Technology Development And Transfer Agreement

Exhibit 10.26


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


Technology Development and Transfer Agreement


between


Kawasaki Heavy Industries, Ltd.


and


Catalytica Energy Systems, Incorporated


This Agreement is made as of this 13/th/ day of December, 2000, by and between Kawasaki Heavy Industries, Ltd. (hereinafter referred to as "KHI"), a Japanese corporation and having its principal place of business at 1-1 Higashi-Kawasaki- cho 3-chome, Chuo-ku, Kobe, Japan; and Catalytica Energy Systems, Incorporated (hereinafter referred to as "CESI"), a Delaware corporation and having its principal place of business at 430 Ferguson Drive, Mountain View, California, U.S.A., either or both of which shall also be hereinafter referred to as a "Party", and together as the "Parties", respectively.


WHEREAS, CESI has developed expertise and technology of the catalytic combustion system (hereinafter defined as "XONON Combustion System"), which incorporates catalytic module(s) which are utilized to oxidize hydrocarbon fuels in the XONON Combustion System for gas turbines, and CESI has reduced to practice and commercially demonstrated expertise and technology relating to such system and module(s) as applied to a Kawasaki model M1A-13A gas turbine at Silicon Valley Power;


WHEREAS, KHI desires to obtain from CESI the right to use such expertise and technology to modify and adapt the XONON Combustion System for installation on Kawasaki gas turbines of output up to [*] nameplate rating developed and/or to be developed by KHI, including but not limited to Kawasaki model M1A-13A gas turbine, (hereinafter defined as "Kawasaki Gas Turbines"), and to obtain from CESI the right to manufacture and sell Adapted Kawasaki Gas Turbines (as defined below) based upon the expertise and technology which are reduced to practice and demonstrated by CESI as applied to the Kawasaki model M1A-13A gas turbine at Silicon Valley Power;


WHEREAS, the Parties wish to collaborate in the modification and adaptation of the XONON Combustion System to the Kawasaki Gas Turbines and to the development and commercialization of Kawasaki Gas Turbines in accordance with terms and conditions as set forth herein;


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NOW, THEREFORE, in consideration of these premises and of the mutual
covenants herein contained, the parties agree as follows:


1.0 DEFINITIONS
-----------


All capitalized words or phrases used throughout this Agreement shall have
the meanings as defined in this section.


1.1 "Adaptation Program" means the collaborative program, using the
Applied CESI Technology (as hereinafter defined), of application
engineering to modify, adapt and metricate the XONON Combustion
System, including the XONON Modules (as hereinafter defined) to
Kawasaki Gas Turbines.


1.2 "Adaptation Program Technology" means the Technology (as
hereinafter defined) conceived during the Adaptation Program.


1.3 "Adapted Kawasaki Gas Turbines" means Kawasaki Gas Turbines not
larger than [*] adapted and modified under the Adaptation
Program.


1.4 "Adapted M1A-13A" means Kawasaki model M1A-13A gas turbine adapted
under the Adaptation Program.


1.5 "Affiliates" mean, 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.


1.6 "Applied CESI Technology" means the CESI Technology as hereinafter
defined that CESI has reduced to practice and commercially
demonstrated as applied to a Kawasaki model M1A-13A gas turbine at
Silicon Valley Power.


1.7 "Background" means, with respect to the Patents (as hereinafter
defined) and the Technical Information (as hereinafter defined)
that a Party or its Affiliates has acquired or acquires prior to
the Effective Date (as hereinafter defined) or otherwise not (i)
in connection with its work under this Agreement, or (ii) from the
other Party.


1.8 "Catalytic Combustion System" means a gas turbine combustion
system that employs a catalyst upstream of the turbine inlet which
is associated with the combustion process, and shall not include
SCR, SNCR, SCONOxTM or other catalytic devices employed in
pollution clean- up.


