ASSET PURCHASE AGREEMENT

Exhibit 10.50

EXECUTION VERSION

ASSET PURCHASE AGREEMENT

KAWASAKI HEAVY INDUSTRIES, LTD.

AND

CATALYTICA ENERGY SYSTEMS, INC.

June 30, 2006

TABLE OF CONTENTS

		Page
Article 1 DEFINITIONS			1
Section 1.1 Defined Terms			1
Article 2 PURCHASE, SALE AND DELIVERY			5
Section 2.1 Acquisition Assets			5
Section 2.2 Excluded Assets			6
Section 2.3 Purchase Price			6
Section 2.4 Allocation Reporting			6
Section 2.5 Closing			6
Section 2.6 Closing Deliveries			6
Article 3 LIABILITIES AND OBLIGATIONS			8
Section 3.1 Limited Liabilities Assumed by the Purchaser			8
Article 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER			9
Section 4.1 Organization and Qualification			9
Section 4.2 Authority; Consents; Binding Agreement			9
Section 4.3 Litigation			10
Section 4.4 Brokers and Finders			10
Article 5 REPRESENTATIONS AND WARRANTIES OF THE SELLER			10
Section 5.1 Organization and Qualification			10
Section 5.2 Authority; Non-Contravention; Consents and Approvals			10
Section 5.3 Litigation			11
Section 5.4 No Violation of Law; Compliance with Agreements			11
Section 5.5 Title to Assets			12
Section 5.6 Brokers and Finders			12
Section 5.7 Intellectual Property			12
Section 5.8 Assumed Agreements			12
Section 5.9 Condition of Assets			13
Article 6 CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES			13
Section 6.1 Pre-Closing Covenants			13

TABLE OF CONTENTS
(cont’d.)

		Page
Section 6.2 Woodward Agreement			14
Section 6.3 CEC Agreements			14
Section 6.4 Further Assurances			14
Section 6.5 Expenses and Fees			15
Section 6.6 Public Statements			15
Section 6.7 Tax Covenants			15
Section 6.8 Mutual Releases			16
Section 6.9 Non-competition			16
Section 6.10 Conduct of Business by Seller after Closing			17
Section 6.11 Specific Performance			18
Section 6.12 Intellectual Property			18
Section 6.13 Confidentiality			18
Article 7 CONDITIONS TO CLOSING; TERMINATION			19
Section 7.1 Conditions to Obligation of the Purchaser			19
Section 7.2 Conditions to Obligations of the Seller			20
Section 7.3 Other Agreements			20
Section 7.4 Termination			21
Section 7.5 Effect of Termination			21
Article 8 INDEMNIFICATION			21
Section 8.1 The Seller’s Indemnity Obligations			21
Section 8.2 Purchaser’s Indemnity Obligations			22
Section 8.3 Indemnification Procedures			23
Section 8.4 Limitations on Defense to the Claims of the Purchaser			24
Section 8.5 Limitation of Liability			24
Section 8.6 Remedies Exclusive			25
Article 9 GENERAL PROVISIONS			25
Section 9.1 Survival			25
Section 9.2 Notices			26
Section 9.3 Interpretation			26
Section 9.4 Miscellaneous			27

TABLE OF CONTENTS
(cont’d.)

		Page
Section 9.5 Governing Law			27
Section 9.6 Process and Venue			27
Section 9.7 Disclosure Schedules			27
Section 9.8 Independent Obligations			27
Section 9.9 Attorney’s Fees			27
Section 9.10 Amendment			28
Section 9.11 Counterparts			28
Section 9.12 Parties in Interest			28
Section 9.13 Validity			28

ASSET PURCHASE AGREEMENT

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

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

W I T N E S S E T H:

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

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

ARTICLE 1

DEFINITIONS

      Section 1.1 Defined Terms . As used in this Agreement, certain capitalized words and terms have the meanings ascribed to them as set forth below. Other capitalized terms have the meanings ascribed to them elsewhere in this Agreement.

“Acquisition Assets” is defined in Section 2.1 .

