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                                                                   EXHIBIT 10.34
                                                                   -------------

                                PROMISSORY NOTE

U.S. $3,010,000.00                                              Phoenix, Arizona

                                                                  March 18, 2002
                                                                  --------



     FOR VALUE RECEIVED, CATALYTICA ENERGY SYSTEMS, INC., a Delaware
corporation, promises and agrees to pay to the ARIZONA STATE COMPENSATION FUND,
a corporation established pursuant to Arizona Revised Statutes (S)23-981 et
seq., or order, the principal sum of THREE MILLION TEN THOUSAND AND NO/100
DOLLARS ($3,010,000.00) with interest on the unpaid principal balance from the
date of distribution of principal in accordance with this Note, until paid, at
the rate that is from time to time applicable as hereinafter set forth.

     Principal and interest shall be payable at Phoenix, Arizona, or such other
place as the holder hereof may designate, in sixty (60) consecutive monthly
installments, computed on the basis of a 25-year amortization schedule,
commencing on the Commencement Date (as hereinafter defined) and continuing on
the same day of each successive month thereafter until the Maturity Date (as
hereinafter defined) when all unpaid principal, all accrued and unpaid interest,
and any other amounts payable hereunder shall be due and payable. Principal,
interest and all other sums payable hereunder shall be paid in lawful money of
the United States of America.

     1. DEFINITIONS.

     As used in this Promissory Note, the following terms shall have the
following meanings:

          a. "Commencement Date" shall mean_________________________________.

          b. "Deed of Trust" shall mean the Deed of Trust and Assignment of
     Rents of even date herewith executed by Maker, as Trustor, in favor of
     First American Title Insurance Company, as Trustee, and Payee, as
     Beneficiary, which Deed of Trust is granted as security for this Note.

          c. "Default Interest Rate" shall mean interest at a rate equal to six
     percent (6%) per annum in excess of the Interest Rate in effect immediately
     prior to the default.

          d. "Holder" shall mean the Payee and any assignee or assignees to whom
     this Note shall be endorsed.

          e. "Interest Rate" shall mean seven and three-eighths percent (7.375%)
     per annum.

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          f. "Loan Documents" shall mean (i) the Deed of Trust, and (ii) all
     other documents and instruments which by their terms secure Maker's
     obligations under this Note.

          g. "Loan Year" shall mean each one-year period beginning on the
     Commencement Date and each anniversary of the Commencement Date.

          h. "Maker" shall mean CATALYTICA ENERGY SYSTEMS, INC., a Delaware
     corporation.

          i. "Maturity Date" shall mean _____________________________.

          j. "Monthly Installment Payments" shall mean the Monthly Installment
     Payments and the payments of principal, plus interest at the Interest Rate
     that is/are to be made pursuant to Paragraph 2 of this Note beginning on
     the Commencement Date and continuing for sixty (60) consecutive months.

          k. "Note" shall mean this Promissory Note in the principal sum of
     THREE MILLION TEN THOUSAND and No/100 DOLLARS ($3,010,000.00).

          l. "Payee" shall mean the ARIZONA STATE COMPENSATION FUND, a
     corporation established pursuant to Arizona Revised Statutes (S)23-981 et.
     seq.

          m. "Property" shall mean the real property and improvements thereon as
     described in Exhibit "A" of the Deed of Trust.

     2. MONTHLY INSTALLMENT PAYMENT

     Commencing on the Commencement Date and continuing on the same day of each
month for sixty (60) consecutive months, principal, plus interest at the
Interest Rate, shall be payable in Monthly Installment Payments which shall each
be in the amount of TWENTY ONE THOUSAND NINE HUNDRED NINETY NINE and 48/100
Dollars ($21,999.48), which monthly principal and interest payments are computed
on the basis of a 25-year amortization schedule.

     3. APPLICATION OF PAYMENTS.

     Each amount received by the Holder shall be applied to the following items
in the following order, or as the Holder may otherwise elect if the Maker is
then in default hereunder or under any Loan Document:

          a. Any amount due and unpaid hereunder, or under any Loan Document,
     other than a Monthly Installment Payment.

          b. Any due and unpaid interest hereunder.

