Exhibit 10

 

Execution Copy

 

SUBSCRIPTION AGREEMENT

 

Capstone Turbine Corporation

21211 Nordhoff Street

Chatsworth, California 91311

 

Gentlemen:

 

The undersigned (the “Investor”) hereby confirms its agreement with Capstone
Turbine Corporation, a Delaware corporation (the “Company”), as follows:

 

1.             This Subscription Agreement, including the Terms and Conditions
for Purchase of Units attached hereto as Annex I (collectively, this
“Agreement”) is made as of the date set forth below between the Company and the
Investor.

 

2.             The Company has authorized the offering, sale and issuance (the
“Offering”) to certain investors of up to an aggregate of 22,550,000 units (the
“Units”), , with each Unit consisting of (i) one share (the “Share,”
collectively, the “Shares”) of its common stock, par value $0.001 per share (the
“Common Stock”), and (ii) one warrant (the “Warrant,” collectively, the
“Warrants”) to purchase 1.00 share of Common Stock (the “Warrant Ratio”), in
substantially the form attached hereto as Exhibit B, for a purchase price of
$1.11 per Unit (the “Purchase Price”).  Units will not be issued or
certificated.  The Shares and Warrants are immediately separable and will be
issued separately. The shares of Common Stock issuable upon exercise of the
Warrants are referred to herein as the “Warrant Shares” and, together with the
Units, the Shares and the Warrants, are referred to herein as the “Securities”).

 

3.             In addition, subject to the terms and conditions of this
Agreement and the satisfaction of the Equity Conditions (as defined in
Section 3.2(c) of Annex I) which may be waived by an Investor in its sole
discretion, at any time during both (a) the ten (10) Trading Days (as defined
below) beginning September 10, 2012 (the “First Additional Purchase Right
Exercise Period”) and (b) the ten (10) Trading Days beginning March 4, 2013,
(the “Second Additional Purchase Right Exercise Period” and together with the
First Additional Purchase Right Exercise Period, the “Additional Purchase Right
Exercise Periods”), the Company will have the right and will exercise in full
such right (unless a Cancellation Notice is delivered prior to the Additional
Purchase Right Cancellation Deadline) to require the investors to purchase up to
an additional 9,500,000 shares  of Common Stock (each an “Additional Purchase
Right”), for a total of up to an additional 19,000,000 shares (the “Additional
Shares”) at a price per share equal to the applicable Additional Share Purchase
Price (as defined below), provided, however, that in no event shall any single
investor be required to purchase a number of Additional Shares with an aggregate
Additional Share Purchase Price in excess of $25,000,000. The Additional
Purchase Right can only be exercised twice (once during each Additional Purchase
Right Exercise Period) and can only be exercised after the closing of the
financial markets in New York City on the applicable Trading Day.  In the event
that the Company decides it does not wish to exercise in full either Additional
Purchase Right, it must provide written notice (a “Cancellation Notice”) to the
Investors on the tenth (10th) Trading Day prior to the commencement of the
applicable Additional Purchase Right Exercise Period (each an “Additional
Purchase Right Cancellation Deadline”)

 

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stating the Company will either (a) not exercise the applicable Additional
Purchase Right or (b) exercise the applicable Additional Purchase Right for a
number of Additional Shares less than the full amount.  On the day the Company
exercises an Additional Purchase Right (the “APR Exercise Date”), the Company
will provide to the Investors, with a copy to the Placement Agent, a schedule
indicating the number of Additional Shares and aggregate purchase price for such
shares (each an “Additional Shares Exercise Notice”), to be delivered to the
email address and facsimile number set forth on each Investor’s signature page.
The Additional Shares Exercise Notice shall be accompanied by the Officers’
Certificate (as defined in Section 3.2(c), Annex I, of this Agreement).  The
computations set forth in any Additional Shares Exercise Notice shall be subject
to the confirmation and agreement of the Investor.  If the Company does not
provide a Cancellation Notice by the Additional Purchase Right Cancellation
Deadline and does not provide an Additional Share Exercise Notice by the final
Trading Day of the applicable Additional Purchase Right Exercise Period, then
the Additional Purchase Right will be deemed to be exercised in full on the
final Trading Day of the applicable Additional Purchase Right Exercise Period.

 

(a)                      The “Additional Share Purchase Price” shall be equal to
94% of the lesser of (1) the Closing Bid Price (as defined in the Warrant) of
the Common Stock on the APR Exercise Date and (2) the arithmetic average of the
daily VWAPs (as defined below) for the ten (10) consecutive Trading Days ending
on the APR Exercise Date.

