Execution Copy

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “ Agreement ”), dated as of October 25, 2006, is made by and among CATALYTICA ENERGY SYSTEMS, INC., a Delaware corporation (“ Seller ”), and EATON CORPORATION, an Ohio corporation (“ Buyer ”).  Capitalized terms are used in this Agreement with the meanings assigned those terms in Appendix A hereto.

Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, substantially all of the assets of the Business on the terms and conditions contained in this Agreement.

Therefore, Seller and Buyer hereby agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

1.1          Sale of Assets .  At the Closing and effective as of the Closing Date, Seller shall sell, transfer and deliver to Buyer, and Buyer shall purchase from Seller, free and clear of all Liens other than Permitted Liens, all of the following assets, rights and properties of Seller (collectively, the “ Acquired Assets ”):

(a)          Real Property Leases .  The Mountain View Lease and all of Seller’s right, title and interest in and to any and all buildings, structures, improvements and fixtures located on the real property subject to such lease, and the sub-leases listed on Schedule 1.1(a) (together with the Mountain View Lease, the “ Real Property Leases ”);

(b)          Fixed Assets .  All office, laboratory and test equipment, machinery, product displays, tools, dies, furniture and other tangible personal property used primarily in the Business (the “ Fixed Assets ”), including those Fixed Assets listed on Schedule 1.1(b) ;

(c)          Supplies .  All supplies of raw materials, works-in-process, finished goods, spare parts, supplies and storeroom contents owned or held by or on behalf of Seller relating primarily to the Business, including those precious metals listed on Schedule 1.1(c) , as the same may be depleted or augmented prior to the Closing Date in the Ordinary Course;

(d)          Prepaid Amounts .  All prepayments listed in Item 1 of Schedule 7.2 , prorated (if applicable) in accordance with Section 7.2 ;

(e)          Contracts.  All rights and incidents of interest of, and benefits accruing to, Seller in and to the Contracts (to the extent related to the Business) listed on Schedule 1.1(e) (the “ Assigned Contracts ”);

(f)           Acquired Intellectual Property .  All Intellectual Property owned by Seller and used primarily in the Business (the “Acquired Intellectual Property ”), including the

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Registered Acquired Intellectual Property listed on Schedule 1.1(f) , but excluding the licensed software described on Schedule 1.2;

(g)          Permits .  To the extent transferable under applicable Law, all franchises, registrations, certificates, variances, permits, licenses, authorizations, approvals and similar rights obtained, issued or granted to Seller by any Governmental Authority which are required to conduct the Business in the manner conducted immediately prior to the Closing (the “ Permits ”);

(h)          Books and Records .  All books and records (or true and correct copies thereof) to the extent related to the Business, including all computerized books and records (but excluding any computers or computer equipment in which such computerized books and records may reside except to the extent provided for in Section 1.1(b) ) and all Contracts, files, documents, lists, plats, correspondence, architectural plans, drawings and specifications, invoices, forms, correspondence, customer records, promotional and advertising materials, test results and programs, technical data, operating records, operating manuals, instructional documents, employee files for Transferred Employees (to the extent permitted under applicable Law) and other printed or written materials to the extent related to the Business; provided, however, that none of the following shall constitute Acquired Assets:  (i) any records and documents prepared in connection with the transactions contemplated hereby (other than such records and documents to be delivered to Buyer pursuant to the express terms of this Agreement or any of the Ancillary Agreements), (ii) any records or documents that Seller is required by Law to retain in its possession (but if legally permissible Seller shall provide Buyer with copies thereof), (iii) any records and documents to the extent that such records and documents are subject to the attorney-client privilege (except to the extent that such records and documents relate to the Acquired Intellectual Property), (iv) any financial records and documents which relate to the financial condition of Seller and do not solely relate to the Business, and (v) any documents or records relating to the minutes or proceedings of the board of directors of Seller; provided, further, that Seller shall have the right to retain and use, subject to the restrictions contained herein, copies of any such books and records that are also used in or relate to any of Seller’s retained businesses.

(i)           Warranties .  All rights under or pursuant to all warranties and guarantees, whether express or implied, made by suppliers, manufacturers, contractors and other third parties with respect to any of the Acquired Assets;

(j)           Other Intangible Assets .  The Business as carried on and conducted by Seller as a going concern, including any and all goodwill and similar intangible assets associated therewith, including but not limited to (except as otherwise set forth in this Agreement, including Sections 1.1(d) and 7.2 ), all claims, actions, deposits, prepayments, refunds, causes of action, rights of recovery, rights of set off, and rights of recoupment of any kind or nature relating to the Acquired Assets; and

(k)          All Other Assets .  All other tangible assets of Seller related primarily to the Business, including all customer lists, supplier lists, catalogues, sales brochures and other marketing data.

