Document:

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                                                                   EXHIBIT 10.12
                                                                   -------------

             COLLABORATIVE COMMERCIALIZATION AND LICENSE AGREEMENT

                                     among

                     CATALYTICA COMBUSTION SYSTEMS, INC.,

                                      and

                          GENXON POWER SYSTEMS, LLC.,

                                      and

                           GENERAL ELECTRIC COMPANY,

                         dated as of November 19, 1998

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THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

COLLABORATIVE COMMERCIALIZATION AND LICENSE AGREEMENT
-----------------------------------------------------

THIS COLLABORATIVE COMMERCIALIZATION AND LICENSE AGREEMENT dated as of November
19, 1998 (this "Agreement"), is entered into among CATALYTICA COMBUSTION
SYSTEMS, INC., a Delaware corporation ("CCSI"), having a place of business
located at 430 Ferguson Drive, Mountain View, California 94043, including its
affiliate, GENXON POWER SYSTEMS LLC., a Delaware limited liability company
("GPS"), also with offices at 430 Ferguson Drive, Mountain View, California
94043, and GENERAL ELECTRIC COMPANY, a New York corporation ("GE"), having a
place of business located at 1 River Road, Schenectady, New York 12345.

                             W I T N E S S E T H:

WHEREAS, CCSI has developed expertise and technology directed to its proprietary
XONON(TM) Combustion System in the field of catalytic combustion; and

WHEREAS, GE manufactures and sells heavy duty industrial gas turbines, and has
developed technology relating thereto; and

WHEREAS, CCSI and GE desire to design, develop and commercialize heavy duty
industrial gas turbine components employing catalytic combustion through the use
of various elements of the XONON Combustion System; and

WHEREAS, in addition to collaborating in the development and commercialization
of such components, GE, with CCSI's cooperation and assistance, will lead an
effort to obtain funding for such development and commercialization, in exchange
for certain considerations as more particularly described in this Agreement;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained in this Agreement, CCSI, GPS and GE hereby agree as follows:

                                   ARTICLE 1
                                   ---------

                                  DEFINITIONS
                                  -----------

For purposes of this Agreement, the terms defined in this Article 1 shall have
the respective meanings set forth below:

1.1.  [*]

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THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

1.2.  "Affiliate" shall mean, with respect to any Person, 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.

1.3.  "Background" shall mean, with respect to Patents, Technical Information
       ----------
      and Technology, that as to which a party has acquired or acquires prior to
      the Effective Date or otherwise not (i) in connection with its work under
      this Agreement, or (ii) from the other party.

1.4.  [*]

1.5.  "CCSI" shall mean Catalytica Combustion Systems, Inc. and/or its
       ----
      affiliate, GENXON Power Systems, LLC.

1.6.  "CCSI Technology" shall mean all Technology relating to the XONON
       ---------------
      Combustion System, including Background and Commercialization Program
      Technology which is now or hereafter may be owned by CCSI and/or possessed
      by CCSI with rights to sublicense.

1.7.  "Commercialization" shall mean the offering to sell, and/or the actual
       -----------------
      sale, of an item.

1.8.  "Commercialization Phase" shall mean the second phase of the
       -----------------------
      Commercialization Program, during which the parties shall pursue
      Commercialization of the Products, as more particularly described in
      Article 7 below.

1.9.  "Commercialization Plan" shall mean a plan in accordance with the outline
       ----------------------
      attached to this Agreement as Exhibit B for the Commercialization of the
      Products during the Commercialization Phase, including estimated funding
      amounts and dates for certain milestones, as such plan may be modified
      pursuant to the provisions of Section 5.1.3 below.

1.10. "Commercialization Program" shall mean the collaborative program of
       -------------------------
      research, development and Commercialization, to develop and adapt the
      XONON Combustion System and/or XONON Modules to Gas Turbines, and to
      supply GE with XONON Combustion System units and/or XONON Modules, for
      incorporation into Gas Turbines to be sold to GE's customers, all as more
      particularly described in the Development Workplan and the
      Commercialization Plan. The Commercialization Program shall be divided
      into a Technology Development Phase and a Commercialization Phase.

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THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

1.11.  "Commercialization Program Technology" shall mean Technology conceived
        ------------------------------------
       during the Commercialization Program.

1.12.  "Development Costs" shall mean the costs to GE or CCSI of performing its
        -----------------
       development obligations during the Technology Development Phase in
       accordance with the Development Workplan, including without limitation
       all costs of direct labor and benefits, raw materials, overhead, and all
       other direct and indirect costs, fees and out-of-pocket and other
       expenses incurred, paid or accrued by GE or CCSI, all as determined in
       accordance with generally accepted accounting principles, consistent with
       such party's internal cost accounting practices, allocated on a
       reasonable and consistent basis and charged for the performance of such
       activities.

1.13.  "Development Funds" shall mean any and all amounts raised by the parties
        -----------------
       under Section 4.1 below or expended by GE under Section 4.2 below, for
       the purpose of funding Development Costs.

1.14.  "Development Workplan" shall mean the detailed work plan for the
        --------------------
       technological development of the Products during the Technology
       Development Phase, which shall be (i) based on the Program Schedule and
       Milestones attached as Exhibit A, and (ii) agreed upon by the parties on
       or before December 15, 1998 and modified or updated by the parties on at
       least an annual basis by mutual agreement on or before December 15th
       preceding the year in question.

1.15.  "Effective Date" shall mean the date of this Agreement as first set forth
        --------------
       above.

1.16.  "Executive Committee" shall mean the joint committee composed of one
        -------------------
       representative of GE and one representative of CCSI as described in
       Section 5.2 below.

1.17.  "Gas Turbine(s)" shall mean the heavy duty industrial gas turbines rated
        --------------
       at greater than or equal to 70MW, both new and retrofit (that is,
       installed).

1.18.  "GE" shall mean General Electric Company acting through its GE Power
        --
       Systems business, including its Affiliates.

1.19.  "GE Components" shall mean the fuel/air mixer package, the preburner and
        -------------
       other elements (excluding the XONON Module) supplied by GE that have
       performance acceptable to operate with the XONON Module and equivalent to
       performance offered by XONON Components.

1.20.  [*]

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THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

1.21.  "Initial Term" shall mean the period commencing on the Effective Date and
        ------------
       ending with either the first Gas Turbine test, or upon the first
       anniversary of the Effective Date, whichever occurs first.

1.22.  "Management Committee" shall mean the joint committee composed of two
        --------------------
       representatives of GE and two representatives of CCSI as described in
       Section 5.1 below.

1.23.  "Market Segments" shall mean all, and "Market Segment" shall mean any one
        ---------------                       --------------
       of, the following: the 7E Market Segment, the 7F Market Segment, and the
       [*].

1.24.  "Maximum GE Required Expenditure" shall mean, for each Market Segment,
        -------------------------------
       the maximum dollar amount that GE shall be required to expend under
       Section 4.2 for the funding of the Technology Development Phase due to a
       failure of the parties to raise sufficient funds from Third Parties with
       respect to such Market Segment.

1.25.  "Patents" shall mean patents (including patents of importation, patents
        -------
       of confirmation, patents of improvements, patents and certificates of
       addition and utility models, as well as divisions, reissues,
       continuations, continuations-in-part, renewals and extensions of any of
       the foregoing) and applications therefore, and patents which may be
       issued on such applications covering inventions with respect to which the
       first application for patent anywhere was filed prior to the date of any
       termination of the Agreement.

1.26.  "Person" shall mean an individual, corporation, partnership, 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.

1.27.  "Pre-Commercial Activities" shall mean activities with a Person regarding
        -------------------------
       an item, where such activity does not involve the sale or field testing
       of the item.

1.28.  "Products" shall mean the XONON Module, the XONON Components, and/or the
        --------
       XONON Combustion System.

1.29.  "Program Schedule and Milestones" shall mean the schedule for the
        -------------------------------
       development milestones (GE "Tollgates") leading up to and including the
       first gas turbine firing date at a customer site for each Market Segment
       as set forth in Exhibit A which is attached to this Agreement.

1.30.  "7E Market Segment" shall mean the worldwide market for the Products for
        -----------------
       GE Frame 7E Gas Turbines.

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<PAGE>
THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

1.31.  "7F Market Segment" shall mean the worldwide market for the Products for
        -----------------
       GE Frame 7F Gas Turbines.

1.32.  [*]

1.33.  [*]

1.34.  [*]

1.35.  "Target Funding Amount" shall mean, for each Market Segment, the amount
        ---------------------
       that the parties must raise, either from Third Parties or expended by GE
       (totaling up to the Maximum GE Required Expenditure), in order to fund
       the Technology Development Phase expenses with respect to such Market
       Segment, as estimated in the Yearly Development Budgets for each Market
       Segment.

1.36.  "Technical Information" shall mean all technical information, know-how,
        ---------------------
       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, relating to, in the case of GE, heavy duty
       industrial gas turbines, and, in the case of CCSI, the XONON Combustion
       System.

1.37.  "Technology" shall mean Patents and Technical Information.
        ----------

1.38.  "Technology Development Phase" shall mean the first phase of the
        ----------------------------
       Commercialization Program, during which the parties shall cooperate in
       the development of the Products in accordance with the Development
       Workplan, as more particularly described in Article 3 below.

1.39.  "Third Party" shall mean any Person other than CCSI, GE and their
        -----------
       respective Affiliates.

1.40.  "Yearly Development Budget(s)" shall mean the budgets prepared by the
        ----------------------------
       Management Committee and approved by the parties, concurrent with the
       Development Workplan or updates thereof, pursuant to the provisions of
       Section 3.1.1 below for each year during the term of the Technology
       Development Phase, as the same may be modified pursuant to the provisions
       of Section 5.1.3 below. The Yearly Development Budgets shall be approved
       on or before each December 15 for the following year (except that the
       Yearly Development Budget for calendar year 1999 shall include any
       expenditures during 1998).

1.41.  "XONON Combustion System" shall mean the XONON Module and XONON
        -----------------------
       Components.

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1.42.  "XONON Components" shall mean the fuel/air mixer package, the preburner,
        ----------------
       and other elements supplied by CCSI to be agreed upon by the Parties,
       such as combustor hardware components, which are necessary combustion
       system modifications to enable optimum operation of the XONON Module.

1.43.  "XONON Control Algorithm(s)" shall mean the logic developed by or on
        --------------------------
       behalf of CCSI (outside of the scope of work done pursuant to the
       Agreement) as of the Effective Date hereof to provide necessary control
       of the start up, operation, management and protection of the XONON
       Combustion System or XONON Module in a Gas Turbine.

1.44.  "XONON Module" shall mean the CCSI catalyst structure as used in Gas
        ------------
       Turbines, including its container and supporting structure for fixing the
       catalyst structure in the container, and replacement XONON Modules.

                                   ARTICLE 2
                                   ---------

                        REPRESENTATIONS AND WARRANTIES
                        -------------------------------

2.1.   Representations and Warranties. Each party hereby represents and warrants
       ------------------------------
       to the other Party except to the extent that a deviation from a
       representation or warranty would not have a material adverse effect on
       the properties, business, financial, technological or other condition of
       such party and would not materially adversely affect such party's ability
       to perform its obligations under this Agreement, as follows:

       2.1.1  Corporate Existence and Power. Such party (a) is a corporation
              -----------------------------
              duly organized, validly existing and in good standing under the
              laws of the state in which it is incorporated; (b) has the
              corporate power and authority and the legal right to own and
              operate its property and assets, to lease the property and assets
              it operates under lease, and to carry on its business as it is now
              being conducted and (c) is in compliance with all requirements of
              applicable law.

       2.1.2  Authorization and Enforcement of Obligations. Such party (a) has
              --------------------------------------------
              the corporate power and authority and the legal right to enter
              into this Agreement and to perform its obligations hereunder and
              (b) has taken all necessary corporate action on its part to
              authorize the execution and delivery of this Agreement and the
              performance of its obligations hereunder. This Agreement has been
              duly executed and delivered on behalf of such party, and
              constitutes a legal, valid, binding obligation, enforceable
              against such party in accordance with its terms.

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       2.1.3  Consents. All necessary consents, approvals and authorizations of
              --------
              all governmental authorities and other Persons required to be
              obtained by such party in connection with this Agreement have been
              obtained.