 

(b)                     “Trading Day” means any day on which the Common Stock is
traded on the NASDAQ Global Market, or, if the NASDAQ Global Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided
that a Trading Day shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock is suspended from trading during the final hour of trading
on such exchange or market (or if such exchange or market does not designate in
advance the closing time of trading on such exchange or market, then during the
hour ending at 4:00 p.m., New York time).

 

(c)                      “VWAP” means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on the NASDAQ Global Market or another Eligible Market (as
defined in Section 3.2(c)), the composite daily volume weighted average price of
the Common Stock for such date (or the nearest preceding date) as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to
4:00 p.m. (New York City time)); (b) if the Common stock is not then listed or
quoted on the NASDAQ Global Select Market or another Eligible Market, and if the
Common Stock is listed or quoted on the OTC Bulletin Board, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted
for trading on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Investors and
reasonably acceptable to the Company, the fees and expenses of which shall be
paid by the Company.

 

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4.             The Closing of the purchase and sale of the Additional Shares
shall take place in accordance with the provisions of Section 6 and Section 3 of
Annex I of this Agreement on the Trading Day immediately following the APR
Exercise Date, or in the event no Additional Shares Exercise Notice is sent and
no other notice is sent prior to the applicable Additional Purchase Right
Cancellation Deadline, on the last day of the applicable Additional Purchase
Right Exercise Period. The offering and sale of the Securities and Additional
Shares are being made pursuant to (a) an effective Registration Statement on
Form S-3, No. 333-156459 (the “Registration Statement”) filed by the Company
with the Securities and Exchange Commission (the “Commission”), including the
Prospectus contained therein (the “Base Prospectus”), (b) if applicable, certain
“free writing prospectuses” (as that term is defined in Rule 405 under the
Securities Act of 1933, as amended (the “Act”)), that have been or will be
filed, if required, with the Commission and delivered to the Investors on or
prior to the date hereof  (the “Issuer Free Writing Prospectus”), containing
certain supplemental information regarding the Shares and Warrants included in
the Units, the Additional Shares and the terms of the Offering and the Company,
(c) a Preliminary Prospectus Supplement (the “Preliminary Prospectus
Supplement”) containing certain supplemental information regarding the Units,
the Offering and the Company that will be filed with the Commission and
delivered to the Investors, and (d) a Prospectus Supplement (the “Prospectus
Supplement” and, together with the Base Prospectus, the “Prospectus”) containing
certain supplemental information regarding the Units and terms of the Offering
that will be filed with the Commission and delivered to the Investors (or made
available to the Investors by the filing by the Company of an electronic version
thereof with the Commission).

 

5.             The Company and the Investors agree at the Closing (as defined in
Section 3.1 of Annex I) that the Investors will purchase from the Company and
the Company will issue and sell to the Investor the Units set forth below for
the aggregate purchase price set forth below.  The Units shall be purchased
pursuant to the Terms and Conditions for Purchase of Units attached hereto as
Annex I and incorporated herein by this reference as if fully set forth herein. 
The Investor acknowledges that the Offering is not being underwritten by the
Placement Agent (the “Placement Agent”) named in the Prospectus Supplement and
that there is no minimum offering amount.

 

6.             The manner of settlement of the Shares included in the Units and
any Additional Shares purchased by the Investors shall be as follows:

 

Delivery versus payment (“DVP”) through the Depository Trust Company (“DTC”)
(i.e., on the Closing Date and any Additional Closing Date (each as defined in
Section 3 of Annex I), the Company shall instruct Mellon Investor Services LLC,
its “Transfer Agent”, to issue the Shares or Additional Shares, if any,
registered in the Investor’s name and address as set forth below and released by
the Transfer Agent to the Investors through DTC at the applicable Closing
directly to the account(s) at Lazard Capital Markets LLC (“LCM”) identified by
such Investor; upon receipt of such Shares or Additional Shares, if any, LCM
shall promptly electronically deliver such Shares to such Investor, and
simultaneously therewith payment shall be made by LCM by wire transfer to the
Company).  NO LATER THAN ONE (1) BUSINESS DAY AFTER THE EXECUTION OF THIS
AGREEMENT BY THE INVESTOR AND THE COMPANY (OR ANY ADDITIONAL SHARES EXERCISE
NOTICE DELIVERED TO THE INVESTOR BY THE COMPANY), THE INVESTOR SHALL:

