Document:

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EXHIBIT 10.2

OVERRUN GUARANTY

     This OVERRUN GUARANTY (“Guaranty”), dated as of October 1, 2007, is entered into by and
between Robert M. Worsley and Christi M. Worsley (each individually, a “Guarantor” and
collectively, “Guarantors”) and Renegy Holdings, Inc., a Delaware corporation (“Holdings”).

     WHEREAS, Holdings, Catalytica Energy Systems, Inc., a Delaware corporation (“Catalytica”),
Snowflake Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Holdings,
Renegy, LLC, an Arizona limited liability company (“Renegy”), Renegy Trucking, LLC, an Arizona
limited liability company (“Renegy Trucking”), Snowflake White Mountain Power, LLC, an Arizona
limited liability company (“Snowflake” and, together with Renegy and Renegy Trucking, the
“Companies”), Robert M. Worsley, Christi M. Worsley and the Robert M. Worsley and Christi M.
Worsley Revocable Trust (the “Worsley Trust”), have entered into that certain Contribution and
Merger Agreement dated as of May 8, 2007, as amended (the “Merger Agreement”), pursuant to which
Catalytica and the Companies shall combine and each of them shall become wholly owned subsidiaries
of Holdings upon the terms and subject to the conditions set forth therein (the “Merger”);

     WHEREAS, at the Closing (such term and each other term used but not defined herein has the
meaning given to it in the Merger Agreement) and subject to the terms of the Merger Agreement, the
Worsley Trust, which is controlled by the Guarantors, in consideration of the contribution of all
of the membership interests in the Companies to Holdings, shall be entitled to receive shares of
Holdings Common Stock and warrants to purchase shares of Holdings common stock, in each case
subject to adjustment pursuant to the Merger Agreement;

     WHEREAS, the Companies, CoBank, ACB, as Administrative Agent and Collateral Agent, the LC
Issuer as defined therein, and the Lenders party thereto have entered into that certain Credit
Agreement, dated as of September 1, 2006, as amended (the “Credit Agreement”), pursuant to which
the Lenders have extended credit to the Companies;

     WHEREAS, Guarantors and CoBank, ACB, as Administrative Agent under the Credit Agreement
(“CoBank”) entered into that certain Sponsor Guaranty dated as of September 1, 2006 (the “Sponsor
Guaranty”), pursuant to which, among other things, Guarantors guaranteed to Administrative Agent
that Guarantors shall pay Snowflake any amounts in excess of the budgeted Project Costs of
$67,310,572 which are necessary to achieve Completion (as such terms are defined in the Credit
Agreement); and

     WHEREAS, the execution and delivery of this Guaranty by Guarantors is a condition precedent to
Catalytica’s obligation to consummate the transactions contemplated by the Merger Agreement.

 

 

     NOW, THEREFORE, in order to induce Catalytica to enter into the Merger Agreement and the
Collateral Agreements and in order to induce Holdings to agree to the rights and obligations of
Holdings under the Merger Agreement pursuant to the Assumption Agreement, and for each of
Catalytica and Holdings to take the actions contemplated thereby, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be
legally bound with knowledge that Catalytica and Holdings will rely hereon, Guarantors hereby
represent, warrant, covenant and agree as follows:

     1. Guaranty. Guarantors hereby jointly and severally unconditionally, irrevocably,
continuously, and absolutely guarantee to Holdings that if the Project Costs (as defined in the
Credit Agreement) which are necessary to achieve Commercial Operation (as defined in the Credit
Agreement) exceed the sum of: (x) budgeted Project Costs of $67,310,572 and (y) $2,000,000,
Guarantors shall pay such excess amount to Holdings in sufficient time for Holdings to be able to
pay the applicable Projects Costs (the “Guaranteed Obligations”). For the avoidance of doubt, (i)
Project Costs as used in this Guaranty shall include any and all operating and other costs
(including, without limitation, the cost of, or cost to procure, feed stock, testing, payroll and
related benefits, insurance, gas, lubes, financing fees and interest costs, other soft costs, and
investment in any Renegy entities but excluding depreciation) necessary to achieve Commercial
Operation (as defined in the Credit Agreement) and offset by any revenues generated by sales of
electricity and logging activities, and (ii) Project Costs as used in this Guaranty shall not
include any such operating or other costs incurred after the date upon which Commercial Operation
(as defined in the Credit Agreement) is achieved.

