Exhibit 10.56

 

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430 Ferguson Drive

Mountain View, CA 94043-5272

650.960.3000

650.960.0127 Fax

www.CatalyticaEnergy.com

 

 

March 16, 2005

 

William J. McMahon, III

7 Lyford Rd.

Hopkinton, MA 01748

 

Dear Bill:

 

I am pleased to present you with this revised offer for the position of
President of CESI-SCR, Inc., a wholly-owned subsidiary of Catalytica Energy
Systems, Inc. (CESI), and Member of SCR-Tech LLC. As we have discussed, SCR-Tech
is entering an exciting period of growth, and we look forward to your leadership
in its future success. This position will be located at the SCR-Tech facility in
Charlotte, North Carolina. Specifics of this offer are listed below. The
full-time position will be effective March 21, 2005 and  you will report
directly to me.

 

Compensation

 

Your salary will be $16,667 per month, which annualizes to $200,000.

 

In 2005, you will be eligible for an annual bonus opportunity at a target of the
higher of 35% of your 2005 base-earnings or 1.75% of 2005 revenues, both
pro-rata for 2005 as of your starting date. From 2006 through 2009, you will be
eligible for an annual bonus opportunity of the higher of 20% of base salary or
1.75% of annual revenue for each of the years of this period. Your bonus
allocation will be weighted as follows: 20% on SCR-Tech annual revenue, 50% on
SCR-Tech annual EBITDA, and 20% on CESI corporate objectives as determined by
the CESI CEO or his designee. The revenue and EBITDA goals will be determined
annually. In no case will the revenue and EDBITDA goals be greater than 25% of
the previous year’s revenue and EBITDA goals. Revenue and EBITDA will be
determined by the CESI CFO as audited by Ernst and Young. CESI corporate
objectives attainment will be determined by the CESI CEO or his designee. In
order to be eligible for the annual bonus, you must be an employee on December
31st and the year in question. The annual bonus is earned as of December 31st
and the payout of any bonus will occur at the end of February of the following
year.

 

In addition, you will be eligible for a CESI stock option bonus with an annual
target to be determined by the CESI CEO and the CESI Board of Directors. Please
recognize that stock option values and any bonus awards are not guaranteed. They
are based on company and Individual performance and require approval from our
Board of Directors.

 

As part of your hiring agreement you will be granted options in the amount of
50,000 shares of Catalytica Energy Systems, Inc. These options will be granted
once they have been approved by the CESI Board of Directors and will be priced
at the date of grant. They will be subject to a 4- year vesting schedule.

 

Benefits

 

Effective upon your date of hire, you and your eligible dependents may enroll in
SCR-Tech’s medical and dental benefit program. You are also immediately eligible
for short and long-term disability, and life insurance plans.

 

You will be eligible to participate in the CESI 401(k) retirement plan on the
first of the month following three months of employment. The 401(k) plan
includes a 60% match (up to 6% of your eligible deferral Compensation) and
immediate vesting of all company contributions. On July 1, 2005 you will be able
to participate. In the CESI Employee Stock Purchase Plan at a discounted price.

 

Makers of

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You will be eligible for four weeks paid vacation (20 days), and holidays,
earned on an accrual basis from your date of hire as per SCR-Tech policy.

 

Relocation

 

To facilitate your relocation to the Charlotte, North Carolina area, you will be
eligible for a maximum payout of $75,000. CESI offers a relocation service that
you may elect to utilize.

 

Severance

 

The Company may terminate your employment at any time and for any reason without
cause. As long as any termination by CESI is not for cause and providing that
you do not terminate voluntarily, (i) you will continue to receive your then
current salary and your medical benefits (or compensatory equivalent) as
severance for a period of 6 months. In the event of such termination, you will
be entitled only to the severance payment set forth above and no further
compensation or benefits.

 

Should there be a change of control event at SCR-Tech, you will be eligible, at
the buyer’s option, for 6 months severance and medical benefits, and earned
bonus pro-rata as of the date of the change of control.

 

This offer is contingent upon acceptable results of a background check and a
pre-employment drug-screening test. SCR-Tech must receive results of the drug
test before any start date. Please contact Regina Machado at 650 940-6323 to
make the appropriate arrangements.

 

We look forward to you becoming the leader of the SCR-Tech team. Your employment
with CESI-SCR, a subsidiary of Catalytica Energy Systems, Inc. is “at will”
which means that either you or the Company can terminate the employment
relationship at any time with or without cause. Please indicate your acceptance
of this offer by signing below and returning the original to me. This offer is
valid through March 18, 2005.