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1.2          Retained Assets .  All assets, rights and properties other than the Acquired Assets (collectively, the “ Retained Assets ”), including those Retained Assets listed on Schedule 1.2 , shall be retained by Seller, and Buyer will in no way be construed to have purchased (or to be obligated to purchase) any interest whatsoever in any Retained Assets.

1.3          Non-Assignable Assets; Beneficial Ownership .  Notwithstanding any provision of this Agreement to the contrary, this Article I does not constitute an agreement to assign or sell any Acquired Assets that are not capable of being validly assigned or sold without the Consent of any third party (the “ Non-Assignable Assets ”).  Subject to Section 7.1(b) , to the extent that any sale or assignment contemplated by this Agreement has not occurred as of the Closing, Seller and Buyer shall thereafter cooperate for a period of 180 days from the Closing Date to effect such sales or assignment.  Notwithstanding the foregoing, neither Seller nor Buyer will be liable in any manner to any Person who is not a party to this Agreement for any failure of any of the transfers contemplated by this Agreement to be consummated on or after the Closing Date.

ARTICLE II

ASSUMPTION OF LIABILITIES

2.1          Assumed Liabilities .  At the Closing and effective as of the Closing Date, Buyer shall assume and thereafter perform, pay and discharge in accordance with their terms only the following Liabilities of Seller (collectively, the “ Assumed Liabilities ”):

(a)          Assigned Contracts .  All Liabilities under the Real Property Leases and Assigned Contracts to the extent that such Liabilities relate to the Business and first arise on or after the Closing.

(b)          Employment Liabilities .  All Liabilities to be borne by Buyer pursuant to Article IX .

(c)          Other Liabilities of the Business .  Liabilities under Article 25 of the Mountain View Lease and all Liabilities arising on or after the Closing relating to the Acquired Assets and operation of the Business by Buyer, including the sale of products related to the Business.

(d)          All Liabilities to be borne by Buyer pursuant to Section 7.1(b) .

(e)          The Buyer Environmental and Facilities Liabilities.

2.2          Retained Liabilities .  All Liabilities of Seller of any kind and nature, whether related to the Business or not and whether known or unknown, contingent or fixed, that are not Assumed Liabilities are “ Retained Liabilities ” .  Seller shall retain all Retained Liabilities and Buyer shall have no obligation whatsoever to perform, pay or discharge any Retained Liabilities.

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ARTICLE III

PURCHASE PRICE

3.1          Purchase Price .  In consideration for the transfer of the Acquired Assets, at the Closing, Buyer shall (a) pay Seller an amount in cash equal to $2,400,000; and (b) assume the Assumed Liabilities (such cash amount, collectively with the value of the Assumed Liabilities, the “ Purchase Price ”).  Such cash amount shall be paid by wire transfer of immediately available funds to an account designated in writing for such purpose by Seller prior to the Closing.

3.2          Purchase Price Allocation .  The Purchase Price plus the Assumed Liabilities (collectively, the “ Total Consideration ”) will be allocated among the Acquired Assets and the non-competition agreement contained in Section 7.4 as shown on Schedule 3.2 .  The Total Consideration and such schedule shall be adjusted to reflect any payments made after Closing pursuant to Article VIII .  Unless otherwise required under applicable Law, each Party shall report the purchase and sale of the Acquired Assets on all Tax Returns, including timely filed Internal Revenue Service Forms 8594, in accordance with the allocation shown on Schedule 3.2 , as adjusted, and no Party will take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with such allocation.

ARTICLE IV

CLOSING AND DELIVERIES

4.1          Closing .  The closing of the transactions contemplated hereby (the “ Closing ”) shall take place at 1111 Superior Avenue, Cleveland, Ohio, at 10:00 a.m. local time on the date hereof.  The time and date on which the Closing is actually held is referred to herein as the “ Closing Date .”  All proceedings required to be taken and all documents required to be executed and delivered by all Parties at the Closing will be deemed to have been taken and executed simultaneously and no such proceedings will be deemed to have been taken nor such documents executed or delivered until all have been taken, executed and delivered.  Regardless of the time at which Closing occurs, Closing will be deemed for all purposes to have occurred on the Closing Date at 12:01 a.m. local time in Cleveland, Ohio.

4.2          Deliveries by Seller .  At the Closing, Seller shall deliver or cause to be delivered (unless previously delivered) to Buyer the following items:

(a)           the Bill of Sale, duly executed by Seller;

(b)           the Instrument of Assumption, duly executed by Seller;

(c)           the Lease Assignment, duly executed by Seller;

(d)           the Patent Assignment, duly executed by Seller;

(e)           the Transition Services Agreement, duly executed by Seller;

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(f)            a Consent and Estoppel Certificate, in form and substance satisfactory to Buyer signed by Jack Dymond Associates related to the Mountain View Lease;

(g)           UCC termination statements and any other documents necessary to release any Liens other than Permitted Liens on the Acquired Assets; and

(h)           such other documents, instruments of sale, transfer, conveyance or assignment as are required to vest title in and to the Acquired Assets in Buyer.