       2.1.4  No Conflict.  The execution and delivery of this Agreement and the
              -----------
              performance of such party's obligations hereunder (a) do not
              conflict with or violate any requirement of applicable laws or
              regulations and (b) do not conflict with, or constitute a default
              under, any contractual obligation of such party.

2.2.   Representations and Warranties of CCSI.  CCSI hereby represents and
       --------------------------------------
       warrants to GE, as of the Effective Date, except to the extent that a
       deviation from a representation or warranty would not materially
       adversely affect either party's ability to perform its obligations under
       this Agreement, as follows:

       2.2.1  CCSI is the owner or co-owner of record of all patents,
              copyrights, trademarks, service marks, logos, slogans, and trade
              names (collectively, "Intellectual Property") for which
              registrations have been issued to CCSI by the United States Patent
              and Trademark Office or any similar office of a foreign country
              with respect to the CCSI Intellectual Property.

       2.2.2  CCSI (i) owns on an exclusive basis, or has the exclusive right to
              use, all of the Products and the Technology relating to the
              Products necessary to perform its obligations under this
              Agreement, and (ii) has the exclusive right to sell and
              commercialize, and license the sale and commercialization of, the
              Products to the extent required to perform its obligations under
              this Agreement, in each case without any limitations or
              restrictions of any kind, and without known conflict or asserted
              conflict with intellectual property rights of others.

       2.2.3  Neither the execution and delivery of this Agreement nor the
              consummation of the transactions contemplated by this Agreement
              will conflict in any way with, result in a breach of, constitute a
              default under, or create in any party the right to terminate,
              modify or cancel any agreement, contract, license, instrument or
              other arrangement relating to the CCSI Intellectual Property.

       2.2.4  CCSI has sufficient rights under the CCSI Intellectual Property to
              permit CCSI to perform its obligations under the Agreement.

       2.2.5  CCSI has not given or received any notice of any pending conflict
              with, or infringement of, the rights of others with respect to any
              CCSI Intellectual Property or with respect to any license of CCSI
              Intellectual Property under which CCSI is licensor or licensee.

                                      -8-
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       2.2.6   There are no pending causes of action, claims, actions, suits,
               judgments, orders, decrees, rulings, charges, hearings or
               investigations involving CCSI or the CCSI Intellectual Property
               (collectively, "Legal Proceedings") or threatened Legal
               Proceedings of, in, or before any court or quasi-judicial or
               administrative agency of any federal, state, local, or foreign
               jurisdiction or any arbitrator which could impair CCSI's ability
               to perform its obligations under this Agreement. There are no
               interference, opposition or cancellation proceedings or
               infringement suits pending, or to the knowledge of CCSI,
               threatened with respect to the CCSI Intellectual Property. CCSI
               is not subject to any judgment, order, writ, injunction or decree
               of any governmental authority, and has not entered into or become
               a party to any contract, which restricts or impairs its use of
               the CCSI Intellectual Property or right to sell or commercialize,
               and license the sale and commercialization of, the Products, as
               contemplate by the Agreement.

       2.2.7   CCSI has not entered into any consent or settlement agreement
               with respect to any CCSI Intellectual Property and no claim has
               been asserted and, to CCSI's knowledge, no claim is threatened or
               contemplated by any person with respect to the validity of, or
               CCSI' s ownership of or right to use, the CCSI Intellectual
               Property, or any of the Patents relating to the CCSI Intellectual
               Property.

       2.2.8   CCSI has complied with its contractual obligations relating to
               the protection of the CCSI Intellectual Property used pursuant to
               licenses whereby CCSI has licensed CCSI Intellectual Property or
               portions thereof to or from Third Parties.

       2.2.9   None of the licenses or other rights granted by, contemplated to
               be granted by, or claimed to have been granted by CCSI to any
               person or entity conflict in any way with the licenses and other
               rights granted by CCSI to GE under the terms of this Agreement
               and the performance by CCSI of the transactions contemplated by
               this Agreement.

       2.2.10  CCSI has delivered to its legal counsel, Wilson Sonsini Goodrich
               & Rosati ("CCSI Counsel"), true and correct copies of all the
               agreements of CCSI which relate to the CCSI Intellectual
               Property, and redacted versions of such agreements are attached
               as exhibits to the copy of CCSI Counsel's legal opinion of even
               date herewith delivered to counsel for GE (provided that such
               redacted versions shall not be delivered to GE).

       2.2.11  Upon execution, this Agreement will be enforceable against CCSI
               in accordance with its terms.

                                      -9-
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                                   ARTICLE 3
                                   ---------

                           COMMERCIALIZATION PROGRAM
                           -------------------------

3.1.  Technology Development Phase.  The first phase of the Commercialization
      ----------------------------
      Program shall be the Technology Development Phase, during which GE and
      CCSI will pursue the technological development of the Products so as to
      enable their Commercialization. GE and CCSI will conduct their respective
      development efforts in accordance with the Program Schedule and Milestones
      attached hereto as Exhibit A, the Development Workplan and the Yearly
      Development Budgets approved by the Management Committee, as such
      Development Workplan and Yearly Development Budgets may be modified by the
      Management Committee under Section 5.1.3 below.

      3.1.1  Preparation of Yearly Development Budgets and Development
             ---------------------------------------------------------
             Workplans. Within sixty (60) days from the Effective Date and each
             ---------
             October 1 thereafter during the Technology Development Phase, the
             Management Committee shall jointly prepare the Yearly Development
             Budget and Development Workplan for the next calendar year. CCSI
             and GE shall approve such Yearly Development Budget and Development
             Workplan with such changes as CCSI and GE mutually deem necessary,
             prior to December 15, 1999 and each December 15 thereafter.

      3.1.2  Technology Development Phase Activities. Consistent with the
             ---------------------------------------
             Development Workplan, the Yearly Development Budgets, and any
             directives issued by the Management Committee:

             3.2.1.1.  Conduct of Commercialization Program Activities. CCSI and
                       -----------------------------------------------
                       GE each shall conduct the Commercialization Program in a
                       sound scientific manner, and in compliance in all
                       material respects with all requirements of applicable
                       laws and regulations and all applicable good research and
                       manufacturing practices to attempt to achieve the
                       Development Workplan objectives efficiently and
                       expeditiously. CCSI and GE each shall proceed diligently
                       with the work set out in the Development Workplan by
                       using their respective good faith efforts to provide,
                       among others, the following resources: (a) allocation of
                       sufficient time, effort, equipment and facilities to the
                       Commercialization Program as each reasonably believes is
                       necessary carry out its obligations under the Development
                       Workplan and to accomplish the objectives thereof; and
                       (b) use of personnel with sufficient skills and
                       experience as are

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                      required to carry out its obligations under the
                      Development Workplan and to accomplish the objectives
                      thereof.

             3.2.1.2. Subcontracts.  CCSI and GE each may subcontract portions
                      ------------
                      of the Commercialization Program to be performed by it in
                      the normal course of its business without the prior
                      consent of the other; provided, however, that every
                      subcontracted party shall enter into a confidentiality
                      agreement with the subcontracting party in accordance with
                      Article 10 below and each party shall be fully responsible
                      for any activities of its subcontractors under this
                      Agreement.

     3.1.3   Project Leaders.  CCSI and GE each shall appoint a person (a
             ---------------
             "Project Leader") to coordinate its part of the Commercialization
             Program. The Project Leaders shall be the primary contacts between
             the parties with respect to the Commercialization Program. Each
             party shall notify the other within thirty (30) days after the date
             of this Agreement of the appointment of its Project Leader and
             shall notify the other party as soon as practicable upon changing
             this appointment. A Project Leader may be, but shall not be
             required to be, a member of the Management Committee.

     3.1.4   Availability of Employees.  Each party shall make its employees and
             -------------------------
             relevant reports of nonemployee consultants available, upon
             reasonable notice during normal business hours, at each party's
             respective places of employment to consult with the other party on
             issues arising during the Commercialization Program and in
             connection with any request from any regulatory agency, including
             regulatory, scientific, and technical testing issues.

     3.1.5   Quarterly Reports.  GE and CCSI each shall keep the other informed
             -----------------
             of the progress of such party's research and development activities
             under the Development Workplan during the Technology Development
             Phase. Within thirty (30) days following the end of each quarter
             during the term of the Commercialization Program, GE and CCSI shall
             each prepare, and provide to the Management Committee, a written
             summary report which shall describe the development activities
             performed for by such party during such quarter. In addition, each
             party shall respond informally to any reasonable inquiry from the
             other party as to such progress and any other matters relevant to
             the Commercialization Program.

3.2. Commercialization Phase.  The second phase of the Commercialization
     -----------------------
     Program shall be the Commercialization Phase, during which GE and CCSI will
     jointly pursue the Commercialization of the Products as developed during
     the Technology

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<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

     Development Phase. GE and CCSI will conduct their respective efforts in
     accordance with the Commercialization Plan attached hereto as Exhibit B, as
     such Commercialization Plan may be modified by the Management Committee
     under Section 5.1.3 below, Article 7, and any other relevant terms of this
     Agreement.

                                   ARTICLE 4
                                   ---------

                  FUNDING OF THE TECHNOLOGY DEVELOPMENT PHASE
                  -------------------------------------------

4.1. Joint Efforts to Obtain Funding. GE and CCSI shall use best efforts to
     -------------------------------
     obtain, with respect to each Market Segment, funding from Third Parties
     equal to or greater than the Target Funding Amount established in the
     Yearly Development Budgets. GE shall determine from which Third Parties
     such funding shall be accepted, and upon what terms; provided any material
     adverse impact on CCSI is agreed to in advance by CCSI.

4.2. GE Required Expenditures.  If the parties are unable to obtain, with
     ------------------------
     respect to any Market Segment, funding equal to or greater than the Target
     Funding Amount for such Market Segment on or before the date set forth in
     the applicable Yearly Development Budget, then GE will fund the Development
     Workplan in an amount equal to the difference between the Target Funding
     Amount and the funding actually obtained from Third Parties, not to exceed
     the following amounts (each, a "Maximum GE Required Expenditure") with
     respect to each Market Segment:

     Market Segment                          Maximum GE Required Expenditure
     --------------                          -------------------------------

     7E Market Segment                       [*] in any 12-month period, each
                                             such 12 month period starting on
                                             the annual anniversary of the
                                             Effective Date, not to exceed [*]
                                             in the aggregate over the term of
                                             this Agreement.

     7F Market Segment                       [*] in any 12 month period, each
                                             such 12 month period starting on
                                             the annual anniversary of the
                                             Effective Date, not to exceed [*]
                                             in the aggregate over the term of
                                             this Agreement.

     [*]                                     [*]

4.3. Failure to Obtain Target Funding.  In the event the aggregate amount
     --------------------------------
     raised by the parties from Third Parties and expended by GE pursuant to
     Sections 4.1 and 4.2 above with respect to any Market Segment is less than
     the Target Funding Amount for such Market Segment, then the Parties shall
     consider, in good faith, alternative funding arrangements which would
     provide an equitable sharing of risks and

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<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

     benefits in view of any Development Cost overruns, and shall in good faith
     pursue such alternative funding. In the event the parties are unable to
     obtain or agree on alternative funding, then each will have its termination
     rights under Section 13.2 below.

     [*]

4.4. Funding Contributions by Customers of GE. The parties acknowledge that the
     ----------------------------------------
     ability of the parties to obtain Commercialization Program funding from
     customers of GE stems from the existing relationship between such customers
     and GE and such customers' confidence in GE's ability to successfully
     pursue the Commercialization Program. Accordingly, any funding obtained
     from customers of GE shall be deemed to be funding provided by GE (except
     that such customer funding shall not be counted toward the Maximum GE
     Required Contribution), and shall constitute a material part of the
     consideration being provided by GE for the performance of CCSI's
     obligations under this Agreement.

