exv10w5w3



 







Exhibit 10.5.3




EMPLOYMENT AGREEMENT




     This Employment Agreement (the “Agreement”) is entered into effective as of January 30, 2006,
between CALPINE CORPORATION, a Delaware corporation (the “Company”), and SCOTT J. DAVIDO
(“Executive”) to provide the terms and conditions for Executive’s employment with the Company and
its affiliates from time to time (together, the “Group”).



     The Board of Directors of the Company (the “Board”) named Executive as Executive Vice
President and Chief Financial Officer of the Company on February 1, 2006 (the “Start Date”) and
Chief Restructuring Officer thereafter.



     The Company and Executive have agreed that Executive will be employed by the Company and will
serve as the Company’s Executive Vice President, Chief Financial Officer and Chief Restructuring
Officer, upon the terms and conditions set forth below.



     Accordingly, and in consideration of the mutual obligations set forth in this Agreement, which
Executive and the Company agree are sufficient, Executive and the Company agree as follows:




	1	 	Term of Employment.





     Subject to the provisions of paragraph 4 below, Executive’s term of employment (“Term of
Employment”) consists of the initial term and any subsequent term for which the Agreement is
renewed. The initial term of this Agreement begins on February 1, 2006, and ends on February 1,
2008, subject to the termination provisions of paragraph 4 below. No later than 150 days prior to
the end of the initial Term of Employment, the Company shall inform Executive if it intends to
renew this Agreement for a subsequent Term of Employment. If no notice is given, and Executive’s
employment continues after the Term of Employment, Executive’s continued employment and any
subsequent termination thereof shall not be subject to the terms of this Agreement.




	2	 	Position and Responsibilities.





     During the Term of Employment, Executive shall have the position and responsibilities
described in this paragraph 2. Executive shall be employed as the Company’s Executive Vice
President, Chief Financial Officer and Chief Restructuring Officer, with the general executive
powers and authority that accompany those positions. Executive shall report directly to the Chief
Executive Officer and shall have the duties and responsibilities that are typically performed by
the chief financial officer of a public company, as well as any other duties consistent with his
position that are assigned to Executive by the Chief Executive Officer or the Board. In addition,
as Executive Vice President, Chief Financial Officer and Chief Restructuring Officer, Executive
shall have overall responsibility for management of the Company’s chapter 11 reorganization,
including: (i) development of a short-term and long-term business plan and a strategic plan; (ii)
development of a plan of reorganization; (iii) evaluation of all assets and management of the
disposition of nonstrategic assets; and (iv) employment and management of all outside professionals
involved in any matter relating to the restructuring. Executive agrees to comply with such lawful
policies of the Company as may be adopted from time to time. Although Executive may be reasonably
required to travel from time to time for business reasons, his principal place of employment shall
be the Company’s corporate offices wherever located.



 









 






	 	(a)	 	Executive shall devote all of his full business time and his best efforts,
skill, and attention to the Company’s business and affairs and to promoting the Company’s
best interests.
	 
	 	(b)	 	Notwithstanding the foregoing, nothing herein shall preclude Executive from (i)
serving on the boards of directors of not more than two other corporations and/or
charitable organizations (subject to the approval of the Chief Executive Officer, such
approval not to be unreasonably withheld), (ii) engaging in charitable activities and
community affairs, and (iii) managing his personal investments and affairs, provided that
any such activities listed in (i) and (ii) above do not interfere in more than a de
minimis manner with the proper performance of his duties and responsibilities hereunder
and comply with the limitations set forth in paragraph 5.a.






	3	 	Compensation.





     For all of his services during the Term of Employment, Executive shall receive the following
compensation:




	 	(a)	 	Base Salary. Executive’s annual base salary shall be $700,000 (as may be
increased from time to time, the “Base Salary”). The Chief Executive Officer and Board
(or a committee thereof) will review the Base Salary at least annually and the Board may
increase it at any time for any reason, in its sole discretion; however, they shall have
no obligation to do so.
	 
	 	(b)	 	Bonus. In addition to his Base Salary, Executive shall be eligible to receive
an annual cash performance bonus (the “Bonus”) for each fiscal year ending during the
Term of Employment if, and to the extent that, (x) except with respect to any Bonus
payable earlier as severance under paragraph 4.b.ii.1, Executive remains employed by the
Company on the last day of such fiscal year and (y) corporate performance objectives
established by the Chief Executive Officer and the Board are achieved, as determined by
the Chief Executive Officer and the Board (or a committee thereof), in their sole
discretion. Payment of the Bonus shall be made at the same time that other senior-level
executives receive their bonuses, and no later than March 15th of the calendar year
after the calendar year in which the Bonus is earned. The target level for Executive’s
Bonus shall be established by the Chief Executive Officer and the Board (or a committee
thereof), in their sole discretion, provided that the minimum target level for any year
shall be 100% of the Base Salary (the “Target Annual Bonus”). However, subject to the
minimum Bonuses for the Company’s fiscal years ending December 31, 2006, and December
31, 2007, set forth below, Executive’s actual Bonus in any year may range from 0% to
150% of the Target Annual Bonus:






	 	(i)	 	For the Company’s fiscal year ending December 31, 2006, Executive shall
be entitled to receive a minimum Bonus of $700,000 to be paid no later than March
15, 2007 but no earlier than January 1, 2007.
	 
