Exhibit 10.1

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

KAWASAKI HEAVY INDUSTRIES, LTD.

AND

CATALYTICA ENERGY SYSTEMS, INC.

June 30, 2006

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TABLE OF CONTENTS

 

 

Page

 

 

 

 

 

 

 

Article 1 DEFINITIONS

 

1

 

 

 

 

 

Section 1.1

 

Defined Terms

 

1

 

 

 

 

 

 

 

Article 2 PURCHASE, SALE AND DELIVERY

 

5

 

 

 

 

 

Section 2.1

 

Acquisition Assets

 

5

 

 

 

 

 

 

 

Section 2.2

 

Excluded Assets

 

6

 

 

 

 

 

 

 

Section 2.3

 

Purchase Price

 

6

 

 

 

 

 

 

 

Section 2.4

 

Allocation Reporting

 

6

 

 

 

 

 

 

 

Section 2.5

 

Closing

 

6

 

 

 

 

 

 

 

Section 2.6

 

Closing Deliveries

 

6

 

 

 

 

 

 

 

Article 3 LIABILITIES AND OBLIGATIONS

 

8

 

 

 

 

 

Section 3.1

 

Limited Liabilities Assumed by the Purchaser

 

8

 

 

 

 

 

 

 

Article 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

9

 

 

 

 

 

Section 4.1

 

Organization and Qualification

 

9

 

 

 

 

 

 

 

Section 4.2

 

Authority; Consents; Binding Agreement

 

9

 

 

 

 

 

 

 

Section 4.3

 

Litigation

 

10

 

 

 

 

 

 

 

Section 4.4

 

Brokers and Finders

 

10

 

 

 

 

 

 

 

Article 5 REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

10

 

 

 

 

 

Section 5.1

 

Organization and Qualification

 

10

 

 

 

 

 

 

 

Section 5.2

 

Authority; Non-Contravention; Consents and Approvals

 

10

 

 

 

 

 

 

 

Section 5.3

 

Litigation

 

11

 

 

 

 

 

 

 

Section 5.4

 

No Violation of Law; Compliance with Agreements

 

11

 

 

 

 

 

 

 

Section 5.5

 

Title to Assets

 

12

 

 

 

 

 

 

 

Section 5.6

 

Brokers and Finders

 

12

 

 

 

 

 

 

 

Section 5.7

 

Intellectual Property

 

12

 

 

 

 

 

 

 

Section 5.8

 

Assumed Agreements

 

12

 

 

 

 

 

 

 

Section 5.9

 

Condition of Assets

 

13

 

 

 

 

 

 

 

Article 6 CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES

 

13

 

 

 

 

 

Section 6.1

 

Pre-Closing Covenants

 

13

 

 

 

 

 

 

 

Section 6.2

 

Woodward Agreement

 

14

 

 

 

 

 

 

 

Section 6.3

 

CEC Agreements

 

14

 

 

 

 

 

 

 

Section 6.4

 

Further Assurances

 

14

 

 

 

 

 

 

 

Section 6.5

 

Expenses and Fees

 

15

 

 

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TABLE OF CONTENTS
(cont’d)

 

 

Page

 

 

 

 

 

 

 

Section 6.6

 

Public Statements

 

15

 

 

 

 

 

 

 

Section 6.7

 

Tax Covenants

 

15

 

 

 

 

 

 

 

Section 6.8

 

Mutual Releases

 

16

 

 

 

 

 

 

 

Section 6.9

 

Non-competition

 

16

 

 

 

 

 

 

 

Section 6.10

 

Conduct of Business by Seller after Closing

 

18

 

 

 

 

 

 

 

Section 6.11

 

Specific Performance

 

18

 

 

 

 

 

 

 

Section 6.12

 

Intellectual Property

 

19

 

 

 

 

 

 

 

Section 6.13

 

Confidentiality

 

19

 

 

 

 

 

 

 

Article 7 CONDITIONS TO CLOSING; TERMINATION

 

19

 

 

 

 

 

Section 7.1

 

Conditions to Obligation of the Purchaser

 

19

 

 

 

 

 

 

 

Section 7.2

 

Conditions to Obligations of the Seller

 

20

 

 

 

 

 

 

 

Section 7.3

 

Other Agreements

 

20

 

 

 

 

 

 

 

Section 7.4

 

Termination

 

21

 

 

 

 

 

 

 

Section 7.5

 

Effect of Termination

 

21

 

 

 

 

 

 

 

Article 8 INDEMNIFICATION

 

22

 

 

 

 

 

Section 8.1

 

The Seller’s Indemnity Obligations

 

22

 

 

 

 

 

 

 

Section 8.2

 

Purchaser’s Indemnity Obligations

 

22

 

 

 

 

 

 

 

Section 8.3

 

Indemnification Procedures

 

23

 

 

 

 

 

 

 

Section 8.4

 

Limitations on Defense to the Claims of the Purchaser

 

25

 

 

 

 

 

 

 

Section 8.5

 

Limitation of Liability

 

25

 

 

 

 

 

 

 

Section 8.6

 

Remedies Exclusive

 

25

 

 

 

 

 

 

 

Article 9 GENERAL PROVISIONS

 

26

 

 

 

 

 

Section 9.1

 

Survival

 

26

 

 

 

 

 

 

 

Section 9.2

 

Notices

 

26

 

 

 

 

 

 

 

Section 9.3

 

Interpretation

 

27

 

 

 

 

 

 

 

Section 9.4

 

Miscellaneous

 

27

 

 

 

 

 

 

 

Section 9.5

 

Governing Law

 

27

 

 

 

 

 

 

 

Section 9.6

 

Process and Venue

 

27

 

 

 

 

 

 

 

Section 9.7

 

Disclosure Schedules

 

28

 

 

 

 

 

 

 

Section 9.8

 

Independent Obligations

 

28

 

 

 

 

 

 

 

Section 9.9

 

Attorney’s Fees

 

28

 

 

 

 

 

 

 

Section 9.10

 

Amendment

 

28

 

 

 

 

 

 

 

Section 9.11

 

Counterparts

 

28

 

 

 

 

 

 

 

Section 9.12

 

Parties in Interest

 

28

 

 

 

 

 

 

 

Section 9.13

 

Validity

 

28

 

 

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT, dated as of June 30, 2006 (this “Agreement”), is
by and among KAWASAKI HEAVY INDUSTRIES, LTD., a Japanese corporation (the
“Purchaser”) and CATALYTICA ENERGY SYSTEMS, INC., a Delaware corporation (the
“Seller”). KAWASAKI GAS TURBINES — AMERICAS, a division of KAWASAKI MOTORS
CORP., U.S.A., a Delaware corporation (“KGT-A”) joins this Agreement for
purposes of Section 6.8 only.

The Purchaser and the Seller are each a “Party” and, collectively, they are
sometimes referred to as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Purchaser desires to purchase from the Seller, and the Seller
desires to sell, transfer, assign and deliver to the Purchaser, upon the terms
and conditions set forth herein, certain Acquisition Assets (as defined in
Section 2.1) related to Seller’s small gas turbine business.

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements stated herein, the receipt and sufficiency
of which are hereby acknowledged, the Parties, intending to be legally bound,
covenant and agree as follows:

ARTICLE 1

DEFINITIONS

Defined Terms. As used in this Agreement, certain capitalized words and terms
have the meanings ascribed to them as set forth below. Other capitalized terms
have the meanings ascribed to them elsewhere in this Agreement.

“Acquisition Assets” is defined in Section 2.1.

“Affiliate(s)” means, with respect to any Person as hereinafter defined, any
other Person which directly or indirectly controls, is controlled by, or is
under common control with, such Person. A Person shall be regarded as in control
of another Person if it owns, or directly or indirectly controls, at least fifty
percent (50%) of the voting stock or other ownership interest of the other
Person, or if it directly or indirectly possesses the power to direct or cause
the direction of the management and policies of the other Person by any means
whatsoever. A Person shall be deemed to be an Affiliate of another Person only
for so long as the foregoing control relationship exists.

“Assigned Patents” is defined in Section 2.1(b).

“Assignment and Assumption Agreement” is defined in Section 2.6(a)(iv).

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“Assumed Liabilities” is defined in Section 3.1.

“Bill of Sale” is defined in Section 2.6(a)(ii).

“Business” means the business of supplying NOx emission reduction technology and
equipment designed for use with Small Gas Turbines.

“CEC” means the California Energy Commission.

“CEC Agreements” means both Royalty Agreement ROY-05-0001, Contract #
500-01-030, and Royalty Agreement ROY-05-0002, Contract # 500-97-033 between
Seller and the CEC. In no event shall CEC Agreements be construed to include any
other agreements between Seller and the CEC, including without limitation,
Contract # 500-01-030 or Contract # 500-97-033, which underlie the CEC
Agreements.

“Claim Notice” is defined in Section 8.3.

“Closing” is defined in Section 2.5.

“Closing Date” is defined in Section 2.5.

“Code” means the Internal Revenue Code of 1986, as amended, or any amending or
superseding tax laws of the United States of America.

“Covenant Period” is defined in Section 6.9(b).

“DOE” means the U.S. Department of Energy.

“Disclosure Schedules” is defined in the preamble to Article 5.

“Election Period” is defined in Section 8.3.

“Encumbrance” means any lien, pledge, hypothecation, charge, mortgage, deed of
trust, security interest, encumbrance, equity, trust, equitable interest, claim,
easement, right-of-way, servitude, right of possession, lease tenancy, license,
encroachment, covenant, infringement, interference, proxy, option, right of
first refusal, community property interest, exception, condition, restriction,
reservation, limitation, impairment, imperfection of title, restriction on or
condition to the voting of any security, restriction on the transfer of any
security or other asset, restriction on the receipt of any income derived from
any security or other asset, and restriction on the possession, use, exercise or
transfer of any other attribute of ownership, whether based on or arising from
common law, constitutional provision, statute or contract, other than minor
liens or encumbrances that do not materially impair Purchaser’s use of the item
in question.

“Excluded Assets” is defined in Section 2.2.

“Excluded Liabilities” is defined in Section 3.1.

“GAAP” means generally accepted accounting principles applied on a consistent
basis.

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“Governmental Authority” or “Governmental Authorities” means the U.S.
government, any state or political subdivision thereof and any agency or entity
exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, the U.S. government.

“Governmental Authorization” means any permit, license, franchise, approval,
certificate, consent, ratification, permission, confirmation, endorsement,
waiver, certification, registration, qualification or other authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Authority or pursuant to any Legal Requirement.

“Indemnified Amounts” is defined in Section 8.1.

“Indemnified Party” is defined in Section 8.3.

“Indemnifying Party” is defined in Section 8.3.

“Indemnity Claim” is defined in Section 8.3.

“Intellectual Property” is defined in Section 5.7.

“Legal Requirement” means any U.S. law, statute, ordinance, decree, requirement,
Order, treaty, proclamation, convention, rule or regulation (or interpretation
of any of the foregoing) of, and the terms of any authorization issued by, any
Governmental Authority.

“Liability” or “Liabilities” means any debt, obligation, duty or liability of
any nature (including any unknown, undisclosed, unfixed, unliquidated,
unsecured, unmatured, unaccrued, unasserted, contingent, conditional, inchoate,
implied, vicarious, joint, several or secondary liability or STRICT LIABILITY),
regardless of whether such debt, obligation, duty or liability would be required
to be disclosed on a balance sheet prepared in accordance with GAAP.

“License Agreement” is defined in Section 2.6(a)(iii).

“NOx” means nitrogen oxides.

“Order” means any order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, sentence, subpoena, writ or
award issued, made, entered or rendered by any U.S. court, administrative agency
or other Governmental Authority or by any U.S. arbitrator.

“Organizational Documents” means (a) articles or certificate of incorporation
and bylaws of a corporation; (b) the limited partnership agreement and a
certificate of limited partnership of a limited partnership; (c) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of any Person; and (d) any amendment to any of the foregoing.

“Person” means any individual, corporation, partnership, limited partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.

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“Proceeding” means any action, suit, litigation, arbitration, lawsuit, claim,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination, investigation, challenge,
controversy or dispute commenced, brought, conducted or heard by or before, or
otherwise involving, any Governmental Authority or any U.S. arbitrator.

“Purchase Price” is defined in Section 2.3.

“Purchaser Indemnified Party” is defined in Section 8.1.

“Seller” means Catalytica Energy Systems, Inc., a Delaware corporation.

“Seller Indemnified Party” is defined in Section 8.2.

“Seller’s Non-Infringement Representation” is defined in Section 5.7.

“Small Gas Turbines” means gas turbines of output up and including 25 megawatts
nameplate rating and designed for power generation or mechanical drives. In no
event shall Small Gas Turbines be construed to directly or indirectly include
any gas turbines for use in connection with any mode of power or emission
control for vehicles or any application involving diesel fuel.

“Subsidiary” or “Subsidiaries” shall mean, when used with reference to an
entity, any other entity of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions, or a majority of the outstanding voting
securities of which, are owned directly or indirectly by such entity.

“Taxes” shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, occupation, use,
severance, environmental, license, net worth, payroll, employment, franchise,
transfer and recording taxes, fees and charges, imposed by the IRS or any other
taxing authority (whether domestic or foreign including, without limitation, any
state, county, local or foreign government or any subdivision or taxing agency
thereof (including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments.

“Tax Disputes” is defined in Section 6.7(b).

“Tax Return(s)” shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns and documents (i) with respect to or
accompanying payments of estimated Taxes or (ii) with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information, including any schedule or attachment
thereto and any amendment thereof.

“TDTA” is defined in Section 6.8.

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“Territory” is defined in Section 6.9(b).

“TKK” means Tanaka Kikinzoku Kogyo K.K.

 “Transfer Taxes” is defined in Section 6.7(c).

“Woodward Agreement” means the Control Patent and Cross License Agreement dated
December 19, 2001 between Woodward Governor Company and the Seller.

“Xonon Module” means the Seller developed product designated by Seller as the
Xonon™ Module which consists of a catalyst container, which includes therein a
catalyst structure and supporting structure for fixing the catalyst structure in
the container, as designed specifically for reducing the emissions of NOx from
the Kawasaki gas turbine Model 1.4 MW M1A-13X.

ARTICLE 2

PURCHASE, SALE AND DELIVERY

Acquisition Assets. Subject to the terms and conditions of this Agreement and
the License Agreement, and on the basis of the representations and warranties
hereinafter set forth, at the Closing (as hereinafter defined), the Seller
hereby sells, transfers, conveys, assigns and delivers to the Purchaser, and the
Purchaser hereby acquires and purchases from the Seller, the following assets,
properties and rights of the Seller:

all inventory of Xonon Modules and H214 foil, in each case as described on
Schedule 2.1(a);

the Patents listed on Schedule 2.1(b) (the “Assigned Patents”), together with
all Technical Information (as defined in the License Agreement) associated with
the Assigned Patents that is applicable solely to Small Gas Turbines and not
applicable to other products or technologies, the right to secure copyright,
trademark, patent, or other forms of protection therein, the right to continue
the prosecution of any applications contained in the Assigned Patents, the right
to secure renewals, reissues and extensions of the Assigned Patents, and the
right to recover for infringement thereof;

copies of all books, records and papers of whatever nature and wherever located
that are in the possession or control of the Seller, that relate to the
inventory described in clause (a) above and that are required or reasonably
necessary for the Purchaser to continue the manufacturing of the Xonon Modules
from and after the Closing Date, as such manufacturing was conducted by Seller
in the U.S. in the ordinary course of business prior to the Closing Date;

all rights under express or implied warranties from the suppliers of the Seller
with respect to the inventory described in clause (a) above, to the extent they
are assignable.

