CALPINE CORP, PRE 14A, 2000-03-29

CALPINE CORP
PRE 14A, 2000-03-29
COGENERATION SERVICES & SMALL POWER PRODUCERS

Previous: EMERGING TIGERS FUND INC, 485BPOS, 2000-03-29

Next: GARDNER DENVER INC, 10-K405, 2000-03-29

<PAGE> 1

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

CALPINE CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)

------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the

Registrant) Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:

----------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

----------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:

----------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

----------------------------------------------------------------------------

(5) Total fee paid:

----------------------------------------------------------------------------

<PAGE> 2

[ ] Fee paid previously with preliminary materials. Total fee paid:

----------------------------------------------------------------------

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.

(1) Amount Previously Paid:

----------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement no.:

----------------------------------------------------------------------------

(3) Filing Party:

----------------------------------------------------------------------------

(4) Date Filed:

----------------------------------------------------------------------------

<PAGE> 3

CALPINE CORPORATION
50 WEST SAN FERNANDO STREET
SAN JOSE, CALIFORNIA 95113

NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2000

NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Calpine Corporation, a Delaware corporation (the "Company"), will be held at the
Capital Club Athletics, located at 196 North Third Street, San Jose, California
95112, at 9:00 a.m., Pacific Time, on May 18, 2000, for the purpose of
considering and voting upon the following matters:

1. To elect three Class I Directors to the Board of Directors, each to
serve for a term of three years;

2. To act upon a proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock, par value $.001 per share ("Common Stock");

3. To act upon a proposal to adopt the Company's 2000 Employee Stock
Purchase Plan;

4. To act upon a proposal to approve the Discretionary Option Grant
Program under the Company's 1996 Stock Incentive Plan;

5. To ratify the appointment of Arthur Andersen LLP as independent
accountants for the Company for the fiscal year ending December 31,
2000; and

6. To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.

These matters are more fully described in the Proxy Statement
accompanying this Notice.

Only stockholders of record at the close of business on March 23, 2000
are entitled to notice of and to vote at the 2000 Annual Meeting of Stockholders
and at any and all adjournments or postponements thereof. A list of stockholders
entitled to vote at the meeting will be available for inspection at the office
of the Secretary of the Company, 50 West San Fernando Street, San Jose,
California 95113, for at least ten days prior to the meeting, and will also be
available for inspection at the meeting.

Representation of at least a majority of all outstanding shares of
Common Stock of the Company is required to constitute a quorum. Accordingly, it
is important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. Should you receive more than one
proxy because your shares are registered in different names and addresses, each
proxy should be signed and returned to assure that all your shares will be
voted. Your proxy may be revoked at any time prior to the time it is voted.

Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.

By Order of the Board of Directors

Peter Cartwright
Chairman of the Board, President
and Chief Executive Officer
April [ ], 2000
San Jose, California

<PAGE> 4

CALPINE CORPORATION
50 WEST SAN FERNANDO STREET
SAN JOSE, CALIFORNIA 95113

PRELIMINARY PROXY STATEMENT DATED MARCH 29, 2000
FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS
OF
CALPINE CORPORATION

TO BE HELD ON MAY 18, 2000

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

This Proxy Statement is being furnished to the stockholders of Calpine
Corporation, a Delaware corporation ("Calpine" or the "Company"), in connection
with the solicitation of proxies by the Board of Directors for use at the 2000
Annual Meeting of Stockholders of the Company, to be held at 9:00 a.m., Pacific
Time, on May 18, 2000, at the Capital Club Athletics, located at 196 North Third
Street, San Jose, California 95112 and at any and all adjournments or
postponements thereof. At the 2000 Annual Meeting of Stockholders, the
stockholders of the Company are being asked to consider and vote upon (i) the
election of three Class I Directors, each to serve for a term of three years,
(ii) a proposal to amend the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") to increase the number of
authorized shares of common stock, par value $.001 per share (the "Common
Stock"), (iii) a proposal to adopt the Company's 2000 Employee Stock Purchase
Plan, (iv) a proposal to approve the Discretionary Option Grant Program under
the Company's 1996 Stock Incentive Plan and (v) the ratification of the
appointment of Arthur Andersen LLP as independent accountants for the Company
for the year ending December 31, 2000.

This Proxy Statement and the enclosed form of proxy are first being
mailed to stockholders of the Company on or about April [ ], 2000. The Company's
1999 Annual Report to Stockholders, which includes audited financial statements,
is being mailed to stockholders of the Company concurrently with this Proxy
Statement. Additional copies are available without charge upon request. The 1999
Annual Report to Stockholders is not to be regarded as proxy soliciting material
or as a communication by means of which any solicitation of proxies is to be
made. Requests for such copies or additional copies of the 1999 Annual Report to
Stockholders should be directed to the Secretary of the Company, 50 West San
Fernando Street, San Jose, California 95113.

RECORD DATE, VOTING AND QUORUM

The close of business on March 23, 2000 was the record date (the "Record
Date") for stockholders entitled to notice of and to vote at the 2000 Annual
Meeting of Stockholders. At the close of business on the Record Date, there were
outstanding 63,707,042 shares of Common Stock.

Each stockholder will be entitled to one vote per share, in person or by
proxy, for each share of Common Stock held in such stockholder's name as of the
Record Date on any matter submitted to a vote of stockholders at the 2000 Annual
Meeting of Stockholders. Directors will

<PAGE> 5

be elected by a plurality of the votes cast for the election of directors.
Approval of the proposed amendment to the Certificate of Incorporation requires
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. An affirmative vote of the holders of a majority of the shares of
Common Stock present and entitled to vote at the meeting is required for
approval of each of the other items being submitted to the stockholders for a
vote at the meeting. In the case of the proposed amendment to the Certificate of
Incorporation, both abstentions and proxies for which a broker, bank or
institutional holder does not have discretionary voting authority and has not
received voting instructions from the beneficial owner ("broker non-votes") will
have the effect of a vote against the proposal. On each of the other items being
submitted to a vote of stockholders, (i) abstentions will be treated as present
and entitled to vote and, therefore, will have the effect of a vote against the
proposal and (ii) broker non-votes will be treated as shares not present and
entitled to vote.

The presence, either in person or by proxy, of the holders of a majority
of the shares of Common Stock outstanding on the Record Date is necessary to
constitute a quorum at the 2000 Annual Meeting of Stockholders. All abstentions
and broker non-votes will be included as shares that are present and entitled to
vote for purposes of determining the presence of a quorum at the meeting.

PROXIES AND SOLICITATION COSTS

Shares of Common Stock represented by properly executed proxies received
in time for voting at the 2000 Annual Meeting of Stockholders will, unless such
proxy is revoked, be voted in accordance with the instructions indicated
thereon. In the absence of specific instructions to the contrary, the persons
named in the accompanying form of proxy intend to vote all properly executed
proxies received by them (i) FOR the election of the nominees for the Board of
Directors nominees as Class I Directors, (ii) FOR the amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock, (iii) FOR the adoption of the Company's 2000 Employee Stock
Purchase Plan, (iv) FOR the approval of the Discretionary Option Grant Program
under the Company's 1996 Stock Incentive Plan and (v) FOR the ratification of
the appointment of Arthur Andersen LLP as the Company's independent accountants
for the Company for the year ending December 31, 2000. No business other than as
set forth in the accompanying Notice of Annual Meeting is expected to come
before the 2000 Annual Meeting of Stockholders, but should any other matter
requiring a vote of stockholders be properly brought before the 2000 Annual
Meeting of Stockholders, it is the intention of the persons named in the
enclosed form of proxy to vote all proxies in accordance with their best
judgment on such matters.

This solicitation is being made by the Company. The entire cost of
soliciting proxies will be borne by the Company. Solicitation will be made by
mail, and may be made personally or by telephone or electronically by officers
and other employees of the Company who will not receive additional compensation
for such solicitation. Arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the Common Stock, and such persons will be reimbursed for
their expenses. The Company has also retained CIC Express Service, Inc. to
assist in the solicitation of proxies. The proxy solicitor will receive
approximately $6,000 and expense reimbursement from the Company for its
services.

REVOCABILITY OF PROXIES

Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive offices, 50 West
San Fernando Street, San Jose, California 95113, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked

2
<PAGE> 6

by attending the 2000 Annual Meeting of Stockholders and voting in person.
Attendance at the 2000 Annual Meeting of Stockholders will not, by itself,
revoke a proxy.

STOCKHOLDER PROPOSALS

Any stockholder proposal intended to be presented at the 2001 Annual
Meeting of Stockholders must be received by the Company no later than [ ],
2000 in order to be considered for inclusion in the Company's Proxy Statement
and form of proxy relating to the meeting. The proposal must be mailed to the
Secretary of the Company, 50 West San Fernando Street, San Jose, California
95113. Proposals may be included in the Proxy Statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission. The deadline for notification to the Company of stockholder
proposals to be introduced at the 2001 Annual Meeting of Stockholders that are
not included in the proxy statement is [ ], 2001.

MATTERS TO BE CONSIDERED AT THE 2000 ANNUAL MEETING OF STOCKHOLDERS

PROPOSAL ONE: ELECTION OF DIRECTORS

GENERAL

The Company's bylaws provide that the number of directors that shall
constitute the whole Board of Directors shall not be less than five nor more
than nine, with the actual number within these limits to be fixed from time to
time by resolution of the Board of Directors. The authorized number of directors
is currently set at seven. The Company's Certificate of Incorporation provides
that the Board of Directors shall be divided into three classes, with each class
having a three-year term. Three seats on the Board of Directors have been
designated as Class I Board seats, with the term of the directors occupying such
seats expiring as of the 2000 Annual Meeting of Stockholders. Two seats each
have been designated as Class II and Class III Board seats, respectively. The
directors elected to Class II will continue to hold office until the 2001 Annual
Meeting of Stockholders and until the directors' successors have been elected
and qualified or until their earlier death, resignation or removal. The
directors elected to Class III will continue to hold office until the 2002
Annual Meeting of Stockholders and until the directors' successors have been
elected and qualified or until their earlier death, resignation or removal.

At the 2000 Annual Meeting of Stockholders, three Class I Directors are
to be elected to serve three-year terms ending at the 2003 Annual Meeting of
Stockholders and until their respective successors are elected and qualified or
until their earlier death, resignation or removal. The nominees for the Board of
Directors designated to serve as Class I Directors are set forth below.

The proxy holders intend to vote all proxies received by them for each
of the nominees for election as a Class I Director listed below, each of whom
currently serves as a Class I Director, unless instructions to the contrary are
marked on the proxy. In the event that a nominee is unable or declines to serve
as a director at the time of the 2000 Annual Meeting of Stockholders and the
Board of Directors designates a replacement nominee, the proxies will be voted
for the replacement nominee. As of the date of this Proxy Statement, the Board
of Directors is not aware of any nominee who is unable or will decline to serve
as a director.

Set forth in the table below is a list of the Company's directors,
together with certain biographical information.

3
<PAGE> 7

<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION CLASS
---- --- -------------------- -----
<S> <C> <C> <C>
Peter Cartwright 70 Chairman of the Board, President and Chief III
Executive Officer of the Company

Ann B. Curtis 49 Executive Vice President, Chief Financial II
Officer and Corporate Secretary of the
Company

Jeffrey E. Garten 53 Dean of the Yale School of Management I

Susan C. Schwab 45 Dean of the School of Public Affairs at III
the University of Maryland

George J. Stathakis 69 International Investment Banker I

John O. Wilson 61 Senior Research Fellow, Berkeley I
Roundtable on the International Economy
and Executive Vice President and Chief
Economist, SDR Capital Management

V. Orville Wright 79 Retired Co-Chief Executive Officer of MCI II
Communications Corp.
</TABLE>

NOMINEES FOR CLASS I DIRECTORS WITH TERMS EXPIRING IN 2003

JEFFREY E. GARTEN became a director of the Company in January 1997. Mr. Garten
has served as Dean of the Yale School of Management and William S. Beinecke
Professor in the Practice of International Trade and Finance since November
1995. Mr. Garten served as Undersecretary of Commerce of International Trade
from November 1993 to October 1995. He was a managing director of The Blackstone
Group, an investment banking firm, from October 1990 to October 1992. Prior
thereto, Mr. Garten founded and managed The Eliot Group, a small investment
bank, from November 1987 to October 1990, and served as managing director of
Lehman Brothers from January 1979 to November 1987.

GEORGE J. STATHAKIS became a director of the Company on September 19,
1996 and has served as a Senior Advisor to the Company since December 1994. Mr.
Stathakis has been providing financial, business and management advisory
services to numerous corporations since 1985. He also served as Chairman of the
Board and Chief Executive Officer of Ramtron International Corporation, an
advanced technology semiconductor company, from 1990 to 1994. From 1986 to 1989,
he served as Chairman of the Board and Chief Executive Officer of International
Capital Corporation, a subsidiary of American Express. Prior to 1986, Mr.
Stathakis served 32 years with General Electric Corporation in various
management and executive positions. During his service with General Electric,
Mr. Stathakis founded the General Electric Trading Company and was appointed its
first President and Chief Executive Officer.

