**Exhibit 10.3**

 

**ACTIVE POWER, INC.**

**EMPLOYEE STOCK PURCHASE PLAN**

**(As Amended and Restated Effective February 1, 2005)**

 

**I. PURPOSE OF THE PLAN**

 

This Employee Stock Purchase Plan is intended to promote the interests ofActive Power, Inc., a Delaware corporation, by providing eligible employees with the opportunity to acquire a proprietary interest in the Corporation through participation in a payroll-deduction based employee stock purchase plan designed to qualifyunder Section 423 of the Code. 

 

Capitalized terms herein shallhave the meanings assigned to such terms in the attached Appendix. 

 

**II. ADMINISTRATION OF THE PLAN**

 

The PlanAdministrator shall have full authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Section 423 of theCode. Decisions of the Plan Administrator shall be final and binding on all parties having an interest in the Plan. 

 

**III. STOCK SUBJECT TO PLAN**

 

A. The stock purchasable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares of Common Stock purchasedon the open market. The maximum number of shares of Common Stock which may be issued in the aggregate under the Plan shall not exceed Five Hundred Thousand (500,000) shares. 

 

B. The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the firsttrading day of January each calendar year during the term of the Plan, beginning with calendar year 2001, by an amount equal to one half of one percent (0.5%) of the total number of shares of Common Stock outstanding on the last trading day inDecember of the immediately preceding calendar year, but in no event shall any such annual increase exceed One Hundred Fifty Thousand (150,000) shares. 

 

C. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of sharesor other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to the maximum number and class of securities issuable in the aggregate under the Plan,(ii) the maximum number and class of securities by which the share reserve is to increase automatically each calendar year, (iii) the maximum number and class of securities purchasable per Participant and in the aggregate on any 

one Purchase Date and (iv) the number and class of securities and the price per share in effect under each outstandingpurchase right in order to prevent the dilution or enlargement of benefits thereunder. 

 

**IV. OFFERING PERIODS**

 

A. Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have beenpurchased or (ii) the Plan shall have been sooner terminated. 

 

B. Each offering period shall be of such duration (not to exceed twelve (12) months) as determined by the Plan Administrator prior to the start date of such offering period. Offering periods shall commence as designated by the PlanAdministrator. 

 

C. Each offering period shall be comprised of aseries of successive Purchase Intervals. Purchase Intervals shall run from the first business day in February each year to the last business day in July of the same year and from the first business day in August each year to the last business day inJanuary of the following year. 

 

D. Should the Fair Market Valueper share of Common Stock on any Purchase Date within an offering period be less than the Fair Market Value per share of Common Stock on the start date of that offering period, then that offering period shall automatically terminate immediatelyafter the purchase of shares of Common Stock on such Purchase Date, and a new offering period shall commence on the next business day following such Purchase Date. The new offering period shall have a duration of twelve (12) months, unless a shorterduration is established by the Plan Administrator within five (5) business days following the start date of that offering period. 

 

**V. ELIGIBILITY**

 

A. Each individual who is an Eligible Employee on the start date of an offering period under the Plan may enter that offering period on such start date oron any subsequent Semi-Annual Entry Date within that offering period, provided he or she remains an Eligible Employee. 

 

B. Each individual who first becomes an Eligible Employee after the start date of an offering period may enter that offering period on any subsequentSemi-Annual Entry Date within that offering period on which he or she is an Eligible Employee. 

 

C. The date an individual enters an offering period shall be designated his or her Entry Date for purposes of that offering period. 

 

D. To participate in the Plan for a particular offering period, the Eligible Employee must complete the enrollment formsprescribed by the Plan Administrator (including a stock purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) on or before his or her scheduled Entry Date. 

**VI. PAYROLL DEDUCTIONS**

 

A. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock during an offeringperiod may be any multiple of one percent (1%) of the Base Salary paid to the Participant during each Purchase Interval within that offering period, up to a maximum of fifteen percent (15%). The deduction rate so authorized shall continue in effectthroughout the offering period, except to the extent such rate is changed in accordance with the following guidelines: 

 

(i) The Participant may, at any time during the offering period, reduce his or her rate of payroll deduction to become effective as soonas possible after filing the appropriate form with the Plan Administrator. The Participant may not, however, effect more than one (1) such reduction per Purchase Interval. 

 

(ii) The Participant may, prior to the commencement of any new Purchase Interval within the offering period,increase the rate of his or her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed the fifteen percent (15%) maximum) shall become effective on the start date of the first PurchaseInterval following the filing of such form. 

 

B. Payrolldeductions shall begin on the first pay day administratively feasible following the Participant’s Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with orimmediately prior to the last day of that offering period. The amounts so collected shall be credited to the Participant’s book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account.The amounts collected from the Participant shall not be required to be held in any segregated account or trust fund and may be commingled with the general assets of the Corporation and used for general corporate purposes. 

 

C. Payroll deductions shall automatically cease upon the termination of theParticipant’s purchase right in accordance with the provisions of the Plan. 

 

D. The Participant’s acquisition of Common Stock under the Plan on any Purchase Date shall neither limit nor require the Participant’s acquisition of Common Stock on any subsequent Purchase Date, whetherwithin the same or a different offering period. 

 

**VII.PURCHASE RIGHTS**

 

A. **Grant of Purchase Right.**A Participant shall be granted a separate purchase right for each offering period in which he or she participates. The purchase right shall be granted on the Participant’s Entry Date into the offering period and shall provide the Participantwith the right to purchase shares of Common Stock, in a series of successive installments over the remainder of such offering period, upon the terms set forth below. The Participant shall execute a stock purchase agreement embodying such terms andsuch other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. 

Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if suchindividual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of allclasses of stock of the Corporation or any Corporate Affiliate. 