 

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(I)            NOTIFY LCM OF THE ACCOUNT OR ACCOUNTS AT LCM TO BE CREDITED WITH
THE SHARES OR ADDITIONAL SHARES, AS THE CASE MAY BE, BEING PURCHASED BY SUCH
INVESTOR, AND

 

(II)        CONFIRM THAT THE ACCOUNT OR ACCOUNTS AT LCM TO BE CREDITED WITH THE
SHARES OR ADDITIONAL SHARES, IF ANY, BEING PURCHASED BY THE INVESTOR HAVE A
MINIMUM BALANCE EQUAL TO THE AGGREGATE PURCHASE PRICE FOR THE UNITS OR
ADDITIONAL SHARES, AS THE CASE MAY BE, BEING PURCHASED BY THE INVESTOR.

 

IT IS THE INVESTOR’S RESPONSIBILITY TO (A) MAKE THE NECESSARY WIRE TRANSFER OR
CONFIRM THE PROPER ACCOUNT BALANCE IN A TIMELY MANNER AND (B) ARRANGE FOR
SETTLEMENT BY WAY OF DVP IN A TIMELY MANNER.  IF THE INVESTOR DOES NOT DELIVER
THE AGGREGATE PURCHASE PRICE FOR THE UNITS OR ADDITIONAL SHARES AS THE CASE
MAY BE, OR DOES NOT MAKE PROPER ARRANGEMENTS FOR SETTLEMENT IN A TIMELY MANNER,
THE SHARES AND WARRANTS OR ADDITIONAL SHARES, AS THE CASE MAY BE, MAY NOT BE
DELIVERED AT CLOSING TO THE INVESTOR OR THE INVESTOR MAY BE SUBJECT TO
LIABILITY.

 

6.             The executed Warrant included in the Units purchased by the
Investor shall be delivered in accordance with the terms thereof.

 

7.             The Investor represents that, except as set forth below, (a) it
has had no position, office or other material relationship within the past three
years with the Company or persons known to it to be affiliates of the Company,
(b) it is not a member of the Financial Industry Regulatory Authority, Inc. or
an Associated Person (as such term is defined under the NASD Membership and
Registration Rules Section 1011) as of the Closing, and (c) neither the Investor
nor any group of Investors (as identified in a public filing made with the
Commission) of which the Investor is a part in connection with the Offering of
the Units, acquired, or obtained the right to acquire, 20% or more of the Common
Stock (or securities convertible into or exercisable for Common Stock) or the
voting power of the Company on a post-transaction basis.  Exceptions:

 

 

(If no exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

 

8.             The Investor represents that it has received (or otherwise had
made available to it by the filing by the Company of an electronic version
thereof with the Commission) the Base Prospectus, dated February 4, 2009, which
is a part of the Company’s Registration Statement, the Preliminary Prospectus
Supplement, the documents incorporated by reference therein and any free writing
prospectus (collectively, the “Disclosure Package”), prior to or in connection
with the receipt of this Agreement.  The Investor acknowledges that, prior to
the delivery of this Agreement to the Company, the Investor will receive certain
additional information regarding the Offering, including pricing information
(the “Offering Information”). Such information may be provided to the Investor
by any means permitted under the Act, including the Preliminary Prospectus
Supplement, Prospectus Supplement, a free writing prospectus and oral
communications.

 

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9.             No offer by the Investor to buy Units will be accepted and no
part of the Purchase Price will be delivered to the Company until the Investor
has received or has public access to the Disclosure Package and the Company has
accepted such offer by countersigning a copy of this Agreement, and any such
offer may be withdrawn or revoked, without obligation or commitment of any kind,
at any time prior to the Company (or Placement Agent on behalf of the Company)
sending (orally, in writing or by electronic mail) notice of its acceptance of
such offer.  An indication of interest will involve no obligation or commitment
of any kind until the Investor has been delivered the Offering Information and
this Agreement is accepted and countersigned by or on behalf of the Company.

 

10.          The Company acknowledges that the only material, non-public
information relating to the Company it has provided to the Investor in
connection with the Offering prior to the date hereof is the existence of the
Offering and certain information included in the Preliminary Prospectus
Supplement.

 

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Number of Units:

Purchase Price Per Unit: $

Aggregate Purchase Price: $

Number of Additional Shares:

 

Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.