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Subject to Section 2.2 hereof, all of the assets referenced in this Section 2.1
are collectively referred to as the “Acquisition Assets”.

Excluded Assets. Notwithstanding the foregoing, the Seller is not selling and
the Purchaser is not purchasing pursuant to this Agreement any assets of Seller
other than the Acquisition Assets, all of which shall be retained by the Seller
(collectively, the “Excluded Assets”).

Purchase Price. (a) Subject to the terms and conditions of this Agreement, and
as full consideration for the purchase of the Acquisition Assets and the
representations, warranties, covenants and agreements contemplated herein, the
Purchaser shall pay to the Seller the aggregate purchase price (the “Purchase
Price”) of TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000.00), which
Purchase Price shall be paid by the Purchaser to the Seller as follows: (i) TWO
MILLION DOLLARS ($2,000,000.00) at the Closing in immediately available funds;
and (ii) ONE HUNDRED THOUSAND DOLLARS ($100,000.00) within five (5) days
following the completion of the training described in Section 4 of the License
Agreement.

Allocation Reporting. Unless otherwise agreed in writing by the Purchaser and
the Seller, (i) Schedule 2.4 hereto sets forth the allocations established by
the Purchaser and the Seller of the Purchase Price (and any other items
constituting consideration paid by the Purchaser or received by the Seller in
connection with the disposition of the Acquisition Assets) among the Acquisition
Assets; (ii) the allocations set forth on Schedule 2.4 hereto will be used by
the Purchaser and the Seller as the basis for reporting asset values and other
items for purposes of all required Tax Returns (including any Tax Returns
required to be filed under Section 1060(b) of the Code and the Treasury
regulations thereunder); and (iii) the Purchaser and the Seller shall not
assert, in connection with any audit or other Proceeding with respect to Taxes,
any asset values or other items inconsistent with the allocations set forth on
Schedule 2.4 hereto.

Closing. Subject to the terms and conditions of this Agreement, the purchase and
sale provided for herein (the “Closing”) shall take place at the offices of
Morrison & Foerster LLP, 755 Mill Road, Palo Alto, California 94304, on the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the Parties will take at
the Closing itself) or at such other place and time as may be agreed by the
Parties in writing (the “Closing Date”).

Closing Deliveries.

At the Closing, the Seller shall deliver to the Purchaser:

the tangible Acquisition Assets, it being understood that certain of the
Acquisition Assets will be delivered to Purchaser in connection with the
training described in Section 4 of the License Agreement;

an executed counterpart of a bill of sale, assignment and assumption agreement
in the form attached hereto as Exhibit A (the “Bill of Sale”), with respect to
the CEC Agreements and the Woodward Agreement, together with such other

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assignments and conveyances as the Purchaser may reasonably require to assure
the full and effective sale, transfer, conveyance, assignment and delivery to
the Purchaser of the Acquisition Assets free and clear of any Encumbrances;

an executed counterpart of a license agreement in the form attached hereto as
Exhibit B (the “License Agreement”);

assignments, in recordable form, with respect to the Assigned Patents, duly
executed by the Seller and in form and substance reasonably satisfactory to the
Purchaser, together with the original letters patent with respect thereto, as
available;

a certified copy of resolutions duly adopted by the board of directors of the
Seller authorizing and approving the execution and delivery of this Agreement
and the License Agreement, including the exhibits and schedules hereto and
thereto, and the consummation of the transactions contemplated hereby and
thereby;

notification, if any, to the DOE of the terms and conditions of this Agreement
and the License Agreement in form and substance deemed necessary by the Seller
in its sole discretion to consummate this Agreement and the License Agreement;

notification to Woodward of the assignment to and assumption by the Purchaser of
the Woodward Agreement in form and substance reasonably satisfactory to the
Purchaser;

a written consent of the CEC of the assignment to and assumption by the
Purchaser of the CEC Agreements in form and substance reasonably satisfactory to
the  Parties;

U.S. Residency Certificate relating to Seller, issued by the U.S. Department of
Treasury (Internal Revenue Service);

a fully completed and executed Application Form for Income Tax Convention, in
the form attached hereto as Exhibit C;

consent of TKK, to the extent required for consummation of the transactions
contemplated hereby and by the License Agreement, it being understood and agreed
that the “Consent for Assignment and License” executed by TKK on June 9, 2006
fully satisfied this delivery requirement and all related closing conditions
herein;

a certificate, duly executed by or on behalf of Seller, as to whether each
condition specified in Sections 7.1(a), (b), and (c) has been satisfied;

evidence from the appropriate Governmental Authorities that the payments
contemplated under this Agreement are not subject to withholding taxes; and

such other documents, including certificates of the Seller, as may be required
by this Agreement or otherwise reasonably requested by the Purchaser.

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At the Closing, the Purchaser shall deliver the following to the Seller:

the Purchase Price set forth in Section 2.3;

an executed counterpart of the Bill of Sale;

an executed counterpart of the License Agreement;

evidence of approval by the governing body of the Purchaser of this Agreement
and the License Agreement, including the exhibits and schedules hereto and
thereto, and the consummation of the transactions contemplated hereby and
thereby;

a State of Arizona transaction privilege tax exemption certificate from the
Purchaser in the form attached as Exhibit D;

a certificate, duly executed by or on behalf of Purchaser, as to whether each
condition specified in Sections 7.2(a) and (b) has been satisfied; and

such other documents, including certificates of the Purchaser, as may be
required by this Agreement or otherwise reasonably requested by the Seller.

ARTICLE 3

LIABILITIES AND OBLIGATIONS

Limited Liabilities Assumed by the Purchaser. Subject to the terms and
conditions of this Agreement, at the Closing, Seller shall assign, and Purchaser
shall assume, the liabilities specifically listed on Schedule 3.1 (the “Assumed
Liabilities”). Except for the Assumed Liabilities, the Purchaser does not assume
or agree to pay, perform or discharge, and shall not be responsible for, any
commitments, contracts, agreements or Liabilities of the Seller whatsoever,
including without limitation, the following (collectively, the “Excluded
Liabilities”):

any Taxes or charges, if any, which may become payable by reason of the sale and
transfer of the Acquisition Assets under any taxing authority (whether domestic
or foreign, including, without limitation, any state, county, local or foreign
government or any subdivision or taxing agency thereof), or may be imposed upon
the Seller by reason of receipt of the Purchase Price or relief from any
Liability pursuant to this Agreement;

any of the costs and expenses incurred in connection with the future operations
of the Seller, and the costs and expenses of the Seller incurred in negotiating,
entering into and carrying out their obligations pursuant to this Agreement;

the trade accounts payable, accrued Liabilities and any other Liabilities of the
Seller as of the Closing Date and any indebtedness (whether short-term or
long-term) for borrowed money, together with all interest thereon;

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any Liability attributable to, assessed or arising out of operations during any
period through and including the Closing Date for (i) any and all Taxes of the
Seller, (ii) any and all Taxes of any member of an affiliated, consolidated,
combined or unitary group of which the Seller (or any predecessor of the
foregoing) is or was a member, including pursuant to Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign law),
(iii) any and all Taxes of any Person as a transferee or successor, by contract
or otherwise, which relate to an event or transaction occurring before the
Closing; and (iv) any and all ad valorem Taxes and special assessments on the
Acquisition Assets;

any prepayment penalties or other Liabilities related to retiring or
extinguishing any indebtedness of the Seller;

any Liabilities arising out of or in connection with periods or activity prior
to the Closing Date related to any other Governmental Authority, or any
violation of any Legal Requirement, and any unrecorded Liabilities or
contingencies that are not expressly identified on Schedule 3.1;

any Liability of the Seller arising out of any claim, litigation, or Proceeding
threatened or pending on or before the Closing Date or any claim, litigation, or
Proceeding threatened or initiated after the Closing Date to the extent based on
an act or omission of the Seller or any current or former officer, director,
employee, agent or representative of the Seller or the operation of the
Acquisition Assets occurring before the Closing Date; and

any Liability under or in connection with or related to the Excluded Assets.

ARTICLE 4

REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to the Seller as follows:

Organization and Qualification. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of its country of
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. The Purchaser is duly qualified to do business as a foreign
entity and is in good standing in each jurisdiction in which the properties
owned, leased, or operated by it or the nature of the business conducted by it
makes such qualification necessary.

Authority; Consents; Binding Agreement. The Purchaser has full power and
authority to execute and deliver this Agreement and the other documents
delivered by the Purchaser at Closing and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized by the Purchaser,
and no additional approvals on the part of the board of directors of the
Purchaser are necessary to authorize the execution and delivery of this
Agreement or the consummation by the Purchaser of the transactions contemplated
hereby.

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Except as otherwise specifically provided for in this Agreement, no approvals,
consents or waivers on the part of any Governmental Authorities or other Persons
are necessary for the Purchaser to execute and deliver this Agreement and
consummate the transactions contemplated hereby. Each of this Agreement and the
other documents delivered by the Purchaser at Closing has been duly executed and
delivered by the Purchaser and, assuming the due authorization, execution and
delivery hereof by the Seller, constitutes a valid and legally binding agreement
of the Purchaser and is enforceable against the Purchaser in accordance with its
terms, except as such enforcement may be subject to bankruptcy, insolvency,
reorganization or other similar laws affecting or relating to enforcement of
creditors’ rights generally.

Litigation. There is no action to which the Purchaser is a party in which relief
is sought which would prevent, delay or make illegal the transactions
contemplated by this Agreement, and there is no litigation, action, suit,
proceeding or governmental investigation pending or threatened against the
Purchaser (orally or in writing), involving, affecting or relating to the
transactions contemplated by this Agreement.

Brokers and Finders. The Purchaser has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of such Purchaser to pay any finder’ s fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by the Purchaser of any
investment banking fees, finder’s fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES
OF THE SELLER

Except as set forth on the corresponding section or subsection of the disclosure
schedules attached hereto (the “Disclosure Schedules”), the Seller represents
and warrants to the Purchaser as follows:

Organization and Qualification. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite power and authority to own, lease and operate its
Acquisition Assets and to carry on its business relating thereto as it is now
being conducted. The Seller is duly qualified to do business as a foreign entity
and is in good standing in each jurisdiction in which the properties owned,
leased, or operated by it or the nature of the business conducted by it makes
such qualification necessary.

Authority; Non-Contravention; Consents and Approvals.

The Seller has full power and authority to execute and deliver this Agreement
and the other documents delivered by the Seller at Closing and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized by the
Seller, and no additional approvals on the part of the board of directors of the
Seller

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are necessary to authorize the execution and delivery of this Agreement or the
consummation by the Seller of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Seller, and, assuming the
due authorization, execution and delivery hereof by the Purchaser, constitutes a
valid and legally binding agreement of the Seller, enforceable against the
Seller in accordance with its terms, except as such enforcement may be subject
to bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors’ rights generally.

The execution and delivery of this Agreement and the other documents delivered
by the Seller at Closing, and the consummation by the Seller of the transactions
contemplated hereby and thereby, do not and will not violate or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or except as described in Schedule
5.2(b) result in the creation of any Encumbrance upon any of the Acquisition
Assets under any of the terms, conditions or provisions of (i) the
Organizational Documents of the Seller, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or Governmental Authority applicable to the Seller, or any of the
Acquisition Assets, or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which the Seller is now a party or by
which the Seller or any of Acquisition Assets may be bound.

Except as indicated in Schedule 5.2(c), no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any Governmental
Authority or any other Person is necessary for the execution and delivery of
this Agreement or the License Agreement by the Seller or the consummation by the
Seller of the transactions contemplated hereby or thereby.

Litigation. Except as indicated in Schedule 5.3, there is no action to which
Seller is a party in which relief is sought involving, affecting, or relating to
the ownership, operation, or use of the Acquisition Assets or the conduct of the
business of Seller relating thereto or which would prevent, delay, or make
illegal the transactions contemplated by this Agreement, and there is no
litigation, action, suit, proceeding or governmental investigation pending or
threatened against Seller (orally or in writing), involving, affecting or
relating to the Acquisition Assets or the transactions contemplated by this
Agreement.

No Violation of Law; Compliance with Agreements.

With respect to its ownership, operation or use of the Acquisition Assets,
(i) the Seller is not in violation of and has not been given notice or been
charged with any violation of, any Legal Requirement; and (ii) to the knowledge
of Seller, no investigation or review by any Governmental Authority is pending
or threatened. There are no Governmental Authorizations that are necessary to
permit the Seller to

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own, operate, use, and maintain the Acquisition Assets in compliance with all
applicable Legal Requirements in all material respects.

The Seller is not in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under,
(a) the Organizational Documents of the Seller or (b) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which the Seller is a party or by which it is
bound relating to any of the Acquisition Assets.

Title to Assets. Except as indicated on Schedule 5.5, the Seller has good and
marketable title to the Acquisition Assets under all applicable Legal
Requirements and Seller’s title to the Acquisition Assets is free and clear of
any and all Encumbrances.

Brokers and Finders. Except for Seller’s agreement with W.Y. Campbell & Company,
the Seller has not entered into any contract, arrangement or understanding with
any person or firm which may result in the obligation of the Seller to pay any
finder’s fees, brokerage or agent commissions or other like payments in
connection with the transactions contemplated hereby. Except pursuant to the
agreement referenced in the preceding sentence, there is no claim for payment by
the Seller of any investment banking fees, finder’s fees, brokerage or agent
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.

Intellectual Property. The Assigned Patents and the Multi-Use Patents (as
defined in the License Agreement) constitute all of the patents owned by Seller
that read on the manufacture, use and sale of Xonon Modules as sold by the
Seller to KHI pursuant to the Xonon Module Supply Agreement referenced in clause
(i) of Section 6.8 below. The Seller’s manufacture, use and sale of Xonon
Modules does not infringe or misappropriate, and Seller has no reason to believe
that it will receive any notice alleging any such infringement or
misappropriation of, the U.S. intellectual property rights of any Person
(“Seller’s Non-Infringement Representation”). Except as set forth on  Schedule
5.7, the Seller solely owns or has the right to license all of the Multi-Use
Patents and New Technical Materials (as defined in the License Agreement),
purported to be licensed to the Purchaser pursuant to the License Agreement,
without the grant of such license causing any infringement or misappropriation
of any U.S. intellectual property rights of any Person or any breach of any
contract to which the Seller is a party, and, except as set forth on Schedule
5.7, no consent of any Person is required in connection with the licenses
contemplated thereunder. The patents, copyrights and trade secrets
(“Intellectual Property”) included in the Acquisition Assets or otherwise
assigned or licensed to Kawasaki under the License Agreement constitute all of
the Intellectual Property owned or licensed by the Seller necessary to continue
the manufacture of Xonon Modules, as such manufacturing was conducted by Seller
in the U.S. in the ordinary course of business prior to the Closing Date. To the
knowledge of the Seller, no Person is infringing the rights of the Seller in any
Assigned Patents, Multi-Use Patents or New Technical Materials.

