Document:

EXHIBIT
10.2

NEITHER THIS SECURITY NOR
THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES.

Warrant No. 2006-               

COMMON
STOCK PURCHASE WARRANT

To Purchase                        
Shares of Common Stock of

GLOBALSCAPE,
INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received,                                      
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after May 15, 2007 (the “Initial Exercise Date”) and on
or prior to the close of business on May 15, 2012 (the “Termination
Date”) but not thereafter, to subscribe for and purchase from GLOBALSCAPE,
INC., a Delaware corporation (the “Company”), up to                               
shares (the “Warrant Shares”) of Common Stock, par value $0.001 per
share, of the Company (the “Common Stock”).  The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).

Section 1.                                            Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated November 13, 2006, among the Company and the purchasers signatory
thereto.

Section
2.                                            Exercise.

a)                                      Exercise
of Warrant.  Exercise of the purchase
rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of a duly executed facsimile copy
of the Notice of Exercise Form annexed 
hereto (or such other office or agency of the Company as it may
designate by notice in writing to the 

 

registered Holder at the address of such Holder appearing on the books
of the Company); and, within 3 Trading Days of the date said Notice of Exercise
is delivered to the Company, the Company shall have received  payment of the aggregate Exercise Price of
the shares thereby purchased by wire transfer of immediately available funds or
cashier’s check drawn on a United States bank, unless this Warrant is being
exercised pursuant to the cashless exercise provision set forth in Section 2(c)
below.  Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant Shares
available hereunder and the Warrant has been exercised in full, in which case,
the Holder shall surrender this Warrant to the Company for cancellation within
3 Trading Days of the date the final Notice of Exercise is delivered to the
Company.  Partial exercises of this
Warrant resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the
applicable number of Warrant Shares purchased. 
The Holder and the Company shall maintain records showing the number of
Warrant Shares purchased and the date of such purchases.  The Company shall deliver any objection to any
Notice of Exercise Form within 2 Business Days of receipt of such notice.  In the event of any dispute or discrepancy,
the records of the Company shall be controlling and determinative in the
absence of manifest error. The Holder and any assignee, by acceptance of this
Warrant, acknowledge and agree that, by reason of the provisions of this
paragraph, following the purchase of a portion of the Warrant Shares hereunder,
the number of Warrant Shares available for purchase hereunder at any given time
may be less than the amount stated on the face hereof.

b)                                     Exercise Price.  The exercise price per share of the Common
Stock under this Warrant shall be $3.15, subject to adjustment hereunder (the “Exercise
Price”).

c)                                      Cashless
Exercise.  This Warrant may also be
exercised at such time by means of a “cashless exercise” in which the Holder shall
be entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) =        the VWAP on the Trading Day immediately
preceding the date of such election;

(B) =          the Exercise Price of this Warrant, as
adjusted; and

(X) =         the number of Warrant Shares issuable upon
exercise of this Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.

d)                                     Exercise
Limitations.  The Company shall not
effect any exercise of this Warrant, and a 
Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2(c) or otherwise, to the extent that after giving effect
to such issuance after exercise as set forth on the applicable Notice of
Exercise, such Holder (together with such Holder’s Affiliates, and any other
person or entity acting as a group 

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together with such Holder or any of such Holder’s Affiliates), as set
forth on the applicable Notice of Exercise, would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below).  For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by such Holder and its Affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) exercise of the remaining, nonexercised portion of
this Warrant beneficially owned by such Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Convertible
Securities (as defined in section 3(b)) or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by such Holder or any of its affiliates.  Except as set
forth in the preceding sentence, for purposes of this Section 2(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder, it being acknowledged
by a Holder that the Company is not representing to such Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and such
Holder is solely responsible for any schedules required to be filed in
accordance therewith.   To the extent
that the limitation contained in this Section 2(d) applies, the determination
of whether this Warrant is exercisable (in relation to other securities owned
by such Holder together with any Affiliates) and of which a portion of this
Warrant is exercisable shall be in the sole discretion of a Holder, and the
submission of a Notice of Exercise shall be deemed to be each Holder’s
determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder together with any Affiliates) and of which
portion of this Warrant is exercisable, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination.  
In addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder.  For purposes of this Section 2(d), in
determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as reflected in (x) the
Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more
recent public announcement by the Company or (z) any other notice by the
Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of a Holder,
the Company shall within 2 Trading Days confirm orally and in writing to such
Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by such Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was reported.  The “Beneficial Ownership Limitation” shall
be 4.99% of the number of shares of the Common Stock 

