EXHIBIT 10.2

 

CATALYTICA ENERGY SYSTEMS, INC.

 

RETENTION AGREEMENT

 

This Retention Agreement (the “Agreement”) is made and entered into by and
between Joseph Barry (the “Employee”) and Catalytica Energy Systems, Inc. (the
“Company”), effective as of the latest date set forth by the signatures of the
parties hereto below (the “Effective Date”).

 

1.                                       TERM OF AGREEMENT.  THIS AGREEMENT
SHALL TERMINATE UPON THE DATE THAT ALL OBLIGATIONS OF THE PARTIES HERETO WITH
RESPECT TO THIS AGREEMENT HAVE BEEN SATISFIED.

 

2.                                       AT-WILL EMPLOYMENT.  THE COMPANY AND
THE EMPLOYEE ACKNOWLEDGE THAT THE EMPLOYEE’S EMPLOYMENT IS AND SHALL CONTINUE TO
BE AT-WILL, AS DEFINED UNDER APPLICABLE LAW.  IF THE EMPLOYEE’S EMPLOYMENT
TERMINATES FOR ANY REASON, INCLUDING (WITHOUT LIMITATION) ANY TERMINATION AFTER
AN ANNOUNCEMENT OF CHANGE OF CONTROL AND PRIOR TO TWENTY-FOUR (24) MONTHS
FOLLOWING A CHANGE OF CONTROL OR THE ANNOUNCEMENT OF A CHANGE OF CONTROL,
WHICHEVER COMES LATER, THE EMPLOYEE SHALL NOT BE ENTITLED TO ANY PAYMENTS,
BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS PROVIDED BY THIS
AGREEMENT.

 

3.                                       SEVERANCE BENEFITS.

 

(A)                                  TERMINATION NOT IN CONNECTION WITH A CHANGE
OF CONTROL.  IF THE EMPLOYEE’S EMPLOYMENT TERMINATES AS A RESULT OF INVOLUNTARY
TERMINATION (AS DEFINED BELOW) OTHER THAN FOR CAUSE AT ANY TIME PRIOR TO AN
ANNOUNCEMENT OF A CHANGE OF CONTROL OR ON OR AFTER THE DATE THAT IS TWENTY-FOUR
(24) MONTHS FOLLOWING A CHANGE OF CONTROL OR THE ANNOUNCEMENT OF A CHANGE OF
CONTROL, WHICHEVER COMES LATER (A “NON-CHANGE OF CONTROL SEVERANCE
TERMINATION”), THEN, SUBJECT TO EMPLOYEE (I) EXECUTING AND NOT REVOKING A
STANDARD RELEASE OF CLAIMS IN FAVOR OF THE COMPANY; PROVIDED, HOWEVER, THAT SUCH
RELEASE SHALL PRESERVE ALL INDEMNIFICATION RIGHTS OF EMPLOYEE AND ALL OTHER
RIGHTS OF EMPLOYEE UNDER THE ANY INDEMNIFICATION AGREEMENT OR SIMILAR AGREEMENT
WITH THE COMPANY (A “RELEASE”), AND (II) NOT BREACHING THE PROVISIONS OF
SECTION 5 HEREOF, THEN EMPLOYEE SHALL BE ENTITLED TO RECEIVE THE FOLLOWING
SEVERANCE BENEFITS:

 

(I)             SEVERANCE PAYMENT.  FOLLOWING THE EMPLOYMENT TERMINATION DATE
THE COMPANY SHALL PAY EMPLOYEE AN AGGREGATE AMOUNT EQUAL TO ONE HUNDRED PERCENT
(100%) OF HIS ANNUAL COMPENSATION, LESS APPLICABLE TAXES, RATABLY OVER THE
REMAINING PAYROLL PERIODS IN THE SAME CALENDAR YEAR IN WHICH EMPLOYEE
TERMINATED.

 

(II)          SUBSIDIZED COBRA.  SUBJECT TO EMPLOYEE TIMELY ELECTING
CONTINUATION COVERAGE UNDER TITLE X OF THE CONSOLIDATED BUDGET RECONCILIATION
ACT OF 1985 (“COBRA”), THE COMPANY SHALL SUBSIDIZE EMPLOYEE AND HIS ELIGIBLE
DEPENDENT’S COBRA PREMIUMS SO THAT EMPLOYEE PAYS THE SAME PREMIUM AS AN ACTIVE
EMPLOYEE OF THE COMPANY FOR A PERIOD EQUAL TO THE LESSER OF (I) TWELVE MONTHS
FOLLOWING THE EMPLOYEE’S TERMINATION DATE, OR (II) THE DATE UPON WHICH EMPLOYEE
BECOMES COVERED UNDER THE GROUP HEALTH PLANS OF ANOTHER EMPLOYER WITH COMPARABLE
GROUP HEALTH BENEFITS AND LEVELS OF COVERAGE.

 

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

 

(B)                                 TERMINATION IN CONNECTION WITH A CHANGE OF
CONTROL.  IF THE EMPLOYEE’S EMPLOYMENT TERMINATES AS A RESULT OF INVOLUNTARY
TERMINATION (AS DEFINED BELOW) OTHER THAN FOR CAUSE AT ANY TIME AFTER AN
ANNOUNCEMENT OF A CHANGE OF CONTROL AND PRIOR TO TWENTY-FOUR (24) MONTHS
FOLLOWING A CHANGE OF CONTROL OR THE ANNOUNCEMENT OF A CHANGE OF CONTROL,
WHICHEVER COMES LATER (THE “CHANGE OF CONTROL PERIOD”) (A “CHANGE OF CONTROL
SEVERANCE TERMINATION”), THEN, SUBJECT TO EMPLOYEE (I) EXECUTING AND NOT
REVOKING A RELEASE, (II) NOT BREACHING THE PROVISIONS OF SECTION 5 HEREOF, AND
(III) THE PROVISIONS OF SECTION 7 HEREOF, THE EMPLOYEE SHALL BE ENTITLED TO
RECEIVE THE FOLLOWING SEVERANCE BENEFITS:

 

(I)             SEVERANCE PAYMENT.  A CASH PAYMENT IN AN AMOUNT EQUAL TO TWO
HUNDRED PERCENT (200%) OF THE EMPLOYEE’S ANNUAL COMPENSATION PLUS A PRO RATA
CASH PAYMENT OF THE CURRENT YEAR BONUS AWARD BASED ON THE TARGET BONUS FOR THE
EMPLOYEE, LESS ANY CHANGE OF CONTROL RETENTION PAYMENTS (AS DEFINED IN SECTION 4
HEREOF) ALREADY PAID TO EMPLOYEE;

 

(II)          CONTINUED EMPLOYEE BENEFITS.  ONE HUNDRED PERCENT (100%)
COMPANY-PAID HEALTH, DENTAL AND LIFE INSURANCE COVERAGE AT THE SAME LEVEL OF
COVERAGE AS WAS PROVIDED TO SUCH EMPLOYEE IMMEDIATELY PRIOR TO THE CHANGE OF
CONTROL SEVERANCE TERMINATION (THE “COMPANY-PAID COVERAGE”).  IF SUCH COVERAGE
INCLUDED THE EMPLOYEE’S DEPENDENTS IMMEDIATELY PRIOR TO THE CHANGE OF CONTROL
SEVERANCE TERMINATION, SUCH DEPENDENTS SHALL ALSO BE COVERED AT COMPANY
EXPENSE.  COMPANY-PAID COVERAGE SHALL CONTINUE UNTIL THE EARLIER OF (I) TWO
YEARS FROM THE DATE OF THE INVOLUNTARY TERMINATION OR (II) THE DATE THAT THE
EMPLOYEE AND HIS DEPENDENTS BECOME COVERED UNDER ANOTHER EMPLOYER’S GROUP
HEALTH, DENTAL OR LIFE INSURANCE PLANS THAT PROVIDE EMPLOYEE AND HIS DEPENDENTS
WITH COMPARABLE BENEFITS AND LEVELS OF COVERAGE.  FOR PURPOSES OF COBRA, THE
DATE OF THE “QUALIFYING EVENT” FOR EMPLOYEE AND HIS DEPENDENTS SHALL BE THE DATE
UPON WHICH THE COMPANY-PAID COVERAGE TERMINATES.

 

(III)       OPTION AND RESTRICTED STOCK ACCELERATED VESTING.  ONE HUNDRED
PERCENT (100%) OF THE UNVESTED PORTION OF ANY STOCK OPTION OR RESTRICTED STOCK
(INCLUDING RESTRICTED STOCK UNITS) HELD BY THE EMPLOYEE SHALL AUTOMATICALLY BE
ACCELERATED IN FULL SO AS TO BECOME COMPLETELY VESTED.

 

(IV)      TIMING OF SEVERANCE PAYMENTS.  ANY CHANGE OF CONTROL SEVERANCE PAYMENT
TO WHICH EMPLOYEE IS ENTITLED UNDER SECTION 3(B)(1) SHALL BE PAID BY THE COMPANY
TO THE EMPLOYEE (OR TO THE EMPLOYEE’S SUCCESSOR IN INTEREST, PURSUANT TO
SECTION 9(B)) IN CASH AND IN FULL, NOT LATER THAN THIRTY (30) CALENDAR DAYS
FOLLOWING THE TERMINATION DATE, SUBJECT TO SECTION 11(F).

 

(C)                                  VOLUNTARY RESIGNATION; TERMINATION FOR
CAUSE.  IF THE EMPLOYEE’S EMPLOYMENT TERMINATES BY REASON OF THE EMPLOYEE’S
VOLUNTARY RESIGNATION (AND IS NOT AN INVOLUNTARY TERMINATION), OR IF THE
EMPLOYEE IS TERMINATED FOR CAUSE, THEN THE EMPLOYEE SHALL NOT BE ENTITLED TO
RECEIVE SEVERANCE OR OTHER BENEFITS EXCEPT FOR THOSE (IF ANY) AS MAY THEN BE
ESTABLISHED UNDER THE COMPANY’S THEN EXISTING OPTION, SEVERANCE AND BENEFITS
PLANS AND PRACTICES.

 

(D)                                 DISABILITY; DEATH.  IF THE COMPANY
TERMINATES THE EMPLOYEE’S EMPLOYMENT AS A RESULT OF THE EMPLOYEE’S DISABILITY,
OR SUCH EMPLOYEE’S EMPLOYMENT IS TERMINATED DUE TO THE DEATH OF THE EMPLOYEE,
THEN THE EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE SEVERANCE OR OTHER BENEFITS

 

2

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

 

EXCEPT FOR THOSE (IF ANY) AS MAY THEN BE ESTABLISHED UNDER THE COMPANY’S THEN
EXISTING SEVERANCE AND BENEFITS PLANS AND PRACTICES OR PURSUANT TO OTHER
AGREEMENTS WITH THE COMPANY.

 

4.                                       RETENTION PAYMENTS.

 

(A)                                  CHANGE OF CONTROL RETENTION PAYMENTS.  IN
THE EVENT OF A CHANGE OF CONTROL (OTHER THAN A LIQUIDATION OR DISSOLUTION OF THE
COMPANY) WHEREIN EMPLOYEE IS EMPLOYED BY THE ACQUIRING ENTITY IN THE POSITION OF
VICE-PRESIDENT OF ENGINEERING AND PROGRAM MANAGEMENT OR A GREATER POSITION, THEN
EMPLOYEE SHALL RECEIVE CASH RETENTION PAYMENTS (THE “CHANGE OF CONTROL RETENTION
PAYMENTS”) AS TO 1/3 OF ANNUAL COMPENSATION ON THE DATE OF THE CHANGE OF
CONTROL, ANOTHER 1/3 OF ANNUAL COMPENSATION ON THE DATE THAT IS SIX MONTHS
FOLLOWING THE CHANGE OF CONTROL, AND A FINAL 1/3 OF ANNUAL COMPENSATION ON THE
ONE YEAR ANNIVERSARY OF THE CHANGE OF CONTROL, SUBJECT TO HIS REMAINING EMPLOYED
BY THE ACQUIRING ENTITY THROUGH SUCH DATES.