Assumed Agreements.  Attached hereto as Schedule 5.8 are true, complete and
correct copies of the Woodward Agreement and the CEC Agreements, in each case as
amended, together

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with a detailed payment history therefor. Each of the Woodward Agreement and the
CEC Agreements is in full force and effect and each constitutes a legal, valid
and binding agreement of Seller and of each other party thereto, enforceable in
accordance with its terms, and no term or condition thereof has been amended
from the form attached hereto. There are no defaults by Seller under any of its
obligations under the Woodward Agreement or any CEC Agreement and no events have
occurred that with the lapse of time or action or inaction by any party thereto
would result in any violations thereof or any defaults thereunder. There is no
action to which Seller is a party in which relief is sought involving, affecting
or relating in any manner to the Woodward Agreement or any CEC Agreement and, to
the knowledge of Seller, there is no litigation, action, suit, proceeding or
governmental investigation pending or threatened against Seller (orally or in
writing) involving, affecting or relating to the Woodward Agreement or any CEC
Agreement. Except as indicated in Schedule 5.8, none of Seller’s rights under
the Woodward Agreement or any CEC Agreement will be impaired by the consummation
of the transactions contemplated by this Agreement, and all such rights will
inure to and be enforceable by Purchaser after the Closing Date without any
authorization, approval, permission or license of, or filing with, any other
Person.

Condition of Assets. Except as indicated on Schedule 5.9, the Acquisition Assets
described in clause (a) of Section 2.1 consist of a quality and quantity usable
and salable in the ordinary course of business. Notwithstanding anything herein
to the contrary, Purchaser’s inability to sell any of the Acquisition Assets
described in clause (a) of Section 2.1 due to a breach of Seller’s
Non-Infringement Representation will be deemed a breach of this Section 5.9. For
purposes of Section 8.1 hereof, the preceding sentence shall survive the Closing
for the same period as Seller’s Non-Infringement Representation.

ARTICLE 6

CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES

Pre-Closing Covenants.

Conduct of Business. Until the Closing, Seller will continue to operate the
Acquisition Assets in a manner consistent with its past practice and good
business practices. Without limiting the generality of the foregoing:

Seller will not sell, transfer or assign any of the Acquisition Assets;

Seller will not impose or permit to be imposed any Encumbrances on any of the
Acquisition Assets;

Seller will use commercially reasonable efforts to preserve and protect the
Acquisition Assets and to maintain the Acquisition Assets in good operating
condition and repair; and

Seller will inform Purchaser as promptly as practicable of the occurrence of any
destruction, material damage or loss of any Acquisition Asset, and will consult
with the Purchaser prior to performing any repairs to any Acquisition Asset.

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Best Efforts. Each Party will use its reasonable best efforts to take all
actions and to do all things necessary, proper or advisable to consummate, make
effective and comply with all of the terms of this Agreement (including
satisfaction, but not waiver, of the closing conditions herein).

No Shop. Seller shall not, directly or indirectly, (i) solicit, initiate or
encourage the submission of inquiries, proposals or offers from any Person
relating to any acquisition or purchase of the Acquisition Assets (an
“Acquisition Proposal”), (ii) participate in any discussions or negotiations
regarding an Acquisition Proposal or furnish any Person any information
concerning the Acquisition Assets in connection with an Acquisition Proposal,
(iii) enter into or consummate any agreement or letter of intent regarding any
Acquisition Proposal or (iv) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any Person to
do or seek any of the foregoing, in each case except in connection with the
transactions contemplated by this Agreement. Seller shall immediately provide
the Purchaser with written notice of any Acquisition Proposal, which notice
shall include the terms of any such Acquisition Proposal. Notwithstanding
anything in this Section 6.1(c), the Purchaser acknowledges and agrees that
Seller may, without the consent of the Purchaser and without violating this
Section 6.1(c), offer for sale or sell (i) all or any portion of the common
stock of Seller or (ii) all or any portion of the assets of Seller other than
the Acquisition Assets, provided that any such sale of equity or assets shall be
subject to the terms and conditions of this Agreement and the License Agreement
for as long as such agreements shall be outstanding.

Woodward Agreement. The Seller hereby assigns to the Purchaser the Woodward
Agreement and the Purchaser hereby accepts such assignment and agrees to fully
and timely pay, perform, discharge and satisfy all obligations of Seller
thereunder following the Closing Date.

CEC Agreements. The Seller hereby assigns to the Purchaser the CEC Agreements,
and the Purchaser hereby accepts such assignment and agrees to fully and timely
pay, perform, discharge and satisfy all obligations of Seller thereunder
following the Closing Date.

Further Assurances. The Seller and the Purchaser shall execute and deliver to
the other, after the Closing Date, any other instrument which may be reasonably
requested by the other and which is reasonably appropriate to perfect or
evidence any of the sales, assignments, transfers or conveyances contemplated by
this Agreement or to obtain any consents reasonably necessary for the Purchaser
to manufacture the Xonon Modules, as such manufacturing was conducted by Seller
in the U.S. in the ordinary course of business prior to the Closing Date. Seller
agrees to execute any documents reasonably requested by Purchaser that might be
helpful or necessary to perfect or evidence the Purchaser’s ownership of the
Assigned Patents and its associated Technical Information. If the Purchaser
notifies Seller in writing that the intellectual property laws of a country
require the consent of a joint owner of an Assigned Patent to perfect the
Purchaser’s ownership interest in such Assigned Patent, Seller shall be
responsible for acquiring the consent of such joint owner within a reasonable
time thereafter; provided, however, that nothing in this paragraph shall require
Seller to seek the authorization of any non-U.S. governmental entity unless
requested in writing by the Purchaser at the Purchaser’s sole cost and expense.
If for any reason, Seller does not or is unable to execute such further
documents within

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ten (10) days of the Purchaser’s written request, the Seller hereby irrevocably
appoints the Purchaser as its attorney-in-fact (which appointment is coupled
with an interest) to execute and deliver any assignments, applications or other
instruments to protect and vest title in the Assigned Patents and its associated
Technical Information fully in the Purchaser. Without the consent of the Seller,
which consent will not unreasonably be withheld, the obligations under this
Section 6.4 will expire two years from the Closing.

Expenses and Fees. The Seller shall pay all costs and expenses incurred by the
Seller in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, any and all broker’s commissions,
employee bonuses and the fees and expenses of the Seller’s attorneys and
accountants, and will make all necessary arrangements so that the Purchaser will
not be charged with any such cost or expense. The Purchaser shall pay all costs
and expenses incurred by the Purchaser in connection with this Agreement and the
transactions contemplated hereby, including without limitation, any and all
broker’s commissions, employee bonuses and the fees and expenses of their
attorneys and accountants.

Public Statements. Except as required by law or regulation in accordance with
the advice of their respective counsel and except as permitted in Section 6.13,
the Parties shall obtain the written consent of the other prior to issuing any
press release or any written public statement with respect to this Agreement or
the transactions contemplated hereby and shall not issue any such press release
or written public statement prior to such consent, which will not be
unreasonably withheld.

Tax Covenants.

Tax Returns. The Seller will be responsible for the preparation and filing of
all Tax Returns for the Seller for all periods as to which Tax Returns are due
after the Closing Date (including the consolidated, unitary, and combined Tax
Returns for the Seller which include the operations of the Acquisition Assets
for any period ending on or before the Closing Date). The Seller will make all
payments required with respect to any such Tax Returns.

Cooperation. Following the Closing, the Parties shall use all reasonable efforts
to cooperate with each other and their respective representatives, in a prompt
and timely manner, in conjunction with any audit or other examination by any Tax
authority or any Proceeding involving any Tax Return (collectively, the “Tax
Disputes”) relating to the Acquisition Assets and relating to any Taxes
(i) filed or required to be filed by or for the Seller for any taxable period
beginning before the Closing Date, or (ii) filed or required to be filed by or
for the Purchaser for any taxable period ending after the Closing Date.
Notwithstanding anything to the contrary herein, the Seller shall retain control
of any Tax Dispute to the extent such Tax Dispute arises out of or is related to
events or circumstances prior to the Closing, and the Purchaser shall retain
control of any Tax Dispute to the extent such Tax Dispute arises out of or is
related to events or circumstances after the Closing. Such cooperation shall
include, but not be limited to making available to one another during normal
business hours, and within five (5) business days of any reasonable request
therefore, all books, records and information, and the assistance of all
officers

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and employees, reasonably required in connection with any Proceeding with regard
to Taxes or any Tax Dispute. The Parties hereto agree to conduct any
investigation or examination hereunder without causing any material interference
or disruption of the operations of the business of any other Party hereto or
their Affiliates. The Seller will retain, until the expiration of the applicable
statutes of limitation (including any extensions thereof) copies of all Tax
Returns, supporting work schedules and other records relating to Taxes for all
taxable years or periods (or portions thereof) ending on or prior to the Closing
Date.

Certain Taxes and Fees. All excise, sales, use, transfer (including real
property transfer or gains), stamp, documentary, filing, recordation and other
similar taxes, together with any interest, additions or penalties with respect
thereto and any interest in respect of such additions or penalties, resulting
directly from the transactions contemplated by this Agreement (the “Transfer
Taxes”), shall be paid by the Seller when due, and the Seller will, at its own
expense, file all necessary Tax Returns, and other documentation with respect to
all such Taxes, fees and charges, and, if required by applicable law, the
Purchaser will, and will cause its Affiliates to, join in the execution of any
such Tax Returns and other documentation.

Mutual Releases. Subject only to the obligations of the Parties under this
Agreement, the License Agreement and the Confidentiality Agreement referenced in
Section 6.13, effective as of the Closing Date, the Seller, on the one hand, and
the Purchaser and KGT-A, on the other, hereby release and forever discharge each
other and the other’s respective heirs, representatives, successors and assigns,
officers, directors, employees, agents, stockholders, controlling persons and
Affiliates for, from and against any and all claims, present and future, known
and unknown, including without limitation under each of the following
agreements, in each case as amended: (i) that certain Xonon Module Supply
Agreement by and among the Parties and KGT-A dated December 13, 2000, as amended
as of July 2, 2003; (ii) that certain Technology Development and Transfer
Agreement by and between the Parties dated as of December 13, 2000 (“TDTA”); and
(iii) that certain Amended and Restated Support Agreement by and between Seller
and KGT-A dated as of October 6, 2003. Without limiting the generality of the
foregoing, Seller is under no further obligation to deliver any products to
Purchaser or KGT-A, except for the delivery of the inventory described in
Section 2.1(a) above, and all warranties of the Seller to the Purchaser and
KGT-A for the Xonon Modules shall be null and void.

Non-competition.

The Seller hereby acknowledges and agrees that (i) the Purchaser would not have
entered into this Agreement or the License Agreement if the Seller had not
agreed to this non-competition covenant; and (ii) Seller has had access to
information that is confidential to the Purchaser, which constitutes a valuable,
special and unique asset of the Purchaser, and with respect to which the
Purchaser is entitled to the protections afforded by this Agreement and to the
remedies for enforcement of this Agreement provided by law or in equity
(including, without limitation, those remedies the availability of which may be
within the discretion of the court or arbitrator that presides over any action
for enforcement of this Agreement is brought).

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For a period of five (5) years following the Closing Date (the “Covenant
Period”), the Seller agrees that it will not, directly or indirectly (through
any entity or other Person), and shall cause each of its Subsidiaries not to,
directly or indirectly, acting alone or as a member of a partnership, as a
holder or owner of any security, as an employee, agent, advisor, consultant to,
independent contractor to, representative, or in any other capacity within North
America, South America or Central America (collectively, the “Territory”),
engage in the Business. Notwithstanding anything else to the contrary in this
Agreement, none of the restrictions or limitations in this Section 6.9 shall be
applicable to (i) any Person that acquires Seller, by merger, consolidation,
sale of all or substantially all of its assets, purchase or other acquisition of
a majority of Seller’s outstanding voting securities or otherwise, which Person
was not an Affiliate of Seller prior to such acquisition, or (ii) any Person
that acquires any of Seller’s assets, whether by purchase or by sale in
connection with any reorganization or liquidation of Seller, which Person was
not an Affiliate of Seller prior to such acquisition.

Seller agrees that it will not (directly or indirectly through any entity or
other Person), and shall cause each of its Subsidiaries not to, directly or
indirectly, acting alone or as a member of a partnership, as a holder or owner
of any security, as an employee, agent, advisor, consultant to, representative,
or in any other capacity (i) cause or attempt to cause to leave the employment
or service of the Purchaser or its Subsidiaries, any person who is then employed
by the Purchaser or its Subsidiaries in a business unit that engages in the
Business, provided that the foregoing shall not be deemed to prevent general
employment solicitations by Seller, or (ii) request that any such person, or any
agent or independent contractor of the Purchaser or its Subsidiaries curtail or
cancel its business or refrain from doing business with the Purchaser or its
Subsidiaries. For purposes of this Section 6.9(c), “Subsidiaries” of Purchaser
shall include (i) those Subsidiaries of Purchase whose corporate name includes
the name “Kawasaki,” (ii) those Subsidiaries of Purchaser that Purchaser has
informed Seller in writing are Subsidiaries of Purchaser and (iii) those
Subsidiaries of Purchaser that Seller is aware are Subsidiaries of Purchaser.

Without limiting the generality of the provisions of this Section 6.9, the
Seller shall be deemed to be carrying on or engaged in a particular business if
it (whether alone or in association with one or more other Persons) is a
partner, owner, stockholder, independent contractor or joint venturer of, or a
consultant or lender to, or an investor in any manner in, any Person who or
which is directly engaged in the Business.

Notwithstanding the foregoing provisions of this Section 6.9, the Seller may
own, solely as an investment, securities if the Seller (A) is not an Affiliate
of the issuer of such securities and (B) does not, directly or indirectly,
beneficially own more than 5%, in the aggregate, of the class of which
securities are a part.

The Seller acknowledges and agrees that the limitations imposed by this
non-competition covenant as to time, geographical area, and scope of activity
being restrained are reasonable and do not impose a greater restraint than is
necessary to

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protect the goodwill or other business interest of the Purchaser. If any court
of competent jurisdiction determines that any of such covenants, provisions, or
portions of the Agreement, or any part thereof, are unenforceable and invalid,
then (a) the validity and enforceability of any remaining covenants, provisions
or portions thereof shall not be affected by such determination, (b) those of
such covenants, provisions, or portions that are determined to be unenforceable
because of the duration or scope thereof shall be severed and/or reformed by the
court to reduce there duration or scope so as to render the same enforceable
against Seller, and (c) all remaining covenants, provisions, portions and terms
of the Agreement shall be valid and enforceable to the fullest extent permitted
by law.

Conduct of Business by Seller after Closing. Except upon the prior written
consent of the Purchaser (which shall not be unreasonably withheld) to the
Seller’s provision of an escrow of funds, irrevocable letter of credit or other
arrangement acceptable to the Purchaser that provides assurances that Seller’s
indemnification obligations under Article 8 will be satisfied, after the Closing
Date, Seller shall:

maintain an amount of not less than $2,000,000 in immediately available funds
with the Seller until the later of (a) one (1) year following the Closing Date,
or (b) the date that any action commenced by a Purchaser Indemnified Party
against the Seller pursuant to Section 8.3 hereof no later than one (1) year
following the Closing Date has been resolved; and

following the period covered by clause (a) above, maintain an amount of not less
than $1,900,000 in immediately available funds with the Seller until the later
of (a) two (2) years following the Closing Date, or (b) the date that any action
commenced by a Purchaser Indemnified Party against the Seller pursuant to
Section 8.3 hereof no later than two (2) years following the Closing Date has
been resolved.