 

 

 

Dated as of: February 29, 2012

 

 

 

 

 

INVESTOR

 

By:

 

 

Print Name:

 

 

Title:

 

 

Address:

 

 

 

 

 

 

 

Agreed and Accepted

 

this 29th day of February, 2012:

 

 

 

 

 

CAPSTONE TURBINE CORPORATION

 

 

 

 

 

By:

 

 

 

Title:

 

 

 

 

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ANNEX I

 

TERMS AND CONDITIONS FOR PURCHASE OF UNITS AND ADDITIONAL SHARES

 

1.             Authorization and Sale of the Units.  Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of the Units
and the Additional Shares..

 

2.             Agreement to Sell and Purchase the Units and Additional Shares;
Placement Agent.

 

2.1          At the Closing (as defined in Section 3.1), the Company will sell
to the Investor, and the Investor will purchase from the Company, upon the terms
and conditions set forth herein, the number of Units set forth on the last
page of the Agreement to which these Terms and Conditions for Purchase of Units
are attached as Annex I (the “Signature Page”) for the aggregate purchase price
therefor set forth on the Signature Page. At any Additional Closing (as defined
in Section 3.1), the Company will sell to the Investor, and the Investor will
purchase from the Company, upon the terms and conditions set forth herein, the
number of Additional Shares set forth in the Additional Shares Exercise Notice
for the aggregate purchase price of such shares.

 

2.2          The Company proposes to enter into substantially this same form of
Subscription Agreement with certain other investors (the “Other Investors”) and
expects to complete sales of Units to them.  The Investor and the Other
Investors are hereinafter sometimes collectively referred to as the “Investors,”
and this Agreement and the Subscription Agreements executed by the Other
Investors are hereinafter sometimes collectively referred to as the
“Agreements.”

 

2.3          Investor acknowledges that the Company has agreed to pay Lazard
Capital Markets LLC (the “Placement Agent”) a fee (the “Placement Fee”) in
respect of the sale of Units to the Investor, as well as upon the sale of any
Additional Shares.

 

2.4          The Company has entered into a Placement Agent Agreement, dated
February 29, 2012 (the “Placement Agreement”), with the Placement Agent that
contains certain representations, warranties, covenants and agreements of the
Company that may be relied upon by the Investor, which shall be a third party
beneficiary thereof.

 

3.             Closings and Delivery of the Shares, Warrants, Additional Shares
and Funds.

 

3.1          (a) Closing. The completion of the purchase and sale of the Units
(the “Closing”) shall occur at a place and time (the “Closing Date”) to be
specified by the Company and the Placement Agent, and of which the Investors
will be notified in advance by the Placement Agent, in accordance with
Rule 15c6-1 promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”).  At the Closing, (i) the Company shall cause the Transfer
Agent to deliver to the Investor the number of Shares set forth on the Signature
Page registered in the name of the Investor or, if so indicated on the Investor
Questionnaire attached hereto as Exhibit A, in the name of a nominee designated
by the Investor, (ii) the Company shall cause to be delivered to the Investor a
Warrant to purchase a number of whole Warrant Shares determined by multiplying
the number of Shares set forth on the signature page by the Warrant Ratio and
rounding down to the nearest whole number and (iii) the aggregate purchase price
for the Units being purchased by the Investor will be delivered by or on behalf
of the Investor to the Company.

 

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(b) Additional Closing. The completion of the purchase and sale of the
Additional Shares pursuant to each Additional Purchase Right (each an
“Additional Closing”) shall occur on the Trading Date immediately following the
APR Exercise Date (each an “Additional Closing Date”), and of which the
Placement Agent will be notified in advance by the Company, in accordance with
Rule 15c6-1 promulgated under the Exchange Act.  At the applicable Additional
Closing, (a) the Company shall cause the Transfer Agent to deliver to the
Investor the number of Additional Shares set forth on the applicable Additional
Shares Exercise Notice delivered by the Company registered in the name of the
Investor or, if so indicated on the Investor Questionnaire attached hereto as
Exhibit A, in the name of a nominee designated by the Investor and (b) 95% of
the aggregate purchase price for the Additional Shares being purchased by the
Investor will be delivered by or on behalf of the Investor to the Company, and
5% of the aggregate purchase price for the Additional Shares will be delivered
to the Placement Agent for its fee related to such Additional Shares.