	 	(ii)	 	For the Company’s fiscal year ending December 31, 2007, Executive shall
be entitled to receive a minimum Bonus of $700,000, to be paid no later than
March 15, 2008 but no earlier than January 1, 2008.





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	 	(c)	 	Benefits. Executive shall be eligible to participate in all Company benefit
plans and programs as are generally available for its senior executives, and his
benefits shall be based on the terms of the applicable plan as established by the
Company from time to time. Nothing in this Agreement shall restrict the Company’s
ability to change or terminate any or all of its employee benefit plans and programs
from time to time; nor shall anything in this Agreement prevent any such change from
affecting Executive.
	 
	 	(d)	 	Signing Bonus. In addition to the Base Salary and Bonus, Executive shall be
entitled to receive a one-time payment of $500,000, payable within 15 days after entry
of an order approving this Agreement by the U.S. bankruptcy court having jurisdiction
over the Company’s bankruptcy case (the “Bankruptcy Court”). If Executive resigns his
employment without Good Reason or Executive’s employment is terminated by the Company
for Cause, Executive shall repay a pro rata portion (based on the number of full
calendar months remaining in the initial 24-month term divided by 24 months) of the
signing bonus (net of any associated income and employment taxes) within 10 days after
such resignation or termination of employment. Within 10 days after the filing of
Executive’s federal income tax return for the year in which such repayment is made,
Executive shall pay to the Company the amount by which Executive’s federal and state
income tax liability for such year was reduced as a result of such repayment. If
Executive resigns for Good Reason, dies or becomes Disabled or if Executive’s employment
is terminated by the Company without Cause, Executive shall be entitled to retain the
full amount of the signing bonus. The Company acknowledges and agrees that the payment
of Executive’s signing bonus is unrelated to any services that he performed in the State
of California.
	 
	 	(e)	 	Success Fee. When a plan of reorganization that is confirmed by the Bankruptcy
Court becomes effective (the “Plan Effective Date”) during Executive’s tenure as Chief
Financial Officer and Chief Restructuring Officer of the Company, Executive shall be
entitled to receive a one-time payment in an amount equal to the amount set forth on
Exhibit A attached hereto (the “Success Fee”). If at any time after the Start Date,
Executive resigns his employment for Good Reason or Executive’s employment is terminated
by the Company without Cause before the Plan Effective Date, Executive shall be entitled
to payment of the Success Fee if the Plan Effective Date occurs within 12 months after
the date of termination of employment. In any case such Success Fee shall be due and
payable on the Plan Effective Date. Executive shall not be entitled to all or any
portion of the Success Fee if the Company terminates his employment for Cause, Executive
resigns his employment without Good Reason or Executive’s employment terminates due to
death or Disability before the Plan Effective Date.
	 
	 	(f)	 	Guaranteed Minimum Success Fee. Executive shall be entitled to receive the
guaranteed minimum success fee (the “Guaranteed Minimum Success Fee”) described in this
paragraph 3.f; provided, however, to the extent the Success Fee is paid, the Success Fee
shall be reduced by the Guaranteed Minimum Success Fee, or any portion thereof, paid to
Executive and shall be paid as promptly as





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	 	 	 	practicable in a lump sum. In such case, no further payment shall be made with respect
to the Guaranteed Minimum Success Fee. The Guaranteed Minimum Success Fee shall be
deemed earned as of the date this Agreement is approved by the Bankruptcy Court.






	 	(i)	 	Amount and Payment Schedule. Executive’s Guaranteed Minimum Success
Fee (in addition to the other payments specifically contemplated in this
Agreement including, without limitation, the minimum emergence bonus set forth
on Exhibit A attached hereto) shall be an amount equal to two times his annual
Base Salary as of the earlier of (a) the date his term of employment under this
Agreement terminates or (b) the Plan Effective Date. The Guaranteed Minimum
Success Fee shall be paid to Executive on the earliest of (x) the date Executive
is terminated by the Company without Cause, (y) the date Executive terminates
his employment for Good Reason and (z) the Plan Effective Date. Subject to the
timing rule described in paragraph 3.f.ii below, all payments shall be made as
promptly as practicable. Subject to paragraph 3.f above, if the Guaranteed
Minimum Success Fee is paid on any date prior to the Plan Effective Date, the
Guaranteed Minimum Success Fee shall be paid ratably on the same payment
schedule that applied to Executive’s salary as of such date. If the Guaranteed
Minimum Success Fee is paid on the Plan Effective Date, Executive shall be
entitled to a lump sum payment.
	 