JOHN O. WILSON became a director of the Company in January 1997. Mr.
Wilson has served as a Senior Research Fellow at the Berkeley Roundtable on the
International Economy and as Executive Vice President and Chief Economist of SDR
Capital Management since January 1999. Mr. Wilson served as Executive Vice
President and Chief Economist at Bank of America from August 1984 to January
1999. He joined Bank of America in June 1975 as Director of Economics-Policy
Research. He served as a faculty member at the University of California at
Berkeley from September 1979 to June 1991, at the University of Connecticut from
September 1974 to June 1975, and at Yale University from January 1967 to
September 1970. Mr. Wilson also served as Director of Regulatory Analysis of the
U.S. Atomic Energy Commission from April 1972 to October 1972, as Director of
Welfare Reform of the Department of Health, Education and Welfare from April
1971 to April 1972, and as Assistant Director of the U.S. Office of Economic
Opportunity from August 1969 to April 1971.

4
<PAGE> 8

CONTINUING CLASS II DIRECTORS WITH TERMS EXPIRING IN 2001

ANN B. CURTIS has served as Executive Vice President of the Company
since August 1998, and before that had been Senior Vice President of the Company
since September 1992, and has been employed by the Company since its inception
in 1984. Ms. Curtis became a director of the Company on September 19, 1996. She
is responsible for the Company's financial and administrative functions,
including the functions of general counsel, corporate and project finance,
accounting, human resources, public relations and investor relations. Ms. Curtis
also has overall management responsibility for the Company's Western, Central
and Eastern Regional Offices, and serves as Chief Financial Officer and
Corporate Secretary for the Company. From the Company's inception in 1984
through 1992, she served as the Company's Vice President for Management and
Financial Services. Prior to joining the Company, Ms. Curtis was Manager of
Administration for Gibbs & Hill, Inc., an architect/engineering firm which
specialized in power engineering projects.

V. ORVILLE WRIGHT became a director of the Company in January 1997. Mr.
Wright served in various positions with MCI Communications Corp., including Vice
Chairman and Co-Chief Executive Officer from 1988 to 1991, Vice Chairman and
Chief Executive Officer from 1985 to 1987, and President and Chief Operating
Officer from 1975 to 1985. Prior to 1975, Mr. Wright served in senior positions
at Xerox Corp. from 1973 to 1975, at Amdahl Corporation from 1971 to 1973, at
RCA from 1969 to 1971, and at IBM from 1949 to 1969.

CONTINUING CLASS III DIRECTORS WITH TERMS EXPIRING IN 2002

PETER CARTWRIGHT founded the Company in 1984 and has since served as a
director and as the Company's President and Chief Executive Officer. Mr.
Cartwright became Chairman of the Board of Directors of the Company on September
19, 1996. From 1979 to 1984, Mr. Cartwright was Vice President and General
Manager of Gibbs & Hill, Inc.'s Western Regional Office. From 1960 to 1979, Mr.
Cartwright worked for General Electric Corporation's Nuclear Energy Division.
His responsibilities included plant construction, project management and new
business development. He served on the Board of Directors of nuclear fuel
manufacturing companies in Germany, Italy and Japan. Mr. Cartwright was
responsible for General Electric's technology development and licensing programs
in Europe and Japan. Mr. Cartwright obtained a Master of Science Degree in Civil
Engineering from Columbia University in 1953 and a Bachelor of Science Degree in
Geological Engineering from Princeton University in 1952.

SUSAN C. SCHWAB became a director of the Company in January 1997. Dr.
Schwab has served as Dean of the School of Public Affairs at the University of
Maryland since August 1995. Dr. Schwab served as Director, Corporate Business
Development at Motorola, Inc. from July 1993 to August 1995. She also served as
Assistant Secretary of Commerce for the U.S. and Foreign Commercial Service from
March 1989 to May 1993.

BOARD OF DIRECTORS MEETINGS AND COMMITTEES

The Company's Board of Directors held 12 meetings and acted by unanimous
written consent three times in 1999. The Board of Directors has an Audit
Committee, a Compensation Committee and an Executive Committee. There is
currently no Nominating Committee. The Audit Committee meets with the Company's
finance and accounting managers and its independent public accountants to review
the adequacy of internal controls and the results and scope of the audit and
other services provided by the independent auditors. The Audit Committee is
comprised of John O. Wilson (Chair), Jeffrey E. Garten and V. Orville Wright.
The Audit Committee held three meetings in 1999. The Compensation Committee
administers salaries, incentives and other forms of compensation for executive
officers of the Company, as well as certain incentive compensation and benefit
plans of the Company. The Compensation Committee

5
<PAGE> 9

is comprised of Susan C. Schwab (Chair), Jeffrey E. Garten, and V. Orville
Wright. The Compensation Committee held six meetings in 1999. The Executive
Committee is empowered to take actions on behalf of the Board of Directors,
particularly in the event such actions are necessary on short notice. The
Executive Committee is comprised of Peter Cartwright (Chair), George J.
Stathakis and John O. Wilson. The Executive Committee held one meeting in 1999.

DIRECTOR COMPENSATION

As of January 1, 2000, non-employee members of the Board of Directors
are each paid an annual fee of $40,000 and are reimbursed for all expenses
incurred in attending meetings of the Board of Directors or any committee
thereof. The chairs of the Compensation Committee and the Audit Committee
receive an additional annual fee of $5,000. Under the Automatic Option Grant
Program in effect under the Company's 1996 Stock Incentive Plan (the "1996 Stock
Incentive Plan"), each non-employee Board member receives, on an annual basis,
an option grant to purchase shares of Common Stock, equal in value to $20,000.
The shares subject to these option grants vest upon the optionee's completion of
one year of Board service measured from the grant date. Each option has an
exercise price per share equal to the fair market value per share of Common
Stock on the grant date and a term of 10 years, subject to earlier termination
upon the optionee's cessation of Board service. Each option is immediately
exercisable for all the option shares, but any shares purchased upon exercise of
the option will be subject to repurchase by the Company, at the option exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. However, option shares issuable upon exercise of
options granted will immediately vest on an accelerated basis upon certain
changes in control of the Company or upon the death or disability of the
optionee while a Board member.

Non-employee directors are also eligible to participate in the Director
Fee Option Grant Program in effect under the 1996 Stock Incentive Plan, pursuant
to which they may elect to apply all or a portion of their annual retainer fee
towards the acquisition of special below-market option grants. For each
director, the number of shares of Common Stock subject to these options is
determined by dividing (i) the portion of the annual retainer fee each director
elects to apply toward the acquisition of options by (ii) 66 2/3% of the fair
market value per share of Common Stock on the grant date. Each option has an
exercise price per share equal to 33 1/3% of the fair market value per share of
Common Stock on the grant date. The options became fully exercisable on December
31, 1999. The options have a term of 10 years, subject to earlier termination of
two years following cessation of Board service.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends that the stockholders vote "FOR" the
election of the Class I Director nominees listed above.

PROPOSAL TWO: AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED SHARES

BACKGROUND

Under the Company's Certificate of Incorporation, the Company is
authorized to issue up to 100 million shares of Common Stock. As of December 31,
1999, 63,053,920 shares of Common Stock were issued and outstanding. In
addition, approximately 8 million shares were reserved for issuance under the
Company's stock-based employee compensation and incentive plans and
approximately 29 million shares were available for future corporate purposes.

6
<PAGE> 10

THE PROPOSAL

The Board of Directors has unanimously adopted a resolution declaring it
advisable to amend the Certificate of Incorporation to increase from 100,000,000
to 500,000,000 the number of shares of Common Stock that the Company has the
authority to issue. This amendment is being submitted to the stockholders of the
Company for approval.

REASONS FOR THE AMENDMENT

The Board of Directors believes that it is in the Company's best
interest to increase the number of authorized but unissued shares of Common
Stock in order to have additional shares available to meet the Company's future
business needs as they arise. While the Company's management has no current
arrangements, agreements, understandings or plans for the use of the additional
shares proposed to be authorized, the Board of Directors believes that the
availability of such additional shares will provide the Company with the
flexibility to issue Common Stock for a variety of purposes that the Board of
Directors may deem advisable. These purposes could include, among other things,
the sale of stock to raise additional capital, the purchase of property or
assets, the acquisition or merger into the Company of other companies, the use
of stock for various equity compensation and other employee benefit plans and
arrangements, the declaration of stock splits or dividends, and other bona fide
corporate purposes. In some situations, the issuance of additional shares of
Common Stock could have a dilutive effect on earnings per share, and, for a
stockholder who does not purchase additional shares to maintain its, his or her
pro rata interest, on a stockholder's percentage voting power in the Company. If
authorized, the additional shares of Common Stock could be issued without
further action by the Company's stockholders, unless stockholder approval is
required by law, regulation or stock exchange rule.

Although an increase in the authorized shares of Common Stock could,
under certain circumstances, be construed as having an anti-takeover effect (for
example, by diluting the stock ownership of a person seeking to effect a change
in the composition of the Board of Directors or contemplating a tender offer or
other transaction for the combination of the Company with another company), the
Board of Directors is not proposing this amendment to the Certificate of
Incorporation in response to any effort known to the Board of Directors to
accumulate Common Stock or to obtain control of the Company by means of a
merger, tender offer or solicitation in opposition to management. In addition,
the proposal is not part of any plan by management to recommend a series of
similar amendments to the Board of Directors and the stockholders. Finally, the
Board of Directors does not currently contemplate recommending the adoption of
any other amendments to the Certificate of Incorporation which could be
construed as affecting the ability of third parties to take over or to change
the control of the Company.

In addition to the Common Stock, the Certificate of Incorporation
currently grant to the Board of Directors the authority to authorize the
issuance up to 10,000,000 shares of preferred stock, in one or more series,
without stockholder approval. There are no shares of preferred stock currently
outstanding. The proposed amendment to the Certificate of Incorporation would
not change the Company's authority to issue shares of preferred stock.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends that the stockholders vote "FOR" the
amendment to the Certificate of Incorporation to increase the number of
authorized shares of Common Stock.

7
<PAGE> 11

PROPOSAL THREE: ADOPTION OF THE 2000
EMPLOYEE STOCK PURCHASE PLAN

BACKGROUND

The Board of Directors adopted an Employee Stock Purchase Plan in 1996
(the "1996 ESPP"), and the 1996 ESPP became effective at the time of the
Company's initial public offering the same year. The 1996 ESPP allowed eligible
employees to acquire a proprietary interest in the Company by purchasing Common
Stock through payroll deductions. Originally, a total of 275,000 shares of
Common Stock were reserved for issuance under the 1996 ESPP, which number was
increased to 550,000 shares in October 1999 to give effect to the Company's
two-for-one stock split. As of January 31, 2000, all of the 550,000 shares were
issued under the 1996 ESPP. Accordingly, on March 24, 2000, the Board of
Directors adopted the 2000 Employee Stock Purchase Plan (the "2000 ESPP") in
order to permit eligible employees to continue to acquire a proprietary interest
in the Company by purchasing Common Stock through payroll deductions.

The continued success of the Company depends on its ability to attract
and retain employees who are highly qualified and motivated. The Board of
Directors believes that the 2000 ESPP promotes this objective by enabling
employees to acquire Common Stock at a discount to the market price. By
encouraging employees to acquire an equity interest in the Company, the 2000
ESPP also is designed to create an identity of interests between employees and
the stockholders of the Company by focusing employees on the goal of building
stockholder value. Accordingly, the Board of Directors believes that it is in
the best interest of the Company to continue to offer participation in the 2000
ESPP to employees of the Company and its subsidiaries.

PROPOSALS

The Board of Directors has unanimously adopted the 2000 ESPP and is
submitting the 2000 ESPP to stockholders for approval. Under the 2000 ESPP, up
to 1,000,000 shares of Common Stock may be sold to participants in accordance
with the terms of the 2000 ESPP. The Company currently anticipates that the
1,000,000 shares covered by the 2000 ESPP will be sufficient to allow the
Company to offer participation in the 2000 ESPP to existing and future employees
of the Company and its subsidiaries for two years.

The 2000 ESPP is designed to qualify for favorable tax treatment under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). In
order to meet the requirements of Section 423 of the Code, the 2000 ESPP must be
approved by the Company's stockholders within 12 months after it was adopted by
the Board of Directors.

SUMMARY OF THE 2000 ESPP

The material features of the 2000 ESPP are outlined below.