 

3.2          Conditions to the Obligations of the Parties.

 

(a)  Conditions to the Company’s Obligations to Sell Units.  The Company’s
obligation to issue and sell the Units to the Investor shall be subject to:
(i) the receipt by the Company of the purchase price for the Units being
purchased hereunder as set forth on the Signature Page and (ii) the accuracy of
the representations and warranties made by the Investor and the fulfillment of
those undertakings of the Investor to be fulfilled prior to the Closing Date.

 

(b)           Conditions to the Investor’s Obligations to Purchase Units.  The
Investor’s obligation to purchase the Units will be subject to the accuracy of
the representations and warranties made by the Company and the fulfillment of
those undertakings of the Company to be fulfilled prior to the Closing Date,
including without limitation, those contained in the Placement Agreement, and to
the condition that the Placement Agent shall not have: (i) terminated the
Placement Agreement pursuant to the terms thereof or (ii) determined that the
conditions to the closing in the Placement Agreement have not been satisfied. 
The Investor understands and agrees that, in the event that the Placement Agent
in its sole discretion determines that the conditions to closing in the
Placement Agreement have not been satisfied or if the Placement Agent Agreement
may be terminated for any other reason permitted by such Agreement, then the
Placement Agent may, but shall not be obligated to, terminate such Agreement,
which shall have the effect of terminating this Subscription Agreement pursuant
to Section 14 below.

 

1.             (c)           Conditions to the Investor’s Obligation to Purchase
Additional Shares.  The Company’s Additional Purchase Right will be subject to
the satisfaction of the following “Equity Conditions” at the time of each
Additional Share Exercise Notice and on each applicable Additional Closing Date,
any of which Equity Conditions (other than the condition set forth in clause
(I) below) may be waived by the Investor in its sole discretion: (A) on each day
during the period beginning thirty (30) Trading Days prior to the APR Exercise
Date and ending on and including such Additional Closing Date (the “Equity
Conditions Measuring Period”), all Additional Shares issuable hereunder and the
Warrant Shares pursuant to the Warrants shall be eligible for sale without
restriction or limitation pursuant to an effective and then usable Registration
Statement or without the need for registration under any applicable federal or
state securities laws; (B) on each day during the Equity Conditions Measuring
Period, the Common Stock is designated for listing on the NASDAQ Global Market
or another eligible market (The New York Stock Exchange, Inc., The

 

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NYSE Amex Equities, The NASDAQ Global Select Market or The NASDAQ Capital
Market, each an “Eligible Market”) and shall not have been suspended from
trading from any applicable exchanges or markets nor shall formal proceedings
for such delisting or suspension from any such exchange or market have been
commenced pursuant to the applicable rules thereof, provided, however, that a
notice regarding the share price shall only constitute such a proceeding or
pending proceeding if the share price violation is not addressed within six
months of the notice; (C) the Company shall have delivered Common Stock upon
exercise of the Warrants to the holders on a timely basis; (D) any applicable
shares of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating the rules or regulations
of the NASDAQ Global Market; provided, however, that the foregoing shall not
preclude the Company from issuing such number of shares that does not cause any
such violation; (E) during the Equity Conditions Measuring Period, there shall
not have occurred (x) a Triggering Event (as defined below) or an event that
with the passage of time or giving of notice would constitute a Triggering Event
or (y) the public announcement of a pending, proposed or intended sale or merger
of the Company which has not been abandoned, terminated or consummated; (F) the
Company shall have no knowledge of any fact that would cause any Additional
Shares or Warrant Shares issuable upon exercise of the Warrants not to be
eligible for sale without restriction or limitation and without the need for
registration under any applicable federal or state securities laws; (G) the
Investor shall not be in possession of any material non-public information
received from the Company or its agents or its affiliates, (H) during the Equity
Conditions Measuring Period, there shall exist no material misstatements or
omissions in the Prospectus or any reports required to be filed by the Company
with the Commission pursuant to the Exchange Act; (I) each of (x) the arithmetic
average of the daily VWAPs during the Equity Conditions Measuring Period and
(y) the VWAP on the APR Exercise Date is not less than $0.80 (as adjusted for
stock splits, stock dividends, stock combinations or other similar transactions)
and (J) each of (x) the arithmetic average of the daily trading volumes (the
“ADTV”) during the Equity Conditions Measuring Period (as reported on Bloomberg)
and (y) the ADTV on the APR Exercise Date, in each case, of the Common Stock on
the NASDAQ Global Market or other Eligible Market on which the Common Stock is
listed or designated for quotation as of such date of determination is not less
than 1,750,000 shares (adjusted for any stock dividend, stock split, stock
combination or other similar transaction during such period).

