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                                  July 24, 2006






Dear John,

         Capstone Turbine Corporation (the "Company") is in receipt of your
resignation as President, CEO and a director of the Company effective as of July
31, 2006. This letter sets forth certain agreements and understandings between
you and the Company, all to be effective as of August 1, 2006.

         In consideration of your agreement to serve the Company in a consulting
capacity for a one-year period after the effective date of your resignation (the
"Consulting Period"), the terms of your outstanding stock options will be
revised as stated below to allow you to exercise your stock options that were
vested as of that date until July 31, 2007. In exchange, you will agree to be
available to the Company for consulting advice for up to ten hours per month,
not to use any of the Company's confidential or proprietary information during
the term of this agreement, except on behalf of the Company, and thereafter, and
not to interfere with certain relationships of the Company during the term of
this agreement and thereafter, as set forth in more detail below. In the event
that you are requested to provide greater than ten hours per month of consulting
advice, the Company shall compensate you at a rate of $500 per hour. You will be
reimbursed for your reasonable expenses incurred in providing such consulting
services to the Company. Such payments and reimbursements shall be made within
fifteen days of the Company's receipt of an invoice from you reflecting same,
with supporting documentation regarding expenses attached. In addition, the
Company will continue to provide medical benefits for you as currently provided
for a one month period following the effective date of your resignation.

         As an inducement to become the President and Chief Executive Officer of
the Company, you were awarded an option to acquire 2,000,000 shares of the
Company's common stock. Your right to exercise the option would expire three
months following the termination of your employment with the Company. The terms
of the option permit you, however, to continue to exercise the vested portion if
you are providing services to the Company as a consultant. You and the Company
hereby revise the Stock Option Agreement, dated August 1, 2003 and the
Restricted Stock Agreement, dated August 4, 2003, both between you and the
Company as follows: (i) you will provide consulting services to Capstone as
outlined in this letter, (ii) the option is vested as to 1,500,000 shares of
common stock and the remaining portion of the option is cancelled and the right
to exercise the vested option will expire on July 31, 2007 or, if sooner, three
months after the termination of your relationship as a consultant to the
Company, (iii) you are vested as to 375,000 shares of restricted stock, and the
right to accrue additional vesting of the restricted stock under the award
granted to you on August 4, 2003 is hereby cancelled, and (iv) the options
granted to you on June 12, 2006 and June 22, 2006 are hereby cancelled. The
Company intends to exercise its repurchase option under the August 4, 2003
Restricted Stock Agreement to acquire the unvested shares under the terms
described in the Restricted Stock Agreement.

         By reason of your service as the President, CEO and a director of the
Company, you have had access to and contact with the trade secrets and
confidential and proprietary business information of the Company and its
affiliates (the "Confidential Information"). You acknowledge that the Company



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conducts its business in an industry that is highly competitive, and that the
Confidential Information constitutes a valuable, special and unique asset of the
Company, and therefore you covenant and agree that, for a period of five years:

         (a) You will at all times use your best efforts and exercise diligence
         to protect and safeguard the Confidential Information, including,
         without limitation, customer-related information, including names,
         addresses, specifications or requirements and the identity of customers
         and suppliers; arrangements with customers and suppliers; technical
         data, records, compilations of information, processes, intellectual
         property, patents, technology, computer software, and specifications
         relating to customers, suppliers, products and services; the manner of
         operation of the Company's, plans, policies, budgets, financial
         projections, business and/or marketing plans, concepts and/or
         projections; information about the finances and financial condition of
         the Company's business, costs, profits, profit margins, salaries and
         other financial information pertaining to the Company; and the trade
         secrets and other technical and non-technical information of the
         Company.

         (b) You will not at any time disclose any of such Confidential
         Information, except as may be required by law.

         (c) You will not at any time use, directly or indirectly, for your own
         benefit or for the benefit of another, any of such Confidential
         Information, except as is required in your capacity as consultant to
         the Company during the term of this agreement.

         (d) The confidentiality provisions set forth above shall not be
         applicable to any information which is in the public domain, other than
         as a result of action by you in violation of such confidentiality
         provisions, or which was obtained from sources other than the Company
         or its affiliates who are not under a duty of nondisclosure. All files,
         records, documents, drawings, specifications, computer software,
         memoranda, notes, or other documents relating to the business of the
         Company and its affiliates, whether prepared by you or that otherwise
         came into your possession, shall be the exclusive property of the
         Company and its affiliates and shall not be retained by you for any
         reason whatsoever.

         (e) You acknowledge that the confidentiality provisions set forth above
         are a reasonable and necessary protection of the legitimate business
         interests of the Company. In the event of any violation of the such
         confidentiality provisions, the Company shall be entitled to
         preliminary and permanent injunctive relief. Nothing herein contained
         shall be construed as prohibiting the Company from pursuing any other
         legal or equitable remedies available to the Company as a result of a
         violation of the confidentiality provisions set forth herein. The
         confidentiality provisions set forth above shall continue to be binding
         upon you for a period of five years and supplement, but do not replace
         or modify, any and all other legal obligations you have with respect to
         maintaining the confidentiality of information related to the Company.

         (f) You will not assist any person or entity in any way to do, or
         attempt to do, anything prohibited by clauses (a) through (e) above.

         By reason of your service as the President, CEO and a director of the
Company, you have knowledge about, access to and/or contact with the Company's
employees, dealers, distributors, customers, prospective customers, potential
customers and other relationships that are or potentially are beneficial to the
Company. You acknowledge that such relationships are a valuable, special and
unique asset of the Company, and therefore you agree that, during the Consulting
Period and for one year thereafter:


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          (w) You will not, nor will your affiliates, solicit any person or
          entity that is a dealer, distributor, customer, prospective customer
          or potential customer of the Company or its affiliates as of July 31,
          2006 or during the Consulting Period to purchase any goods or services
          sold by, or competitive with a type sold by the Company or its
          affiliates from anyone other than Company or its affiliates.

          (x) You will not, nor will your affiliates, (i) solicit, recruit or
          hire any person employed by the Company or its affiliates on July 31,
          2006 or during the Consulting Period and any person who has worked for
          Company or its affiliates on July 31, 2006 or during the Consulting
          Period unless such person's employment was involuntarily terminated by
          such employer, or (ii) solicit or encourage any person employed by the
          Company or its affiliates on July 31, 2006 or during the Consulting
          Period to leave the employment of the Company or its affiliates.

          (y) You acknowledge that the non-solicitation provisions set forth
          above are a reasonable and necessary protection of the legitimate
          business interests of the Company. In the event of any violation of
          the such non-solicitation provisions, the Company shall be entitled
          solely to preliminary and permanent injunctive relief.

          (z) You will not, nor will your affiliates, assist any person or
          entity in any way to do, or attempt to do, anything prohibited by
          clauses (w) through (y) above.

                   On behalf of the Board of Directors and stockholders of the
Company, I want to thank you for the valuable service you have provided to us
during the past three years and express our appreciation for your willingness to
continue to assist the Company in this new role. If this letter correctly
reflects the agreement of the parties with respect to the matters addressed
herein, please execute two copies of this letter and return one fully executed
copy of this letter to the undersigned. This letter may be executed in two or
more counterparts, each of which shall be deemed to be an original document and
all of which, taken together, shall be deemed to constitute a single original
document.

                                          Sincerely,

                                          CAPSTONE TURBINE CORPORATION


                                          ----------------------------
                                          Eliot Protsch
                                          Chairman, Board of Directors


Acknowledged and agreed to
this ___ day of July, 2006


--------------------------
John R. Tucker




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