exv10w50



 





Exhibit 10.50




EXECUTION VERSION




ASSET PURCHASE AGREEMENT




BY AND BETWEEN




KAWASAKI HEAVY INDUSTRIES, LTD.




AND




CATALYTICA ENERGY SYSTEMS, INC.




June 30, 2006




 









 





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	 






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TABLE OF
CONTENTS
(cont’d.)




	 	 	 	 	 
	 	 	Page
	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	 
	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
	 	 	17	 
	Section 6.11 Specific Performance
	 	 	18	 
	Section 6.12 Intellectual Property
	 	 	18	 
	Section 6.13 Confidentiality
	 	 	18	 
	 
	 	 	 	 
	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
	 	 	21	 
	Section 8.1 The Seller’s Indemnity Obligations
	 	 	21	 
	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
	 	 	24	 
	Section 8.5 Limitation of Liability
	 	 	24	 
	Section 8.6 Remedies Exclusive
	 	 	25	 
	 
	 	 	 	 
	Article 9 GENERAL PROVISIONS
	 	 	25	 
	Section 9.1 Survival
	 	 	25	 
	Section 9.2 Notices
	 	 	26	 
	Section 9.3 Interpretation
	 	 	26	 
	Section 9.4 Miscellaneous
	 	 	27	 






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TABLE OF
CONTENTS
(cont’d.)




	 	 	 	 	 
	 	 	Page
	Section 9.5 Governing Law
	 	 	27	 
	Section 9.6 Process and Venue
	 	 	27	 
	Section 9.7 Disclosure Schedules
	 	 	27	 
	Section 9.8 Independent Obligations
	 	 	27	 
	Section 9.9 Attorney’s Fees
	 	 	27	 
	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




     Section 1.1 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.





3









 







“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.





4









 







“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 XononTM 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




     Section 2.1 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:



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



               (ii) 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;



               (iii) 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;



               (iv) 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.


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




5









 





          Section 2.2 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”).




          Section 2.3 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.




          Section 2.4 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.




          Section 2.5 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”).




          Section 2.6 Closing Deliveries.




          (a) At the Closing, the Seller shall deliver to the Purchaser:




               (i) 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;



               (ii) 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 assignments and conveyances as the Purchaser may
reasonably require to assure the full and effective sale,





6









 







transfer, conveyance, assignment and delivery to the Purchaser of the Acquisition Assets free and
clear of any Encumbrances;




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



               (iv) 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;



               (v) 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;



               (vi) 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;



               (vii) 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;



               (viii) 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;



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



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



               (xi) 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;



               (xii) 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;



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



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



          (b) At the Closing, the Purchaser shall deliver the following to the Seller:




7









 









               (i) the Purchase Price set forth in Section 2.3;




               (ii) an executed counterpart of the Bill of Sale;




               (iii) an executed counterpart of the License Agreement;




               (iv) 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;




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




               (vi) 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




               (vii) 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




     Section 3.1 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”):



          (a) 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;




          (b) 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;




          (c) 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;




          (d) 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




8









 




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;




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




          (f) 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;




          (g) 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




          (h) 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:




     Section 4.1 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.



     Section 4.2 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. 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





9









 







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.




     Section 4.3 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.



     Section 4.4 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:




     Section 5.1 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.



     Section 5.2 Authority; Non-Contravention; Consents and Approvals.



          (a) 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 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






10









 







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.




          (b) 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.




          (c) 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.




     Section 5.3 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.



     Section 5.4 No Violation of Law; Compliance with Agreements.



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




          (b) 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,






11









 







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.




     Section 5.5
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.



     Section 5.6 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.



     Section 5.7 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.



     Section 5.8 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
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



12









 




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.




     Section 5.9 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




     Section 6.1 Pre-Closing Covenants.



          (a) 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:




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



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



               (iii) 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



               (iv) 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.



          (b) 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).




          (c) 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






13









 







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.




     Section 6.2 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.



     Section 6.3 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.



     Section 6.4 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
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.





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     Section 6.5 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.



     Section 6.6 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.



     Section 6.7 Tax Covenants.



          (a) 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.




          (b) 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 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.




          (c) Certain Taxes and Fees. All excise, sales, use, transfer (including real property
transfer or gains), stamp, documentary, filing, recordation and other similar taxes,






15









 







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.




     Section 6.8 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.



     Section 6.9 Non-competition.



          (a) 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).