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

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

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

“Assumed Liabilities” is defined in Section 3.1 .

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

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

“CEC” means the California Energy Commission.

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

“Claim Notice” is defined in Section 8.3 .

“Closing” is defined in Section 2.5 .

“Closing Date” is defined in Section 2.5 .

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

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

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

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

“Election Period” is defined in Section 8.3 .

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

“Excluded Assets” is defined in Section 2.2 .

“Excluded Liabilities” is defined in Section 3.1 .

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

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

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

“Indemnified Amounts” is defined in Section 8.1 .

“Indemnified Party” is defined in Section 8.3 .

“Indemnifying Party” is defined in Section 8.3 .

“Indemnity Claim” is defined in Section 8.3 .

“Intellectual Property” is defined in Section 5.7 .

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

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

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

“NOx” means nitrogen oxides.

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

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

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

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

“Purchase Price” is defined in Section 2.3 .

“Purchaser Indemnified Party” is defined in Section 8.1 .

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

“Seller Indemnified Party” is defined in Section 8.2 .

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

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

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

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

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

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

“TDTA” is defined in Section 6.8 .

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

“TKK” means Tanaka Kikinzoku Kogyo K.K.

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

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

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

ARTICLE 2

PURCHASE, SALE AND DELIVERY

      Section 2.1 Acquisition Assets . Subject to the terms and conditions of this Agreement and the License Agreement, and on the basis of the representations and warranties hereinafter set forth, at the Closing (as hereinafter defined), the Seller hereby sells, transfers, conveys, assigns and delivers to the Purchaser, and the Purchaser hereby acquires and purchases from the Seller, the following assets, properties and rights of the Seller:

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

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

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

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

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

           Section 2.2 Excluded Assets . Notwithstanding the foregoing, the Seller is not selling and the Purchaser is not purchasing pursuant to this Agreement any assets of Seller other than the Acquisition Assets, all of which shall be retained by the Seller (collectively, the “ Excluded Assets ”).

           Section 2.3 Purchase Price . (a) Subject to the terms and conditions of this Agreement, and as full consideration for the purchase of the Acquisition Assets and the representations, warranties, covenants and agreements contemplated herein, the Purchaser shall pay to the Seller the aggregate purchase price (the “ Purchase Price ”) of TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000.00), which Purchase Price shall be paid by the Purchaser to the Seller as follows: (i) TWO MILLION DOLLARS ($2,000,000.00) at the Closing in immediately available funds; and (ii) ONE HUNDRED THOUSAND DOLLARS ($100,000.00) within five (5) days following the completion of the training described in Section 4 of the License Agreement.

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

           Section 2.5 Closing . Subject to the terms and conditions of this Agreement, the purchase and sale provided for herein (the “ Closing ”) shall take place at the offices of Morrison & Foerster LLP, 755 Mill Road, Palo Alto, California 94304, on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the Parties will take at the Closing itself) or at such other place and time as may be agreed by the Parties in writing (the “ Closing Date ”).

           Section 2.6 Closing Deliveries .

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

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

               (ii) an executed counterpart of a bill of sale, assignment and assumption agreement in the form attached hereto as Exhibit A (the “ Bill of Sale ”), with respect to the CEC Agreements and the Woodward Agreement, together with such other assignments and conveyances as the Purchaser may reasonably require to assure the full and effective sale,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

               (iii) an executed counterpart of the License Agreement;

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

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

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

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

ARTICLE 3

LIABILITIES AND OBLIGATIONS

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

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

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

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

          (d) any Liability attributable to, assessed or arising out of operations during any period through and including the Closing Date for (i) any and all Taxes of the Seller, (ii) any and all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Seller (or any predecessor of the foregoing) is or was a member, including pursuant to

Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), (iii) any and all Taxes of any Person as a transferee or successor, by contract or otherwise, which relate to an event or transaction occurring before the Closing; and (iv) any and all ad valorem Taxes and special assessments on the Acquisition Assets;

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

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

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

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

ARTICLE 4

REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to the Seller as follows:

      Section 4.1 Organization and Qualification . The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its country of incorporation and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. The Purchaser is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which the properties owned, leased, or operated by it or the nature of the business conducted by it makes such qualification necessary.

