Document:

EXHIBIT 10.1

CATALYTICA
ENERGY SYSTEMS, INC.

RETENTION
AGREEMENT

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

1.             Term of Agreement.  This Agreement shall terminate upon the date
that all obligations of the parties hereto with respect to this Agreement have
been satisfied.

2.             At-Will Employment.  The Company and the Employee acknowledge that
the Employee’s employment is and shall continue to be at-will, as defined
under applicable law.  If the Employee’s
employment terminates for any reason, including (without limitation) any
termination after an announcement of Change of Control and prior to twenty-four
(24) months following a Change of Control or the announcement of a Change of
Control, whichever comes later, the Employee shall not be entitled to any
payments, benefits, damages, awards or compensation other than as provided by
this Agreement.

3.             Severance Benefits.

(a)           Termination Not in Connection with a Change of
Control.  If the Employee’s employment
terminates as a result of Involuntary Termination (as defined below) other than
for Cause at any time prior to an announcement of a Change of Control or on or
after the date that is twenty-four (24) months following a Change of Control or
the announcement of a Change of Control, whichever comes later (a “Non-Change
of Control Severance Termination”), then, subject to Employee (i) executing and
not revoking a standard release of claims in favor of the Company; provided,
however, that such release shall preserve all indemnification rights of
Employee and all other rights of Employee under the currently existing
indemnification agreement or similar agreement with the Company (a “Release”),
and (ii) not breaching the provisions of Section 5 hereof, then Employee shall
be entitled to receive the following severance benefits:

(i)            Severance
Payment.  Following the Employment
Termination Date the Company shall pay Employee an aggregate amount equal to one
hundred percent (100%) of his Annual Compensation, less applicable taxes,
ratably over the remaining payroll periods in the same calendar year in which
Employee terminated.

(ii)           Subsidized
COBRA.  Subject to Employee timely
electing continuation coverage under Title X of the Consolidated Budget
Reconciliation Act of 1985 (“COBRA”), the Company shall subsidize Employee and
his eligible dependent’s COBRA premiums so that Employee pays the same premium
as an active employee of the Company for a period equal to the lesser of (i)
twelve months following the Employee’s termination date, or (ii) the date upon
which Employee becomes covered under the group health plans of another employer
with comparable group health benefits and levels of coverage.

 

(b)           Termination
in Connection with a Change of Control. 
If the Employee’s employment terminates as a result of Involuntary
Termination (as defined below) other than for Cause at any time after an
announcement of a Change of Control and prior to twenty-four (24) months
following a Change of Control or the announcement of a Change of Control,
whichever comes later (the “Change of Control Period”) (a “Change of Control Severance
Termination”), then, subject to Employee (i) executing and not revoking a
Release, (ii) not breaching the provisions of Section 5 hereof, and (iii) the
provisions of Section 7 hereof, the Employee shall be entitled to receive
the following severance benefits:

(i)            Severance
Payment.  A cash payment in an amount
equal to two hundred percent (200%) of the Employee’s Annual Compensation plus
a pro rata cash payment of the current year bonus award based on the target
bonus for the Employee, less any Change of Control Retention Payments (as
defined in Section 4 hereof) already paid to Employee;

(ii)           Continued
Employee Benefits.  One hundred
percent (100%) Company-paid health, dental and life insurance coverage at the
same level of coverage as was provided to such employee immediately prior to
the Change of Control Severance Termination (the “Company-Paid Coverage”).  If such coverage included the Employee’s
dependents immediately prior to the Change of Control Severance Termination,
such dependents shall also be covered at Company expense.  Company-Paid Coverage shall continue until
the earlier of (i) two years from the date of the Involuntary Termination
or (ii) the date that the Employee and his dependents become covered under
another employer’s group health, dental or life insurance plans that provide
Employee and his dependents with comparable benefits and levels of coverage.  For purposes of COBRA, the date of the “qualifying
event” for Employee and his dependents shall be the date upon which the Company-Paid
Coverage terminates.

(iii)          Option
and Restricted Stock Accelerated Vesting. 
One Hundred percent (100%) of the unvested portion of any stock option
or restricted stock (including restricted stock units) held by the Employee
shall automatically be accelerated in full so as to become completely vested.

(iv)          Timing
of Severance Payments.  Any Change of
Control Severance payment to which Employee is entitled under Section 3(b)(1)
shall be paid by the Company to the Employee (or to the Employee’s successor in
interest, pursuant to Section 9(b)) in cash and in full, not later than
thirty (30) calendar days following the Termination Date, subject to Section 11(f).

(c)           Voluntary
Resignation; Termination For Cause.  If
the Employee’s employment terminates by reason of the Employee’s voluntary
resignation (and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be
established under the Company’s then existing option, severance and benefits
plans and practices.