	 	(ii)	 	Timing. To the extent necessary to comply with the restriction in
Section 409A(a)(2)(B) of the Internal Revenue Code of 1986, as amended (the
“Code”) concerning payments to specified employees, the first Guaranteed Minimum
Success Fee payment (if the Guaranteed Minimum Success Fee is paid ratably) to
Executive shall be made on the first installment date (determined under paragraph
3.f.i above) that is at least six months after Executive’s termination date. The
first payment shall include any installments that would have been paid previously
under paragraph 3.f i were it not for this special timing rule, plus interest on
the delayed installments at an annual rate (compounded monthly) equal to the
federal short-term rate (as in effect under Section 1274(d) of the Code on
Executive’s termination date).






	 	(g)	 	Relocation. The Company shall reimburse Executive for customary and reasonable
commuting expenses from Executive’s current residence in St. Paul, Minnesota, and
temporary furnished housing and living expenses in the area in which the Company’s
headquarters is located for a period of six months from the Start Date. In the sole
discretion of the Chief Executive Officer, this initial six-month period may be extended
from time to time. Reimbursements shall be paid monthly, on an “as incurred” basis, and
in all events before March 15 of the calendar year after the calendar year in which the
applicable expenses were incurred. Upon termination of this temporary commuting
arrangement, Executive shall be reimbursed for the following costs associated with
relocating to the area in which the Company’s headquarters is located:




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	 	 	 	All reasonable transaction costs and expenses (including any real estate brokerage
fees, commissions and closing costs) and moving expenses incurred by Executive, in
each case while an employee of the Company, in connection with relocating his spouse,
dependents and personal property and goods from Executive’s current residence to the
area in which the Company’s headquarters is located, provided that Executive provides
appropriate documentation (the “Reimbursement”). Reimbursements under this paragraph
shall be paid promptly and in all events on or before March 15 of the calendar year
after the calendar year in which the applicable expenses were incurred. In connection
with such payment, during the calendar year after the calendar year in which the
applicable expenses are incurred, the Company shall pay Executive an additional
payment in an amount such that after the actual payment by Executive of taxes, if any,
imposed in connection with the Reimbursement, Executive retains an amount equal to the
Reimbursement.






	 	(h)	 	Legal Fees. On or before March 30, 2006, or such later date to which Executive
and Company mutually agree, the Company shall pay Executive’s reasonable legal fees that
are directly related to the negotiation, entry and approval by the Bankruptcy Court of
this Agreement and were actually incurred during such negotiation, entry or approval, in
an amount not to exceed $50,000.






	4	 	Termination.






	 	(a)	 	Termination of Employment.






	 	(i)	 	Termination by the Company for Cause. The Board or Chief Executive
Officer may terminate Executive’s employment for Cause at any time after (x)
providing Executive with 5 business days’ advance written notice explaining the
circumstances that justify the termination (a “Termination Notice”); and (y)
except in the case of termination for an event covered by (2) below, providing
Executive with the opportunity to appear before the Board prior to any vote to
terminate Executive’s employment for Cause, which opportunity may occur during
the 5 business day notice period. “Cause” means any of the following: (1)
Executive’s breach of any material term of this Agreement that is not corrected
within 10 days after delivery of a Termination Notice to Executive with respect
to such breach; (2) Executive’s commission of, or formal prosecutorial charge or
indictment alleging commission of, a felony or any crime of similar status, any
crime involving fraud, or any crime involving moral turpitude (other than motor
vehicle related) (it being agreed that in the case of a crime involving moral
turpitude, only to the extent such crime materially and adversely affects the
business, standing or reputation of the Company or any other member of the
Group); (3) Executive’s breach of fiduciary duty to the Company or any other
member of the Group that has any material and adverse impact on the Company that
is not corrected within 10 days after delivery of a Termination Notice to
Executive with respect to such breach; (4) Executive’s misappropriation of funds
or material property of the




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	 	 	 	Company or any other member of the Group; (5) Executive’s refusal to follow
the lawful directives of the Chief Executive Officer or the Board without a
materially valid business justification that is not corrected within 10 days
after delivery of a Termination Notice to Executive with respect to such
refusal; (6) Executive’s fraud related to the Company that is not corrected
within 10 days after delivery of a Termination Notice to Executive with
respect to such fraud; (7) Executive’s material dishonesty, disloyalty, gross
negligence or willful misconduct, where such dishonesty, disloyalty, gross
negligence or willful misconduct is reasonably likely to result, in
substantial and material damage to the Company or any other member of the
Group, and that is not corrected within 10 days after delivery of a
Termination Notice to Executive with respect to such event; (8) Executive’s
willful and material violation of any of the Company’s Code of Conduct or
employment policies that is not corrected within 10 days after delivery of a
Termination Notice to Executive with respect to such violation; or (9)
Executive’s material violation of any federal, state or local laws that could
result in a direct or indirect financial loss to the Company or any other
member of the Group or damage the reputation of the Company or any other
member of the Group.
	 
	 	 	 	For this definition, no act or omission by the Executive will be “willful”
unless it is made by him in bad faith or without a reasonable belief that his
act or omission was in the best interests of the Company or the Group. Any
act, or failure to act, based upon the advice of counsel to the Company or
any member of the Group shall be presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the Company and
the Group.
	 
