EXHIBIT 10.1


CATALYTICA
ENERGY SYSTEMS, INC./SCR-TECH LLC/CESI-SCR, INC.


EMPLOYMENT
AGREEMENT


This
Employment Agreement (the “Agreement”) is made and entered into between and
among William J. McMahon III (the “Employee”), Catalytica Energy Systems, Inc.
(the “Company”), SCR-Tech LLC (“SCR-Tech”)
and CESI-SCR, Inc., a
wholly-owned subsidiary of the Company and the manager of SCR-Tech (“CESI-SCR”),
effective as of January 1, 2007 (the “Effective Date”).  This Agreement replaces and supersedes in
their entirety (i) the letter agreement between the Company and Employee dated
March 16, 2005, and (ii) the SCR-Tech, LLC Change of Control Severance
Agreement between and among the Company, SCR-Tech LLC and Employee dated March 17, 2005 (the “Prior
Agreements”).


1.                                       Duties
and Scope of Employment.


(a)                                  Positions
and Duties.  As of the Effective Date, Employee will
continue to serve as President of
SCR-Tech.  Employee will render
such business and professional services in the performance of his duties,
consistent with Employee’s position within SCR-Tech, as shall reasonably be
assigned to him, by the Chief Executive Officer of the Company (the “CEO”), the
board of directors of CESI-SCR or their designee.  Moreover, Employee will remain a Section 16
executive officer for so long as the board of directors of the Company (the “Board)
determines, in its reasonable discretion and in consultation with its outside
counsel, that such designation is appropriate. The period of Employee’s
employment under this Agreement is referred to herein as the “Employment Term.”  The employee will continue to serve as President of CESI-SCR, to the extent
determined by the board of directors of CESI-SCR in its sole discretion


(b)                                 Obligations.  During the Employment Term, Employee will
perform his duties faithfully and to the best of his ability and will devote
his full business efforts and time to SCR-Tech and the Company.  For the duration of the Employment Term,
Employee agrees not to actively engage in any other employment, occupation or
consulting activity for any direct or indirect remuneration without the prior
approval of the CEO or the Board.  The
Board acknowledges that Employee currently serves on the Advisory Board of
Great Point Energy and as a member of the board of directors of CoalTec Energy
USA, Inc.  Employee agrees to notify the
Board or CEO in writing or by e-mail prior to receiving any additional
compensation from these entities, specifying the amount of the compensation.


2.                                       At-Will
Employment.  The Company, SCR-Tech
and CESI-SCR (together, the “Companies”) 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.                                       Compensation.


(a)                                  Base
Salary.  During the Employment Term,
the Company will pay Employee as compensation for his services a base salary at
the annualized rate of $200,000 until
January 1, 2007 when the amount shall increase to an annualized rate of
$215,000 (“Base Salary”).  The
Base Salary will be paid periodically in accordance with the Company’s normal
payroll practices and be subject to the usual, required withholding.


(b)                                 Annual
Bonus.  During the Employment Term,
Employee shall be eligible to receive an annual bonus with a target payment
equal to 50% of Base Salary based upon criteria developed by the Board or by
the Company’s Compensation Committee (the “Target Bonus”).


4.                                       Employee
Benefits.  During the Employment
Term, Employee will be entitled to participate in the employee benefit plans
currently and hereafter maintained by the Company of general applicability to
other senior executives of the Company. 
The Company reserves the right to cancel or change the benefit plans and
programs it offers to its employees at any time.


5.                                       Severance
Benefits.


(a)                                  Termination Not in Connection with a Change of
Control.  If the Employee’s employment with
SCR-Tech 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
currently existing indemnification agreement or similar agreement with the
Company (a “Release”), and (ii) not breaching the provisions of Section 6
hereof, then Employee shall be entitled to receive the following severance and
non-competition benefits:


(i)             Severance Payments.  Following the Employment Termination Date the
Company shall pay Employee an aggregate amount equal to one hundred percent
(100%) of his Base Salary, less applicable taxes, ratably over the remaining
payroll periods in the same calendar year in which Employee terminated.   For example, if Employee terminates on June
30 of a particular year, he will receive his annual base salary amount, (e.g.,
$215,000) over the remaining six months of the year.


(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.



