Document:

EXHIBIT 10.1

 

CATALYTICA ENERGY SYSTEMS, INC.

 

EMPLOYMENT AGREEMENT

 

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

 

1.                                       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”).  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 the Employment
Period, and retroactively to July 1, 2005, the Company will pay Employee
as compensation for his services a base salary at the annualized rate of $260,000 (“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 Period,
Employee shall be eligible to receive an annual bonus with a target payment
equal to 100% of Base Salary based upon criteria developed by the Board or its
Compensation Committee (the “Target Bonus”). 
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 2005 fiscal year, the mixture shall be 50% cash and 50%
equity compensation and the Target Bonus payout for 2005 shall not be less than
50% of Base Salary.  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.

 

(c)                                  Restricted
Stock Units.  On the Effective Date, Employee
shall be granted 50,000 restricted stock units under the Company’s 1995 Stock
Plan (the “RSUs”).  The RSUs shall vest
as to 1/16th of the covered units on each 3-month anniversary of the
date of grant, so as to be 100% vested on the four year anniversary of the
grant date, subject to Employee remaining a Service Provider on each vesting
date.  Any withholding obligations
arising upon the vesting of the RSUs will be satisfied by the Company retaining
shares with a sufficient fair market value to satisfy the minimum withholding
obligations.

 

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 amount equal to
two hundred percent (200%) of his Annual Compensation, less applicable taxes,
ratably over the remaining payroll periods in the same calendar year in which
Employee terminated.

 

(ii)                                  Subsidized
COBRA.  Subject to Employee timely
electing continuation coverage under Title X of the Consolidated Budget
Reconciliation Act of 1985 (“COBRA”), the Company shall subsidize Employee and
his eligible dependent’s COBRA

 

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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 bonus
award based on the target bonus for the Employee, 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).

 

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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.

 

6.                                       Retention Payments.

 

(a)                                  Change
of Control Retention Payments.  In
the event of a Change of Control (other than a liquidation or dissolution of
the Company) wherein Employee is employed by the acquiring entity in the
position of Chief 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.

 

(b)                                 [*]
Retention Payments.  In the event of
a [*] (as defined herein) that does not constitute a Change of Control in which
the acquiring entity hires Employee as a full-time executive, Employee shall
receive retention payments (the “[*] Retention Payments”) as to $200,000 on the
date of the [*], another $200,000 on the date that is six months following the [*],
and a final $200,000 on the one year anniversary of the [*], subject to his
remaining employed by the acquiring entity through such dates; provided,
however, that if following the [*] Employee is terminated by the acquiring
entity as a result of an Involuntary Termination, then, subject to Employee (i) executing
and not revoking a Release, (ii) not breaching the provisions of Section 7
hereof, and (iii) the provisions of Section 9 hereof, the Employee
shall be entitled to receive any remaining [*] Retention Payments that have not
yet been paid to Employee.

 

(c)                                  No
Duplicate Payments.  In no event
shall Employee receive both Change of Control Retention Payments and [*]
Retention Payments.  Moreover, if
Employee receives [*] Retention Payments, he shall not be eligible to receive
any severance benefits under Section 5 hereof.

 

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

 

[*] This provision is the subject of a Confidential Treatment Request.

 

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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
[*] following a [*]; 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

 

[*] This provision is the subject of a Confidential Treatment Request.

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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

 

6

 

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.

 

7

 

(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;
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)                                    [*]

 

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

 

[*] This provision is the subject of a Confidential Treatment Request.

 

8

 

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

 

9

 

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.

 

 

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

 

	
  COMPANY

  	
  CATALYTICA ENERGY SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ricardo Levy

  	
   

  
	
   

  	
   

  	
  Ricardo Levy

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  September 27, 2005

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  EMPLOYEE

  	
  /s/ Robert Zack

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  September 27, 2005

  	
   

  
						

 

11Exhibit 10.1

 

AMERICAN BANK NOTE
HOLOGRAPHICS, INC.

2005 STOCK INCENTIVE PLAN

STOCK OPTION AGREEMENT

 

AGREEMENT,
made as of the        day of              ,
20    , by and between American Bank Note Holographics, Inc.,
a Delaware corporation (the “Company”), and                                   (the
“Grantee”).

 

W I
T  N  E  S  S  E  T  H:

 

WHEREAS,
pursuant to the American Bank Note Holographics, Inc. 2005 Stock Incentive
Plan (the “Plan”), the Company desires to grant the Grantee, and the Grantee
desires to accept, an option to purchase shares of the Company’s common stock,
$0.01 par value (the “Common Stock”), upon the terms and conditions set forth
in this Agreement.

 

NOW,
THEREFORE, the parties hereto agree as follows:

 

1.             Grant of Option.  The Company hereby grants to the Grantee an
option to purchase            shares
of Common Stock at a purchase price per share of $          .  This option is not intended to be an “incentive
stock option” within the meaning of Section 422 of the Code.

 

2.             Term
of Option.  This option
is granted as of the date first above written (the “Date of Grant”), and shall
expire, unless sooner terminated in accordance herewith or the Plan, on the
tenth anniversary of the Date of
Grant.

 

3.             Right
to Exercise.  During the
Grantee’s employment or service with the Company and its affiliates, this
option shall become vested and exercisable as follows:                                               .