                                   ARTICLE 5
                                   ---------

                  MANAGEMENT OF THE COMMERCIALIZATION PROGRAM
                  -------------------------------------------

5.1. Management Committee.
     --------------------

     5.1.1 Composition of the Management Committee.  The Commercialization
           ---------------------------------------
           Program shall be conducted under the direction of the Management
           Committee composed of two (2) named representatives of CCSI and two
           (2) named representatives of GE. The CCSI representatives to the
           Management Committee shall consist of the CCSI Project Leader and a
           Vice President of CCSI. The GE representatives to the Management
           Committee shall consist of the GE Project Leader and a General
           Manager of GE. Each party shall appoint its respective
           representatives to the Management Committee from time to time, and
           may substitute one or more of its representatives, in its sole
           discretion, effective upon notice to the other party of such change,
           provided the replacements hold positions with the parties which are
           consistent with the functional roles set forth above.

     5.1.2 Meetings.  The Management Committee shall meet at least semiannually
           --------
           during the term of this Agreement, on such dates and at such times
           and places as agreed to by CCSI and GE, alternating between Mountain
           View, California and Schenectady, New York, or such other locations
           as the parties shall agree.

                                      -13-
<PAGE>

     5.1.3 Committee Responsibilities.  The Management Committee is responsible
           --------------------------
           for ensuring efficient and effective management of the
           Commercialization Program, including the establishment and approval
           of the Development Workplan, the Yearly Development Budgets and the
           Commercialization Plan. Any approval, determination or other action
           agreed to by a majority of the members of the Management Committee
           shall be the approval, determination or other action of the
           Management Committee.

5.2. Disagreements: Executive Committee.  Within thirty (30) days after any
     ----------------------------------
     acknowledged deadlock, all disagreements within the Management Committee
     shall be submitted to the Executive Committee for resolution. GE's
     representative to the Executive Committee shall be a functional vice
     president. CCSI's representative to the Executive Committee shall be the
     President of CCSI. Each party shall appoint its respective representatives
     to the Executive Committee from time to time, and may substitute its
     representatives, in its sole discretion, effective upon notice to the other
     party of such change, provided the replacement holds a position and title
     with the replacing party which is consistent with the functional role set
     forth above.

5.3. Management Committee Reports.  Within thirty (30) days following each
     ----------------------------
     Management Committee meeting during the term of this Agreement, the
     Management Committee shall prepare and provide minutes to each party which
     shall include a reasonably detailed written summary report describing
     collaboration activities and plans as well as any committee decisions.

5.4. Day-to-Day Control.  Each party shall have day-to-day control over its
     ------------------
     development and Commercialization activities, subject to compliance with
     the Development Workplan and the Commercialization Plan.

                                   ARTICLE 6
                                   ---------

                 CONTRIBUTION OF TECHNOLOGY AND LICENSE RIGHTS
                 ---------------------------------------------

6.1. Technology Transfer.  Promptly following the Effective Date and thereafter
     -------------------
     as such information becomes available, GE and CCSI each shall disclose to
     the other party all Technical Information in its possession that is
     relevant to the Commercialization Program, to the extent deemed necessary
     by the disclosing party, in its reasonable discretion, to enable the other
     party to perform its obligations and to conduct its activities contemplated
     by this Agreement.

6.2. Licenses.
     --------

     6.2.1  License Under CCSI Technology.  As partial consideration for GE's
            -----------------------------
            contribution to the Commercialization Program, CCSI hereby grants to

                                      -14-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

           GE for the term of this Agreement a paid up, worldwide license under
           all CCSI Technology:

           (a) to purchase the Products from CCSI for application to Gas
               Turbines and the [*] and

           (b) To use, sell and offer to sell the Products for Gas Turbines and
               the [*].

           [*]

     6.2.2 [*]

     6.2.3 License Under XONON Trademark.  CCSI hereby grants to GE for the
           -----------------------------
           term of this Agreement, a royalty-free, non-exclusive, worldwide
           license under CCSI's XONON trademark for GE's marketing and sales
           activities related to the Products. In this regard, GE agrees to
           market the XONON Modules and/or XONON Components under CCSI's XONON
           trademark. This agreement on the part of GE to use the XONON
           trademark does not require GE to use the trademark directly on any
           gas turbine. In connection with this trademark license, GE agrees
           that it will submit samples of all XONON trademark usage to CCSI for
           approval prior to use in GE advertising, promotion and/or sales
           activities and that GE will promptly discontinue any usage of the
           XONON trademark which CCSI specifically objects to and so informs GE
           in writing in a timely manner.

     6.2.4 License for XONON Control Algorithms.  CCSI hereby grants to GE for
           ------------------------------------
           the term of this Agreement, a non-exclusive, royalty-bearing
           worldwide license (with rights to sub-license) to copy, have copied,
           use, sublicense and offer to sub-license the XONON Control
           Algorithm(s) for use with the Products applied to Gas Turbines
           (including any gas turbines employed in the [*]), at a royalty of [*]
           for a paid up license for each gas turbine sold incorporating a XONON
           Control Algorithm, [*].

     6.2.5 License for Sale of GE Components.  CCSI hereby grants to GE for
           ---------------------------------
           the term of this Agreement, a non-exclusive, worldwide license to
           make, have made, use, and sell and offer to sell GE Components
           employing or otherwise based upon CCSI Background Technology for
           incorporation into GE gas turbines and GE shall pay CCSI a royalty
           of [*] for each gas turbine sold by GE incorporating a XONON module
           and GE Components irrespective of whether CCSI Background Technology
           is actually used in such GE Components, [*]. In connection with such
           license, CCSI shall provide to GE any and all CCSI Background
           Technology in CCSI's possession relevant to and useful in the
           design, manufacture and use of

                                      -15-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

            GE Components, including, without limitation, the following: (i)
            Computational Fluid Dynamics (CFD) models for analyzing and
            designing aerodynamic mixers and preburners, flow fields and flow
            paths to preclude recirculation zones; (ii) performance test data on
            fuel/air mixers and preburners; (iii) fuel/air mixers and preburner
            designs; and (iv) technical information, art, knowledge and training
            to use CCSI Background Technology.

6.3.  [*]

                                   ARTICLE 7
                                   ---------

                               COMMERCIALIZATION
                               -----------------

The Commercialization of the Products shall be subject to the Commercialization
Plan attached hereto as Exhibit B and the provisions of this Article 7.

7.1.  Supply Agreement. During the [*] Period provided in this Article 7, CCSI
      ----------------
      shall supply all of GE's requirements for the Products for incorporation
      into Gas Turbines, provided that CCSI can meet GE's quality, quantity and
      schedule requirements, pursuant to the Purchase Terms and Conditions set
      forth in Exhibit C. [*]

7.2.  Purchase Terms. All GE purchases from CCSI of the Products shall be
      --------------
      subject to the Purchase Terms and Conditions as set forth on Exhibit C.

     7.2.1  [*]

     7.2.2  [*]

     7.2.3  To assist CCSI in planning its manufacturing activities, GE shall
            promptly provide CCSI with its best estimate of its requirements for
            goods over the next annualized or consecutive twelve (12) month
            period broken down by one (1) month periods. Further GE shall update
            this twelve (12) month estimate on a calendar quarter basis, such
            that CCSI receives a revised estimate of GE's requirements for the
            goods for the next four (4) calendar quarters. If GE places any firm
            orders which exceeds by more than fifty percent (50%) the rolling
            twelve (12) month estimates, CCSI shall use all reasonable efforts
            to fill such order but shall not be in breach for failure to do so
            unless GE gives CCSI at least six months written notice of the
            revised estimate.

     7.2.4  For the purposes of Article 7 of Exhibit C, Terms & Conditions of
            Purchase, GE and CCSI shall agree upon CCSI's process and control

                                      -16-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

            system and such agreed upon system shall be deemed acceptable to GE
            for purposes of Article 7 of Exhibit C, Terms & Conditions of
            Purchase.

7.3.  [*]

7.4.  [*]

7.5.  [*]

      [*]                                          [*]

      [*]                                          [*]

      [*]

7.6.  Purchase of Products for Application to Smaller Turbines. As further
      --------------------------------------------------------
      consideration for GE's contribution to the Commercialization Program, GE
      shall have the right to purchase from CCSI, on a non-exclusive basis (but
      exclusive as to GE designed gas turbines), Products for application to GE
      designed and manufactured gas turbines in the 2 to 70MW size range, and to
      use, sell and offer to sell Products for such applications, subject to
      reasonable purchase terms and conditions to be negotiated at the time, but
      in any event at [*].

7.7.  Alternative Products Source. If CCSI is unable to consistently meet GE's
      ---------------------------
      requirements for Products from a quality, quantity or delivery standpoint,
      CCSI shall promptly establish a second source of supply (as a vendor to
      CCSI) with a Third Party manufacturer designated by CCSI and approved by
      GE (which approval shall not be unreasonably withheld), solely for the
      purpose of satisfying CCSI's obligations to supply Products to GE under
      this Agreement.

                                   ARTICLE 8
                                   ---------

                                   ROYALTIES
                                   ---------

8.1.  Royalties Upon Certain Terminations.  In the event of a termination of
      -----------------------------------
      this Agreement by CCSI under Section 13.1, or 13.2 subparagraph (b)
      including, in each case, any termination by individual Market Segment
      under Section 13.6, and subject to any surviving terms of this Agreement,
      if GE elects thereafter to continue to sell and offer to sell Products to
      new customers, with respect to any such Market Segment, then CCSI shall
      grant to GE a non-exclusive, royalty-bearing, irrevocable, worldwide
      license under CCSI's Commercialization Program Technology, CCSI's
      Background Technology and XONON Control Algorithms to

                                      -17-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

      sell and offer to sell Products and sublicense XONON Control Algorithms,
      and GE shall pay to CCSI fees and royalties with respect to such Market
      Segment, payable in the form of (a) a one-time fee in the amount set forth
      below, payable upon the first sale of a gas turbine incorporating such
      Product in such Market Segment; and (b) a royalty in the amount set forth
      below for each subsequent sale of a gas turbine incorporating such Product
      [*].

      Market Segment    [*]                 One-Time Fee      Royalty Per Sale
      --------------                        ------------      ----------------

      7F                [*]                 [*]                 [*]

      7E                [*]                 [*]                 [*]

      [*]               [*]                 [*]                 [*]

8.2.  Royalties on XONON Control Algorithms. If GE sublicenses the XONON Control
      -------------------------------------
      Algorithms in connection with its sales of Gas Turbines incorporating the
      Products, then GE shall pay to CCSI the royalty provided in Section 6.2.4.

8.3.  Royalties on Sale of GE Components Employing CCSI Technology. If GE sells
      ------------------------------------------------------------
      or leases GE gas turbines incorporating a XONON Module and GE Components,
      GE shall pay to CCSI the royalty provided in Section 6.2.5.

8.4.  Royalty Accrual. For purposes of royalty payments hereunder, GE Gas
      ---------------
      Turbines or GE Components shall be considered sold when title is
      transferred to a Third Party, or upon lease execution if leased to a Third
      Party.

8.5.  Royalty Payment. Any and all royalties accruing to CCSI under this
      ---------------
      Agreement, shall be paid by GE within forty-five (45) days following the
      end of each quarter year period of the calendar year during which the
      royalties have accrued. In this regard, all monies due as royalty payments
      under this Agreement shall be payable in the United States funds
      collectible at par in San Francisco, California.

8.6.  Royalty Accounting.  GE shall within forty-five (45) days after the end of
      ------------------
      each quarter year during which royalties are due under this Agreement
      forward to CCSI a written statement showing the quantities of royalty
      bearing GE Gas Turbine(s) or GE Components which have been sold (in U.S.
      dollars) during each quarter year of this Agreement and a computation of
      royalties payable thereon and shall accompany each statement by payment of
      the amount due. If no sales of such royalty bearing Gas Turbines or
      Component has been made during any reporting period, a statement to this
      effect shall be required.

8.7.  Royalty Records & Audits.  GE shall use its best efforts to keep books and
      ------------------------
      records accurately showing all GE gas turbines and/or GE Components sold
      or leased by it

                                      -18-
<PAGE>

      and subject to royalties under the terms of this Agreement. Such books and
      records shall be open to inspection by an independent auditor acceptable
      to GE at reasonable times, but not more frequently than once every twelve
      months, for the purpose of verifying the accuracy of the quarterly reports
      and the royalties due. The fees and expenses of the auditor performing
      such an examination shall be borne by CCSI. These books and records shall
      be preserved for at least two (2) years from the date of the royalty
      payment to which they pertain.