Purpose. The purpose of the 2000 ESPP is to promote the interests of the
Company by providing eligible employees with the opportunity to acquire a
proprietary interest in the Company through participation in a payroll-deduction
based employee stock purchase plan designed to qualify under Section 423 of the
Code.

Administration. The 2000 ESPP is administered by a committee of two or
more members of the Board of Directors appointed by the Board (the "ESPP
Administrator").

Eligibility. All employees of the Company or a Participating Corporation
who are regularly expected to render more than 20 hours of service per week for
more than five months per calendar year are eligible to participate in the 2000
ESPP. A "Participating Corporation" is defined as any subsidiary corporation of
the Company, within the meaning of Section 424(f) of

8
<PAGE> 12

the Code, to which the Board of Directors chooses to extend the 2000 ESPP.
Approximately 1000 employees of the Company and its subsidiaries currently are
eligible to participate in the 2000 ESPP.

Offering Periods. The 2000 ESPP is implemented through a series of
successive offering periods of such duration (not to exceed 24 months)
determined by the ESPP Administrator. During an offering period, funds
accumulate through payroll deductions for the purchase of shares of Common
Stock.

Grant of Purchase Rights. Each participant is granted a separate
purchase right for each offering period in which he or she elects to
participate. The purchase right is granted on the participant's entry date into
the offering period and entitles the participant to purchase shares of Common
Stock in installments on specified dates (each, a "Purchase Date") during the
offering period. Purchase rights may not be granted to any eligible employee if
such individual would, immediately after the grant, own (within the meaning of
Section 424(d) of the Code) or hold outstanding options or other rights to
purchase stock representing five percent or more of the total combined voting
power or value of all classes of stock of the Company or any subsidiary. No
participant may purchase more than 600 shares of Common Stock in any offering
period, or more than $25,000 worth of stock (determined using the value of the
stock on the participant's entry date into the offering period) in any calendar
year.

Purchase Price. The purchase price per share of the shares of Common
Stock offered under the 2000 ESPP in a given offering period may not be less
than 85% of the lower of (i) the fair market value per share of Common Stock on
the participant's entry date into the applicable offering period or (ii) the
fair market value per share of Common Stock on the Purchase Date (the "Purchase
Price"). The percentage discount is determined by the ESPP Administrator. The
fair market value of the Common Stock on a given date is the closing selling
price of the Common Stock for such date as reported by the New York Stock
Exchange.

Payroll Deductions. Payroll deductions for a participant commence on the
first pay day following the participant's entry date into the offering period,
and continue through the pay day ending with or immediately prior to the last
day of the offering period unless sooner terminated by the participant. The
amount to be contributed is selected by the participant, and may be increased or
decreased, subject to certain limitations, during the offering period.

Exercise of Purchase Rights. Each purchase right is automatically
exercised on each Purchase Date by applying the accumulated payroll deductions
to purchase shares of Common Stock at the applicable Purchase Price.

Withdrawal; Termination of Employment. A participant may, at any time
prior to the next scheduled Purchase Date in the offering period, terminate his
or her outstanding purchase right. Should the participant cease to be an
eligible employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that purchase
right will immediately terminate.

Assignability. A purchase right is exercisable only by the participant
and is not assignable or transferable by a participant.

Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Change of Control. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and class of securities
issuable under the 2000 ESPP, (ii) the maximum number and class of securities
purchasable per participant on any one Purchase Date, and (iii) the number and
class of securities and the price

9
<PAGE> 13

per share in effect under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits under the 2000 ESPP. Each outstanding
purchase right will be exercised automatically immediately prior to the
effective date of a "Corporate Transaction," which is defined as a merger or
consolidation in which securities representing more than 50% of the total
combined voting power of the Company are transferred to persons different from
those holding the securities immediately prior to the transaction, or a sale,
transfer or other dispositions of all or substantially all of the assets of the
Company in complete liquidation or dissolution of the Company.

Amendment and Termination. The Board of Directors may alter, amend,
suspend or discontinue the 2000 ESPP at any time to become effective on the date
specified by the Board of Directors. If the Board of Directors amends the 2000
ESPP to increase the number of shares of Common Stock that may be issued under
the 2000 ESPP, no shares of Common Stock may be issued under the increased share
limit until the Company's stockholders have approved the increase. The Board of
Directors or the ESPP Administrator (or its designee) may authorize additional
affiliates of the Company to become Participating Corporations, or may revoke
affiliates' status as Participating Corporations, without stockholder approval.

Unless terminated sooner by the Board of Directors, the 2000 ESPP will
terminate upon the earliest of (i) the last business day of February 2010, (ii)
the date on which all shares available for issuance under the 2000 ESPP shall
have been sold pursuant to purchase rights exercised under the 2000 ESPP or
(iii) the date on which all purchase rights are exercised in connection with a
Corporate Transaction.

FEDERAL INCOME TAX INFORMATION

The 2000 ESPP and the right of participants to make purchases thereunder
are intended to qualify under the provisions of Sections 421 and 423 of the
Code. Under these provisions, amounts deducted from participants' compensation
to purchase shares will be included in their wages for federal income tax
purposes at the time of the deduction. No additional income will be taxable to a
participant in connection with the purchase of shares until the shares purchased
under the 2000 ESPP are sold or otherwise disposed of. Upon sale or other
disposition of the shares, the participant will generally be subject to tax, and
the amount of the tax will depend upon the holding period. If the shares are
sold or otherwise disposed of more than two years from the participant's entry
date in the offering period and more than one year from the Purchase Date for
those shares, the participant will recognize ordinary income measured as the
lesser of (i) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price or (ii) the excess of the fair
market value of the shares as of the participant's entry date in the offering
period over the purchase price. Any additional gain will be treated as long-term
capital gain. If the shares are sold or otherwise disposed of before the
expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased (or on the date the shares are sold, if
less) over the purchase price. Any additional gain or loss on such sale or
disposition will be short-term capital gain or loss if the participant owned the
shares for a year or less, and will be long-term capital gain or loss if the
participant owned the shares for more than a year. The Company is not entitled
to a deduction for amounts taxed as ordinary income or capital gain to a
participant except to the extent of ordinary income recognized by participants
upon a sale or disposition of shares prior to the expiration of the holding
period described above.

The foregoing is only a summary of the effect of federal income taxation
upon participants and the Company with respect to the shares purchased under the
2000 ESPP. Reference should be made to the applicable provisions of the Code. In
addition, the summary

10
<PAGE> 14

does not discuss the tax consequences of a participant's death or the income tax
laws of any state or foreign country in which the participant may reside.

NEW PLAN BENEFITS

The benefits accruing to participants if the 2000 ESPP is approved as
proposed will depend on whether eligible employees elect to participate, the
level of payroll deductions selected and the Purchase Price of the Common Stock
on each Purchase Date. Accordingly, the amount of such benefits that any
employee or group of employees might receive under the 2000 ESPP in the future
is not determinable. The closing selling price of the Common Stock on [ ], 2000,
as reported by the New York Stock Exchange, was $[ ].

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends that the stockholders vote "FOR" the
adoption of the 2000 ESPP.

PROPOSAL FOUR: APPROVAL OF THE DISCRETIONARY OPTION GRANT PROGRAM
UNDER THE 1996 STOCK INCENTIVE PLAN

BACKGROUND

In 1996, prior to the Company's initial public offering, the Board of
Directors approved the 1996 Stock Incentive Plan. The 1996 Stock Incentive Plan
is divided into five separate equity programs. One of the five programs is the
Discretionary Option Grant Program, under which eligible persons may be granted
options to purchase shares of Common Stock ("Options") and stock appreciation
rights ("SARs"). The Options granted under the Discretionary Option Grant
Program may be either (a) non-statutory options ("Non-Statutory Options") or (b)
options that satisfy the requirements of Section 422 of the Code ("Incentive
Options").

The maximum number of shares of Common Stock initially reserved for
issuance under the 1996 Stock Incentive Plan was 8,083,716. The number of shares
of Common Stock available for issuance under the 1996 Stock Incentive Plan
automatically increases on the first trading day of each calendar year during
the term of the 1996 Stock Incentive Plan, by an amount equal to one percent of
the shares of Common Stock outstanding on the last trading day of the
immediately preceding calendar year. No Incentive Options may be granted on the
basis of the additional shares resulting from the annual increase. Currently,
there are approximately 8 million shares of Common Stock available for issuance
under the 1996 Stock Incentive Plan, of which 7.5 shares have been reserved for
issuance pursuant to outstanding awards.

Under Section 162(m) of the Code, the Company may not deduct more than
$1,000,000 in annual compensation paid to an individual who, on the last day of
the taxable year, is either the chief executive officer or one of the Company's
four other most highly-compensated officers. Certain "performance-based
compensation" is exempt from the $1,000,000 deduction limit. Options and SARs
under the Discretionary Option Grant Program generally meet the requirements for
performance-based compensation if the exercise price of the Option or the base
price for measuring appreciation in the SAR is at least 100% of fair market
value on the date of grant. Before the 2000 Annual Meeting of Stockholders, the
Discretionary Option Grant Program was exempt from the $1,000,000 deduction
limit under an Internal Revenue Service transition rule for companies that have
recently made an initial public offering of their stock.

PROPOSAL

In order to remain exempt from the $1,000,000 deduction limit, the
Discretionary Option Grant Program must be approved by the Company's
stockholders at the 2000 Annual Meeting of Stockholders. If stockholders do not
approve the Discretionary Option Grant Program, the

11
<PAGE> 15

Company will not award Options or SARs under the Discretionary Option Grant
Program after the 2000 Annual Meeting of Stockholders.

SUMMARY OF THE DISCRETIONARY OPTION GRANT PROGRAM

The material features of the Discretionary Option Grant Program are
outlined below.

Purpose. The purpose of the Discretionary Option Grant Program is to
promote the interests of the Company by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company as an incentive for them to remain in the
service of the Company.

Administration. Awards under the Discretionary Option Grant Program to
officers and directors subject to the short-swing profit liabilities of Section
16 of the Securities Exchange Act of 1934, as amended, including the executives
who are potentially subject to the $1,000,000 deduction limit, are administered
by a committee of two or more outside directors of the Company (the
"Discretionary Option Grant Program Administrator"). At the discretion of the
Board of Directors, the administration of the Discretionary Option Grant Program
with respect to all other persons eligible to participate may be vested in the
Discretionary Option Grant Program Administrator or an additional committee of
two or more directors of the Company, or may be retained by the Board of
Directors.

Eligibility. The persons eligible to participate in the Discretionary
Option Grant Program are (i) employees of the Company, (ii) non-employee members
of the Board of Directors or the board of directors of any subsidiary of the
Company and (iii) consultants and other independent advisers who provide
services to the Company (or any subsidiary of the Company). Approximately 1000
employees of the Company and its subsidiaries are currently eligible to
participate in the Discretionary Option Grant Program.

Individual Share Limit. No person participating in the 1996 Stock
Incentive Plan may receive Options, separately exercisable SARs, and direct
stock issuances for more than 1,000,000 shares of Common Stock in the aggregate
per calendar year.

Adjustments Upon Changes in Capitalization. Should any change be made to
the Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and class of securities issuable under the 1996 Stock Incentive Plan, (ii) the
number and class of securities for which any one person may be granted Options,
separately exercisable SARs, and direct stock issuances under the 1996 Stock
Incentive Plan per calendar year, (iii) the number and class of securities and
the exercise price per share in effect under each outstanding option under the
1996 Stock Incentive Plan and (iv) the number and class of securities and price
per share in effect under each outstanding Option incorporated into the 1996
Stock Incentive Plan from the Company's predecessor stock option plan.

Non-Statutory Option Terms.

Exercise Price. The exercise price per share of each
Non-Statutory Option is fixed by the Discretionary Option Grant Program
Administrator and may not be less than 85% of the fair market value per share of
Common Stock on the grant date. Non-Statutory Options that are intended to
qualify as performance-based compensation will have an exercise price equal to
100% of the fair market value per share of Common Stock on the option grant
date.

Exercise and Term. Each Non-Statutory Option is exercisable at
such times, during such periods and for such number of shares as determined by
the Discretionary Option

12
<PAGE> 16

Grant Program Administrator when the Option is granted. No Non-Statutory Option
may have a term exceeding 10 years measured from the grant date.

Effect of Termination of Service with the Company. Any Option
outstanding at the time of a participant's cessation of service for any reason
remains exercisable for a period of time determined by the Discretionary Option
Grant Program Administrator when the Option is granted, but no Option will be
exercisable after the expiration of the Option term. During a post-service
exercise period, an Option may not be exercised in the aggregate for more than
the number of vested shares for which the Option was exercisable on the date of
a participant's cessation of service. An Option will terminate and cease to be
outstanding for any vested shares for which the Option has not been exercised
upon the earlier of (i) the expiration of the applicable exercise period or (ii)
the expiration of the Option term. However, upon a participant's cessation of
service, any Option that is not at that time exercisable for vested shares will
terminate and cease to be outstanding.