      Section 4.2 Authority; Consents; Binding Agreement . The Purchaser has full power and authority to execute and deliver this Agreement and the other documents delivered by the Purchaser at Closing and to consummate the transactions contemplated hereby. This Agreement has been duly authorized by the Purchaser, and no additional approvals on the part of the board of directors of the Purchaser are necessary to authorize the execution and delivery of this Agreement or the consummation by the Purchaser of the transactions contemplated hereby. Except as otherwise specifically provided for in this Agreement, no approvals, consents or waivers on the part of any Governmental Authorities or other Persons are necessary for the Purchaser to execute and deliver this Agreement and consummate the transactions contemplated hereby. Each of this Agreement and the other documents delivered by the Purchaser at Closing

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

      Section 4.3 Litigation . There is no action to which the Purchaser is a party in which relief is sought which would prevent, delay or make illegal the transactions contemplated by this Agreement, and there is no litigation, action, suit, proceeding or governmental investigation pending or threatened against the Purchaser (orally or in writing), involving, affecting or relating to the transactions contemplated by this Agreement.

      Section 4.4 Brokers and Finders . The Purchaser has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of such Purchaser to pay any finder’ s fees, brokerage or agent commissions or other like payments in connection with the transactions contemplated hereby. There is no claim for payment by the Purchaser of any investment banking fees, finder’s fees, brokerage or agent commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES
OF THE SELLER

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

      Section 5.1 Organization and Qualification . The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to own, lease and operate its Acquisition Assets and to carry on its business relating thereto as it is now being conducted. The Seller is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction in which the properties owned, leased, or operated by it or the nature of the business conducted by it makes such qualification necessary.

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

          (a) The Seller has full power and authority to execute and deliver this Agreement and the other documents delivered by the Seller at Closing and to consummate the transactions contemplated hereby. This Agreement has been duly authorized by the Seller, and no additional approvals on the part of the board of directors of the Seller are necessary to authorize the execution and delivery of this Agreement or the consummation by the Seller of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller, and, assuming the due authorization, execution and delivery hereof by the Purchaser, constitutes a valid and legally binding agreement of the Seller, enforceable against the Seller in

accordance with its terms, except as such enforcement may be subject to bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors’ rights generally.

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

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

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

      Section 5.4 No Violation of Law; Compliance with Agreements .

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

          (b) The Seller is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default under, (a) the Organizational Documents of the Seller or (b) any contract, commitment, agreement, indenture, mortgage, loan agreement,

note, lease, bond, license, approval or other instrument to which the Seller is a party or by which it is bound relating to any of the Acquisition Assets.

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

      Section 5.6 Brokers and Finders . Except for Seller’s agreement with W.Y. Campbell & Company, the Seller has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of the Seller to pay any finder’s fees, brokerage or agent commissions or other like payments in connection with the transactions contemplated hereby. Except pursuant to the agreement referenced in the preceding sentence, there is no claim for payment by the Seller of any investment banking fees, finder’s fees, brokerage or agent commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

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

      Section 5.8 Assumed Agreements. Attached hereto as Schedule 5.8 are true, complete and correct copies of the Woodward Agreement and the CEC Agreements, in each case as amended, together with a detailed payment history therefor. Each of the Woodward Agreement and the CEC Agreements is in full force and effect and each constitutes a legal, valid and binding agreement of Seller and of each other party thereto, enforceable in accordance with its terms, and no term or condition thereof has been amended from the form attached hereto. There are no defaults by Seller under any of its obligations under the Woodward Agreement or any CEC Agreement and no events have occurred that with the lapse of time or action or inaction by any party thereto would result in any violations thereof or any defaults thereunder. There is no action to which Seller is a party in which relief is sought involving, affecting or relating in

any manner to the Woodward Agreement or any CEC Agreement and, to the knowledge of Seller, there is no litigation, action, suit, proceeding or governmental investigation pending or threatened against Seller (orally or in writing) involving, affecting or relating to the Woodward Agreement or any CEC Agreement. Except as indicated in Schedule 5.8 , none of Seller’s rights under the Woodward Agreement or any CEC Agreement will be impaired by the consummation of the transactions contemplated by this Agreement, and all such rights will inure to and be enforceable by Purchaser after the Closing Date without any authorization, approval, permission or license of, or filing with, any other Person.