     2. Guaranty Absolute. The liability of Guarantors under this Guaranty shall be
absolute, unconditional, present and continuing until all of the Guaranteed Obligations have been
indefeasibly paid in full or performed, as applicable, irrespective of:

          (a) any assignment or other transfer, in whole or in part, of Holdings’ interests in and
rights under this Guaranty, the Merger Agreement and/or the Collateral Agreements, including,
without limitation, Holdings’ right to receive payment and require performance of the Guaranteed
Obligations;

          (b) any amendment, waiver, renewal, extension or release of or any consent to or departure
from or other action or inaction related to the Merger Agreement, the Credit Agreement and the
other Credit Documents (as defined in the Credit Agreement), or any other agreement or instrument
relating to the Guaranteed Obligations;

          (c) any lack of validity or enforceability of or defect or deficiency in this Guaranty or any
other documents to which Holdings, the Companies and/or either Guarantor is or may become a party;

          (d) any modification, extension or waiver of any of the terms of this Guaranty;

          (e) except as to applicable statutes of limitation, failure, omission, delay, waiver or
refusal by Holdings to exercise, in whole or in part, any right or remedy held by Holdings with
respect to this Guaranty;

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          (f) insolvency, bankruptcy, reorganization, arrangement, adjustment, composition, assignment
for the benefit of creditors, death, liquidation, winding up, dissolution or other similar
proceeding of Holdings, the Companies, one or both of the Guarantors or any other guarantor of the
Guaranteed Obligations or other similar proceeding; and

          (g) any other circumstance that might otherwise constitute a defense available to, or a
discharge of, Guarantors in respect of the Guaranteed Obligations, other than payment in full of
the Guaranteed Obligations.

     3. Obligations Several. This is a guaranty of payment and performance and not of
collection. The obligations of Guarantors hereunder are several from the Companies or any other
person (including with respect to one Guarantor, the other Guarantor), and are primary obligations
concerning which Guarantors are the principal obligors. There are no conditions precedent to the
enforcement of this Guaranty, except as expressly contained herein. It shall not be necessary for
Holdings, in order to enforce payment and performance by Guarantors under this Guaranty, to exhaust
its remedies against the Companies or Guarantors, any other guarantor, or any other person liable
for the payment or performance of the Guaranteed Obligations. Holdings shall not be required to
mitigate damages or take any other action to reduce, collect, or enforce the Guaranteed
Obligations.

     4. Obligations Continuing. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations are
annulled, set aside, invalidated, declared to be fraudulent or preferential, rescinded or must
otherwise be returned, refunded or repaid by Holdings, or by Snowflake respecting the Sponsor
Guaranty, upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either
Guarantor, any of the Companies or any other guarantor, or upon or as a result of the appointment
of a receiver, intervener or conservator of, or trustee or similar officer for, either Guarantor,
any of the Companies or any other guarantor or any substantial part of their property or otherwise,
all as though such payment or payments had not been made.

     5. Enforcement of Guaranty. The Special Committee of Holdings, acting on behalf of
Holdings, shall have the power to enforce this Guaranty against Guarantors and each of them to the
full extent of Guarantors’ obligations under this Guaranty. In no event shall Holdings have any
obligation (although it is entitled, at its option) to proceed against the Companies before seeking
satisfaction from Guarantors, and Holdings may proceed, prior or subsequent to, or simultaneously
with, the enforcement of Holding’s rights hereunder, to exercise any right or remedy which it may
have under this Guaranty and the Merger Agreement.