Effect of Death. Any Option exercisable in whole or in part by a
participant at the time of death may be exercised by the personal representative
of a participant's estate or by the persons to whom the Option is transferred
pursuant to a participant's will or in accordance with the laws of descent and
distribution.

Stockholder's Rights. A holder of an Option has no stockholder's
rights with respect to the shares subject to the Option until such person
exercises the Option, pays the exercise price, and becomes a holder of record of
the purchased shares.

Transferability. Non-Statutory Options may, in connection with
the participant's estate plan, be assigned in whole or in part during the
participant's lifetime to one or more members of the participant's immediate
family or to a trust established exclusively for one or more such family
members.

Incentive Option Terms.

Eligibility. Incentive Options are granted only to employees.

Exercise Price. The exercise price per share may not be less
than 100% of the fair market value per share of Common Stock on the grant date.
If any employee to whom an Incentive Option is granted owns 10% or more of the
Common Stock, then the exercise price per share may not be less than 110% of the
fair market value per share of Common Stock on the grant date.

Exercise and Term. Each Incentive Option is exercisable at such
times, during such periods, and for such number of shares as determined by the
Discretionary Option Grant Program Administrator when the Option is granted. No
Incentive Option may have a term exceeding 10 years measured from the grant
date. Any Incentive Option granted to any employee who owns 10% or more of the
Common Stock must have a term not to exceed five years measured from the grant
date.

Dollar Limitation. The aggregate fair market value of the
shares of Common Stock (determined at the date of the grant) for which one or
more options granted to any employee under the 1996 Stock Incentive Plan
becoming exercisable for the first time as Incentive Options during any one
calendar year may not exceed $100,000.

13
<PAGE> 17

if his employment terminates as a result of disability). During a post-service
exercise period, an Option may not be exercised in the aggregate for more than
the number of vested shares for which the Option is exercisable on the date of a
participant's cessation of service. An Option will terminate and cease to be
outstanding for any vested shares for which the Option has not been exercised
upon the earlier of (i) the expiration of the applicable exercise period or (ii)
the expiration of the Option term. However, upon a participant's cessation of
service, any Option that is not at that time exercisable for vested shares will
terminate and cease to be outstanding.

Stockholder's Rights. A holder of an Option has no stockholder's
rights with respect to the shares subject to the option until such person
exercises the option, pays the exercise price and becomes a holder of record of
the purchased shares.

Transferability. During the lifetime of a participant, Incentive
Options are exercisable only by the participant and are not assignable or
transferable other than by will or by the laws of descent and distribution
following the participant's death.

Corporate Transactions. In the event of a "Corporate Transaction,"
defined as a merger or consolidation in which securities representing more than
50% of the total combined voting power of the Company are transferred to persons
different from those holding the securities immediately prior to the
transaction, or a sale, transfer or other dispositions of all or substantially
all of the assets of the Company in complete liquidation or dissolution of the
Company, each outstanding Option will automatically accelerate so that each
Option will, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable. However, an outstanding Option shall not
accelerate if and to the extent that (i) the Option is to be either assumed by
the successor corporation or to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation, (ii) the Option is to
be replaced with a cash incentive program of the successor program or (iii) the
acceleration of the Option is subject to other limitations imposed by the
Discretionary Option Grant Program Administrator at the time of the grant.

The portion of any Incentive Option accelerated in connection with a
Corporate Transaction remains exercisable as an Incentive Option only to the
extent that the applicable $100,000 limitation is not exceeded. If the $100,000
limitation is exceeded, the accelerated portion of the Incentive Option is
exercisable as a Non-Statutory Option under federal tax laws.

All outstanding repurchase rights will terminate automatically, and the
shares of Common Stock subject to those terminated rights will immediately vest
in full, except to the extent that the repurchase rights are to be assigned to
the successor corporation (or the parent of the successor corporation) in
connection with the Corporate Transaction, or the accelerated vesting is
precluded by other limitations imposed by the Discretionary Option Grant Program
Administrator at the time the repurchase right is issued. Immediately following
the consummation of the Corporate Transaction, all outstanding Options terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation (or the parent of the successor corporation). Immediately after a
Corporate Transaction, each Option which is assumed in connection with the
Corporate Transaction will be appropriately adjusted to apply to the number and
class of securities that would have been issuable to the participant in
consummation of the Corporation Transaction had the Option been exercised
immediately prior to the Corporate Transaction.

14
<PAGE> 18

Involuntary Termination. Following the effective date of any Corporate
Transaction in which options are assumed or replaced and do not otherwise
accelerate, the Discretionary Option Grant Program Administrator has full power
and authority to grant Options under the Discretionary Option Grant Program that
will automatically accelerate in the event a participant's service subsequently
terminates by reason of an Involuntary Termination. "Involuntary Termination" is
defined as an individual's involuntary dismissal or discharge by the Company for
reasons other than misconduct, or an individual's voluntary resignation
following (i) a change in his or her position with the Company that materially
reduces his or her level of responsibility, (ii) a reduction in his or her level
of compensation by more than 15% or (iii) a relocation of an individual's place
of employment of more than 50 miles that is effected by the Company without the
employee's consent.

Change in Control. Following the effective date of any Corporate
Transaction in which Options are assumed or replaced and do not otherwise
accelerate, the Discretionary Option Grant Program Administrator has full power
and authority to grant Options under the Discretionary Option Grant Program that
will automatically accelerate in the event a participant's service subsequently
terminates by reason of a Change of Control. "Change of Control is defined as a
change in ownership or control of the Company effected through either (i) the
acquisition, directly or indirectly by any person or related group of persons
(other than the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company), of beneficial
ownership of securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders that the Board of Directors
does not recommend the stockholders to accept, or (ii) a change in the
composition of the Board of Directors over a period of 36 consecutive months or
less such that a majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to consist of individuals who either
(a) have been Board members continuously since the beginning of the period or
(b) have been elected or nominated for election as Board members during the
period by at least a majority of the Board members described in clause (a) who
were still in office at the time the Board approved the election or nomination.
The portion of any Incentive Option accelerated in connection with a Change of
Control remains exercisable as an Incentive Option only to the extent that the
applicable $100,000 limitation is not exceeded. If the $100,000 limitation is
exceeded, the accelerated portion of the Incentive Option is exercisable as a
Non-Statutory Option under federal tax laws.

Cancellation and Regrant of Options. The Discretionary Option Grant
Program Administrator has the authority to effect, at any time, with the consent
of the affected participants, the cancellation of any or all outstanding Options
under the Discretionary Option Grant Program and to grant in substitution new
Options covering the same or different number of shares of Common Stock but with
an exercise price per share based on the fair market value per share of Common
Stock on the new grant date.

Stock Appreciation Rights. The Discretionary Option Grant Program
Administrator has full power and authority to grant to selected participants
tandem SARs and limited SARs. The Discretionary Option Grant Program
Administrator may establish terms whereby a participant may be granted the right
to elect between the exercise of the underlying Option for shares of Common
Stock and the surrender of that Option in exchange for a distribution from the
Company in an amount equal to the excess of (a) the fair market value of the
number of shares in which the participant is at that time vested under the
surrendered Option over (b) the aggregate exercise price payable for such
shares. Once the Discretionary Option Grant Program Administrator has approved
such Option surrender, the distribution to which the participant shall be
entitled may be made in shares of Common Stock valued at fair market value on
the Option surrender date, in cash, or partly

15
<PAGE> 19

in shares and partly in cash, as the Discretionary Option Grant Program
Administrator shall in its sole discretion deem appropriate.

Amendment and Termination. The Board of Directors may amend or modify
the 1996 Stock Incentive Plan at any time. No amendment or modification will
adversely effect any outstanding award unless the participant consents.

Unless terminated sooner by the Board of Directors, the 1996 Stock
Incentive Plan will terminate upon the earliest of (i) July 16, 2006, (ii) the
date on which all shares available for issuance under the 1996 Stock Incentive
Plan have been issued as fully vested shares or (iii) the termination of all
outstanding Options in connection with a Corporate Transaction.

FEDERAL INCOME TAX INFORMATION

In general, a participant will not recognize income for federal income
tax purposes when an Option or SAR is granted under the Discretionary Option
Grant Program, and the Company will not be entitled to a federal income tax
deduction on the date of the grant.

When a participant exercises a Non-Statutory Option, the participant
will recognize ordinary income for federal tax purposes to the extent that the
fair market value of the shares exceeds the Option's exercise price. When the
participant exercises an SAR, the participant will recognize ordinary income
equal to the amount of any cash and the fair market value of any shares the
participant receives. The Company generally will be entitled to a federal income
tax deduction on the exercise date equal to the amount the participant
recognizes as ordinary income.

When a participant exercises an Incentive Option, the participant
generally will not recognize income for purposes of computing regular federal
income tax liability, and the Company will not be entitled to a deduction.
However, the excess of the fair market value of the stock on the exercise date
over the exercise price will be included in the participant's income for
purposes of the alternative minimum tax.

If the participant holds shares acquired with an Incentive Option stock
for at least two years from the date the Incentive Option was granted and one
year from the date the Incentive Option was exercised, the participant will
realize a long-term capital gain or loss upon the sale of the shares, equal to
the difference between the exercise price and the sale price. The Company will
not receive any federal income tax deduction if the participant holds the shares
for the required period. If the participant does not hold the shares for the
required period, the participant will recognize ordinary income upon the sale of
the shares equal to the excess of the fair market value of the shares on the
date of exercise (or, if less, the amount of gain realized on the disposition of
the shares) over the exercise price, and the balance of any gain or any loss
will be treated as capital gain or loss. The Company will be entitled to a tax
deduction equal to the amount of any ordinary income the participant recognizes
upon the sale of the shares.

An Incentive Option will receive the special tax treatment described
above only if the participant remains employed by the Company (or a subsidiary
in which the Company holds at least 50% of the voting interest) from the grant
date until 90 days before the Incentive Option is exercised. The 90 day period
is extended to one year if the participant's employment terminates on account of
disability. If the participant does not meet this employment requirement, the
Incentive Option will be treated for federal income tax purposes as a
Non-Statutory Option.

As explained above, the Company may not deduct annual compensation of
more than $1,000,000 paid to an individual who, on the last day of the taxable
year, is either the chief executive officer or one of the Company's four other
most highly-compensated officers for that year. The deduction limit does not
apply to qualified performance-based compensation. The Company believes that
compensation under the Discretionary Option Grant Program attributable

16
<PAGE> 20

to Non-Statutory Options and SARs with an exercise price or base price equal to
the stock's fair market value on the grant date, and to Incentive Options, will
be treated as qualified performance-based compensation and therefore will not be
subject to the deduction limit.

NEW PLAN BENEFITS

Future awards of Stock Options and SARs to participants under the
Discretionary Option Grant Program, if approved as proposed, are subject to the
discretion of the Discretionary Option Grant Program Administrator. Accordingly,
the benefits that any employee or group of employees might receive under the
Discretionary Option Grant Program in the future is not determinable. The
closing price of the Common Stock on March [ ], 2000, as reported by the New
York Stock Exchange, was $[ ].

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends that the stockholders vote "FOR" the
adoption of the Discretionary Option Grant Program.

PROPOSAL FIVE: RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS

The firm of Arthur Andersen LLP served as independent public accountants
for the Company for the fiscal year ended December 31, 1999. Arthur Anderson
LLP's fees for performing the Company's audit for the fiscal year ended December
31, 1999 were approximately $832,000. Additionally, the Company paid Arthur
Anderson LLP approximately $1,389,000 for non-audit related services performed
in 1999. Subject to stockholder ratification, the Board of Directors has
reappointed the firm to serve as the Company's independent public accountants
for the year ending December 31, 2000. Accordingly, a resolution will be
presented at the 2000 Annual Meeting of Stockholders to ratify the appointment
of Arthur Andersen LLP by the Board of Directors as independent public
accountants to audit the accounts and records of the Company for the fiscal year
ending December 31, 2000. In the event that stockholders fail to ratify the
appointment of Arthur Andersen LLP, the Board of Directors would reconsider such
appointment. Even if the appointment is ratified, the Board of Directors in its
discretion may direct the appointment of a different independent public
accounting firm at anytime during the year if the Board of Directors believes
that such a change would be in the best interests of the Company and its
stockholders.

One or more representatives of Arthur Andersen LLP are expected to be
present at the 2000 Annual Meeting of Stockholders, will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends that stockholders vote "FOR" such
ratification.

OTHER MATTERS

The Board of Directors does not know of any matters to be presented at
the 2000 Annual Meeting of Stockholders other than those set forth herein and in
the Notice of Annual Meeting accompanying this Proxy Statement. However, if any
other matters properly come before the meeting, it is intended that the persons
named in the enclosed proxy will vote on such matters in accordance with their
best judgement. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed proxy.

