2004 Form 10-K

Exhibit 10.5.9

Calpine Corporation U.S. Severance Program

Purpose

The purpose of the Calpine Corporation U.S. Severance Program (“Program”) is to provide regular U.S. employees who are laid-off as a result of a reduction in workforce or restructuring activities (“Qualifying Event”) in Calpine Corporation, and all its U.S. subsidiaries (collectively “the Company”), with separation pay and either outplacement benefits or a COBRA premium subsidy (collectively, “Severance Benefits”) in order to assist them with the transition out of the Company. This Program is intended to be an “employee welfare benefit plan” as defined in ERISA. The Program is not intended to be a pension plan under section 3(2)(A) of ERISA and shall be maintained and administered so as not to be such a plan. This Program is intended to provide separation pay, within the limits described in Proposed Treasury Regulation §1.409A-1(b)(9)(iii), upon an actual involuntary separation from service and is not intended to be a “nonqualified deferred compensation plan” within the meaning of Internal Revenue Code §409A(d)(1).

Eligibility

A regular employee who receives written notice from the Company that he or she is being terminated due to a Qualifying Event and is eligible to participate in this Program (an “Eligible Employee”), will be eligible for Severance Benefits. Notwithstanding anything to the contrary in this program, the following employees shall not be eligible to participate in the Program: (i) any non-exempt construction project employee; (ii) any employee currently on an unpaid personal leave of absence for longer than ninety (90) days duration; (iii) any employee refusing a substantially equivalent position in the same geographic area within Calpine (including an offer of such as a function of a divestiture/sale transaction); (iv) any employee whose participation is specifically excluded in their an employment offer; and (v) any employee with a written employment agreement. Furthermore, an employee will not be eligible for Severance Benefits if the Plan Administrator, in its sole discretion, determines that the employee’s termination is caused by any reason other than written notice of termination due to a Qualifying Event, including, but not limited to resignation for any reason (even if the employee felt compelled to resign), retirement, death, disability, or discharge for deficient performance or misconduct.

An Eligible Employee will remain eligible for Severance Benefits under the Program so long as the Eligible Employee continues to satisfy the Company’s reasonable requests, such as aiding in the location of files, preparing accounting records, returning all Company property in the employee’s possession, and repaying any amounts the employee owes the Company. Severance Benefits to an Eligible Employee shall cease if the Plan Administrator, in its sole discretion, determines that the Eligible Employee has failed to comply with the Company’s reasonable requests.

Termination and Payment Procedures

Employment will be terminated on the date an employee is formally notified of lay-off (“Termination Date”), unless the Eligible Employee was notified of the lay-off on or around February 1, 2006, in which case the special circumstances described in the following paragraph may apply. Note, the Company may specify a Termination Date later than the date on which an employee is formally notified of layoff.

Special Circumstance Applicable only to Employees Notified of Lay-off on or around February 1, 2006

Upon notification of lay-off, the employee will be placed on paid administrative leave until his/her termination date. Severance Benefits will be offset by salary paid during the paid administrative leave and the duration of the COBRA premium subsidy, if selected, will be reduced by the period of the paid administrative leave.

An Eligible Employee will not receive any Severance Benefits until the Eligible Employee delivers, at a time acceptable to the Plan Administrator, an executed severance agreement and release, both in a form satisfactory to the Plan Administrator. Any Eligible Employee, regardless of the date on which the employee becomes eligible, who does not deliver an executed severance agreement and release is not entitled to receive any Severance Benefits.

Severance Benefits

Eligible Employees, whom the Plan Administrator, in its sole discretion, determines have satisfied all of the Program requirements for Severance Benefits will receive Separation Pay and a choice of either Outplacement Services or COBRA premium subsidies, all as described below.

Separation Pay

Separation pay under this Program shall be paid in the form of salary continuation (less applicable withholdings) for the period determined from the Severance Period Table, below, and shall be based on an Eligible Employee’s established rate of base pay as of the Termination Date.