                                   ARTICLE 9
                                   ---------

                            PATENT INFRINGEMENT AND
                     TECHNOLOGY RIGHTS ENFORCEMENT ACTIONS
                     -------------------------------------

9.1.  CCSI Indemnification.  CCSI shall indemnify and hold GE, its Affiliates,
      --------------------
      customers and sublicensees harmless, and hereby forever releases and
      discharges GE, its Affiliates, customers, and sublicensees, from and
      against all liabilities, damages and expenses, including attorneys' and
      experts' fees and costs, arising out of any claim of patent or copyright
      infringement brought by a Third Party because of the manufacture, use or
      sale of, or offer to sell, any Product supplied by CCSI to GE, its
      Affiliates, customers or sublicensees, provided such use is in accordance
      with Product or XONON Control Algorithm specifications and CCSI is
      notified promptly of receipt of the Third Party claim and CCSI is given
      full control of any defense against such claim. If as a result of the
      claim, the use by GE of the Product or XONON Control Algorithm is
      enjoined, then CCSI shall at its option (i) obtain the appropriate license
      from the Third Party claimant to enable GE and its customers to continue
      such Product or XONON Control Algorithm use, (ii) modify the Product or
      XONON Control Algorithm so that it no longer is infringing, but still
      satisfies agreed upon performance specifications, or (iii) replace the
      Product or XONON Control Algorithm with a non-infringing Product or XONON
      Control Algorithm which satisfies agreed upon performance specifications.
      In the event CCSI is unable to eliminate the infringement by any of the
      aforementioned measures, then CCSI and GE shall meet and agree on possible
      alternatives which, as a last resort, shall include CCSI taking back any
      infringing Product or XONON Control Algorithm and refunding the purchase
      price for such Product or XONON Control Algorithm, subject to GE's
      agreement which shall not be unreasonably withheld.

9.2.  GE Patent Indemnification.  GE shall indemnify and hold CCSI and its
      -------------------------
      Affiliates harmless and forever releases and discharges CCSI and its
      Affiliates from and against all liabilities, damages and expenses,
      including attorney's and experts fees and costs arising out of any claim
      of patent infringement brought by a Third Party because of the
      manufacture, use or sale of, or offer to sell, any GE Components
      incorporating Technology licensed by CCSI to GE under Section 6.2.5 hereof

                                      -19-
<PAGE>

      (other than claims based solely on Products supplied by CCSI) by GE, its
      Affiliates, customers or sublicensees, provided CCSI notifies GE promptly
      of receipt of the Third Party claim and GE is given full control of any
      defense against such claim.

9.3.  Enforcement of Patents and Other Technology Rights.  CCSI shall, at its
      --------------------------------------------------
      sole expense, use its best efforts to enforce CCSI owned Patents and other
      Technology rights relating to any Products purchased by GE against any
      infringement of such Patents or unauthorized use or misappropriation of
      such Technology rights by a Third Party of which CCSI becomes aware. GE
      shall promptly notify CCSI if GE becomes aware of any such infringement or
      Technology misappropriation. In the event such action includes the
      bringing of a suit against such Third Party, GE shall provide such
      assistance as CCSI shall reasonably request, provided that CCSI shall
      reimburse GE for all reasonable expenses thereby incurred. All costs and
      expenses, including attorney's fees of any lawsuit instituted by CCSI
      shall be born by CCSI. The amount of recovery paid to CCSI shall belong to
      and be the sole property of CCSI.

                                  ARTICLE 10
                                  ----------

                                CONFIDENTIALITY
                                ---------------

10.1. Nondisclosure and Use Obligations.  Except as otherwise provided in this
      ---------------------------------
      Article 10, during the term of this Agreement and for a period of ten (10)
      years thereafter, all information of a confidential nature disclosed
      pursuant to this Agreement by one party to another and, in the case of
      documents, designated by the disclosing party by an appropriate stamp,
      marking or legend as being confidential to the disclosing party shall be
      used by the receiving party only for the purposes of this Agreement and
      shall be maintained as confidential by the receiving party, using the same
      safeguards as it uses to protect its own confidential information of a
      similar character. The receiving party will not publish or disclose to
      Third Parties any such received information of a confidential nature
      without the prior express written consent of the disclosing party. The
      foregoing obligations on use and disclosure of confidential information
      shall not apply to any information which:

      (a)  is shown by objective evidence to be already in the possession of the
           receiving party at the time of first receipt from the disclosing
           party; or

      (b)  is shown by objective evidence to be developed independently by
           employees of the receiving party who had not had access to the
           confidential information; or

                                      -20-
<PAGE>

      (c)  is or becomes part of the public domain without breach of this
           Agreement by the receiving party; or

      (d)  is made available by the disclosing party to a third party without
           like obligations on disclosure; or

      (e)  is rightfully obtained by the receiving party from third person
           without restriction or breach of this Agreement by the receiving
           party; or

      (f)  in the case of documents, is not designated by an appropriate stamp,
           marking or legend as being confidential to the disclosing party at
           the time of disclosure.

      Oral information disclosed by one party to the other shall be confirmed as
      confidential by a written summary to be submitted by the disclosing party
      to the receiving party within ten (10) days after the oral transmission
      thereof.  For purposes of this Article 10, information and data described
      above shall be referred to as "Information".

10.2. Permitted Disclosures.  To the extent it is reasonably necessary or
      ---------------------
      appropriate to fulfill its obligations or exercise its rights under this
      Agreement, (a) a party may disclose Information it is otherwise obligated
      under this Article 10 not to disclose to its directors, officers,
      employees, attorneys, accountants, consultants and sublicensees, on a
      need-to-know basis on the condition that such Persons agree to keep the
      Information confidential for the same time periods and to the same extent
      as such party is required to keep the Information confidential; (b) a
      party may disclose Information, described in Section 10.1 above, that it
      is otherwise obligated under this Article 10 not to disclose to its
      Affiliates and outside contractors, on a need-to-know basis on the
      condition that such Persons agree to keep the Information confidential for
      the same time periods and to the same extent as such party is required to
      keep the information confidential; and (c) a party may disclose such
      Information to government or other regulatory authorities to the extent
      that such disclosure is required by applicable law, regulation or court
      order, or is reasonably necessary to obtain patents and to commercially
      market the Products, provided that the disclosing party shall provide
      written notice to the other party and sufficient opportunity to object to
      such disclosure or to request confidential treatment thereof.

10.3. Terms of this Agreement.  CCSI and GE shall not disclose any terms or
      -----------------------
      conditions of this Agreement to any Third Party without the prior consent
      of the other party, except as required by applicable law.

                                      -21-
<PAGE>

                                  ARTICLE 11
                                  ----------

                                  PUBLICATION
                                  -----------

11.1.  Notice of Publication.  During the term of this Agreement, CCSI and GE
       ---------------------
       each acknowledge the other party's interest in publishing certain of its
       results to obtain recognition within the scientific and investment
       communities and to advance the state of scientific knowledge. Each party
       also recognizes the mutual interest in obtaining valid patent protection
       and protecting business interests. Consequently, either party, its
       employees or consultants wishing to make a publication (including any
       oral disclosure made without obligation of confidentiality) relating to
       work performed by such party as part of the Commercialization Program
       (the "Publishing Party") shall transmit to the other party (the
       "Reviewing Party") a copy of the proposed written publication at least
       forty-five (45) days prior to submission for publication, or an outline
       of such oral disclosure at least fifteen (15) days prior to presentation.
       The Reviewing Party shall have the right (a) to propose modifications to
       the publication for patent reasons or to protect or delete proprietary
       information, and (b) to request a reasonable delay in publication in
       order to protect patentable or proprietary information.

11.2.  Timing of Publication.  If the Reviewing Party requests such a delay, the
       ---------------------
       Publishing Party shall delay submission or presentation of the
       publication for a period of ninety (90) days to enable patent
       applications protecting each party's rights in such information to be
       filed. Upon the expiry of forty-five (45) days, in the case of proposed
       written disclosures, or fifteen (15) days, in the case of proposed oral
       disclosures, from transmission to the Reviewing Party, the Publishing
       Party shall be free to proceed with the written publication or the
       presentation, respectively, unless the Reviewing Party has requested the
       delay described above.

11.3.  Disclosure Regarding Agreement.  Neither party shall make a press release
       ------------------------------
       or other public disclosure of the fact that this Agreement has been
       entered into or any details of its terms without the other party's prior
       consent, unless such disclosure is required, on the advice of counsel, to
       comply with any local, state or federal law or regulation, in which case
       disclosure can be made upon prior written notice to the other party.

                                  ARTICLE 12
                                  ----------

                         TECHNOLOGY AND PATENT RIGHTS
                         ----------------------------

12.1.  Ownership of Background Technology.  The entire right, title and interest
       ----------------------------------
       in all Background Technology shall be retained by the party owning it. To
       the extent a

                                      -22-
<PAGE>

       party is granted any right to use Background Technology under this
       Agreement, the use of such Background Technology shall be limited to the
       express purposes of this Agreement.

12.2.  Ownership of Commercialization Program Technology.  The entire right,
       -------------------------------------------------
       title and interest in all Commercialization Program Technology (a)
       conceived by employees or others acting solely on behalf of CCSI or its
       Affiliates shall be owned solely by CCSI, (b) conceived by employees or
       others acting solely on behalf of GE or its Affiliates shall be owned
       solely by GE. Inventions conceived during the term of this Agreement by
       employees of CCSI and GE, or their respective Affiliates, shall be owned
       jointly by CCSI and GE based on employees or agents of both parties being
       named as inventors in accordance with laws of inventorship of the United
       States (the "Jointly Owned Technology"). Such ownership rights of each
       party with respect to the Technology are subject to the licenses granted
       under Article 6 above and this Article 12. CCSI and GE each hereby
       represents that all employees performing its obligations under this
       Agreement shall be obligated under a binding written agreement to assign
       to it, or as it shall direct, all Technology conceived by such employees.

12.3.  Commercialization Program Technology Cross-Licenses.
       ---------------------------------------------------

       12.3.1 GE License.  In the event GE conceives inventions or exchanges
              ----------
              Technical Information comprising improvements and/or modifications
              to the XONON Module during the period of ten (10) years following
              the Effective Date of this Agreement and/or if GE conceives, by
              means of GE employees who had access to CCSI Technology, any
              invention comprising an improvement or modification to the XONON
              Module or develops Technology which is derived from CCSI owned
              Technology, during such period, then GE shall grant to CCSI a non-
              exclusive royalty-free, perpetual, world-wide, irrevocable license
              (with unrestricted rights to sublicense) to make, have made, use,
              sell, lease and/or export Products under both the aforesaid
              Technical Information and any Patents which result from the
              aforesaid inventions; said non-exclusive license being restricted
              in field-of-use to Products for gas turbines employing catalytic
              combustion, other than aircraft gas turbines of the type
              manufactured by GE Aircraft Engines.

       12.3.2 CCSI License.  In the event CCSI conceives inventions or exchanges
              ------------
              Technical Information comprising improvements and/or modifications
              to the XONON Components or GE Components or any other portion of
              the combustion system (excluding the XONON Module) during the
              period of ten (10) years following the Effective Date of this
              Agreement and/or if CCSI conceives, by means of CCSI employees who
              had access to GE

                                      -23-
<PAGE>

              Technology, any invention relating to the aforesaid XONON
              Components or GE Components or any other portion of the combustion
              system or develops Technology which is derived from GE owned
              Technology, during such period, then CCSI shall grant to GE a non-
              exclusive royalty-free, perpetual, world-wide, irrevocable license
              (with unrestricted right to sublicense) to make, have, made, use,
              sell, lease and/or export XONON Components, GE Components, and any
              other portion of the combustion system (excluding the XONON
              Module) under both the aforesaid Technical Information and any
              Patents which result from the aforesaid inventions, said non-
              exclusive license being restricted in field-of-use to gas turbines
              employing catalytic combustion.