17
<PAGE> 21

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Common Stock as of December 31, 1999
by (i) each person known by the Company to be the beneficial owner of more than
five percent of the outstanding shares of Common Stock, (ii) each director of
the Company, (iii) each executive officer of the Company listed in the Summary
Compensation Table below and (iv) all executive officers and directors of the
Company as a group.

18
<PAGE> 22

<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
------------------- --------------------- ---------------------
<S> <C> <C>
FMR Corporation(2) 7,578,496 12.0%
82 Devonshire Street
Boston, MA 02109

Wellington Management Company, LLP(3) 4,118,200 6.5%
75 State Street
Boston, MA 02109

Morgan Stanley Dean Witter 3,547,334 5.6%
& Company (4)
1585 Broadway
New York, NY 10036

Massachusetts Financial Services 3,514,659 5.6%
Company
500 Boylston Street
Boston, MA 02116

Hartford Capital Appreciation HLS 3,400,000 5.4%
Fund, Inc.(5)
200 Hopmeadow Street
Simsbury, CT 06089

Peter Cartwright(6) 2,148,912 3.4%

Charles B. Clark, Jr. 0 *

Ann B. Curtis(7) 570,362 *

Jeffrey E. Garten(8) 31,824 *

Robert D. Kelly(9) 233,766 *

Lynn A. Kerby(10) 247,192 *

Thomas R. Mason 2,000 *

Susan C. Schwab(8) 30,130 *

George J. Stathakis(11) 96,264 *

Ron Walter(12) 331,888 *

John O. Wilson(13) 38,194 *

V. Orville Wright(8) 46,662 *

All executive officers and 3,777,194 5.9%
directors as a group
(12 persons)(14)
</TABLE>

- ------------

* Less than one percent

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
issuable upon the exercise of options or warrants or upon the conversion of
convertible securities that are immediately exercisable or convertible or
that will become exercisable or convertible within the next 60 days are
deemed beneficially owned by the beneficial owner of such options, warrants
or convertible securities and are deemed outstanding for the purpose of
computing the percentage of shares beneficially owned by the person holding
such instruments but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table have sole voting and sole investment power with respect to all
shares of Common Stock shown as beneficially owned by them. The number of
shares of Common Stock outstanding as of December 31, 1999 was 63,053,920.

(2) According to the Schedule 13G filed with the Commission, FMR Corporation
possesses sole voting power over 1,570,562 shares and sole investment power
over 7,578,496 shares.

19
<PAGE> 23

(3) According to the Schedule 13G filed with the Securities and Exchange
Commission, Wellington Management Company, LLP possesses shared voting
power over 3,974,700 shares and shared investment power over 4,118,200
shares.

(4) According to the Schedule 13G filed with the Securities and Exchange
Commission, Morgan Stanley Dean Witter & Company possesses shared voting
power over 3,484,434 shares and shared investment power over 3,547,334
shares.

(5) According to the Schedule 13G filed with the Securities and Exchange
Commission, Hartford Capital Appreciation HLS Fund, Inc. possesses shared
voting and investment power over 3,400,000 shares.

(6) Includes options to purchase 165,895 shares of Common Stock issuable upon
the exercise of options outstanding as of December 31, 1999 or within 60
days thereafter.

(7) Includes options to purchase 45,970 shares of Common Stock issuable upon
the exercise of options outstanding as of December 31, 1999 or within 60
days thereafter.

(8) Includes options to purchase 13,000 shares of Common Stock issuable upon
the exercise of options outstanding as of December 31, 1999 or within 60
days thereafter.

(9) Includes options to purchase 33,179 shares of Common Stock issuable upon
the exercise of options outstanding as of December 31, 1999 or within 60
days thereafter.

(10) Includes options to purchase 1,250 shares of Common Stock issuable upon the
exercise of options outstanding as of December 31, 1999 or within 60 days
thereafter.

(11) Includes options to purchase 8,000 shares of Common Stock issuable upon the
exercise of options outstanding as of December 31, 1999 or within 60 days
thereafter.

(12) Includes options to purchase 25,388 shares of Common Stock issuable upon
the exercise of options outstanding as of December 31, 1999 or within 60
days thereafter.

(13) Includes options to purchase 13,060 shares of Common Stock issuable upon
the exercise of options outstanding as of December 31, 1999 or within 60
days thereafter.

(14) Includes options to purchase 331,742 shares of Common Stock issuable upon
the exercise of options outstanding as of December 31, 1999 or within 60
days thereafter.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

Set forth in the table below is a list of the Company's executive
officers who are not directors, together with certain biographical information.

OTHER EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas R. Mason 56 Executive Vice President

Lynn A. Kerby* 61 Executive Vice President - Operations

Robert D. Kelly 42 Senior Vice President - Finance

Ron Walter 50 Senior Vice President - Business Development

Charles B. Clark, Jr. 52 Vice President and Corporate Controller
</TABLE>

- --------------

* Retired as of August 1, 1999.

THOMAS R. MASON has served as our Executive Vice President since August
1999 and Senior Vice President from March 1999 until August 1999. Mr. Mason is
responsible for

20
<PAGE> 24

managing our power plant construction and operations activities. From 1995 to
February 1999, prior to joining us, Mr. Mason was President and Chief Operating
Officer of CalEnergy Operating Services Inc., a wholly owned subsidiary of
MidAmerica Energy Holdings Company. He obtained a Master of Business
Administration Degree from the University of Chicago in 1970 and a Bachelor of
Science Degree in Electrical Engineering from Purdue University in 1966.

LYNN A. KERBY joined the Company in January 1991 and served as Vice
President of Operations through January 1993, at which time he became a Senior
Vice President -- Operations for the Company. Mr. Kerby became Executive Vice
President -- Operations of the Company in August 1998 and retired from that
position as of August 1, 1999. Prior to joining the Company, Mr. Kerby served as
Senior Vice President -- Operations of Guy F. Atkinson Company, an engineering
and construction company, from 1989 to 1990, and served in various other
positions within Guy F. Atkinson since 1961. Mr. Kerby served on the Company's
Board of Directors from 1984 to 1988 as a Guy F. Atkinson representative. He
obtained a Bachelor of Science Degree in Civil Engineering and Business from the
University of Idaho in 1961. Mr. Kerby holds a Class A Contractors License in
the states of California, Arizona and Hawaii.

ROBERT D. KELLY has served as the Company's Senior Vice President --
Finance since January 1998 and Vice President, Finance from April 1994 to
January 1998. Mr. Kelly's responsibilities include all project and corporate
finance activities. From 1992 to 1994, Mr. Kelly served as Director -- Project
Finance for the Company, and from 1991 to 1992, he served as Project Finance
Manager. Prior to joining the Company, from 1990 to 1991, he was the Marketing
Manager of Westinghouse Credit Corporation. From 1989 to 1990, Mr. Kelly was
Vice President of Lloyds Bank PLC. From 1982 to 1989, Mr. Kelly was employed in
various positions with The Bank of Nova Scotia. He obtained a Master of Business
Administration Degree from Dalhousie University, Canada in 1980 and a Bachelor
of Commerce Degree from Memorial University, Canada, in 1979.

RON WALTER has served as the Company's Senior Vice President -- Business
Development since January 1998 and Vice President, Geothermal Development from
July 1990 to January 1998. Mr. Walter's responsibilities include all business
development activities and corporate and asset portfolio acquisitions. From 1984
to 1990, Mr. Walter served as Manager - Geothermal Projects for the Company.
Prior to joining the Company, Mr. Walter served as Director of Sales -
Geothermal of Gibbs & Hill, Inc. from 1983 to 1984, and as Senior Engineer for
Gibbs & Hill, Inc. from 1982 to 1983. He obtained a Master of Science Degree in
Mechanical Engineering from Oregon State University in 1976 and a Bachelor of
Science Degree in Mechanical Engineering from the University of Nebraska in
1971.

CHARLES B. CLARK, JR. has served as the Company's Vice President and
Corporate Controller since May 1999 and as Director of Business Services for the
Geysers from February 1999 to April 1999. Prior to joining the Company, Mr.
Clark served as the Chief Financial Officer of Hobbs Group, LLC from March 1998
to November 1998. Mr. Clark also served as Senior Vice President - Finance and
Administration of CNF Industries, Inc. from February 1997 to February 1998. He
served as Vice President and Chief Financial Officer of Century Contractors
West, Inc. from May 1988 to January 1997. Mr. Clark obtained a Master of
Business Administration, with a concentration in Finance, from Harvard Graduate
School of Business Administration in 1976 and a Bachelor of Science Degree in
Mathematics from Duke University in 1969.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides certain information concerning the
compensation earned for services rendered to the Company in all capacities
during each of the fiscal years ended December 31, 1997, 1998 and 1999 by the
Company's chief executive officer and each of the

21
<PAGE> 25

four other most highly-compensated executive officers of the Company in 1999 who
were serving as executive officers as of December 31, 1999. Mr. Kerby, who
retired from the Company as of August 1, 1999, is included in the table because
he would have been among the four most highly-compensated executive officers at
the Company on the last day of the 1999 fiscal year (based on the salary and
bonus that he earned through August 1, 1999) had he not retired, from his
position of Executive Vice President - Operations. Mr. Kerby continues with the
Company as a part-time employee.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------
NAME AND PRINCIPAL ------------------------------- SECURITIES ALL OTHER
POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION(1)
- ---------------------------- ---- -------- -------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Peter Cartwright 1999 $575,004 833,800 1,000,000 $8,130
Chairman of the Board, 1998 400,002 $600,000 220,000 8,130
President and Chief 1997 375,000 300,000 220,000 8,130
Executive Officer

Ann B. Curtis 1999 262,500 400,480 80,000 4,800
Executive Vice-President, 1998 220,000 250,000 60,000 4,800
Chief Financial Officer 1997 205,000 90,000 60,000 4,800
and Corporate Secretary

Thomas R. Mason(2) 1999 219,241 305,320 40,000 4,800
Senior Vice President 1998 -- -- -- --
1997 -- -- -- --

Robert D. Kelly 1999 260,770 306,850 60,000 4,800
Senior Vice President -- 1998 205,000 230,000 43,000 4,800
Finance 1997 190,000 100,000 40,000 4,800

Lynn A. Kerby 1999 187,668 90,000 10,000 4,800
Executive Vice 1998 228,250 175,000 50,000 4,800
President -- Operations 1997 220,000 90,000 50,000 4,800

Ron Walter 1999 215,000 320,000 60,000 4,800
Senior Vice President -- 1998 200,000 230,000 40,000 4,800
Business Development 1997 165,000 85,000 20,000 4,800
</TABLE>

(1) In 1999, the Company made a contribution of $4,800 to the Company's 401(k)
plan for the account of each of the named executive officers and paid
a premium of $3,330 on a special life insurance policy maintained by the
Company for the benefit of Mr. Cartwright.

(2) Mr. Mason began his employment with the Company on March 29, 1999.

STOCK OPTIONS

The following table sets forth certain information concerning grants of
stock options during the fiscal year ended December 31, 1999 to each of the
executive officers named in the Summary Compensation Table above. The table also
sets forth hypothetical gains or "option spreads" for the options at the end of
their respective 10-year terms. These gains are based on the assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the option
was granted over the full option term. No stock appreciation rights were granted
during the fiscal year ended December 31, 1999.

22
<PAGE> 26

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE VALUE AT ASSUMED
----------------------------------------------- ANNUAL RATES OF STOCK PRICE
OPTIONS PERCENTAGE OF TOTAL APPRECIATION
GRANTED OPTIONS GRANTED TO EXERCISE FOR OPTION TERM (3)
(NO. OF EMPLOYEES PRICE PER EXPIRATION -------------------------------------
NAME SHARES) IN FISCAL YEAR(2) SHARE DATE 5% 10%
- ----------------- ---------- ------------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter Cartwright 300,000 14.4% $15.438 2/14/09 $ 2,912,663 $ 7,381,259

Peter Cartwright 694,354 34.5% 39.813 8/10/09 18,027,491 45,685,201

Peter Cartwright 5,646(4) * 4.427 1/3/09 95,147 169,496

Ann B. Curtis 80,000 3.8% 15.438 2/14/09 776,710 1,968,336

Ann B. Curtis 1,130(4) * 4.427 1/3/09 19,443 33,923

Robert D. Kelly 60,000 2.9% 15.438 2/14/09 582,533 1,476,252

Robert D. Kelly 2,258(4) * 4.427 1/3/09 38,852 67,786

Ron Walter 60,000 2.9% 15.438 2/14/09 582,533 1,476,252

Thomas R. Mason 40,000 1.9% 16.969 3/28/09 426,721 1,081,309

Lynn A. Kerby 10,000 * 15.438 2/14/09 97,089 246,042
</TABLE>

* Less than one percent

(1) Unless otherwise noted herein, the following applies to each option set
forth in the table above. Each option has a term of 10 years, subject to
earlier termination upon the executive officer's termination of service with
the Company. Each option will become exercisable for 25% of the option
shares upon the officer's completion of each of the four years of service
measured from the grant date. Each option will immediately become
exercisable for all of the option shares upon an acquisition of the Company
by merger or asset sale unless the options are assumed by the successor
corporation.