 

Sincerely

 

/s/ Dominic Geraghty

 

Dominic Geraghty, Ph.D

Senior Vice President

Corporate Development

Catalytica Energy Systems, Inc.

 

I accept the offer of employment with CESI-SCR, Inc., a subsidiary of Catalytica
Energy Systems, Inc., described in this letter. I also understand that this
letter is not a contract of employment.

 

 

/s/ William J. McMahon

 

3-17-05

William J. McMahon, III

 

Date

 

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SCR-TECH, LLC

 

CHANGE OF CONTROL SEVERANCE AGREEMENT

 

THIS CHANGE OF CONTROL SEVERANCE AGREEMENT (THE “AGREEMENT”) IS MADE AND ENTERED
INTO BY AND BETWEEN WILLIAM J. MCMAHON III (THE “EMPLOYEE”) AND SCR-TECH, LLC
(THE “COMPANY”), A WHOLLY-OWNED SUBSIDIARY OF CATALYTICA ENERGY SYSTEMS, INC.
(“CATALYTICA”), EFFECTIVE AS OF THE LATEST DATE SET FORTH BY THE SIGNATURES OF
THE PARTIES HERETO BELOW.

 

R E C I T A L S

 

A)          IT IS EXPECTED THAT THE COMPANY FROM TIME TO TIME WILL CONSIDER THE
POSSIBILITY OF AN ACQUISITION BY ANOTHER COMPANY OR OTHER CHANGE OF CONTROL AS A
MEANS OF ENHANCING STOCKHOLDER VALUE.  THE PRESIDENT OF CATALYTICA (THE
“PRESIDENT”) RECOGNIZES THAT SUCH CONSIDERATION CAN BE A DISTRACTION TO THE
EMPLOYEE AND CAN CAUSE THE EMPLOYEE TO CONSIDER ALTERNATIVE EMPLOYMENT
OPPORTUNITIES.  THE PRESIDENT HAS DETERMINED THAT IT IS IN THE BEST INTERESTS OF
THE COMPANY, CATALYTICA AND ITS STOCKHOLDERS TO ASSURE THAT THE COMPANY WILL
HAVE THE CONTINUED DEDICATION AND OBJECTIVITY OF THE EMPLOYEE, NOTWITHSTANDING
THE POSSIBILITY, THREAT OR OCCURRENCE OF A CHANGE OF CONTROL (AS DEFINED BELOW)
OF THE COMPANY.

 

B)            THE PRESIDENT BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE
COMPANY, CATALYTICA AND ITS STOCKHOLDERS TO PROVIDE THE EMPLOYEE WITH AN
INCENTIVE TO CONTINUE HIS EMPLOYMENT AND TO MOTIVATE THE EMPLOYEE TO MAXIMIZE
THE VALUE OF THE COMPANY UPON A CHANGE OF CONTROL FOR THE BENEFIT OF ITS
STOCKHOLDERS.

 

C)            THE PRESIDENT BELIEVES THAT IT IS IMPERATIVE TO PROVIDE THE
EMPLOYEE WITH CERTAIN SEVERANCE BENEFITS UPON EMPLOYEE’S TERMINATION OF
EMPLOYMENT FOLLOWING A CHANGE OF CONTROL WHICH PROVIDES THE EMPLOYEE WITH
ENHANCED FINANCIAL SECURITY AND PROVIDES INCENTIVE AND ENCOURAGEMENT TO THE
EMPLOYEE TO REMAIN WITH THE COMPANY NOTWITHSTANDING THE POSSIBILITY OF A CHANGE
OF CONTROL.

 

D)           CERTAIN CAPITALIZED TERMS USED IN THE AGREEMENT ARE DEFINED IN
SECTION 6 BELOW.

 

THE PARTIES HERETO AGREE AS FOLLOWS:

 

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,

 

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WHICHEVER COMES LATER, THE EMPLOYEE SHALL NOT BE ENTITLED TO ANY PAYMENTS,
BENEFITS, DAMAGES, AWARDS OR COMPENSATION OTHER THAN AS PROVIDED BY THIS
AGREEMENT, OR AS MAY OTHERWISE BE AVAILABLE IN ACCORDANCE WITH THE COMPANY’S
ESTABLISHED EMPLOYEE PLANS AND PRACTICES OR PURSUANT TO OTHER AGREEMENTS WITH
THE COMPANY.

 

3)              SEVERANCE BENEFITS.

