**Exhibit 10.6****CATALYTICA ENERGY SYSTEMS, INC./SCR-TECH LLC/CESI-SCR, INC.****EMPLOYMENT AGREEMENT**     This Employment Agreement (the “Agreement”) is made and entered into between and amongWilliam J. McMahon III (the “Employee”), Catalytica Energy Systems, Inc. (the “Company”), SCR-TechLLC (“SCR-Tech”) and CESI-SCR, Inc., a wholly-owned subsidiary of the Company and the manager ofSCR-Tech (“CESI-SCR”), effective as of January 1, 2007 (the “Effective Date”). This Agreementreplaces and supersedes in their entirety (i) the letter agreement between the Company andEmployee dated March 16, 2005, and (ii) the SCR-Tech, LLC Change of Control Severance Agreementbetween and among the Company, SCR-Tech LLC and Employee dated March 17, 2005 (the “PriorAgreements”).     1. Duties and Scope of Employment.          (a) Positions and Duties. As of the Effective Date, Employee will continue toserve as President of SCR-Tech. Employee will render such business and professional servicesinthe performance of his duties, consistent with Employee’s position within SCR-Tech, as shallreasonably be assigned to him, by the Chief Executive Officer of the Company (the “CEO”), theboard of directors of CESI-SCR or their designee. Moreover, Employee will remain a Section16executive officer for so long as the board of directors of the Company (the “Board)determines, in itsreasonable discretion and in consultation with its outside counsel, that such designation isappropriate. The period of Employee’s employment under this Agreement is referred to herein asthe“Employment Term.” The employee will continue to serve as President of CESI-SCR, to the extentdetermined by the board of directors of CESI-SCR in its sole discretion          (b) Obligations. During the Employment Term, Employee will perform his dutiesfaithfully and to the best of his ability and will devote his full business efforts and timeto SCR-Techand the Company. For the duration of the Employment Term, Employee agrees not to activelyengage in any other employment, occupation or consulting activity for any direct or indirectremuneration without the prior approval of the CEO or the Board. The Board acknowledges thatEmployee currently serves on the Advisory Board of Great Point Energy and as a member of theboard of directors of CoalTec Energy USA, Inc. Employee agrees to notify the Board or CEO inwriting or by e-mail prior to receiving any additional compensation from these entities,specifyingthe 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 shallcontinue to be at-will, as defined under applicable law. If the Employee’s employmentterminatesfor any reason, including (without limitation) any termination after an announcement of ChangeofControl and prior to twenty-four (24) months following a Change of Control or the announcementofa Change of Control, whichever comes later, the Employee shall not be entitled to anypayments,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 Employeeas compensation for his services a base salary at the annualized rate of $200,000 untilJanuary 1,2007 when the amount shall increase to an annualized rate of $215,000 (“Base Salary”). TheBaseSalary will be paid periodically in accordance with the Company’s normal payroll practices andbesubject to the usual, required withholding.          (b) Annual Bonus. During the Employment Term, Employee shall be eligible toreceive an annual bonus with a target payment equal to 50% of Base Salary based upon criteriadeveloped by the Board or by the Company’s Compensation Committee (the “Target Bonus”).     4. Employee Benefits. During the Employment Term, Employee will be entitled toparticipate in the employee benefit plans currently and hereafter maintained by the Company ofgeneral applicability to other senior executives of the Company. The Company reserves theright tocancel 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’semployment 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 orafter thedate that is twenty-four (24) months following a Change of Control or the announcement of aChange 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 favorof theCompany; provided, however, that such release shall preserve all indemnification rightsofEmployee and all other rights of Employee under the currently existing indemnificationagreementor similar agreement with the Company (a “Release”), and (ii) not breaching the provisions ofSection 6 hereof, then Employee shall be entitled to receive thefollowing severance and non-competition benefits:               (i) Severance Payments. Following the Employment Termination Datethe Company shall pay Employee an aggregate amount equal to one hundred percent (100%) of his BaseSalary, less applicable taxes, ratably over the remaining payroll periods in the same calendaryear in which Employee terminated. For example, if Employee terminates on June 30 of a particularyear, he will receive his annual base salary amount, (e.g., $215,000) over the remaining sixmonths of the year.               (ii) Subsidized COBRA. Subject to Employee timely electing continuation coverageunder Title X of the Consolidated Budget Reconciliation Act of 1985 (“COBRA”), the Company shallsubsidize Employee and his eligible dependent’s COBRA premiums so that Employee pays the samepremium as an active employee of the Company for a period equal to the lesser of (i) twelve monthsfollowing the Employee’s termination date, or (ii) the date upon which Employee becomes coveredunder the group health plans of another employer with comparable group health benefits and levelsof coverage.          (b) Termination in Connection with a Change of Control. If the Employee’semployment terminates as a result of Involuntary Termination (as defined below) other than for
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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 comeslater (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 ofSection 6 hereof, and (iii) the provisions of Section 8 hereof, the Employee shall be entitled toreceive 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, onehundred 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 andnot breaching the non-competition provisions of Section 6 hereof.                    (2) If the Company Value is at least five million dollars but lessthan ten million dollars, one hundred and fifty percent (150%) of the Employee’s AnnualCompensation. Of this amount, seventy-five percent (75%) of Employee’s Annual Compensation is paidspecifically in exchange for Employee entering into and not breaching the non-competitionprovisions of Section 6 hereof.                    (3) If the Company Value is ten million dollars or more, twohundred 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 enteringinto 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 wasprovided 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 tothe Change of Control Severance Termination, such dependents shall also be covered at theCompany’s expense. Company-Paid Coverage shall continue until the earlier of (i) two years fromthe date of the Involuntary Termination or (ii) the date that the Employee and his dependentsbecome covered under another employer’s group health, dental or life insurance plans that provideEmployee and his dependents with comparable benefits and levels of coverage. For purposes ofCOBRA, the date of the “qualifying event” for Employee and his dependents shall be the date uponwhich the Company-Paid Coverage terminates.               (iii) Timing of Severance & Non-Competition Payments. Any Change of Control severanceand non-competition payments to which Employee is entitled under Section 5(b)(i) shall be paid bythe 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 benefits may be delayed hereunder inorder to comply with the provisions of Internal Revenue Code Section 409A and the proposed or finalregulations issued thereunder.
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          (c) Voluntary Resignation; Termination For Cause. If the Employee’semployment terminates by reason of the Employee’s voluntary resignation (and is not anInvoluntaryTermination), or if the Employee is terminated for Cause, then the Employee shall not beentitled toreceive severance or other benefits except for those (if any) as may then be established undertheCompany’s then existing option, severance and benefits plans and practices.          (d)Disability; Death. If the Company terminates the Employee’s employment asa result of the Employee’s Disability, or such Employee’s employment is terminated due to thedeathof the Employee, then the Employee shall not be entitled to receive severance or otherbenefitsexcept for those (if any) as may then be established under the Company’s then existingseveranceand benefits plans and practices or pursuant to other agreements with the Company.          (e) Change in Status with CESI-SCR or the Company. Employee’s terminationas 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 thisAgreement. Notwithstanding the foregoing, if Employee’s termination as President of CESI-SCRresults in a significant reduction of Employee’s duties, authority or responsibilities as thePresidentof SCR-Tech, then that shall constitute grounds for an Involuntary Termination pursuant toSection9(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 issuch that if Employee were to become employed by, or substantially involved in, the business of acompetitor of the Companies during the 12 months following the termination of Employee’semployment, it would be very difficult for Employee not to rely on or use the Company’s tradesecrets and confidential information. Thus, to avoid the inevitable disclosure of the Companies’trade secrets and confidential information, Employee agrees and acknowledges that Employee’s rightto receive the payments set forth in Section 5 (to the extent Employee is otherwise entitled tosuch payments) shall be conditioned upon Employee not directly or indirectly engaging in (whetheras 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 inCompetition with any of the Companies or their affiliates; provided, however, that following histermination of employment, Employee shall be permitted to work for an entity in Competition withthe Companies whose primary business is not providing products or services competitive with theproducts or services of the Companies, so long Employee does not engage in a business that makessuch entity in Competition with the Companies. Notwithstanding the foregoing, Employee may, withoutviolating this Section 6, own, as a passive investment, shares of capital stock of a publicly-heldcorporation that engages in Competition where the number of shares of such corporation’s capitalstock that are owned by Employee represent less than three percent of the total number of shares ofsuch corporation’s capital stock outstanding. Further, if the Employee notifies the CEO or theBoard in writing about potential employment that may be construed as in Competition, the CEO orBoard agrees to consider in good faith whether such potential employment may be construed as inCompetition and to notify Employee of its determination in writing or by e-mail within a reasonableperiod of time.