(d)           Disability;
Death.  If the Company terminates the
Employee’s employment as a result of the Employee’s Disability, or such
Employee’s employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive severance or other benefits

 2
 

 

except for those (if any) as may then be established under the Company’s
then existing severance and benefits plans and practices or pursuant to other
agreements with the Company.

4.             Retention Payments.

(a)           Change
of Control Retention Payments.  In
the event of a Change of Control (other than a liquidation or dissolution of
the Company) wherein Employee is employed by the acquiring entity in the
position of Chief Technical Officer or a greater position, then Employee shall receive
cash retention payments (the “Change of Control Retention Payments”) as to 2/3
of Annual Compensation on the date of the Change of Control, another 2/3 of
Annual Compensation on the date that is six months following the Change of
Control, and a final 2/3 of Annual Compensation on the one year anniversary of
the Change of Control, subject to his remaining employed by the acquiring
entity through such dates.

(b)           Sale
of the Diesel Business Retention Payments. 
In the event of a Sale of the Diesel Business (as defined herein) that
does not constitute a Change of Control in which the acquiring entity hires
Employee as a full-time executive, Employee shall receive retention payments
(the “Sale of Diesel Business Retention Payments”) as to $200,000 on the date
of the Sale of the Diesel Business, another $200,000 on the date that is six
months following the Sale of the Diesel Business, and a final $200,000 on the one
year anniversary of the Sale of the Diesel Business, subject to his remaining
employed by the acquiring entity through such dates; provided, however, that if
following the Sale of the Diesel Business Employee is terminated by the
acquiring entity as a result of an Involuntary Termination, then, subject to
Employee (i) executing and not revoking a Release, (ii) not breaching the
provisions of Section 5 hereof, and (iii) the provisions of Section 7
hereof, the Employee shall be entitled to receive any remaining Sale of Diesel
Business Retention Payments that have not yet been paid to Employee.

(c)           No
Duplicate Payments.  In no event
shall Employee receive both Change of Control Retention Payments and Sale of
Diesel Business Retention Payments. 
Moreover, if Employee receives Sale of Diesel Business Retention
Payments, he shall not be eligible to receive any severance benefits under
Section 3 hereof.

5.             Conditional Nature of Section 3
and 4 Payments.

(a)           Noncompete.  Employee acknowledges that the nature of the
Company’s business is such that if Employee were to become employed by, or
substantially involved in, the business of a competitor of the Company during
the 12 months following the termination of Employee’s employment with the
Company, it would be very difficult for Employee not to rely on or use the
Company’s trade secrets and confidential information.  Thus, to avoid the inevitable disclosure of
the Company’s trade secrets and confidential information, Employee agrees and
acknowledges that Employee’s right to receive the payments set forth in
Section 3 or 4 (to the extent Employee is otherwise entitled to such
payments) shall be conditioned upon Employee not directly or indirectly
engaging in (whether as an employee, consultant, agent, proprietor, principal,
partner, stockholder, corporate officer, director or otherwise), nor having any
ownership interested in or participating in the financing, operation,
management or control of, any person, firm, corporation or business that
competes with the Company or is a customer or client of the Company during the
one

 3
 

 

year period following the Employment Termination Date (“Competition”);
provided, however, that nothing in this Section 5 shall prevent Employee from
performing services for the acquirer of the Company’s Diesel business following
a Sale of the Diesel Business; provided, further, that following his
termination of employment with the Company, Employee shall be permitted to work
for an entity in Competition with the Company whose primary business is not providing
products or services
competitive with the products or services of the Company, so long
Employee does not engage in a business that makes such entity in Competition
with the Company.  Notwithstanding the
foregoing, Employee may, without violating this Section 5, own, as a passive
investment, shares of capital stock of a publicly-held corporation that engages
in Competition where the number of shares of such corporation’s capital stock
that are owned by Employee represent less than three percent of the total
number of shares of such corporation’s capital stock outstanding.

(b)           Non-Solicitation. 
Until the date 12 months after the termination of Employee’s employment
with the Company for any reason, Employee agrees and acknowledges that Employee’s
right to receive the severance and retention payments set forth in
Section 3 and 4 (to the extent Employee is otherwise entitled to such
payments) shall be conditioned upon Employee not either directly or indirectly
soliciting, inducing, recruiting or encouraging an employee to leave his or her
employment either for Employee or for any other entity or person with which or
whom Employee has a business relationship.

(c)           Understanding
of Covenants.  Employee represents
that he (i) is familiar with the foregoing covenants not to compete and
not to solicit, and (ii) is fully aware of his obligations hereunder,
including, without limitation, the reasonableness of the length of time, scope
and geographic coverage of these covenants.

(d)           Remedy
for Breach.  Upon any breach of this
section by Employee, all severance and retention payments pursuant to Section 3
or 4 shall immediately cease, and that shall be the sole remedy available to
the Company for such breach.

