Document:

EX-10.6

 

Exhibit 10-6

RESTRICTED STOCK AWARD AGREEMENT

Pursuant to the

LEXINGTON PRECISION CORPORATION

2005 STOCK AWARD PLAN

Name of Participant: Elizabeth H. Ruml

Date of Grant: October 9, 2007

Number of Shares: 10,000

Value of each Share on Date of Grant: $.70

          This RESTRICTED STOCK AGREEMENT (the “Agreement”), dated as of October 9, 2007, is made
between Lexington Precision Corporation, a Delaware corporation (the “Company”) and the above-named
individual (the “Participant”) to record the granting of Restricted Stock on October 9, 2007 (the
“Date of Grant”) to the Participant pursuant to the Lexington Precision Corporation 2005 Stock
Award Plan (the “Plan”).

          The Company and the Participant hereby agree as follows:

          1. Grant of Shares. The Company hereby grants to the Participant, as of the Date of
Grant, subject to and in accordance with the terms and conditions of the Plan and this Agreement,
10,000 shares of the Company’s Common Stock, par value $0.25 per share (the “Common Stock”). The
grant of shares of Common Stock to the Participant, evidenced by this Agreement, is an award of
Restricted Stock (as defined in the Plan) and such shares of Restricted Stock are referred to
herein as the “Shares”.

          2. Vesting of Shares. Ownership of the Shares shall vest pursuant to the following
vesting schedule, provided, in each case, any additional conditions and performance goals set forth
in Schedule I have been satisfied and the Participant is still serving as a director of the
Company:

	 	 	 
	Anniversary of Date of Grant	 	Shares Vested
	October  9, 2008
	 	2,000
	 
	October  9, 2009
	 	2,000
	 
	October  9, 2010
	 	2,000
	 
	October  9, 2011
	 	2,000
	 
	October  9, 2012
	 	2,000

 

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     The foregoing vesting schedule notwithstanding, if (i) the service of the Participant as a
director of the Company terminates by reason of the Participant’s Disability or death or (ii) there
shall occur (x) a Change in Control, (y) a merger or consolidation of the Company with or into
another corporation or other entity as a result of which persons and entities who, immediately
prior to the consummation thereof, beneficially owned a majority of the voting stock of the
corporation no longer beneficially own such a majority immediately following the consummation
thereof, or (z) a sale of all or substantially all of the assets of the Company in a single
transaction or series of related transactions or (iii) persons who were directors of the Company on
the date hereof cease to constitute at least a majority of the members of the Company’s Board of
Directors (provided that, for purposes of this clause (iii) any person who becomes a member of the
Company’s Board of Directors after the date hereof whose election, appointment or nomination for
election or appointment thereto was approved by the vote of at least a majority of the then
incumbent Board of Directors shall be considered a member of the Board of Directors on the date
hereof), all Shares or portions thereof not yet vested shall become immediately vested.

          3. Forfeiture. If the Shares have not vested in accordance with the vesting criteria
set forth in Section 2 and the Participant’s service as a director of the Company terminates for
any reason, the Shares (and any dividends or other distributions related to such Shares) shall be
forfeited to the Company.

          4. Legend. Each share certificate representing the Shares shall bear a legend
indicating that such Shares are “Restricted Stock” and are subject to the provisions of this
Agreement and the Plan.

          5. General Restrictions on Issuance of Stock Certificates. The Company shall not be
required to deliver any certificate representing the Shares until it has been furnished with such
opinions, representations or other documents as it may deem necessary or desirable, in its
discretion, to ensure compliance with any law or any rules of the Securities and Exchange
Commission or any other governmental authority having jurisdiction under the Plan or over the
Company, the Participant, or the Shares or any interests granted thereunder.