          (b) 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






16









 







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.




          (c) 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.




          (d) 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.




          (e) 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.




          (f) 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 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.




     Section 6.10 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:





17









 








               (i) 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



               (ii) 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.



     Section 6.11 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.



     Section 6.12 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, 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.



     Section 6.13 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.





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ARTICLE 7




CONDITIONS TO CLOSING; TERMINATION




     Section 7.1 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:



          (a) 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;




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




          (c) 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;




          (d) 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;




          (e) 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);




          (f) 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);




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




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




          (i) 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




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





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     Section 7.2 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:



          (a) 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;




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




          (c) 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;




          (d) 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);




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




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




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




          (h) 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




          (i) 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).




     Section 7.3 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.





20









 








     Section 7.4 Termination. The Parties may terminate this Agreement as provided below:



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




          (b) 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);




          (c) 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




          (d) 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.




     Section 7.5 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.



ARTICLE 8




INDEMNIFICATION




     Section 8.1 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





21









 







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.




     Section 8.2 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
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.




22









 








     Section 8.3 Indemnification Procedures. All claims for indemnification under this Agreement
shall be asserted and resolved as follows:



          (a) 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 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






23









 







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.




          (b) 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.




     Section 8.4 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.



     Section 8.5 Limitation of Liability.



          (a) 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






24









 







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.




          (b) 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).




          (c) 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.




     Section 8.6 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 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




     Section 9.1 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





25









 







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.




     Section 9.2 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):




	 	(a)	 	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
	 
	 	(b)	 	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





     Section 9.3 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





26









 







interpreted or construed against any Party solely because such Party or its legal representative
drafted such provision.




     Section 9.4 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.



     Section 9.5 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.



     Section 9.6 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.



     Section 9.7 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.



     Section 9.8 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.



     Section 9.9 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.





27









 








     Section 9.10 Amendment. This Agreement may not be amended except by an instrument in writing
signed on behalf of all of the Parties.



     Section 9.11 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.



     Section 9.12 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.



     Section 9.13 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]




28









 




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:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	SELLER:
	 
	 	 	 	 
	 	 	CATALYTICA ENERGY SYSTEMS, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	For purposes of Section 6.8 only:
	 
	 	 	 	 
	 	 	KAWASAKI GAS TURBINES – AMERICAS, a division of KAWASAKI MOTORS CORP., U.S.A.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 





 









 





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.






 












 





Schedule 2.1(b)

Assigned Patents




	 	 	 	 	 
	 	 	 	 	PATENT,
	 	 	 	 	PUBLICATION, OR
	 	 	 	 	APPLICATION
	TITLE	 	COUNTRY	 	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
	 	DK1	 	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






 









 






	 	 	 	 	 
	 	 	 	 	PATENT,
	 	 	 	 	PUBLICATION, OR
	 	 	 	 	APPLICATION
	TITLE	 	COUNTRY	 	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






 









 






	 	 	 	 	 
	 	 	 	 	PATENT,
	 	 	 	 	PUBLICATION, OR
	 	 	 	 	APPLICATION
	TITLE	 	COUNTRY	 	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




	 	 	 	 	 
	Serial	 	Start of
	Number	 	Mfg
	AA016
	 	Sep-03
	AA018
	 	Sep-04
	AA020
	 	Aug-05
	AA021
	 	Aug-05
	AA022
	 	Aug-05
	AA023
	 	Aug-05






	 
	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:

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







	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stock	 	 	 	 	 	 	 	Core	 	Gross	 	Net
	Number	 	Foil Type	 	Thickness	 	Width (in)	 	Weight (lbs)	 	Weight (lbs)	 	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






 









 






	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stock	 	 	 	 	 	 	 	Core	 	Gross	 	Net
	Number	 	Foil Type	 	Thickness	 	Width (in)	 	Weight (lbs)	 	Weight (lbs)	 	Weight (lbs)
	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 “TM” 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 CO9NTRARY, EXCEPT FOR
LIABILITY FOR INFRINGEMENT, MISAPPROPRATION 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




	 	 	 	 	 	 
	 	 	 	 	PATENT, APPLICATION,
	 	 	 	 	OR PUBLICATION
	TITLE	 	COUNTRY	 	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









 






	 	 	 	 	 	 
	 	 	 	 	PATENT, APPLICATION,
	 	 	 	 	OR PUBLICATION
	TITLE	 	COUNTRY	 	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









 