6.             Attorney Fees, Costs and
Expenses.  With respect to any Change
of Control Severance Termination only, the Company shall reimburse Employee for
the reasonable attorney fees, costs and expenses incurred by the Employee in connection
with any action brought by Employee to enforce his rights hereunder, provided
such action is not decided in favor of the Company.

7.             Limitation on Payments.

(a)           In
the event that the severance and other benefits provided for in this Agreement
or otherwise payable to the Employee (i) constitute “parachute payments”
within the meaning of Section 280G of the Internal Revenue Code of 1986,
as amended (the “Code”) and (ii) but for this Section 7, would be
subject to the excise tax imposed by Section 4999 of the Code, then the
Employee’s severance and/or retention benefits under this Agreement shall be
either

(A)                              delivered
in full, or

 4
 

 

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

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

(b)           If
a reduction in the payments and benefits that would otherwise be paid or
provided to the Employee under the terms of this Agreement is necessary to
comply with the provisions of Section 7(a), the Employee shall be entitled
to select which payments or benefits will be reduced and the manner and method
of any such reduction of such payments or benefits (including but not limited
to the number of options or other awards that would vest under
Section 3(b)) subject to reasonable limitations (including, for example,
express provisions under the Company’s benefit plans) (so long as the
requirements of Section 7(a) are met). 
Within thirty (30) days after the amount of any required reduction in
payments and benefits is finally determined in accordance with the provisions
of Section 7(c), the Employee shall notify the Company in writing
regarding which payments or benefits are to be reduced.  If no notification is given by the Employee,
the Company will determine which amounts to reduce.  If, as a result of any reduction required by
Section 7(a), amounts previously paid to the Employee exceed the amount to
which the Employee is entitled, the Employee will promptly return the excess
amount to the Company.

(c)           Unless
the Company and the Employee otherwise agree in writing, any determination
required under this Section 7 shall be made in writing by the Company’s primary
outside tax advisors immediately prior to the Change of Control (the “Accountants”),
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes.  For purposes
of making the calculations required by this Section 7, the Accountants
may, after taking into account the information provided by the Employee, make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. 
The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. 
The Company shall bear all costs the Accountants may reasonably incur in
connection with any calculations contemplated by this Section 7.

8.             Definition of Terms.  The following terms referred to in this
Agreement shall have the following meanings:

(a)           Annual
Compensation.  “Annual Compensation” means
an amount equal to the greater of (i) Employee’s base salary for the
twelve (12) months preceding the Change of Control plus the employee’s target
bonus for the same period (but not less than 85% of such base salary), or
(ii) Employee’s base salary on an annualized basis and the employee’s
target bonus as of the Termination Date (but not less than 85% of such base
salary).

 5
 

 

(b)           Cause.  “Cause” shall mean (i) any act of
personal dishonesty taken by the Employee in connection with his
responsibilities as an employee and intended to result in substantial personal
enrichment of the Employee, (ii) the conviction of or plea of nolo
contendere to a felony, (iii) a willful act by the Employee that
constitutes gross misconduct and that is injurious to the Company, or (iv) for
a period of not less than thirty (30) days following delivery to the Employee
of a written demand for performance from the Company that describes the basis
for the Company’s belief that the Employee has not substantially performed his
duties, continued violations by the Employee of the Employee’s obligations to
the Company that are demonstrably willful and deliberate on the Employee’s part.  Any dismissal for cause must be approved by
the Company’s Board of Directors prior to the dismissal date.

(c)           Change
of Control.  “Change of Control”
means the occurrence of any of the following events:

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

(ii)           A
change in the composition of the Board occurring within a twelve-month period,
as a result of which fewer than a majority of the directors are Incumbent
Directors.  “Incumbent Directors” shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual whose election
or nomination is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company);

(iii)          The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or such surviving entity’s
parent) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity or such surviving
entity’s parent outstanding immediately after such merger or consolidation;

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

(d)           Disability.  “Disability” shall mean that the Employee has
been unable to perform his Company duties as the result of his incapacity due
to physical or mental illness, and such inability, at least twenty-six (26)
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Employee or the Employee’s legal representative (such Agreement as to
acceptability not to be unreasonably withheld). 
Termination resulting from Disability may only be effected after at
least thirty (30) days’ written notice by the Company of its intention to
terminate the Employee’s employment.  In
the

 6
 

 

event that the Employee resumes the performance of substantially all of
his duties hereunder before the termination of his employment becomes
effective, the notice of intent to terminate shall automatically be deemed to
have been revoked.