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          c. Then to unpaid principal; provided, however, that Maker complies in
     all respects with the provisions of this Note with respect to partial or
     full prepayments.

     4. LATE CHARGE.

     Time is of the essence of payment. Upon failure to make any Monthly
Installment Payment, or pay any other amount due hereunder within ten (10) days
of the date due, Maker shall pay a charge not to exceed five percent (5%) of the
Monthly Installment Payment, or other amount due hereunder which is not paid
within such ten-day period. The assessment or collection by the Holder of any
such charge shall be without prejudice to the Holder's rights under Paragraph 8
of this Note. The foregoing five percent (5%) late charge shall not apply to the
payment of principal to be made upon the Maturity Date.

     5. DEFAULT.

     If Maker fails to make any Monthly Installment Payment within ten (10) days
of its due date, or fails to pay any other amount due under any Loan Document on
its due date, or if any default occurs under this Note, or if any Event of
Default occurs under the terms of any of the Loan Documents, then and in any of
such events, the remaining installments of principal, at the option of Holder
which shall be exercised by written notice sent to Maker, and in the Holder's
sole discretion, shall at once become due and payable, and the unpaid principal
balance, together with (i) all accrued and unpaid interest, and (ii) any other
amounts payable hereunder and under the Loan Documents, shall thereupon bear
interest at the Default Interest Rate. The Default Interest Rate shall be in
effect only during the time any default remains uncured by Maker, and interest
shall again be charged at the Interest Rate after any default has been cured by
Maker. All amounts not paid when due and within any applicable grace period,
whether or not as a result of acceleration of the unpaid principal balance, and
whether or not the Holder has notified the Maker of the occurrence of an Event
of Default, shall bear interest at the Default Interest Rate, and at such time
as judgment is obtained for any amounts owing under this Note or under any of
the Loan Documents, interest shall continue to accrue on the amount of the
judgment, until it is paid, at the Default Interest Rate.

     6. OPTIONAL FULL PREPAYMENT.

     Maker shall at no time and in no event have any right to prepay all or any
part of the principal balance, except as set forth as follows: The Loan will be
closed and not subject to prepayment by Maker during the first two (2) Loan
Years. Commencing with the third (3rd) Loan Year, Maker shall have the right to
prepay the entire (but not less than the entire) principal balance on any date
upon which a Monthly Installment Payment is due, provided that:

          a. The Holder shall have received not less than sixty (60) days' prior
     written notice of the prepayment, delivered no earlier than sixty (60) days
     prior to the end of the second (2nd) Loan Year, specifying the date upon
     which the prepayment is to be made; and

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          b. At the time of the giving of the Notice and at the time specified
     for prepayment, Maker shall have made all payments required under this Note
     and no Event of Default shall have occurred and be continuing under the
     Deed of Trust, Note, and Loan Documents, or any other documents securing
     the Loan.

          c. The prepayment shall be accompanied by all payments due under this
     Note, and under the Loan Documents, plus a reinvestment fee equal to four
     percent (4%) of the outstanding principal balance if paid at any time
     during the third (3rd) Loan Year; a reinvestment fee equal to two percent
     (2%) of the outstanding principal balance if paid at any time during the
     fourth (4th) Loan Year; a reinvestment fee equal to one percent (1%) of the
     outstanding principal balance if paid at any time during the first six (6)
     months of the fifth (5th) Loan Year. Anything in this Paragraph 6 to the
     contrary notwithstanding, any prepayment by reason of casualty or
     condemnation proceeds shall not be subject to a reinvestment fee or
     prepayment penalty.

          Anything in this Paragraph 6 to the contrary notwithstanding, there
     shall be no reinvestment fee or prepayment penalty for prepayment of the
     Loan during the last one hundred eighty (180) days of the fifth (5th) Loan
     Year.