1.9 "CESI Technology" means the Technology relating to the XONON
Combustion System and the Xonon Module, including the Background
Technology, Applied


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CESI Technology, and the Adaptation Program Technology which is now
or hereafter may be owned by CESI and/or possessed by CESI (but
excluding the Adaptation Program Technology developed by KHI
hereunder and jointly developed by CESI and KHI hereunder) with
rights to grant others the developmental and/or commercialization
rights set forth herein.


1.10 "Effective Date" means the date of this Agreement as first set
forth above.


1.11 "Kawasaki Gas Turbines" means Kawasaki designed and manufactured
gas turbines of output up to [*] nameplate rating, both new and
retrofit (that is, installed) developed and/or to be developed by
KHI, including but not limited to Kawasaki model M1A-13A gas
turbine.


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


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


1.14 "Products" mean the XONON Module and the XONON Component.


1.15 "Technical Information" means all technical information, know-how,
trade secrets, experience, manufacturing techniques, software and
other copyrightable works, engineering and other data, drawings,
material and process specifications, whether patented or
unpatented, whether in written, printed, oral or other form,
relating to, in the case of KHI, industrial gas turbines having
ratings up to [*], and, in the case of CESI, the XONON Combustion
System and the XONON Module.


1.16 "Technology" means the Patents and the Technical Information.


1.17 "Third Party" means any Person other than CESI, KHI and their
respective Affiliates.


1.18 "XONON Component" means the fuel/air mixer package, the pre-burner,
and other elements such as combustor hardware components, which are
necessary combustion system modifications to enable optimum
operation of the XONON Module.


1.19 "XONON Module" means CESI catalyst structure as used in gas
turbines, including its container and supporting structure for
fixing the catalyst structure, containing and including the
catalytically active elements for oxidizing hydrocarbon fuels in
the container.


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1.20 "XONON Module Technology", abbreviated XMT, means all Technology
relating to the XONON Module.


1.21 "XONON Combustion System", abbreviated XCS, means a fuel
combustion apparatus or system to implement XMT for use in gas
turbines including those components, operating processes, and
methods of control, testing, and operation for pre-heating fuel,
mixing fuel and air, combusting or oxidizing fuel, controlling
power output, and control of NOx, Carbon Monoxide(CO) and unburned
hydrocarbon pollutants, comprising in the XONON Module and the
XONON Components.


1.22 "XONON Combustion System Technology" means all Technology relating
to the XONON Combustion System.


1.23 "XONON Control Algorithm(s)" mean the logic developed by or on
behalf of CESI as of the Effective Date to provide necessary
control of the start up, operation, management and protection of
the XONON Combustion System or XONON Module in a gas turbine.


2.0 PROGRAM OBJECTIVES
------------------


2.1 CESI and KHI each shall conduct, at their own expense, their
respective scope of work as set forth in Exhibit 1 attached hereto
as an integral part of this Agreement in a sound scientific
manner, and in compliance in all material respects with all
requirements of applicable laws and regulations and all applicable
good research and manufacturing practices to attempt to achieve
the Adaptation Program objective efficiently and expeditiously.
CESI and KHI each shall proceed diligently with the works
allocated respectively which are set out in Exhibit 1 (hereinafter
referred to as "Allocated Works") by using their respective good
faith efforts to provide, among others, the following resources:
(a) allocation of sufficient time, effort, equipment and
facilities to the Adaptation Program and as each reasonably
believes is necessary carry out its Allocated Works and to
accomplish the objectives thereof, and (b) use of personnel with
sufficient skills and experience as are required to carry out its
Allocated Works and to accomplish the objectives thereof. Works
requested by KHI and performed by CESI outside the Allocated Works
under this Agreement shall be chargeable to KHI and billed on an
agreed upon-costs basis, due in 30 days. Each Party is an
independent contractor.


2.2 KHI and CESI each may subcontract portions of the Adaptation
Program to be performed by it in the normal course of its business
without the prior consent of the other, provided, however, that
every subcontracted or delegated party shall enter into a
confidentiality agreement with the subcontracting party in
accordance with Article 7.0 below and each Party shall be fully
responsible for any activities of its subcontractors or delegated
party under this Agreement.