          6. Rights as Shareholder. Except for the dividend and distribution restrictions
described below, and the transfer and other restrictions set forth elsewhere in this Agreement and
in the Plan, the Participant, as record holder of the Shares, shall possess all the rights of a
holder of the Company’s Common Stock, including voting, dividend and other distribution rights,
provided, however, that prior to vesting the certificates representing the Shares, as well as any
dividends or other distributions with respect to such Shares, shall be held by the Company for the
benefit of the Participant. Any distributions with respect to the Shares in the form of capital
stock shall be treated as Restricted Stock in the same manner as the Shares. If any Shares do not
vest and are forfeited to the Company, then any capital stock distributed with respect to such
Shares, as well as any other dividends or other distributions with respect to such Shares, shall
also be forfeited to the Company. Upon forfeiture of any Shares, the Participant agrees to deliver
promptly to the Company certificates representing such Shares together with a stock power executed
in blank covering such Shares (and covering any capital stock distributed
with respect to such Shares). The stock power with respect to any forfeited Shares shall be

 

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completed in the name of the Company by an officer of the Company and the forfeited Shares shall be
returned to treasury.

          7. Transferability — Restricted Share Certificates. The Shares may not be sold,
transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated until they
become vested in accordance with Section 2 of this Agreement and then only to the extent permitted
under this Agreement and applicable securities laws. Prior to vesting, all rights with respect to
the Restricted Stock granted to a Participant under the Plan shall be available, during such
Participant’s lifetime, only to such Participant.

          8. No Service Rights. Neither the Plan nor this award shall confer upon the
Participant any right with respect to continuance of service as a director of the Company nor shall
they interfere in any way with the right of the Company to terminate the Participant’s service as a
director in accordance with the Company’s certificate of incorporation or by-laws.

          9. Section 83(b) Election. The Participant may elect, within 30 days of the Date of
Grant pursuant to Section 83(b) of the Internal Revenue Code, to include in his or her gross income
the fair market value of the Shares covered by this Agreement in the taxable year of grant. The
election must be made by filing the appropriate notice with the Internal Revenue Service within 30
days of the Date of Grant. If the Participant makes this election, the Participant shall promptly
notify the Company by submitting to the Company a copy of the election notice filed with the
Internal Revenue Service.

          10. Adjustment of Shares. As provided by the Plan, in the event of any change in the
Common Stock of the Company by reason of any stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, split-up, combination, or exchange of Shares, or any similar
change affecting the Common Stock, the Shares shall be adjusted automatically consistent with such
change to prevent substantial dilution or enlargement of the rights granted to, or available for,
the Participant.

          11. Coordination with Plan. Terms used herein that are defined in the Plan shall have
the meanings ascribed to them in the Plan. If there is any inconsistency between the terms of this
Award Agreement and the terms of the Plan, the Plan’s terms shall supersede and replace the
conflicting terms herein.

          12. Notices. All notices to the Company shall be in writing and sent to the Company’s
Secretary at the Company’s offices, Lexington Precision Corporation, 800 Third Avenue, New York,
NY 10022 or to such other person and/or address as the Company may provide by notice to
Participant. Notices to the Participant shall be addressed to the Participant at the Participant’s
address as it appears on the Company’s records.

 

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     IN WITNESS WHEREOF, the Company and the Participant have caused this Restricted Stock
Agreement to be executed on the date set forth opposite their respective signatures, it being
further understood that the Date of Grant may differ from the date of signature.

	 	 	 	 	 
	Dated: October 9, 2007                         	LEXINGTON PRECISION CORPORATION

 	 
	 	By:  	/s/ Michael A. Lubin
 	 
	 	 	Name:  	Michael A. Lubin 	 
	 	 	Title:  	Chairman of the Board 	 
	 

	 	 	 	 	 	 	 
	Dated: October 22, 2007	 	PARTICIPANT	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Elizabeth H. Ruml	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Elizabeth H. Ruml	 	 

 

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SCHEDULE I VESTING CONDITIONS AND PERFORMANCE GOALS

-None-exv10w6

 