Specific Performance. The Purchaser and the Seller hereby agree that if the
Seller violates or threatens to violate any of the provisions of Section 6.9, it
would be difficult to determine the entire cost, damage or injury which the
Purchaser would sustain. The Seller acknowledges that if it violates or
threatens to violate any of the provisions of Section 6.9  of this Agreement,
the Purchaser may have no adequate remedy at law. In that event, the Purchaser
shall have the right, in addition to any other rights that may be available to
it, to seek in any court of competent jurisdiction injunctive relief to restrain
any violation or threatened violation by the Seller of Section 6.9  this
Agreement or to compel specific performance by the Seller of its obligations
under Section 6.9  of this Agreement. The seeking or obtaining by the Purchaser
of such injunctive relief shall not foreclose or in any way limit the right of
the Purchaser to obtain a money judgment against the Seller for any damage to
the Purchaser that may result from any breach by the Seller of any provision of
Section 6.9 of this Agreement.

Intellectual Property. Whether the Assigned Patents shall be preserved and
maintained or registered in the U.S. or any foreign country shall be at the sole
discretion of the Purchaser. Subject to the terms and conditions of this
Agreement, Seller agrees that it retains no rights in the Assigned Patents or
the associated Technical Information that is applicable solely to Small Gas
Turbines and not applicable to other products or technologies.  Except as
provided in Section 6.4,

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Seller shall be responsible for procuring, prior to the Closing, any and all
consents necessary to permit the assignment of the Assigned Patents as
contemplated by this Agreement.

Confidentiality. Each Party shall protect the confidentiality of the terms and
conditions of this Agreement using the same level of care that it uses to
protect its own similar confidential information, but in no event less than
reasonable care. Further, the Parties agree that the Confidentiality Agreement
by and between the Parties dated November 2, 2005 shall continue in full force
and effect. The Parties understand that the Seller is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and that a copy
of this Agreement and the License Agreement shall be filed by the Seller with
the Securities and Exchange Commission promptly following the execution and
delivery of this Agreement.

ARTICLE 7

CONDITIONS TO CLOSING; TERMINATION

Conditions to Obligation of the Purchaser. The obligation of the Purchaser to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction or waiver in writing of the following conditions:

the representations and warranties of the Seller set forth in Article 5 shall be
true and correct in all respects at and as of the Closing Date;

the Seller shall have performed and complied with all of its covenants hereunder
in all material respects through the Closing;

since the date of this Agreement, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, or would reasonably be expected to result in or constitute, a
material adverse effect with respect to the Acquisition Assets;

the Seller shall have delivered to the Purchaser a certificate to the effect
that each of the conditions specified above in Section 7.1(a) through (c) is
satisfied in all respects;

no action, suit or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state or local
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) affect adversely the right of the Purchaser to own and
operate the Acquisition Assets (and no such injunction, judgment, order, decree,
ruling or charge shall be in effect);

the Seller shall have delivered, or be standing ready to deliver, to the
Purchaser, the documents required to be delivered by the Seller Parties pursuant
to Section 2.6(a);

19

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Seller shall have delivered to the Purchaser the documents described in clauses
(ix) and (x) of Section 2.6(a);

the consent of TKK referenced in clause (xi) of Section 2.6(a) shall not have
been revoked;

the CEC shall have delivered a consent to the assignment and assumption of the
CEC Agreements in form and substance satisfactory to the Purchaser; and

Seller shall have received evidence from the appropriate Japanese tax authority
that the payments contemplated under this Agreement are not subject to
withholding taxes.

Conditions to Obligations of the Seller. The obligation of the Seller to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction or waiver in writing of the following conditions:

the representations and warranties of the Purchaser set forth in Article 4 shall
be true and correct in all respects at and as of the Closing Date;

the Purchaser shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;

the Purchaser shall have delivered to the Seller a certificate to the effect
that each of the conditions specified in Section 7.2(a) and (b) is satisfied in
all respects;

no action, suit or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state or local
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling or charge
shall be in effect);

the consent of TKK referenced in clause (xi) of  Section 2.6(a) shall not have
been revoked;

the CEC shall have delivered a consent to the assignment and assumption of the
CEC Agreements in form and substance satisfactory to the Seller;

the Purchaser shall have delivered the State of Arizona transaction privilege
tax exemption certificate provided for in clause (vi) of Section 2.6(b);

Seller shall have received evidence from the appropriate Japanese tax authority
that the payments contemplated under this Agreement are not subject to
withholding taxes; and

20

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the Purchaser shall have delivered, or be standing ready to deliver, to the
Seller, the items required to be delivered by the Purchaser pursuant to
Section 2.6(b).

Other Agreements. The Purchaser agrees to submit the documents described in
clauses (ix) and (x) of Section 2.6(a) with the applicable Japanese tax
authority as soon as reasonably possible after receipt of same from Seller and
thereafter to use its commercially reasonable efforts to follow up with the
applicable Japanese tax authority; the Purchaser further agrees to notify Seller
in writing promptly upon receipt of evidence from the applicable Japanese tax
authority that the payments contemplated hereunder are not subject to
withholding taxes and, if such evidence has not been obtained within ten
(10) days of the Purchaser’s submission of the application therefor, the
Purchaser shall use commercially reasonably efforts to obtain a status report
thereon from the applicable Japanese tax authority and shall promptly update
Seller as to the status of the application.

Termination. The Parties may terminate this Agreement as provided below:

the Parties may terminate this Agreement by mutual written consent at any time
prior to the Closing;

the Purchaser may terminate this Agreement by giving written notice to the
Seller at any time prior to the Closing (i) in the event Seller has breached any
representation, warranty or covenant contained in this Agreement in any material
respect, the Purchaser has notified the Seller of the breach, and the breach has
continued without cure for a period of five (5) days after the notice of breach,
or (ii) if the Closing shall not have occurred on or before August 31, 2006, by
reason of the failure of any condition precedent under Section 7.1 (unless the
failure results primarily from the Purchaser breaching any representation,
warranty or covenant applicable to it contained in this Agreement);

the Seller may terminate this Agreement by giving written notice to the
Purchaser at any time prior to the Closing (i) in the event the Purchaser has
breached any representation, warranty or covenant contained in this Agreement in
any material respect, the Seller has notified the Purchaser of the breach, and
the breach has continued without cure for a period of five (5) days after the
notice of breach or (ii) if the Closing shall not have occurred on or before
August 31, 2006, by reason of the failure of any condition precedent under
Section 7.2 (unless the failure results primarily from Seller breaching any
representation, warranty or covenant applicable to it contained in this
Agreement); and

either Party may terminate this Agreement by giving written notice to the other
Party at any time prior to the Closing if the Closing shall not have occurred on
or before September 30, 2006.

Effect of Termination. Except with respect to the obligations set forth in
Section 6.13, if this Agreement is terminated by either Party in accordance with
Section 7.4, this Agreement shall forthwith become void and all other rights and
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party.

21

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ARTICLE 8

INDEMNIFICATION

The Seller’s Indemnity Obligations.  The Seller shall indemnify, defend and hold
harmless the Purchaser and its officers, directors, stockholders, employees,
agents, representatives and Affiliates (each a “Purchaser Indemnified Party”)
from and against any and all claims, actions, causes of action, arbitrations,
Proceedings, losses, damages, judgments, fines, penalties and expenses
(including, without limitation, reasonable attorneys’ fees) (collectively, the
“Indemnified Amounts”) paid, imposed on, required by statutory or other legal
authority, or incurred by a Purchaser Indemnified Party, directly or indirectly,
relating to, resulting from or arising out of (a) any breach or
misrepresentation in any of the representations and warranties made by the
Seller in this Agreement or in any certificate, instrument or agreement
delivered in connection with this Agreement, including without limitation, the
License Agreement, (b) any violation or breach by Seller of, or default by
Seller under, the terms of this Agreement or of any certificate, instrument or
agreement delivered in connection with this Agreement, including without
limitation, the License Agreement, (c) any act or omission by the Seller or any
director, officer, employee, agent or representative of the Seller occurring or
commencing on or prior to the Closing Date (including any claim by a third
party, including employees and customers arising out of or related to any act or
omission by the Seller or any director, officer, employee, agent or
representative of the Seller occurring on or prior to the Closing Date), (d) any
and all Taxes (including, without limitation, the Seller’s pro rata portion of
ad valorem Taxes and any and all Taxes relating to the consummation of this
Agreement and the transactions contemplated hereby) involving, affecting,
arising out of or relating to the ownership or operation of the Acquisition
Assets for periods ending on or prior to the Closing Date, (e) the Excluded
Liabilities and (f) in the event of an action by any third party against the
Purchaser Indemnified Parties or Purchaser’s sublicensees containing a claim
that, if proven, would constitute a breach of Seller’s Non-Infringement
Representation, Seller shall defend, indemnify, and hold harmless the Purchaser
Indemnified Parties and the Purchaser’s sublicensees but only as to that claim.
The foregoing subsection (f) shall not apply to claims arising out of
(i) modifications after the Effective Date to the Xonon Modules, Technical
Information associated therewith, Licensed Technical Materials (as such terms
are defined in the License Agreement) or other Acquisition Assets that without
such modifications would not constitute such a breach, or (ii) combinations
after the Effective Date of the Xonon Modules, Technical Information associated
therewith, Licensed Technical Materials or other Acquisition Assets with other
products or technologies that without such combinations would not constitute
such a breach. Notwithstanding anything herein to the contrary, Seller shall be
entitled to control the defense and settlement of that portion of the action
constituting a claim described in this Section 8.1(f), provided that such a
settlement would not result in an admission of liability by any member of the
aforementioned indemnitees. Any settlement that would restrict the rights of
such indemnitees in or to the Assigned Patents or Technical Information
associated therewith, Licensed Patents, or Licensed Technical Materials or
result in a financial obligation by any member of such indemnities shall require
the prior written consent of the Purchaser, which consent shall not be
unreasonably withheld.

Purchaser’s Indemnity Obligations. The Purchaser shall indemnify, defend and
hold harmless the Seller and the Seller’s officers, directors, stockholders,
employees, agents, representatives and Affiliates (each a “Seller Indemnified
Party”) from and against any and all

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Indemnified Amounts paid, imposed on, required by statutory or other legal
authority, or incurred by a Seller Indemnified Party, directly or indirectly,
relating to, resulting from or arising out of (a) any breach or
misrepresentation in any of the representations and warranties made by or on
behalf of the Purchaser in this Agreement or in any certificate or instrument
delivered in connection with this Agreement, , including without limitation, the
License Agreement, (b) any violation or breach by the Purchaser of, or default
by the Purchaser under the terms of, this Agreement or of any certificate or
instrument delivered in connection with this Agreement, (c) any act or omission
by the Purchaser or any of its directors, officers, employees, agents or
representatives, occurring or commencing after the Closing Date, including any
claim by a third party, including employees and customers arising out of or
related to any act or omission by the Purchaser or any of its directors,
officers, employees, agents or representatives occurring after the Closing Date,
and (d) the Assumed Liabilities.

Indemnification Procedures. All claims for indemnification under this Agreement
shall be asserted and resolved as follows:

Any of the Parties claiming indemnification under this Agreement (an
“Indemnified Party”) shall with reasonable promptness (i) notify the Party from
whom indemnification is sought (the “Indemnifying Party”) of the basis for the
indemnity demand, including without limitation, any Indemnity Claim or claims
asserted against the Indemnified Party or statutory or regulatory basis for
supporting the demand for indemnification (“Indemnity Claim”) for which
indemnification is sought and (ii) transmit to the Indemnifying Party a copy of
all papers served with respect to such claim (if any) and a written notice
(“Claim Notice”) containing a description in reasonable detail of the nature of
the Indemnity Claim, an estimate of the amount of damages attributable to the
Indemnity Claim to the extent feasible (which estimate shall not be conclusive
of the final amount of such claim) and the basis of the Indemnified Party’s
request for indemnification under this Agreement. It shall not be necessary for
any Party to expend any sum of money or pursue any third party to final judgment
to enforce the indemnity provisions hereof.

Within 15 days after receipt of any Claim Notice (the “Election Period”), the
Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential Liability to the Indemnified Party
with respect to such Indemnity Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Indemnity Claim.

If the Indemnifying Party notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the Indemnity
Claim, then the Indemnifying Party shall have the right to defend, at its sole
cost and expense, such Indemnity Claim by all appropriate Proceedings, which
Proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 8.3(a). The Indemnifying Party shall have full control of such
defense and Proceedings. To the extent the Indemnifying Party fails to defend
the Indemnified Party, the Indemnified Party is hereby authorized, at the sole
cost and expense of the Indemnifying Party, to file, within fifteen (15) days
after expiration of the Election Period, any motion, answer or other pleadings
that the Indemnified Party shall reasonably deem necessary or appropriate to

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protect its interests. If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Indemnity Claim that the Indemnifying Party elects to contest,
including, without limitation, the making of any related counterclaim against
the person asserting the Indemnity Claim or any cross complaint against any
person; provided, however, that the Indemnifying Party shall be responsible for
the costs of such cooperation incurred by the Indemnified Party. Except as
otherwise provided herein, the Indemnified Party may participate in, but not
control, any defense or settlement of any Indemnity Claim controlled by the
Indemnifying Party pursuant to this Section 8.3 and shall bear its own costs and
expenses with respect to such participation.

If the Indemnifying Party fails to notify the Indemnified Party within the
Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to vigorously prosecute or settle the
Indemnity Claim as herein provided or if the Indemnified Party reasonably
objects to such election on the grounds that counsel for such Indemnifying Party
cannot represent both the Indemnified Party and the Indemnifying Parties because
such representation would be reasonably likely to result in a conflict of
interest, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Indemnity Claim by all
appropriate Proceedings, which Proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. In such a
situation, the Indemnified Party shall have full control of such defense and
Proceedings and the Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 8.3, and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation.

The Indemnifying Party shall not settle or compromise any Indemnity Claim unless
(i) the terms of such compromise or settlement require no more than the payment
of money (i.e., such compromise or settlement does not require the Indemnified
Party to admit any wrongdoing or take or refrain from taking any action),
(ii) the full amount of such monetary compromise or settlement will be paid by
the Indemnifying Party, and (iii) the Indemnified Party receives as part of such
settlement a legal, binding and enforceable unconditional satisfaction and/or
release, in form and substance reasonably satisfactory to it, providing that
such Indemnity Claim and any claimed Liability of the Indemnified Party with
respect thereto is being fully satisfied by reason of such compromise or
settlement and that the Indemnified Party is being released from any and all
obligations or liabilities it may have with respect thereto. The Indemnified
Party shall not settle or admit Liability to any Indemnity Claim without the
prior written consent of the Indemnifying Party unless (x) the Indemnifying
Party has disputed its potential Liability to the Indemnified Party, and such
dispute either has not been resolved or has been resolved in favor of the
Indemnifying Party or (y) the Indemnifying Party has failed to respond to the
Indemnified Party’s Claim Notice.