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outstanding immediately after giving effect to the issuance of shares
of Common Stock issuable upon exercise of this Warrant.  The Beneficial Ownership Limitation
provisions of this Section 2(d) may be waived by such Holder, at the election
of such Holder, upon not less than 61 days’ prior notice to the Company to
change the Beneficial Ownership Limitation to 9.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon exercise of this Warrant, and the provisions of
this Section 2(d) shall continue to apply. 
Upon such a change by a Holder of the Beneficial Ownership Limitation
from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership
Limitation may not be further waived by such Holder.  The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 2(d) to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended Beneficial
Ownership Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor holder of
this Warrant.

e)                                      Mechanics
of Exercise.

i.                  Authorization
of Warrant Shares.  The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).

ii.               Delivery
of Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a
participant in such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from
the delivery to the Company of the Notice of Exercise Form, surrender of this
Warrant (if required) and payment of the aggregate Exercise Price as set forth
above (“Warrant Share Delivery Date”). 
This Warrant shall be deemed to have been exercised on the date (a) the
Exercise Price is received by the Company or (b) notification to the Company
that this Warrant is being exercised pursuant to a cashless exercise provision
set forth in Section 2(c) above.  The
Warrant Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date the Warrant
has been exercised by payment to the Company of the Exercise Price (or by
cashless exercise, if permitted) and all taxes required to be paid by the
Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such
shares, have been paid.

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iii.            Delivery of New
Warrants Upon Exercise.  If this
Warrant shall have been exercised in part, the Company shall, at the request of
a Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

iv.           Rescission
Rights.  If the Company fails to
cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section 2(e) by
the Warrant Share Delivery Date, then the Holder will have the right to rescind
such exercise.

v.              No
Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.

vi.           Charges,
Taxes and Expenses.  Issuance of
certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed by
the Holder; and the Company may require, as a condition thereto, the payment of
a sum sufficient to reimburse it for any transfer tax incidental thereto.

vii.        Closing
of Books.  The Company will not close
its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

Section 3.                                            Certain Adjustments.

a)                      Stock
Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance
of doubt, shall not include any shares of Common Stock issued by the Company
upon exercise of this Warrant), (B) subdivides outstanding shares of Common
Stock into a larger number of shares, (C) combines 

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(including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted.  Any adjustment made pursuant to this Section
3(a) shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

b)                     Adjustment
for Issuance of Shares of Common Stock Below Exercise Price.  From the date hereof until 9 months after the
Closing Date, if the Company shall issue, or be deemed to issue (as provided
below), any additional shares of Common Stock other than Excluded Stock, as
defined below (“Additional Shares of Common Stock”) for a consideration
per share less than the Exercise Price in effect immediately prior to the
issuance of such Additional Shares of Common Stock (excluding subdivisions,
stock dividends, combinations and reclassifications which are covered in
Sections 3(a) above), the Exercise Price shall be reduced concurrent with each
such issuance to the price equal to the consideration per share received, or
receivable, by the Company for such issuance or sale, or deemed issuance or
sale, as the case may be; provided, however, that notwithstanding any
provision herein to the contrary, including this Section 3(b), under no
circumstances shall the Exercise Price be adjusted to a price that is
less than $2.81.

As
used herein:

 “Convertible Securities” means any
evidence of indebtedness, shares or securities, in each case convertible into
or exchange for Additional Shares of Common Stock other than Excluded Stock.