12.4.  Patent Filing Procedure.  In all cases, the inventing party shall retain
       -----------------------
       the sole right to determine whether or not Patent applications will be
       filed, and whether Patents and Patent applications will be maintained, on
       any such inventions which are conceived by its employees. With regard to
       inventions conceived jointly by both parties during work under this
       Agreement and Patents arising from such joint inventions which shall be
       the joint property of GE and CCSI, each party shall be free to utilize
       the same and to license third parties of its own choosing thereunder
       without consultation with the other party, and without an accounting or
       sharing of licensing income thereby received, if any. The parties agree
       to select mutually acceptable Patent attorneys to file and prosecute
       Patent applications based on such joint patentable inventions and to
       share equally the cost of such services and expenses reasonably incurred
       by such attorneys, including the payment of Patent maintenance fees, and
       without further compensation, to give such attorneys all reasonable
       assistance, to cause all necessary papers to be executed and do all
       things that may reasonably be required to obtain and maintain Patents on
       such joint inventions. Each party shall be kept fully advised of the
       status of the prosecution of each such Patent application and shall be
       consulted in advance with respect to the advisability of continuing said
       prosecution in the event of any final rejection, appeal, interference, or
       the like, and each party may, at any time by ten (10) days' notice to the
       other party, elect not to continue to pays its share of such services and
       expenses incurred after the date of said election with respect to any
       such Patent or Patent application; provided, however, that the party
       making such election shall, at the time of so notifying the other party,
       immediately assign to the other party all rights to the Patent or Patent
       application with respect to which the election is being made. Neither
       party hereto shall be obligated to make any payments for or on account of
       proceedings before any court or any other tribunal or agency in
       connection with the maintenance or assertion of any Patents based on
       joint inventions.

12.5.  No Other Technology Rights.  Except as otherwise provided in this
       --------------------------
       Agreement, under no circumstances shall a party, as a result of this
       Agreement, obtain any

                                      -24-
<PAGE>

       ownership interest or other right in any technology, know-how, patents,
       pending patent applications or products of the other party, including
       items owned, controlled or developed by the other, or transferred by the
       other to such party at any time pursuant to this Agreement.

                                  ARTICLE 13
                                  ----------

                                  TERMINATION
                                  -----------

13.1.  Termination for Cause.  Either party may terminate this Agreement for
       ---------------------
       cause upon the occurrence of any of the following:

       13.1.1  The other party shall (a) seek the liquidation, reorganization,
               dissolution or winding up of itself (other than dissolution or
               winding up for the purposes of reconstruction or amalgamation) or
               the composition or readjustment of all or substantially all of
               its debts, (b) apply for or consent to the appointment of, or the
               taking of possession by, a receiver, custodian, trustee or
               liquidator of itself or substantially all of its assets, (c) make
               a general assignment for the benefit of its creditors, (d)
               commence a voluntary case under the Bankruptcy Code, (e) file a
               petition seeking to take advantage of any other law relating to
               bankruptcy, insolvency, reorganization, winding-up or composition
               or readjustment of debts, or (f) adopt any resolution of its
               Board of Directors or stockholders for the purpose of effecting
               any of the foregoing; or

       13.1.2  A proceeding or case shall be commenced without the application
               or consent of the other party and such proceeding or case shall
               continue undismissed, or an order, judgment or decree approving
               or ordering any of the following shall be entered and continue
               unstayed in effect, for a period of ninety (90) days from and
               after the date service of process is effected upon the other
               party, seeking (a) its liquidation, reorganization, dissolution
               or winding up, or the composition or readjustment of all or
               substantially all of its debts, (b) the appointment of a trustee,
               receiver, custodian, liquidator or the like of itself or of all
               or substantially all of its assets, or (c) similar relief under
               any law relating to bankruptcy, insolvency, reorganization,
               winding up or composition or readjustment of debts; or

       13.1.3  Except as otherwise provided in Article 15 below, upon or after
               the breach of any material provision of this Agreement, if the
               breaching party has not cured such breach within ninety (90) days
               after notice thereof from the other party, this Agreement shall
               terminate for cause, at the option of the other party, upon the
               expiration of such ninety (90) day cure

                                      -25-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

               period. Notwithstanding the foregoing, GE shall have the right to
               terminate this Agreement for cause upon thirty (30) days notice
               if GE has terminated any three (3) purchase orders due to CCSI
               material default in performing those purchase orders during any
               twelve (12) month period.

               In addition, GE may terminate this Agreement for cause in
               accordance with Article 16 due to an assignment of this
               Agreement, or a transfer of control of CCSI, to a Competing
               Manufacturer.

       13.1.4  In the event that either GE or CCSI elects to terminate this
               Agreement under the provisions of this Section 13.1 or Section
               13.2, the other party shall have the right, within thirty (30)
               days of receipt of a termination notice, to request binding
               arbitration on the issue. In such event, CCSI and GE shall agree
               on an independent arbitrator to review the relevant evidence and
               render a decision on whether termination is justified under the
               circumstances. The site of arbitration shall be New York, NY if
               requested by CCSI and in San Francisco, CA if requested by GE,
               unless otherwise agreed. Both parties shall use all reasonable
               efforts to select the independent arbitrator and complete the
               arbitration within sixty (60) days after the notice of request
               for arbitration. The decision of the arbitrator shall be final
               and binding, and the non-prevailing party shall pay all of the
               costs of the arbitrator. If arbitration is requested hereunder,
               in no event shall any remedies provided in this Agreement and
               triggered by default under this Section 13.1 be implemented until
               after the decision of the arbitrator has been rendered.

13.2.  Termination Without Cause.  Either party shall have the unilateral right
       -------------------------
       to terminate this Agreement by giving written notice to the other party
       (a) at any time, if the parties are unable, after best efforts, to raise
       funds from Third Parties within a Market Segment in at least an amount
       equal to the difference between (i) the Target Funding Amount for such
       Market Segment, and (ii) the Maximum GE Required Contribution for such
       Market Segment, excluding the [*], or (b) after the end of the Initial
       Term, upon the terminating party's written notice to the other party of
       significant technical issues which indicate that the technical objectives
       of the Commercialization Program are not achievable or cannot be achieved
       within the timetable established in the Development Workplan or any
       extension thereof agreed to by the parties; with GE having the right to
       terminate under (b) above only if the technical issues relate to the
       XONON Module or XONON Components, and CCSI having the right to terminate
       under (b) above only if the technical issues relate to the GE Components.

13.3.  Consequences of Termination -- CCSI Not in Default.  In the event this
       --------------------------------------------------
       Agreement is terminated by GE under Section 13.2, or by CCSI under

                                      -26-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

       Section 13.1: (a) CCSI shall have no obligation to make improvements to
       the XONON Combustion System available to GE beyond those developed in the
       Commercialization Program prior to such termination; [*], and (e) if GE
       elects to pursue its options under Section 8.1, GE shall pay CCSI the
       predetermined royalty or fee as provided therein.

13.4.  Consequences of Termination -- GE Not in Default.  In the event this
       ------------------------------------------------
       Agreement is terminated by CCSI under Section 13.2, or by GE under
       Section 13.1: (a) GE's licenses under CCSI Technology pursuant to Article
       6 shall continue in effect and CCSI shall promptly arrange with GE for a
       Third Party source of supply (as a vendor to CCSI) of the XONON
       Combustion System using the procedure set forth in Section 7.7 above
       which assures GE of a continuing and uninterrupted source of supply for
       the XONON Modules and/or XONON Components, and [*]. Further, if GE
       terminates under Section 6.3 above because of failure on the part of CCSI
       to pay [*], CCSI shall immediately set up and license, at CCSI's cost, a
       Third Party source of Product under the procedure set forth in Section
       7.7 above except in this case the Third Party shall be a vendor to GE,
       provided the Third Party license is limited to manufacture and sale of
       Products solely to GE at the Discount Price and not to Third Parties. In
       the event the Third Party source of supply established above under clause
       (a) as a vendor to CCSI fails to supply GE with Product in a timely
       fashion pursuant to this Agreement, then GE shall, upon written notice to
       CCSI, also have the right to have a Third Party Product vendor to GE
       established pursuant to the procedure set forth in the preceding
       sentence.

13.5.  Effect of Termination.  Termination of this Agreement shall not relieve
       ---------------------
       the parties of any obligation accruing prior to such termination. The
       provisions of Sections 9.1, 9.2 and this 13.5, and Articles 10
       [Confidentiality], 11 [Publication], 12 [Technology and Patent Rights]
       and 14 [Indemnity], in addition to those rights and obligations
       specifically noted in Section 13.3 or 13.4, to the extent applicable,
       shall survive the termination of this Agreement. Each party shall bear
       its own termination costs. There will be no liquidated damages.

13.6.  Termination by Market Segment.  Any right to terminate this Agreement
       -----------------------------
       under this Article 13 may, at the election of the party seeking to
       terminate, be exercised as to one or more individual Market Segments as
       specified in such party's written notice of termination. In such event,
       this Agreement shall continue in full force an effect with respect to the
       remaining Market Segments.

                                      -27-
<PAGE>

                                  ARTICLE 14
                                  ----------

                                   INDEMNITY
                                   ---------

14.1.  Direct Indemnity.  Each party shall indemnify and hold the other party,
       ----------------
       its Affiliates and sublicensees harmless, and hereby forever releases and
       discharges the other party, its Affiliates and sublicensees, from and
       against all claims demands, liabilities, damages and expenses, including
       attorneys fees and costs (all "Liabilities") arising out of any breach of
       a representation or warranty contained in Section 2 hereof, negligence,
       recklessness or intentional wrongful acts or omissions of the
       indemnifying party, its Affiliates or sublicensees in connection with the
       work performed by such party during the term of this Agreement except in
       each case to the extent such Liabilities resulted from negligence,
       recklessness or intentional wrongful acts or omissions of the other
       party. Neither party shall be liable to the other for any indirect,
       incidental or consequential damages arising out of any terms or
       conditions in this Agreement or with respect to the performance thereof.

14.2.  Procedure.  A party (the "Indemnitee") that intends to claim
       ---------
       indemnification under this Article 14 shall promptly notify the other
       party (the "Indemnitor") of any Liability or action in respect of which
       the Indemnitor or any of its Affiliates intend to claim such
       indemnification, and the Indemnitor shall have the right to participate
       in, and, to the extent the Indemnitor so desires, jointly with any other
       Indemnitor similarly noticed, to assume the defense thereof with counsel
       selected by the Indemnitor. The indemnity obligations under this Article
       14 shall not apply to amounts paid in settlement of any loss, claim,
       damage, liability or action if such settlement is effected without the
       consent of the Indemnitor, which consent shall not be withheld
       unreasonably. The failure to deliver notice to the Indemnitor within a
       reasonable time after the commencement of any such action, if materially
       prejudicial to its ability to defend such action, shall relieve such
       Indemnitor of any liability to the Indemnitee under this Article 14, but
       the omission so to deliver notice to the Indemnitor will not relieve it
       of any liability that it may have to any Indemnitee otherwise than under
       this Article 14. The Indemnitor may not settle the action or otherwise
       consent to an adverse judgment in such action that diminishes the rights
       or interests of the Indemnitee without the express written consent of the
       Indemnitee. The Indemnitee, its employees and agents, shall cooperate
       fully with the Indemnitor and its legal representatives in the
       investigation of any action, claim or liability covered by this
       indemnification at Indemnitor's expense.

                                      -28-
<PAGE>

                                  ARTICLE 15
                                  ----------

                                EXCUSABLE DELAY
                                ---------------

Neither party shall be held liable or responsible to the other party nor be
deemed to have defaulted under or breached this Agreement for failure or delay
in fulfilling or performing any term of this Agreement to the extent, and for so
long as, such failure or delay is caused by or results from causes beyond the
reasonable control of the affected party including but not limited to fire,
floods, embargoes, war, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party.  The foregoing shall be subject to
the delayed party using reasonable efforts to mitigate the adverse consequences
of such delay.