     7. SECURITY.

     The indebtedness evidenced by this Note is secured by the Deed of Trust and
by the other documents and instruments referred to in the Loan Documents. The
Loan Documents contain additional rights with respect to the Holder's right to
accelerate the principal balance of this Note.

     8. MISCELLANEOUS.

          a. Maker and any endorsers and guarantors of this Note jointly and
     severally waive diligence, demand, presentment for payment, protest and
     notice of nonpayment and of protest, notice of default, notice of
     acceleration, and all other notices or demands of any kind. They jointly
     and severally consent, without notice to them and without release of their
     liability, to extensions or accommodations given by the Holder hereof, to
     the release, or exchange of any security or any Loan Document, and to the
     release, in whole or in part, of any other Maker, endorser, or guarantor;
     and they each agree to make payment without the prior resort of the Holder
     hereof to any security or against any other maker or endorser.

          b. Maker and any endorsers and guarantors of this Note jointly and
     severally agree to pay all costs of collection. Costs of collection
     include, without limitation, reasonable attorneys' fees if this Note is
     placed in the hands of attorneys for collection, whether or not suit is
     brought, and any fees incurred in the United States Bankruptcy Court,
     together with all court costs and other expenses incurred in the
     prosecution of suit, or any claim in the United States Bankruptcy Court.

          c. Notwithstanding any provision herein or in any document or
     instrument now or hereinafter securing this Note, the total liability for
     payments in the nature of

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     interest shall not exceed the limits now imposed, or hereafter imposed if
     such limits shall be higher, by the applicable laws of the State of
     Arizona, and this Note shall be construed according to the laws of the
     State of Arizona.

          d. Failure of the Holder to exercise any option hereunder shall not
     constitute a waiver of the right to exercise the same in the event of any
     subsequent default, or in the event of continuance of any existing default.

          e. Any notice to Maker provided for in this Note shall be deemed given
     when it is deposited in the United States mail, postage prepaid, addressed
     to Maker, at the property address shown on the Holder's records, or to such
     other address as Maker may designate by notice to Holder.

          f. The Holder may, at its option, upon the request of Maker, extend
     the time for payment of the indebtedness or reduce payments thereon or
     accept a renewal note or notes therefore and any such extension, reduction
     or renewal shall not release the undersigned or any endorser or guarantor
     on any liability hereunder.

          g. Nothing contained herein shall be deemed or construed to constitute
     Maker and Payee or any other Holder partners or joint venturers. The only
     relationship between Maker and Payee or other Holder is that of debtor and
     creditor.

          h. The indebtedness evidenced by this Note is secured by, among other
     documents, a Deed of Trust and Assignment of Rents of even date herewith,
     and reference is made to the Deed of Trust for additional rights as to
     acceleration of the principal balance of this Note.

     9. LIMITED RECOURSE
        ----------------

     This Note shall be "nonrecourse" to Maker and any officer, shareholder,
member or limited or general partner of any of them and their respective
affiliates and their respective officers, agents, directors, employees,
attorneys, designees, successors and assigns and the Holder agrees that it will
not exercise any right to institute any action against Maker or any officer,
shareholder, member or limited or general partner or any of them and their
respective affiliates and their respective officers, agents, directors,
employees, attorneys, designees, successor and assigns for the payment of any
sum of money or the performance of any other obligation which is, or may be,
payable or due under the Deed of Trust, this Note, the Security Agreement or all
Loan Documents. Notwithstanding the foregoing, nothing contained herein shall be
deemed to prejudice the rights of the Holder, as defined in this Note, (a) to
foreclose by trustee's sale or judicial foreclosure the Deed of Trust or to
enforce any of its other rights or remedies under any documents securing this
Note relating to the Property; (b) to recover from Maker and/or any officer,
shareholder, member, or limited or general partner of Maker any funds, damages
or costs incurred as a result of fraud, intentional misrepresentation or waste
by Maker and/or any officer, shareholder, member, or limited or general partner
of Maker; (c) to recover any damage due to waste occurring subsequent to a
five-day written notice to Maker of an event of default by or on behalf of the
Maker from and after the date hereof; (d) to recover from Maker