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

     1. Duties and Scope of Employment.

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

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

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

 

 

     3. Compensation.

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

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

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

     5. Severance Benefits.

          (a) Termination Not in Connection with a Change of Control. If the Employee’s
employment with SCR-Tech terminates as a result of Involuntary Termination (as defined below)
other than for Cause at any time prior to an announcement of a Change of Control or on or
after the
date that is twenty-four (24) months following a Change of Control or the announcement of a
Change of Control, whichever comes later (a “Non-Change of Control Severance Termination”),
then, subject to Employee (i) executing and not revoking a standard release of claims in favor
of the
Company; provided, however, that such release shall preserve all indemnification rights
of
Employee and all other rights of Employee under the currently existing indemnification
agreement
or similar agreement with the Company (a “Release”), and (ii) not breaching the provisions of
Section 6 hereof, then Employee shall be entitled to receive the
following severance and non-competition benefits:

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

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

          (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

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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 comes
later (the “Change of Control Period”) (a “Change of Control Severance Termination”), then,
subject to Employee (i) executing and not revoking a Release, (ii) not breaching the provisions of
Section 6 hereof, and (iii) the provisions of Section 8 hereof, the Employee shall be entitled to
receive the following severance benefits:

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

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

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

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

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

               (iii) Timing of Severance & Non-Competition Payments. Any Change of Control severance
and non-competition payments to which Employee is entitled under Section 5(b)(i) shall be paid by
the Company to the Employee (or to the Employee’s successor in interest, pursuant to Section 10(b))
in cash and in full, not later than thirty (30) calendar days following the Termination Date,
subject to Sections 9(d) and 12(f). Severance payments and benefits may be delayed hereunder in
order to comply with the provisions of Internal Revenue Code Section 409A and the proposed or final
regulations issued thereunder.

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

          (d)
Disability; Death. If the Company terminates the Employee’s employment as
a result of the Employee’s Disability, or such Employee’s employment is terminated due to the
death
of the Employee, then the Employee shall not be entitled to receive severance or other
benefits
except for those (if any) as may then be established under the Company’s then existing
severance
and benefits plans and practices or pursuant to other agreements with the Company.

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

     6. Conditional Nature of Section 5 Payments.

          (a) Noncompete. Employee acknowledges that the nature of the Company’s business is
such that if Employee were to become employed by, or substantially involved in, the business of a
competitor of the Companies during the 12 months following the termination of Employee’s
employment, it would be very difficult for Employee not to rely on or use the Company’s trade
secrets and confidential information. Thus, to avoid the inevitable disclosure of the Companies’
trade secrets and confidential information, Employee agrees and acknowledges that Employee’s right
to receive the payments set forth in Section 5 (to the extent Employee is otherwise entitled to
such payments) shall be conditioned upon Employee not directly or indirectly engaging in (whether
as an employee, consultant, agent, proprietor, principal, partner, stockholder, corporate officer,
director or otherwise), nor having any ownership interested in or participating in the financing,
operation, management or control of, any person, firm, corporation or business that is in
Competition with any of the Companies or their affiliates; provided, however, that following his
termination of employment, Employee shall be permitted to work for an entity in Competition with
the Companies whose primary business is not providing products or services competitive with the
products or services of the Companies, so long Employee does not engage in a business that makes
such entity in Competition with the Companies. Notwithstanding the foregoing, Employee may, without
violating this Section 6, own, as a passive investment, shares of capital stock of a publicly-held
corporation that engages in Competition where the number of shares of such corporation’s capital
stock that are owned by Employee represent less than three percent of the total number of shares of
such corporation’s capital stock outstanding. Further, if the Employee notifies the CEO or the
Board in writing about potential employment that may be construed as in Competition, the CEO or
Board agrees to consider in good faith whether such potential employment may be construed as in
Competition and to notify Employee of its determination in writing or by e-mail within a reasonable
period of time.