                                  ARTICLE 16
                                  ----------

                                  ASSIGNMENT
                                  ----------

This Agreement may not be assigned or otherwise transferred, nor, except as
expressly provided hereunder, may any right or obligations be assigned or
transferred by either party without the consent of the other party; provided
further, however that (i) each party may assign its rights and interests, and
delegate its obligations, hereunder, effective upon written notice thereof, to
any Affiliate, and (ii) either party may assign its rights and interests, and
delegate its obligations, hereunder, effective upon written notice thereof, to
any Third Party which acquires all or substantially all of the assets of CCSI or
GE, as the case may be, or which is the surviving third party in a merger or
consolidation with CCSI or GE as the case may be, if such Third Party assumes
all of the obligations of CCSI or GE, as the case may be, hereunder.  Subject to
the foregoing, any reference to CCSI or GE hereunder shall be deemed to include
the successors thereto and assigns thereof.  Notwithstanding anything to the
contrary contained in this Article 16, if, without GE's prior written consent,
either (a) CCSI assigns or otherwise transfers its rights and interests under
this Agreement to any Competing Manufacturer (defined below) including any
transfer by merger or asset sale; or (b) any Competing Manufacturer purchases or
otherwise obtains a controlling ownership interest (defined as 50% or more
ownership interest) in CCSI; then this Agreement shall terminate upon GE's
election and written notice thereof to CCSI, and such termination shall be
deemed a termination for cause under Section 13.1, resulting in the consequences
to the parties described in Section 13.4.  For the purposes of this Agreement,
"Competing Manufacturers" shall mean only companies that design, manufacture and
sell gas turbines of greater than 2 MW for power generation or mechanical drive
applications.  Further, in the event the assignment or transfer of rights under
clause a) above or the sale or transfer of controlling interest under clause b)
above are to a company (other than a Competing Manufacturer) that designs,
manufactures and sells gas turbines of greater than 2 but less than 70MW for
power

                                      -29-
<PAGE>

generation or mechanical drive applications (herein "Other Turbine
Manufacturer") then the Parties hereby agree that GE has the right after good
faith consideration of any CCSI concerns, to Terminate under Section 13.1 with
consequences set forth in Section 13.4. Notwithstanding the foregoing, GE may
assign its rights and obligations with respect to intellectual property to GE
Power Systems Licensing, Inc., a wholly-owned subsidiary of GE.

                                  ARTICLE 17
                                  ----------

                                 SEVERABILITY
                                 ------------

Each party hereby acknowledges that it does not intend to violate any public
policy, statutory or common laws, rules, regulations, treaty or decision of any
government agency or executive body thereof of any country or community or
association of countries.  Should one or more provisions of this Agreement be or
become invalid, the parties shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their economic
effect are sufficiently similar to the invalid provisions that it can be
reasonably assumed that the parties would have entered into this Agreement with
such provisions.  In case such provisions cannot be agreed upon, the invalidity
of one or several provisions of this Agreement shall not affect the validity of
this Agreement as a whole, unless the invalid provisions are of such essential
importance to this Agreement that it is to be reasonably assumed that the
parties would not have entered into this Agreement without the invalid
provisions.

                                  ARTICLE 18
                                  ----------

                                 MISCELLANEOUS
                                 -------------

18.1.  Notices.  Any consent, notice or report required or permitted to be given
       -------
       or made under this Agreement by one of the parties to the other shall be
       in writing, delivered personally or by facsimile (and promptly confirmed
       by personal delivery, U.S. First class mail or courier), U.S. first class
       mail or courier, postage prepaid (where applicable), addressed to such
       other party at its address indicated below, or to such other address as
       the addressee shall have last furnished in writing to the addressor and
       (except as otherwise provided in this Agreement) shall be effective upon
       receipt by the addressee.

               If to CCSI:              Catalytica Combustion Systems, Inc.
                                        430 Ferguson Drive
                                        Mountain View, CA 94043
                                        Attention: President

               If to GPS:               GENXON Power Systems, LLC
                                        430 Ferguson Drive

                                      -30-
<PAGE>

                                        Mountain View, CA 94043
                                        Attention: President

               If to GE:                GE Power Systems
                                        1 River Road
                                        Schenectady, New York 12345
                                        Attention: VP, Power Plants

18.2.  Applicable Law.  This Agreement shall be governed by and construed in
       --------------
       accordance with the laws of the State of New York, without regard to the
       conflicts of law principles thereof.

18.3.  Agreement Limited to Express Terms. Except as otherwise expressly
       ----------------------------------
       provided in this Agreement, the parties agree that the Commercialization
       Program contemplated herein, and any discussions or communications
       between the parties relating thereto, shall not restrict either party's
       right to take whatever future actions such party unilaterally determines
       to be in its best interest, including the right to undertake similar
       programs or relationships with Third Parties covering subjects related to
       the matters covered herein and neither the holding of any discussions
       between the parties, nor the exchange of any information shall diminish
       or restrict in any way the right that any party has to market, lease,
       sell or otherwise make available its products and services to any
       customer or Third Party.

18.4.  Entire Agreement. This Agreement contains the entire understanding of the
       -----------------
       parties with respect to the subject matter hereof. All express or implied
       agreements and understandings, either oral or written, heretofore made
       are expressly superseded by this Agreement. This Agreement may be
       amended, or any term hereof modified, only by a written instrument duly
       executed by both parties.

18.5.  Headings. The captions to the Articles and Sections hereof are not a part
       ---------
       of the terms but are merely guides or labels to assist in locating and
       reading the Articles and Sections hereof.

18.6.  Independent Contractors. It is expressly agreed that CCSI and GE shall be
       ------------------------
       independent contractors and that the relationship between the two parties
       shall not constitute a partnership, joint venture or agency. Neither CCSI
       nor GE shall have the authority to make any statements, representations
       or commitments of any kind, or to take any action or undertake any
       obligation, which shall be binding on the other party, without the prior
       consent of the other party.

18.7.  Waiver.  The waiver by either party of any right hereunder or the failure
       ------
       to perform or of a breach by the other party shall not be deemed a waiver
       of any

                                      -31-
<PAGE>

       other right hereunder or of any other breach or failure by said other
       party whether of a similar nature or otherwise.

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

                                      -32-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.

AGREED FOR AND ON BEHALF OF                    AGREED FOR AND ON BEHALF OF
GENERAL ELECTRIC COMPANY                       CATALYTICA COMBUSTION
                                               SYSTEMS, INC.

By:    /s/ Mark M. Little                      By:    /s/ Dennis A. Orwig
       --------------------------------               --------------------------
Name:  Mark M. Little                          Name:  Dennis A. Orwig
       --------------------------------               --------------------------
Title: VP Power Plants                         Title: Chief Executive Officer
       --------------------------------               --------------------------

AGREED FOR AND ON BEHALF OF GENXON

By:    /s/ Patrick T. Conroy
       --------------------------------
Name:  Patrick T. Conroy
       --------------------------------
Title: President
       --------------------------------

Witness: /s/ Stanley S. Smith
         ------------------------------
Name:  Stanley S. Smith
       --------------------------------
Title: GM-GT Product Management
       --------------------------------

Witness: /s/ Joseph Cusson
         ------------------------------
Name:  Joseph Cusson
       --------------------------------
Title: Director, Marketing CCSI
       --------------------------------

                                      -33-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

                                   EXHIBIT A
                                   ---------

                        PROGRAM SCHEDULE AND MILESTONES
                        -------------------------------

     [*]

                                      -34-
<PAGE>

THE SYMBOL "[*]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

                                   EXHIBIT B
                                   ---------

                            COMMERCIALIZATION PLAN
                            ----------------------

               Time to Market Focus of Commercialization Program
               -------------------------------------------------

Basic Principles
----------------

     Customer requirements drives market timing
     Development compatible with GE's NPI Tollgate process

Program Targets
---------------

<TABLE>
<CAPTION>
[*]                    Market          [*]         [*]      Estimated
                       Segments/                            Program Budgets (3)
                       Turbines                             ($ million)
                       --------                             -----------
<S>                  <C>             <C>           <C>       <C>     <C>
[*]                  PGT10 or Other    [*]         [*]       [*]     [*]
                                                                     [*]
                                                                     [*]

[*]                  7E                [*]         [*]       [*]     [*]
                                                                     [*]
                                                                     [*]

[*]                  7F                [*]         [*]       [*]     [*]
                                                                     [*]
                                                                     [*]
</TABLE>

______________________

[*]

(2)  To first engine firing which includes 2 full size test combustors and 1
     full combustor set (10 combustors for a 7E and 14 combustors for a 7F), but
     excludes costs for installation and appropriate field testing.  The cost
     will be site specific - very preliminary estimate of [*].  Field testing is
     estimated at 2 months.

(3)  Assumes that both GE and CCSI will pursue parallel "Component" paths
     through the Preliminary Design Phase (includes prototype test hardware),
     and GE will select a "Component" path to go forward to Final Design Phase.

                                      -35-
<PAGE>

                                   EXHIBIT C
                                   ---------

                        TERMS & CONDITIONS OF PURCHASE
                        ------------------------------

1.   APPLICABLE TERMS AND CONDITIONS.  Purchaser and Seller agree that the
following statement shall be printed on the front of any Purchase Order or
Contract for the sale of XONON Modules or XONON Components (herein referred to
individually or collectively as the "Product" or "Products" or "Goods"): "The
purchase and sale of the Products set forth in this Purchase Order shall be
subject to the Terms and Conditions of Purchase attached as Exhibit C to the
Collaborative Commercialization and License Agreement (the "CCLA"), dated
November 19, 1998, between Catalytica Combustion Systems, Inc., (the "Seller")
and General Electric Company (the "Purchaser").  Any other terms and conditions
included in this Purchase Order or in any acknowledgment of this Purchase Order
shall not be applicable to this purchase and sale of Products.

2.   PRICES AND PAYMENTS.  Unless otherwise stated on the face of this Purchase
Order, Seller shall invoice Purchaser for one hundred percent (100%) of the
purchase price within thirty (30) days after delivery.  Purchaser shall remit
full payment of the purchase price to Seller by wire transfer within forty five
(45) days of receipt of Seller's invoice.  All prices specified here in are firm
and shall not be subject to change, and includes all federal and state income
taxes and payroll taxes.  Seller's invoice shall separately state any local
sales, use, VAT or other types of local taxes and duties applicable to the goods
furnished to the Purchaser.  No extra charges of any kind will be allowed unless
specifically agreed to in writing by the Purchaser.  Purchaser shall be entitled
at all time to set-off any amount owing, excluding disputed claims, at any time
from Seller to Purchaser against any amount payable at any time by Purchaser in
connections with this between Purchaser and Seller.

3.   DELIVERY, RISK OF LOSS, TITLE TRANSFER, DELAY. Products manufactured in the
United States shall be delivered to Purchaser FOB Seller's factory. Unless
otherwise stated on the face of this Purchase Order, Purchaser shall be
responsible for risk of loss and all transportation and insurance costs after
delivery. Unless otherwise stated on the face of this Purchase Order title shall
pass to Purchaser upon placement of the goods on the trucks or other transit of
Purchaser's designated carriers. Goods delivered to Purchaser in advance of the
delivery schedule may be returned to Seller at Seller's expense.

Seller shall use all reasonable efforts to meet any delivery schedule specified
by Purchaser, provided Purchase Orders are placed in a timely fashion and
contain all necessary information including but not limited to a full
description of the goods ordered, the quantity ordered and requested delivery
dates.  All Purchase Orders shall be placed as firm orders for goods setting
forth the quantities of goods required and the requested delivery date(s).
Purchaser shall endeavor to place purchase orders not later than one

                                      -36-
<PAGE>

hundred and twenty (120) days prior to the requested delivery date. Provided
Purchaser has complied with the foregoing one hundred and twenty (120) day prior
notification, and except to the extent caused by an Excusable Delay as defined
in Article 15 of the CCLA, Seller shall be liable for liquidated damages for
failure to achieve delivery on or prior to Purchaser's designated delivery date
at the rate of 0.5% of the purchase price allocable to the delayed goods per day
(beginning with the fifteenth (15) day after the delivery date). Seller's
liquidated damages shall not exceed ten percent 10% of Purchase Order purchase
price. Purchaser shall waive such liquidated damages if Purchaser's contract
with its customer does not include a provision for delay liquidated damages
between Purchaser and its customer or if Seller is able to remedy its delay at
its sole cost such that Purchaser does not incur any delay liquidated damages to
its customer arising out of the delay of the Products. If Seller is more than
sixty (60) days late, Purchaser shall have the right to terminate this Purchase
Order.