4.3          Deliveries by Buyer .  At the Closing, Buyer shall deliver or cause to be delivered (unless previously delivered) to Seller the following items:

(a)           the cash portion of the Purchase Price pursuant to Section 3.1 ;

(b)           the Bill of Sale, duly executed by Buyer;

(c)           the Instrument of Assumption, duly executed by Buyer;

(d)           the Lease Assignment, duly executed by Buyer;

(e)           the Transition Services Agreement, duly executed by Buyer; and

(f)            such other documents and instruments as are required to evidence the assumption of the Assumed Liabilities by Buyer.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer, subject to such exceptions and disclosures as set forth in the Disclosure Letter supplied by Seller to Buyer on the date hereof  (the “ Disclosure Letter ”) ( which exceptions and disclosures will reference the appropriate section of this Article V to which they relate and each of which exceptions and disclosures shall be deemed to be incorporated by reference into such representations and warranties; provided , that any information disclosed in the text of any section of the Disclosure Letter shall be deemed disclosed and incorporated in any other section, subsection, clause or paragraph hereof, as the case may be, where it is reasonably apparent from the text of such disclosure that it is applicable to such other section, subsection, clause or paragraph hereof, as the case may be), as follows:

5.1          Organization and Standing .  Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation.  Seller is duly qualified to do business and in good standing in the states of the United States in which the character of the properties owned or leased by it and used by it in the Business or in which the conduct of the Business requires it to be so qualified, except for those jurisdictions where failure to be so qualified would not, individually or in the aggregate, constitute or reasonably be likely to constitute a Seller Material Adverse Effect.

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5.2          Authority, Validity and Effect .  Seller has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby.  This Agreement and each of the Ancillary Agreements to which Seller is party has been duly executed and delivered by Seller.  This Agreement and each of the Ancillary Agreements to which Seller is party is the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its respective terms, except as limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally from time to time in effect, (ii) the availability of equitable remedies (regardless of whether enforceability is considered in a proceeding at law or in equity) or (iii) rules concerning specific performance (the “ General Enforceability Exceptions ”).

5.3          No Conflict; Required Filings and Consents .

(a)           Neither the execution and delivery of this Agreement or any Ancillary Agreement by Seller, nor the consummation by Seller of the transactions contemplated hereby or thereby, nor compliance by Seller with any of the provisions hereof or thereof, will (i) conflict with or result in a breach of any provision of Seller’s Certificate of Incorporation or By-Laws; (ii) except as set forth on Schedule 5.3(a) of the Disclosure Letter, conflict with, constitute or result in the material breach of any term, condition or provision of, or constitute a material default under, result in or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation or imposition of any Lien (other than Permitted Liens) upon any of the Acquired Assets pursuant to, or require any notice under, any note, bond, mortgage, indenture, Contract or other instrument or obligation to which Seller is a party or by which the Business is subject; or (iii) assuming the approvals referred to in Section 5.3(b) are obtained, materially violate any Order or Law to which Seller, the Business or the Acquired Assets are subject.

(b)           Other than as set forth on Schedule 5.3(b) of the Disclosure Letter, no notice to, filing with, authorization of, exemption by or Consent of any Person is necessary for the consummation by Seller of the transactions contemplated by this Agreement and the Ancillary Agreements.

5.4          Title .

(a)           Seller has good and marketable title to or a valid leasehold interest in each Acquired Asset, free and clear of all Liens other than Permitted Liens.  Except as set forth on Schedule 5.4 of the Disclosure Letter, no Person other than Seller owns any interest in any of the Acquired Intellectual Property.  None of Seller’s Affiliates or subsidiaries operates the Business or owns any assets or rights used in or related to the Business.  All tangible Acquired Assets are located at the property to be leased by Buyer under the Mountain View Lease or at the locations set forth on Schedule 5.4 of the Disclosure Letter.  None of the Acquired Assets are subject to or held under any security, conditional sales or other title retention Contract.

(b)           Neither Kawasaki Heavy Industries, Ltd. nor any of its subsidiaries or affiliates has any claims against Seller or any of its subsidiaries or affiliates in connection with the Acquired Assets, the Business, this Agreement or the transactions contemplated hereby.

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5.5          Financial Condition .