“Excluded
Stock” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose (for purposes of clarity,
the issuance of shares of Common Stock upon exercise of options granted
pursuant to a Company plan subsequent to the date hereof shall also be Excluded
Stock), (b) securities upon the exercise or exchange of or conversion of (i)
any Securities issued under the Purchase Agreement; (ii) securities to a
registered broker-dealer in connection with the transactions contemplated by
the Purchase Agreement; and/or (iii) other securities or rights exercisable or
exchangeable for or convertible into shares of Common Stock which are issued
and outstanding on the date of the Purchase Agreement, provided that such
securities have not been amended since the date of the Purchase Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of any such securities, (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the 

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disinterested
directors, provided any such issuance shall only be to a Person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities, (d) shares of Common Stock or other securities issued in
connection with any stock split, stock dividend or recapitalization of the
Company (subject to Section 3(a) 
hereof), (e) shares of Common Stock or other securities or rights
exercisable or exchangeable for or convertible into shares of Common Stock to a
bank, financial institution or other lender to the Company or (f) shares of
Common Stock or other securities or rights exercisable or exchangeable for or
convertible into shares of Common Stock issued in a public offering.

 “Options” means rights, options or
warrants to subscribe for, purchase or otherwise acquire shares of Common Stock
or Convertible Securities other than Excluded Stock.

No
adjustment in the Exercise Price need be made if such adjustment would result
in a change in the Exercise Price of less than $0.01.  Any such adjustment which is not made shall
be carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in the Exercise Price.  No
adjustment in the Exercise Price of this Warrant shall be made in respect of
the issuance of Additional Shares of Common Stock unless the consideration per
share for such Additional Shares of Common Stock issued or deemed to be issued
(as provided below) by the Company is less than the Exercise Price then in effect
on the date of, and immediately prior to, such issue, for this Warrant.

For
purposes of making any adjustment required under this Section 3(b), the
consideration received by the Company for any issue or sale of securities shall
(a) to the extent that it consists of cash be computed as the amount of cash
received by the Company without deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale, (b) to the extent that it consists of
property other than cash, be computed at the fair market value of that property
as determined in good faith by the Board of Directors, and (c) if Additional
Shares of Common Stock, Convertible Securities or right or Options are issued
or sold together with other securities or other assets of the Company for a
consideration which covers both, be computed (as provided in clauses (a) and
(b) above) as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or rights or
Options.

For
purposes of the adjustment required under this Section 3(b), if at any time or
from time to time after the issuance date of this Warrant, the Company issues
or sells any Options or Convertible Securities, then in each case the Company
shall be deemed to have issued at the time of the issuance of such Options or
Convertible Securities the maximum number of Additional Shares of Common Stock
(as set forth in the instruments relating thereto, giving effect to any
provision contained therein for a subsequent upward 

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adjustment of such
number other than any provision requiring antidilution adjustments (based on
price, recapitalizations, mergers, reorganizations or otherwise), which such
antidilution provisions shall only result in upward adjustments upon the
triggering of such antidilution adjustment) issuable upon exercise or
conversion thereof and to have received as consideration for the issuance of
such shares of Common Stock an amount equal to the total amount of
consideration, if any, received by the Company for the issuance of such Options
or Convertible Securities plus, in the case of such Options, the minimum
amounts of consideration, if any (as set forth in the instruments relating
thereto, giving effect to any provision contained therein for a subsequent
downward adjustment of such consideration), payable to the Company upon the
exercise of such Options  and, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Company upon the subsequent conversion of any such Convertible
Security (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities).  No further
adjustment of the Exercise Price, adjusted upon the issuance of such Options or
Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any such Options or the
conversion of any such Convertible Securities. 
If any such Options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the Exercise
Price adjusted upon the issuance of such Options or Convertible Securities or
upon the triggering of any antidilution adjustments (based on price,
recapitalization, mergers reorganizations or otherwise) thereunder shall be
readjusted to the Exercise Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold for the consideration received by the Company for the granting
of all such Options, whether or not exercised, plus the consideration received
for issuing or selling the Convertible Securities actually converted plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible Securities)
on the conversion of such Convertible Securities.  Upon the happening of any of the following
events, namely, if the purchase price provided for in any Option, the
additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities, or the rate at which Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such event shall forthwith be readjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold, but only if as a result of such adjustment the
Exercise Price then in effect hereunder is thereby reduced; and on the
termination of any such Option or any such right to convert or exchange such
Convertible Securities, the Exercise Price then in effect hereunder shall
forthwith be increased to the Exercise Price which would have been in effect at
the time of such termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such termination, never been issued.

c)                      Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this 

 8
 

 

Section 3, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the number
of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.

d)                     Voluntary
Adjustment By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company.

e)                      Notice
to Holders.

i.                  Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any
provision of this Section 3, the Company shall promptly mail to each Holder a
notice setting forth the Exercise Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment.

ii.               Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution in whatever form) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; (E) the Company
shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each case, the Company shall
cause to be mailed to the Holder at its last address as it shall appear upon
the Warrant Register of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.  The Holder is entitled
to exercise this Warrant during the 20-day period 

 9
 

 

commencing on the date of such notice to the effective
date of the event triggering such notice.