(2) The Company granted options to purchase 2,086,728 shares of Common Stock
during the fiscal year ended December 31, 1999.

(3) The 5% and 10% assumed annual rates of compound stock price appreciation are
mandated by the rules of the Commission and do not represent the Company's
estimate or a projection by the Company of future stock prices.

(4) These options were granted under the Salary Investment Option Grant Program
under the 1996 Stock Incentive Plan. They each have a term of 10 years
subject to earlier termination upon the executive officer's termination of
service with the Company. Each option vested pro rata on a monthly basis
over the twelve calendar months of 1999.

STOCK OPTION EXERCISES AND HOLDINGS

The following table sets forth certain information concerning the
exercise of options during the fiscal year ended December 31, 1999 and the
number of shares subject to exercisable and unexercisable stock options held by
the executive officers named in the Summary Compensation Table above as of
December 31, 1999. No stock appreciation rights were exercised by such executive
officers during the fiscal year ended December 31, 1999, and no stock
appreciation rights were outstanding at the end of that year.

23
<PAGE> 27

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT DECEMBER 31, 1999 IN-THE-MONEY OPTIONS
(NO. OF SHARES) AT DECEMBER 31, 1999 (2)
SHARES ACQUIRED VALUE ----------------------------------- ----------------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------- --------------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Peter Cartwright 30,000 $1,867,514 1,971,117 1,385,895 $121,690,228 $52,601,944

Ann B. Curtis 27,900 1,296,975 523,166 180,970 32,249,909 9,578,733

Robert D. Kelly 43,300 2,688,714 197,987 130,429 11,899,733 6,885,911

Lynn A. Kerby 83,104 3,782,114 244,942 93,276 14,727,017 5,178,738

Ron Walter -- -- 306,500 110,388 19,183,328 5,746,029

Thomas R. Mason -- -- -- 40,000 -- 1,881,240
</TABLE>

- -------------

(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for those shares.

(2) Based upon the closing selling price ($64.00 per share) of the Common Stock
on December 31, 1999, as reported by the New York Stock Exchange, less the
option exercise price payable per share.

EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS

The Company has entered into employment agreements with Mr. Cartwright,
Ms. Curtis, Mr. Kelly, Mr. Mason and Mr. Walter. Each of the employment
agreements expires during 2004 unless earlier terminated or subsequently
extended. The employment agreements provide for the payment of a base salary,
which is subject to periodic adjustment by the Board of Directors, and provide
for annual bonuses under the Company's bonus plans and participation in all
benefit and equity plans. The employment agreements also provide for other
employee benefits such as life insurance and health care, in addition to certain
disability and death benefits. Severance benefits, including the acceleration of
outstanding options, are also payable upon an involuntary termination or a
termination following a change of control in the Company. Severance benefits
would not be payable in the event that termination was for cause.

Under the terms of the 1996 Stock Incentive Plan, should the Company be
acquired by merger or asset sale, then all outstanding options held by the chief
executive officer and the other executive officers under the 1996 Stock
Incentive Plan will automatically accelerate and vest in full, except to the
extent those options are to be assumed by the successor corporation. In
addition, the Compensation Committee, as plan administrator of the 1996 Stock
Incentive Plan, has the authority to provide for the accelerated vesting of the
shares of Common Stock subject to outstanding options held by the chief
executive officer or any other executive officer or any unvested shares of
Common Stock acquired by such individual, in connection with the termination of
that individual's employment following (i) a merger or asset sale in which these
options are assumed or are assigned or (ii) certain hostile changes in control
of the Company. In addition, certain executive officers have existing employment
agreements that provide for the acceleration of their options upon a termination
of their employment following certain changes in control or ownership of the
Company.

24
<PAGE> 28

EXECUTIVE COMPENSATION REPORT

The following Report of the Compensation Committee on Executive
Compensation and related disclosure shall not be deemed incorporated by
reference by any general statement incorporating this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such acts.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors administers the
Company's compensation policies and programs. The Compensation Committee was
established in 1996 following the Company's initial public offering. The
Compensation Committee (i) sets the cash compensation of the Chief Executive
Officer, (ii) reviews the design, administration, and effectiveness of the cash
compensation programs for other key executives and (iii) administers the
Company's stock incentive plans, approving stock option grants for executive
officers and approving the size of the stock option grant pool for all
employees. The Compensation Committee serves under a charter adopted by the
Board of Directors and is comprised entirely of outside directors who have never
served as officers of the Company.

COMPENSATION PHILOSOPHY AND OBJECTIVES

The Company operates in the extremely competitive and rapidly changing
power industry. The Compensation Committee believes that the compensation
programs for executive officers of the Company should be designed to attract,
motivate, and retain talented executives responsible for the success of the
Company. These programs should be developed and implemented within a competitive
framework and should take into account the achievement of overall financial
results and individual contributions. Within this overall philosophy, the
Compensation Committee's objectives are to:

- Offer a total compensation program that takes into consideration the
compensation practices of certain comparable companies with whom the
Company competes for executive talent;

- Provide annual variable incentive awards that take into account the
Company's overall financial performance relative to corporate
objectives and individual contributions; and

- Align the financial interests of executive officers with those of
stockholders by providing significant long-term, equity-based
incentives.

COMPENSATION COMPONENTS AND PROCESS

The three major components of the Company's executive officer
compensation are: (i) base salary, (ii) annual variable incentive awards under
the Annual Management Incentive Plan (the "MIP") and (iii) long-term,
equity-based incentive awards under the 1996 Stock Incentive Plan.

The Compensation Committee determines executive officers' compensation
levels with the assistance of an independent consulting firm that furnishes the
Compensation Committee with executive compensation data drawn from a nationally
recognized survey of comparable companies.

The positions of the Company's Chief Executive Officer and executive
officers are compared with those of their counterparts at comparable companies,
and the market compensation levels for comparable positions are examined to
determine base salary, target

25
<PAGE> 29

incentives, and total cash compensation. In addition, comparable companies'
practices concerning stock option grants are reviewed and compared.

Base Salary. The base salary for each executive officer is determined at
levels considered appropriate for comparable positions at comparable companies.
The Company's policy is to target base salary levels that are among the most
competitive in the Company's industry. Under the Salary Investment Option Grant
Program in effect under the Company's 1996 Stock Incentive Plan, officers and
directors of the Company subject to the short-swing profit liabilities of
Section 16 of the Securities Exchange Act of 1934, as amended, and other highly
compensated employees may elect to have between $10,000 and $50,000 of their
base salary invested each year in special option grants.

Annual Variable Incentive Awards. To reinforce the attainment of Company
goals, the Compensation Committee believes that a substantial portion of the
annual compensation of each executive officer should be in the form of variable
incentive pay. Under the MIP, the annual incentive pool for executive officers
is determined on the basis of the Company's achievement of the financial
performance targets established at the beginning of the fiscal year and the
executive's individual contribution. The MIP requires that certain performance
objectives be attained before any incentives are awarded. Once the threshold is
reached, specific formulas are in place to calculate the actual incentive
payment for each officer. A target is set for each executive officer based on
targets for comparable positions at comparable companies. In 1999, the Company
exceeded its performance objectives. Awards paid reflected these results plus
individual accomplishments of both corporate and functional objectives.

Long-Term, Equity-Based Incentive Awards. The goal of the Company's
long-term, equity-based incentive awards made under the 1996 Stock Incentive
Plan is to align the interests of executive officers with stockholders and to
provide each executive officer with a significant incentive to manage the
Company from the perspective of an owner with an equity stake in the business.
The Compensation Committee determines the size of long-term, equity-based
incentives according to each executive's position within the Company and sets
the incentives at a level it considers appropriate to create a meaningful
opportunity for stock ownership. In addition, the Compensation Committee takes
into account an individual's recent performance, his or her potential for future
responsibility and promotion, and comparable awards made to individuals in
similar positions with comparable companies. The relative weight given to each
of these factors varies among individuals at the Compensation Committee's
discretion.

During 1999, the Board of Directors made option grants to Mr.
Cartwright, Ms. Curtis, Mr. Kelly and Mr. Kerby under the Company's 1996 Stock
Incentive Plan. Each grant allows the officer to acquire shares of Common Stock
at a fixed price per share (the market price on the grant date) over a specified
period of time. Specifically, each option vests in periodic installments over a
four-year period, contingent upon the executive officer's continued employment
with the Company. Accordingly, the option will provide a return only if the
officer remains with the Company and only if the market price appreciates over
the option term.

CEO Compensation. The Company's Chairman, President and Chief Executive
Officer, Peter Cartwright, has an existing employment agreement with the Company
which has a term of five years (ending December 31, 2004, unless extended). The
base salary rate for Mr. Cartwright in 1999 was $750,000, effective as of July
1, 1999, an increase of $350,000 from his prior salary. The increase was
determined by the Board of Directors based on Mr. Cartwright's personal
performance of his duties and on salary levels paid to chief executive officers
of comparable companies. In setting the compensation payable to Mr. Cartwright,
a significant percentage of his total compensation was tied to Company
performance and long-term stock price appreciation.

26
<PAGE> 30

Mr. Cartwright's incentive award for 1999 was based on the Company's
1999 net income relative to a pre-established target. Because the target level
was exceeded by 70%, Mr. Cartwright received a cash award in 1999 of $833,756.
In addition, the Compensation Committee approved a grant, to be made in 2000, of
a stock option to purchase 22,191 shares of Common Stock. The stock option has
an exercise price of $77.81 per share (the market price of the Common Stock on
the date of the grant), a 10-year term, and vests in equal annual installments
over a 5-year period.

As part of the Company's regular stock option grants to senior
executives, Mr. Cartwright, in February 1999, was granted an option to purchase
300,000 shares of Common Stock, as more fully detailed in the Option Grants in
Last Fiscal Year table. The number of options granted was determined based on a
survey of a peer group of companies and was set at a level deemed necessary to
make the grant competitive with the practices other companies in the peer group.

In August 1999, the Company made a special grant to Mr. Cartwright of a
stock option to purchase 694,354 shares of Common Stock, as more fully detailed
in the Option Grants in Last Fiscal Year table. This grant was in consideration
for Mr. Cartwright's agreement to forego during the remaining years of his
employment agreement the regular option grants that he otherwise would have been
entitled to receive by reason of his right under the employment agreement to
participate in the equity programs of the Company. In making this grant, the
Compensation Committee's objective was to have the vesting of Mr. Cartwright's
regular stock options under this employment agreement correspond with the
implementation of the Company's current business plan.

Compliance with Section 162(m) of the Internal Revenue Code. Under
Section 162(m) of the Internal Revenue Code, the Company is not permitted to
deduct for federal income tax purposes any compensation in excess of $1,000,000
paid to its Chief Executive Officer or to any of its four other most highly
compensated executive officers, unless the compensation qualifies as
performance-based compensation within the meaning of Section 162(m). In 1999,
none of the compensation paid to the executive officers named in the Summary
Compensation Table was nondeductible by reason of Section 162(m), except
$408,760 paid to Mr. Cartwright under the MIP. In order to maintain its current
flexibility to adjust annual incentive payments to reflect business and
individual performance, the Committee does not presently intend to amend the MIP
to meet the requirements for exemption from the deduction limit. The Committee
will continue to monitor the effect of the deduction limit on the Company's net
compensation costs, and will take appropriate action to address the limit if it
is warranted.

Any compensation deemed paid in connection with the exercise of
nonqualified stock options granted under the 1996 Stock Incentive Plan before
the 2000 Annual Meeting of Stockholders automatically qualifies as
performance-based compensation deductible under Section 162(m). The Company is
submitting the Discretionary Option Grant Program under the 1996 Stock Incentive
Plan to stockholders for approval at the 2000 Annual Meeting of Stockholders to
ensure that the compensation deemed paid in connection with the exercise of
options and stock appreciation rights under the Discretionary Option Grant
Program will remain exempt from the deduction limit under Section 162(m).

27
<PAGE> 31

Submitted on behalf of the Compensation Committee of the Board of
Directors.