	 	(ii)	 	Termination by the Company without Cause. The Company may terminate
Executive’s employment under this Agreement without Cause upon at least 20 days’
prior written notice to Executive.
	 
	 	(iii)	 	Death or Disability. Executive’s employment by the Company will
immediately terminate upon Executive’s death and, at the option of either
Executive or the Company, exercisable upon written notice to the other party, may
terminate upon the Executive’s Disability. For purposes of this Agreement,
“Disability” will occur if (A) Executive becomes eligible for benefits under a
long-term disability policy provided by the Company, if any, or (B) Executive has
become unable, due to physical or mental illness or incapacity, to substantially
perform the essential duties of his employment with reasonable accommodation for
a period of 90 days or an aggregate of 180 days during any consecutive 12 month
period, as determined by an independent physician approved by the Company and
Executive.
	 
	 	(iv)	 	Termination by Executive for Good Reason. Executive may terminate his
employment for Good Reason at any time. “Good Reason” shall




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	 	 	 	mean the occurrence, during the Term of Employment, of any of the following
actions or failures to act, but in each case only if it is not consented to by
Executive in writing: (A) a material adverse change in Executive’s duties,
reporting responsibilities, titles or elected or appointed offices as in
effect immediately prior to the effective date of such change (including but
not limited to the appointment of any person to an executive position at the
Company that is co-equal or senior to that of Executive other than the CEO);
(B) any reduction or failure to pay when due the Executive’s Base Salary, the
minimum 2006 and 2007 Bonus, Signing Bonus or Success Fee; (C) any reduction
by the Company in Executive’s Target Annual Bonus opportunity; (D) the
Company’s failure to timely renew this Agreement, (E) the Company’s breach of
any material term of this Agreement that is not corrected within 10 days after
delivery of a notice to the Company with respect to such breach or (F) the
failure of the Company to obtain the assumption in writing of this Agreement
by any successor to or an acquirer of all or substantially all of the assets
of the Company on or prior to a merger, consolidation, sale or similar
transaction. For purposes of this definition, none of the actions described
in clauses (A) through (F) above shall constitute “Good Reason” with respect
to Executive if it was an isolated and inadvertent action not taken in bad
faith by the Company and if it is remedied by the Company within 10 days after
receipt of written notice thereof given by Executive.






	 	(v)	 	Termination by Executive without Good Reason. Executive may terminate
his employment under this Agreement without Good Reason upon at least 20 days’
prior written notice to the Company.






	 	(b)	 	Consequences of Termination of Employment.






	 	(i)	 	Termination by the Company without Cause or by Executive for Good
Reason prior to the Plan Effective Date. Executive shall receive the benefits
described in this paragraph 4.b (excluding the severance benefits set forth in
paragraphs 4.b.ii.1 and 4.b.ii.2) if the Company terminates Executive’s
employment without Cause (under paragraph 4.a.ii) at any time during the Term of
Employment or if Executive terminates his employment at any time during the Term
of Employment for Good Reason (under paragraph 4.a.iv) prior to the Plan
Effective Date. For a period of one year following the date of termination of
Executive’s employment from the Company, the Company shall at its sole cost and
expense (but disregarding any individual tax liability of Executive), and at the
election of COBRA by Executive, provide Executive (and his spouse and eligible
dependents) with group health benefits substantially similar to those benefits
that Executive (and his spouse and eligible dependents) were receiving
immediately before his termination (which may at the Company’s election be
pursuant to reimbursement of the applicable COBRA premium). Such coverage shall




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	 	 	 	be provided to Executive as COBRA benefits and shall terminate prior to the
end of the one-year period if Executive, his spouse or eligible dependents are
no longer eligible for COBRA coverage. To the extent possible, the benefits
under this section 4.b.i.1 shall be made in a manner that is tax efficient for
the Executive so long as there is no adverse tax consequences to the Company.






	 	(ii)	 	Termination by the Company without Cause or by Executive for Good
Reason after the Plan Effective Date. Executive shall receive the benefits
described in this paragraph 4.b (including the benefits set forth in paragraph
4.b.i) if the Company terminates Executive’s employment without Cause (under
paragraph 4.a.ii) at any time during the Term of Employment or if Executive
terminates his employment at any time during the Term of Employment for Good
Reason (under paragraph 4.a.iv) after the Plan Effective Date. If Executive
receives the benefits set forth in this paragraph 4.b.ii, Executive shall not be
eligible for severance benefits from any other plan, program or policy of the
Company then in effect.






	 	1.	 	Amount and Payment Schedule. Executive’s
severance benefit (in addition to the other payments specifically
contemplated in this Agreement) shall be an amount equal to two times
his annual Base Salary as of the date his employment terminates.
Subject to the timing rule described in paragraph 4.b.ii.2 below, the
severance benefit shall be paid ratably on the same payment schedule
that applied to Executive’s salary at the time of his termination.
	 