(e)           Involuntary
Termination.  “Involuntary
Termination” shall mean (i) without the Employee’s express written
consent, the significant reduction of the Employee’s duties, authority or
responsibilities, relative to the Employee’s duties, authority or responsibilities
as in effect immediately prior to such reduction, or the assignment to Employee
of such reduced duties, authority or responsibilities; provided, however, that
so long as Employee’s title, duties, authority and responsibility are at the
level of Chief Technical Officer or greater, whether at the Company or at an
acquirer following a Change of Control, then that will not constitute an
Involuntary Termination under this clause (i), (ii) without the Employee’s
express written consent, a substantial reduction, without good business
reasons, of the facilities and perquisites (including office space and
location) available to the Employee immediately prior to such reduction; (iii) a
reduction by the Company in the base salary or target bonus of the Employee as
in effect immediately prior to such reduction; (iv) a material reduction
by the Company in the kind or level of employee benefits to which the Employee
was entitled immediately prior to such reduction with the result that the
Employee’s overall benefits package is significantly reduced; (v) the
relocation of the Employee to a facility or a location more than twenty-five
(25) miles from the Employee’s then present location, without the Employee’s
express written consent; (vi) any purported termination of the Employee by
the Company that is not effected for Disability or for Cause, or, during the
Change of Control Period only, any purported termination for which the grounds
relied upon are not valid; (vii) the failure of the Company to obtain the
assumption of this Agreement by any successors contemplated in Section 9(a)
below; or (viii) during the Change of Control Period only, any act or set
of facts or circumstances that would, under California case law or statute
constitute a constructive termination of the Employee.  However, with respect to any Non-Change of
Control Severance Termination, an Involuntary Termination shall not be deemed
to have occurred unless Employee provides written notice to the Company describing the nature of the event that
he believes forms the basis for Involuntary Termination and the Company does
not cure such event within ten (10) days following receipt of such notice.

(f)            Sale of the
Diesel Business.  “Sale of the Diesel
Business” shall mean the consummation of the sale of all or substantially all
of the assets of the Company’s diesel business, including the OEM platform and
the XFP/XFC technology to a third-party.

(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

 7
 

 

appeal having been perfected), or (iii) if the Agreement is
terminated by the Employee, the date on which the Employee delivers the notice
of termination to the Company.

9.             Successors.

(a)           Company’s
Successors.  Any successor to the
Company (whether direct or indirect and whether by purchase, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement
in the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession.  For all purposes under this Agreement, the
term “Company” shall include any successor to the Company’s business and/or
assets which executes and delivers the assumption agreement described in this Section 9(a)
or which becomes bound by the terms of this Agreement by operation of law.

(b)           Employee’s
Successors.  The terms of this
Agreement and all rights of the Employee hereunder shall inure to the benefit
of, and be enforceable by, the Employee’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

10.           Notice.

(a)           General.  Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S.  registered or certified mail, return receipt
requested and postage prepaid.  In the
case of the Employee, mailed notices shall be addressed to him at the home
address which he most recently communicated to the Company in writing.  In the case of the Company, mailed notices
shall be addressed to its corporate headquarters, and all notices shall be
directed to the attention of its Secretary.

(b)           Notice
of Termination.  Any termination by
the Company for Cause or by the Employee as a result of a voluntary resignation
or an Involuntary Termination shall be communicated by a notice of termination
to the other party hereto given in accordance with Section 10 (a) of this
Agreement.  Such notice shall indicate
the specific termination provision in this Agreement relied upon, shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
termination date (which shall be not more than thirty (30) days after the
giving of such notice).  The failure by
the Employee to include in the notice any fact or circumstance which
contributes to a showing of Involuntary Termination shall not waive any right
of the Employee hereunder or preclude the Employee from asserting such fact or
circumstance in enforcing his rights hereunder.

11.           Miscellaneous
Provisions.

(a)           No
Duty to Mitigate.  The Employee shall
not be required to mitigate the amount of any payment contemplated by this
Agreement, nor shall any such payment be reduced by any earnings that the
Employee may receive from any other source.

 8
 

 

(b)           Waiver.  No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee).  No
waiver by either party of any breach of, or of compliance with, any condition
or provision of this Agreement by the other party shall be considered a waiver
of any other condition or provision or of the same condition or provision at
another time.

(c)           Whole
Agreement.  This Agreement and any
outstanding stock option agreements represent the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes in
their entirety all prior arrangements and understandings regarding same,
including the Change of Control Severance Agreement previously entered into by
and between Employee and the Company and any offer letter, promotion letter,
employment agreement or other agreement regarding Employee’s employment terms
with the Company.  Other than the
agreements described in the preceding sentence, no agreements, representations
or understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or entered
into by either party with respect to the subject matter hereof.

(d)           Choice
of Law.  The validity,
interpretation, construction and performance of this Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Arizona without regard to principles
of conflicts of laws.

(e)           Severability.  The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

(f)            Withholding.  All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.

(g)           Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

 9
 

 

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

	
  COMPANY

  	
  CATALYTICA ENERGY SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert Zack

  
	
   

  	
   

  	
  Robert Zack, President and CEO

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  September 27, 2005

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  EMPLOYEE

  	
  /s/ Ralph Dalla Betta

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  September 27, 2005

  	
   

  
					

 

 10EXHIBIT 10.2

CATALYTICA
ENERGY SYSTEMS, INC.