     6. Waiver. Guarantors hereby waive:

          (a) notice of acceptance of this Guaranty, of the creation or existence of any of the
Guaranteed Obligations and of any action by Holdings in reliance hereon or in connection herewith;

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          (b) except as expressly set forth herein, promptness, diligence, all setoffs, presentment,
demand for payment or performance, notice of dishonor, nonpayment or nonperformance, protest and
notice of protest with respect to the Guaranteed Obligations;

          (c) any requirement for Holdings, the Companies or any other person to protect, secure,
perfect or insure any security interest or lien or any property subject thereto or exhaust any
right or take any action against Guarantors or either of them, any other entity or any collateral;

          (d) any provision of any statute or judicial decision otherwise applicable hereto which
restricts or in any way limits the rights of any obligee against a guarantor or surety following a
default or failure of performance by an obligor with respect to whose obligations the guarantee or
surety is provided;

          (e) any requirement that suit be brought against, or any other action by Holdings be taken
against, or any notice of default or other notice be given to, or any demand be made on,
Guarantors, the Companies or any other person, or that any other action be taken or not taken as a
condition to Guarantors’ liability for the Guaranteed Obligations under this Guaranty or as a
condition to the enforcement of this Guaranty against Guarantors; and

          (f) any defense of the Companies or the cessation, from any cause whatsoever, of the liability
of the Companies.

     7. Expenses. Guarantors agree to pay on demand any and all costs, including
reasonable legal fees, and other expenses incurred by Holdings in enforcing Guarantors’ obligations
under this Guaranty. Guarantors hereby unconditionally, absolutely and irrevocably agree to hold
Holdings and its successors and assigns harmless and to indemnify Holdings and its successors and
assigns from, for and against any and all costs and expenses, including reasonable attorneys’ fees,
arising out of or relating to any failure by Guarantors to carry out, observe and perform in
accordance with this Guaranty any of the Guaranteed Obligations contained in or arising from this
Guaranty.

     8. Benefit of Guaranty. The provisions of this Guaranty are for the benefit of
Holdings and its successors, transferees, endorsees and assigns.

     9. Subrogation. Guarantors hereby waive any right of subrogation they otherwise might
have had against the Companies.

     10. Reinstatement. This Guaranty shall remain in full force and effect and continue
to be effective should any petition be filed by or against the Companies or either one or both of
Guarantors for liquidation or reorganization, should the Companies or either one or both of
Guarantors become insolvent or make an assignment for the benefit of creditors or should a receiver
or trustee be appointed for all or any significant part of the Companies’ or one or both of
Guarantors’ assets, and shall continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the Guaranteed Obligations, or any part thereof, is, pursuant
to applicable law, rescinded or reduced in amount, or otherwise must be restored or returned by
Holdings, or by Snowflake respecting the Sponsor Guaranty, whether as a “voidable preference”,
“fraudulent

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conveyance”, or otherwise, all as though such payment or performance had not been made. In
the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the
Guaranteed Obligations shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

     11. Continuing Guaranty. This Guaranty is a continuing guaranty and shall remain in
effect until the Guaranteed Obligations have been paid in full. Any other guarantors of all or any
part of the Guaranteed Obligations may be released without affecting the liability of Guarantors
hereunder.

     12. Adjustment to Merger Agreement Contribution Consideration. Any payments made to
Holdings by Guarantors pursuant to this Guaranty shall constitute a reduction in the Contribution
Consideration pursuant to the Merger Agreement.

     13. Notices. All demands, notices and other communications provided for hereunder
shall, unless otherwise specifically provided herein, (a) be in writing addressed to the party
receiving the notice at the address set forth below or at such other address as may be designated
by written notice, from time to time, to the other party, and (b) be effective upon delivery, when
mailed by U.S. mail, registered or certified, return receipt requested, postage prepaid, or
personally delivered. Notices shall be sent to the following addresses:

	 	 	 
	If to Holdings:

	 	Renegy Holdings, Inc.
	 

	 	To Holdings’ Chief Financial Officer at the address
of Holdings’ principal office as set forth in the
last filing by Holdings with the Securities and
Exchange Commission
	 

	 	Attn: Special Committee of the Board of Directors
	 

	 	Telephone: (480) 556-5555
	 

	 	Facsimile: (480) 556-5500
	 
	 	 
	 

	 	With a copy to (which shall not constitute notice):
	 
	 	 
	 

	 	Donna M. Petkanics, Esq.
	 

