entity
at any time.
e. Xx. Xxxxxxxxxx shall not disclose any confidential information
relating to the Company or its business; such information is the exclusive
property of the Company.
3. Compensation. For all of his services during the Term of Employment,
Xx. Xxxxxxxxxx shall receive the following compensation:
a. Base Salary. Xx. Xxxxxxxxxx'x minimum Base Salary shall be
$1,000,000 per calendar year. The amount of any increase in Xx.
Xxxxxxxxxx'x Base Salary shall be determined annually, jointly by a Special
Joint Meeting of the Nominating and Governance and Compensation Committees
of the Board (the "Joint Committee"), in its sole discretion, based on Xx.
Xxxxxxxxxx'x performance and taking into account salaries paid to other
chief executive officers in comparable companies and in the Company's
industry.
b. Bonus. In addition to his Base Salary, Xx. Xxxxxxxxxx shall be
eligible to receive an annual performance bonus if, and to the extent that,
any individual or corporate performance objectives established by the Joint
Committee are achieved. Xx. Xxxxxxxxxx'x Target Bonus shall be at least 180
percent of his Base Salary. The Joint Committee shall determine, in its
sole discretion, the extent to which the performance objectives have been
achieved.
c. Health Care. Xx. Xxxxxxxxxx shall be eligible to participate in any
health insurance or health reimbursement plan maintained by the Company for
its executives, and his benefits shall be based on the terms of the
applicable plan.
d. 401(k) Plan. Subject to its terms, Xx. Xxxxxxxxxx shall be eligible
to participate in the Calpine Corporation Retirement Savings Plan.
e. Vacation. Xx. Xxxxxxxxxx shall be eligible to take 25 paid vacation
days per year. These vacation days shall accrue according to the Company's
vacation policy for executive officers.
f. Equity Programs. Xx. Xxxxxxxxxx shall be eligible to participate in
the Company's stock incentive programs and in any other equity program
established by the Company for its senior executives.
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g. Option. When Xx. Xxxxxxxxxx signs this Agreement, Xx. Xxxxxxxxxx
shall receive an option to purchase one million two hundred and fifty
thousand (1,250,000) shares of common stock under the Discretionary Option
Grant Program of the Company's 1996 Stock Incentive Plan. This option shall
have a term of six years and an exercise price equal to the greater of (i)
$3.80 or (ii) the fair market value of the Company's common stock on the
date the option is granted, and shall vest upon the earlier of:
1) the stock price closing at or above $10.00 per share (or the
corresponding price after adjustment to reflect any stock split,
reverse stock split, stock dividend, recapitalization, or similar
change affecting the Company's outstanding common stock as a
class without the Company's receipt of consideration) for four
consecutive trading days, or
2) December 31, 2009.
Except as provided below in the case of Disability (paragraph
3.h), death (paragraph 3.i), or severance (paragraph 4.c), Xx. Xxxxxxxxxx
shall forfeit the option if he ceases to be employed as the Company's Chief
Executive Officer before the option vests.
h. Disability Benefits. If Xx. Xxxxxxxxxx becomes Disabled (as defined
below) while he is an active employee of the Company, the Company shall
continue to pay his Base Salary until his employment terminates as provided
in the next sentence; and the Company shall also pay Xx. Xxxxxxxxxx a pro
rata portion of his annual Target Bonus for the portion of the calendar
year before his Disability. If Xx. Xxxxxxxxxx remains Disabled for a
continuous period exceeding six calendar months, the Company may terminate
his employment at any time after the end of the six-month period, in which
case Xx. Xxxxxxxxxx shall be eligible for any long-term disability benefits
provided under the Company's employee benefit plans; for full vesting of
any unvested option described in paragraph 3.g, above; and for the
severance benefits described in paragraph 4, below.
For purposes of this Agreement, Xx. Xxxxxxxxxx shall be
"Disabled" if he is unable to perform all the material duties of his
position, as determined by an independent physician approved by the Company
and Xx. Xxxxxxxxxx; and "Disability" shall mean a period during which Xx.
Xxxxxxxxxx remains Disabled.
i. Death Benefits. Subject to its terms, Xx. Xxxxxxxxxx shall be
eligible to participate in the Company's group life insurance program. If
Xx. Xxxxxxxxxx dies while he is employed by the Company, any unvested
option described in paragraph 3.g, above, shall become fully vested at the
time of his death, and the option may be exercised by his beneficiary or
personal representative at any time during its remaining term. Unless Xx.
Xxxxxxxxxx has executed a valid written instrument designating a
beneficiary or beneficiaries to receive any benefit payable under this
Agreement in the event of his death, his beneficiary under this Agreement
shall be deemed to be the same as his beneficiary under the Company's group
life insurance program.