 

A)              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 (A
“SEVERANCE TERMINATION”), THEN, SUBJECT TO SECTION 5, THE EMPLOYEE SHALL BE
ENTITLED TO RECEIVE THE FOLLOWING SEVERANCE BENEFITS:

 

(1)          SEVERANCE PAYMENT.  A CASH PAYMENT IN AN AMOUNT EQUAL TO FIFTY
PERCENT (50%) OF THE EMPLOYEE’S ANNUAL COMPENSATION PLUS A PRO RATA PAYMENT OF
THE CURRENT YEAR BONUS AWARD BASED ON THE TARGET BONUS FOR THE EMPLOYEE;

 

(2)          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 SEVERANCE
TERMINATION (THE “COMPANY-PAID COVERAGE”).  IF SUCH COVERAGE INCLUDED THE
EMPLOYEE’S DEPENDENTS IMMEDIATELY PRIOR TO THE SEVERANCE TERMINATION, SUCH
DEPENDENTS SHALL ALSO BE COVERED AT COMPANY EXPENSE.  COMPANY-PAID COVERAGE
SHALL CONTINUE UNTIL THE EARLIER OF (I) SIX MONTHS 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 TITLE X OF THE CONSOLIDATED BUDGET
RECONCILIATION ACT OF 1985 (“COBRA”), THE DATE OF THE “QUALIFYING EVENT” FOR
EMPLOYEE AND HIS DEPENDENTS SHALL BE THE DATE UPON WHICH THE COMPANY-PAID
COVERAGE TERMINATES.

 

(3)          TIMING OF SEVERANCE PAYMENTS.  ANY SEVERANCE PAYMENT TO WHICH
EMPLOYEE IS ENTITLED UNDER SECTION 3(A)(1) SHALL BE PAID BY THE COMPANY TO THE
EMPLOYEE (OR TO THE EMPLOYEE’S SUCCESSOR IN INTEREST, PURSUANT TO SECTION 7(B))
IN CASH AND IN FULL, NOT LATER THAN THIRTY (30) CALENDAR DAYS FOLLOWING THE
TERMINATION DATE, SUBJECT TO SECTION 9(F).

 

B)             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 OR PURSUANT TO OTHER
AGREEMENTS WITH THE COMPANY.

 

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C)              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 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.

 

D)             TERMINATION APART FROM CHANGE OF CONTROL.  IN THE EVENT THE
EMPLOYEE’S EMPLOYMENT IS TERMINATED FOR ANY REASON, EITHER PRIOR TO THE
THREE-MONTH NOTICE PERIOD BEFORE A CHANGE OF CONTROL OR AFTER THE TWENTY-FOUR
(24) -MONTH PERIOD FOLLOWING A CHANGE OF CONTROL, THEN THE EMPLOYEE SHALL BE
ENTITLED TO RECEIVE SEVERANCE AND ANY OTHER BENEFITS ONLY AS MAY THEN BE
ESTABLISHED UNDER THE COMPANY’S EXISTING SEVERANCE AND BENEFITS PLANS AND
PRACTICES OR PURSUANT TO OTHER AGREEMENTS WITH THE COMPANY.

 

4)              ATTORNEY FEES, COSTS AND EXPENSES.  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.

 

5)              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 (II) BUT FOR THIS SECTION 5, WOULD BE SUBJECT
TO THE EXCISE TAX IMPOSED BY SECTION 4999 OF THE CODE, THEN THE EMPLOYEE’S
SEVERANCE BENEFITS UNDER SECTION 3(A)(1) SHALL BE EITHER

 

(1)          DELIVERED IN FULL, OR

 

(2)          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 BENEFITS, NOTWITHSTANDING THAT ALL OR SOME PORTION OF SUCH SEVERANCE
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 5(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 THAT WOULD VEST

 

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UNDER SECTION 3(A)) SUBJECT TO REASONABLE LIMITATIONS (INCLUDING, FOR EXAMPLE,
EXPRESS PROVISIONS UNDER THE COMPANY’S BENEFIT PLANS) (SO LONG AS THE
REQUIREMENTS OF SECTION 5(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 5(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 5(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 5 SHALL BE MADE IN WRITING BY THE
COMPANY’S ACCOUNTANTS IMMEDIATELY PRIOR TO CHANGE OF CONTROL, 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 5, 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 5.

 

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

 

A)              ACCOUNTANT.  UNLESS THE COMPANY AND THE EMPLOYEE OTHERWISE AGREE
IN WRITING, ANY DETERMINATION REQUIRED UNDER THE SECTION SHALL BE MADE IN
WRITING BY THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTANTS.