	 	Bradley L. Finkelstein, Esq.
	 

	 	Wilson Sonsini Goodrich & Rosati
	 

	 	Professional Corporation
	 

	 	650 Page Mill Road
	 

	 	Palo Alto, California 94304
	 

	 	Telephone: (650) 493-9300
	 

	 	Facsimile: (650) 493-6811

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	If to Guarantors:

	 	Robert M. Worsley and Christi M. Worsley
	 

	 	3418 N.Val Vista Drive
	 

	 	Mesa, AZ 85213
	 

	 	Telephone: (480) 219-1063
	 

	 	Facsimile: (480) 718-7977
	 
	 	 
	 

	 	With a copy to (which shall not constitute notice):
	 
	 	 
	 

	 	Christopher D. Johnson, Esq.
	 

	 	Squire, Sanders & Dempsey L.L.P.
	 

	 	40 North Central Ave., Suite 2700
	 

	 	Phoenix, Arizona 85004
	 

	 	Telephone: (602) 528-4000
	 

	 	Facsimile: (602) 253-8129

     14. No Waiver; Remedies. Except as to applicable statutes of limitation, no failure
on the part of Holdings to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.

     15. Term; Termination. This Guaranty shall continue in full force and effect until
payment in full of the Guaranteed Obligations; provided, however, that the obligations and
liabilities of Guarantors hereunder shall continue in full force and effect with respect to any
breach of Guarantors’ obligations hereunder or of the Guaranteed Obligations, in each case
occurring prior to such termination. Notwithstanding anything to the contrary herein, in no event
shall this Guaranty or the obligations hereunder expire or terminate prior to Commercial Operation
(as defined in the Credit Agreement).

     16. Successors and Assigns. This Guaranty shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors, assigns, and legal
representatives, and Holdings may assign any of its rights and benefits hereunder without notice to
Guarantors, but Guarantors shall not have the right to assign their obligations hereunder or any
interest herein without the prior written consent of the Special Committee of Holdings. Any such
purported assignment by Guarantors shall be void.

     17. Amendments, Etc. No amendment of this Guaranty shall be effective unless in
writing and signed by Guarantor and the Special Committee of Holdings. No waiver of any provision
of this Guaranty or consent to any departure by Guarantors therefrom shall in any event be
effective unless such waiver shall be in writing and signed by the Special Committee of Holdings.
Any such waiver shall be effective only in the specific instance and for the specific purpose for
which it was given.

     18. Captions. The captions in this Guaranty have been inserted for convenience only
and shall be given no substantive meaning or significance whatsoever in construing the terms and
provisions of this Guaranty.

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     19. Representation and Warranties. Guarantors represent and warrant that this
Guaranty constitutes the legal, valid and binding obligation of Guarantors enforceable against
Guarantors in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency and
other laws of general applicability relating to or affecting the rights of creditors and to general
equity principles.

     20. Limitation by Law. All rights, remedies and powers provided in this Guaranty may
be exercised only to the extent that the exercise thereof does not violate any applicable provision
of law, and all the provisions of this Guaranty are intended to be subject to all applicable
mandatory provisions of law that may be controlling and to be limited to the extent necessary so
that they will not render this Guaranty invalid, unenforceable, in whole or in part, or not
entitled to be recorded, registered or filed under the provisions of any applicable law. In the
event that any provision of this Guaranty is held to be invalid or unenforceable in whole or in
part by any court of competent jurisdiction, the remainder hereof shall continue in full force and
effect, and the affected provision shall be enforced to the extent permitted by law.

     21. GOVERNING LAW. THIS GUARANTY IS MADE UNDER AND SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUSIVE OF ANY CONFLICT OF LAWS PRINCIPLES
AND PROVISIONS THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION.

     22. Jurisdiction and Venue. Guarantors irrevocably submit to the jurisdiction of the
federal and state courts in the state of Delaware and agree that the venue of any action or
proceeding brought by either or both of Guarantors shall be in such courts.

     23. WAIVER OF JURY TRIAL. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION, CLAIM OR
PROCEEDING RELATING TO THIS AGREEMENT.