Notwithstanding anything to the contrary within this Section 8.3 or Agreement,
both the Indemnifying Party and the Indemnified Party agree to reasonably
cooperate in resolving any dispute or claim that triggers this Indemnification
provision.

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Limitations on Defense to the Claims of the Purchaser. TO THE EXTENT THAT THE
PURCHASER MAKES ANY CLAIMS AGAINST THE SELLER UNDER THE PROVISIONS OF
SECTION 8.1, THE SELLER MAY NOT ASSERT AND HEREBY EXPRESSLY WAIVE AS A DEFENSE,
COUNTERCLAIM, OR OTHERWISE THAT THE PURCHASER HAS BEEN NEGLIGENT IN CONDUCTING
ITS DUE DILIGENCE OF ANY ASPECT OF THE SELLER OR HAS FAILED TO CONDUCT ITS DUE
DILIGENCE IN A PROPER OR ADEQUATE MANNER.

Limitation of Liability.

Notwithstanding anything to the contrary contained in  Article 8, except as set
forth in clause (c) below, the aggregate liability of Seller or the Purchaser
for all events or occurrences giving rise to a right of indemnification under
Section 8.1 or 8.2 of this Agreement or the License Agreement shall be limited
to the Purchase Price.  In addition, the aggregate liability of Seller for all
events or occurrences giving rise to a right of indemnification under
Section 8.1 of this Agreement shall be limited as follows: (1) with respect to
any breach of a representation or warranty in Section 5.9, that portion of
$400,000 attributable to the item of inventory at issue, as determined by
reference to Schedule 2.4; (2) with respect to any breach of covenant by Seller
in connection with the training services to be provided by Seller to the
Purchaser pursuant to the License Agreement, $100,000; and (3) for all other
matters, $1,600,000; provided, however, that the aggregate liability of Seller
for any breach of Seller’s Non-Infringement Representation with respect to
Intellectual Property shall be $1,600,000 and with respect to any item of
inventory described on Schedule 2.1 shall be that portion of $400,000
attributable to such item, as determined by reference to Schedule 2.4.

An indemnified party is entitled to indemnification pursuant to Section 8.1 or
Section 8.2, as applicable, only to the extent that the Indemnified Amount,
individually or in the aggregate, exceeds $50,000, subject to the limitation set
forth in Section 8.5(a).

Notwithstanding anything to the contrary contained in this Agreement, the
foregoing cap in clause (a) above shall not apply to (i) Excluded Liabilities;
(ii) only with respect to liabilities arising after the Closing Date, Assumed
Liabilities; (iii) liabilities arising out of or in connection with any breach
by the Purchaser of Sections 2 (License) or 3 (Xonon Trademark) of the License
Agreement; or (iv) any Indemnified Amount arising from fraud or any knowing
breach by Seller or the Purchaser, provided that such party has (x) been
notified in writing by the other party of such breach and (y) has failed to
remedy such breach within thirty (30) days after receipt of such notice.

Remedies Exclusive. Except for (i) equitable remedies, including specific
performance (ii) cases of fraud and (iii) cases of knowing breach of a Party’s
covenants or obligations hereunder (including any failure to pay an amount
required to be paid hereunder) in cases where such party has (x) been notified
in writing by the other party of such breach and (y) has failed to remedy such
breach within thirty (30) days after receipt of such notice, the remedies
provided for

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in this Article 8 shall constitute the sole and exclusive remedy for any
post-Closing claims made for breach of the representations and warranties
contained in this Agreement or any of the Schedules or Exhibits attached hereto
or in any of the certificates or other instruments or documents furnished by any
Party pursuant to this Agreement.

ARTICLE 9

GENERAL PROVISIONS

Survival. The representations and warranties set forth in this Agreement and in
any certificate or instrument delivered in connection herewith shall be
continuing and shall survive the Closing for a period of one (1) year following
the Closing Date; provided, however, that there shall be no such termination
with respect to any such representation or warranty as to which a bona fide
claim has been asserted by written notice of such claim delivered to the Party
or Parties making such representation or warranty prior to the expiration of the
survival period; provided, further, that the representations and warranties set
forth in Sections 4.1  (Organization and Qualification), 4.2 (Authority;
Consents; Binding Agreement), 5.1 (Organization and Qualification), 5.2
(Authority; Non-Contravention; Consents and Approvals), and 5.5 (Title to
Assets) shall survive the Closing Date for the applicable statute of limitations
and Seller’s Non-Infringement Representation shall survive the Closing for a
period of two (2) years following the Closing Date. The covenants and agreements
set forth in this Agreement, including, without limitation, those reflected in
Section 3.1 (Limited Liabilities Assumed by Purchaser), Section 6.2 (Woodward
Agreement), Section 6.3 (CEC Agreements), Section 6.9 (Non-competition) and
Section 6.13 (Confidentiality), and the covenants and agreements in the License
Agreement, shall survive the Closing for so long as the obligations thereunder
continue.

Notices. All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, mailed by registered or certified
mail (return receipt requested) or sent via recognized overnight delivery
service to the Parties at the following addresses (or at such other address for
a Party as shall be specified by like notice):

If to the Purchaser, to:

Kawasaki Heavy Industries, Ltd.
1-1 Kawasaki-Cho
Akashi City, 673-8666
Japan
Attention:  Shin-Ichiro Noumi

with a copy to (which shall not constitute notice):
Kawasaki Motors Corp., U.S.A.
9950 Jeronimo Road
Irvine, California 92618-2084
Attention:  Donald J. Koprowski — General Counsel

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If to the Seller, to:

Catalytica Energy Systems, Inc.
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California  94304
Attention:  Larry Sonsini

with a copy to (which shall not constitute notice):
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA  94304-1018
Attention: Chuck Holland

Interpretation. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the interpretation of this
Agreement. In this Agreement, unless a contrary intention is specifically set
forth, (i) the words “herein”, “hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any Party solely because such Party or
its legal representative drafted such provision.

Miscellaneous. This Agreement (including the documents and instruments referred
to herein and the Disclosure Schedule and Exhibits attached hereto)
(a) constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, among the Parties, or any of them,
with respect to the subject matter hereof, and (b) shall not be assigned by
operation of law or otherwise except that (i) the Purchaser may assign this
Agreement to one or more of its Affiliates, but no such assignment shall relieve
the Purchaser of its obligations hereunder, and (ii) the Seller may assign this
Agreement to any party that acquires all or substantially all of the assets of
the Seller or all or substantially all of the intellectual property rights
licensed to the Purchaser under the License Agreement, but no such assignment
shall relieve the Seller of its obligations hereunder.

Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

Process and Venue. Any process against the Purchaser or the Seller in, or in
connection with, any suit, action or Proceeding arising out of or relating to
this Agreement or any of the transactions contemplated by this Agreement may be
served personally or by certified mail at the address set forth in Section 9.2
with the same effect as though served on it personally. The Purchaser and the
Seller hereby irrevocably submit in any suit, action or Proceeding arising out
of or relating to this Agreement or any of the transactions contemplated by this
Agreement to the exclusive jurisdiction and venue of the United States District
Court for the Northern District of California and the jurisdiction and venue of
any court of the State of California located in Santa Clara County and waive any
and all objections to jurisdiction and review or venue that it or he may have
under the laws of California or the United States.

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Disclosure Schedules.  The disclosures in the Disclosure Schedules, and those in
any supplement thereto, relate only to the representations and warranties in the
Section or paragraph of the Agreement to which they expressly relate and not to
any other representation or warranty in the Agreement, unless otherwise set
forth therein. If there is any inconsistency between the statements in the body
of the Agreement and those in the Disclosure Schedules, the statements in the
Disclosure Schedules will control.

Independent Obligations. The Parties hereby expressly agree that their
respective obligations and covenants under this Agreement and the License
Agreement, including without limitation, covenants regarding non-competition,
waivers and indemnification obligations, shall be independent of each other and
are made in addition to the obligations and covenants made in the other.

Attorney’s Fees. In the event any Party hereto institutes a Proceeding against
any other Party hereto for a claim arising out of or to enforce this Agreement,
the Parties agree that the prevailing party shall be entitled to recovery of its
reasonable attorney’s fees and litigation expenses in connection with such
Proceeding.

Amendment. This Agreement may not be amended except by an instrument in writing
signed on behalf of all of the Parties.

Counterparts. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.

Parties in Interest. This Agreement shall be binding upon and inure solely to
the benefit of each Party hereto, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.

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

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the Purchaser and the Seller have executed and delivered
this Agreement effective as of the date first written above.

PURCHASER:

 

 

 

KAWASAKI HEAVY INDUSTRIES, LTD.

 

 

 

By:

/s/ KAZUTOYO DAIKOKU

 

Name:

Kazutoyo Daikoku

 

Title:

Deputy General Manager, Gas Turbine Division

 

 

 

SELLER:

 

 

 

CATALYTICA ENERGY SYSTEMS, INC.

 

 

 

By:

/s/ ROBERT W. ZACK

 

Name:

Robert W. Zack

 

Title:

President, Chief Executive Officer and Chief Financial Officer

 

 

 

For purposes of Section 6.8 only:

 

 

 

KAWASAKI GAS TURBINES — AMERICAS, a division of KAWASAKI MOTORS CORP., U.S.A.

 

 

 

By:

/s/ HIRO MATSUMURA

 

Name:

Hiro Matsumura

 

Title:

President

 

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Schedule 2.1(a)

Inventory

1.             6 Xonon Modules 1 of which is only partially manufactured;

2.             Approximately 650 pounds of aluminized H214 foil; and

3.             Approximately 1,050 pounds of non-aluminized H214 foil.

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Schedule 2.1(b)

Assigned Patents

 

TITLE

 

COUNTRY

 

PATENT, PUBLICATION,
OR APPLICATION NUMBER

Multistage Process for Combusting Fuel Mixtures

 

DE

 

EP0558669

Multistage Process for Combusting Fuel Mixtures

 

FR

 

EP0558669

Multistage Process for Combusting Fuel Mixtures

 

GB

 

EP0558669

Multistage Process for Combusting Fuel Mixtures

 

IT

 

EP0558669

(*) Multistage Process for Combusting Fuel Mixtures

 

JP

 

3364492

Process for Burning Combustible Mixtures

 

US

 

5,425,632

Multistage Process for Combusting Fuel Mixtures

 

US

 

5,281,128

Multistage Process for Combusting Fuel Mixtures Using Oxide Catalysts in the Hot
Stage

 

US

 

5,232,357

Two Stage Process for Combusting Fuel Mixtures

 

US

 

5,183,401

Cooled Support Structure for a Catalyst

 

US

 

5,461,864

Improved Support Structures for a Catalyst

 

DE

 

EP1075628

Improved Support Structures for a Catalyst

 

DK(1)

 

EP1075628

Improved Support Structures for a Catalyst

 

FR

 

EP1075628

Improved Support Structures for a Catalyst

 

GB

 

EP1075628

Improved Support Structures for a Catalyst

 

JP

 

2002513132

Improved Support Structures for a Catalyst

 

US

 

6,217,832

Thermally Tolerant Support Structure for a Catalytic Combustion Catalyst

 

EP

 

1336068

Thermally Tolerant Support Structure for a Catalytic Combustion Catalyst

 

JP

 

2004525327

 

--------------------------------------------------------------------------------

 

TITLE

 

COUNTRY

 

PATENT, PUBLICATION,
OR APPLICATION NUMBER

Thermally Tolerant Support Structure for a Catalytic Combustion Catalyst

 

KR

 

2003-7006485

Thermal Tolerant Support Structure for a Catalytic Combustion Catalyst

 

US

 

2002110501

(***) Control Strategy for Flexible Catalytic Combustion System

 

EP

 

1352196

(***) Control Strategy for Flexible Catalytic Combustion System

 

JP

 

2004525331

(***) Control Strategy for Flexible Catalytic Combustion System

 

TW

 

505764

(***) General Control Strategy for a Flexible Catalytic Control System

 

US

 

2004206090

Process and Apparatus for Control of Nox In Catalytic Combustion Systems

 

US

 

6,595,003

Method of Thermal Nox Reduction in Catalytic Combustion Systems

 

EP

 

1334307

Method of Nox Reduction in Catalytic Combustion Systems

 

JP

 

2004519651

Method of Thermal Nox Reduction in Catalytic Combustion Systems

 

US

 

6,718,772

(***) Design and Control Strategy for Catalytic Combustion System with a Wide
Operating System

 

EP

 

1427965

(***) Design and Control Strategy for Catalytic Combustion System with a Wide
Operating System

 

JP

 

2005502021

(***) Design and Control Strategy for Catalytic Combustion System with a Wide
Operating Range

 

US

 

6,796,129

Fuel-Air Premixing System For a Catalytic Combustor

 

US

 

2004021235

(***) Dynamic Control System for Catalytic Combustion Process and Gas Turbine
Engine Utilizing Same

 

CA

 

2344210

(***) Dynamic Control System for Catalytic Combustion Process and Gas Turbine
Engine utilizing Same (WGC)

 

DE

 

1114279

(***) Dynamic Control System for Catalytic Combustion Process and Gas Turbine
Engine utilizing Same (WGC)

 

FR

 

1114279

 

--------------------------------------------------------------------------------

 

TITLE

 

COUNTRY

 

PATENT, PUBLICATION,
OR APPLICATION NUMBER

(***) Dynamic Control System for Catalytic Combustion Process and Gas Turbine
Engine utilizing Same (WGC)

 

GB

 

1114279

(***) Dynamic Control System for Catalytic Combustion Process and Gas Turbine
Engine utilizing Same (WGC)

 

IT

 

1114279

(***) Dynamic Control System for Catalytic Combustion Process and Gas Turbine
Engine utilizing Same

 

JP

 

2002525490

(***) Dynamic Control System for Catalytic Combustion Process and Gas Turbine
Engine Utilizing Same (WGC)

 

US

 

6095793

Dynamic Control System and Method for Multiple Combustor Catalytic Gas Turbine
Engine

 

BR

 

PI0406806-8

Dynamic Control System and Method for Multiple Combustor Catalytic Gas Turbine
Engine

 

EP

 

1592924

Dynamic Control System and Method for Multiple Combustor Catalytic Gas Turbine
Engine

 

JP

 

2006501010

Dynamic Control System and Method for Multiple Combustor Catalytic Gas Turbine
Engine

 

US

 

2004206091

Catalyst Module Overheating Detection and Methods of Response

 

EP

 

04782983.3

Catalyst Module Overheating Detection and Methods of Response

 

US

 

10/571,798

Catalyst Module Overheating Detection and Methods of Response

 

US

 

11/376,726

(**) Bypass Air Injection Method and Apparatus for Gas Turbines

 

US

 

6,568,188

(**) Bypass Air Injection Method and Apparatus for Gas Turbines

 

US

 

6,449,956

--------------------------------------------------------------------------------

(1)             It is CESI’s understanding that the noted patent has been
abandoned due to nonpayment of an annuity and CESI is transferring whatever
rights, if any, in and to such patent, which may be none.

--------------------------------------------------------------------------------

Schedule 2.4

Allocation of Asset Values

1.             $400,000 allocated to the inventory set forth on Schedule 2.1(a),
$300,000 of which shall be allocated to the Xonon Modules described therein and
$100,000 of which shall be allocated to the H214 foil described therein. Of the
$300,000 allocated to the Xonon Modules, that amount shall be allocated equally
among the individual Xonon Modules.

