CATALYTICA ENERGY SYSTEMS INC
CHANGE OF CONTROL AND SEVERANCE AGREEMENT
<DOCUMENT>
<TYPE>EX-10.36
<SEQUENCE>5
<FILENAME>dex1036.txt
<DESCRIPTION>CHANGE OF CONTROL AND SEVERANCE AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.36

                         CATALYTICA ENERGY SYSTEMS, INC.

                      CHANGE OF CONTROL SEVERANCE AGREEMENT

This Change of Control Severance Agreement (the "Agreement") is made and entered
into by and between Dominic Geraghty (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.

                                 R E C I T A L S
                                 ---------------

A.  It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control as a
means of enhancing stockholder value. The Board of Directors of the Company (the
"Board") recognizes that such consideration can be a distraction to the Employee
and can cause the Employee to consider alternative employment opportunities. The
Board has determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication and
objectivity of the Employee, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.

B.  The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.

C.  The Board believes that it is imperative to provide the Employee with
certain severance benefits upon Employee's termination of employment following a
Change of Control which provides the Employee with enhanced financial security
and provides incentive and encouragement to the Employee to remain with the
Company notwithstanding the possibility of a Change of Control.

D.  Certain capitalized terms used in the Agreement are defined in Section 6
below.

The parties hereto agree as follows:

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

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

<PAGE>

this Agreement, or as may otherwise be available in accordance with the
Company's established employee plans and practices or pursuant to other
agreements with the Company.

3.  Severance Benefits.
    ------------------

    (a)  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 (a "Severance
Termination"), then, subject to Section 5, the Employee shall be entitled to
receive the following severance benefits:

         (1)  Severance Payment.  A cash payment in an amount equal to two
              -----------------
hundred percent (200%) of the Employee's Annual Compensation plus a pro rata
payment of the current year bonus award based on the target bonus for the
Employee;

         (2)  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 Severance
Termination (the "Company-Paid Coverage"). If such coverage included the
Employee's dependents immediately prior to the 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 Title X of the Consolidated Budget Reconciliation Act
of 1985 ("COBRA"), the date of the "qualifying event" for Employee and his
dependents shall be the date upon which the Company-Paid Coverage terminates.

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

         (4)  Timing of Severance Payments.  Any severance payment to which
              ----------------------------
Employee is entitled under Section 3(a)(1) shall be paid by the Company to the
Employee (or to the Employee's successor in interest, pursuant to Section 7(b))
in cash and in full, not later than thirty (30) calendar days following the
Termination Date, subject to Section 9(f).

    (b)  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 or pursuant to other
agreements with the Company.

<PAGE>

     (c)  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.

     (d)  Termination Apart from Change of Control. In the event the Employee's
          ----------------------------------------
employment is terminated for any reason, either prior to the three-month notice
period before a Change of Control or after the twenty-four (24)-month period
following a Change of Control, then the Employee shall be entitled to receive
severance and any other benefits only as may then be established under the
Company's existing severance and benefits plans and practices or pursuant to
other agreements with the Company.

4.   Attorney Fees, Costs and Expenses. 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.

5.   Limitation on Payments.
     ----------------------

     (a)  In the event that the severance and other benefits provided for in
this Agreement or otherwise payable to the Employee (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 5, would be subject
to the excise tax imposed by Section 4999 of the Code, then the Employee's
severance benefits under Section 3(a)(1) shall be either

          (A)  delivered in full, or

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

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

     (b)  If a reduction in the payments and benefits that would otherwise be
paid or provided to the Employee under the terms of this Agreement is necessary
to comply with the provisions of Section 5(a), the Employee shall be entitled to
select which payments or benefits will be reduced and the manner and method of
any such reduction of such payments or benefits (including but not limited to
the number of options that would vest under Section 3(a)) subject to reasonable
limitations (including, for example, express provisions under the Company's
benefit plans) (so long as the requirements of Section 5(a) are met). Within
thirty (30) days after the amount of any required

                                      -3-

<PAGE>

reduction in payments and benefits is finally determined in accordance with
the provisions of Section 5(c), the Employee shall notify the Company in writing
regarding which payments or benefits are to be reduced. If no notification is
given by the Employee, the Company will determine which amounts to reduce. If,
as a result of any reduction required by Section 5(a), amounts previously paid
to the Employee exceed the amount to which the Employee is entitled, the
Employee will promptly return the excess amount to the Company.

     (c)  Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section 5 shall be made in writing by the
Company's Accountants immediately prior to Change of Control, whose
determination shall be conclusive and binding upon the Employee and the Company
for all purposes. For purposes of making the calculations required by this
Section 5, the Accountants may, after taking into account the information
provided by the Employee, make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.

6.   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 Company 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 Company 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 a felony, (iii) a willful act by the Employee that constitutes
gross misconduct and that is injurious to the Company, or (iv) for a period of
not less than thirty (30) days following delivery to the Employee of a written
demand for performance from the Company that describes the basis for the
Company's belief that the Employee has not substantially performed his duties,
continued violations by the Employee of the Employee's obligations to the
Company that are demonstrably willful and deliberate on the Employee's part. Any
dismissal for cause in accordance with Subsection (iv) of this Section 6(b) 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

                                      -4-

<PAGE>

percent (50%) or more of the total voting power represented by the Company's
then outstanding voting securities;

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

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

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

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

     (e) Involuntary Termination. "Involuntary Termination" shall mean (i)
         -----------------------
without the Employee's express written consent, the significant reduction of the
Employee's duties, authority or responsibilities, relative to the Employee's
duties, authority or responsibilities as in effect immediately prior to such
reduction, or the assignment to Employee of such reduced duties, authority or
responsibilities; (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

                                      -5-

<PAGE>

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 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 7(a) below; or (viii) any
act or set of facts or circumstances that would, under California case law or
statute constitute a constructive termination of the Employee.

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

7.   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 7(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.

8.   Notice.
     ------

     (a) General. Notices and all other communications contemplated by this
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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

                                      -6-

<PAGE>

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 8(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.

9.     Miscellaneous Provisions.
       ------------------------

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

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

       (c) Whole Agreement. This Agreement and any outstanding stock option
           ---------------
agreements represent the entire understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior arrangements and
understandings regarding same. 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 California 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.

                                      -7-

<PAGE>

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

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

COMPANY                                     CATALYTICA ENERGY SYSTEMS, INC.



                                       By: /s/ Craig N. Kitchen
                                           ----------------------------------
                                               Craig N. Kitchen
                                       Title:  President and CEO
                                             --------------------------------

                                       Date:


EMPLOYEE                                     /s/ Dominic Geraghty
                                             ---------------------------------
                                                 Dominic Geraghty

                                       Date: March 29, 2002

                                      -8-

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