 

The Company shall, concurrent with any Additional Share Exercise Notice, deliver
to the Investor a certificate of its Chief Executive Officer and its Chief
Financial Officer, each in his capacity as an officer of the Company (the
“Officers’ Certificate”), certifying that (i) to his knowledge, the Equity
Conditions are satisfied (or have been waived by the Investor) and (ii) since
the date of this Agreement, the Company has timely filed all reports required to
be filed by the Company with the Commission pursuant to the Exchange Act, and
any reports required to be filed by the Company with the Commission pursuant to
the Exchange Act did not, as of their respective dates, include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, other
than any untrue statements or omissions, if any, as shall have been fully
corrected in a subsequent report or amendment filed by the Company at least five
(5) Trading Days prior to the applicable Additional Closing Date.

 

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A “Triggering Event” shall be deemed to have occurred if there shall have
occurred or be continuing any of the following events:

 

(a)          while the Registration Statement is required to be maintained, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Investor for the issuance and sale of the Additional Shares issued and issuable
hereunder, and such lapse or unavailability continues for a period of ten
(10) consecutive Trading Days;

 

(b)         the suspension from trading or failure of the Common Stock to be
listed on the NASDAQ Global Market or another Eligible Market for a period of
ten (10) Trading Days;

 

(c)          the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any subsidiary of the
Company of a voluntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or
order adjudging the Company or any subsidiary of the Company as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
subsidiary of the Company under any applicable Federal or State law or
(iii) appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any subsidiary of the
Company or of any substantial part of its property, or ordering the winding up
or liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a period
of sixty (60) consecutive days; or

 

(d)         the commencement by the Company or any subsidiary of a voluntary
case or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of the Company or any subsidiary in an
involuntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or State law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any subsidiary or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company or any subsidiary in furtherance
of any such action.

 

(e)          the Company has breached any representation, warranty, covenant or
other term or condition of this Agreement or the Placement Agreement, except, in
the case of a breach of a covenant which is curable, only if such breach remains
uncured for a period of at least five (5) Business Days.

 

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3.3          Delivery of Funds - Units.

 

Delivery Versus Payment through The Depository Trust Company.  No later than one
(1) business day after the execution of this Agreement by the Investor and the
Company, the Investor shall confirm that the account or accounts at the
Placement Agent to be credited with the Units being purchased by the Investor
have a minimum balance equal to the aggregate purchase price for the Units being
purchased by the Investor.

 

3.4          Delivery of Shares and Warrants Contained in the Units.

 

Delivery Versus Payment through The Depository Trust Company.  No later than one
(1) business day after the execution of this Agreement by the Investor and the
Company, the Investor shall notify the Placement Agent of the account or
accounts at the Placement Agent to be credited with the Shares being purchased
by such Investor.  On the Closing Date, the Company shall deliver the Shares to
the Investor through DTC directly to the account(s) at the Placement Agent
identified by Investor and simultaneously therewith payment shall be made by the
Placement Agent by wire transfer to the Company.  Also on the Closing Date, the
Company will cause physical certificates of each Warrant purchased by the
Investor to be delivered by overnight courier directly to the Investor or at
such other place as the Investor may direct.

 

3.5          Delivery of Funds - Additional Shares.

 

Delivery Versus Payment through The Depository Trust Company.  No later than one
(1) business day after the APR Exercise Date, the Investor shall confirm that
the account or accounts at the Placement Agent to be credited with the
Additional Shares being purchased by the Investor have a minimum balance equal
to the aggregate purchase price for the Additional Shares being purchased by the
Investor.

 

3.6          Delivery of Additional Shares.

 

No later than one (1) business day after the APR Exercise Date, the Investor
shall notify the Placement Agent of the account or accounts at the Placement
Agent to be credited with the Additional Shares being purchased by such
Investor.  On the applicable Additional Closing Date, the Company shall deliver
the Additional Shares to the Investor through DTC directly to the account(s) at
the Placement Agent identified by Investor and simultaneously therewith payment
shall be made by the Placement Agent by wire transfer to the Company.