2.             $1,600,000 for the assignments and licenses granted by Seller to
the Purchaser pursuant to the License Agreement, allocated to such rights and
obligations as follows:

(a)           $1,300,000 for the Assigned Patents;

(b)           $50,000 for the right to acquire Abandoned Multi-Use Patents as
described in Section 2.1 of the License Agreement;

(c)           $240,000 for the license of Licensed Patents and Licensed
Technical Materials as described in Section 2.2 of the License Agreement; and

(d)           $10,000 for the license of the CESI Trademarks as described in
Section 4 of the License Agreement.

3.             $100,000 for the training services to be provided by Seller to
the Purchaser pursuant to the License Agreement.

Any capitalized terms above not otherwise defined in this Agreement shall have
the meaning ascribed to such terms in the License Agreement.

--------------------------------------------------------------------------------

Schedule 3.1

Assumed Liabilities

The Purchaser shall assume all obligations of the Seller under the CEC
Agreements and the Woodward Agreement effective as of the Closing Date.

The Purchaser agrees to maintain accurate records for the purposes of tracking
components of sales, fees and royalties due pursuant to this Schedule.

--------------------------------------------------------------------------------

Schedule 5.2(b)

Pursuant to Seller’s agreements with the California Energy Commission (“CEC”),
the CEC may have march-in rights with respect to the following patents/patent
applications:

EP 1336068
JP 2004/525327
US 2002/110501
KR 2003/7006485

--------------------------------------------------------------------------------

 

Schedule 5.2(c)

Approval is required from the CEC to assign the CEC Agreements to the Purchaser.
Consent of TKK is required for the transfer and license of certain patents
issued under the laws of Japan in which TKK has joint ownership with Seller.

--------------------------------------------------------------------------------

Schedule 5.3

The Purchaser and KGT-A have threatened litigation against the Seller in
connection with the Xonon Module Supply Agreement by and among the Seller, the
Purchaser and KGT-A dated December 13, 2000 as amended as of July 2, 2003.

--------------------------------------------------------------------------------

Schedule 5.5

In addition to the exceptions listed on Schedule 5.7, certain portions of the
Intellectual Property may be subject to march-in rights as described in Schedule
5.2(b).

Pursuant to Article 3 of the Woodward Agreement, Seller has granted Woodward
Governor Company a non-exclusive license to certain of the Assigned Patents, as
described on Schedule 5.7.

--------------------------------------------------------------------------------

Schedule 5.7

Intellectual Property

The licenses of the Multi-Use Patents marked with “(*)” in Exhibit A of the
License Agreement are subject to the prior consent of TKK, which consent has
been delivered by TKK as of the date of this Agreement. The Multi-Use Patents
marked with “(**)” in Exhibit A of the License Agreement are jointly owned by
Seller and General Electric Company.

The Assigned Patents marked with “(*)” in Schedule 2.1(b) are jointly owned by
Seller and TKK. The Assigned Patents marked with “(**)” in Schedule 2.1(b) are
jointly owned by Seller and General Electric Company.

The Assigned Patents marked with “(***)” in Schedule 2.1(b) are those that
currently correspond to Exhibit D to the Woodward Agreement and Section 3.2
thereof. To the extent that any other Assigned Patents fall within the
definition of “CESI Patents” or “CESI Improvement Patents” in the Woodward
Agreement, those other Assigned Patents would also be licensed to the Woodward
Governor Company (“Woodward”) pursuant to Article 3 of the Woodward Agreement.

--------------------------------------------------------------------------------

Schedule 5.8

1.                                       Control Patent Assignment and
Cross-License Agreement dated 19 December 2001 between Woodward Governor Company
and Catalytica Energy Systems, Inc., as amended by the Settlement and Release of
Claims letter dated April 24, 2002 from John Holbrook of Woodward Governor
Company to Craig Kitchen of Seller.

a.             Payment records in respect of the Woodward Agreement.

2.                                       Royalty Agreement No. ROY-05-002
between Catalytica Energy Systems, Inc. and the California Energy Commission for
Contract No. 500-97-033.

a.             Payment records in respect of Royalty Agreement No. ROY-05-002.

3.                                       Royalty Agreement No. ROY-05-001
between Catalytica Energy Systems, Inc. and the California Energy Commission for
Contract No. 500-01-030.

a.             Payment records in respect of Royalty Agreement No. ROY-05-001.

4.             Approval is required from the CEC to assign the CEC Agreements to
Purchaser.

--------------------------------------------------------------------------------

Schedule 5.9

Xonon Module Exceptions

Two of the Xonon Modules have a significant shelf life, and there may be
material degradation as a result of the storage period. Xonon Module AA023 is
partially assembled.

Module Data

[g148461kxi001.gif]

Foil Exceptions

For the 2-mil thick Haynes 214 foil which is used in the outlet stage of the
module, the usable Aluminized H214 is spread out through 20 4” wide rolls of
varying weights and usability. In general, each roll has some portion of
unusable foil at each end and some may have slits or burns within the roll. The
Seller estimates that approximately 75% of the foil (650 of 883 lbs) to be
usable. With respect to the un-aluminized H214 foil, there are 10 rolls of 12”
wide foil of varying weights. The Seller estimates that approximately 80% of the
foil (1050 of 1346) to be usable.

The following is the specific information with respect to the foil:

Stock Number

 

Foil Type

 

Thickness

 

Width (in)

 

Core
Weight (lbs)

 

Gross
Weight (lbs)

 

Net
Weight (lbs)

10676

 

AL-H214

 

2-mil

 

4

 

6.6

 

65

 

58.4

10853

 

AL-H214

 

2-mil

 

4

 

6.05

 

24

 

17.95

10855

 

AL-H214

 

2-mil

 

4

 

6.1

 

10.4

 

4.3

10856

 

AL-H214

 

2-mil

 

4

 

6.05

 

61

 

54.95

10858

 

AL-H214

 

2-mil

 

4

 

6.05

 

29

 

22.95

10982

 

AL-H214

 

2-mil

 

4

 

6.14

 

63

 

56.86

10984

 

AL-H214

 

2-mil

 

4

 

6.14

 

16.3

 

10.16

10993

 

AL-H214

 

2-mil

 

4

 

6.6

 

59

 

52.4

10994

 

AL-H214

 

2-mil

 

4

 

6.6

 

60

 

53.4

11064

 

AL-H214

 

2-mil

 

4

 

5.95

 

60

 

54.05

11065

 

AL-H214

 

2-mil

 

4

 

5.95

 

52

 

46.05

11066

 

AL-H214

 

2-mil

 

4

 

5.95

 

62

 

56.05

11067

 

AL-H214

 

2-mil

 

4

 

5.95

 

62

 

56.05

11068

 

AL-H214

 

2-mil

 

4

 

5.95

 

53

 

47.05

11069

 

AL-H214

 

2-mil

 

4

 

5.95

 

10.3

 

4.35

 

--------------------------------------------------------------------------------

 

11070

 

AL-H214

 

2-mil

 

4

 

5.95

 

60

 

54.05

11071

 

AL-H214

 

2-mil

 

4

 

5.95

 

65

 

59.05

11072

 

AL-H214

 

2-mil

 

4

 

5.95

 

66

 

60.05

11073

 

AL-H214

 

2-mil

 

4

 

5.95

 

66

 

60.05

11074

 

AL-H214

 

2-mil

 

4

 

5.95

 

61

 

55.05

20 4” wide, 2-mil thick Al-H214 Rolls

 

Total

 

883.22 lbs

 

 

 

 

 

 

 

 

 

 

 

 

 

10670

 

H214

 

2-mil

 

12

 

11

 

102

 

91

10671

 

H214

 

2-mil

 

12

 

11

 

276

 

265

10674

 

H214

 

2-mil

 

12

 

11

 

258

 

247

10678

 

H214

 

2-mil

 

12

 

12

 

108

 

96

10680

 

H214

 

2-mil

 

12

 

11

 

92

 

81

10682

 

H214

 

2-mil

 

12

 

11

 

99.6

 

88.6

10683

 

H214

 

2-mil

 

12

 

11

 

131

 

120

10684

 

H214

 

2-mil

 

12

 

11

 

142.4

 

131.4

10686

 

H214

 

2-mil

 

12

 

14

 

144

 

130

11035

 

H214

 

2-mil

 

12

 

11

 

107

 

96

10 12” wide, 2-mil thick H214 Rolls

 

Total

 

1,346 lbs

 

--------------------------------------------------------------------------------

 

EXHIBIT A

Form of Bill of Sale and Assignment

This Bill of Sale, Assignment and Assumption Agreement (this “Agreement”) is
made and entered into effective as of the       day of             , 2006 by and
between CATALYTICA ENERGY SYSTEMS, INC., a Delaware corporation (the
“Assignor”), and KAWASAKI HEAVY INDUSTRIES, LTD.,  Japanese corporation (the
“Assignee”).

RECITALS

WHEREAS, the Assignor and the Assignee have executed that certain Asset Purchase
Agreement dated as of               , 2006 (the “Asset Purchase Agreement”);

WHEREAS, the Assignor desires to sell to the Assignee, and the Assignee desires
to purchase from the Assignor the Acquisition Assets (as defined in the Asset
Purchase Agreement);

WHEREAS, the Assignee has agreed to assume from Assignor and agrees to pay,
perform and discharge all of the Assumed Liabilities as defined in the Asset
Purchase Agreement; and

WHEREAS, any capitalized term used herein or in the exhibits attached hereto and
not otherwise defined shall have the meaning ascribed to it in the Asset
Purchase Agreement.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Assignor sells, transfers, assigns,
conveys and delivers unto the Assignee and its successors and assigns all of the
Assignor’s right, title and interest in and to the Acquisition Assets, free and
clear of all Encumbrances, except as described in the Asset Purchase Agreement
and other than with respect to the Assumed Liabilities. The Assignor also
assigns, conveys, transfers and sets over unto the Assignee and its successors
and assigns, all right, title and interest of the Assignor in and to each of the
Assumed Liabilities.

The Assignee accepts, assumes and agrees to pay, discharge or perform, as
appropriate, the Assumed Liabilities. Other than the Assumed Liabilities, the
Assignee shall not assume or be responsible for any claims against, or
liabilities, commitments, contracts, agreements or obligations whatsoever of the
Assignor.

This Agreement is subject and subordinate to all of the terms and provisions of
the Asset Purchase Agreement, and in the event of any conflict between any term
or provision hereof and any term or provision of the Asset Purchase Agreement,
the latter shall control.

Each party agrees to execute, acknowledge and deliver such further documents and
instruments and to take other actions as may be reasonably necessary to convey
to and vest in

A-1

--------------------------------------------------------------------------------

Assignee and protect its right, interest in and enjoyment of the Acquisition
Assets and Assumed Liabilities.

Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law. If any provision of
this Agreement shall be invalid, illegal or unenforceable in any respect under
any applicable law, the validity, legality and enforceability of the remaining
provisions hereof shall not be affected or impaired thereby.

This Agreement shall bind and inure to the benefit of the Assignee and the
Assignor and their respective successors and assigns.

This Agreement may not be amended except by an instrument in writing signed on
behalf of all of the parties.

THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY,
INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same
agreement.

[Signature Page Follows]

A-2

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

ASSIGNOR

 

 

 

CATALYTICA ENERGY SYSTEMS, INC.

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

ASSIGNEE

 

 

 

KAWASAKI HEAVY INDUSTRIES, LTD.

 

By:

 

 

Name:

 

 

Title:

 

 

A-3

--------------------------------------------------------------------------------

 

EXHIBIT B

Form of License Agreement

THIS LICENSE AGREEMENT (“Agreement”) is made effective as of June       , 2006
(“Effective Date”), by and between Catalytica Energy Systems, Inc., a Delaware
corporation (“CESI”), and Kawasaki Heavy Industries, Ltd., a Japanese
corporation (“Kawasaki”).

WHEREAS, CESI and Kawasaki have entered into that certain Asset Purchase
Agreement dated simultaneously herewith (“Asset Purchase Agreement”);

WHEREAS, CESI has developed expertise and technology of a catalytic combustion
system that incorporates catalytic modules that are utilized to oxidize
hydrocarbon fuels in the combustion system of gas turbines;

WHEREAS, Kawasaki desires to obtain from CESI certain patents and technical
materials associated with such CESI catalytic combustion system that are
necessary or useful in the manufacturing, operation, distribution, sales, and
support of such catalytic combustion systems for Small Gas Turbines; and

WHEREAS, CESI desires to grant a license of such patents and technical materials
to Kawasaki.

NOW, THEREFORE, in consideration of the covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

1.             Definitions. Capitalized terms not otherwise defined herein shall
have the meanings specified in the Asset Purchase Agreement.

1.1.          “Affiliate” shall have the meaning set forth in the Asset Purchase
Agreement.

1.2.          “Assigned Patents” shall have the meaning set forth in the Asset
Purchase Agreement.

1.3.          “Patents” means patents (including utility models, as well as
divisions, reissues, continuations, continuations-in-part, renewals and
extensions of any of the foregoing) and provisional and regular applications
therefor, and patents which may be issued on such applications.

1.4.          “SGT Catalytic Module” means a catalytic container module designed
for use solely with Small Gas Turbines to reduce the nitrous oxide emissions of
such Small Gas Turbines.

1.5.          “Small Gas Turbines” shall have the meaning set forth in the Asset
Purchase Agreement and shall include the term “SGT.”

B-1

--------------------------------------------------------------------------------

1.6.          “Technical Information” means all technical information, know-how,
trade secrets, manufacturing techniques, software and other copyrightable works,
engineering and other data, drawings, material and process specifications
(whether patented or unpatented, whether in written, printed, oral or other
form) that are required or reasonably necessary for Kawasaki to continue the
manufacturing of SGT Catalytic Modules from and after the Closing Date.

2.             License.

2.1.          Multi-Use Patents. The parties acknowledge that the patents listed
in Exhibit A (“Multi-Use Patents” or “Licensed Patents”) are applicable to both
Small Gas Turbines and to other products and technologies, including, without
limitation, gas turbines that are not Small Gas Turbines. Kawasaki may request
in writing from time to time that CESI identify which Multi-Use Patents, if any,
that it has decided to abandon, and CESI shall respond in writing to such
requests. Subject to the terms and conditions of this Agreement, with respect to
any Multi-Use Patents that CESI indicates in any such response that it has
decided to abandon (“Abandoned Multi-Use Patents”), CESI shall, upon Kawasaki’s
written request, and without additional consideration, assign such Abandoned
Multi-Use Patents to Kawasaki. Notwithstanding anything to the contrary, the
obligations of CESI under this Section 2.1 (a) shall not apply to any third
parties, including, without limitation, any successors or assigns of CESI or any
acquirers or other assignees of any Multi-Use Patents, and (b) shall terminate
with respect to any Multi-Use Patent upon the acquisition or other transfer of
such Multi-Use Patent (including, without limitation, as a result of a voluntary
assignment of such Multi-Use Patent to a third party, an acquisition by a third
party of CESI assets that include such Multi-Use Patent, or a merger involving
CESI).