     24. Entire Agreement. This Guaranty and the Merger Agreement and the agreements
contemplated thereby constitute the entire agreement among the parties and supersedes all prior and
contemporaneous agreements and understandings of the parties with respect to the subject matter
hereof.

     25. Guarantor Acknowledgments. Guarantors acknowledge that (i) they have read and
understand this Guaranty and enter into this Guaranty voluntarily, (ii) they have been advised by
counsel in the negotiation, execution, and delivery of this Guaranty, and (iii) Holdings has no
fiduciary relationship to either one of Guarantors.

     26. Effectiveness of Guaranty. This Guaranty shall be effective at the Effective Time
of the Merger. Holdings shall not have any rights hereunder, express or implied, nor shall
Guarantors have any obligations hereunder, express or implied, until the Effective Time.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, Guarantors have caused this Overrun Guaranty to be duly executed and
delivered as of the date first written above.

	 	 	 	 	 
	 	 	 
	 	/s/ Robert M. Worsley
 	 
	 	Robert M. Worsley  	 
	 	 	 
	 
	 	 	 
	 	/s/ Christi M. Worsley
 	 
	 	Christi M. Worsley 	 
	 	 	 
	 

[Signature Page to Overrun Guaranty]exv10w3

 

EXHIBIT 10.3

CATALYTICA ENERGY SYSTEMS, INC.

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

          This Amended and Restated Employment Agreement (the “Agreement”) by and between Robert
Zack (the “Employee”) and Catalytica Energy Systems, Inc. (the “Company”), is amended and restated
effective as of the latest date set forth by the signatures of the parties hereto below (the
“Effective Date”).

          1. Duties and Scope of Employment.

                    (a) Positions and Duties. As of the Effective Date, Employee will continue
to serve as President and Chief Executive Officer and Chief Financial Officer of the Company.
Employee will render such business and professional services in the performance of his duties,
consistent with Employee’s position within the Company, as shall reasonably be assigned to him, by
the Board of Directors of the Company (the “Board”); provided, however that at the Board’s
discretion it may appoint another President and Chief Executive Officer in which case Employee will
continue to serve as Chief Financial Officer. The period of Employee’s employment under this
Agreement is referred to herein as the “Employment Term.”

                    (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 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 Board.

          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. Compensation.

                    (a) Base Salary. During 2007, and retroactive to January 1, 2007, the
Company will pay Employee as compensation for his services a base salary at the annualized rate of
$300,000 (“Base Salary”). In 2008 and subsequent years, the Base Salary may be increased by the
Board or its Compensation Committee, in its sole discretion and may only be decreased with the
consent of Employee. 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. Employee shall be eligible to receive a annual bonus on
account of the Company’s 2007 fiscal year with a target payment equal to 125% of Base Salary based
upon criteria developed by the Board or its Compensation Committee (the “Target Bonus”). In 2008
and subsequent years, the Target Bonus may be increased by the Board or its Compensation Committee,
in its sole discretion and may only be decreased with the consent of Employee. The Target Bonus may
be paid to Employee in a mixture of cash and equity compensation, as determined by the Compensation
Committee in its sole discretion; provided, however, that the cash component shall be no less than
50% of the Target Bonus; provided, further, that for the 2007 fiscal year, the mixture shall be 50%
cash and 75% equity compensation. In the event that the equity compensation component is paid in
stock options, the number of options shall be determined by dividing the dollar amount by the
Black-Scholes value of Company options (or by such other reasonable method of valuing Company
options as the Compensation Committee shall determine), and such options shall be subject to a
four-year vesting schedule, with 1/8th of the covered shares vesting six months
following the grant date and 1/48th of the covered shares vesting each month thereafter,
so as to be 100% vested on the four year anniversary of the grant date, subject to Employee
remaining a Service Provider, as such term is defined in the Company’s 1995 Stock Plan (“Service
Provider”) on each vesting date.