 

(B)                                 [*] RETENTION PAYMENTS.  IN THE EVENT OF A
[*] (AS DEFINED HEREIN) THAT DOES NOT CONSTITUTE A CHANGE OF CONTROL IN WHICH
THE ACQUIRING ENTITY HIRES EMPLOYEE AS A FULL-TIME EMPLOYEE AT THE LEVEL OF
VICE-PRESIDENT OR GREATER, EMPLOYEE SHALL RECEIVE RETENTION PAYMENTS (THE “[*]
RETENTION PAYMENTS”) AS TO $100,000 ON THE DATE OF THE [*], ANOTHER $100,000 ON
THE DATE THAT IS SIX MONTHS FOLLOWING THE [*], AND A FINAL $100,000 ON THE ONE
YEAR ANNIVERSARY OF THE [*], SUBJECT TO HIS REMAINING EMPLOYED BY THE ACQUIRING
ENTITY THROUGH SUCH DATES; PROVIDED, HOWEVER, THAT IF FOLLOWING THE [*] EMPLOYEE
IS TERMINATED BY THE ACQUIRING ENTITY AS A RESULT OF AN INVOLUNTARY TERMINATION,
THEN, SUBJECT TO EMPLOYEE (I) EXECUTING AND NOT REVOKING A RELEASE, (II) NOT
BREACHING THE PROVISIONS OF SECTION 5 HEREOF, AND (III) THE PROVISIONS OF
SECTION 7 HEREOF, THE EMPLOYEE SHALL BE ENTITLED TO RECEIVE ANY REMAINING [*]
RETENTION PAYMENTS THAT HAVE NOT YET BEEN PAID TO EMPLOYEE.

 

(C)                                  NO DUPLICATE PAYMENTS.  IN NO EVENT SHALL
EMPLOYEE RECEIVE BOTH CHANGE OF CONTROL RETENTION PAYMENTS AND [*] RETENTION
PAYMENTS.  MOREOVER, IF EMPLOYEE RECEIVES [*] RETENTION PAYMENTS, HE SHALL NOT
BE ELIGIBLE TO RECEIVE ANY SEVERANCE BENEFITS UNDER SECTION 3 HEREOF.

 

5.                                       CONDITIONAL NATURE OF SECTION 3 AND 4
PAYMENTS.

 

(A)                                  NONCOMPETE.  EMPLOYEE ACKNOWLEDGES THAT THE
NATURE OF THE COMPANY’S BUSINESS IS SUCH THAT IF EMPLOYEE WERE TO BECOME
EMPLOYED BY, OR SUBSTANTIALLY INVOLVED IN, THE BUSINESS OF A COMPETITOR OF THE
COMPANY DURING THE 12 MONTHS FOLLOWING THE TERMINATION OF EMPLOYEE’S EMPLOYMENT
WITH THE COMPANY, IT WOULD BE VERY DIFFICULT FOR EMPLOYEE NOT TO RELY ON OR USE
THE COMPANY’S TRADE SECRETS AND CONFIDENTIAL INFORMATION.  THUS, TO AVOID THE
INEVITABLE DISCLOSURE OF THE COMPANY’S TRADE SECRETS AND CONFIDENTIAL
INFORMATION, EMPLOYEE AGREES AND ACKNOWLEDGES THAT EMPLOYEE’S RIGHT TO RECEIVE
THE PAYMENTS SET FORTH IN SECTION 3 OR 4 (TO THE EXTENT EMPLOYEE IS OTHERWISE
ENTITLED TO SUCH PAYMENTS) SHALL BE CONDITIONED UPON EMPLOYEE NOT DIRECTLY OR
INDIRECTLY ENGAGING IN (WHETHER AS AN EMPLOYEE, CONSULTANT, AGENT, PROPRIETOR,
PRINCIPAL, PARTNER, STOCKHOLDER, CORPORATE OFFICER, DIRECTOR OR OTHERWISE), NOR
HAVING ANY OWNERSHIP INTERESTED IN OR

 

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

[*]  This provision is the subject of a Confidential Treatment Request.

 

3

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

 

PARTICIPATING IN THE FINANCING, OPERATION, MANAGEMENT OR CONTROL OF, ANY PERSON,
FIRM, CORPORATION OR BUSINESS THAT COMPETES WITH THE COMPANY OR IS A CUSTOMER OR
CLIENT OF THE COMPANY DURING THE ONE YEAR PERIOD FOLLOWING THE EMPLOYMENT
TERMINATION DATE (“COMPETITION”); PROVIDED, HOWEVER, THAT NOTHING IN THIS
SECTION 5 SHALL PREVENT EMPLOYEE FROM PERFORMING SERVICES FOR THE ACQUIRER OF
THE COMPANY’S [*] FOLLOWING A [*]; PROVIDED, FURTHER, THAT FOLLOWING HIS
TERMINATION OF EMPLOYMENT WITH THE COMPANY, EMPLOYEE SHALL BE PERMITTED TO WORK
FOR AN ENTITY IN COMPETITION WITH THE COMPANY WHOSE PRIMARY BUSINESS IS NOT
PROVIDING PRODUCTS OR SERVICES COMPETITIVE WITH THE PRODUCTS OR SERVICES OF THE
COMPANY, SO LONG EMPLOYEE DOES NOT ENGAGE IN A BUSINESS THAT MAKES SUCH ENTITY
IN COMPETITION WITH THE COMPANY.  NOTWITHSTANDING THE FOREGOING, EMPLOYEE MAY,
WITHOUT VIOLATING THIS SECTION 5, OWN, AS A PASSIVE INVESTMENT, SHARES OF
CAPITAL STOCK OF A PUBLICLY-HELD CORPORATION THAT ENGAGES IN COMPETITION WHERE
THE NUMBER OF SHARES OF SUCH CORPORATION’S CAPITAL STOCK THAT ARE OWNED BY
EMPLOYEE REPRESENT LESS THAN THREE PERCENT OF THE TOTAL NUMBER OF SHARES OF SUCH
CORPORATION’S CAPITAL STOCK OUTSTANDING.

