Kawasaki to Acquire Xonon Cool Combustion Gas Turbine Technology From Catalytica Energy Systems

July 3, 2006

TOKYO–(MARKET WIRE)–Jul 3, 2006 — Kawasaki Heavy Industries, Ltd. and Catalytica Energy Systems, Inc. (Nasdaq:CESINews) announced today that a definitive agreement has been reached for Kawasaki to purchase the Xonon Cool Combustion® catalytic combustion technology and associated gas turbine assets from Catalytica Energy Systems. Under the terms of the agreement, Catalytica Energy Systems will receive $2.1 million in cash proceeds from the sale in exchange for the assignment and license of intellectual property relating to its Xonon Cool Combustion system, the transfer of certain assets, and training. This transaction is expected to be completed by the end of August, subject to customary closing conditions, the delivery of assets, and the securing of certain consents. Effective upon the closing of the transaction, Kawasaki and Catalytica Energy Systems agreed to release and discharge each other from and against all potential claims.

Rob Zack, president and CEO of Catalytica Energy Systems, stated, “This move is consistent with the steps we have taken in recent months to divest of non-core businesses, assets and technologies, and to maintain financial viability by reducing our costs. Completing this sale will both strengthen our balance sheet and enable us to more fully focus our resources and capital on our other business activities in line with our objective of realizing increased shareholder value. We are pleased that Kawasaki has committed to acquire this technology and that the ultra-low emissions capabilities and environmental benefits of our Xonon Cool Combustion system will continue to be available in the market.”

Hiro Matsumura, president of Kawasaki Gas Turbines-Americas, added, “Xonon Cool Combustion is the only commercially available catalytic combustion system and pollution prevention technology capable of achieving nitrogen oxides (NOx) emissions of less than 3 parts per million (ppm) in gas turbine operation. The Xonon technology strongly complements our commitment to providing eco-friendly energy through our GREEN Gas Turbines Initiative, and we are proud to be the only gas turbine manufacturer to offer the Xonon Cool Combustion system as part of our product line. Our acquisition of this technology advances our objective of strengthening our business in the U.S., a market where Xonon has already been well received by our customers. We look forward to the potential for commercializing Xonon throughout our family of gas turbines, and continuing to offer our customers an environmentally-friendly and cost-effective approach for maintaining compliance with the most stringent emissions regulations.”

Kawasaki Heavy Industries, Ltd. (KHI) is a leading global comprehensive manufacturer of transportation equipment and industrial goods. With a broad technological base that encompasses mastery of the land, sea, and air, the KHI Group manufactures ships, rolling stock, aircraft and jet engines, gas turbine power generators, refuse incinerators, industrial plants, steel structures, and a wide range of manufacturing equipment and systems. KHI also produces such world-famous consumer products as Kawasaki-brand motorcycles and Jet Ski® watercraft.

Catalytica Energy Systems provides innovative products and services to meet the growing demand for emissions control solutions in the power generation and transportation industries. Through its SCR-Tech subsidiary (www.SCR-Tech.com), the Company offers a variety of services for coal-fired power plants using selective catalytic reduction (SCR) systems to reduce nitrogen oxides (NOx) emissions. These services include SCR catalyst management, cleaning and regeneration, as well as consulting services to help power plant operators optimize efficiency and reduce overall NOx compliance costs. Catalytica Energy Systems’ other business activities include the design, development and manufacture of advanced products based on its proprietary catalyst and fuel processing technologies to offer cost-effective solutions for reducing emissions from combustion-related applications. The Company’s Xonon® Diesel Fuel Processing technology is designed to facilitate a significant reduction in particulate matter and NOx emissions from mobile and stationary diesel engines by improving the performance of diesel particulate filters and NOx adsorber catalyst systems. Find Catalytica Energy Systems on the Worldwide Web at www.CatalyticaEnergy.com.

This news release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbors created therein. These statements include, but are not limited to, those regarding the terms, prospects, timing and anticipated proceeds relating to the completion of a sale of Catalytica Energy Systems’ Xonon Cool Combustion gas turbine technology and assets to Kawasaki, the Company’s belief that its divestiture of its gas turbine business and redeployment of capital and resources offer the greatest potential return on investment, and the Company’s beliefs regarding the effect of the transaction on the Company’s balance sheet and cost structure. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed in the forward-looking statements. These risks and uncertainties include, among others, the risk that the transaction will not close or will not close within the expected time frame or on the terms and conditions anticipated by the Company; the ability of the Company to satisfy the conditions precedent to the closing of the transaction, including the risk of obtaining necessary consents; the risks associated with the development, generally, of the Company’s overall strategic objectives; the ability of the Company to strengthen its balance sheet, improve sustainability, and build additional value in its business; possible fluctuations in economic conditions affecting the markets for the Company’s products and services; the risk that a market may not develop or be maintained for the Company’s products and services; the existence of unanticipated technical, commercial or other setbacks related to the Company’s emissions reduction solutions for diesel engines that could result in termination of one or more of its product development efforts; unanticipated events that could impact the Company’s ability to manage the SCR-Tech business; difficulties or delays in strengthening SCR-Tech’s sales and marketing activities or in executing SCR-Tech’s business strategy; changes in the environmental requirements relating to certain emissions; the uncertainty of marketing, project development and installation timelines and regulatory review outcomes; the possibility that the Company may be unable to maintain current or develop future strategic relationships for its products and services, including with OEMs, other strategic partners, and utility customers; the possibility that an OEM or other strategic partner could decide not to pursue development or commercialization of its products, which could negatively and adversely impact our business or results of operations; and the other risks set forth in the Company’s most recent Form 10-K and subsequent Forms 10-Q filed with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements to reflect new information, events, or circumstances occurring after the date of this release.

Contact:
For Kawasaki:
Simon Philips
(281) 970-3255, ext. 13

For Catalytica Energy Systems:
Megan Meloni
Investor Relations
650-950-6253


Source: Catalytica Energy Systems, Inc., Kawasaki Heavy Industries, Ltd.

Source:  Yahoo

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