 

 

          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 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 7
hereof, then Employee shall be entitled to receive the following severance and non-competition
benefits:

                              (i) Severance Payment. Following the Employment Termination Date the
Company shall pay Employee an aggregate cash amount equal to two hundred percent (200%) of his
Annual Compensation, plus a pro rata cash payment of the current year Target Bonus, less applicable
taxes, paid 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) eighteen
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 7
hereof, and (iii) the provisions of Section 9 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 two hundred percent (200%) of the Employee’s Annual Compensation plus a pro rata cash
payment of the current year Target Bonus, less any Change of Control Retention Payments (as defined
in Section 6 hereof) already paid to Employee. 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 7 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 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. Of this amount, fifty percent (50%) of such acceleration is made
specifically in exchange for Employee entering into and not breaching the non-competition
provisions of Section 7 hereof.

 

 

                              (iv) Timing of Severance & Non-Competition Payments. Any Change of
Control Severance and non-competition payments to which Employee is entitled under Section 5(b)(1)
shall be paid by the Company to the Employee (or to the Employee’s successor in interest, pursuant
to Section 11(b)) in cash and in full, not later than thirty (30) calendar days following the
Termination Date, subject to Section 13(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 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.

          6. 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 Financial Officer 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.

          7. Conditional Nature of Section 5 and 6 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 5 or 6 (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 year period following the Employment Termination Date (“Competition”);
provided, however, that nothing in this Section 7 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 7, 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 5 and 6 (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 5 or 6 shall immediately cease, and that shall
be the sole remedy available to the Company for such breach.

          8. 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.

          9. Golden Parachute Excise Tax – Capped Gross-Up. In the event that the benefits
provided for in this agreement or otherwise (a) constitute “parachute payments” within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), (b) would be subject
to the excise tax imposed by Section 4999 of the Code, and (c) the aggregate value of such
parachute payments, as determined in accordance with Section 280G of the Code and the Treasury
Regulations thereunder is less than the product obtained by multiplying 3.59 by Employee’s “base
amount” within the meaning of Code Section 280G(b)(3), then such benefits shall be reduced to the
extent necessary (but only to that extent) so that no portion of such benefits will be subject to
excise tax under Section 4999 of the Code. Alternatively, in the event that the benefits provided
for in this agreement (a) constitute “parachute payments” within the meaning of Section 280G of the
Code, (b) would be subject to the excise tax imposed by Section 4999 of the Code, and (c) the
aggregate value of such parachute payments, as determined in accordance with Section 280G of the
Code and the Treasury Regulations thereunder is equal to or greater than the product obtained by
multiplying 3.59 by Employee’s “base amount” within the meaning of Code Section 280G(b)(3), then
Employee shall receive (i) a payment from the Company sufficient to pay such excise tax plus any
interest or penalties incurred by Employee with respect to such excise tax, plus (ii) an additional
payment from the Company sufficient to pay the excise tax and federal and state income and
employment taxes arising from the payments made by the Company to Employee pursuant to this
sentence; provided, however, that the Company shall not be required to pay Employee more than
$150,000 (less applicable withholding) in such gross-up payments under this Section 9. Unless
Employee and the Company agree otherwise in writing, the determination of Employee’s excise tax
liability and the amount required to be paid or reduced under this Section 9 shall be made in
writing by the Company’s outside tax advisors who are primarily used by the Company immediately
prior to the Change of Control (the “Accountants”). For purposes of making the calculations
required by this Section 9, the Accountants may 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. Employee and the Company shall furnish to the
Accountants such information and documents as the Accountants may reasonably request in order to
make a determination under this section 9. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this section 9.

          10. 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.

                    (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
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 Financial 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 11(a) below; (viii) requiring Executive to
work outside of Arizona on more than [50%] of the business days in any [90] consecutive day period
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) 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.

          11. 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 11(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.

          12. 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 12 (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.

          13. Miscellaneous Provisions.

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

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

                    (c) Whole Agreement. This Agreement and any outstanding stock option
agreements represent the entire understanding of the parties hereto with respect to the subject
matter hereof and supersedes 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.

 

 

      

          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/ Ricardo Levy	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 	 	Date: February 27, 2007	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	EMPLOYEE	 	/s/ Robert Zack	 	 
	 	 	 
 	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	March 23 , 2007

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