RETENTION
AGREEMENT

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

1.             Term of Agreement.  This Agreement shall terminate upon the date
that all obligations of the parties hereto with respect to this Agreement have
been satisfied.

2.             At-Will Employment.  The Company and the Employee acknowledge that
the Employee’s employment is and shall continue to be at-will, as defined
under applicable law.  If the Employee’s
employment terminates for any reason, including (without limitation) any termination
after an announcement of Change of Control and prior to twenty-four (24) months
following a Change of Control or the announcement of a Change of Control,
whichever comes later, the Employee shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by this
Agreement.

3.             Severance Benefits.

(a)           Termination Not in Connection with a Change of
Control.  If the Employee’s employment
terminates as a result of Involuntary Termination (as defined below) other than
for Cause at any time prior to an announcement of a Change of Control or on or
after the date that is twenty-four (24) months following a Change of Control or
the announcement of a Change of Control, whichever comes later (a “Non-Change
of Control Severance Termination”), then, subject to Employee (i) executing and
not revoking a standard release of claims in favor of the Company; provided,
however, that such release shall preserve all indemnification rights of
Employee and all other rights of Employee under the any indemnification
agreement or similar agreement with the Company (a “Release”), and (ii) not
breaching the provisions of Section 5 hereof, then Employee shall be entitled
to receive the following severance benefits:

(i)            Severance
Payment.  Following the Employment
Termination Date the Company shall pay Employee an aggregate amount equal to one
hundred percent (100%) of his Annual Compensation, less applicable taxes,
ratably over the remaining payroll periods in the same calendar year in which
Employee terminated.

(ii)           Subsidized
COBRA.  Subject to Employee timely
electing continuation coverage under Title X of the Consolidated Budget
Reconciliation Act of 1985 (“COBRA”), the Company shall subsidize Employee and
his eligible dependent’s COBRA premiums so that Employee pays the same premium
as an active employee of the Company for a period equal to the lesser of (i)
twelve months following the Employee’s termination date, or (ii) the date upon
which Employee becomes covered under the group health plans of another employer
with comparable group health benefits and levels of coverage.

 

(b)           Termination
in Connection with a Change of Control. 
If the Employee’s employment terminates as a result of Involuntary
Termination (as defined below) other than for Cause at any time after an
announcement of a Change of Control and prior to twenty-four (24) months
following a Change of Control or the announcement of a Change of Control,
whichever comes later (the “Change of Control Period”) (a “Change of Control Severance
Termination”), then, subject to Employee (i) executing and not revoking a
Release, (ii) not breaching the provisions of Section 5 hereof, and (iii) the
provisions of Section 7 hereof, the Employee shall be entitled to receive
the following severance benefits:

(i)            Severance
Payment.  A cash payment in an amount
equal to two hundred percent (200%) of the Employee’s Annual Compensation plus
a pro rata cash payment of the current year bonus award based on the target
bonus for the Employee, less any Change of Control Retention Payments (as
defined in Section 4 hereof) already paid to Employee;

(ii)           Continued
Employee Benefits.  One hundred
percent (100%) Company-paid health, dental and life insurance coverage at the
same level of coverage as was provided to such employee immediately prior to
the Change of Control Severance Termination (the “Company-Paid Coverage”).  If such coverage included the Employee’s
dependents immediately prior to the Change of Control Severance Termination,
such dependents shall also be covered at Company expense.  Company-Paid Coverage shall continue until
the earlier of (i) two years from the date of the Involuntary Termination
or (ii) the date that the Employee and his dependents become covered under
another employer’s group health, dental or life insurance plans that provide
Employee and his dependents with comparable benefits and levels of coverage.  For purposes of COBRA, the date of the “qualifying
event” for Employee and his dependents shall be the date upon which the Company-Paid
Coverage terminates.

(iii)          Option
and Restricted Stock Accelerated Vesting. 
One Hundred percent (100%) of the unvested portion of any stock option
or restricted stock (including restricted stock units) held by the Employee
shall automatically be accelerated in full so as to become completely vested.

(iv)          Timing
of Severance Payments.  Any Change of
Control Severance payment to which Employee is entitled under Section 3(b)(1)
shall be paid by the Company to the Employee (or to the Employee’s successor in
interest, pursuant to Section 9(b)) in cash and in full, not later than
thirty (30) calendar days following the Termination Date, subject to Section 11(f).

(c)           Voluntary
Resignation; Termination For Cause.  If
the Employee’s employment terminates by reason of the Employee’s voluntary
resignation (and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be established
under the Company’s then existing option, severance and benefits plans and
practices.