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          (b) Non-Solicitation. Until the date 12 months after the termination ofEmployee’s employment hereunder for any reason, Employee agrees and acknowledges thatEmployee’s right to receive the severance payments set forth in Section 5 (to the extentEmployee isotherwise entitled to such payments) shall be conditioned upon Employee not either directly orindirectly soliciting, inducing, recruiting or encouraging an employee to leave his or heremploymenteither for Employee or for any other entity or person with which or whom Employee has abusinessrelationship.          (c) Understanding of Covenants. Employee represents that he (i) is familiar withthe foregoing covenants not to compete and not to solicit, and (ii) is fully aware of hisobligationshereunder, including, without limitation, the reasonableness of the length of time, scope andgeographic coverage of these covenants.          (d) Remedy for Breach. Upon any breach of this section by Employee, allseverance payments pursuant to Section 5 shall immediately cease, and that shall be the soleremedy available to the Company for such breach.     7. Attorney Fees, Costs and Expenses. With respect to any Change of ControlSeverance Termination only, the Company shall reimburse Employee for the reasonable attorneyfees, costs and expenses incurred by the Employee in connection with any action brought byEmployee to enforce his rights hereunder, provided such action is not decided in favor of theCompany.     8. Limitation on Payments.          (a) In the event that the severance and other benefits provided for in thisAgreement or otherwise payable to the Employee (i) constitute “parachute payments” within themeaning 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 theCode, 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 wouldresult in no portion ofsuch severance benefits being subject to excise tax under Section 4999of the Code,whichever of the foregoing amounts, taking into account the applicable federal, state and localincome taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee onan after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or someportion of such severance benefits may be taxable under Section 4999 of the Code. Any taxes dueunder Section 4999 shall be the responsibility of the employee.          (b) If a reduction in the payments and benefits that would otherwise be paid orprovided to the Employee under the terms of this Agreement is necessary to comply with theprovisions of Section 8(a), the Employee shall be entitled to select which payments orbenefits will
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be reduced and the manner and method of any such reduction of such payments or benefits subject toreasonable limitations (including, for example, express provisions under the Companies’ benefitplans) (so long as the requirements of Section 8(a) are met). Within thirty (30) days after theamount of any required reduction in payments and benefits is finally determined in accordance withthe provisions of Section 8(c), the Employee shall notify the Company in writing regarding whichpayments or benefits are to be reduced. If no notification is given by the Employee, the Companywill 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, theEmployee will promptly return the excess amount to the Company.          (c) Unless the Company and the Employee otherwise agree in writing, any determinationrequired under this Section 8 shall be made in writing by the Company’s primary outside taxadvisors immediately prior to the Change of Control (the “Accountants”), whose determination shallbe conclusive and binding upon the Employee and the Company for all purposes. For purposes ofmaking the calculations required by this Section 8, the Accountants may, after taking into accountthe information provided by the Employee, make reasonable assumptions and approximationsconcerning applicable taxes and may rely on reasonable, good faith interpretations concerning theapplication of Sections 280G and 4999 of the Code. The Companies and the Employee shall furnish tothe Accountants such information and documents as the Accountants may reasonably request in orderto make a determination under this Section. The Companies shall bear all costs the Accountants mayreasonably incur in connection with any calculations contemplated by this Section 8.     9. Definition of Terms. The following terms referred to in this Agreementshall have the following meanings:          (a) Annual Compensation. “Annual Compensation” means an amount equal tothe greater of (i) Employee’s Base Salary for the twelve (12) months preceding the Change ofControl plus the Employee’s Target Bonus for the same period, or (ii) Employee’s Base Salaryon anannualized 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 theEmployee in connection with his responsibilities as an employee and intended to result insubstantialpersonal enrichment of the Employee, (ii) the conviction of or plea of nolo contendereto a felony,(iii) a willful act by the Employee that constitutes gross misconduct and that is injurious totheCompany, or (iv) for a period of not less than thirty (30) days following delivery to theEmployee ofa written demand for performance from the Company that describes the basis for the Company’sbelief that the Employee has not substantially performed his duties, continued violations bytheEmployee of the Employee’s obligations to the Company that are demonstrably willful anddeliberate on the Employee’s part. Any dismissal for cause must be approved by the Company’sBoard of Directors prior to the dismissal date.