 

4.             Representations, Warranties and Covenants of the Investor.

 

The Investor acknowledges, represents and warrants to, and agrees with, the
Company and the Placement Agent that:

 

4.1          The Investor (a) is knowledgeable, sophisticated and experienced in
making, and is qualified to make decisions with respect to, investments in
shares presenting an investment decision like that involved in the purchase of
the Units, including investments in securities issued by the Company and
investments in comparable companies, (b) has answered all questions on the
Signature

 

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Page and the Investor Questionnaire and the answers thereto are true and correct
as of the date hereof and will be true and correct as of the Closing Date and
each Additional Closing Date and (c) in connection with its decision to purchase
the number of Units set forth on the Signature Page, has received and is relying
only upon the Disclosure Package and the documents incorporated by reference
therein and the Offering Information..

 

4.2          (a) No action has been or will be taken in any jurisdiction outside
the United States by the Company or the Placement Agent that would permit an
offering of the Units, or possession or distribution of offering materials in
connection with the issue of the Securities in any jurisdiction outside the
United States where action for that purpose is required, (b) if the Investor is
outside the United States, it will comply with all applicable laws and
regulations in each foreign jurisdiction in which it purchases, offers, sells or
delivers Securities or has in its possession or distributes any offering
material, in all cases at its own expense and (c) the Placement Agent is not
authorized to make and has not made any representation, disclosure or use of any
information in connection with the issue, placement, purchase and sale of the
Units, except as set forth or incorporated by reference in the Base Prospectus,
the Preliminary Prospectus Supplement, the Prospectus Supplement or any free
writing prospectus.

 

4.3          (a) The Investor has full right, power, authority and capacity to
enter into this Agreement and to consummate the transactions contemplated hereby
and has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, and (b) this Agreement constitutes a valid and
binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as to the enforceability of any rights to indemnification or
contribution that may be violative of the public policy underlying any law,
rule or regulation (including any federal or state securities law, rule or
regulation).

 

4.4          The Investor understands that nothing in this Agreement, the
Preliminary Prospectus Supplement, the Prospectus, the Disclosure Package, the
Offering Information or any other materials presented to the Investor in
connection with the purchase and sale of the Units constitutes legal, tax or
investment advice.  The Investor has consulted such legal, tax and investment
advisors and made such investigation as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of Units and entry into
this Agreement.   The Investor also understands that there is no established
public trading market for the Warrants being offered in the Offering, and that
the Company does not expect such a market to develop.  In addition, the Company
does not intend to apply for listing the Warrants on any securities exchange. 
Without an active market, the liquidity of the Warrants will be limited.

4.5          Since the date on which the Placement Agent first contacted the
Investor about the Offering, the Investor has not disclosed any information
regarding the Offering to any third parties (other than its legal, accounting
and other advisors) and has not engaged in any purchase or sale involving the
securities of the Company (including, without limitation, any Short Sales
involving the Company’s securities).  The Investor covenants that it will not
engage in any purchases or sales of the securities of the Company (including
Short Sales) prior to the time that the transactions contemplated by this
Agreement with respect to the sale of Units are publicly disclosed.  The
Investor agrees that it

 

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will not use any of the Units acquired pursuant to this Agreement to cover any
short position in the Common Stock if doing so would be in violation of
applicable securities laws.  For purposes hereof, “Short Sales” include, without
limitation, all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act, whether or not against the box, and all
types of direct and indirect stock pledges, forward sales contracts, options,
puts, calls, short sales, swaps, “put equivalent positions” (as defined in
Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a
total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.

 

4.6          During the Additional Purchase Right Exercise Periods, the Investor
may not sell (long or short) on any Trading Day during any such period a number
of shares of Common Stock that is in excess of 10.0% of the composite aggregate
share trading volume (as reported on Bloomberg) of the Common Stock on such
Trading Day; provided that the restriction set forth in this Section 4.6 shall
not apply from and after the applicable APR Exercise Date. During the Additional
Purchase Right Exercise Periods, the Company and each of the Company’s officers
and directors shall not directly or indirectly engage in any purchases of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock.

 

5.             Survival of Representations, Warranties and Agreements; Third
Party Beneficiary.  Notwithstanding any investigation made by any party to this
Agreement or by the Placement Agent, all covenants, agreements, representations
and warranties made by the Company and the Investor herein will survive the
execution of this Agreement, the delivery to the Investor of the Shares,
Warrants and any Additional Shares, if any, being purchased and the payment
therefore until such time as the Warrants can no longer be exercised.  The
Placement Agent and Lazard Fréres & Co. shall be third party beneficiaries with
respect to the representations, warranties and agreements of the Investor in
Section 3.1(b), 3.2(c) and 4 hereof.