2.3 KHI and CESI each shall appoint a person (a "Program Manager") to
coordinate its part of the Adaptation Program. The Program
Managers shall be the primary contacts between the parties with
respect to the Adaptation Program. Each Party shall notify the
other within thirty (30) days after the date of this Agreement of
the appointment of its Program Manager and shall notify


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the other Party as soon as practicable upon changing this
appointment.


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


2.5 KHI and CESI each shall keep the other informed of the progress of
their tasks under Allocated Works during the Adaptation Program.
Within thirty (30) days following the end of each quarter during
the term of the Adaptation Program, KHI and CESI shall each
prepare, and provide to the other, a written summary report which
shall describe the application engineering activities performed by
such party during such quarter.


3.0 PAYMENT OF TECHNICAL FEE BY KHI TO CESI
---------------------------------------


KHI will pay CESI, as the consideration for the CESI Technology to be
provided by CESI to KHI under this Agreement, the amounts of [*] for each
of the 1/st/ through [*] Adapted Kawasaki Gas Turbines and of [*] for each
of the [*] through [*] Adapted Kawasaki Gas Turbines, sold by KHI and/or
its Affiliates for installation anywhere in the world, provided, however,
that such payments become due and payable [*] days after KHI's receipt of
the initial payment for each Adapted Kawasaki Gas Turbines respectively
sold. Should [*] Adapted Kawasaki Gas Turbines not be sold during the term
of the Agreement, the balance of payment by KHI shall be forgiven.
However, in case of earlier termination of the Agreement by KHI prior to
the term of the Agreement, due to the reason not attributable to CESI
under Article 10.2, the balance of payment by KHI shall be due and
payable. KHI agrees to make commercially reasonable efforts to sell
Adapted Kawasaki Gas Turbines during the term of this Agreement and CESI
agrees to cooperate with KHI in support of KHI's sales efforts.


4.0 TECHNOLOGY AND USE RIGHTS TRANSFERS
-----------------------------------


4.1 Technology Transfer. Within thirty (30) days after the Effective
--------------------
Date, CESI shall provide KHI with all the available Technical
Information, including but not limited to those as set forth in
Exhibit 3 attached hereto as an integral part of this Agreement,
required to enable KHI to perform its Allocated Works and
manufacture, have manufactured, use and sell the Adapted M1A-13A
and the Adapted Kawasaki Gas Turbines, under this Agreement. KHI
shall provide CESI with all the Technical Information required to
enable CESI to perfrom its Allocated Works.


[*]


4.2 Use Rights Under CESI Technology. In consideration for and upon
---------------------------------
KHI's payment of the Technology Fee to CESI provided in Article 3.0
herein, CESI hereby grants to KHI for the purposes and term of this
Agreement a royalty-free, worldwide, right for KHI and its
Affiliates to use CESI Technology and the inventions and/or
improvements as set forth in Article 4.1:


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(a) to perform KHI's Allocated Works in the Adaptation Program;


(b) to make, have made, use, lease, and sell the Adapted M1A-13A
incorporating the Products purchased from CESI;


(c) to make, have made, use, lease and sell the Adapted Kawasaki
Gas Turbines incorporating Products purchased from CESI; and


(d) to use and sell the Products to be incorporated into the
Adapted Kawasaki Gas Turbines including Adapted M1A-13A.


4.3 The rights granted in Section 4.1 shall be exclusive during the
term of this Agreement and any subsequent Supply Agreement term,
subject to KHI and its Affiliates and suppliers purchasing all of
their respective requirements for the Products for Gas Turbines
from CESI, and in case that CESI is unable to consistently meet
KHI's and its Affiliates' requirement for Products from a quality
or delivery standpoint, CESI shall promptly establish a second
source of supply (as a vendor to CESI) with a Third Party
manufacturer designated by CESI and approved by KHI (which approval
shall not be unreasonably withheld), solely for the purpose of
satisfying CESI's obligations to supply Products to KHI and its
Affiliates.