2.2.          Licenses.

(a)           Patents. Subject to the terms and conditions of this Agreement,
CESI hereby grants to Kawasaki a perpetual, fully paid-up, royalty-free,
worldwide, irrevocable license, under the Multi-Use Patents, to make, have made,
test, use, sell, offer to sell, import, export, distribute, market, promote,
sublicense, create improvements, and commercially exploit SGT Catalytic Modules.

(b)           Technical Materials. Subject to the terms and conditions of this
Agreement, CESI hereby grants to Kawasaki a perpetual, fully paid-up,
royalty-free, worldwide, irrevocable license to:

(i)            use, modify, create derivative works of, and reproduce the
technical materials listed in Exhibit B (“New Technical Materials”), Technical
Information associated with the Multi-Use Patents (the “Multi-Use Technical
Information”), and the Technical Information and Xonon Control Algorithms (as
such terms are defined in the TDTA) owned by CESI and previously delivered by
CESI to Kawasaki pursuant to the TDTA (the New Technical Materials, Multi-Use
Technical Information, and such Technical Information and Xonon Control
Algorithms, collectively, “Licensed Technical Materials”) as reasonably
necessary to design, develop, manufacture, have made, test, use, sell, offer to
sell, import, export,

B-2

--------------------------------------------------------------------------------

distribute, market, promote, sublicense, create improvements, and commercially
exploit SGT Catalytic Modules;

(ii)           distribute the Licensed Technical Materials to Kawasaki’s
Affiliates, and sublicense to such Affiliates the rights granted in subsection
(i) above;

(iii)          distribute the Licensed Technical Materials to contractors and
consultants of Kawasaki and its Affiliates (collectively, “Kawasaki
Contractors”), and sublicense to such contractors and consultants the rights
granted in subsection (i) above solely on behalf of Kawasaki and its Affiliates;
and

(iv)          distribute the Licensed Technical Materials to customers and
potential customers of SGT Catalytic Modules and associated Small Gas Turbines
(collectively, “Kawasaki Customers”) as Kawasaki reasonably deems appropriate in
the Small Gas Turbine market, and sublicense to such customers and potential
customers the right to use such Licensed Technical Materials in the offering for
sale, sale, service and repair of SGT Catalytic Modules and associated Small Gas
Turbines.

CESI shall use commercially reasonable efforts to deliver the New Technical
Materials to Kawasaki in both hardcopy and in electronic form.

(c)           Authorized Users. Kawasaki shall be responsible for compliance by
its Affiliates, Kawasaki Contractors and Kawasaki Customers (collectively,
“Authorized Users”) with the terms and conditions of Sections 2.2 and 2.3 of
this Agreement to the same extent as Kawasaki itself, and any act or omission of
any Authorized User shall constitute an act or omission of Kawasaki. Kawasaki
and the Authorized Users shall not use or disclose any Licensed Technical
Information except as permitted in Section 2.2.

(d)           Exclusivity. CESI agrees that Kawasaki’s licenses as to the
Licensed Patents and Licensed Technical Materials under Sections 2.2(a) and
2.2(b) shall be EXCLUSIVE to Kawasaki as to SGT Catalytic Modules. CESI agrees
that as of the Effective Date, CESI shall have no right to manufacture, make,
have made, license, sublicense, distribute, or otherwise commercially exploit
the Licensed Technical Materials in connection with any SGT Catalytic Modules
without the prior written consent of Kawasaki.

(e)           Marking; Requests for Disclosure. Kawasaki shall (and shall cause
its Affiliates and Kawasaki Contractors to) mark substantially permanently and
legibly, and shall require the permanent and legible marking of, all SGT
Catalytic Modules and related documentation with such patent notice as may be
required under Title 35, United States Code or other applicable rules or
regulations in foreign jurisdictions. With respect to the Licensed Patents,
Kawasaki shall respond to any request for disclosure under 35 U.S.C.
§ 287(b)(4)(B) only by notifying CESI of the request for disclosure.

B-3

--------------------------------------------------------------------------------

2.3.          Sublicense Limitations. If Kawasaki grants any sublicense to the
Licensed Patents or the Licensed Technical Materials: (A) Kawasaki shall be
responsible for compliance by the sublicensee with the terms and conditions of
Sections 2.2 and 2.3 of this Agreement to the same extent as Kawasaki itself,
(B) any act or omission of a sublicensee shall constitute an act or omission of
Kawasaki, and (C) each sublicensee shall agree in writing that it is subject to
the terms and conditions of Sections 2.2 and 2.3 of this Agreement (without the
right to further sublicense), and that CESI shall be third party beneficiary of
each such sublicense as necessary to enforce its rights in the Licensed Patents
and Licensed Technical Materials. Notwithstanding subsection (C) to the
contrary, Kawasaki shall have the right to include in its specifications sheets,
product data sheets, support manuals and other marketing, sales and support
materials for SGT Catalytic Modules any Licensed Technical Materials that are
customarily included in such materials, without entering into any writing with
the recipients of such materials.

2.4.          No Implied Rights. Each party hereby retains all rights not
expressly granted by this Agreement. Each party hereby disclaims any and all
implied licenses, rights and obligations, including any licenses, rights or
obligations that may be deemed granted by this Agreement or the activities of
the parties hereunder.

3.             Xonon Trademark.

3.1.          License. During the term of this Agreement, subject to the terms
and conditions of this Agreement, CESI hereby grants to Kawasaki the EXCLUSIVE
right to use the marks listed in Exhibit C (the “CESI Trademarks”) on and in
relation to its sale of the SGT Catalytic Modules. Kawasaki shall have the right
to sublicense the foregoing right to its Affiliates and contractors; provided
that (a) Kawasaki shall be responsible for compliance by its sublicensees with
the terms and conditions of Section 3 of this Agreement to the same extent as
Kawasaki itself, (b) any act or omission of any sublicensee shall constitute an
act or omission of Kawasaki, and (c) each sublicensee shall agree in writing
that it is subject to the terms and conditions of Section 3 of this Agreement
and that CESI shall have a right of action against the sublicensee as necessary
to enforce the terms and conditions of this Section 3. Nothing in this Agreement
requires Kawasaki to use any CESI Trademarks.

3.2.          Quality Control.

(a)           Kawasaki shall ensure that all use of the CESI Trademarks shall be
in accordance with the reasonable instructions and guidelines of CESI as
provided to Kawasaki from time to time.

(b)           All SGT Catalytic Modules that are marked using a CESI Trademark
and are manufactured by Kawasaki or any of its sublicensees (“Marked Modules”)
shall be of such quality as will, in CESI’s reasonable judgment, protect and
enhance the goodwill, image and reputation adhering to the CESI Trademarks.
Kawasaki shall cooperate reasonably with CESI in enabling CESI to ascertain that
the Marked Modules meet CESI’s quality standards. Such cooperation shall
include, without limitation, upon CESI’s written request, providing CESI with
communications from third parties regarding the quality of the Marked Modules,
and upon at least ten (10) days prior written notice, providing CESI with

B-4

--------------------------------------------------------------------------------

access to the Marked Module packaging and distribution facilities during normal
business hours for reasonable inspection by CESI.

(c)           From time to time and upon CESI’s written request, Kawasaki shall
submit to CESI samples of all materials bearing any CESI Trademark, including,
without limitation, any advertising, packaging and other publicly disseminated
materials. If CESI discovers any improper use of any CESI Trademark on any such
submission and delivers a writing describing in detail the improper use to
Kawasaki, Kawasaki shall promptly remedy the improper use.

3.3.          Protection of Mark.

(a)           Kawasaki shall conduct its business associated with Marked Modules
in a manner that will reflect positively on the CESI Trademarks.

(b)           Kawasaki shall use the CESI Trademarks in a manner that does not
derogate CESI’s rights in the CESI Trademarks or the value of the CESI
Trademarks, and shall take no action that would interfere with, diminish or
tarnish those rights or value.

(c)           On each product, document, advertisement or other material on
which Kawasaki uses a CESI Trademark, Kawasaki shall mark the first prominent
use of the CESI Trademark with a “™” or “®” trademark legend, as applicable, and
include a trademark notice in a form reading, “[CESI Trademark] is a trademark
of Catalytica Energy Systems, Incorporated” at least once on such document,
advertisement or other material.

(d)           Kawasaki shall not use as its own any service mark, service name,
trade name or trademark confusingly similar to any CESI Trademark.

(e)           Kawasaki shall reasonably cooperate with CESI’s preparation and
filing of any applications, renewals or other documentation necessary or useful
to protect CESI’s intellectual property rights in the CESI Trademarks. Kawasaki
shall not register any CESI Trademark without CESI’s express prior written
consent, and CESI shall retain the exclusive right to apply for and obtain
registrations for the CESI Trademarks throughout the world.

(f)            Kawasaki shall notify CESI promptly of any actual or threatened
infringements, imitations or unauthorized uses of any CESI Trademark of which
Kawasaki becomes aware.

(g)           Kawasaki shall not challenge the validity of any CESI Trademark,
CESI’s ownership of any CESI Trademark, or the enforceability of CESI’s rights
therein.

3.4.          License Termination. CESI may terminate the license granted to
Kawasaki in Section 3.1, and all sublicenses granted thereunder, upon any breach
of Section 3 by Kawasaki or any of its sublicensees if such breach is not cured
within thirty (30) days of CESI notifying Kawasaki of such breach.

3.5.          Reservation of Rights. All rights of CESI in and to the CESI
Trademarks not expressly granted under Section 3.1 are reserved by CESI.
Kawasaki shall not, and shall have

B-5

--------------------------------------------------------------------------------

no right to, reproduce or use (or authorize the reproduction or use of) any CESI
Trademark in any manner whatsoever other than as expressly authorized by
Section 3.1. All use of the CESI Trademarks by Kawasaki and its sublicensees,
and all goodwill associated with such use, shall inure to the benefit of CESI.

4.             Training. In consideration of the Training Fee (defined below),
CESI agrees to provide the training services described on Exhibit D to Kawasaki,
its Affiliates, and its and their subcontractors or sublicensees (including,
without limitation, Tanaka Kikinzoku Kogyo K.K.).

5.             Purchase Price. As consideration of the assignment, license, and
training described in this Agreement, Kawasaki agrees to pay CESI, as part of
the Purchase Price provided under the Asset Purchase Agreement, a one time
payment as allocated in the Asset Purchase Agreement.

6.             Disclaimer of Warranties. The Asset Purchase Agreement sets forth
all of the representations and warranties made by the parties in connection with
this Agreement. Except as otherwise set forth in the Asset Purchase Agreement,
neither party makes any representations or warranties in connection with the
Assigned Patents, Multi-Use Patents, Licensed Technical Materials or any other
aspects of this Agreement, whether express or implied, including, without
limitation, any implied warranties of merchantability, fitness for a particular
purpose, title or non-infringement, or any warranties that may arise from course
of performance, course of dealing or usage of trade.

7.             Limitation of Liability.

7.1.          NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EXCEPT FOR
LIABILITY FOR INFRINGEMENT, MISAPPROPRIATION OR OTHER UNAUTHORIZED USE OF THE
OTHER PARTY’S INTELLECTUAL PROPERTY, NEITHER PARTY SHALL HAVE ANY LIABILITY
WHATSOEVER FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, OR SPECIAL
DAMAGES OF ANY KIND, OR ANY LOSS OF REVENUE OR PROFITS, LOSS OF BUSINESS, OR
LOSS OF DATA, ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF, HOWEVER CAUSED AND REGARDLESS OF THE THEORY OF LIABILITY (INCLUDING
CONTRACT, TORT, OR OTHERWISE), EVEN IF INFORMED IN ADVANCE OF THE POSSIBILITY OF
SUCH DAMAGES.

7.2.          Each party’s liability arising out of or in connection with this
Agreement shall be subject to the limits set forth in Section 8.5 of the Asset
Purchase Agreement.

8.             Confidentiality. The terms and conditions of Section 6.6 and 6.13
of the Asset Purchase Agreement shall apply to this Agreement and the terms and
conditions hereof.

9.             Waiver. The waiver by either party of a breach of any provision
of this Agreement by the other party will operate or be construed as a waiver of
any other or subsequent breach by the other party. No failure or delay by either
party in exercising any right, remedy, power or privilege hereunder, nor any
single or partial exercise thereof, shall operate as a waiver of any right,
remedy, power or privilege hereunder.

B-6

--------------------------------------------------------------------------------

10.           Severability. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as possible the
same economic effect as the original provision and the remainder of this
Agreement will remain in full force.

11.           Governing Law. This Agreement, and all the rights and duties of
the parties arising out of, in connection with, or relating in any way to the
subject matter of this Agreement or the transactions contemplated by it, shall
be governed by, construed, and enforced in accordance with the laws of the State
of California (excluding its conflict of laws rules which would refer to and
apply the substantive laws of another jurisdiction). Any suit or proceeding
hereunder shall be brought exclusively in the United States District Court for
the Northern District of California and state courts located in Santa Clara
County, California. Each party consents to the personal jurisdiction of such
courts and waives any objection that such courts are an inconvenient forum.

12.           Injunctive Relief. Each party acknowledges that a breach of its
obligations under this Agreement would cause the other party irreparable damage.
Accordingly, each party agrees that in the event of such breach or threatened
breach by the other party, in addition to remedies at law, the non-breaching
party shall have the right to injunctive or other equitable relief to prevent
violations by the breaching party of the terms and conditions of this Agreement,
without the necessity of posting bond or other security.

13.           Assignment. Neither party shall, or shall have the right to,
assign, delegate or otherwise transfer (whether voluntarily, by operation of
law, or otherwise) this Agreement, or any of its rights or obligations
hereunder, without the prior written consent of the other party, which consent
shall not be unreasonably withheld or delayed. Any purported assignment,
delegation or other transfer made in contravention of this Section shall be null
and void for all purposes. Notwithstanding the foregoing, (a) either party may
assign this Agreement to any Affiliate or third party that acquires all or
substantially all of such party’s assets, (b) CESI may assign this Agreement to
any Affiliate or third party that acquires all or substantially all of the
intellectual property rights licensed to Kawasaki under this Agreement, and
(c) Kawasaki may assign this Agreement to any Affiliate, or third party that
acquires all or substantially all of its Small Gas Turbine business and assets.

14.           Entire Agreement. This Agreement, together with the Asset Purchase
Agreement, including all Exhibits to any of the foregoing, constitutes the
entire agreement between the parties relating to this subject matter and
supersedes all prior or simultaneous representations, discussions, negotiations,
and agreements, whether written or oral. This Agreement may be amended or
modified only with the written consent of both Kawasaki and CESI. No oral
waiver, amendment or modification will be effective under any circumstances
whatsoever.

B-7

--------------------------------------------------------------------------------

In WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective duly authorized representatives.

Kawasaki:

CESI:

 

 

Kawasaki Heavy Industries, Ltd.