Compensation Committee:
Susan C. Schwab (Chair)
Jeffrey E. Garten
V. Orville Wright

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In December 1998, the Company entered into a consulting contract with
George J. Stathakis, a director of the Company. The contract became effective
January 1, 1999 and terminated on December 31, 1999. Pursuant to the consulting
contract, Mr. Stathakis was retained to provide, among other things, advice to
the Company with regard to domestic and international business, to identify
project investment opportunities and to provide advisory support to the
Company's management. The consulting contract provided for a monthly retainer of
$5,000 plus reimbursement of expenses. In addition, pursuant to the consulting
contract, the Company granted to Mr. Stathakis a stock option to purchase 20,000
shares of Common Stock under the 1996 Stock Incentive Plan at an exercise price
of $13.28125 per share, which was fully vested on October 1, 1999. As of January
1, 2000, Mr. Stathakis became a part-time employee of the Company. As a
part-time employee of the Company, Mr. Stathakis is paid an annual salary of
$60,000 and was granted 5,250 options on January 3, 2000 at an exercise price of
$66.75 per share, which have a one year vesting period and a ten year term.

In June, 1999, the Company made an interest-free, five-year loan to
Thomas R. Mason, an Executive Vice President of the Company, in a principal
amount of $500,000, secured by a deed of trust on Mr. Mason's residence. The
entire balance of this loan is currently outstanding.

COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders are required
by Commission regulations to furnish the Company with copies of all Section
16(a) reports they file.

Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the fiscal year ended December
31, 1999 with all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than 10% beneficial owners.

STOCK PERFORMANCE GRAPH

The following performance graph shall not be deemed incorporated by
reference by any general statement incorporating this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such acts.

28
<PAGE> 32

On September 20, 1996, the Company issued Common Stock in its initial
public offering. The Common Stock trades on the New York Stock Exchange under
the symbol "CPN." The following graph compares for the period of September 30,
1996 through December 31, 1999, the total return on the Common Stock with the
cumulative weighted average total return assuming reinvestment of dividends of
(i) the Standard & Poor's 500 Stock Index ("S&P 500") and (ii) an index of
comparable peer issuers ("Peer Group") consisting of AES Corp., MidAmerican
Energy Company, Dynegy, Inc. and Trigen Energy Corporation. In accordance with
the rules of the Commission, the returns are indexed to a value of $100 at
September 30, 1996 and the returns of each company in the Peer Group have been
weighted according to their market capitalization as of the beginning of the
period.

[Graph]

COMPARISON OF CUMULATIVE TOTAL EARNINGS
1996-99 MEASUREMENT PERIOD

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, December 31,
1996 1996 1997 1998 1999
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Calpine ........ $100.00 $125.00 $ 92.98 $157.82 $800.02
S&P 500 ........ $100.00 $108.34 $144.48 $185.78 $224.88
Peer Group ..... $100.00 $126.19 $157.18 $151.63 $237.08
</TABLE>

29
<PAGE> 33

It is important that your shares be represented at the meeting,
regardless of the number of shares which you hold. YOU ARE, THEREFORE, URGED TO
EXECUTE PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE WHICH HAS
BEEN ENCLOSED FOR YOUR CONVENIENCE. Stockholders who are present at the meeting
may revoke their proxies and vote in person or, if they prefer, may refrain from
voting in person and allow their proxies to be voted.

By Order of the Board of Directors,

Peter Cartwright
Chairman of the Board, President and
Chief Executive Officer

April [ ], 2000
San Jose, California

<PAGE> 34
CALPINE CORPORATION
1996 STOCK INCENTIVE PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 1996 Stock Incentive Plan is intended to promote the interests of
Calpine Corporation, a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.

Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into five separate equity programs:

- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,

- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,

- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),

- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock, and

- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special option grant.

<PAGE> 35

B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.

III. ADMINISTRATION OF THE PLAN

A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12 Registration Date, the Primary Committee shall
have sole and exclusive authority to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders and shall have
sole and exclusive authority to administer the Salary Investment Option Grant
Program with respect to all eligible individuals.

B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).

C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.

D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.

E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

2.
<PAGE> 36

F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

(i) Employees,

(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and

(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).

B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.

C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.

D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.

E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals serving
as non-employee Board members on the Underwriting Date who have not previously
received a stock option grant from the Corporation, (ii) those individuals who
first become non-employee Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (iii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings held after the Underwriting Date. A
non-employee Board member who has

3.
<PAGE> 37

previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall not be eligible to receive an option grant under the Automatic Option
Grant Program at the time he or she first becomes a non-employee Board member,
but shall be eligible to receive periodic option grants under the Automatic
Option Grant Program while he or she continues to serve as a non-employee Board
member.

F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.

V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
4,041,858 shares. Such authorized share reserve is comprised of (i) the number
of shares which remain available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for future
grant, plus (ii) an additional increase of 1,444,935 shares authorized by the
Board but subject to stockholder approval prior to the Section 12 Registration
Date.

B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 1997 calendar
year, by an amount equal to one percent (1%) of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year.
No Incentive Options may be granted on the basis of the additional shares of
Common Stock resulting from such annual increases.

C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1996 calendar year.

D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock

4.
<PAGE> 38

issuance under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised or which vest under the stock issuance, and not by the
net number of shares of Common Stock issued to the holder of such option or
stock issuance.

E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-employee Board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option under the Plan and (v) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plan. Such adjustments
to the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

5.
<PAGE> 39

ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

I. OPTION TERMS

Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

A. EXERCISE PRICE.

1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.

2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Six
and the documents evidencing the option, be payable in one or more of the forms
specified below:

(i) cash or check made payable to the Corporation,

(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or

(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to
(a) a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.

Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have

6.
<PAGE> 40

a term in excess of ten (10) years measured from the option grant date.

C. EFFECT OF TERMINATION OF SERVICE.

1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:

(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option,
but no such option shall be exercisable after the expiration of the
option term.

(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.

(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.

(iv) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for
vested shares.

2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:

(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from
the limited exercise period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option
term, and/or

(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of

7.
<PAGE> 41

the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested
had the Optionee continued in Service.

D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.

F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.

II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.

A. ELIGIBILITY. Incentive Options may only be granted to Employees.

B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any

8.
<PAGE> 42

Parent or Subsidiary) may for the first time become exercisable as Incentive
Options during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the same calendar
year, the foregoing limitation on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such
options are granted.

D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.

B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.

C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

9.
<PAGE> 43

Transaction. Appropriate adjustments to reflect such Corporate Transaction shall
also be made to (i) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year.

E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.

F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for fully-vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.

G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.

H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

10.
<PAGE> 44

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.

V. STOCK APPRECIATION RIGHTS

A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.

B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:

(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess
of (a) the Fair Market Value (on the option surrender date) of the
number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.

(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator, either at the time of the
actual option surrender or at any earlier time. If the surrender is
so approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair Market
Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.

(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered
portion thereof) on the option surrender date and may exercise such
rights at any time prior to the later of (a) five (5) business days
after the receipt of the rejection notice or (b) the last day on
which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may
such rights be exercised more than ten (10) years after the option
grant date.

C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:

11.
<PAGE> 45

(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.

(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable
for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the
option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.

(iii) Neither the approval of the Plan Administrator nor
the consent of the Board shall be required in connection with such
option surrender and cash distribution.

(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents
evidencing such option.

12.
<PAGE> 46

ARTICLE THREE

SALARY INVESTMENT OPTION GRANT PROGRAM

I. OPTION GRANTS

The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall be granted an option under the
Salary Investment Grant Program on or before the last trading day in January for
the calendar year for which the salary reduction is to be in effect. All grants
under the Salary Investment Option Grant Program shall be at the sole discretion
of the Primary Committee.

II. OPTION TERMS

Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.

A. EXERCISE PRICE.

1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

X = A / (B x 66-2/3%), where

13.
<PAGE> 47

X is the number of option shares,

A is the dollar amount of the approved reduction in the Optionee's
base salary for the calendar year, and

B is the Fair Market Value per share of Common Stock on the option
grant date.

C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.

D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the two (2)-year period measured from the date of
such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the two
(2)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the two (2)-year period measured from the
date of the Optionee's cessation of Service.

B. In the event of a Change in Control while the Optionee remains
in Service,

14.
<PAGE> 48

each outstanding option held by such Optionee under this Salary Investment
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the two (2)-year period
measured from the date of the Optionee's cessation of Service.

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding option grants. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess of
(i) the Take-Over Price of the shares of Common Stock at the time subject to
each surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. No approval or consent of the Board
or any Plan Administrator shall be required in connection with such option
surrender and cash distribution.

D. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

III. REMAINING TERMS

The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.

15.
<PAGE> 49

ARTICLE FOUR

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.

A. PURCHASE PRICE.

1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.

2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

(i) cash or check made payable to the Corporation, or

(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).

B. VESTING PROVISIONS.

1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:

(i) the Service period to be completed by the Participant
or the performance objectives to be attained,

(ii) the number of installments in which the shares are to
vest,

(iii) the interval or intervals (if any) which are to
lapse between installments, and

(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the
vesting schedule,

16.
<PAGE> 50

shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.

2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.

5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed in the
Stock Issuance Agreement.

17.
<PAGE> 51

B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).

C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.

III. SHARE ESCROW/LEGENDS

Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.

18.
<PAGE> 52

ARTICLE FIVE

AUTOMATIC OPTION GRANT PROGRAM

I. OPTION TERMS

A. GRANT DATES. Option grants shall be made on the dates specified
below:

1. Each individual serving as a non-employee Board member on the
Underwriting Date shall automatically be granted at that time a Non-Statutory
Option to purchase 10,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or Subsidiary
and has not previously received a stock option grant from the Corporation.

2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.

3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 1,500 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 1,500-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received a stock
option grant from the Corporation prior to the Underwriting Date shall be
eligible to receive one or more such annual option grants over their period of
continued Board service.

B. EXERCISE PRICE.

1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.

2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.

19.
<PAGE> 53

D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 10,000-share grant shall vest,
and the Corporation's repurchase right shall lapse, in a series of four (4)
successive equal annual installments upon the Optionee's completion of each year
of Board service over the four (4)-year period measured from the option grant
date. Each annual 1,500-share grant shall vest, and the Corporation's repurchase
right shall lapse, upon the Optionee's completion of one (1) year of Board
service measured from the automatic grant date.

E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:

(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.

(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.

(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.

(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.

20.
<PAGE> 54

II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.

D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.

E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

21.
<PAGE> 55

III. REMAINING TERMS

The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

22.
<PAGE> 56

ARTICLE SIX

DIRECTOR FEE OPTION GRANT PROGRAM

I. OPTION GRANTS

Each non-employee Board member may elect to apply all or any portion
of the annual retainer fee otherwise payable in cash for his or her service on
the Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to the first day of the calendar year for which the
annual retainer fee which is the subject of that election is otherwise payable.
Each non-employee Board member who files such a timely election shall
automatically be granted an option under this Director Fee Option Grant Program
on the first trading day in January in the calendar year for which the annual
retainer fee which is the subject of that election would otherwise be payable.

II. OPTION TERMS

Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.

A. EXERCISE PRICE.

1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

X = A / (B x 66-2/3%), where

X is the number of option shares,

A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and

23.
<PAGE> 57

B is the Fair Market Value per share of Common Stock on the
option grant date.

C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
for fifty percent (50%) of the option shares upon the Optionee's completion of
six (6) months of Board service in the calendar year for which his or her
election under this Director Fee Option Grant Program is in effect, and the
balance of the option shares shall become exercisable in a series of six (6)
successive equal monthly installments upon the Optionee's completion of each
additional month of Board service during that calendar year. Each option shall
have a maximum term of ten (10) years measured from the option grant date.

D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the two (2)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the two (2)-year period measured
from the date of such cessation of Board service.

Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. Such right of exercise shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the two (2)-year period measured from the date
of the Optionee's cessation of Board service.

24.
<PAGE> 58

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the two (2)-year period measured from the
date of the Optionee's cessation of Board service.

B. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the two (2)-year period
measured from the date of the Optionee's cessation of Service.

D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

IV. REMAINING TERMS

The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

25.
<PAGE> 59

ARTICLE SEVEN

MISCELLANEOUS

I. FINANCING

The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.

II. TAX WITHHOLDING

A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.

B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of their
shares. Such right may be provided to any such holder in either or both of the
following formats:

Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.

Stock Delivery: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.

III. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan shall become effective immediately upon the Plan
Effective Date. However, the Salary Investment Option Grant Program shall not be
implemented until such time as

26.
<PAGE> 60

the Primary Committee may deem appropriate. Options may be granted under the
Discretionary Option Grant or Automatic Option Grant Program at any time on or
after the Plan Effective Date. However, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.

B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.

C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.

D. The Plan shall terminate upon the earliest of (i) July 16, 2006,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.

IV. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for

27.
<PAGE> 61

issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.

V. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.

VI. REGULATORY APPROVALS

A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

VII. NO EMPLOYMENT/SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

28.
<PAGE> 62

APPENDIX

The following definitions shall be in effect under the Plan:

A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.