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and/or any officer, shareholder, member, or limited or general partner of Maker
any condemnation or insurance proceeds, or other funds or payments attributable
to the Property misappropriated by Maker and/or any officer, shareholder,
member, or limited or general partner of Maker or any affiliate of Maker; (e) to
recover any real property taxes owed at the time Holder obtains title to the
Property; (f) after the occurrence of a default and upon 5-days' written notice
to Maker, to recover any tenant security deposits, prepaid rents or other
similar sums paid to, received by Maker in connection with the operation of the
Property subsequent to the default; (g) after the occurrence of a default and
upon 5-days' written notice to Maker, to recover any gross revenue, income or
profit from the Property received subsequent to the occurrence of a default
hereunder sufficient to pay any portion of the indebtedness secured by the Deed
of Trust securing this Note, operating and maintenance expenses of the Property,
Insurance premiums for the Property, deposits required to be made into a reserve
account for replacement or other sums required by the documents securing this
Note to be paid or deposited, to the extent such sums were not paid or deposited
during such period; (h) subject to the provisions below, to recover from Maker
costs, including those of investigation and clean-up, incurred in connection
with the presence, use or release on, under or about the Property of hazardous
or toxic substances; or (i) to collect from Borrower, and, under subsections
(b), (d), (f) and (g) only, from any officer, shareholder, member, or general
partner of Borrower, reasonable attorneys' fees incurred in collecting any of
the foregoing. Any amounts owed pursuant to the foregoing shall be payable upon
demand by Holder and shall bear interest from the date of demand at the Default
Interest Rate.

     With regard to (h) above nothing contained herein shall be construed to
limit the right of Maker: (i) at its option, to be exercised within ten (10)
days following Maker's receipt of the notice from Holder described below, to
elect to take steps which may be required to contest, satisfy or discharge any
such liability, in which event Holder shall permit Maker to take such steps for
so long as Maker shall be acting diligently and in accordance with the
applicable environmental laws, provided Maker shall post any bond or other
security required by the applicable environmental laws or as reasonable required
by Holder, (ii) to perform or pay for any clean-up of hazardous materials or
(iii) to pursue its legal remedies against any person or entity who may be
responsible for the payment or discharge of such liabilities or the costs
thereof. Holder shall give Maker prompt notice in writing of any violation of
any environmental law or lien or charge against the Property with respect to the
release or presence of any hazardous material at the Property.

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     IN WITNESS WHEREOF, this Note has been executed the date first above
written.

                               CATALYTICA ENERGY SYSTEMS, INC.
                                a Delaware corporation


                               By:  /s/  Craig N. Kitchen
                                    -----------------------------
                                    Craig N. Kitchen
                                    Its President

                          Address:  Attn: Craig N. Kitchen
                                    430 Ferguson Drive
                                    Mountain View, CA 94030


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                            AUTHORIZATION TO COMPLETE

                                 PROMISSORY NOTE

To:  Arizona State Compensation Fund

     c/o Bank One Trust Company, N.A.
     Trust Real Estate Department
     P.O. Box 71
     Phoenix, Arizona 85001-0071

     Attached to this Authorization is a copy of a Promissory Note, the original
executed version of which is being delivered concurrently herewith to you. The
undersigned, the makers of the Promissory Note, authorize Teresa Reichwein, to
complete the Promissory Note to filling in the due date for the first
installment payment due thereafter, which shall be the first day of the second
month after the month in which the proceeds of the loan evidenced by the
Promissory Note are disbursed to or for the account of the undersigned; the
maturity date(s) of the Promissory Note, which maturity date(s) shall be five
(5) years after the Commencement Date (as Commencement Date is defined in the
Note); and any other dates left blank in the Promissory Note.

         DATED: March 18, 2002.
                      --

                                         CATALYTICA ENERGY SYSTEMS, INC.
                                          a Delaware corporation

                                         By:  /s/  Craig N. Kitchen
                                              -------------------------------
                                              Craig N. Kitchen
                                              Its President

4180493 / 500-0885

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