The Choice of Outplacement Services or COBRA Premium Subsidy

Severance Benefits will include the choice between Outplacement Services or Company subsidized COBRA premiums. Eligible Employees select here indicated on the severance agreement and release. If selected, Outplacement Services will be provided in accordance with the Company’s existing outplacement program for the period indicated on the Severance Period Table, below. If selected, the COBRA premium subsidy will be paid for the period indicated on the Severance Period Table, below. Except as noted in this paragraph, the duration of the COBRA premium is deemed to begin on the Eligible Employee’s Termination Date. With respect to Eligible Employees notified of lay-off on or about February 1, 2006, the COBRA premium subsidy period shall be reduced by the period of administrative leave. COBRA generally provides employees with the option to select continued participation in the

Company’s medical, dental and vision plans and to continue the services of Calpine’s Employee Assistance Program (EAP) and the Health Care Flexible Spending Plan.

NOTE: The COBRA premium subsidy and the outplacement services may be taxable in the year received. Eligible Employees should consult their tax advisers to determine the extent of their tax liability, if any. Additional information regarding COBRA will be provided under separate cover.

SEVERANCE PERIOD TABLE

Employee				COBRA Premium Subsidy
Level		Salary Continuation		Option		Outplacement Option
EVP/SVPs		Up to 39 weeks base salary continuation*		Up to 39 weeks COBRA premium subsidy		24 hours of Home Based Transition services
VPs		26 weeks base salary continuation		26 weeks COBRA premium subsidy		20 hours of Home Based Transition services
Directors and Managers		17 weeks base salary continuation		17 weeks COBRA premium subsidy		16 hours of Home Based Transition services
All Others		2 weeks per full year of service (based on service date)** with a minimum of 4 weeks and up to a maximum of 12 weeks base salary continuation		12 weeks COBRA premium subsidy		12 hours of Home Based Transition services

If Company rehires an employee during the period of severance salary continuation, Severance Benefits shall cease on the date of rehire and the employee would be placed back on active pay status. For purposes of determining any future severance benefits, whether under this plan or otherwise, an employee who is rehired after receiving Severance Benefits shall not receive credit for any service prior to the rehire date for which Severance Benefits were actually received.

Plan Administration

          The Company is the Plan Administrator and is a named fiduciary, within the meaning of ERISA §§3(16)(A) and 402. The Plan Administrator shall have full discretionary

authority to administer and interpret the Program, including discretionary authority to determine eligibility for participation and for benefits under the terms of the Program. The Plan Administrator’s duties under the Program, which shall be carried out through its officers and employees, acting on behalf of and in the name of the Company in their capacities as officers and employees and not as individual fiduciaries, shall include the following:

A. Benefit Determinations. The Plan Administrator shall have the final discretionary authority in determining claims for Severance Benefits including, but not limited to, determining eligibility to participate, determining whether and to what extent Severance Benefits are provided by the Program and authorizing payment of benefits.

B. Appointments. The Plan Administrator shall engage individuals or entities to perform such legal, actuarial, accounting and other professional and clerical services as may be necessary or proper, and to terminate the services of these individuals or entities upon such notice as the Plan Administrator, in its sole discretion, deems reasonable and prudent.

C. Rules. The Plan Administrator shall make and publish such rules for administration of the Program as are deemed necessary or appropriate.

D. Reports. The Plan Administrator shall supply information and reports to the Internal Revenue Service, Department of Labor and Eligible Employees, including the filing of annual reports, and the furnishing summary plan descriptions.

E. Corrections. The Plan Administrator shall correct any error or miscalculation, to the extent practical.

F. Claims Procedure. The Plan Administrator shall participate in the claims procedure for Severance Benefits described below.

G. Compliance with Applicable Laws. The Plan Administrator shall have final discretionary authority in determining claims for violation of applicable employment laws, specifically including federal state or local laws applicable laws prohibiting discrimination on the basis of race, color, religion, sex, age, national origin, marital status or physical or mental handicap unrelated in nature and extent so as to reasonably preclude the performance of employment.

          Binding Effect of Determinations. Any final determination by a named fiduciary or its delegate will be binding and conclusive upon all persons.

          Drafting Errors. If, due to errors in drafting, any Program provision does not accurately reflect its intended meaning, as demonstrated by consistent interpretations or other evidence of intent, or as determined by the Plan Administrator in its sole discretion, the provision shall be considered ambiguous and shall be interpreted by the Plan Administrator and all Program fiduciaries in a fashion consistent with its intent, as determined in the sole discretion of the Plan Administrator. The Plan Administrator shall amend the Program retroactively to cure any such ambiguity.