 

6.             Notices.  All notices, requests, consents and other
communications hereunder will be in writing, will be mailed (a) if within the
domestic United States by first-class registered or certified airmail, or
nationally recognized overnight express courier, postage prepaid, or by
facsimile or (b) if delivered from outside the United States, by International
Federal Express or facsimile, and (c) will be deemed given (i) if delivered by
first-class registered or certified mail domestic, three business days after so
mailed, (ii) if delivered by nationally recognized overnight carrier, one
business day after so mailed, (iii) if delivered by International Federal
Express, two business days after so mailed and (iv) if delivered by facsimile,
upon electronic confirmation of receipt and will be delivered and addressed as
follows:

 

(a)       if to the Company, to:

 

Capstone Turbine Corporation

21211 Nordhoff Street

Chatsworth, California 91311

Attention:  Chief Financial Officer

Facsimile:  (818) 734-5321

 

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with copies to:

 

Waller Lansden Dortch & Davis, LLP

511 Union Street, Suite 2700

Nashville, Tennessee 37219

Attention:  J. Chase Cole, Esq.

Facsimile:  (615) 244-6804

 

(b)       if to the Investor, at its address on the Signature Page hereto, or at
such other address or addresses as may have been furnished to the Company in
writing.

 

(c)           if to the Placement Agent, to:

 

Lazard Capital Markets LLC

30 Rockefeller Plaza

New York, New York 10020

Attention: General Counsel

Facsimile: (212) 830-3615

 

7.             Changes.  This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor.

 

8.             Headings.  The headings of the various sections of this Agreement
have been inserted for convenience of reference only and will not be deemed to
be part of this Agreement.

 

9.             Severability.  In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein will
not in any way be affected or impaired thereby.

 

10.          Governing Law.  This Agreement will be governed by, and construed
in accordance with, the internal laws of the State of New York, without giving
effect to the principles of conflicts of law that would require the application
of the laws of any other jurisdiction.

 

11.          Counterparts.  This Agreement may be executed in two or more
counterparts, each of which will constitute an original, but all of which, when
taken together, will constitute but one instrument, and will become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.  The Company and the Investor acknowledge and
agree that the Company shall deliver its counterpart to the Investor along with
the Prospectus Supplement (or the filing by the Company of an electronic version
thereof with the Commission).

 

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12.          Confirmation of Sale.  The Investor acknowledges and agrees that
such Investor’s receipt of the Company’s signed counterpart to this Agreement,
together with the Prospectus Supplement (or the filing by the Company of an
electronic version thereof with the Commission), shall constitute written
confirmation of the Company’s sale of Units to such Investor.

 

13.          Press Release.  The Company and the Investor agree that the Company
shall issue a press release and file a Form 8-K announcing the Offering and
disclosing all material terms and conditions of the Offering prior to the
opening of the financial markets in New York City on the business day
immediately after the date hereof.  In addition, in the event that the Company
exercises the Additional Purchase Right, it shall issue a press release and file
a Form 8-K announcing the exercise of the Additional Purchase Right and
disclosing all material terms and conditions of the Additional Purchase Right
prior to the opening of the financial markets in New York City on the business
day immediately after the APR Exercise Date.

 

14.          Termination.  In the event that the Placement Agreement is
terminated by the Placement Agent pursuant to the

terms thereof, this Agreement shall terminate without any further action on the
part of the parties hereto.

 

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EXHIBIT A

 

CAPSTONE TURBINE CORPORATION

 

INVESTOR QUESTIONNAIRE

 

Pursuant to Section 3 of Annex I to the Agreement, please provide us with the
following information:

 

1.

The exact name that your Shares, Additional Shares and Warrants are to be
registered in. You may use a nominee name if appropriate:

 

 

 

 

 

 

2.

The relationship between the Investor and the registered holder listed in
response to item 1 above:

 

 

 

 

 

 

3.

The mailing address of the registered holder listed in response to item 1 above:

 

 

 

 

 

 

4.

The Social Security Number or Tax Identification Number of the registered holder
listed in the response to item 1 above:

 

 

 

 

 

 

5.

Name of DTC Participant (broker-dealer at which the account or accounts to be
credited with the Shares and Additional Shares are maintained):

 

 

 

 

 

 

6.

DTC Participant Number:

 

 

 

 

 

 

7.

Name of Account at DTC Participant being credited with the Shares and Additional
Shares:

 

 

 

 

 

 

8.

Account Number at DTC Participant being credited with the Shares and Additional
Shares:

 

 

 

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EXHIBIT B

 

FORM OF WARRANT

 

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