 

4.             Method
of Exercise.  This option
shall be exercised by delivery of written notice to the Secretary of the
Company specifying the number of shares with respect this option is being
exercised.  Such notice shall be
accompanied by payment in full of the exercise price for such shares together
with the amount necessary to satisfy any applicable withholding requirements: (i) in
cash, (ii) certified or bank check, or (iii) by such other forms of
payment as may be approved by the Committee from time to time.

 

5.             Termination
of Employment or Service.  Upon
the termination of the Grantee’s employment or service with the Company and its
affiliates, unless otherwise provided in an employment agreement between the
Grantee and Company or its affiliates, the following rules shall apply
with regard to this option:

 

(a)           Termination by Reason of Death, Retirement or Disability.  Except as provided in Section 5(b) below,
if the Grantee’s employment or service terminates by reason of the Grantee’s
death, Retirement (as defined below) or Disability (as defined below), then (i) that

 

 

portion of this option which
is not then exercisable shall thereupon terminate, and (ii) that portion
of this option which is then exercisable shall remain exercisable by the
Grantee (or the deceased Grantee’s designated beneficiary or representative)
for a period of one year following such termination or, if sooner, until the
expiration of the term of this option, and, to the extent not exercised within
such period, shall thereupon terminate.

 

(b)           Termination for Cause.  If the Grantee’s employment or service is
terminated by the Company or an affiliate for Cause (as defined below) or if,
at the time of such termination, grounds for a termination for Cause exist,
then this option (whether or not otherwise exercisable) shall immediately
terminate and cease to be exercisable.

 

(c)           Other Termination.  Except as provided in Section 5(a) or
Section 5(b) above, if the Grantee’s employment or service terminates
for any reason or no reason, then (i) that portion of this option which is
not then exercisable shall thereupon terminate, and (ii) that portion of
this option which is then exercisable shall remain exercisable during the
ninety (90) day period following such termination or, if sooner, until the
expiration of the term of this option and, to the extent not exercised within
such period, shall thereupon terminate.

 

(d)           Certain Definitions.  For
purposes hereof, the following terms shall have the following meanings:

 

(i)            “Cause” means (1) in the case where there is no employment or consulting agreement between the Grantee and the Company or its affiliates on the Date of Grant which defines “cause” (or words of like import), the Grantee’s dishonesty, fraud, insubordination, willful misconduct, refusal to perform services, unsatisfactory performance of services or material breach of any written agreement between the Grantee and the Company or its affiliates which breach is not cured within fifteen (15) days after written notice thereof, or (2) in the case where there is an employment or consulting agreement between the Grantee and the Company or its affiliates at the time of grant which defines “cause” (or words of like import), the meaning ascribed to such term (or words of like import) under such agreement.
 
(ii)           “Disability” shall mean “permanent and total” disability within the meaning of Section 22(e)(3) of the Code.
 

(iii)          “Retirement” shall mean a termination of employment or other service
with the Company and its affiliates (at a time when Cause does not exist) by
the Grantee upon attainment of: (1) at least age sixty-five (65), or (2) such
earlier age after age fifty-five (55) as approved by the Committee, in its sole
discretion.

 

6.             Rights
as a Stockholder. 
No shares of Common Stock shall be issued or delivered hereunder until
full payment for such shares has been made and any other exercise conditions
have been fully satisfied.  The Grantee
shall have no rights as a stockholder with respect to any shares subject to the
Option until the date a stock certificate for such shares is issued to the
Grantee.

 

7.             Nontransferability. 
This option is not assignable or transferable other
than by will or the laws of descent and distribution, and this option shall be
exercisable during the lifetime of the Grantee only by the Grantee.  This option shall be null and void and
without effect upon any

 

2

 

attempted assignment or transfer except as
herein provided, including without limitation, any purported assignment,
whether voluntary or by operation of law, pledge, hypothecation or other
disposition, attachment, trustee process or similar process, whether legal or
equitable, upon this option.

 

8.             No
Employment or Service Rights Conferred.  Neither the grant of this option nor the
exercise thereof shall confer upon the Grantee any right with respect to continuance
of the Grantee’s employment or service with the Company or its affiliates.

 

9.             Subject
to the Plan.  This option
is subject to all the terms and conditions of the Plan, and including power of
the Committee to make interpretations of the Plan and of options granted
thereunder. By acceptance hereof, the Grantee acknowledges receipt of a copy of
the Plan and hereby accepts and agrees to be bound by all of its terms and
conditions and the Grantee recognizes and agrees that all determinations,
interpretations or other actions respecting the Plan made by the Committee are
final, conclusive and binding upon all parties, including the Grantee and the
Grantee’s heirs and representatives. 
Capitalized terms that are used but not defined herein shall have the meanings
ascribed thereto in the Plan.

 

10.           Miscellaneous.  This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflicts of law provisions.  This
Agreement constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes any prior understandings, agreements
or representations between the parties with respect to the subject matter
hereof.  This Agreement may not be
amended, other than as provided in the Plan, except by written instrument
executed by the parties hereto.

 

IN WITNESS WHEREOF, this Agreement is executed
as of the date first above written.

 

	
   

  	
  AMERICAN BANK NOTE HOLOGRAPHICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
					

 

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