4.4 The limited field exclusive rights granted in Section 4.2 shall be
limited to Kawasaki Gas Turbines, and CESI retains and reserves
the rights, to itself or through its licensees, to design, adapt,
make and have made, import, export, use, sell, offer to sell,
service, repair and reconstruct the Products for sale, lease or
transfer to Third Parties non-Kawasaki Gas Turbines applications
employing the CESI Technology.


4.5 Grant Back. KHI and its Affiliates and subcontractors hereby grant
-----------
back to CESI an irrevocable and fully paid-up license to make,
sell, lease, have made, use, export and import, service, repair,
reconstruct the Xonon Combustion System and Xonon Module including
rights to sublicense, to all improvements thereof, whether made
solely by KHI or jointly with its Affliates and/or subcontractors,
which are conceived during the term of this Agreement and the term
of the Supply Agreement to be concluded between KHI and CESI with
respect to supply of the Xonon Module. Such license shall be i)
exclusive with respect to improvements of the Xonon Module, and
ii) Non-exclusive with respect to improvements of the Xonon
Combustion System and Xonon Control Algorithm.[* ].


[* ]. Such Technology or Technical Information as KHI must provide to CESI
under this section shall be provided without cost to CESI and in a
reasonable period of time, however, this clause shall not be construed so
as to unreasonably burden KHI by requiring additional design work on its
part to fulfil its obligation under this Article 4.5.


KHI and its Affiliates shall have no responsiblity for any damages incurred
by CESI and third party including Product Liability arising out of such
grant back, except for intellectual property infringement.


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4.6 Requirement and Obligation to Use Xonon(TM) Trademark. CESI hereby
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grants to KHI and its Affiliates for the term of this Agreement, a
royalty-free, non-exclusive, worldwide right under CESI's Xonon
trademark, to use the trademark "XononO" in connection with KHI's
and its Affiliates' marketing and sales activities related to the
Products. In this regard, KHI agrees to market the Xonon Modules
and/or Xonon Components under CESI's Xonon trademark, and to state
in its literature that Xonon is technology used under license from
CESI, in language and format to be agreed between CESI and KHI.
This agreement on the part of KHI to use the Xonon trademark also
requires KHI to use the designation "-X" at the end of the model
number of all Kawasaki Gas Turbines employing CESI Technology. In
connection with this grant of trademark use rights, KHI agrees that
it will submit samples of all Xonon trademark usage to CESI for
approval prior to use in KHI advertising, promotion and/or sales
activities and that KHI will promptly discontinue any usage of the
Xonon trademark which CESI specifically objects to and so informs
KHI in writing in a timely manner. This right to use grant does not
confer ownership of any rights in the mark(s) to KHI.


4.7 Grant of Right to Use Xonon Control Algorithms. CESI hereby grants
-----------------------------------------------
to KHI during the term of this Agreement, a non-exclusive,
royalty-free, perpetual and worldwide license (with rights to
sub-license) applicable to those models of Kawasaki Gas Turbine to
which Xonon was adapted during the term of this Agreement, to
copy, have copied, use, sub-license and offer to sub-license the
Xonon Control Algorithm(s) for use with the Products applied to
Adapted M1A-13A and/or Kawasaki Gas Turbines sold during the term
of this Agreement.


5.0 PRODUCTS SUPPLIED BY CESI TO KHI
--------------------------------


CESI shall supply all of KHI's requirements for the Xonon Module for
incorporation into the Adapted Kawasaki Gas Turbines pursuant to the terms
and conditions as set forth in the Supply Agreement to be executed
separately between CESI and KHI.


6.0 COMBUSTION SYSTEM DESIGN PACKAGE WARRANTY
-----------------------------------------


6.1 [*].


...