B. BOARD shall mean the Corporation's Board of Directors.

C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or

(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. COMMON STOCK shall mean the Corporation's common stock.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or

(ii) the sale, transfer or other disposition of all or
substantially all

A-1.
<PAGE> 63

of the Corporation's assets in complete liquidation or dissolution of
the Corporation.

G. CORPORATION shall mean Calpine Corporation, a Delaware corporation,
and its successors.

H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock option
grant in effect for non-employee Board members under Article Six of the Plan.

I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.

J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

L. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.

M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question,
as such price is reported on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.

(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question
on the Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

(iii) For purposes of any option grants made on the Underwriting

A-2.
<PAGE> 64

Date, the Fair Market Value shall be deemed to be equal to the price per
share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.

(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator, after taking into account such factors as it deems
appropriate.

N. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.

O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:

(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.

Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

A-3.
<PAGE> 65

S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

T. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.

U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.

W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant and Director
Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall
mean the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration of
twelve (12) months or more.

X. PLAN shall mean the Corporation's 1996 Stock Incentive Plan, as set
forth in this document.

Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.

Z. PLAN EFFECTIVE DATE shall mean July 17, 1996, the date on which the
Plan was adopted by the Board.

AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.

BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment

A-4.
<PAGE> 66

Option Grant Program with respect to all eligible individuals.

CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment grant program in effect under the Plan.

DD. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

EE. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock is first registered under Section 12(g) of Section 16 of the 1934 Act.

FF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

GG. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.

HH. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.

II. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

JJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.

KK. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

LL. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.

MM. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in

A-5.
<PAGE> 67

connection with the exercise of those options or the vesting of those shares.

NN. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

OO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

PP. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.

A-6.
<PAGE> 68

CALPINE CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN

I. PURPOSE OF THE PLAN

This Employee Stock Purchase Plan is intended to promote the interests
of Calpine Corporation by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.

Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.

II. ADMINISTRATION OF THE PLAN

The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.

III. STOCK SUBJECT TO PLAN

A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed One Million
(1,000,000) shares.

B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.

IV. OFFERING PERIODS

A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased, or (ii) the Plan shall have been sooner terminated.

B. The first offering period shall begin on June 1, 2000, and shall
terminate on the last

<PAGE> 69

business day in May 2002. Each subsequent offering period shall be of such
duration (not to exceed twenty-four months) as determined by the Plan
Administrator prior to the start date.

C. Each offering period shall consist of a series of one or more
successive Purchase Intervals. The Plan Administrator may designate the duration
of each Purchase Interval. In the absence of a specific designation by the Plan
Administrator, the first Purchase Interval shall run from the first business day
in the offering period to the last business day in the sixth month of the
offering period, and successive Purchase Intervals shall run for each succeeding
six-month period until the end of the offering period.

D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty four months, unless a shorter duration is
established by the Plan Administrator within five business days following the
start date of that offering period.

V. ELIGIBILITY

A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Semi-Annual Entry Date within that offering period,
provided he or she remains an Eligible Employee.

B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.

C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.

D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its designee)
on or before his or her scheduled Entry Date.

VI. PAYROLL DEDUCTIONS

A. The Plan Administrator shall, prior to the start of each offering
period, determine the maximum percentage of Cash Earnings which each Participant
may contribute to the Plan through payroll deductions during that offering
period. Each Participant may then authorize a level of payroll deduction to be
in effect for such offering period in any multiple of one percent of the Cash
Earnings paid to him or her during each Purchase Interval within that offering
period, up to the maximum percentage established by the Plan Administrator for
such offering period. The deduction rate authorized by the Participant shall
continue in effect throughout the offering period, except to the extent such
rate is changed in accordance with the following guidelines:

<PAGE> 70

(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as
soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one
such reduction per Purchase Interval.

(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his
or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the maximum
percentage authorized by the Plan Administrator for that offering
period) shall become effective on the start date of the first Purchase
Interval following the filing of such form.

B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period; provided however,
that for the initial offering period, payroll deductions shall not begin for any
Participant until the first payday that is at least three business days after
the start date of such offering period. The amounts so collected shall be
credited to the Participant's book account under the Plan, but no interest shall
be paid on the balance from time to time outstanding in such account. The
amounts collected from the Participant shall not be held in any segregated
account or trust fund and may be commingled with the general assets of the
Corporation and used for general corporate purposes.

C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.

D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.

VII. PURCHASE RIGHTS

A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.

Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent or more of the total
combined voting power or value of all classes of stock of the Corporation or any
Corporate Affiliate.

<PAGE> 71

B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.

C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent of the lower of (i)
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.

D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed six hundred shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization.

E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.

F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:

(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan
Administrator (or its designee), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares
on the next Purchase Date. If no such election is made at the time
such purchase right is terminated, then the payroll deductions
collected with respect to the terminated right shall be refunded as
soon as possible.

(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted.
In order to resume participation in any subsequent offering period,
such individual must re-enroll in the Plan (by making a timely filing
of

<PAGE> 72

the prescribed enrollment forms) on or before his or her scheduled
Entry Date into that offering period.

(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while
his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's
payroll deductions for the Purchase Interval in which the purchase
right so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last business day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval, or
(b) have such funds held for the purchase of shares on his or her
behalf on the next scheduled Purchase Date. In no event, however,
shall any further payroll deductions be collected on the Participant's
behalf during such leave. Upon the Participant's return to active
service, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave
began, unless the Participant withdraws from the Plan prior to his or
her return.

G. CORPORATE TRANSACTION. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent of the lower of (i) the Fair Market Value per share of
Common Stock on the Participant's Entry Date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to any such
purchase.

The Corporation shall use its best efforts to provide at least ten
days prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.

H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then authorized by the Board for
issuance under the Plan, the Plan Administrator shall make a pro-rata allocation
of the available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.

I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.

J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.

<PAGE> 73

VIII. ACCRUAL LIMITATIONS

A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.

B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:

(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such
right remains outstanding.

(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock
under one or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the
basis of the Fair Market Value per share on the date or dates of
grant) for each calendar year such rights were at any time
outstanding.

C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.

D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.

IX. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan was adopted by the Board on March 24, 2000, and shall
become effective as of June 1, 2000, provided no purchase rights granted under
the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading, and all other applicable requirements
established by law or regulation. In the event such stockholder approval is

<PAGE> 74

not obtained, or such compliance is not effected, within twelve months after the
date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.

B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in February 2010, (ii) the date
on which all shares authorized by the Board for issuance under the Plan shall
have been sold pursuant to purchase rights exercised under the Plan, or (iii)
the date on which all purchase rights are exercised in connection with a
Corporate Transaction. No further purchase rights shall be granted or exercised,
and no further payroll deductions shall be collected, under the Plan following
such termination.

X. AMENDMENT OF THE PLAN

The Board may alter, amend, suspend, or discontinue the Plan at any
time, to become effective as of the date specified by the Board. If the Board
amends the Plan to increase the number of shares of Common Stock that may be
issued under the Plan, no shares of Common Stock shall be issued under the
increased share limit until the amendment shall have been approved by the
stockholders of the Corporation. In the event such stockholder approval is not
obtained within twelve months after the date on which the amendment increasing
the share limit is adopted by the Board, the amendment shall terminate and have
no further force or effect, and all sums collected from Participants to purchase
the additional shares shall be refunded. The Board or the Plan Administrator (or
its designee) may authorize additional Corporate Affiliates to become
Participating Corporations, or may revoke Corporate Affiliates' status as
Participating Corporations, from time to time without stockholder approval.

XI. GENERAL PROVISIONS

A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.

B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.

C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.

<PAGE> 75

SCHEDULE A

CORPORATIONS PARTICIPATING IN
2000 EMPLOYEE STOCK PURCHASE PLAN

Calpine Corporation
Calpine Central Inc.
Calpine Eastern Corporation

<PAGE> 76

APPENDIX

The following definitions shall be in effect under the Plan:

A. BOARD shall mean the Corporation's Board of Directors.

B. CASH EARNINGS shall mean the (i) gross base salary payable to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan before
deduction of any income or employment taxes, plus (ii) any pre-tax contributions
made by the Participant to any Code Section 401(k) salary deferral plan or any
Code Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate, plus (iii) all gross overtime payments,
bonuses, commissions, current profit-sharing distributions and other
incentive-type payments before deduction of any income or employment taxes.
However, Cash Earnings shall not include any contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or any Corporate Affiliate under any employee benefit
or welfare plan now or hereafter established.

C. CODE shall mean the Internal Revenue Code of 1986, as amended.

D. COMMON STOCK shall mean the Corporation's common stock.

E. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether now
existing or subsequently established.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing more
than fifty percent of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or

(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution
of the Corporation.

G. CORPORATION shall mean Calpine Corporation, a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Calpine Corporation which shall by appropriate action adopt the Plan.

H. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty hours of service per week for more than five months
per calendar year for earnings considered wages under Code Section 3401(a).

A-1

<PAGE> 77

I. ENTRY DATE shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan.

J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.

(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.

K. 1933 ACT shall mean the Securities Act of 1933, as amended.

L. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.

M. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board or the Plan Administrator (or its designee) to extend the benefits of the
Plan to their Eligible Employees. The Participating Corporations in the Plan are
listed in attached Schedule A.

N. PLAN shall mean the Corporation's 2000 Employee Stock Purchase Plan,
as set forth in this document.

O. PLAN ADMINISTRATOR shall mean the committee of two or more Board
members appointed by the Board to administer the Plan.

P. PURCHASE DATE shall mean the last business day of each Purchase
Interval.

Q. PURCHASE INTERVAL shall mean each successive six-month period (or
other period designated by the Plan Administrator) within the offering period at
the end of which there shall be purchased shares of Common Stock on behalf of
each Participant.

A-2

<PAGE> 78

R. SEMI-ANNUAL ENTRY DATE shall mean the first business day in each
Purchase Interval.

S. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.

A-3
<PAGE> 79

[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE

1. Election of Directors Nominees: Jeffrey E. Garten
George J. Stathakis
John O. Wilson

FOR WITHHELD
[ ] [ ]

FOR, except vote withheld from the following nominee(s):________________________

2. Amendment of the Company's Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock, par value $.001
per share.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

3. Adoption of the Company's 2000 Employee Stock Purchase Plan.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

4. Approval of the Discretionary Option Grant Program under the Company's 1996
Stock Incentive Plan.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

5. Ratification of the appointment of Arthur Andersen LLP as independent
accountants for the Company for the year ending December 31, 2000.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

I PLAN TO ATTEND THE MEETING [ ]

COMMENT/ADDRESS CHANGE [ ]
(Please mark this box if you have written comments/address change on the reverse
side.)

SIGNATURE(S) __________________________________________ DATE ___________________

NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.

FOLD AND DETACH HERE

<PAGE> 80

ANNUAL MEETING OF STOCKHOLDERS
OF CALPINE CORPORATION

THURSDAY, MAY 18, 2000 9:00 A.M.

CAPITAL CLUB ATHLETICS
196 NORTH THIRD STREET
SAN JOSE, CALIFORNIA

<PAGE> 81

[SEE MAP ON REVERSE SIDE FOR DIRECTIONS]

YOUR VOTE IS IMPORTANT.

<PAGE> 82

PLEASE COMPLETE, DATE AND SIGN PROXY CARD AND
PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE

[CALPINE LOGO]

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CALPINE CORPORATION
2000 ANNUAL MEETING OF STOCKHOLDERS

The undersigned stockholder of Calpine Corporation hereby acknowledges
receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement for
the 2000 Annual Meeting of Stockholders of Calpine Corporation to be held May
18, 2000 and hereby appoints Peter Cartwright and Ann B. Curtis, and each of or
either of them, proxy and attorney-in-fact, with full power of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
meeting and at any adjournment or postponement thereof, and to vote all shares
of Common Stock which the undersigned would be entitled to vote, if then and
there personally present, on the matters set forth below.

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED "FOR" (i) THE ELECTION OF THE BOARD OF DIRECTOR'S
NOMINEES AS CLASS I DIRECTORS, (ii) THE AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE, (iii) THE ADOPTION OF THE
COMPANY'S 2000 EMPLOYEE STOCK PURCHASE PLAN, (iv) THE APPROVAL OF THE
DISCRETIONARY OPTION GRANT PROGRAM UNDER THE COMPANY'S 1996 STOCK INCENTIVE PLAN
AND (v) THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT ACCOUNTANTS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2000,
AND AS THE PROXY HOLDER DEEMS ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE
THE MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.

COMMENTS/ADDRESS CHANGE (PLEASE MARK COMMENTS/ADDRESS BOX ON THE REVERSE
SIDE) SEE REVERSE SIDE)

----------------------------------------------------------------------

SEE REVERSE SIDE

FOLD AND DETACH HERE