          Fiduciary Disclosure Authority. No Program fiduciary shall have the authority to answer questions about any pending or final business decision of the Company or any affiliate that has not been officially announced, to make disclosures about such matters, or even to discuss them, and no person shall rely on any unauthorized, unofficial disclosure. Thus, before a decision is officially announced, no fiduciary is authorized to tell any person, for example, that he or she will or will not be laid off or that the Company will or will not offer exit incentives in the future. Nothing in this subsection shall preclude any fiduciary from fully participating in the consideration, making, or official announcement of any business decision.

Claims Procedures

     Claims Regarding Eligibility to Participate and Payment of Severance Benefits. All claims relating to an individual’s eligibility to participate in the Program, the payment of Severance Benefits or a violation of applicable laws shall be handled in accordance with this section.

     In general, Eligible Employees shall receive Severance Benefits after returning an executed severance agreement and release in a form and at a time acceptable to the Plan Administrator. Any other individual claiming eligibility to participate in the Program or having a claim regarding a Severance Benefit or violation of applicable laws must complete and file a claim or an application for benefits with the Plan Administrator pursuant to procedures established by the Plan Administrator. Pursuant to its discretionary authority to administer and interpret the Program and to determine eligibility for benefits under the terms of the Program, the Plan Administrator will review all claims and applications for Severance Benefits.

     If any such claim is wholly or partially denied, Plan Administrator will notify such person of its decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Program provisions on which the denial is based, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within ninety (90) days after the claim is received by Plan Administrator (or within one hundred eighty (180) days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial ninety (90) day period).

     Within sixty (60) days after the date on which a person receives a written notice of a denied claim, such person (or his or her duly authorized representative) may file a written request with Plan Administrator for an appeal of his denied claim and of pertinent documents. The request should include:

	•		A description of the claim sufficient to identify the claim;
	•		A summary of all the reasons why the person believes the benefits should be paid, including any documents, records or other information relating to or that support the claim; and
	•		Any issues or comments that the person thinks are pertinent to the claim.

     During the time limit for requesting an appeal, upon request and free of charge, the person will be given reasonable access to, and copies of, all documents, records and other information (other than legally or medically privileged documents) relevant to the claim for benefits.

     The Plan Administrator will notify such person of its decision in writing. The decision on appeal will be made within sixty (60) days after the request for an appeal is received by Plan Administrator (or within one hundred twenty (120) days, if special circumstances require an extension of time for processing the request, such as an election by Plan Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial sixty (60) day period). If the original denial is upheld in whole or in part, the notification contain specific reasons for the decision as well as specific references to pertinent Program provisions on which the denial is based. It will also contain a statement that the person will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (other than legally or medically privileged documents) relevant to the claim for benefits, and a statement describing any voluntary appeal procedures offered by the Program and the right to bring an action under Section 502(a) of ERISA following an adverse determination after completion of all levels of appeal required by the Program.

          Time Limits. All claims for Plan Severance Benefits must be filed no later than one year following the date on which an individual ceased to be an employee. Any claim not made within the applicable time limit shall be waived.

          Exhaustion of Remedies. Any claimant must exhaust these claims procedures prior to pursuing any other remedy.

Amendment And Termination

          The Program may be amended or terminated at any time, in the sole discretion of the Company, as plan sponsor, by a written instrument signed by an authorized Company employee.

Relation to Other Calpine Programs

     The amount and duration of Severance Benefits payable to employees shall be determined exclusively under this Program, and no employee shall be entitled to any severance benefits except as specifically authorized by this Program or as provided in a written employment agreement. The Company shall have no responsibility to provide any benefits in excess of amounts described in this Program.

     In general, an Eligible Employee’s participation in any other program or arrangement will terminate in accordance with the terms of the individual program or arrangement. Solely for the purpose of information and clarification, but without incorporating any other benefits into this Program, the Company maintains the following additional programs or arrangements, and

the terms of each individual programs or arrangement listed below (and not this Program) will govern the impact of a lay-off. No inference should be drawn about the impact of any lay-off on any arrangement not listed below.