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          (b) Non-Solicitation. Until the date 12 months after the termination of
Employee’s employment hereunder for any reason, Employee agrees and acknowledges that
Employee’s right to receive the severance payments set forth in Section 5 (to the extent
Employee is
otherwise entitled to such payments) shall be conditioned upon Employee not either directly or
indirectly soliciting, inducing, recruiting or encouraging an employee to leave his or her
employment
either for Employee or for any other entity or person with which or whom Employee has a
business
relationship.

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

          (d) Remedy for Breach. Upon any breach of this section by Employee, all
severance payments pursuant to Section 5 shall immediately cease, and that shall be the sole
remedy available to the Company for such breach.

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

     8. Limitation on Payments.

          (a) In the event that the severance and other benefits provided for in this
Agreement or otherwise payable to the Employee (i) constitute “parachute payments” within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and
(ii) but for this Section 8, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee’s severance benefits under this Agreement shall be either

               (A) delivered in full, or

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

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

          (b) If a reduction in the payments and benefits that would otherwise be paid or
provided to the Employee under the terms of this Agreement is necessary to comply with the
provisions of Section 8(a), the Employee shall be entitled to select which payments or
benefits will

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be reduced and the manner and method of any such reduction of such payments or benefits subject to
reasonable limitations (including, for example, express provisions under the Companies’ benefit
plans) (so long as the requirements of Section 8(a) are met). Within thirty (30) days after the
amount of any required reduction in payments and benefits is finally determined in accordance with
the provisions of Section 8(c), the Employee shall notify the Company in writing regarding which
payments or benefits are to be reduced. If no notification is given by the Employee, the Company
will determine which amounts to reduce. If, as a result of any reduction required by Section 8(a),
amounts previously paid to the Employee exceed the amount to which the Employee is entitled, the
Employee will promptly return the excess amount to the Company.

          (c) Unless the Company and the Employee otherwise agree in writing, any determination
required under this Section 8 shall be made in writing by the Company’s primary outside tax
advisors immediately prior to the Change of Control (the “Accountants”), whose determination shall
be conclusive and binding upon the Employee and the Company for all purposes. For purposes of
making the calculations required by this Section 8, the Accountants may, after taking into account
the information provided by the Employee, make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Companies and the Employee shall furnish to
the Accountants such information and documents as the Accountants may reasonably request in order
to make a determination under this Section. The Companies shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this Section 8.

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

          (a) Annual Compensation. “Annual Compensation” means an amount equal to
the greater of (i) Employee’s Base Salary for the twelve (12) months preceding the Change of
Control plus the Employee’s Target Bonus for the same period, or (ii) Employee’s Base Salary
on an
annualized basis and the Employee’s Target Bonus as of the Termination Date.

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

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

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

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

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

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

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

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

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

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

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

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

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

          (g) Involuntary Termination. “Involuntary Termination” shall mean (i) without
the Employee’s express written consent, the significant reduction of the Employee’s duties,
authority
or responsibilities, relative to the Employee’s duties, authority or responsibilities as in
effect
immediately prior to such reduction, or the assignment to Employee of such reduced duties,
authority or responsibilities; provided, however, that so long as Employee remains the
President of
SCR-Tech, or, following a Change of Control of SCR-Tech, whatever entity substantially
contains
SCR-Tech’s business, in either case with the duties, authority and responsibilities
that are