(a)           Attached as Exhibit A to the Disclosure Letter is a schedule of the Acquired Assets and Assumed Liabilities as of September 30, 2006 (the “ Asset and Liability Schedule ”) and the statement of income for the Business for the seven month period ended July 31, 2006 (the “ Statement of Income ”) (collectively the “ Financial Statements ”).  Except as set forth in Schedule 5.5(a) of the Disclosure Letter, the Financial Statements are true, correct and complete, the components of the Financial Statements as presented were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and present in all material respects the results of operations of the Business as of and for the periods ending on their respective dates except that (i) the Statement of Income will not be fully representative of the results of operations of the Business as certain expenses, including but not limited to, accounting, information systems, investor relations, human resources and other corporate services have not been included in the Statement of Income, (ii) the Statement of Income does not include certain expenses that would likely be incurred on a stand-alone operation, (iii) the Asset and Liability Schedule excludes any Liability that may result from the decommissioning of the Mountain View Facilities as required under the Mountain View Lease and (iv) the Financial Statements do not include any of the footnotes required by GAAP for annual financial statements.

(b)           On the Closing Date, after giving effect to the consummation of this Agreement (i) the fair market value of the assets of Seller will as of such date exceed the fair market value of the Liabilities of Seller, (ii) Seller will not have an unreasonably small amount of capital with which to conduct its respective businesses, and (iii) Seller will be able to pay its respective debts as they mature.

5.6          Changes in Condition .

(a)           Since December 31, 2005, and except as set forth on Schedule 5.6 of the Disclosure Letter, Seller has operated the Business only in the Ordinary Course and, without limiting the generality of the foregoing, since that date, in connection with the Business:

(i)            Seller has not sold, leased, transferred or assigned any of the Acquired Intellectual Property or other intangible assets related to the Business;

(ii)           Seller has not entered into any Contract with respect to the Business outside the Ordinary Course;

(iii)          no Person (including Seller) has accelerated, terminated, modified or cancelled any Contract with respect to the Business and which Seller is party;

(iv)          Seller has not incurred any Indebtedness (except for Indebtedness that has been indefeasibly satisfied as of the Closing) or imposed any Lien (other than mechanics,’ workmen’s, materialmen’s, landlords,’ carriers’ or other similar Liens arising in the Ordinary Course with respect to Liabilities that are not yet due and payable or that are being contested in good faith) on any Acquired Asset;

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(v)           Seller has not made or committed to make any capital expenditures that, individually or in the aggregate, exceed $25,000 with respect to the Business which are included in the Assumed Liabilities;

(vi)          Seller has not delayed or postponed the payment of Accounts Payable or other Liabilities related to the Business;

(vii)         Seller has not incurred any material damage to, destruction or loss of any Acquired Assets;

(viii)        other than normal merit salary increases consistent with the past practice of the Business, Seller has not increased the salaries or other compensation of, granted any rights to severance benefits, stay pay, or termination pay to any Business employee or made any advance or loan to, or made any changes in the terms of employment of any Business employees or discussed termination of employment with any Business employees; and

(ix)           Seller has not entered into any Contract with respect to or committed to engage in any of the foregoing with respect to the Business which are included in the Assumed Liabilities.

(b)           No Seller Material Adverse Effect has occurred since December 31, 2005.

5.7          Material Contracts .

(a)           Schedule 5.7(a) of the Disclosure Letter identifies those Contracts (or any groups of related or similar Contracts) to which Seller or any of its Affiliates is party in connection with or relating to the Business or the Acquired Assets that:

(i)            require payment by any party thereto in excess of $25,000 per year;

(ii)           is not terminable on less than three months’ notice without payment by, penalty or other adverse consequence to the Business;

(iii)          involve the lease or use of real property;

(iv)          involve the lease, purchase or service of tangible personal property requiring payments in excess of $25,000 per year;

(v)           relate to capital expenditures to be made after Closing in an amount in excess of $25,000;

(vi)          create a partnership or joint venture;

(vii)         create, incur or guarantee Indebtedness or impose a Lien on any of the Acquired Assets;

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(viii)        grant a license to Acquired Intellectual Property or require the payment of royalties;

(ix)           is a management, consulting, employment, compensation, termination, severance or similar Contract involving payments in excess of $25,000;

(x)            require the payment of bonuses or similar incentives to any Person in connection with the Business or the transaction contemplated hereby;

(xi)           appoint a Person as a manufacturer’s representative, distributor or sales agent;

(xii)          create any Liability for or related to asbestos, silica, refractory ceramic fibers or other substance that could be harmful to human health;

(xiii)         concern confidentiality or non-competition;

(xiv)        provide for indemnification by or of Seller;

(xv)         involve an option to purchase, a right of first refusal or other preferential right to acquire any Acquired Asset;

(xvi)        grant a power of attorney with respect to the Business;

(xvii)       have as a party an employee, officer, director or an Affiliate of Seller (other than Seller) or an entity in which any such Person has an interest or a Governmental Authority; or

(xviii)      the consequences of a default under which would constitute or reasonably be expected to constitute a Seller Material Adverse Effect.