 

(B)                                 NON-SOLICITATION.  UNTIL THE DATE 12 MONTHS
AFTER THE TERMINATION OF EMPLOYEE’S EMPLOYMENT WITH THE COMPANY FOR ANY REASON,
EMPLOYEE AGREES AND ACKNOWLEDGES THAT EMPLOYEE’S RIGHT TO RECEIVE THE SEVERANCE
AND RETENTION PAYMENTS SET FORTH IN SECTION 3 AND 4 (TO THE EXTENT EMPLOYEE IS
OTHERWISE ENTITLED TO SUCH PAYMENTS) SHALL BE CONDITIONED UPON EMPLOYEE NOT
EITHER DIRECTLY OR INDIRECTLY SOLICITING, INDUCING, RECRUITING OR ENCOURAGING AN
EMPLOYEE TO LEAVE HIS OR HER EMPLOYMENT EITHER FOR EMPLOYEE OR FOR ANY OTHER
ENTITY OR PERSON WITH WHICH OR WHOM EMPLOYEE HAS A BUSINESS RELATIONSHIP.

 

(C)                                  UNDERSTANDING OF COVENANTS.  EMPLOYEE
REPRESENTS THAT HE (I) IS FAMILIAR WITH THE FOREGOING COVENANTS NOT TO COMPETE
AND NOT TO SOLICIT, AND (II) IS FULLY AWARE OF HIS OBLIGATIONS HEREUNDER,
INCLUDING, WITHOUT LIMITATION, THE REASONABLENESS OF THE LENGTH OF TIME, SCOPE
AND GEOGRAPHIC COVERAGE OF THESE COVENANTS.

 

(D)                                 REMEDY FOR BREACH.  UPON ANY BREACH OF THIS
SECTION BY EMPLOYEE, ALL SEVERANCE AND RETENTION PAYMENTS PURSUANT TO SECTION 3
OR 4 SHALL IMMEDIATELY CEASE, AND THAT SHALL BE THE SOLE REMEDY AVAILABLE TO THE
COMPANY FOR SUCH BREACH.

 

6.                                       ATTORNEY FEES, COSTS AND EXPENSES. 
WITH RESPECT TO ANY CHANGE OF CONTROL SEVERANCE TERMINATION ONLY, THE COMPANY
SHALL REIMBURSE EMPLOYEE FOR THE REASONABLE ATTORNEY FEES, COSTS AND EXPENSES
INCURRED BY THE EMPLOYEE IN CONNECTION WITH ANY ACTION BROUGHT BY EMPLOYEE TO
ENFORCE HIS RIGHTS HEREUNDER, PROVIDED SUCH ACTION IS NOT DECIDED IN FAVOR OF
THE COMPANY.

 

7.                                       LIMITATION ON PAYMENTS.

 

(A)                                  IN THE EVENT THAT THE SEVERANCE AND OTHER
BENEFITS PROVIDED FOR IN THIS AGREEMENT OR OTHERWISE PAYABLE TO THE EMPLOYEE
(I) CONSTITUTE “PARACHUTE PAYMENTS” WITHIN THE MEANING OF SECTION 280G OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) AND

 

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

[*]  This provision is the subject of a Confidential Treatment Request.

 

4

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

 

(II) BUT FOR THIS SECTION 7, WOULD BE SUBJECT TO THE EXCISE TAX IMPOSED BY
SECTION 4999 OF THE CODE, THEN THE EMPLOYEE’S SEVERANCE AND/OR RETENTION
BENEFITS UNDER THIS AGREEMENT SHALL BE EITHER

 

(A)                              delivered in full, or

 

(B)                                delivered as to such lesser extent which
would result in no portion of such severance benefits being subject to excise
tax under Section 4999 of the Code,

 

whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by the Employee on an after-tax basis, of the greatest amount of
severance and/or retention benefits, notwithstanding that all or some portion of
such severance and/or retention benefits may be taxable under Section 4999 of
the Code.  Any taxes due under Section 4999 shall be the responsibility of the
employee.

 

(B)                                 IF A REDUCTION IN THE PAYMENTS AND BENEFITS
THAT WOULD OTHERWISE BE PAID OR PROVIDED TO THE EMPLOYEE UNDER THE TERMS OF THIS
AGREEMENT IS NECESSARY TO COMPLY WITH THE PROVISIONS OF SECTION 7(A), THE
EMPLOYEE SHALL BE ENTITLED TO SELECT WHICH PAYMENTS OR BENEFITS WILL BE REDUCED
AND THE MANNER AND METHOD OF ANY SUCH REDUCTION OF SUCH PAYMENTS OR BENEFITS
(INCLUDING BUT NOT LIMITED TO THE NUMBER OF OPTIONS OR OTHER AWARDS THAT WOULD
VEST UNDER SECTION 3(B)) SUBJECT TO REASONABLE LIMITATIONS (INCLUDING, FOR
EXAMPLE, EXPRESS PROVISIONS UNDER THE COMPANY’S BENEFIT PLANS) (SO LONG AS THE
REQUIREMENTS OF SECTION 7(A) ARE MET).  WITHIN THIRTY (30) DAYS AFTER THE AMOUNT
OF ANY REQUIRED REDUCTION IN PAYMENTS AND BENEFITS IS FINALLY DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 7(C), THE EMPLOYEE SHALL NOTIFY THE
COMPANY IN WRITING REGARDING WHICH PAYMENTS OR BENEFITS ARE TO BE REDUCED.  IF
NO NOTIFICATION IS GIVEN BY THE EMPLOYEE, THE COMPANY WILL DETERMINE WHICH
AMOUNTS TO REDUCE.  IF, AS A RESULT OF ANY REDUCTION REQUIRED BY SECTION 7(A),
AMOUNTS PREVIOUSLY PAID TO THE EMPLOYEE EXCEED THE AMOUNT TO WHICH THE EMPLOYEE
IS ENTITLED, THE EMPLOYEE WILL PROMPTLY RETURN THE EXCESS AMOUNT TO THE COMPANY.