	 	2.	 	Timing. To the extent necessary to comply with
the restriction in Section 409A(a)(2)(B) of the Internal Revenue Code of
1986, as amended (the “Code”) concerning payments to specified
employees, the first severance payment to Executive shall be made on the
first installment date (determined under paragraph 4.b.ii.1 above) that
is at least six months after Executive’s termination date. The first
payment shall include any installments that would have been paid
previously under paragraph 4.b.ii.1 were it not for this special timing
rule, plus interest on the delayed installments at an annual rate
(compounded monthly) equal to the federal short-term rate (as in effect
under Section 1274(d) of the Code on Executive’s termination date).






	 	(iii)	 	Death or Disability. In the event of termination of Executive’s
employment due to death or Disability (under paragraph 4.a.ii), Executive shall
be entitled to receive (in addition to any other payments specifically
contemplated in this Agreement) a pro rata portion of his Target Annual Bonus
for the portion of the calendar year before the date of termination of
employment, as promptly as practicable and in any




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	 	 	 	event payable on or before March 15th of the calendar year after the calendar
year in which such termination of employment occurs; but Executive shall not
be eligible to receive any other severance benefit under this paragraph 4.
Executive’s eligibility (if any) to receive a severance or retirement benefit
under any other severance or retirement plan or program maintained by the
Company shall be determined by the terms of that plan or program as in effect
on his termination date.






	 	(iv)	 	Termination for Cause or Voluntary Termination. If the Company
terminates Executive’s employment for Cause (under paragraph 4.a.i), or if
Executive terminates his employment without Good Reason (under paragraph 4.a.v),
Executive shall not be eligible to receive any severance benefit under this
paragraph 4.b.iv. Executive’s eligibility (if any) to receive a severance or
retirement benefit under any other severance or retirement plan or program
maintained by the Company shall be determined by the terms of that plan or
program as in effect on his termination date. The foregoing shall not limit the
remedies available to the Group, at law or in equity, for any loss or other
injury caused directly or indirectly by Executive.
	 
	 	(v)	 	Earned but Unpaid Bonus. In addition to any other amounts owed to
Executive under this paragraph 4.b, if the Company terminates the Executive’s
employment for any reason other than Cause or if Executive terminates employment
after December 31 of any year, Executive shall be entitled to receive any Bonus
earned by Executive for the preceding year as calculated in accordance with
paragraph 3.b but not yet paid as of the termination date.
	 
	 	(vi)	 	Release. The Company will not be required to make the payments stated
in this paragraph 4 unless the Executive executes and delivers to the Company an
agreement releasing from all liability (other than Executive’s rights under this
Agreement and any indemnification arrangement of the Company with respect to
Executive) the Group and any of their respective past or present directors,
officers, employees, shareholders, controlling persons or agents of the Group.
No payment will be made until the period for revocation of the release has ended
and unless Executive has not revoked the release. This agreement will be
substantially in the form attached hereto as Exhibit B.






	5	 	Restrictive Covenants.






	 	(a)	 	Non-Competition. During the time Executive is employed by the Company and for
12 months thereafter, Executive shall not directly or indirectly manage, operate,
participate in, be employed by, perform consulting services for, or otherwise be
connected with NRG Energy, Inc., Mirant Corporation, Reliant Energy, Dynegy Inc., Edison
Mission Energy/Edison International, Constellation Energy Group, Inc. (FPL Group, Inc.)
and Pacific Gas & Electric Company (each a “Competitive Enterprise”); nor shall
Executive receive compensation from any other company or business during the time
Executive is employed with the




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	 	 	 	Company unless the arrangement giving rise to such compensation has been (i)
disclosed to and approved by the Board in advance or (ii) is otherwise permitted by
the terms of this Agreement. Executive may invest in any Competitive Enterprise,
provided that Executive and his immediate family members (as defined in Section
1361(c)(B) of the Code) do not own collectively more than three percent of the voting
securities of any such entity at any time.






	 	(b)	 	Use and Disclosure of Proprietary Information.






	 	(i)	 	Definition of Proprietary Information. “Proprietary Information”
means confidential or proprietary information, knowledge or data concerning (1)
the Group’s businesses, strategies, operations, financial affairs, organizational
matters, personnel matters, budgets, business plans, marketing plans, studies,
policies, procedures, products, ideas, processes, software systems, trade secrets
and technical know-how, (2) any other matter relating to the Group, (3) any
matter relating to clients of the Group or other third parties having
relationships with the Group and (4) any confidential information from which the
Group derives business advantage or economic value. Proprietary Information
includes (A) the names, addresses, phone numbers and buying habits and
preferences and other information concerning clients and prospective clients of
the Group, and (B) information and materials concerning the personal affairs of
employees of the Group. In addition, Proprietary Information may include
information furnished to Executive orally or in writing (whatever the form or
storage medium) or gathered by inspection, in each case before or after the date
of this Agreement. Proprietary Information does not include information (X) that
was or becomes generally available to Executive on a non-confidential basis, if
the source of this information was not reasonably known to Executive to be bound
by a duty of confidentiality, (Y) that was or becomes generally available to the
public, other than as a result of a disclosure by Executive, directly or
indirectly, or (Z) that Executive can establish was independently developed by
Executive without reference to Proprietary Information.
	 