(b)           Prior to the date hereof, Seller has made available to Buyer or its representatives an accurate and complete copy of each Material Contract (or a written description of the material terms of any Material Contract that is not written).

(c)           Except as set forth on Schedule 5.7(c) of the Disclosure Letter, each Material Contract is valid, binding and enforceable in accordance with its terms, except as limited by the General Enforceability Exceptions, and is in full force and effect.  Except as set forth on Schedule 5.7(c) of the Disclosure Letter, the transactions contemplated by this Agreement and the Ancillary Agreements will not give rise to a material breach of, or right of acceleration or termination under, any Material Contract.  Except as set forth on Schedule 5.7(c) of the Disclosure Letter, there are no existing material defaults by Seller under any of the Material Contracts and no event has occurred or to Seller’s Knowledge is likely to occur that (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a material default under any Material Contract by Seller.  Except as set forth on Schedule 5.7(c) of the Disclosure Letter, to Seller’s Knowledge in each case, there are no existing material defaults by any party (other than Seller) to a Material Contract and no event has occurred or is likely to occur that (whether with or without notice, lapse of time or the happening

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or occurrence of any other event) would constitute a material default under any Material Contract by any party thereto other than Seller.

(d)           Schedule 5.7(a) of the Disclosure Letter lists any outstanding bid or proposal made by or to Seller, or to or by any customer, supplier, vendor or service provider in connection with the Business that if accepted would constitute a Contract of a type described in Section 5.7(a) .

5.8          Intellectual Property .

(a)           Schedule 1.1(f) sets forth, with the title (or appropriate description), filing date, issue date, ownership, registration or application indicated, as applicable, a complete and correct list of all Registered Acquired Intellectual Property.

(b)           Except as set forth on Schedule 5.8(b) of the Disclosure Letter, there are no and have never been any Actions instituted, commenced, pending against Seller or, to Seller’s Knowledge, against any other Person or, to Seller’s Knowledge, threatened against Seller or any other Person, that (i) challenge the rights of Seller regarding ownership in or the scope of any Acquired Intellectual Property or is otherwise adverse to the use, registration, right to use, validity or enforceability of the Acquired Intellectual Property; or (ii) assert that the operation of the Business as conducted by Seller is or was infringing or otherwise in violation of any Intellectual Property of any other Person.  Except as set forth on Schedule 5.8(b) , to Seller’s Knowledge, no Person is infringing upon or otherwise in violation of the Acquired Intellectual Property.  Except as set forth on Schedule 5.8(b) , to Seller’s Knowledge, none of the Acquired Intellectual Property, nor the conduct of the Business as presently conducted or any of its current products or processes, violates, infringes upon or misappropriates the intellectual property rights of any other Person.  Except as set forth on Schedule 5.8(b) of the Disclosure Letter, Seller has not received any opinion of counsel (outside or inside) relating to infringement, invalidity or unenforceability of any Acquired Intellectual Property as it relates to the Business.

(c)           All works of authorship and all other materials subject to copyright protection that are included in the Acquired Intellectual Property, including the computer software, documentation, software design, technical and functional specifications, and all other materials subject to copyright protection that are included in the Acquired Intellectual Property are original and were either created by employees of Seller within the scope of their employment or are otherwise works made for hire, or all right, title and interest in and to such works of authorship have been legally and fully assigned and transferred to Seller and all such employees or other creators of such works have waived their moral rights thereto in favor of, as applicable, Seller.  All rights in all inventions and discoveries (i) made, written, developed or conceived by any employee or independent contractor of Seller, during the course of such employee’s employment (or other retention) by Seller and relating to or included in the Acquired Intellectual Property, (ii) made, written, developed or conceived with the use or assistance of any of any Seller’s facilities or resources, or (iii) that are the subject of one or more certificates of patent or patent applications and that relate to or are included in the Acquired Intellectual Property, have been assigned in writing to Seller.  All employees and independent contractors of Seller and its Affiliates have signed documents confirming that each of them (i) will protect the secrecy and confidentiality of all confidential know how and/or trade secrets, and (ii) will assign to (or with

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respect to moral rights, will waive in favor of) Seller all Intellectual Property rights related to the Business and made, written, developed or conceived by them (A) during the course of their employment (or other retention) by Seller or its Affiliates and/or (B) with the use or assistance of Seller’s facilities or resources, to the extent that ownership of any such Acquired Intellectual Property rights does not vest in Seller by operation of law, and, to Seller’s Knowledge, no such employee is in violation or breach of any term of any such written agreement that would impair the Acquired Intellectual Property.  For the purposes of this Section 5.8(c) , Affiliate shall be deemed to exclude any director or stockholder of Seller, unless such director or stockholder owns or controls, directly or indirectly, more than 50% of the outstanding voting securities of  Seller.