(d)           Disability;
Death.  If the Company terminates the
Employee’s employment as a result of the Employee’s Disability, or such
Employee’s employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive severance or other benefits

 2
 

 

except for those (if any) as may then be established under the Company’s
then existing severance and benefits plans and practices or pursuant to other
agreements with the Company.

4.             Retention Payments.

(a)           Change
of Control Retention Payments.  In
the event of a Change of Control (other than a liquidation or dissolution of
the Company) wherein Employee is employed by the acquiring entity in the position
of Vice-President of Engineering and Program Management or a greater position,
then Employee shall receive cash retention payments (the “Change of Control
Retention Payments”) as to 1/3 of Annual Compensation on the date of the Change
of Control, another 1/3 of Annual Compensation on the date that is six months
following the Change of Control, and a final 1/3 of Annual Compensation on the
one year anniversary of the Change of Control, subject to his remaining
employed by the acquiring entity through such dates.

(b)           Sale
of the Diesel Business Retention Payments. 
In the event of a Sale of the Diesel Business (as defined herein) that
does not constitute a Change of Control in which the acquiring entity hires
Employee as a full-time employee at the level of vice-president or greater,
Employee shall receive retention payments (the “Sale of Diesel Business
Retention Payments”) as to $100,000 on the date of the Sale of the Diesel
Business, another $100,000 on the date that is six months following the Sale of
the Diesel Business, and a final $100,000 on the one year anniversary of the
Sale of the Diesel Business, subject to his remaining employed by the acquiring
entity through such dates; provided, however, that if following the Sale of the
Diesel Business Employee is terminated by the acquiring entity as a result of
an Involuntary Termination, then, subject to Employee (i) executing and not
revoking a Release, (ii) not breaching the provisions of Section 5 hereof, and
(iii) the provisions of Section 7 hereof, the Employee shall be entitled
to receive any remaining Sale of Diesel Business Retention Payments that have
not yet been paid to Employee.

(c)           No
Duplicate Payments.  In no event
shall Employee receive both Change of Control Retention Payments and Sale of
Diesel Business Retention Payments. 
Moreover, if Employee receives Sale of Diesel Business Retention
Payments, he shall not be eligible to receive any severance benefits under
Section 3 hereof.

5.             Conditional Nature of Section 3
and 4 Payments.

(a)           Noncompete.  Employee acknowledges that the nature of the
Company’s business is such that if Employee were to become employed by, or
substantially involved in, the business of a competitor of the Company during
the 12 months following the termination of Employee’s employment with the
Company, it would be very difficult for Employee not to rely on or use the
Company’s trade secrets and confidential information.  Thus, to avoid the inevitable disclosure of
the Company’s trade secrets and confidential information, Employee agrees and
acknowledges that Employee’s right to receive the payments set forth in
Section 3 or 4 (to the extent Employee is otherwise entitled to such
payments) shall be conditioned upon Employee not directly or indirectly
engaging in (whether as an employee, consultant, agent, proprietor, principal,
partner, stockholder, corporate officer, director or otherwise), nor having any
ownership interested in or participating in the financing, operation,
management or control of, any person, firm, corporation or business that
competes with the Company or is a customer or client of the Company during the
one

 3
 

 

year period following the Employment Termination Date (“Competition”);
provided, however, that nothing in this Section 5 shall prevent Employee from performing
services for the acquirer of the Company’s Diesel business following a Sale of
the Diesel Business; provided, further, that following his termination of
employment with the Company, Employee shall be permitted to work for an entity
in Competition with the Company whose primary business is not providing
products or services
competitive with the products or services of the Company, so long
Employee does not engage in a business that makes such entity in Competition
with the Company.  Notwithstanding the
foregoing, Employee may, without violating this Section 5, own, as a passive
investment, shares of capital stock of a publicly-held corporation that engages
in Competition where the number of shares of such corporation’s capital stock
that are owned by Employee represent less than three percent of the total
number of shares of such corporation’s capital stock outstanding.

(b)           Non-Solicitation. 
Until the date 12 months after the termination of Employee’s employment
with the Company for any reason, Employee agrees and acknowledges that Employee’s
right to receive the severance and retention payments set forth in
Section 3 and 4 (to the extent Employee is otherwise entitled to such
payments) shall be conditioned upon Employee not either directly or indirectly
soliciting, inducing, recruiting or encouraging an employee to leave his or her
employment either for Employee or for any other entity or person with which or
whom Employee has a business relationship.

(c)           Understanding
of Covenants.  Employee represents
that he (i) is familiar with the foregoing covenants not to compete and
not to solicit, and (ii) is fully aware of his obligations hereunder,
including, without limitation, the reasonableness of the length of time, scope
and geographic coverage of these covenants.

(d)           Remedy
for Breach.  Upon any breach of this
section by Employee, all severance and retention payments pursuant to Section 3
or 4 shall immediately cease, and that shall be the sole remedy available to
the Company for such breach.