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          (c) Change of Control. “Change of Control” means the occurrence of any of thefollowing events:               (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities ExchangeAct 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 ofthe 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 theSecurities Exchange Act of 1934, as amended), other than the Company, CESI-SCR or an affiliatedentity, becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly orindirectly, of securities of SCR-Tech representing fifty percent (50%) or more of the total votingpower 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 SecuritiesExchange 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, ofsecurities of CESI-SCR representing fifty percent (50%) or more of the total voting powerrepresented by the CESI-SCR’s then outstanding voting securities;               (iv) A change in the composition of the Company’s Board of Directors occurring within atwelve-month period, as a result of which fewer than a majority of the directors are IncumbentDirectors. “Incumbent Directors” shall mean directors who either (A) are directors of the Companyas of the date hereof, or (B) are elected, or nominated for election, to the Board with theaffirmative votes of at least a majority of the Incumbent Directors at the time of such electionor nomination (but shall not include an individual whose election or nomination is in connectionwith 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 withany other corporation, other than a merger or consolidation that would result in the votingsecurities of the Company outstanding immediately prior thereto continuing to represent (either byremaining outstanding or by being converted into voting securities of the surviving entity or suchsurviving entity’s parent) at least fifty percent (50%) of the total voting power represented bythe voting securities of the Company or such surviving entity or such surviving entity’s parentoutstanding 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), otherthan a merger or consolidation that would result in the voting securities of SCR Tech outstandingimmediately prior thereto continuing to represent (either by remaining outstanding or by beingconverted into voting securities of the surviving entity or such surviving entity’s parent) atleast fifty percent (50%) of the total voting power represented by the voting securities of SCRTech or such surviving entity or such surviving entity’s parent outstanding immediately after suchmerger or consolidation;
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               (vii) The consummation of the sale or disposition by the Company of all or seventy-fivepercent (75%) or more of the Company’s assets, or               (viii) The consummation of the sale or disposition by SCR-Tech of all or seventy-fivepercent (75%) or more of SCR-Tech’s assets.          (d) Company Value. “Company Value” shall mean the value of the totalconsideration payable to the Companies or to the Company’s stockholders, in the event of aChangeof Control, less the value of any cash, cash equivalents and short-term securities held by oronaccount of any of the Companies or their affiliates immediately prior to such Change ofControl.The determination of Company Value shall based upon consideration to be received by theCompanies or by the Company’s stockholders and shall be determined promptly following anytermination of Employee’s employment that would give rise to a severance payment under Section5(b) hereof. If part of the consideration to be received by Companies or the Company’sstockholdersin a Change of Control consists of earn-out payments or other contingent payments, the presentvalue of such contingent payments, including a discount to reflect the probability of suchpaymentsbeing made, shall be reasonably determined by the acquirer. In the event of a Change ofControl notinvolving the Company (i.e., a Change of Control involving CESI-SCR and/or SCR-Tech but nottheCompany), 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 suchaffiliatesin contemplation of the Change of Control.          (e) Competition. “Competition” shall mean (i) SCR catalyst and managementservices including, but not limited to the cleaning, rejuvenation and regeneration of SCRcatalystsand managing SCR catalysts for utilities and independent power producers, and (ii) any otherbusiness engaged in by any of the Companies that relates to the activities specified insubsection (i)hereof.          (f) Disability. “Disability” shall mean that the Employee has been unable toperform his Company duties as the result of his incapacity due to physical or mental illness,and suchinability, at least twenty-six (26) weeks after its commencement, is determined to be totalandpermanent by a physician selected by the Company or its insurers and acceptable to theEmployee orthe Employee’s legal representative (such Agreement as to acceptability not to be unreasonablywithheld). 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. Intheevent that the Employee resumes the performance of substantially all of his duties hereunderbeforethe termination of his employment becomes effective, the notice of intent to terminate shallautomatically be deemed to have been revoked.          (g) Involuntary Termination. “Involuntary Termination” shall mean (i) withoutthe Employee’s express written consent, the significant reduction of the Employee’s duties,authorityor responsibilities, relative to the Employee’s duties, authority or responsibilities as ineffectimmediately prior to such reduction, or the assignment to Employee of such reduced duties,authority or responsibilities; provided, however, that so long as Employee remains thePresident ofSCR-Tech, or, following a Change of Control of SCR-Tech, whatever entity substantiallycontainsSCR-Tech’s business, in either case with the duties, authority and responsibilitiesthat are
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commensurate with such position, then Employee shall have no grounds for an Involuntary Terminationpursuant to this Section 9(g)(i) or Section 9(g)(viii); provided, further, that if Employee reportsto someone other than the Chief Executive Officer of the Company, that shall not in and of itselfconstitute grounds for an Involuntary Termination pursuant to this Section 9(g)(i) or Section9(g)(viii); provided, further, that if Employee ceases to be a Section 16 officer pursuant tosection l(a) hereof, that shall not in and of itself constitute grounds for an InvoluntaryTermination, (ii) without the Employee’s express written consent, a substantial reduction, withoutgood 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 inthe 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 theEmployee was entitled immediately prior to such reduction with the result that the Employee’soverall benefits package is significantly reduced; (v) the relocation of the Employee to a facilityor a location more than twenty-five (25) miles from the Employee’s then present location, withoutthe Employee’s express written consent; (vi) any purported termination of the Employee by theCompany that is not effected for Disability or for Cause, or, during the Change of Control Periodonly, any purported termination for which the grounds relied upon are not valid; (vii) the failureof the Company to obtain the assumption of this Agreement by any successors contemplated in Section10(a) below; or (viii) during the Change of Control Period only, any act or set of facts orcircumstances that would, under North Carolina case law or statute constitute a constructivetermination of the Employee. However, with respect to any Non-Change of Control SeveranceTermination, an Involuntary Termination shall not be deemed to have occurred unless Employeeprovides written notice to the Company describing the nature of the event that he believes formsthe basis for Involuntary Termination and the Company does not cure such event within ten (10) daysfollowing receipt of such notice.          (h) Termination Date. “Termination Date” shall mean (i) if this Agreement isterminated by the Company for Disability, thirty (30) days after notice of termination is given tothe Employee (provided that the Employee shall not have returned to the performance of theEmployee’s duties on a full-time basis during such thirty (30)-day period), (ii) if the Employee’semployment is terminated by the Company for any other reason, the date on which a notice oftermination is given, provided that if within thirty (30) days after the Company gives theEmployee notice of termination, the Employee notifies the Company that a dispute exists concerningthe termination or the benefits due pursuant to this Agreement, then the Termination Date shall bethe date on which such dispute is finally determined, either by mutual written agreement of theparties, or a by final judgment, order or decree of a court of competent jurisdiction (the timefor appeal therefrom having expired and no appeal having been perfected), or (iii) if theAgreement is terminated by the Employee, the date on which the Employee delivers the notice oftermination to the Company.     10. Successors.          (a) Company’s Successors. Any successor to the Company (whether direct or indirectand whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantiallyall of the Company’s business and/or assets shall assume the obligations under this Agreement andagree expressly to perform the obligations under this Agreement in the same manner and to the sameextent 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 anysuccessor to the Company’s business and/or assets which executes and delivers the assumptionagreement described in this Section 10(a) or which becomes bound by the terms of this Agreement byoperation of law.          (b) Employee’s Successors. The terms of this Agreement and all rights of the Employeehereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legalrepresentatives, executors, administrators, successors, heirs, distributees, devisees andlegatees.     11. Notice.          (a) General. Notices and all other communications contemplated by thisAgreement shall be in writing and shall be deemed to have been duly given when personallydelivered or when mailed by U.S. registered or certified mail, return receipt requested andpostageprepaid. In the case of the Employee, mailed notices shall be addressed to him at the homeaddresswhich 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 bedirected tothe attention of its Secretary.          (b) Notice of Termination. Any termination by the Company for Cause or by theEmployee as a result of a voluntary resignation or an Involuntary Terminationshall becommunicated by a notice of termination to the other party hereto given in accordance withSection 11 (a) of this Agreement. Such notice shall indicate the specific terminationprovision in thisAgreement relied upon, shall set forth in reasonable detail the facts and circumstancesclaimed toprovide a basis for termination under the provision so indicated, and shall specify theterminationdate (which shall be not more than thirty (30) days after the giving of such notice). Thefailure bythe Employee to include in the notice any fact or circumstance which contributes to a showingofInvoluntary Termination shall not waive any right of the Employee hereunder or preclude theEmployee 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 theamount of any severance payment contemplated by this Agreement, nor shall any such severancepayment be reduced by any earnings that the Employee may receive from any other source,providedEmployee is in compliance with all obligations that the Employee owes under this Agreement.          (b) Waiver. No provision of this Agreement shall be modified, waived ordischarged unless the modification, waiver or discharge is agreed to in writing and signed bytheEmployee and by an authorized officer of the Company (other than the Employee). No waiver byeither party of any breach of, or of compliance with, any condition or provision of thisAgreement bythe other party shall be considered a waiver of any other condition or provision or of thesamecondition or provision at another time.          (c) Whole Agreement. This Agreement represents the entire understanding of theparties hereto with respect to the subject matter hereof and supersedes in their entirety allprior
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arrangements and understandings regarding same, including the Prior Agreements and any offerletter, promotion letter, employment agreement, oral representation or promise or other agreementregarding Employee’s employment terms with the Company. Other than this Agreement and the At-WillEmployment, Confidential Information and Invention Assignment Agreement, no agreements,representations or understandings (whether oral or written and whether express or implied) whichare not expressly set forth in this Agreement have been made or entered into by either party withrespect to the subject matter hereof.          (d) Choice of Law. The validity, interpretation, construction and performance ofthis Agreement shall be construed and enforced in accordance with, and the rights of the parties shallbe 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 provisionsof this Agreement shall not affect the validity or enforceability of any other provisionhereof, 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 ofwhich shall be deemed an original, but all of which together will constitute one and the sameinstrument.
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     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of theCompany 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: 1/10/07         SCR-Tech LLC By: CESI-SCR, Inc. its Manager           By: /s/ Robert Zack             Robert Zack           Its: Vice President           Date: 1-10-07         CESI-SCR, Inc. By: /s/ Robert Zack             Robert Zack           Its: Vice President           Date: 1/10/07         EMPLOYEE /s/William J. McMahon III           Date: 12/26/06  
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