(d)           (i) Seller has timely made all filings with and payments to Governmental Authorities that are required in order to maintain in subsistence or protect its ownership rights in each item of Registered Acquired Intellectual Property; (ii) all registrations with and applications to any Governmental Authority in respect of the Registered Acquired Intellectual Property are in full force and effect and, to Seller’s Knowledge, all Registered Acquired Intellectual Property is valid, subsisting and enforceable; (iii) except as set forth on Schedule 5.8(d) of the Disclosure Letter, no due dates for filings or payments concerning any Registered Acquired Intellectual Property (including, without limitation, office action responses, affidavits of use, affidavits of continuing use, renewals, requests for extension of time, maintenance fees, application fees and foreign convention priority filings) fall due within four months after the Closing; (iv) no Registered Acquired Intellectual Property has been abandoned, canceled or adjudicated invalid, or is subject to any outstanding order, judgment or decree restricting the ability of Seller to use or enforce such Registered Acquired Intellectual Property, or is the subject of any suit, action, reissue, reexamination, public protest, interference, arbitration, mediation, opposition, cancellation or other proceeding; and (v) to Seller’s Knowledge, Seller is in compliance with all government regulations regarding the manufacture, advertising, sale, import, and export of any Acquired Intellectual Property and any product of Seller that incorporates or is made using any Acquired Intellectual Property.

(e)           Seller has taken all reasonable precautions to protect and preserve the secrecy, confidentiality and value of all material confidential Acquired Intellectual Property, including all material know how and/or trade secrets included in the Acquired Intellectual Property (other than Acquired Intellectual Property that is the subject of a published patent or published patent application).

(f)            Upon the Closing, Buyer shall have the rights that Seller had immediately prior to Closing to:  (i) sue for (and otherwise assert claims for) and recover damages and obtain any and all other remedies available at law or in equity for any past, present or future infringement, misappropriation or other violation of any of the Acquired Intellectual Property (and to settle all such suits, actions and proceedings); (ii) seek protection therefor (including the right to seek and obtain copyright, trademark and service mark registrations and certificates of patent in the United States and all other countries and governmental divisions); and (iii) to claim all rights and priority thereunder.

(g)           (i) There are no restrictions on the direct or indirect transfer of any license or other contract or agreement pursuant to which Seller has been granted any right to use any

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Intellectual Property of a third party that is material to the Business (“ Intellectual Property Contract ”); (ii) there exists no event, condition or occurrence which, with or without the giving of notice or lapse of time, or both, would constitute a material breach or default by Seller under any Intellectual Property Contract, and Seller has not received notice of any such event, condition or occurrence; (iii) no party has given Seller notice of any breach of any Intellectual Property Contract or of its intention to cancel, terminate or fail to renew any Intellectual Property Contract; (iv) to Seller’s Knowledge, each Person who is a party to any Intellectual Property Contract had and has all rights, power and authority necessary to enter into, be bound by and fully perform such license, contract or agreement; (v) Seller has timely made all royalty payments and other payments required to be made under each Intellectual Property Contract and no such payments will be due and owing as of the Closing Date except in the Ordinary Course as set forth in any of the Intellectual Property Contracts; and (vi) no suit is pending against Seller or, to Seller’s Knowledge, against any other Person, nor, to Seller’s Knowledge, has any claim been threatened or asserted (in writing or otherwise) against Seller or any other Person concerning any Intellectual Property owned by any third party, which Intellectual Property is a subject of an Intellectual Property Contract or is otherwise material to the Business, to the extent such suit or claim could reasonably be expected to adversely affect the rights of Seller in such Intellectual Property, including any suit concerning a claim or position that such Intellectual Property has been violated or is invalid, unenforceable, unpatentable, unregisterable, cancelable, not owned or not owned exclusively by the party that has purported to have granted rights to Seller in connection with such Acquired Intellectual Property.

5.9          Litigation .  There is no Action with respect to the Business pending, or to Seller’s Knowledge, threatened against Seller or any Affiliate of Seller that would restrict the consummation of the transactions under this Agreement or the Ancillary Agreements.  Neither the Acquired Assets nor the Business is subject to any Action or Order.

5.10        Compliance with Laws .  Except (a) as set forth on Schedule 5.10 of the Disclosure Letter, and (b) as would not reasonably be expected to materially or adversely affect the Business or the Acquired Assets, Seller (i) is in compliance with and, since January 1, 2003, has been in compliance with all Laws, Permits and Orders applicable to the Business in all material respects, and (ii) since January 1, 2003, has not received any written notification from any Governmental Authority asserting that Seller is not in compliance with any Law, Permit or Order applicable to the Business or the Acquired Assets.  Schedule 5.10 of the Disclosure Letter contains a complete and accurate list of all Permits held or required to be held by Seller in connection with the Business, and all such Permits are in full force and effect.