Catalytica Energy Systems, Incorporated

 

By:

 

 By:

 

 

 

 

 

Name:

 

 Name:

 

 

 

 

 

Title:

 

 Title:

 

 

B-8

--------------------------------------------------------------------------------

 

EXHIBIT A

MULTI-USE PATENTS

TITLE

 

COUNTRY

 

PATENT, APPLICATION,
OR PUBLICATION NUMBER

Graded Palladium Containing Partial Combustion Catalyst and a Process for Using
It

 

US

 

5,248,251

Graded Palladium Containing Partial Combustion Catalyst

 

US

 

5,258,349

(*) Catalyst Structure Having Integral Heat Exchange

 

CA

 

2,096,950

(*) Catalyst Structure Having Integral Heat Exchange

 

CH

 

EP0559808

(*) Catalyst Structure Having Integral Heat Exchange

 

DE

 

EP0559808

(*) Catalyst Structure Having Integral Heat Exchange

 

ES

 

EP0559808

(*) Catalyst Structure Having Integral Heat Exchange

 

FR

 

EP0559808

(*) Catalyst Structure Having Integral Heat Exchange

 

GB

 

EP0559808

(*) Catalyst Structure Having Integral Heat Exchange

 

IT

 

EP0559808

(*) Catalyst Structure Having Integral Heat Exchange

 

KR

 

234887

(*) Catalyst Structure Having Integral Heat Exchange

 

NL

 

EP0559808

(*) Catalyst Structure Having Integral Heat Exchange

 

RU

 

2065766

(*) Catalyst Structure Having Integral Heat Exchange

 

US

 

5,250,489

Palladium Partial Combustion Catalysts and a Process for Using Them

 

DE

 

EP0559844

Palladium Partial Combustion Catalysts and a Process for Using Them

 

FR

 

EP0559844

Palladium Partial Combustion Catalysts and a Process for Using Them

 

GB

 

EP0559844

Palladium Partial Combustion Catalysts and a Process for Using Them

 

IT

 

EP0559844

(*) Palladium Partial Combustion Catalysts and a Process for Using Them

 

JP

 

3191013

 

B-9

--------------------------------------------------------------------------------

 

TITLE

 

COUNTRY

 

PATENT, APPLICATION,
OR PUBLICATION NUMBER

Palladium Partial Combustion Catalysts and a Process for Using Them

 

KR

 

261782

Partial Combustion Process and a Structure for Use in the Process

 

US

 

5,326,253

Partial Combustion Process and a Structure for Use in the Process

 

US

 

5,511,972

(*) Partial Combustion of Palladium on a Zirconia Support and a Process for
Using it

 

US

 

5,259,754

(*) Partial Combustion of Palladium on a Zirconia Support and a Process for
Using it

 

US

 

5,405,260

Improved Process and Catalyst Structure Employing Integral Heat Exchange With
Optional Downstream Flameholder

 

DE

 

EP0745180

Improved Catalyst Structure Employing Integral Heat Exchange

 

DE

 

EP0746674

Improved Process and Catalyst Structure Employing Integral Heat Exchange With
Optional Downstream Flameholder

 

FR

 

EP0745180

Improved Catalyst Structure Employing Integral Heat Exchange

 

FR

 

EP0746674

Improved Process and Catalyst Structure Employing Integral Heat Exchange With
Optional Downstream Flameholder

 

GB

 

EP0745180

Improved Catalyst Structure Employing Integral Heat Exchange

 

GB

 

EP0746674

Improved Process and Catalyst Structure Employing Integral Heat Exchange With
Optional Downstream Flameholder

 

IT

 

EP0745180

Improved Catalyst Structure Employing Integral Heat Exchange

 

IT

 

EP0746674

(*) Improved Catalyst Structure Employing Integral Heat Exchange

 

JP

 

3705298

(*) Improved Catalyst Structure Employing Integral Heat Exchange

 

JP

 

3705299

Improved Catalyst Structure Employing Integral Heat Exchange

 

KR

 

373887

Improved Catalyst Structure Employing Integral Heat Exchange

 

SE

 

EP0746674

Improved Catalyst Structure Employing Integral Heat Exchange

 

TW

 

295551

 

B-10

--------------------------------------------------------------------------------

 

TITLE

 

COUNTRY

 

PATENT, APPLICATION,
OR PUBLICATION NUMBER

(*) Process and Catalyst Structure for Employing Integral Heat Exchange with
Optional Downstream Flameholder

 

US

 

5,512,250

Process and Catalyst Structure for Employing Integral Heat Exchange with
Optional Downstream Flameholder

 

US

 

5,518,697

(**) Support Structure for a Catalyst

 

US

 

6,116,014

Mixed Oxide Solid Solutions

 

US

 

6,521,566

 

B-11

--------------------------------------------------------------------------------

EXHIBIT B

NEW TECHNICAL MATERIALS

Media

 

Rev

 

Title

MaterialSpec-001

 

C

 

Kawasaki River Lite 20-5USR Foil (BM-012) Specification

MaterialSpec-002

 

B

 

RC-100P Zirconium Oxide Powder (BM-005) Specification

MaterialSpec-003

 

B

 

Pt Diammine Nitrate Solution (BM-001) Specification

MaterialSpec-004

 

B

 

Pd Dissolved in Nitrate Acid (BM-002) Specification

MaterialSpec-005

 

C

 

Al Coated Haynes 214 Foil (BM-013) Specification

MaterialSpec-006

 

B

 

Haynes 214 2B #3 Edge Foil (BM-014) Specification

MaterialSpec-007

 

new

 

Tetraethyl Orthosilicate (BM-006) Specification

MaterialSpec-008

 

new

 

Nitric Acid (BM-007) Specification

MaterialSpec-010

 

new

 

Sulfuric Acid (BM-009) Specification

MaterialSpec-011

 

new

 

0.25N Sulfuric Acid (BM-011) Specification

MaterialSpec-012

 

B

 

Zirconium Oxide, grade DK-2 (BM-019) Specification

MaterialSpec-013

 

B

 

Zirconium Acetate (BM-003) Specification

MaterialSpec-017

 

new

 

Lattice Specification

Mfg-001

 

C

 

Corrugation Machine Operating Procedure

Mfg-002

 

B

 

Foil Cleaning Procedure

Mfg-003

 

F

 

Operation Procedure for Furnace #2

Mfg-004

 

B

 

Coating Line 1 Operating Procedure

Mfg-005

 

B

 

Rolling Machine Operation Procedure

Mfg-006

 

new

 

Spot Welding Procedure

Mfg-008

 

E

 

Operation Procedure for Furnace #1

Mfg-010

 

A

 

Zirconia Sol Production Procedure

Mfg-011

 

C

 

Prepared Sol Procedure

Mfg-012

 

A

 

Mixed Metals Preparation Procedure

Mfg-018

 

new

 

PIFT Powder Procedure

Mfg-019

 

new

 

PIFT Base Sol Production Procedure

Mfg-022

 

new

 

Coating Line Operating Procedure

Quality-001

 

B

 

Process and Manufactured Materials Acceptance Criteria

ATP-001

 

A

 

Kawasaki M1A-13X Acceptance Test Procedure

PartSpec-0001

 

A

 

Thermally Free Axial (TFA) Support Part Spec

PartSpec-0004

 

B

 

Kawasaki M1A-13X Module Foilpack Definition

PartSpec-0007

 

new

 

Catalyst Rings and Seals Qualification Procedure

Test-001

 

D

 

Testing SQP Procedure

Test-002

 

D

 

Air Compressor Operating Procedure

Test-003

 

D

 

Auxillary Gas System Operating Procedure

Test-004

 

D

 

LEWA Pump Operating Procedure

Test-005

 

D

 

ISCO Pump Operating Procedure

Test-006

 

D

 

Low Pressure Reactor Operating Procedure

Test-007

 

D

 

Catalyst Rolling Procedure

Test-008

 

D

 

Gas Analyzer Operating Procedure

Test-009

 

D

 

High Pressure Reactor Operating Procedure

 

B-12

--------------------------------------------------------------------------------

 

Media

 

Rev

 

Title

Test-010

 

D

 

Testing Documentation Procedure

Test-011

 

C

 

Common Testing Procedure

Test-012

 

C

 

Flow Calibration Procedure

Test-013

 

D

 

Rig Calibration Procedure

Test-014

 

D

 

Catalyst Handling and Storage Procedure

Test-015

 

B

 

House Air Compressor Operating Procedure

ProductSpec-0005

 

A

 

Kawasaki M1A-13X Product Specification

OperSpec-0001

 

A

 

M1A-13X Fuel Composition Specification

OperSpec-0002

 

B

 

M1A-13X Air Filtration Specification

OperSpec-0003

 

A

 

M1A-13X Fuel Filtration Specification

OperSpec-0005

 

A

 

Lubricating Oil Specification

02100100-1

 

D

 

Catalyst Module Assy

02100101-1

 

F

 

Interface ring assy, outlet

22010030-1

 

new

 

Guide ring, seal assy, outlet

02100102-1

 

F

 

Guide ring assy, outlet

02100119-1

 

B

 

Spring seal, outer

02100119-2

 

B

 

Spring seal, inner

22010031-1

 

new

 

Guide ring, seal assy, inlet

02100103-1

 

F

 

Guide ring assy, inlet

22010032-1

 

new

 

Interface ring, seal assy, inlet

02100104-1

 

C

 

Interface ring assy, inlet

02100118-1

 

B

 

Hula seal, outer

02100118-2

 

B

 

Hula seal, inner

02100120-1

 

C

 

Axial supports

02100115-1

 

B

 

Shaft assy, inner support

02100116-1

 

B

 

Cap, inner support

02100114

 

B

 

Spindle, 3”

02100112

 

B

 

Spindle, 4”

22010040-02

 

A

 

Assembly Operation Sheets

22010044

 

new

 

Disassembly Operation Sheets

08021000

 

B

 

Specification, Nameplate

EL22010016

 

A

 

Equipment List Catalyst Module Assembly

22010017

 

B

 

Interface Control Definition, Catalyst Module

T22010041

 

A

 

Lifting Assembly Tool

T22010042

 

new

 

Spring Seal Check Tool

T22010043

 

new

 

Spring Seal Wedge Tool

Mfg Programs

 

new

 

Coating Line Washcoat Loading Worksheet (excel)

Mfg Programs

 

new

 

DataLogger Plot.xls (excel)

Mfg Programs

 

new

 

CorrData 1.0 xls (excel)

Mfg Programs

 

new

 

Simplified Corrugation 062601.vi (labview)

Mfg Programs

 

new

 

Tracking.mdb (access)

Mfg Programs

 

new

 

PM SprayCalcs CL2.xls (excel)

Mfg Programs

 

new

 

Foil Pack Sizing Instructions.xls (excel)

Design Tools

 

new

 

Catalyst Performance and Life Modeling (mathcad)

Design Tools

 

new

 

Operating Window Analysis (excel)

Design Tools

 

new

 

Fuel Assessment (excel)

Design Tools

 

new

 

Operational Tracking Guide (excel)

 

B-13

--------------------------------------------------------------------------------

 

Media

 

Rev

 

Title

Design Tools

 

new

 

Control Schedule Development (excel)

Design Tools

 

new

 

Combustion System Cycle Analysis (excel)

Design Tools

 

new

 

Adiabatic Combustion Temperature (Tad) calculation (excel)

Design Tools

 

new

 

Catalyst Pressure Drop (excel)

Design Tools

 

new

 

Burnout Zone Sizing (excel)

Design Tools

 

new

 

Ignition Delay and CO Burnout (excel)

Summaries

 

n/a

 

Design Tool summary sheets

Build Records

 

n/a

 

Fielded and inventoried module mfg, test and assembly records

Part Records

 

n/a

 

Life tracking data for container hardware in use

Specification Sheet

 

n/a

 

ISOPAR E specification sheet

 

B-14

--------------------------------------------------------------------------------

EXHIBIT C

CESI TRADEMARKS

XONON

COOL COMBUSTION

XONON COOL COMBUSTION

B-15

--------------------------------------------------------------------------------

 

EXHIBIT D

TRAINING SERVICES

A   M1A-13X Module Manufacturing

Topic

 

Attending

 

Location

 

Days

a.   Powder Prep, Stage 1 WC & Stage 2 WC (PIFT)

 

KHI & TKK

 

MV

 

0.5

 

 

 

 

 

 

 

b.   Sol Prep, Stage 2 WC (PIFT)

 

KHI & TKK

 

G

 

0.5

 

 

 

 

 

 

 

c.   Coating Operation

 

KHI & TKK

 

G

 

3

o   Settings

 

 

 

 

 

 

o   Spraying of WC, PM, DBL - Stage 1

 

 

 

 

 

 

o   Spraying of WC, DBL - Stage 2

 

 

 

 

 

 

 

 

 

 

 

 

 

d.   Rolling Machine Operation

 

KHI & TKK

 

G

 

0.5

o   Utilize bare foil

 

 

 

 

 

 

o   Tension, speed, alignment, etc.

 

 

 

 

 

 

 

 

 

 

 

 

 

e.   Assemble One Module, including shipping container

 

KHI & TKK

 

G

 

1

 

 

 

 

 

 

 

f.   Al-H214 Development Review

 

KHI & TKK

 

G

 

0.5

 

 

 

 

 

 

 

 

B.   M1A-13X Design and Technology

Topic

 

Attending

 

Location

 

Days

a.   Introduction to Xonon Catalyst Technology with respect to M1A-13X platform

 

KHI & TKK

 

MV

 

2

o   Channel structure

 

 

 

 

 

 

o   IHE concept

 

 

 

 

 

 

o   Foil geometry

 

 

 

 

 

 

o   Catalyst material

 

 

 

 

 

 

o   Operation

 

 

 

 

 

 

 

 

 

 

 

 

 

b.   Instruction for use of the following design tools with respect to M1A-13X

 

 

 

 

 

 

platform:

 

KHI

 

MV

 

2

–   Performance and life modeling

 

 

 

 

 

 

–   Operating window analysis

 

 

 

 

 

 

–   Fuel assessment

 

 

 

 

 

 

–   Operational tracking guide

 

 

 

 

 

 

–   Control schedule development

 

 

 

 

 

 

o   Use of tools

 

 

 

 

 

 

o   Inputs and outputs

 

 

 

 

 

 

 

 

 

 

 

 

 

c.   Description of current M1A-13X Catalyst Design

 

KHI

 

MV

 

1

o   Design features and specifications

 

 

 

 

 

 

o   Production Acceptance (catalyst analytical)

 

 

 

 

 

 

o   Operational requirements

 

 

 

 

 

 

o   Safety and performance limits

 

 

 

 

 

 

 

B-16

--------------------------------------------------------------------------------

 

d.   Description of current M1A-13X Container Design Critical Features —

 

 

 

 

 

 

overview only, not structural analysis information

 

KHI

 

MV

 

0.5

 

 

 

 

 

 

 

e.   Q&A/Open Discussion of Control Logic (KHI to provide a list of questions
two

 

 

 

 

 

 

weeks prior to training, CESI to prepare materials and answers within current

 

 

 

 

 

 

resources and capabilities)

 

KHI

 

MV

 

0.5

 

 

 

 

 

 

 

f.   Q&A/Open Discussion of Field Experience (KHI to provide a list of questions

 

 

 

 

 

 

two weeks prior to training, CESI to prepare materials and answers within

 

 

 

 

 

 

current resources and capabilities)

 

KHI

 

MV

 

0.5

 

[g148461lgi001.gif]

 

B-17

--------------------------------------------------------------------------------

EXHIBIT C

Application for Income Tax Convention

To be attached.

C-1

--------------------------------------------------------------------------------

EXHIBIT D

State of Arizona Transaction Privilege Tax Exemption Certificate

To be attached.

D-1

--------------------------------------------------------------------------------