6.             Attorney Fees, Costs and
Expenses.  With respect to any Change
of Control Severance Termination only, the Company shall reimburse Employee for
the reasonable attorney fees, costs and expenses incurred by the Employee in connection
with any action brought by Employee to enforce his rights hereunder, provided
such action is not decided in favor of the Company.

7.             Limitation on Payments.

(a)           In
the event that the severance and other benefits provided for in this Agreement
or otherwise payable to the Employee (i) constitute “parachute payments”
within the meaning of Section 280G of the Internal Revenue Code of 1986,
as amended (the “Code”) and (ii) but for this Section 7, would be
subject to the excise tax imposed by Section 4999 of the Code, then the
Employee’s severance and/or retention benefits under this Agreement shall be
either

(A)                              delivered
in full, or

 4
 

 

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

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

(b)           If
a reduction in the payments and benefits that would otherwise be paid or
provided to the Employee under the terms of this Agreement is necessary to
comply with the provisions of Section 7(a), the Employee shall be entitled
to select which payments or benefits will be reduced and the manner and method
of any such reduction of such payments or benefits (including but not limited
to the number of options or other awards that would vest under
Section 3(b)) subject to reasonable limitations (including, for example,
express provisions under the Company’s benefit plans) (so long as the
requirements of Section 7(a) are met). 
Within thirty (30) days after the amount of any required reduction in
payments and benefits is finally determined in accordance with the provisions
of Section 7(c), the Employee shall notify the Company in writing
regarding which payments or benefits are to be reduced.  If no notification is given by the Employee,
the Company will determine which amounts to reduce.  If, as a result of any reduction required by
Section 7(a), amounts previously paid to the Employee exceed the amount to
which the Employee is entitled, the Employee will promptly return the excess
amount to the Company.

(c)           Unless
the Company and the Employee otherwise agree in writing, any determination
required under this Section 7 shall be made in writing by the Company’s primary
outside tax advisors immediately prior to the Change of Control (the “Accountants”),
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes.  For purposes
of making the calculations required by this Section 7, the Accountants
may, after taking into account the information provided by the Employee, make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. 
The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. 
The Company shall bear all costs the Accountants may reasonably incur in
connection with any calculations contemplated by this Section 7.

8.             Definition of Terms.  The following terms referred to in this Agreement
shall have the following meanings:

(a)           Annual
Compensation.  “Annual Compensation”
means an amount equal to the greater of (i) Employee’s base salary for the
twelve (12) months preceding the Change of Control plus the employee’s target
bonus for the same period (but not less than 75% of such base salary), or (ii) Employee’s
base salary on an annualized basis and the employee’s target bonus as of the
Termination Date (but not less than 75% of such base salary).

 5
 

 

(b)           Cause.  “Cause” shall mean (i) any act of
personal dishonesty taken by the Employee in connection with his
responsibilities as an employee and intended to result in substantial personal
enrichment of the Employee, (ii) the conviction of or plea of nolo
contendere to a felony, (iii) a willful act by the Employee that
constitutes gross misconduct and that is injurious to the Company, or (iv) for
a period of not less than thirty (30) days following delivery to the Employee
of a written demand for performance from the Company that describes the basis
for the Company’s belief that the Employee has not substantially performed his
duties, continued violations by the Employee of the Employee’s obligations to
the Company that are demonstrably willful and deliberate on the Employee’s part.  Any dismissal for cause must be approved by
the Company’s Board of Directors prior to the dismissal date.

(c)           Change
of Control.  “Change of Control”
means the occurrence of any of the following events:

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

(ii)           A
change in the composition of the Board occurring within a twelve-month period,
as a result of which fewer than a majority of the directors are Incumbent
Directors.  “Incumbent Directors” shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company);

(iii)          The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or such surviving entity’s
parent) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity or such surviving
entity’s parent outstanding immediately after such merger or consolidation;

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

(d)           Disability.  “Disability” shall mean that the Employee has
been unable to perform his Company duties as the result of his incapacity due
to physical or mental illness, and such inability, at least twenty-six (26)
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Employee or the Employee’s legal representative (such Agreement as to
acceptability not to be unreasonably withheld). 
Termination resulting from Disability may only be effected after at
least thirty (30) days’ written notice by the Company of its intention to
terminate the Employee’s employment.  In
the

 6
 

 

event that the Employee resumes the performance of substantially all of
his duties hereunder before the termination of his employment becomes
effective, the notice of intent to terminate shall automatically be deemed to
have been revoked.