 

(C)                                  UNLESS THE COMPANY AND THE EMPLOYEE
OTHERWISE AGREE IN WRITING, ANY DETERMINATION REQUIRED UNDER THIS SECTION 7
SHALL BE MADE IN WRITING BY THE COMPANY’S PRIMARY OUTSIDE TAX ADVISORS
IMMEDIATELY PRIOR TO THE CHANGE OF CONTROL (THE “ACCOUNTANTS”), WHOSE
DETERMINATION SHALL BE CONCLUSIVE AND BINDING UPON THE EMPLOYEE AND THE COMPANY
FOR ALL PURPOSES.  FOR PURPOSES OF MAKING THE CALCULATIONS REQUIRED BY THIS
SECTION 7, THE ACCOUNTANTS MAY, AFTER TAKING INTO ACCOUNT THE INFORMATION
PROVIDED BY THE EMPLOYEE, MAKE REASONABLE ASSUMPTIONS AND APPROXIMATIONS
CONCERNING APPLICABLE TAXES AND MAY RELY ON REASONABLE, GOOD FAITH
INTERPRETATIONS CONCERNING THE APPLICATION OF SECTIONS 280G AND 4999 OF THE
CODE.  THE COMPANY AND THE EMPLOYEE SHALL FURNISH TO THE ACCOUNTANTS SUCH
INFORMATION AND DOCUMENTS AS THE ACCOUNTANTS MAY REASONABLY REQUEST IN ORDER TO
MAKE A DETERMINATION UNDER THIS SECTION.  THE COMPANY SHALL BEAR ALL COSTS THE
ACCOUNTANTS MAY REASONABLY INCUR IN CONNECTION WITH ANY CALCULATIONS
CONTEMPLATED BY THIS SECTION 7.

 

5

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

 

8.                                       DEFINITION OF TERMS.  THE FOLLOWING
TERMS REFERRED TO IN THIS AGREEMENT SHALL HAVE THE FOLLOWING MEANINGS:

 

(A)                                  ANNUAL COMPENSATION.  “ANNUAL COMPENSATION”
MEANS AN AMOUNT EQUAL TO THE GREATER OF (I) EMPLOYEE’S BASE SALARY FOR THE
TWELVE (12) MONTHS PRECEDING THE CHANGE OF CONTROL PLUS THE EMPLOYEE’S TARGET
BONUS FOR THE SAME PERIOD (BUT NOT LESS THAN 75% OF SUCH BASE SALARY), OR
(II) EMPLOYEE’S BASE SALARY ON AN ANNUALIZED BASIS AND THE EMPLOYEE’S TARGET
BONUS AS OF THE TERMINATION DATE (BUT NOT LESS THAN 75% OF SUCH BASE SALARY).

 

(B)                                 CAUSE.  “CAUSE” SHALL MEAN (I) ANY ACT OF
PERSONAL DISHONESTY TAKEN BY THE EMPLOYEE IN CONNECTION WITH HIS
RESPONSIBILITIES AS AN EMPLOYEE AND INTENDED TO RESULT IN SUBSTANTIAL PERSONAL
ENRICHMENT OF THE EMPLOYEE, (II) THE CONVICTION OF OR PLEA OF NOLO CONTENDERE TO
A FELONY, (III) A WILLFUL ACT BY THE EMPLOYEE THAT CONSTITUTES GROSS MISCONDUCT
AND THAT IS INJURIOUS TO THE COMPANY, OR (IV) FOR A PERIOD OF NOT LESS THAN
THIRTY (30) DAYS FOLLOWING DELIVERY TO THE EMPLOYEE OF A WRITTEN DEMAND FOR
PERFORMANCE FROM THE COMPANY THAT DESCRIBES THE BASIS FOR THE COMPANY’S BELIEF
THAT THE EMPLOYEE HAS NOT SUBSTANTIALLY PERFORMED HIS DUTIES, CONTINUED
VIOLATIONS BY THE EMPLOYEE OF THE EMPLOYEE’S OBLIGATIONS TO THE COMPANY THAT ARE
DEMONSTRABLY WILLFUL AND DELIBERATE ON THE EMPLOYEE’S PART.  ANY DISMISSAL FOR
CAUSE MUST BE APPROVED BY THE COMPANY’S BOARD OF DIRECTORS PRIOR TO THE
DISMISSAL DATE.

 

(C)                                  CHANGE OF CONTROL.  “CHANGE OF CONTROL”
MEANS THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS:

 

(I)             ANY “PERSON” (AS SUCH TERM IS USED IN SECTIONS 13(D) AND
14(D) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) BECOMES THE
“BENEFICIAL OWNER” (AS DEFINED IN RULE 13D-3 UNDER SAID ACT), DIRECTLY OR
INDIRECTLY, OF SECURITIES OF THE COMPANY REPRESENTING FIFTY PERCENT (50%) OR
MORE OF THE TOTAL VOTING POWER REPRESENTED BY THE COMPANY’S THEN OUTSTANDING
VOTING SECURITIES;

 

(II)          A CHANGE IN THE COMPOSITION OF THE BOARD OCCURRING WITHIN A
TWELVE-MONTH PERIOD, AS A RESULT OF WHICH FEWER THAN A MAJORITY OF THE DIRECTORS
ARE INCUMBENT DIRECTORS.  “INCUMBENT DIRECTORS” SHALL MEAN DIRECTORS WHO EITHER
(A) ARE DIRECTORS OF THE COMPANY AS OF THE DATE HEREOF, OR (B) ARE ELECTED, OR
NOMINATED FOR ELECTION, TO THE BOARD WITH THE AFFIRMATIVE VOTES OF AT LEAST A
MAJORITY OF THE INCUMBENT DIRECTORS AT THE TIME OF SUCH ELECTION OR NOMINATION
(BUT SHALL NOT INCLUDE AN INDIVIDUAL WHOSE ELECTION OR NOMINATION IS IN
CONNECTION WITH AN ACTUAL OR THREATENED PROXY CONTEST RELATING TO THE ELECTION
OF DIRECTORS TO THE COMPANY);