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4. Severance. Xx.Xxxxxxxxxx shall receive the severance benefit described
in this paragraph 4 if the Company terminates Xx. Xxxxxxxxxx'x employment at any
time during the Term of Employment or if this Agreement is not renewed for the
first, second, or third renewal term (and the termination or failure to renew is
not for Cause), or if Xx. Xxxxxxxxxx resigns for Good Reason.
a. Amount and Payment Schedule. Xx. Xxxxxxxxxx'x xxxxxxxxx benefit
shall be an annual amount equal to the sum of his annual Base Salary and
Target Bonus as of the date his employment terminates, paid for the shorter
of (i) two years or (ii) the period from his termination date to December
31, 2009. For purposes of this paragraph, Xx. Xxxxxxxxxx'x employment shall
be deemed to have terminated at the end of his Term of Employment even if
he remains obligated to provide continued services as Chairman of the Board
or continued consulting and advisory services as provided in paragraph 1.
Subject to the timing rule described in paragraph 4.b, below, and the
special rule in case of death described in paragraph 4.d, below, the
severance benefit shall be paid ratably on the same payment schedule that
applied to Xx. Xxxxxxxxxx'x salary at the time of his termination.
b. Timing. To the extent necessary to comply with the restriction in
Section 409A(a)(2)(B) of the Internal Revenue Code concerning payments to
specified employees, the first severance payment to Xx. Xxxxxxxxxx shall be
made on the first installment date (determined under xxxxxxxxx 0.x, xxxxx)
that is at least six months after Xx. Xxxxxxxxxx'x termination date. The
first payment shall include any installments that would have been paid
previously under paragraph 4.a 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 Internal Revenue Code on his termination date).
c. Other Severance Benefits. If Xx. Xxxxxxxxxx is entitled to receive
a severance benefit under paragraph 4.a as a result of his termination, he
shall also receive the following benefits:
1. All stock options, restricted stock, warrants, rights, and
other equity awards granted by the Company (including the
option described in paragraph 3.g) shall vest and remain
exercisable through their initial terms.
2. Until December 31, 2009, the Company shall at its sole cost
and expense (but disregarding any individual tax liability
of Xx. Xxxxxxxxxx) provide Xx. Xxxxxxxxxx (and his spouse
and eligible dependents) with life insurance, disability
insurance, group health benefits, and accidental death or
dismemberment benefits substantially similar to those
benefits that Xx. Xxxxxxxxxx (and his spouse and eligible
dependents) were receiving immediately before his
termination. If Xx. Xxxxxxxxxx (or his spouse or dependent)
elects to receive health care continuation coverage under
Section 4980B of the Internal Revenue Code, that coverage
shall be in lieu of, and not in addition to, the group
health coverage described in this subparagraph.
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3. If all or any portion of the amounts payable to Xx.
Xxxxxxxxxx under this Agreement or otherwise are subject to
the golden parachute excise tax imposed by Section 4999 of
the Internal Revenue Code (or any similar tax under state or
local law), the Company shall pay Xx. Xxxxxxxxxx an amount
necessary to place Xx. Xxxxxxxxxx in the same after-tax
position that Xx. Xxxxxxxxxx would have been in if the
excise tax had not been imposed. The amount of the
additional payment shall be determined by the Company's
independent accountants.
d. No Severance After Death. If Xx. Xxxxxxxxxx qualifies for a
severance benefit under paragraph 4.a but he dies before the last severance
payment is made, any remaining severance payments under paragraph 4.a shall
be canceled and his beneficiary (or beneficiaries) shall receive any
benefit payable under paragraph 3.i.
e. No Severance Benefit for Termination for Cause or Voluntary
Termination. If the Company terminates Xx. Xxxxxxxxxx'x employment for
Cause, or if Xx. Xxxxxxxxxx resigns (and his resignation is not for Good
Reason), Xx. Xxxxxxxxxx shall not be eligible to receive any severance
benefit under this paragraph 4. Xx. Xxxxxxxxxx'x eligibility (if any) to
receive a severance or retirement benefit under any other severance or
retirement plan or program maintained by the Company shall be determined by
the terms of that plan or program as in effect on his termination date.
5. Employment Taxes. All payments and other compensation under this
Agreement shall be subject to withholding of the applicable income and
employment taxes. At the same time, however, Xx. Xxxxxxxxxx is solely
responsible for paying all required taxes on any payments or other compensation
provided under this Agreement (including imputed compensation), regardless of
whether taxes are withheld.
6. Nonduplication of Benefits. No term or other provision of this
Agreement may be interpreted to require the Company to duplicate any payment or
other compensation that Xx. Xxxxxxxxxx is already entitled to receive under a
compensation or benefit plan, program, or other arrangement maintained by the
Company.