4.   PURCHASER'S PROPERTY.  Unless otherwise agreed in writing, all tools,
equipment or material of every description furnished to Seller by Purchaser or
specially paid for by Purchase, and any replacement thereof, or any materials
affixed or attached thereto, shall be and remain the personal property of
Purchaser.  Such property and, whenever practical, each individual item thereof,
shall be plainly marked or otherwise adequately identified by Seller as the
property of the Purchaser and shall be safely stored separate and apart from
Seller's property.  Seller shall not substitute any property for Purchaser's
orders.  Such property, while in Seller's custody or control, shall be held at
Seller's risk, shall be kept insured by Seller at Seller's expense in an amount
equal to the replacement cost with loss payment to Purchaser and shall be
subject to removal at Purchaser's written request, in which event Seller shall
prepare such property for shipment and shall redeliver to Purchaser in the same
condition as originally received by Seller, reasonable wear and tear excepted,
all at Seller's expense.

5.   DRAWINGS. Unless otherwise specifically agreed in writing by Purchaser, any
check or approval of drawings by Purchaser will be for Seller's convenience and
will not relieve Seller of its responsibility to meet all requirements of this
order.

6.   CHANGES.  Subject to the order scheduling requirements in Article 7.2.3 of
the CCLA and Article 3 above, the Purchaser may at any time, in writing, make
changes within the general scope of this Purchase Order in any one or more of
the following: (a) drawings, designs or specification where the goods to be
furnished are to be specially manufactured for the Purchaser in accordance
therewith, but not Seller's specifications which the parties have mutually
agreed upon under the CCLA as being applicable to this Purchase Order, or other
mutually agreed upon specifications; (b) method of packing; (c) time of
delivery; (d) the amount of Purchaser's furnished property; or (e) quality.  If
any such changes causes an increase or decrease in the cost of, or the time
required for the performance of any work under this Contract, whether changed or
not changed, an equitable adjustment shall be made in the Contract Price or
delivery schedule, or both,

                                      -37-
<PAGE>

and the Purchase Order shall be modified in writing accordingly. Notification to
Purchaser of any Claim by the Seller for adjustment under this clause must be
asserted within thirty (30) days from the date of receipt by the Seller of the
notification of change. Any change to this order shall be authorized only by a
duly executed Purchase Order amendment.

7.   INSPECTION.  (a) All goods (which term throughout this order includes
without limitation raw materials, components, intermediate assemblies, tools and
end products) shall be subject to inspection and test by the Purchaser and its
Customer, (where GE is required under its contracts with its Customers to
provide inspection rights at Seller's facility, then Seller's agreement will not
be required) at all reasonable times and places, including the place of
manufacture; (b) If any inspection or test is made on the premises of Seller or
its supplier, Seller, without additional charge, shall provide all reasonable
facilities and assistance for the safety and convenience of the inspectors in
the performance of their duties and Purchaser shall comply with Seller's
premises, security and safety rules; (c) acceptance or rejections of the goods
shall be made as promptly as practical after delivery, except as otherwise
provided in this order, but failure to inspect and accept or reject goods or
failure to detect defects by inspection, shall neither relieve Seller from
responsibility for such goods as are not in accordance with the order
requirements nor impose liabilities on Purchaser thereof; (d) Seller shall
provide and maintain an inspection and process control system mutually
acceptable to Purchaser and Seller covering the goods hereunder.  Records of all
inspection work by Seller shall be kept complete and available to Purchaser
during the performance of this order and for such longer periods as may be
specified in this order, not to exceed five (5) years after order date.  Seller
will allow representative of Purchaser and Purchaser's customers reasonable
access to the facilities involved in performing this order for purposes of
reviewing the status and progress of production, subject to compliance with
Seller's facility security and safety rules.  If during the course of any
inspection in Seller's factory, Purchaser finds that any of the goods are
defective or otherwise not in conformity with the requirements of this Purchase
Order or the CCLA, including any drawings or specifications, Seller shall remedy
such non conformity at its own expense by reperforming any nonconforming service
or replacing any non conforming goods.

8.   WARRANTIES.  Seller warrants that all goods sold will be free of any claims
of any nature and by any third person and that Seller shall convey clear title
to Purchaser.  Seller further warrants that the Products supplied by Seller to
Purchaser shall perform in accordance with agreed upon specifications and shall
be free from defects (a) in materials and workmanship, whatever the origin; (b)
in design having regard to the state of the art at the time of the order and
including defects arising from the choice of materials and / or parts; (c) in
manufacturing process; and (d) arising from non-suitability for the use for
which it was intended.  This warranty shall take effect from the date of
acceptance of the Products by Purchaser and shall remain in force until the
earliest of the following to occur: (i) the gas turbine in which the Products
have been installed achieve 8000

                                      -38-
<PAGE>

operating hours; (ii) forty eight months from Start-Up; or (iii) sixty (60)
months after the delivery of the Products to Purchaser. Start-Up means the time
when the equipment installation is complete and the gas turbine in which the
Product has been installed is first synchronized to the grid. Purchaser's sole
remedy in the event of any breach of this warranty shall, at Seller's option, be
the replacement or repair in a timely fashion of the defective Product. Seller
shall make replacement Products available and pay transportation, taxes, custom
duties and insurance to the site where the gas turbine is located. Any repaired
or replaced Product shall be warranted for 8000 operating hours, provided that
in no event shall Seller's warranty obligation extend beyond seventy two (72)
months from the delivery of the initial Product.

Purchaser shall notify Seller of obvious defects within sixty (60) days of
delivery and of latent defects within thirty (30) days of discovery.

The warranties set forth in this section shall not apply to any claims, problems
or defects which are the result of normal wear and tear, mishandling, misuse,
neglect or improper testing and repair by other than CCSI or its authorized
representatives.

THE EXPRESS WARRANTIES PROVIDED HEREIN ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ALL OTHER WARRANTIES
ARE HEREBY DISCLAIMED AND EXCLUDED BY SELLER.

9.   SUSPENSION; TERMINATION FOR CONVENIENCE.  Purchaser may, at any time, by
written notice to Seller and termination for convenience, suspend performance of
the work.  Said notice of suspension shall specify the date of suspension and
the estimated duration of the suspension.  Upon receiving any such notice of
suspension, Seller shall promptly suspend further performance of the work to the
extent specified, and during the period of such suspension shall properly care
for and protect all work in progress and materials, supplies, and equipment
Seller has on hand for performance of the work.  Purchaser may at any time
withdraw the suspension of performance of the work as to all or part of the
suspended work by written notice to Seller specifying the effective date and
scope of withdrawal, and Seller shall resume diligent performance of the work
for which the suspension is withdrawn on the specified effective date of
withdrawal, subject to then existing contracts and commitments.

Purchaser may terminate all or any part of this Purchase Order at any time by
providing written notice to Seller.

If this Purchase Order is canceled or terminated for the convenience of
Purchaser or suspended upon the direction of Purchaser for other than Seller
fault, in either case when there is less than 120 days until the scheduled
delivery date, Purchaser shall be responsible for, and shall pay Seller for
Product-in-process on a percent of completion

                                      -39-
<PAGE>

basis, established on a proportional basis, where fifty (50%) completion is
assumed on day one hundred and twenty (120) and one hundred (100%) completion is
assumed on day thirty (30) in each case prior to the scheduled delivery date as
a result of such cancellation, termination or suspension, plus any uncancelable
commitments made by Seller, but not to exceed the amount of the Purchase Price
allocable to the terminated portion of this Purchase Order. Purchaser shall pay
undisputed amounts to Seller within thirty (30) days after Seller provides
Purchaser with an invoice.

10.  DEFAULT.  Except in instances of Excusable Delay as defined in Article 15
of the CCLA, Purchaser may by written notice of default to Seller, terminate
this Purchase Order, in whole or in part (a) if Seller is greater than sixty
(60) days late in delivering the Products, at least twice in any given twelve
(12) month period, or (b) if Seller fails to comply with any of the material
terms and conditions of this Purchase Order and upon receipt of written notice
from Purchaser does not commence corrective action within ten (10) days and cure
such default within sixty (60) days.  Upon termination, Purchaser may procure
goods similar in function to the Products, such as SCR or DLN components, and,
subject to the Limitation of Liability set forth below, Seller shall reimburse
Purchaser such costs Purchaser incurs in excess of the Purchase Price.

As an alternative remedy, and in lieu of termination for default, Purchaser may
in its sole discretion, elect to extend the time for delivery and/or waive other
deficiencies in Seller's performance in which case an equitable adjustment in
the Purchase Price shall be negotiated.

11.  INDEMNITY AND INSURANCE - WORK ON SELLER'S PREMISES.  Each Party (the
"Indemnifying Party") shall indemnify and hold harmless the other party, its
affiliates, officers, directors, agents and employees (the "Indemnified
Parties") against any losses resulting from any third party claim for death or
personal injury or damage to third party tangible real or personal property to
the extent such claim arises from the Indemnifying Party's negligence, gross
negligence or willful misconduct.

Seller shall take all reasonable precautions to prevent the occurrence of any
injury to persons or to property during the progress of work, and, except to the
extent that any such injury or damage is due solely and directly to Purchaser,
shall defend and indemnify Purchaser against any claim which may result in any
way from any act or omission of the Seller, its agents, employees, or
subcontractors.  Seller shall maintain comprehensive general liability
(including contractual liability coverage insuring the liabilities assumed
above).  Automobile Liability and Employers and Employers Liability insurance
with limits as reasonably required by Purchaser, as well as appropriate Workers
Compensation Insurance as well protect Seller from all claims under any
applicable Workers Compensation and Occupational Disease Act.  Seller shall
furnish to Purchaser, upon written request, a Certificate of Insurance completed
by its insurance carrier(s) certifying that insurance coverages are in effect
and will not be canceled or materially changed until

                                      -40-
<PAGE>

ten days after prior written notice has been delivered to the purchaser as
required by Purchaser.

12.  LIMITATION OF LIABILITY.  The total liability of Seller, on all claims of
any kind, whether in contract, warranty, indemnity, tort (including negligence),
strict liability, or otherwise, arising out of the performance or breach of this
Purchase Order shall not exceed two (2) times the Purchase Price.

In no event, whether as a result of breach of contract, warranty, indemnity,
tort (including negligence), strict liability, or otherwise, shall either party
or their respective subcontractors or suppliers be liable for loss of profit or
revenues or for any special, consequential, incidental, indirect or exemplary
damages.

13.  PROPER BUSINESS PRACTICES.  Seller shall comply with all laws dealing with
improper or illegal payments, gifts or gratuities, and Seller agrees not to pay,
promise to pay or authorize the payment of any money or anything of value,
directly or indirectly to any person for the purpose of illegally or improperly
inducing a decision or obtaining or retaining business in connection with this
Order.

14.  COMPLIANCE WITH LAWS  General.  Seller agrees to comply with the applicable
provisions of any federal, state, provincial or local law or ordinance and all
lawful orders, rules, and regulations issued thereunder.  In addition, Seller
shall comply with Good Industry Practices, including the exercise of that degree
of skill, diligence, prudence and foresight which can reasonably be expected
from a competent Seller who is engaged in the same type of manufacture under
similar circumstances in a manner consistent with all applicable requirements
and with all applicable general recognized international standards.  No forced
or prison labor may be used in manufacturing the products to be supplied under
this contract.  If forced or prison labor is determined to have been used in the
manufacture of the products supplied hereunder the Purchaser shall have the
right to immediately terminate the contract without further compensation to the
Seller.

Provisions applicable to orders for work to be performed, goods to be produced,
or services to be rendered within the United Stated.  (a) Seller shall comply
with any provisions, representations or agreements or contractual clauses
required thereby to be included or incorporated by reference or operation of law
in the contract resulting from acceptance of this order and dealing with: (i)
Equal Opportunity (Executive Order 11246 as amended by Executive Orders 113575
and 10286 and applicable regulations promulgated pursuant thereto); (ii)
Employment of Veterans (Executive Order 11701 and applicable regulations
promulgated pursuant thereto); (iii) Employment of the Handicapped (Executive
Order 11758 as amended by Executive Order 11867 and applicable regulations
promulgated pursuant thereto); (iv) Employment Discrimination Because of Age
(Executive Order 11141 and applicable regulations promulgated pursuant thereto);
and (v) Utilization of Disadvantaged and Business Enterprises (Executive Order

                                      -41-
<PAGE>

11625.  Public Law 95-507 and applicable regulations promulgated pursuant
thereto).  (b) Seller certifies that with respect to orders which exceed $10,000
it is in compliance with the requirements for nonsegregated facilities set forth
in 41 CFR Chapter 60-1.8.  (c) Seller warrants that each chemical substance
constituting or contained in goods sold or otherwise transferred to Purchaser
hereunder is on the list of chemical substances compiled and published by the
Administrator of the Environmental Protection Administration pursuant to the
Toxic Substances Control Act (P.L. 92-573) as amended, and the Federal Hazardous
Substances Act (P.L. 92-5 16) as amended and lawful standards and regulations
thereunder.  (d) In accepting this order Seller represents that the goods to be
furnished hereunder were or will be produced in compliance with the requirements
of the Fair Labor Standards Act of 1938, as amended, including Section 12(a) and
Seller shall insert a certificate to that effect on all invoices submitted in
connection with this order.