5.11        No Gifts or Similar Benefits .  Neither Seller nor any of its directors, officers, or to Seller’s Knowledge, its agents, employees or Persons acting on their behalf has, in connection with the Business, directly or indirectly, given or agreed to give anything of value or provide any benefit to any foreign or domestic governmental official, foreign or domestic political party or official thereof, supplier, customer or other Person who was, is or may be in a position to help or hinder the Business or assist in connection with any actual or proposed transaction under circumstances that involve a violation of any applicable Law, including, without limitation, the Foreign Corrupt Practices Act.

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5.12        Condition and Sufficiency .  The Acquired Assets are in good condition and repair (subject to normal wear and tear consistent with the age of the assets and properties) and constitute all of Seller’s assets and other rights necessary to conduct the Business as currently conducted by Seller and as conducted by Seller during the periods represented by the Financial Statements.

5.13        Purchasers of Prototypes .  Schedule 5.13 of the Disclosure Letter sets forth a complete and accurate list of all Persons who have purchased prototypes from Seller related to the Business (the “ Prototype Purchasers ”).  Except as set forth on Schedule 5.13 of the Disclosure Letter, Seller is not involved in any claim, dispute or controversy with any Prototype Purchaser.  Except as set forth on Schedule 5.13 of the Disclosure Letter, the Business has not sold any products.

5.14        Product Warranty .  Each product of the Business sold or delivered to a third party by Seller has been sold or delivered, as applicable, in conformity with all applicable material contractual commitments (including any applicable warranties), and except as set forth on Schedule 5.14 of the Disclosure Letter, Seller has no material Liability in connection with the Business for replacement or repair thereof or other damages in connection therewith.  Except as set forth on Schedule 5.14 of the Disclosure Letter, no product of the Business sold or delivered to a third party by Seller is subject to any guaranty, warranty or other indemnity beyond the applicable Seller’s standard terms and conditions of sale, copies of which are set forth on Schedule 5.14 of the Disclosure Letter.

5.15        Labor Matters .  Seller is not party to or bound by any union contract or collective bargaining agreement, and Seller has not agreed to recognize any union or other collective unit.  No union or collective bargaining unit has been certified as representing Seller’s employees and no organizational attempt has been made or threatened by or on behalf of any labor union or collective bargaining unit with respect to Seller’s employees.  Seller has not experienced any labor strike, dispute, slowdown or stoppage or any other material labor difficulty during the past five years.  Seller has complied in all material respects with all applicable Laws relating to the employment of labor.

5.16        Employees .  Schedule 5.16 of the Disclosure Letter sets forth a complete and accurate list of all employees or independent contractors engaged primarily in the Business on behalf of Seller and, for each such Person, his or her position, current base salary and most recent annual bonus, and the date on which he or she became employed or engaged as a consultant (or has been deemed by Seller to have become employed or engaged) by Seller.  Schedule 5.16 of the Disclosure Letter also lists any employee of Seller who is not at work as of the Closing Date due to leave of absence, disability or workers’ compensation leave or military leave and specifies for each such employee the category of leave and the date on which such leave commenced.  Seller does not employ any Person who cannot be dismissed immediately and without notice to the employee or Liability to such Person (other than for benefits required by applicable Law, salary or wages for time worked, and benefits disclosed on Schedule 5.17(a) of the Disclosure Letter).

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5.17        Employee Benefit Plans .

(a)           Schedule 5.17(a) of the Disclosure Letter sets forth a complete and accurate list of the benefits Seller provides to or for the Persons listed on Schedule 5.16 of the Disclosure Letter.  Each “employee benefit plan,” as defined in Section 3(3) of ERISA, maintained, contributed to or required to be contributed to by Seller or any of its ERISA Affiliates for the benefit of current, former or retired employees (the “ Seller ERISA Plans ”) and each other plan, contract, program or arrangement maintained, contributed to or required to be contributed to by Seller or any of its ERISA Affiliates for the benefit of current, former or retired employees (the “ Seller Benefit Arrangements ”) complies in all material respects with its terms and all applicable Laws, including ERISA and the Code, and no “reportable event” or “prohibited transaction” (as such terms are defined in ERISA) or termination has occurred with respect to any Seller ERISA Plan under circumstances that present a risk of any material Liability to Seller.  Copies or descriptions of each Seller ERISA Plan and Seller Benefit Arrangement in which current employees of the Business participate have been provided to Buyer prior to the date hereof.  Except as set forth on Schedule 5.17(a) of the Disclosure Letter, neither Seller nor any of its ERISA Affiliates has any obligation to provide medical or life insurance coverage to any Transferred Employee under the Seller ERISA Plans, the Seller Benefit Arrangements or any other plan or Contract, except as required by applicable laws.