7. Indemnification. To the extent permitted by applicable law, the
Companyshall provide indemnification for Xx. Xxxxxxxxxx under its Articles of
Incorporation and Bylaws. Xx. Xxxxxxxxxx shall be covered by the Company's
standard indemnification agreement and by any director's and officer's liability
insurance policy maintained by the Company.
8. Successors. Any successor to the Company or to all or substantially
all of the Company's business and/or assets (whether a direct or indirect
successor, and whether by purchase, lease, merger, consolidation, liquidation,
or otherwise) shall assume the obligations under this Agreement. In case of any
succession, the term "Company" shall refer to the successor. The terms of this
Agreement and all of Xx. Xxxxxxxxxx'x rights hereunder shall inureto the
benefit of, and be enforceable by, Xx. Xxxxxxxxxx'x personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees.
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9. No Third-Party Beneficiaries. Except as provided in paragraph 8,
above, nothing in this Agreement may confer upon any person or entity not a
party to this Agreement any rights or remedies of any nature or kind whatsoever
under or by reason of this Agreement.
10. No Duty to Mitigate. Xx. Xxxxxxxxxx shall not be required to seek new
employment or otherwise to mitigate the payments contemplated by this Agreement.
The payments contemplated by this Agreement shall not be reduced by earnings
that Xx. Xxxxxxxxxx may receive from any other source.
11. Notice. Notices and other communications between the parties to this
Agreement shall be delivered in writing and shall be deemed to have been given
when personally delivered or on the third business day after mailing by U.S.
registered or certified mail, return receipt requested and postage prepaid.
a. Notices and other communications to Xx. Xxxxxxxxxx shall be
addressed to Xx. Xxxxxxxxxx, at the most recent home address that he
provided in writing to the Company.
b. Notices and other communications to the Company shall be addressed
to the Company's corporate headquarters, to the attention of the Company's
Secretary.
12. Waiver and Amendments. No provision of this Agreement may be modified,
waived, or discharged, unless the modification, waiver, or discharge is agreed
to in writing signed by Xx. Xxxxxxxxxx and by an authorized representative of
the Company (other than Xx. Xxxxxxxxxx). Unless specifically characterized as a
continuing waiver, no waiver of a condition or provision at any one time may be
considered a waiver of the same provision or condition (or any different
provision or condition) at any other time.
13. Agreement to Arbitrate. Any dispute arising out of or relating to this
Agreement, or otherwise arising out of or relating to Xx. Xxxxxxxxxx'x
employment with the Company, may be settled by arbitration in the County of
Santa Clara, California, using the rules of the American Arbitration Association
then in effect. Any arbitration proceedings shall be non-binding: any claim with
respect to this Agreement, whether or not previously arbitrated, may be brought
in any court of competent jurisdiction.
14. Choice of Law. This Agreement (including its validity, interpretation,
construction, and performance) shall be governed by the laws of the State of
California, without regard to any rule or principle concerning conflicts or
choice of law that might otherwise refer construction or interpretation to the
substantive law of another jurisdiction.
15. Section Headings. All headings in this Agreement are inserted for
convenience only. Headings do not constitute a part of the Agreement and may not
affect the meaning or interpretation of any term or other provision of this
Agreement.
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16. Severability and Reformation. Each substantive provision of this
Agreement is a separate agreement, independently supported by good and adequate
consideration, and is severable from the other provisions of the Agreement. If a
court of competent jurisdiction determines that any term or provision of this
Agreement is unenforceable, then the other terms and provisions of this
Agreement shall remain in full force and effect, and the unenforceable terms or
provisions shall be equitably modified to the extent necessary to achieve the
underlying purpose in an enforceable way.
17. Whole Agreement. This Agreement reflects the entire understanding and
agreement between the Company and Xx. Xxxxxxxxxx regarding Xx. Xxxxxxxxxx'x
employment. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings, and agreements (including
without limitation the employment agreement between the Company and Xx.
Xxxxxxxxxx that was entered into effective as of January 1, 2000), whether oral
or written, relating to Xx. Xxxxxxxxxx'x employment with the Company. The
respective rights and obligations of the parties to this Agreement shall survive
the termination of Xx. Xxxxxxxxxx'x employment to the extent necessary to give
such rights and obligations their intended effect.
18. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute a
single instrument.
* * *
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement on March 9, 2005.
CALPINE CORPORATION:
By: /s/ Xxxxxxx X. Xxxxxx /s/ Xxxxx Xxxxxxxxxx
--------------------------------- -----------------------------------
Xxxxxxx X. Xxxxxx Xxxxx Xxxxxxxxxx, in his individual
Chair of the Compensation capacity
Committee of the
Board of Directors
By: /s/ Xxxxx X. Xxxxxx
---------------------------------
Xxxxx X. Xxxxxx
Chair of the Nominating and
Governance Committee of the
Board of Directors
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