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

ARTICLE 6

CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES

      Section 6.1 Pre-Closing Covenants.

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

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

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

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

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

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

          (c) No Shop . Seller shall not, directly or indirectly, (i) solicit, initiate or encourage the submission of inquiries, proposals or offers from any Person relating to any acquisition or purchase of the Acquisition Assets (an “ Acquisition Proposal” ), (ii) participate in

any discussions or negotiations regarding an Acquisition Proposal or furnish any Person any information concerning the Acquisition Assets in connection with an Acquisition Proposal, (iii) enter into or consummate any agreement or letter of intent regarding any Acquisition Proposal or (iv) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any Person to do or seek any of the foregoing, in each case except in connection with the transactions contemplated by this Agreement. Seller shall immediately provide the Purchaser with written notice of any Acquisition Proposal, which notice shall include the terms of any such Acquisition Proposal. Notwithstanding anything in this Section 6.1(c) , the Purchaser acknowledges and agrees that Seller may, without the consent of the Purchaser and without violating this Section 6.1(c) , offer for sale or sell (i) all or any portion of the common stock of Seller or (ii) all or any portion of the assets of Seller other than the Acquisition Assets, provided that any such sale of equity or assets shall be subject to the terms and conditions of this Agreement and the License Agreement for as long as such agreements shall be outstanding.

      Section 6.2 Woodward Agreement . The Seller hereby assigns to the Purchaser the Woodward Agreement and the Purchaser hereby accepts such assignment and agrees to fully and timely pay, perform, discharge and satisfy all obligations of Seller thereunder following the Closing Date.

      Section 6.3 CEC Agreements. The Seller hereby assigns to the Purchaser the CEC Agreements, and the Purchaser hereby accepts such assignment and agrees to fully and timely pay, perform, discharge and satisfy all obligations of Seller thereunder following the Closing Date.

      Section 6.4 Further Assurances . The Seller and the Purchaser shall execute and deliver to the other, after the Closing Date, any other instrument which may be reasonably requested by the other and which is reasonably appropriate to perfect or evidence any of the sales, assignments, transfers or conveyances contemplated by this Agreement or to obtain any consents reasonably necessary for the Purchaser to manufacture the Xonon Modules, as such manufacturing was conducted by Seller in the U.S. in the ordinary course of business prior to the Closing Date. Seller agrees to execute any documents reasonably requested by Purchaser that might be helpful or necessary to perfect or evidence the Purchaser’s ownership of the Assigned Patents and its associated Technical Information. If the Purchaser notifies Seller in writing that the intellectual property laws of a country require the consent of a joint owner of an Assigned Patent to perfect the Purchaser’s ownership interest in such Assigned Patent, Seller shall be responsible for acquiring the consent of such joint owner within a reasonable time thereafter; provided, however , that nothing in this paragraph shall require Seller to seek the authorization of any non-U.S. governmental entity unless requested in writing by the Purchaser at the Purchaser’s sole cost and expense. If for any reason, Seller does not or is unable to execute such further documents within ten (10) days of the Purchaser’s written request, the Seller hereby irrevocably appoints the Purchaser as its attorney-in-fact (which appointment is coupled with an interest) to execute and deliver any assignments, applications or other instruments to protect and vest title in the Assigned Patents and its associated Technical Information fully in the Purchaser. Without the consent of the Seller, which consent will not unreasonably be withheld, the obligations under this Section 6.4 will expire two years from the Closing.