(b)           No Seller ERISA Plan or any other plan sponsored or contributed to by Seller or any of its ERISA Affiliates has incurred any “accumulated funding deficiency” as such term is defined in Section 302 of ERISA and Section 412 of the Code (whether or not waived).

(c)           Neither Seller nor any of its ERISA Affiliates has contributed to or completely or partially withdrawn from a “multiemployer plan” (as such term is defined in Section (3)(37) of ERISA) within the last six years.

(d)           Neither Seller nor any of its Affiliates has at any time provided or maintained any plan, program or arrangement providing post-retirement medical or other post-retirement benefits for or on behalf of the employees of the Business (other than as required by applicable Laws) and there has been no communication to employees that could reasonably be interpreted to promise or guarantee such post retirement benefits.

(e)           Neither Seller nor any of its ERISA Affiliates has ever maintained or contributed to a defined benefit pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA.

(f)            No Person listed on Schedule 5.16 of the Disclosure Letter will become entitled to any retirement, severance or any other increased or accelerated compensation or benefit solely as a result of the transactions contemplated hereby.

5.18        Environmental Matters .  Except as set forth on Schedule 5.18 of the Disclosure Letter:

(a)           The Business has been conducted in compliance with all applicable Environmental Laws so as to prevent any Hazardous Materials from being released into the soil and groundwater of the Mountain View Facilities and, so as to prevent any Hazardous Materials

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from being released into the soil and groundwater, the Business possesses and has been in compliance with  all permits and other governmental authorizations required under applicable Environmental Laws, except where non-compliance or the absence of a permit could not reasonably be expected to have a material adverse effect on the Business after the Closing.

(b)           There is no pending, or to Seller’s Knowledge threatened, investigation, claim or administrative proceeding against Seller under any Environmental Law with respect to the Business, and Seller has not received any notice alleging that the conduct of the Business is in violation of applicable Environmental Law.

(c)           There have been no unpermitted Releases of Hazardous Materials to the soil or groundwater of the Mountain View Facilities (i) by Seller or its Related Persons, or (ii) to Seller’s Knowledge, any other Person, or (iii) otherwise in the course of the conduct of the Business, which are reasonably likely to give rise to an obligation by Buyer to take any response, investigation, removal, or other action with respect to the soil or groundwater of the Mountain View Facilities under any Environmental Law or the Mountain View Lease.

(d)           There is no asbestos, silica, refractory ceramic fibers or other substance that is in a condition or concentration harmful to human health present in the facility subject to the Mountain View Lease or used in the Business, other than Hazardous Material used in the conduct of the Business in the Ordinary Course and stored, used, and disposed of in all material respects in accordance with applicable Environmental Law.

Notwithstanding the foregoing, Seller makes no representation or warranty whatsoever pursuant to this Section 5.18 , regarding (i) any matter that is within the Buyer Environmental and Facility Liabilities, or (ii)  except to the extent of the Seller Environmental Liabilities , any Hazardous Material which has or hereafter migrates onto the Mountain View Facilities from any other property.

5.19        Taxes .  To the extent failure to do so would adversely impact the Acquired Assets or Buyer’s ownership of the Acquired Assets or the operation of the Business, Seller has filed all Tax Returns required to be filed by it with respect to the Business, and has paid (or made adequate provision in its financial statements for the payment of) all Taxes shown on such returns to be owed by it, and no Claims for additional Taxes with respect to the Acquired Assets or the Business for any prior fiscal years are pending.  Seller is not a party to any pending Action, nor to Seller’s Knowledge is any Action threatened, by any Governmental Authority for the assessment or collection of Taxes with respect to the Business.  Seller is not a foreign Person pursuant to Section 1445(b)(2) of the Code.  None of the Assumed Liabilities is an obligation to make a payment or is an agreement that under certain circumstances could require a payment that would not be deductible under Section 280G of the Code.  Seller has duly and timely withheld from salaries, wages and other compensation paid to employees engaged primarily in the Business and paid over to the appropriate tax authorities all amounts required to be so withheld and paid over for the pertinent periods under all applicable Laws and has collected all material sales and use Taxes required to be collected in respect of the Business, and has remitted such amounts to the appropriate Governmental Authorities, or has been furnished properly completed exemption certificates and has maintained all such records and supporting documents in the manner required by all applicable sales and use Tax Laws.

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5.20        No Brokers .  Except for the fees and expenses payable to W.Y. Campbell & Company, which are Retained Liabilities, no broker, finder or similar agent has been employed by or on behalf of Seller in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements, and Seller has no Liability to pay any bro