Section 4.                                            Transfer of Warrant.

a)                                      Transferability.  Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
rights hereunder (including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company or its designated agent, together with a
written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to
pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  A
Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

b)                                     New
Warrants. This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as
to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.

c)                                      Warrant
Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “Warrant Register”), in
the name of the record Holder hereof from time to time.  The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.

d)                                     Transfer
Restrictions. If, at the time of
the surrender of this Warrant in connection with any transfer of this Warrant,
the transfer of this Warrant shall not be registered pursuant to an effective
registration statement under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition of
allowing such transfer (i) that the Holder or transferee of this Warrant, as
the case may be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company
and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities 

 10
 

 

Act or a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act.

Section
5.                                            Miscellaneous.

a)                                      No
Rights as Shareholder Until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to the exercise hereof as set
forth in Section 2(e)(ii).

b)                                     Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)                                      Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be
taken or such right may be exercised on the next succeeding Business Day.

d)                                     Authorized
Shares.

The Company
covenants that during the period the Warrant is outstanding, it will reserve
from its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant.  The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of the Trading Market upon which the Common Stock may be
listed.

Except and to the
extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant
against 

 11
 

 

impairment.  Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable the Company to perform its obligations under this
Warrant.

Before taking any
action which would result in an adjustment in the number of Warrant Shares for
which this Warrant is exercisable or in the Exercise Price, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.

e)                                      Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

f)                                        Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

g)                                     Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice the Company’s or
the Holder’s rights, powers or remedies, notwithstanding the fact that all
rights hereunder terminate on the Termination Date.  If the Company or a Holder willfully and
knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder or Company (as the case may be), the
breaching party shall pay to the other party such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by the non-breaching party in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.

h)                                     Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

i)                                         Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

 12
 

 

j)                                         Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to seek specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.

k)                                      Successors
and Assigns.  Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant Shares.

l)                                         Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.

m)                                   Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

n)                                     Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

********************

 13
 

 

IN WITNESS WHEREOF, the Company has caused this
Warrant to be executed by its officer thereunto duly authorized.

Dated:  November 16, 2006

	
   

  	
  GLOBALSCAPE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas W.
  Brown

  	
   

  
	
   

  	
   

  	
  Name: Thomas W.
  Brown

  
	
   

  	
   

  	
  Title: Chairman
  of the Board

  
					

 

 14

 

NOTICE OF EXERCISE

TO:                                             

(1)   The
undersigned hereby elects to purchase                            
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

(2)   Payment
shall take the form of (check applicable box):

[  ] in lawful
money of the United States; or

[ ] the cancellation of such number of Warrant Shares
as is necessary, in accordance with the formula set forth in subsection 2(c),
to exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).

(3)   Please issue
a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

 

The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

 

 

 

(4)  Accredited
Investor.  The undersigned is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.

	
  [SIGNATURE OF HOLDER]

  
	
   

  
	
  Name of
  Investing Entity:

  	
   

  
	
  Signature
  of Authorized Signatory of Investing Entity:

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  
	
  Date:

  	
   

  
						

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [         ]
all of or [             ]
shares of the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

	
  

  	
  whose address is

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  .

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature
  Guaranteed:

  	
   

  	
   

  
												

 

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.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 

 2
 

 

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).

 3
 

 

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

(c)                                  No
Duplicate Payments.  In no event
shall Employee receive both Change of Control Retention Payments and Sale of
Diesel Business Retention Payments. 
Moreover, if Employee receives Sale of Diesel Business Retention
Payments, he shall not be eligible to receive any severance benefits under
Section 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 business of a competitor of the Company during
the 12 months following the termination of 

 4
 

 

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 

 5
 

 

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 

 6
 

 

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, 

 7
 

 

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

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

 8
 

 

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 

 9
 

 

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.

 10
 

 

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

  	
   

  
						

 

 11

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