	 	(ii)	 	Acknowledgements. Executive acknowledges that he will obtain or
create Proprietary Information in the course of Executive’s involvement in the
Group’s activities and may already have Proprietary Information. Executive
agrees that the Proprietary Information is the exclusive property of the Group.
In addition, nothing in this Agreement will operate to weaken or waive any rights
the Group may have under statutory or common law, or any other agreement, to the
prohibition of unfair competition or the protection of trade secrets,
confidential business information and other confidential information.
	 
	 	(iii)	 	During Employment. Executive will use and disclose Proprietary
Information only for the Group’s benefit and in accordance with any restrictions
placed on its use or disclosure by the Group.





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	 	(iv)	 	Post-Employment. After the termination of Executive’s employment,
Executive will not use or disclose any Proprietary Information for any purpose.
For the avoidance of doubt, but without limitation of the foregoing, after
termination of Executive’s employment, Executive will not directly or indirectly
use Proprietary Information from which the Group derives business advantage or
economic benefit to solicit, impair or interfere with, or attempt to solicit,
impair or interfere with, any person or entity, who, at the time of the
termination of Executive’s employment, is then a customer, vendor or business
relationship of the Group (or who Executive knew was a potential customer, vendor
or business relationship of the Company within the six months prior to the
termination of his Employment).






	 	(c)	 	Non-Solicitation of Employees. During the Term of Employment and for an 18
month period after termination of Executive’s employment, Executive will not directly or
indirectly solicit or attempt to solicit anyone who, at the time of the termination of
Executive’s employment, is then an employee of the Group (or who was an employee of the
Group within the six months prior to the termination of his Employment) to resign from
the Group or to apply for or accept employment with any company or other enterprise.






	 	(d)	 	Non-Disparagement. During and after Executive’s employment with the Company,
the parties mutually covenant and agree that neither will directly or indirectly
disparage the other, or make or solicit any comments, statements, or the like to any
clients, competitors, suppliers, employees or former employees of the Company, the
press, other media, or others that may be considered derogatory or detrimental to the
good name or business reputation of the other party. Nothing herein shall be deemed to
constrain either party’s cooperation in any Board authorized investigation or
governmental action. In the event of Executive’s termination or the non-renewal of this
Agreement, Executive and Company shall agree on any press release relating to such
termination or non-renewal and the Company and Executive shall not publicly discuss or
comment on Executive’s termination or non-renewal in any manner other than as mutually
agreed in the press release.






	6	 	Excise Tax. If, (I) in the written opinion of the Company’s independent accountants, (x) any
payment or benefit to Executive under this Agreement or otherwise contingent upon a change of
control (including without limitation, the Success Fee, the Guaranteed Minimum Success Fee and
any payments under paragraph 4.b above) is an “excess parachute payment” as defined in Section
280G(b) of the Code, and (y) such excess parachute payment is subject to the excise tax
imposed by Section 4999 of the Code (or any similar tax under state or local law) or (II) the
Internal Revenue Service determines that any payment or benefit to Executive under this
Agreement is an excess parachute payment that is subject to the excise tax imposed by Section
4999 of the Code, the Company shall pay to Executive such amount or amounts necessary to place
Executive in the same after-tax position in which Executive would have been if such excise tax
(together with any interest and penalties) had not been imposed (the “Gross-Up”). The




11









 






	 	 	Gross-Up shall be in an amount determined by the Company’s independent accountants and shall
be paid on or prior to the date the applicable withholding taxes are due. For purposes of
determining the amount of the Gross-Up, the Executive shall be deemed to pay federal, state
and local income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-Up is to be made. Notwithstanding anything to the contrary, the Gross-Up
obligation of the Company under this Section shall survive any termination of this Agreement
or Executive’s termination of employment.






	7	 	Employment Taxes. All payments and other compensation under this Agreement shall be subject
to withholding of the applicable income and employment taxes.






	8	 	Nonduplication of Benefits. No term or other provision of this Agreement may be interpreted
to require the Company to duplicate any payment or other compensation that Executive is
already entitled to receive under a compensation or benefit plan, program, or other
arrangement maintained by the Company.






	9	 	Indemnification. To the fullest extent permitted by applicable law, the Company shall
provide indemnification for Executive under its Articles of Incorporation and Bylaws.
Executive shall be covered by the Company’s standard indemnification agreement and by any
director’s and officer’s liability insurance policy maintained by the Company.






	10	 	Successors. Any successor to the Company or to all or substantially all of the Company’s
business and/or assets (whether a direct or indirect successor, and whether by purchase,
lease, merger, consolidation, liquidation, or otherwise) shall assume the obligations under
this Agreement. In case of any succession, the term “Company” shall refer to the successor.
The terms of this Agreement and all of Executive’s rights hereunder shall inure to the benefit
of, and be enforceable by, Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees.






	11	 	No Third-Party Beneficiaries. Except as provided in paragraph 9 above, nothing in this
Agreement may confer upon any person or entity not a party to this Agreement any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement.