 

(III)       THE CONSUMMATION OF A MERGER OR CONSOLIDATION OF THE COMPANY WITH
ANY OTHER CORPORATION, OTHER THAN A MERGER OR CONSOLIDATION THAT WOULD RESULT IN
THE VOTING SECURITIES OF THE COMPANY OUTSTANDING IMMEDIATELY PRIOR THERETO
CONTINUING TO REPRESENT (EITHER BY REMAINING OUTSTANDING OR BY BEING CONVERTED
INTO VOTING SECURITIES OF THE SURVIVING ENTITY OR SUCH SURVIVING ENTITY’S
PARENT) AT LEAST FIFTY PERCENT (50%) OF THE TOTAL VOTING POWER REPRESENTED BY
THE VOTING SECURITIES OF THE COMPANY OR SUCH SURVIVING ENTITY OR SUCH SURVIVING
ENTITY’S PARENT OUTSTANDING IMMEDIATELY AFTER SUCH MERGER OR CONSOLIDATION;

 

6

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

 

(IV)      THE CONSUMMATION OF THE SALE OR DISPOSITION BY THE COMPANY OF ALL OR
SEVENTY-FIVE PERCENT (75%) OR MORE OF THE COMPANY’S ASSETS.

 

(D)                                 DISABILITY.  “DISABILITY” SHALL MEAN THAT
THE EMPLOYEE HAS BEEN UNABLE TO PERFORM HIS COMPANY DUTIES AS THE RESULT OF HIS
INCAPACITY DUE TO PHYSICAL OR MENTAL ILLNESS, AND SUCH INABILITY, AT LEAST
TWENTY-SIX (26) WEEKS AFTER ITS COMMENCEMENT, IS DETERMINED TO BE TOTAL AND
PERMANENT BY A PHYSICIAN SELECTED BY THE COMPANY OR ITS INSURERS AND ACCEPTABLE
TO THE EMPLOYEE OR THE EMPLOYEE’S LEGAL REPRESENTATIVE (SUCH AGREEMENT AS TO
ACCEPTABILITY NOT TO BE UNREASONABLY WITHHELD).  TERMINATION RESULTING FROM
DISABILITY MAY ONLY BE EFFECTED AFTER AT LEAST THIRTY (30) DAYS’ WRITTEN NOTICE
BY THE COMPANY OF ITS INTENTION TO TERMINATE THE EMPLOYEE’S EMPLOYMENT.  IN THE
EVENT THAT THE EMPLOYEE RESUMES THE PERFORMANCE OF SUBSTANTIALLY ALL OF HIS
DUTIES HEREUNDER BEFORE THE TERMINATION OF HIS EMPLOYMENT BECOMES EFFECTIVE, THE
NOTICE OF INTENT TO TERMINATE SHALL AUTOMATICALLY BE DEEMED TO HAVE BEEN
REVOKED.

 

(E)                                  INVOLUNTARY TERMINATION.  “INVOLUNTARY
TERMINATION” SHALL MEAN (I) WITHOUT THE EMPLOYEE’S EXPRESS WRITTEN CONSENT, THE
SIGNIFICANT REDUCTION OF THE EMPLOYEE’S DUTIES, AUTHORITY OR RESPONSIBILITIES,
RELATIVE TO THE EMPLOYEE’S DUTIES, AUTHORITY OR RESPONSIBILITIES AS IN EFFECT
IMMEDIATELY PRIOR TO SUCH REDUCTION, OR THE ASSIGNMENT TO EMPLOYEE OF SUCH
REDUCED DUTIES, AUTHORITY OR RESPONSIBILITIES; PROVIDED, HOWEVER, THAT SO LONG
AS EMPLOYEE’S TITLE, DUTIES, AUTHORITY AND RESPONSIBILITY ARE AT THE LEVEL OF
VICE-PRESIDENT OF ENGINEERING AND PROGRAM MANAGEMENT OR GREATER, WHETHER AT THE
COMPANY OR AT AN ACQUIRER FOLLOWING A CHANGE OF CONTROL, THEN THAT WILL NOT
CONSTITUTE AN INVOLUNTARY TERMINATION UNDER THIS CLAUSE (I), (II) WITHOUT THE
EMPLOYEE’S EXPRESS WRITTEN CONSENT, A SUBSTANTIAL REDUCTION, WITHOUT GOOD
BUSINESS REASONS, OF THE FACILITIES AND PERQUISITES (INCLUDING OFFICE SPACE AND
LOCATION) AVAILABLE TO THE EMPLOYEE IMMEDIATELY PRIOR TO SUCH REDUCTION; (III) A
REDUCTION BY THE COMPANY IN THE BASE SALARY OR TARGET BONUS OF THE EMPLOYEE AS
IN EFFECT IMMEDIATELY PRIOR TO SUCH REDUCTION; (IV) A MATERIAL REDUCTION BY THE
COMPANY IN THE KIND OR LEVEL OF EMPLOYEE BENEFITS TO WHICH THE EMPLOYEE WAS
ENTITLED IMMEDIATELY PRIOR TO SUCH REDUCTION WITH THE RESULT THAT THE EMPLOYEE’S
OVERALL BENEFITS PACKAGE IS SIGNIFICANTLY REDUCED; (V) THE RELOCATION OF THE
EMPLOYEE TO A FACILITY OR A LOCATION MORE THAN TWENTY-FIVE (25) MILES FROM THE
EMPLOYEE’S THEN PRESENT LOCATION, WITHOUT THE EMPLOYEE’S EXPRESS WRITTEN
CONSENT; (VI) ANY PURPORTED TERMINATION OF THE EMPLOYEE BY THE COMPANY THAT IS
NOT EFFECTED FOR DISABILITY OR FOR CAUSE, OR, DURING THE CHANGE OF CONTROL
PERIOD ONLY, ANY PURPORTED TERMINATION FOR WHICH THE GROUNDS RELIED UPON ARE NOT
VALID; (VII) THE FAILURE OF THE COMPANY TO OBTAIN THE ASSUMPTION OF THIS
AGREEMENT BY ANY SUCCESSORS CONTEMPLATED IN SECTION 9(A) BELOW; OR (VIII) DURING
THE CHANGE OF CONTROL PERIOD ONLY, ANY ACT OR SET OF FACTS OR CIRCUMSTANCES THAT
WOULD, UNDER CALIFORNIA CASE LAW OR STATUTE CONSTITUTE A CONSTRUCTIVE
TERMINATION OF THE EMPLOYEE.  HOWEVER, WITH RESPECT TO ANY NON-CHANGE OF CONTROL
SEVERANCE TERMINATION, AN INVOLUNTARY TERMINATION SHALL NOT BE DEEMED TO HAVE
OCCURRED UNLESS EMPLOYEE PROVIDES WRITTEN NOTICE TO THE COMPANY DESCRIBING THE
NATURE OF THE EVENT THAT HE BELIEVES FORMS THE BASIS FOR INVOLUNTARY TERMINATION
AND THE COMPANY DOES NOT CURE SUCH EVENT WITHIN TEN (10) DAYS FOLLOWING RECEIPT
OF SUCH NOTICE.