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(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 6 hereof, and
(iii) the provisions of Section 8 hereof, the Employee shall be entitled
to receive the following severance benefits:


(i)             Severance and Non-Competition Payment.  A cash payment in an amount equal to:


(1)                                  If the Company Value
is less than five million dollars, one hundred percent (100%) of the Employee’s
Annual Compensation.  Of this amount,
fifty percent (50%) of Employee’s Annual Compensation is paid specifically in
exchange for Employee entering into and not breaching the non-competition
provisions of Section 6 hereof.


(2)                                  If the Company Value
is at least five million dollars but less than ten million dollars, one hundred
and fifty percent (150%) of the Employee’s Annual Compensation.  Of this amount, seventy-five percent (75%) of
Employee’s Annual Compensation is paid specifically in exchange for Employee
entering into and not breaching the non-competition provisions of Section 6
hereof.


(3)                                  If the Company Value
is ten million dollars or more, two hundred percent (200%) of the Employee’s
Annual Compensation.  Of this amount, one
hundred percent (100%) of Employee’s Annual Compensation is paid specifically
in exchange for Employee entering into and not breaching the non-competition
provisions of Section 6 hereof.


(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 the Company’s 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)       Timing of Severance & Non-Competition
Payments.  Any Change of Control
severance and non-competition payments to which Employee is entitled under
Section 5(b)(i) shall be paid by the Company to the Employee (or to the
Employee’s successor in interest, pursuant to Section 10(b)) in cash and
in full, not later than thirty (30) calendar days following the Termination
Date, subject to Sections 9(d) and 12(f).  Severance payments and



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benefits may be delayed
hereunder in order to comply with the provisions of Internal Revenue Code
Section 409A and the proposed or final regulations issued thereunder.


(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 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.


(e)                                  Change in Status
with CESI-SCR or the Company. 
Employee’s termination as President of CESI-SCR shall not be deemed to
be a termination of employment with SCR-Tech, nor shall any such termination
trigger any payments under Section 5 or otherwise under this Agreement.  Notwithstanding the foregoing, if Employee’s
termination as President of CESI-SCR results in a significant reduction of
Employee’s duties, authority or responsibilities as the President of SCR-Tech,
then that shall constitute grounds for an Involuntary Termination pursuant to
Section 9(g) hereof, subject to the notice and opportunity to cure provisions
of such Section.


6.                                       Conditional
Nature of Section 5 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 Companies during
the 12 months following the termination of Employee’s employment, 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 Companies’ trade secrets and
confidential information, Employee agrees and acknowledges that Employee’s
right to receive the payments set forth in Section 5 (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
participating in the financing, operation, management or control of, any
person, firm, corporation or business that is in Competition with any of the
Companies or their affiliates; provided, however, that following his
termination of employment, Employee shall be permitted to work for an entity in
Competition with the Companies whose primary business is not providing products
or services competitive with
the products or services of the Companies, so long Employee does not
engage in a business that makes such entity in Competition with the
Companies.  Notwithstanding the
foregoing, Employee may, without violating this Section 6, 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.  Further, if the Employee notifies the CEO or
the Board in writing about potential employment that may be construed as in
Competition, the CEO



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or Board agrees to
consider in good faith whether such potential employment may be construed as in
Competition and to notify Employee of its determination in writing or by e-mail
within a reasonable period of time.


(b)                                 Non-Solicitation. 
Until the date 12 months after the termination of Employee’s employment
hereunder for any reason, Employee agrees and acknowledges that Employee’s
right to receive the severance payments set forth in Section 5 (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 payments pursuant to Section 5 shall
immediately cease, and that shall be the sole remedy available to the Company
for such breach.


7.                                       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.


8.                                       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 8, would be
subject to the excise tax imposed by Section 4999 of the Code, then the
Employee’s severance 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 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.



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(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 8(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 subject to reasonable limitations
(including, for example, express provisions under the Companies’ benefit plans)
(so long as the requirements of Section 8(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 8(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 8(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 8 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 8, 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 Companies 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 Companies shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 8.


9.                                       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, or (ii) Employee’s Base Salary on an annualized
basis and the Employee’s Target Bonus as of the Termination Date.


(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.