Provisions applicable to orders for goods or materials, the destination of
which, final or intermediate, is in the United States.  Seller warrants that
each chemical substance constituting or contained in goods sold or otherwise
transferred to Purchaser hereunder is on the list of chemical substances
compiled and published by the United States Administrator of the Environmental
Protection Administration pursuant to the Toxic Substances Control Act (P.L. 92-
573) as amended, and the Federal Hazardous Substances Act (P.L. 92-516) as
amended and lawful standards and regulations thereunder.

Provisions applicable to orders for goods from outside the United States, to be
delivered DEQ, FAC or DAF (INCO TERMS 1990) at point of entry to the United
States.  Seller warrants that all sales made hereunder are or will be made at
not less than fair value under the United States Anti-dumping Law (19 U.S.C.
SEC.  160o ct set.), and Seller will indemnify, defend and hold Purchaser
harmless from and against any costs or expenses (including, but not limited to,
any anti-dumping duties which may be imposed) arising out of or in connection
with breach of this warranty.

Provisions applicable to orders for goods from outside the United States, to be
delivered within the United States.  Seller agreed that Purchaser will not be a
party to the importation of the goods, that the transaction(s) represented by
this order will be consummated subsequent to importation and that Seller will
neither cause nor permit Purchaser's name to be shown as "importer of record" on
any customs declaration.  If Seller will be the importer of record to the United
States, Seller shall provide Purchaser with Customs Form 331 entitled
"Certificate of Delivery" properly executed as well as Customs Form 7501 "Entry
Summary" and a copy of Seller Invoice.

Provisions applicable to technical data provided to Seller from within the
United States.  Seller hereby assures the Purchaser that all technical data
received from Purchaser will not be exported from the United States or re-
exported from Seller's country without the express written concurrence to such
export by Purchaser.

                                      -42-
<PAGE>

15.  PACKING, PRESERVATION AND MARKING.  Packing, preservation and marking
requirements will be in accordance with the specification drawing or as
specified on the Purchaser Order.  If none specified, use the best commercially
accepted practice.

16.  GOVERNING LAW.  This order shall in all respects be governed by and
interpreted in accordance with the substantive law of the State of New York,
U.S.A.  excluding its conflicts of law provisions.  The Parties hereby exclude
the application of the United Nations Convention on Contracts for the
International Sale of Goods.

17.  DISPUTE RESOLUTION.  Purchaser and Seller shall attempt amicably to resolve
any controversy, dispute or difference arising out of this Order, failing which
either party may initiate litigation.  Litigation arising from this Order may be
brought only in the United States District Court for the Southern District of
New York or, if such court lacks subject matter jurisdiction, in the Supreme
Court of the State of New York in and for New York County.  The Parties hereby
submit to the jurisdiction of said courts, and waive any defense of forum non
conveniens.

18.  YEAR 2000 COMPLIANCE WITH DATE PROCESSING REQUIREMENTS.  In addition to any
other warranties and representations provided by Supplier to Purchaser, whether
pursuant to this purchase order, by law, equity, or otherwise, Seller
represents, warrants and covenants that Seller shall use all reasonable efforts
to insure that (a) any product(s) and/or service(s) provided by Seller hereunder
including, without limitation, each item of hardware, software, or firmware; any
system, equipment, or products consisting of or containing one or more thereof;
and any and all enhancements, upgrades, customizations, modifications,
maintenance and the like ("Products/Services") shall be Year 2000 Compliant at
the time of delivery and at all times thereafter and in all subsequent updates
or revisions of any kind, and (b) Seller's supply of the Products/Services to
Purchaser shall not be interrupted, delayed, decreased, or otherwise affected by
dates prior to, on, after or spanning January 1, 2000.  For purposes of this
purchase order, the term "Year 2000 Compliant" means that (1) the
Products/Services accurately process, provide and/or receive date data
(including without limitation calculating, comparing, and sequencing), within,
from, into, and between centuries (including without limitation, the twentieth
and twenty-first centuries, the last year of a century (e.g. 1999) and the first
year of the next century (e.g. 2000), and leap year calculations, and (2)
neither the performance nor the functionality nor Seller's supply to Purchaser
of the Products/Services will be affected by dates prior to, on, after, or
spanning January 1, 2000.  Moreover, Seller convenants and agrees all reasonable
steps shall be taken to insure that the design of said Product/Services to
ensure compliance with the foregoing warranties, representations and covenants
shall include, without limitation, date data century recognition, calculations
that accommodate same century and multi-century formulae and date values, and
date data interface values that reflect the century.  In particular, but without
limitation, (i) no value for current date will cause any error, interruption, or
decreased performance in the operation of such

                                      -43-
<PAGE>

Products/Services, (ii) all manipulations of date-related data including, but
not limited to, calculating, comparing, sequencing, processing and outputting)
will produce correct results for all valid dates, including when used in
combination with other products, (iii) date elements in interfaces and data
storage will specify the correct century to eliminate date ambiguity without
human intervention, including leap year calculations, (iv) where any date
element is represented without a century, the correct century will be
unambiguous for all manipulations involving that element, (v) authorization
codes, passwords, and zaps (purge functions) should function normally and in the
same manner prior to, on, after and spanning January 12, 2000, including,
without limitation, the manner in which they function with respect to expiration
dates and CPU serial numbers. No obligation of Seller under this purchase order
shall be excused by reason of the failure of Seller's or any other person's
Products/Services to be Year 2000 Compliant, nor shall such occurrence(s) be
deemed a force majeure event. As used in this purchase order, the words "date"
and "dates" shall be deemed to include "time".

In the event of breach of this warranty, in addition to any other remedies
Purchaser may have, whether pursuant to this purchase order, by law, equity or
otherwise, Purchaser shall, at its option, be entitled to repair or replacement
of any non-compliant Products/Services, at no cost to Purchase, within sixty
(60) days after notice of breach from Purchaser to Seller.

Notwithstanding anything in this purchase order to the contrary, the period of
the representations, warranties and covenants set forth in this section shall
extend at least until January 31, 2001.  Any statute of limitations that might
be applicable to Seller's Year 2000 Compliant warranty and representation shall
not accrue or begin to run until the later of January 31, 2001 or the time when
such statute of limitations would otherwise accrue or begin to run, and, with
respect to any claim based on any failure of the Products/Services to be Year
2000 Compliant, Seller shall not assert any defense based on or alleging the
passage of time from the effective date of this purchase order to January 31,
2001.

19.  WAIVER.  No claim or right arising out of a breach of this Contract can be
discharged in whole or in part by a waiver or renunciation of the claim or right
unless the waiver or renunciation is supported by consideration and is in
writing signed by the aggrieved party.  The failure of Purchaser to enforce at
any time or for any period of time any of the provisions hereof shall not be
construed to be a waiver of such provisions or of the right to Purchaser
thereafter to enforce each and every such provision.

20.  ENTIRE AGREEMENT.  This Purchase Order and the CCLA with such documents as
are expressly incorporated herein by reference, is intended by the parties as a
final expression of their Agreement with respect to such terms as are included
herein, and is intended also as complete and exclusive statement of the terms of
their Agreement.  No course of prior dealings between parties and no usage of
the trade shall be relevant to determine the meaning of this Agreement even
though the accepting or acquiescing party

                                      -44-
<PAGE>

has knowledge of the performance and opportunity for objection. The invalidity,
in whole or in part, of any of the foregoing articles or paragraphs of this
Purchase Order shall not affect the remainder of such article or paragraphs or
any other article or paragraphs of this Purchase Order.

                                      -45-<PAGE>

                                                                   EXHIBIT 10.13
                                                        START DATE JULY 17, 2000

[LETTERHEAD OF CATALYTICA]

June 6, 2000

Mr. Craig N. Kitchen
1893 W. Encinas
Gilbert, AZ 85233

Dear Craig:

I am very pleased to offer you the position of President and Chief Executive
Officer of Catalytica Combustion Systems, Inc. reporting to me. This is an
exciting time in the life of CCSI with the IPO possibility and the challenge to
commercialize Xonon. I am confident that you are the right person to lead the
CCSI business going forward.

Compensation
------------

Your salary will be $19,167 per month, which annualizes to $230,000. You will be
eligible for an annual bonus opportunity at a target of 30.0% of your salary,
prorated for service during the calendar year. For 2000 we will guarantee you a
minimum bonus of $35,000 provided you are an active employee on 12/31/00. You
will be eligible for annual options with a target value of 110% of your salary.
As Jack discussed with you, over the next few years we expect your bonus target
to increase and the option target to decrease as the business becomes
profitable. Craig, your next merit increase and option grant review will be
March of 2001 consistent with our annual compensation process. Stock option
values and future bonus awards are not guaranteed. They will be based on company
and individual performance.

As part of your hiring agreement, you will be granted options in the amount of
75,000 shares of CCSI and 10,000 shares of Catalytica Inc. According to our
option pricing methodology these options have a potential value of $1,600,000.
These options vest over 4 years. If the CCSI IPO takes place by September, your
CCSI options will be priced at 90% of the IPO price. If the IPO does not happen
within the designated time frame, the options will be priced at $26.50, the
price established by the CCSI Board at their last meeting. Your Catalytica Inc.
options will be issued shortly after your hire date and will be priced based on
the market price on that day.

You will also receive a sign-on bonus of $68,000 ($18,000 represents loss of
appreciated options) after your hire and another $50,000 on your one year
anniversary date. The purpose of these monies is to offset the incremental
living and transportation costs associated with this position while you maintain
your home in Phoenix. At the end of two years, or earlier if mutually agreed, we
will revisit the issue of your relocation to the Mountain View area.

<PAGE>

Mr. Craig N. Kitchen
June 6, 2000
Page 2

Severance/Change of Control Protection
--------------------------------------

If you are terminated without "cause" during your first two (2) years of
employment, you will be provided severance benefits of 12 months salary and
benefit continuation. In addition, you will be provided Change of Control
benefits consistent with the plan in place for Catalytica, Inc. executives. The
plan provides for two (2) years' salary, bonus and benefits and vesting of
options if terminated within two (2) years of a Change of Control.

Benefits
--------

Effective upon your date of hire, you and your eligible dependents will be
covered under the Catalytica, Inc. health (medical, dental, vision and
prescription drugs), long term disability, life insurance and Employee Stock
Purchase Plans. In addition, starting the first of the month after you have
completed three months service, you will be eligible to participate in the
401(k) retirement plan that includes a 60% match (up to 6% of your
contribution). You will be eligible for 4 weeks paid vacation, 11 holidays and
sick time earned on an accrual basis from your date of hire.

Temporary Living
----------------

We will reimburse you for 60 days temporary living, including transportation
expenses from Phoenix. This should give you time to find appropriate housing in
the area.

This offer is contingent on acceptable results of a pre-employment
drug-screening test. Catalytica must receive results of the drug test before any
state date. Please contact Regina Machado at (650) 940-6323 to make the
appropriate arrangements.

Craig, we look forward to you becoming a key member of the Catalytica executive
team. Please indicate your acceptance of this offer by signing below and
returning the original to me.

Sincerely yours,

/s/ Ricardo Levy

Ricardo Levy

I accept the offer of employment with Catalytica Combustion Systems Inc.,
described in this letter. I understand that this letter is not a contract of
employment.

       /s/ Craig N. Kitchen                       June 15, 2000
-------------------------------------    ------------------------------
        Craig N. Kitchen                              Date

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