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commensurate with such position, then Employee shall have no grounds for an Involuntary Termination
pursuant to this Section 9(g)(i) or Section 9(g)(viii); provided, further, that if Employee reports
to someone other than the Chief Executive Officer of the Company, that shall not in and of itself
constitute grounds for an Involuntary Termination pursuant to this Section 9(g)(i) or Section
9(g)(viii); provided, further, that if Employee ceases to be a Section 16 officer pursuant to
section l(a) hereof, that shall not in and of itself constitute grounds for an Involuntary
Termination, (ii) without the Employee’s express written consent, a substantial reduction, without
good business reasons, of the facilities and perquisites (including office space and location)
available to the Employee immediately prior to such reduction; (iii) a reduction by the Company in
the base salary or target bonus of the Employee as in effect immediately prior to such reduction;
(iv) a material reduction by the Company in the kind or level of employee benefits to which the
Employee was entitled immediately prior to such reduction with the result that the Employee’s
overall benefits package is significantly reduced; (v) the relocation of the Employee to a facility
or a location more than twenty-five (25) miles from the Employee’s then present location, without
the Employee’s express written consent; (vi) any purported termination of the Employee by the
Company that is not effected for Disability or for Cause, or, during the Change of Control Period
only, any purported termination for which the grounds relied upon are not valid; (vii) the failure
of the Company to obtain the assumption of this Agreement by any successors contemplated in Section
10(a) below; or (viii) during the Change of Control Period only, any act or set of facts or
circumstances that would, under North Carolina case law or statute constitute a constructive
termination of the Employee. However, with respect to any Non-Change of Control Severance
Termination, an Involuntary Termination shall not be deemed to have occurred unless Employee
provides written notice to the Company describing the nature of the event that he believes forms
the basis for Involuntary Termination and the Company does not cure such event within ten (10) days
following receipt of such notice.

          (h) Termination Date. “Termination Date” shall mean (i) if this Agreement is
terminated by the Company for Disability, thirty (30) days after notice of termination is given to
the Employee (provided that the Employee shall not have returned to the performance of the
Employee’s duties on a full-time basis during such thirty (30)-day period), (ii) if the Employee’s
employment is terminated by the Company for any other reason, the date on which a notice of
termination is given, provided that if within thirty (30) days after the Company gives the
Employee notice of termination, the Employee notifies the Company that a dispute exists concerning
the termination or the benefits due pursuant to this Agreement, then the Termination Date shall be
the date on which such dispute is finally determined, either by mutual written agreement of the
parties, or a by final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected), or (iii) if the
Agreement is terminated by the Employee, the date on which the Employee delivers the notice of
termination to the Company.

     10. Successors.

          (a) Company’s Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company’s business and/or assets shall assume the obligations under this Agreement and
agree expressly to perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the absence

-9-

 

of a succession. For all purposes under this Agreement, the term “Company” shall include any
successor to the Company’s business and/or assets which executes and delivers the assumption
agreement described in this Section 10(a) or which becomes bound by the terms of this Agreement by
operation of law.

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

     11. Notice.

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

          (b) Notice of Termination. Any termination by the Company for Cause or by the
Employee as a result of a voluntary resignation or an Involuntary Termination
shall be
communicated by a notice of termination to the other party hereto given in accordance with
Section 11 (a) of this Agreement. Such notice shall indicate the specific termination
provision in this
Agreement relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to
provide a basis for termination under the provision so indicated, and shall specify the
termination
date (which shall be not more than thirty (30) days after the giving of such notice). The
failure by
the Employee to include in the notice any fact or circumstance which contributes to a showing
of
Involuntary Termination shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his rights hereunder.

     12. Miscellaneous Provisions.

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

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

          (c) Whole Agreement. This Agreement represents the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes in their entirety all
prior

-10-

 

arrangements and understandings regarding same, including the Prior Agreements and any offer
letter, promotion letter, employment agreement, oral representation or promise or other agreement
regarding Employee’s employment terms with the Company. Other than this Agreement and the At-Will
Employment, Confidential Information and Invention Assignment Agreement, no agreements,
representations or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.

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

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

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

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

-11-

 

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

	 	 	 	 	 	 	 
	COMPANY	 	CATALYTICA ENERGY SYSTEMS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Robert Zack	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Robert Zack	 	 
	 
	 	 	 	 	 	 
	 	 	Its: CEO	 	 
	 
	 	 	 	 	 	 
	 	 	Date: 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	 	 

-12-

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