	12	 	No Duty to Mitigate. Executive shall not be required to seek new employment or otherwise to
mitigate the payments contemplated by this Agreement. The payments contemplated by this
Agreement shall not be reduced by earnings that Executive may receive from any other source;
provided, however, that COBRA payments may cease in accordance with the provisions of this
Agreement.






	13	 	Notice. Notices and other communications between the parties to this Agreement shall be
delivered in writing and shall be deemed to have been given when personally delivered or on
the third business day after mailing by U.S. registered or certified mail, return receipt
requested and postage prepaid.






	 	(a)	 	Notices and other communications to Executive shall be addressed to Executive,
at the most recent home address that he provided in writing to the Company.
	 
	 	(b)	 	Notices and other communications to the Company shall be addressed to the





12









 











	 	 	 	Company’s corporate headquarters, to the attention of the Company’s Secretary.






	14	 	Waiver and Amendments. No provision of this Agreement may be modified, waived, or
discharged, unless the modification, waiver, or discharge is agreed to in writing signed by
Executive and by an authorized representative of the Company (other than Executive). Unless
specifically characterized as a continuing waiver, no waiver of a condition or provision at
anyone time may be considered a waiver of the same provision or condition (or any different
provision or condition) at any other time.






	15	 	Costs. In the event that Executive is a prevailing party in any dispute or disagreement with
the Company relating to this Agreement and/or the Company’s obligations under this Agreement,
the Company will reimburse any expenses, including reasonable attorney’s fees (and such fees
incurred at Executive’s attorney’s normal hourly rates will be presumed reasonable), incurred
by Executive as a result of, or in connection with, any such dispute or disagreement. Nothing
herein shall adversely impair or limit any rights Executive has under the Company’s Articles
of Incorporation, Bylaws and directors’ and officers’ liability insurance policies.
Notwithstanding anything to the contrary, the obligation of the Company under this Section
shall survive any termination of this Agreement or Executive’s termination of employment.






	16	 	Ability to Enter this Agreement. Executive represents and warrants that neither the
execution and delivery of this Agreement nor the performance of Executive’s services hereunder
will conflict with, or result in a breach of any employment or other agreement to which
Executive is a party or by which Executive might be bound or affected. Executive further
represents and warrants that Executive has full right, power, and authority to enter into and
carry out the provisions of this Agreement.






	17	 	Remedy at Law Inadequate. Executive acknowledges that a remedy at law for any breach or
attempted breach of the covenants described in paragraph 5 of this Agreement will be
inadequate and agrees that the Group shall be entitled to specific performance and injunctive
and other equitable relief in the case of any such breach or attempted breach.






	18	 	American Jobs Creation Act of 2004. This Agreement shall be construed, administered and
interpreted in accordance with a good-faith interpretation of Section 409A of the Code and
Section 885 of the American Jobs Creation Act of 2004. If the Company or Executive determines
that any provision of this Agreement is or might be inconsistent with such provisions
(including any administrative guidance issued thereunder), the parties shall make their best
efforts in good faith to agree to such amendments to this Agreement as may be necessary or
appropriate to comply with such provisions.






	19	 	Choice of Law. This Agreement (including its validity, interpretation, construction, and
performance) shall be governed by the laws of the State of New York, without regard to any
concerning conflicts or choice of law that might otherwise refer construction or
interpretation to the substantive law of another jurisdiction.






	20	 	Section Headings. All headings in this Agreement are inserted for convenience only.
Headings do not constitute a part of the Agreement and may not affect the meaning or




13









 






	 	 	interpretation of any term or other provision of this Agreement.






	21	 	Severability and Reformation. Each substantive provision of this Agreement is a separate
agreement, independently supported by good and adequate consideration, and is severable from
the other provisions of the Agreement. If a court of competent jurisdiction determines that
any term or provision of this Agreement is unenforceable, then the other terms and provisions
of this Agreement shall remain in full force and effect, and the unenforceable terms or
provisions shall be equitably modified to the extent necessary to achieve the underlying
purpose in an enforceable way.






	22	 	Whole Agreement. This Agreement reflects the entire understanding and agreement between the
Company and Executive regarding Executive’s employment. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings, and agreements,
whether oral or written, relating to Executive’s employment with the Company. The respective
rights and obligations of the parties to this Agreement shall survive the termination of
Executive’s employment to the extent necessary to give such rights and obligations their
intended effect.






	23	 	Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed
an original, but all of which together shall constitute a single instrument.





* * *



IN WITNESS
WHEREOF, the parties to this Agreement have executed this Agreement
on May 18,
2006.




CALPINE CORPORATION:




	 	 	 	 	 
	By:
	 	/s/ Robert P. May	 	/s/ Scott J. Davido
	 

	 	 
	 	 
	 

	 	Robert P. May
	 	Scott J. Davido, in his individual capacity
	 

	 	Chairman of the Board of Directors	 	 







14










 





EXHIBIT A




 









 





Calpine Corporation

Scott Davido Compensation Summary

($MM)




	 	 	 
	Fixed
Component:

	 	$1.5 million
	 
	 	 
	Incentive
Component:

	 	Based on achievement of Market Adjusted Enterprise Value (“Market AEV”)(1) and Plan Adjusted Enterprise Value
(“Plan AEV”) metrics (2)
	 

	 	To be earned beginning at Initial
Market AEV hurdle of $5.0 billion provided that Plan AEV
is greater than $5.0 billion.
	 