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(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)                                     Any
“person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than the Company, CESI-SCR or an affiliated entity,
becomes the “beneficial owner” (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of SCR-Tech representing fifty
percent (50%) or more of the total voting power represented by the SCR-Tech’s
then outstanding voting securities;


(iii)                                  Any
“person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than the Company or an affiliated entity, becomes
the “beneficial owner” (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of CESI-SCR representing fifty percent
(50%) or more of the total voting power represented by the CESI-SCR’s then
outstanding voting securities;


(iv)                                 A
change in the composition of the Company’s Board of Directors 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);


(v)                                    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;


(vi)                                 The
consummation of a merger or consolidation of SCR Tech with any other
corporation (other than a merger or consolidation with the Company, CESI-SCR or
an affiliated entity), other than a merger or consolidation that would result
in the voting securities of SCR Tech 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 SCR Tech or such surviving entity or such surviving
entity’s parent outstanding immediately after such merger or consolidation;



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(vii)                              The
consummation of the sale or disposition by the Company of all or seventy-five
percent (75%) or more of the Company’s assets, or


(viii)                           The
consummation of the sale or disposition by SCR-Tech of all or seventy-five
percent (75%) or more of SCR-Tech’s assets.


(d)                                 Company
Value.  “Company Value” shall mean
the value of the total consideration payable to the Companies or to the Company’s
stockholders, in the event of a Change of Control, less the value of any cash,
cash equivalents and short-term securities held by or on account of any of the
Companies or their affiliates immediately prior to such Change of Control.  The determination of Company
Value shall based upon consideration to be received by the Companies or by the
Company’s stockholders and shall be determined promptly following any termination of
Employee’s employment that would give rise to a severance payment under Section
5(b) hereof.  If part of the
consideration to be received by Companies or the Company’s stockholders in a
Change of Control consists of earn-out payments or other contingent payments,
the present value of such contingent payments, including a discount to reflect
the probability of such payments being made, shall be reasonably determined by
the acquirer.  In the event of a Change
of Control not involving the Company (i.e., a Change of Control involving
CESI-SCR and/or SCR-Tech but not the Company), Company Value shall be reduced
by the amount of any intra-company debt of CESI-SCR or SCR-Tech to the Company
or its affiliates that is forgiven by the Company or such affiliates in
contemplation of the Change of Control.


(e)                                  Competition.  “Competition” shall mean (i) SCR catalyst and
management services including, but not limited to the cleaning, rejuvenation
and regeneration of SCR catalysts and managing SCR catalysts for utilities and
independent power producers, and (ii) any other business engaged in by any of
the Companies that relates to the activities specified in subsection (i)
hereof.


(f)                                    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.


(g)                                 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 remains the President of SCR-Tech,
or, following a Change of Control of SCR-Tech, whatever entity substantially
contains SCR-Tech’s business, in either case with the duties, authority and
responsibilities that are



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commensurate with such position, then Employee shall have no grounds
for an Involuntary Termination pursuant to this Section 9(g)(i) or Section 9(g)(viii);
provided, further, that if Employee reports to someone other than the Chief
Executive Officer of the Company, that shall not in and of itself constitute
grounds for an Involuntary Termination pursuant to this Section 9(g)(i) or Section
9(g)(viii); provided, further, that if Employee ceases to be a Section 16
officer pursuant to section 1(a) hereof, that shall not in and of itself
constitute grounds for an Involuntary Termination, (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 10(a)
below; or (viii) during the Change of Control Period only, any act or set
of facts or circumstances that would, under North Carolina 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.


(h)                                 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.


10.                                 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



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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 10(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.


11.                                 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 11(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.


12.                                 Miscellaneous
Provisions.


(a)                                  No
Duty to Mitigate.  The Employee shall
not be required to mitigate the amount of any severance payment contemplated by
this Agreement, nor shall any such severance payment be reduced by any earnings
that the Employee may receive from any other source, provided Employee is in
compliance with all obligations that the Employee owes under this Agreement.


(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 represents
the entire understanding of the parties hereto with respect to the subject
matter hereof and supersedes in their entirety all prior



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arrangements and
understandings regarding same, including the Prior Agreements and any offer
letter, promotion letter, employment agreement, oral representation or promise
or other agreement regarding Employee’s employment terms with the Company.  Other than this Agreement and the At-Will
Employment, Confidential Information and Invention Assignment Agreement, 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 North Carolina 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.



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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

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its: CEO

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  January 10, 2007

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCR-Tech LLC

  	
  By: CESI-SCR, Inc., its Manager

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT ZACK

  
	
   

  	
   

  	
  Robert Zack

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its: Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  January 10, 2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CESI-SCR, Inc.

  	
  By:

  	
  /s/ ROBERT ZACK

  
	
   

  	
   

  	
  Robert Zack

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its: Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  January 10, 2007

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMPLOYEE

  	
  /s/ WILLIAM J. MCMAHON III

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  December 26, 2006

  	
   

  
									



 



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