 

(F)                                    [*]

 

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

[*]  This provision is the subject of a Confidential Treatment Request.

 

7

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

 

(G)                                 TERMINATION DATE.  “TERMINATION DATE” SHALL
MEAN (I) IF THIS AGREEMENT IS TERMINATED BY THE COMPANY FOR DISABILITY, THIRTY
(30) DAYS AFTER NOTICE OF TERMINATION IS GIVEN TO THE EMPLOYEE (PROVIDED THAT
THE EMPLOYEE SHALL NOT HAVE RETURNED TO THE PERFORMANCE OF THE EMPLOYEE’S DUTIES
ON A FULL-TIME BASIS DURING SUCH THIRTY (30)-DAY PERIOD), (II) IF THE EMPLOYEE’S
EMPLOYMENT IS TERMINATED BY THE COMPANY FOR ANY OTHER REASON, THE DATE ON WHICH
A NOTICE OF TERMINATION IS GIVEN, PROVIDED THAT IF WITHIN THIRTY (30) DAYS AFTER
THE COMPANY GIVES THE EMPLOYEE NOTICE OF TERMINATION, THE EMPLOYEE NOTIFIES THE
COMPANY THAT A DISPUTE EXISTS CONCERNING THE TERMINATION OR THE BENEFITS DUE
PURSUANT TO THIS AGREEMENT, THEN THE TERMINATION DATE SHALL BE THE DATE ON WHICH
SUCH DISPUTE IS FINALLY DETERMINED, EITHER BY MUTUAL WRITTEN AGREEMENT OF THE
PARTIES, OR A BY FINAL JUDGMENT, ORDER OR DECREE OF A COURT OF COMPETENT
JURISDICTION (THE TIME FOR APPEAL THEREFROM HAVING EXPIRED AND NO APPEAL HAVING
BEEN PERFECTED), OR (III) IF THE AGREEMENT IS TERMINATED BY THE EMPLOYEE, THE
DATE ON WHICH THE EMPLOYEE DELIVERS THE NOTICE OF TERMINATION TO THE COMPANY.

 

9.                                       SUCCESSORS.

 

(A)                                  COMPANY’S SUCCESSORS.  ANY SUCCESSOR TO THE
COMPANY (WHETHER DIRECT OR INDIRECT AND WHETHER BY PURCHASE, MERGER,
CONSOLIDATION, LIQUIDATION OR OTHERWISE) TO ALL OR SUBSTANTIALLY ALL OF THE
COMPANY’S BUSINESS AND/OR ASSETS SHALL ASSUME THE OBLIGATIONS UNDER THIS
AGREEMENT AND AGREE EXPRESSLY TO PERFORM THE OBLIGATIONS UNDER THIS AGREEMENT IN
THE SAME MANNER AND TO THE SAME EXTENT AS THE COMPANY WOULD BE REQUIRED TO
PERFORM SUCH OBLIGATIONS IN THE ABSENCE OF A SUCCESSION.  FOR ALL PURPOSES UNDER
THIS AGREEMENT, THE TERM “COMPANY” SHALL INCLUDE ANY SUCCESSOR TO THE COMPANY’S
BUSINESS AND/OR ASSETS WHICH EXECUTES AND DELIVERS THE ASSUMPTION AGREEMENT
DESCRIBED IN THIS SECTION 9(A) OR WHICH BECOMES BOUND BY THE TERMS OF THIS
AGREEMENT BY OPERATION OF LAW.

 

(B)                                 EMPLOYEE’S SUCCESSORS.  THE TERMS OF THIS
AGREEMENT AND ALL RIGHTS OF THE EMPLOYEE HEREUNDER SHALL INURE TO THE BENEFIT
OF, AND BE ENFORCEABLE BY, THE EMPLOYEE’S PERSONAL OR LEGAL REPRESENTATIVES,
EXECUTORS, ADMINISTRATORS, SUCCESSORS, HEIRS, DISTRIBUTEES, DEVISEES AND
LEGATEES.

 

10.                                 NOTICE.

 

(A)                                  GENERAL.  NOTICES AND ALL OTHER
COMMUNICATIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE IN WRITING AND SHALL BE
DEEMED TO HAVE BEEN DULY GIVEN WHEN PERSONALLY DELIVERED OR WHEN MAILED BY U.S. 
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND POSTAGE PREPAID.  IN
THE CASE OF THE EMPLOYEE, MAILED NOTICES SHALL BE ADDRESSED TO HIM AT THE HOME
ADDRESS WHICH HE MOST RECENTLY COMMUNICATED TO THE COMPANY IN WRITING.  IN THE
CASE OF THE COMPANY, MAILED NOTICES SHALL BE ADDRESSED TO ITS CORPORATE
HEADQUARTERS, AND ALL NOTICES SHALL BE DIRECTED TO THE ATTENTION OF ITS
SECRETARY.