	 	 	 	 	 	 
	 	 	 	 	PATENT, APPLICATION,
	 	 	 	 	OR PUBLICATION
	TITLE	 	COUNTRY	 	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
	 
	 	 	 	 
	MaterialSpe -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)






B-13 









 






	 	 	 	 	 
	Media	 	Rev	 	Title
	Design Tools

	 	new
	 	Operational Tracking Guide (excel)
	 
	 	 	 	 
	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	 	 	 	 	 	 
	 
	 	o Settings	 	 	 	 	 	 
	 
	 	o Spraying of WC, PM, DBL - Stage 1	 	KHI & TKK	 	G	 	3
	 
	 	o Spraying of WC, DBL - Stage 2	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	d.
	 	Rolling Machine Operation	 	 	 	 	 	 
	 
	 	o Utilize bare foil	 	KHI & TKK	 	G	 	0.5
	 
	 	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	 	 	 	 	 	 	 	 
	 

	 	o Channel structure	 	 	 	 	 	 	 	 
	 

	 	o IHE concept
	 	KHI & TKK
	 	MV
	 	 	2	 
	 

	 	o Foil geometry	 	 	 	 	 	 	 	 
	 

	 	o Catalyst material	 	 	 	 	 	 	 	 
	 

	 	o Operation	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	b.

	 	Instruction for use of the following design tools with	 	 	 	 	 	 	 	 
	 

	 	respect to M1A-13X platform:	 	 	 	 	 	 	 	 
	 

	 	- Performance and life modeling	 	 	 	 	 	 	 	 
	 

	 	- Operating window analysis	 	 	 	 	 	 	 	 
	 

	 	- Fuel assessment
	 	KHI
	 	MV
	 	 	2	 
	 

	 	- Operational tracking guide	 	 	 	 	 	 	 	 
	 

	 	- Control schedule development	 	 	 	 	 	 	 	 
	 

	 	o Use of tools	 	 	 	 	 	 	 	 
	 

	 	o Inputs and outputs	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	c.

	 	Description of current M1A-13X Catalyst Design	 	 	 	 	 	 	 	 
	 

	 	o Design features and specifications	 	 	 	 	 	 	 	 
	 

	 	o Production Acceptance (catalyst analytical)
	 	KHI
	 	MV
	 	 	1	 
	 

	 	o Operational requirements	 	 	 	 	 	 	 	 






B-16 









 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	Topic	 	Attending	 	Location	 	Days
	 

	 	o Safety and performance limits	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 
	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	 






13X Training Schedule




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	1
	 	2
	 	3
	 	4
	 	5
	 	6
	 	7
	 	8
	 	9
	 	10
	 
	 	Jun 19
	 	Jun 20
	 	Jun 21
	 	Jun 22
	 	Jun 23
	 	Jun 26
	 	Jun 27
	 	Jun 28
	 	Jun 29
	 	Jun 30
	 
	 	Monday
	 	Tuesday
	 	Wednesday
	 	Thursday
	 	Friday
	 	Monday
	 	Tuesday
	 	Wednesday
	 	Thursday
	 	Friday
	MV	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	KHI
	 	B-a
	 	B-a
	 	B-b
	 	B-b
	 	B-c
	 	B-d,e
	 	B-f	 	 	 	 	 	 
	TKK
	 	B-a
	 	B-a
	 	A-a	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	AZ	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	KHI
	 	 	 	 	 	Travel to AZ
	 	A-b / A-c
	 	A-c
	 	A-c
	 	Travel to AZ
	 	A-e
	 	A-f	 	 
	TKK
	 	 	 	 	 	Travel to AZ
	 	A-b / A-c
	 	A-c
	 	A-c
	 	A-c / A-d
	 	A-e	 	A-f	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	KHI
	 	MV
	 	MV
	 	MV / AZ
	 	MV / AZ
	 	MV / AZ
	 	MV / AZ
	 	MV / AZ
	 	AZ	 	AZ	 	 
	TKK
	 	MV
	 	MV
	 	MV / AZ
	 	AZ
	 	AZ
	 	AZ
	 	AZ
	 	AZ	 	AZ	 	 






B-17 









 






EXHIBIT C




Application for Income Tax Convention




     To be attached.



B-18 









 





EXHIBIT D




State of Arizona Transaction Privilege Tax Exemption Certificate




     To be attached.




B-19