 

B)             ANNUAL COMPENSATION.  “ANNUAL COMPENSATION” MEANS AN AMOUNT EQUAL
TO THE GREATER OF (I) EMPLOYEE’S COMPANY BASE SALARY FOR THE TWELVE (12) MONTHS
PRECEDING THE CHANGE OF CONTROL EXCLUDING BONUS OR (II) EMPLOYEE’S COMPANY BASE
SALARY ON AN ANNUALIZED BASIS EXCLUDING BONUS AS OF THE TERMINATION DATE.

 

C)              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 A FELONY, (III) A WILLFUL ACT BY THE EMPLOYEE THAT CONSTITUTES
GROSS MISCONDUCT AND THAT IS INJURIOUS TO THE COMPANY, OR (IV) EMPLOYEE’S
FAILURE TO SATISFACTORILY PERFORM HIS OR HER JOB DUTIES 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; OR (V) EMPLOYEE’S 
CONTINUED VIOLATIONS OF THE EMPLOYEE’S OBLIGATIONS TO THE COMPANY THAT ARE
DEMONSTRABLY WILLFUL

 

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AND DELIBERATE ON THE EMPLOYEE’S PART.  ANY DISMISSAL FOR CAUSES IN ACCORDANCE
WITH SUBSECTION (IV) OR (V) OF THIS SECTION 6(B) MUST BE APPROVED BY THE
COMPANY’S BOARD OF DIRECTORS PRIOR TO THE DISMISSAL DATE.

 

D)             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 IN
ANY TWELVE (12) MONTH PERIOD;

 

(II)   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;

 

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

 

E)              DISABILITY.  “DISABILITY” SHALL MEAN THAT THE EMPLOYEE HAS BEEN
UNABLE TO PERFORM THE ESSENTIAL FUNCTIONS OF HIS COMPANY DUTIES WITH OR WITHOUT
REASONABLE ACCOMMODATION 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.

 

F)                INVOLUNTARY TERMINATION.  “INVOLUNTARY TERMINATION” SHALL MEAN
(I) WITHOUT THE EMPLOYEE’S EXPRESS WRITTEN CONSENT, THE SIGNIFICANT REDUCTION,
WITHOUT GOOD BUSINESS REASONS, 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;
(II) WITHOUT THE EMPLOYEE’S EXPRESS WRITTEN CONSENT, A SUBSTANTIAL

 

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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 FIFTY (50) 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 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 7(A) BELOW; OR (VIII) ANY ACT OR SET OF FACTS
OR CIRCUMSTANCES THAT WOULD, UNDER CALIFORNIA CASE LAW OR STATUTE CONSTITUTE A
CONSTRUCTIVE TERMINATION OF THE EMPLOYEE.

 

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.

 

7)              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
7(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

 

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LEGAL REPRESENTATIVES, EXECUTORS, ADMINISTRATORS, SUCCESSORS, HEIRS,
DISTRIBUTEES, DEVISEES AND LEGATEES.

 

8)              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 8(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 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.

 

9)              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 ALL PRIOR ARRANGEMENTS AND
UNDERSTANDINGS REGARDING SAME. 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.

 

9

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D)             CHOICE OF LAW; JURISDICTION AND VENUE.  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.  THE PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION AND
VENUE OF THE FEDERAL AND STATE COURTS OF THE COUNTY OF MARICOPA, ARIZONA IN
CONNECTION WITH ANY DISPUTE OR LITIGATION UNDER THIS AGREEMENT, AND THE PARTIES
HEREBY WAIVE ANY RIGHT TO CONTEST THE VALIDITY OF SUCH JURISDICTION AND VENUE.

 

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.

 

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.

 

SCR-TECH, LLC

 

By:

 

CESI-SCR, Inc., its sole Member and Manager

 

 

 

 

 

By:

 

/s/ Dom Geraghty

 

Date:

3/17/05

 

 

 

Dom Geraghty

 

 

 

President, CESI-SCR, Inc.

 

 

 

 

 

Catalytica Energy Systems, Inc.

 

 

 

 

 

 

 

 

 

By:

 

/s/ Mike Murry

 

Date:

3/17/05

 

 

 

Mike Murry

 

 

 

President and CEO, Catalytica Energy Systems, Inc.

 

 

 

 

 

 

 

 

 

EMPLOYEE

 

 

 

 

 

 

 

 

 

By:

 

/s/ William J. McMahon, III

 

Date:

3/17/05

 

 

 

William J. McMahon, III

 

 

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