      Section 6.5 Expenses and Fees . The Seller shall pay all costs and expenses incurred by the Seller in connection with this Agreement and the transactions contemplated hereby, including, without limitation, any and all broker’s commissions, employee bonuses and the fees and expenses of the Seller’s attorneys and accountants, and will make all necessary arrangements so that the Purchaser will not be charged with any such cost or expense. The Purchaser shall pay all costs and expenses incurred by the Purchaser in connection with this Agreement and the transactions contemplated hereby, including without limitation, any and all broker’s commissions, employee bonuses and the fees and expenses of their attorneys and accountants.

      Section 6.6 Public Statements . Except as required by law or regulation in accordance with the advice of their respective counsel and except as permitted in Section 6.13 , the Parties shall obtain the written consent of the other prior to issuing any press release or any written public statement with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or written public statement prior to such consent, which will not be unreasonably withheld.

      Section 6.7 Tax Covenants .

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

          (b) Cooperation . Following the Closing, the Parties shall use all reasonable efforts to cooperate with each other and their respective representatives, in a prompt and timely manner, in conjunction with any audit or other examination by any Tax authority or any Proceeding involving any Tax Return (collectively, the “ Tax Disputes ”) relating to the Acquisition Assets and relating to any Taxes (i) filed or required to be filed by or for the Seller for any taxable period beginning before the Closing Date, or (ii) filed or required to be filed by or for the Purchaser for any taxable period ending after the Closing Date. Notwithstanding anything to the contrary herein, the Seller shall retain control of any Tax Dispute to the extent such Tax Dispute arises out of or is related to events or circumstances prior to the Closing, and the Purchaser shall retain control of any Tax Dispute to the extent such Tax Dispute arises out of or is related to events or circumstances after the Closing. Such cooperation shall include, but not be limited to making available to one another during normal business hours, and within five (5) business days of any reasonable request therefore, all books, records and information, and the assistance of all officers and employees, reasonably required in connection with any Proceeding with regard to Taxes or any Tax Dispute. The Parties hereto agree to conduct any investigation or examination hereunder without causing any material interference or disruption of the operations of the business of any other Party hereto or their Affiliates. The Seller will retain, until the expiration of the applicable statutes of limitation (including any extensions thereof) copies of all Tax Returns, supporting work schedules and other records relating to Taxes for all taxable years or periods (or portions thereof) ending on or prior to the Closing Date.

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

together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties, resulting directly from the transactions contemplated by this Agreement (the “ Transfer Taxes ”), shall be paid by the Seller when due, and the Seller will, at its own expense, file all necessary Tax Returns, and other documentation with respect to all such Taxes, fees and charges, and, if required by applicable law, the Purchaser will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.

      Section 6.8 Mutual Releases . Subject only to the obligations of the Parties under this Agreement, the License Agreement and the Confidentiality Agreement referenced in Section 6.13 , effective as of the Closing Date, the Seller, on the one hand, and the Purchaser and KGT-A, on the other, hereby release and forever discharge each other and the other’s respective heirs, representatives, successors and assigns, officers, directors, employees, agents, stockholders, controlling persons and Affiliates for, from and against any and all claims, present and future, known and unknown, including without limitation under each of the following agreements, in each case as amended: (i) that certain Xonon Module Supply Agreement by and among the Parties and KGT-A dated December 13, 2000, as amended as of July 2, 2003; (ii) that certain Technology Development and Transfer Agreement by and between the Parties dated as of December 13, 2000 (“ TDTA ”); and (iii) that certain Amended and Restated Support Agreement by and between Seller and KGT-A dated as of October 6, 2003. Without limiting the generality of the foregoing, Seller is under no further obligation to deliver any products to Purchaser or KGT-A, except for the delivery of the inventory described in Section 2.1(a) above, and all warranties of the Seller to the Purchaser and KGT-A for the Xonon Modules shall be null and void.

      Section 6.9 Non-competition .

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

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

assets, whether by purchase or by sale in connection with any reorganization or liquidation of Seller, which Person was not an Affiliate of Seller prior to such acquisition.

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

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

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