Annual Bonus (MIP/BUIP/O&M Hourly Bonus Program)

Employees notified of lay-off prior to an annual bonus pay-out date, will not be eligible to receive an annual bonus, full or prorated, for the prior or current year under Calpine’s Management Incentive Plan, a Business Unit Incentive Plan, the O&M Hourly Bonus Program or other incentive plans that may be approved and implemented during the Company’s Chapter 11 bankruptcy proceedings.

Disability/PTO

Employees notified of lay-off shall not be eligible to participate in the Company’s disability programs or paid time off programs.

Cash-Out of Accrued, But Unused Vacation Hours

Vacation cash-out will be capped at the number of hours an employee would accrue over a one (1) year period. For example, if an employee is eligible to accrue up to three (3) weeks of vacation per year, then a maximum of three (3) weeks of accrued but unused vacation hours will be cashed-out on an employee’s termination date. Any vacation hours in excess of this cap will be an unsecured claim against the Company as part of its Chapter 11 bankruptcy proceedings.

Stock Options

On the termination date, all vesting of stock options will stop. Employees will have up to three (3) months after the termination date to exercise all vested options.

Service Anniversary Awards

Employees with an anniversary date prior to the date they are notified of lay-off will be eligible to receive their service anniversary award.

On-Going Education Reimbursement

Employees who are currently enrolled in Calpine’s Education Reimbursement Program will continue to be reimbursed for courses for which they have already received approval (and have already began attending) before their termination date. This applies only to coursework in progress (reimbursement will not be given for coursework started after employee’s termination date, even if approval for it was received prior to termination date). Tuition previously reimbursed by the Company will not be subject to the payback provision in the event of a reduction in workforce.

Scholarship Program

The Company will honor any current year scholarships awarded to the children of employees being terminated due to lay-off.

Relocation

The Company will honor expenses associated with an employee’s current/in-process relocations. Relocation assistance previously paid by the Company will not be subject to the payback provision in the event of a reduction in workforce.

ERISA Rights

ERISA ADMINISTRATIVE FACTS AND STATEMENT OF ERISA RIGHTS

Name of Plan:		Calpine Corporation U.S. Severance Program
Plan Number:		510
Type of Plan:		Welfare plan providing severance benefits. This plan is subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), and is intended to comply with all other applicable federal and state laws.
Plan Year:		January 1 through December 31
Plan Sponsor:		Calpine Corporation
		50 West San Fernando Street
		San Jose, CA 95113
EIN:		77-0212977
Plan Administrator and		Calpine Corporation
Agent for Legal Process:		c/oVice President of Human Resources
Source of Contributions:		Benefits are paid from Employer assets.
Benefit Payment:		Benefit payments are administered in accordance with the provisions of the Plan.
Funding Medium:		Benefits are self-funded by Calpine Corporation
Trustee:		None
Type of Administration:		The Program will be administered by the plan sponsor for the exclusive purpose of providing to participants severance benefits in accordance with the provisions of the Program.

The following statement of ERISA rights is required by federal law and regulation:

As a participant in the Calpine Corporation U.S. Severance Program, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all plan participants will be entitled to:

Receive Information About Your Plan and Benefits

	•		Examine, without charge, at the plan administrator’s office and at other specified locations, all documents governing the plan, including a copy of the latest annual report (Form 5500 Series) filed by the plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.
	•		Obtain, upon written request to the plan administrator, copies of documents governing the operation of the plan, including updated summary plan description. The administrator may make a reasonable charge for the copies.
	•		Receive a summary of the plan’s annual financial report. The plan administrator is required by law to furnish each participant with a copy of this summary annual report.

Prudent Actions by Plan Fiduciaries

In addition to creating rights for plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your plan, called “fiduciaries” of the plan, have a duty to do so prudently and in the interest of you and other plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA.

Enforce Your Rights

If your claim for a welfare benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of plan documents or the latest annual report from the plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the plan administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that plan fiduciaries misuse the plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful the court

may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

Assistance with Your Questions

If you have any questions about your plan, you should contact the plan administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the plan administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.