	 	Increase by $80,000 for each
$100 million increase in Market AEV over $4.5 billion(3)






Plan Adjusted Enterprise Value < $5,000




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Market Adjusted Enterprise Value	 
	 	 	$3,500	 	 	$4,000	 	 	$4,500	 	 	$5,000	 	 	$5,500	 	 	$6,000	 	 	$6,500	 	 	$7,000	 	 	$7,500	 	 	$8,000	 	 	$8,500	 	 	$9,000	 
	Minimum
Emergence Bonus
	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 
	Valuation Component
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	% of Valuation Increase
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Incentive Bonus
	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 
	 	 	 	 
	 	 	 	 
	 	 	Plan
Adjusted Enterprise Value 3 $5,000
	 	 	 	 
	 	 	 	 
	 	 	Market Adjusted Enterprise Value	 
	 	 	$3,500	 	 	$4,000	 	 	$4,500	 	 	$5,000	 	 	$5,500	 	 	$6,000	 	 	$6,500	 	 	$7,000	 	 	$7,500	 	 	$8,000	 	 	$8,500	 	 	$9,000	 
	Minimum
Emergence Bonus
	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 
	Valuation Component
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.40	 	 	 	0.80	 	 	 	1.20	 	 	 	1.60	 	 	 	2.00	 	 	 	2.40	 	 	 	2.80	 	 	 	3.20	 	 	 	3.60	 
	% of Valuation Increase
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.08	%	 	 	0.08	%	 	 	0.08	%	 	 	0.08	%	 	 	0.08	%	 	 	0.08	%	 	 	0.08	%	 	 	0.08	%	 	 	0.08	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Incentive Bonus
	 	$	1.50	 	 	$	1.50	 	 	$	1.50	 	 	$	1.90	 	 	$	2.30	 	 	$	2.70	 	 	$	3.10	 	 	$	3.50	 	 	$	3.90	 	 	$	4.30	 	 	$	4.70	 	 	$	5.10	 








 




			
	(1)	 	Market-Based Adjusted Enterprise Value (“Market AEV”) shall be equal to: The
market value of debt that is primarily the obligation of reorganized Calpine Corporation
(“Calpine”) (i.e., debt other than all project-level debt and guarantees thereon including, without
limitation, notes payable, capital leases, project loans, project-level preferred interests, and
sale lease back obligations (collectively, “Project-Level Debt”); plus the market value of
preferred equity at reorganized Calpine; minus cash on the balance sheet of reorganized
Calpine upon the effective date of a Plan of Reorganization (other than any restricted
cash held by direct or indirect subsidiaries of reorganized Calpine, including but not limited to,
project-level cash that is not readily available for use by Calpine Corporation (e.g.,
project-level construction accounts, project-level debt service reserves), collateral posted in
favor of trading counterparties, cash posted to collateralize letters
of credit and pre-petition
asset sale proceeds in escrow); plus the market value of reorganized Calpine’s common stock (and
any other equity-linked securities including warrants) excluding non-vested equity (including
options) issued as part of the management incentive compensation pursuant to a Plan of
Reorganization. All market prices shall be calculated as a 10-day average beginning on
the 60th trading day following the consummation date and for the following nine (9) trading days.
Prices for debt and preferred equity shall be calculated as an average price based on AdvantageData
(ADI quote), Factset, Markit Loans (LoanX) and Bloomberg. The average market price for any given
debt, preferred or convertible security on any given day shall be equal to the average of
the trade prices for all trades recorded on that day greater than or equal to $1
million of said security. Any corporate-level debt, equity or equity-linked security
(“Corporate-Level Securities”) for which there is no publicly quoted price shall be valued at face
value. Volume weighted-average prices for common equity shall be determined by reference to
Bloomberg’s AQR function. Market AEV shall be further adjusted for the exclusion of any debt or
other securities issued at reorganized Calpine used to refinance Project-Level Debt.
	 
	(2)	 	Plan-Based Adjusted Enterprise Value (“Plan AEV”) shall be equal to: Total Enterprise Value,
as set forth in a confirmed Plan of Reorganization and/or its accompanying Disclosure Statement,
plus cash (excluding cash escrowed from pre-petition asset sales) which will be distributed on or
around the effective date in accordance with said Plan of Reorganization (excluding any cash raised
through any and all post-petition and exit financing transactions); minus the book value of all
Project-Level Debt. Plan AEV shall be further adjusted upward, to include (a) cash received from
asset sales consummated post-petition used to repay any Corporate-Level Securities prior to the
consummation of the Plan of Reorganization; and (b) corporate-level cash used
to repay Corporate-Level Securities during the pendency of the chapter 11
cases (excluding any cash raised through all pre- or post-petition financing and cash held in
escrow from pre-petition asset sales).
	 
	(3)	 	Equivalent to 8 bps for each incremental $100
million in AEV achieved.