 

(B)                                 NOTICE OF TERMINATION.  ANY TERMINATION BY
THE COMPANY FOR CAUSE OR BY THE EMPLOYEE AS A RESULT OF A VOLUNTARY RESIGNATION
OR AN INVOLUNTARY TERMINATION SHALL BE COMMUNICATED BY A NOTICE OF TERMINATION
TO THE OTHER PARTY HERETO GIVEN IN ACCORDANCE WITH SECTION 10 (A) OF THIS
AGREEMENT.  SUCH NOTICE SHALL INDICATE THE SPECIFIC TERMINATION PROVISION IN
THIS AGREEMENT RELIED UPON, SHALL SET FORTH IN REASONABLE DETAIL THE FACTS AND
CIRCUMSTANCES CLAIMED TO PROVIDE A BASIS FOR TERMINATION UNDER THE PROVISION SO
INDICATED, AND SHALL SPECIFY THE TERMINATION DATE (WHICH SHALL BE NOT MORE THAN
THIRTY (30) DAYS AFTER THE GIVING OF SUCH NOTICE).  THE FAILURE BY

 

8

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

 

THE EMPLOYEE TO INCLUDE IN THE NOTICE ANY FACT OR CIRCUMSTANCE WHICH CONTRIBUTES
TO A SHOWING OF INVOLUNTARY TERMINATION SHALL NOT WAIVE ANY RIGHT OF THE
EMPLOYEE HEREUNDER OR PRECLUDE THE EMPLOYEE FROM ASSERTING SUCH FACT OR
CIRCUMSTANCE IN ENFORCING HIS RIGHTS HEREUNDER.

 

11.                                 MISCELLANEOUS PROVISIONS.

 

(A)                                  NO DUTY TO MITIGATE.  THE EMPLOYEE SHALL
NOT BE REQUIRED TO MITIGATE THE AMOUNT OF ANY PAYMENT CONTEMPLATED BY THIS
AGREEMENT, NOR SHALL ANY SUCH PAYMENT BE REDUCED BY ANY EARNINGS THAT THE
EMPLOYEE MAY RECEIVE FROM ANY OTHER SOURCE.

 

(B)                                 WAIVER.  NO PROVISION OF THIS AGREEMENT
SHALL BE MODIFIED, WAIVED OR DISCHARGED UNLESS THE MODIFICATION, WAIVER OR
DISCHARGE IS AGREED TO IN WRITING AND SIGNED BY THE EMPLOYEE AND BY AN
AUTHORIZED OFFICER OF THE COMPANY (OTHER THAN THE EMPLOYEE).  NO WAIVER BY
EITHER PARTY OF ANY BREACH OF, OR OF COMPLIANCE WITH, ANY CONDITION OR PROVISION
OF THIS AGREEMENT BY THE OTHER PARTY SHALL BE CONSIDERED A WAIVER OF ANY OTHER
CONDITION OR PROVISION OR OF THE SAME CONDITION OR PROVISION AT ANOTHER TIME.

 

(C)                                  WHOLE AGREEMENT.  THIS AGREEMENT AND ANY
OUTSTANDING STOCK OPTION AGREEMENTS REPRESENT THE ENTIRE UNDERSTANDING OF THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES IN THEIR
ENTIRETY ALL PRIOR ARRANGEMENTS AND UNDERSTANDINGS REGARDING SAME, INCLUDING THE
CHANGE OF CONTROL SEVERANCE AGREEMENT PREVIOUSLY ENTERED INTO BY AND BETWEEN
EMPLOYEE AND THE COMPANY AND ANY OFFER LETTER, PROMOTION LETTER, EMPLOYMENT
AGREEMENT OR OTHER AGREEMENT REGARDING EMPLOYEE’S EMPLOYMENT TERMS WITH THE
COMPANY.  OTHER THAN THE AGREEMENTS DESCRIBED IN THE PRECEDING SENTENCE, NO
AGREEMENTS, REPRESENTATIONS OR UNDERSTANDINGS (WHETHER ORAL OR WRITTEN AND
WHETHER EXPRESS OR IMPLIED) WHICH ARE NOT EXPRESSLY SET FORTH IN THIS AGREEMENT
HAVE BEEN MADE OR ENTERED INTO BY EITHER PARTY WITH RESPECT TO THE SUBJECT
MATTER HEREOF.

 

(D)                                 CHOICE OF LAW.  THE VALIDITY,
INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAWS OF THE STATE OF ARIZONA WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.

 

(E)                                  SEVERABILITY.  THE INVALIDITY OR
UNENFORCEABILITY OF ANY PROVISION OR PROVISIONS OF THIS AGREEMENT SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION HEREOF, WHICH SHALL
REMAIN IN FULL FORCE AND EFFECT.

 

(F)                                    WITHHOLDING.  ALL PAYMENTS MADE PURSUANT
TO THIS AGREEMENT WILL BE SUBJECT TO WITHHOLDING OF APPLICABLE INCOME AND
EMPLOYMENT TAXES.

 

(G)                                 COUNTERPARTS.  THIS AGREEMENT MAY BE
EXECUTED IN COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF
WHICH TOGETHER WILL CONSTITUTE ONE AND THE SAME INSTRUMENT.

 

9

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

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year set forth
below.

 

COMPANY

CATALYTICA ENERGY SYSTEMS, INC.

 

 

 

 

 

By:

  /s/ Robert Zack

 

 

Robert Zack, President and CEO

 

 

 

 

 

 

Date:

  September 27, 2005

 

 

 

EMPLOYEE

  /s/ Joseph Barry

 

 

 

Date:

  September 27, 2005

 

 

10

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