(e)           Involuntary
Termination.  “Involuntary
Termination” shall mean (i) without the Employee’s express written
consent, the significant reduction of the Employee’s duties, authority or
responsibilities, relative to the Employee’s duties, authority or
responsibilities as in effect immediately prior to such reduction, or the
assignment to Employee of such reduced duties, authority or responsibilities;
provided, however, that so long as Employee’s title, duties, authority and
responsibility are at the level of Vice-President of Engineering and Program
Management or greater, whether at the Company or at an acquirer following a
Change of Control, then that will not constitute an Involuntary Termination
under this clause (i), (ii) without the Employee’s express written
consent, a substantial reduction, without good business reasons, of the
facilities and perquisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) a reduction by the
Company in the base salary or target bonus of the Employee as in effect
immediately prior to such reduction; (iv) a material reduction by the
Company in the kind or level of employee benefits to which the Employee was
entitled immediately prior to such reduction with the result that the Employee’s
overall benefits package is significantly reduced; (v) the relocation of
the Employee to a facility or a location more than twenty-five (25) miles from
the Employee’s then present location, without the Employee’s express written
consent; (vi) any purported termination of the Employee by the Company
that is not effected for Disability or for Cause, or, during the Change of
Control Period only, any purported termination for which the grounds relied
upon are not valid; (vii) the failure of the Company to obtain the
assumption of this Agreement by any successors contemplated in Section 9(a)
below; or (viii) during the Change of Control Period only, any act or set
of facts or circumstances that would, under California case law or statute
constitute a constructive termination of the Employee.  However, with respect to any Non-Change of
Control Severance Termination, an Involuntary Termination shall not be deemed
to have occurred unless Employee provides written notice to the Company describing the nature of the event that
he believes forms the basis for Involuntary Termination and the Company does
not cure such event within ten (10) days following receipt of such notice.

(f)            Sale of the
Diesel Business.  “Sale of the Diesel
Business” shall mean the consummation of the sale of all or substantially all
of the assets of the Company’s diesel business, including the OEM platform and
the XFP/XFC technology to a third-party.

(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

 7
 

 

appeal having been perfected), or (iii) if the Agreement is
terminated by the Employee, the date on which the Employee delivers the notice
of termination to the Company.

9.             Successors.

(a)           Company’s
Successors.  Any successor to the
Company (whether direct or indirect and whether by purchase, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement
in the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession.  For all purposes under this Agreement, the
term “Company” shall include any successor to the Company’s business and/or
assets which executes and delivers the assumption agreement described in this Section 9(a)
or which becomes bound by the terms of this Agreement by operation of law.

(b)           Employee’s
Successors.  The terms of this
Agreement and all rights of the Employee hereunder shall inure to the benefit
of, and be enforceable by, the Employee’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

10.           Notice.

(a)           General.  Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S.  registered or certified mail, return receipt
requested and postage prepaid.  In the
case of the Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing.  In the case of the Company, mailed notices
shall be addressed to its corporate headquarters, and all notices shall be
directed to the attention of its Secretary.

(b)           Notice
of Termination.  Any termination by
the Company for Cause or by the Employee as a result of a voluntary resignation
or an Involuntary Termination shall be communicated by a notice of termination
to the other party hereto given in accordance with Section 10 (a) of this
Agreement.  Such notice shall indicate
the specific termination provision in this Agreement relied upon, shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
termination date (which shall be not more than thirty (30) days after the
giving of such notice).  The failure by
the Employee to include in the notice any fact or circumstance which
contributes to a showing of Involuntary Termination shall not waive any right
of the Employee hereunder or preclude the Employee from asserting such fact or
circumstance in enforcing his rights hereunder.

11.           Miscellaneous Provisions.

(a)           No
Duty to Mitigate.  The Employee shall
not be required to mitigate the amount of any payment contemplated by this
Agreement, nor shall any such payment be reduced by any earnings that the
Employee may receive from any other source.

 8
 

 

(b)           Waiver.  No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee).  No
waiver by either party of any breach of, or of compliance with, any condition
or provision of this Agreement by the other party shall be considered a waiver
of any other condition or provision or of the same condition or provision at
another time.

(c)           Whole
Agreement.  This Agreement and any
outstanding stock option agreements represent the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes in
their entirety all prior arrangements and understandings regarding same,
including the Change of Control Severance Agreement previously entered into by
and between Employee and the Company and any offer letter, promotion letter,
employment agreement or other agreement regarding Employee’s employment terms
with the Company.  Other than the
agreements described in the preceding sentence, no agreements, representations
or understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or entered
into by either party with respect to the subject matter hereof.

(d)           Choice
of Law.  The validity, interpretation,
construction and performance of this Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of Arizona without regard to principles of conflicts of laws.

(e)           Severability.  The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

(f)            Withholding.  All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.

(g)           Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

 9
 

 

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

	
  COMPANY

  	
  CATALYTICA ENERGY SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert Zack

  
	
   

  	
   

  	
  Robert Zack, President and CEO

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  September 27, 2005

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  EMPLOYEE

  	
  /s/ Joseph Barry

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  September 27, 2005

  	
   

  
					

 

 10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}]]