 

B. **Exercise of the Purchase Right.** Each purchase right shall be automatically exercised in installments on each successive Purchase Date within the offering period, and shares of Common Stock shall accordingly be purchased onbehalf of each Participant (other than Participants whose payroll deductions have previously been refunded pursuant to the Termination of Purchase Right provisions below) on each such Purchase Date. The purchase shall be effected by applying theParticipant’s payroll deductions for the Purchase Interval ending on such Purchase Date to the purchase of whole shares of Common Stock at the purchase price in effect for the Participant for that Purchase Date. 

 

C. **Purchase Price.** The purchase price per share at which CommonStock will be purchased on the Participant’s behalf on each Purchase Date within the offering period shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on theParticipant’s Entry Date into that offering period or (ii) the Fair Market Value per share of Common Stock on that Purchase Date. 

 

D. **Number of Purchasable Shares.** The number of shares of Common Stock purchasable by a Participant on each Purchase Date during the offeringperiod shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the Purchase Interval ending with that Purchase Date by the purchase price in effect for the Participant forthat Purchase Date. However, the maximum number of shares of Common Stock purchasable per Participant on any one Purchase Date shall not exceed Four Thousand (4,000) shares, subject to periodic adjustments in the event of certain changes in theCorporation’s capitalization. In addition, the maximum number of shares of Common Stock purchasable in the aggregate by all Participants on any one Purchase Date shall not exceed Two Hundred Seventy Thousand (270,000) shares, subject toperiodic adjustments in the event of certain changes in the corporation’s capitalization. 

 

E. **Excess Payroll Deductions.** Any payroll deductions not applied to the purchase of shares of Common Stock on any Purchase Date because they are not sufficient to purchase a whole share of Common Stockshall be held for the purchase of Common Stock on the next Purchase Date. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable on the Purchase Date shallbe promptly refunded. 

 

F. **Termination of PurchaseRight.** The following provisions shall govern the termination of outstanding purchase rights: 

 

(i) A Participant may, at any time prior to the next scheduled Purchase Date in the offering period, terminate his or her outstandingpurchase right by filing the appropriate form with the Plan Administrator (or its designate), and no further payroll deductions shall be collected from the Participant with 

respect to the terminated purchase right. Any payroll deductions collected during the Purchase Intervalin which such termination occurs shall, at the Participant’s election, be immediately refunded or held for the purchase of shares on the next Purchase Date. If no such election is made at the time such purchase right is terminated, then thepayroll deductions collected with respect to the terminated right shall be refunded as soon as possible. 

 

(ii) The termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the offering period forwhich the terminated purchase right was granted. In order to resume participation in any subsequent offering period, such individual must re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or herscheduled Entry Date into that offering period. 

 

(iii) Should the Participant cease to remain an Eligible Employee for any reason (including death, disability or change in status) while his or her purchase right remains outstanding, then that purchase right shall immediately terminate,and all of the Participant’s payroll deductions for the Purchase Interval in which the purchase right so terminates shall be immediately refunded. However, should the Participant cease to remain in active service by reason of an approved unpaidleave of absence, then the Participant shall have the right, exercisable up until the last business day of the Purchase Interval in which such leave commences, to (a) withdraw all the payroll deductions collected to date on his or her behalf forthat Purchase Interval or (b) have such funds held for the purchase of shares on his or her behalf on the next scheduled Purchase Date. In no event, however, shall any further payroll deductions be collected on the Participant’s behalf duringsuch leave. Upon the Participant’s return to active service (i) within ninety (90) days following the commencement of such leave or, (ii) prior to the expiration of any longer period for which such Participant’s right to reemployment withthe Corporation is guaranteed by either statute or contract, his or her payroll deductions under the Plan shall automatically resume at the rate in effect at the time the leave began. However, should the Participant’s leave of absence exceedninety (90) days and his or her re-employment rights not be guaranteed by either statute or contract, then the Participant shall be treated as a new Employee for purposes of the Plan and must, in order to resume participation in the Plan, re-enrollin the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled Entry Date into the offering period. 

 

G. **Change in Control.** Each outstanding purchase right shall automatically be exercised, immediately prior to the effective date of anyChange in Control, by applying the payroll deductions of each Participant for the Purchase Interval in which such Change in Control occurs to the purchase of whole shares of Common Stock at a purchase price per share equal to eighty-five percent(85%) of the lower of (i) the Fair Market Value per share of Common Stock on the Participant’s Entry Date into the offering period in which such Change in Control occurs or (ii) the Fair Market Value per share of Common Stock immediatelyprior to the effective date of such Change in Control. However, the applicable limitation on the number of shares of Common Stock purchasable by all Participants in the aggregate shall not apply to any such purchase. 

The Corporation shall use its best efforts to provide at least ten (10)-days prior written notice of theoccurrence of any Change in Control, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the effective date of the Change in Control. 

 

H. **Proration of Purchase Rights.** Should the total number ofshares of Common Stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the availableshares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such individual, shall be refunded. 

 

I. **Assignability.** The purchase right shall be exercisable onlyby the Participant and shall not be assignable or transferable by the Participant. 

 

J. **Stockholder Rights.** A Participant shall have no stockholder rights with respect to the shares subject to his or her outstanding purchase right until the shares are purchased on the Participant’sbehalf in accordance with the provisions of the Plan and the Participant has become a holder of record of the purchased shares. 

 

**VIII. ACCRUAL LIMITATIONS**

 

A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to theextent such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of CodeSection 423) of the Corporation or any Corporate Affiliate, would otherwise permit such Participant to purchase more than Twenty-Five Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate Affiliate (determined on the basis ofthe Fair Market Value per share on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding. 

 

B. For purposes of applying such accrual limitations to the purchase rights granted under the Plan, the following provisions shall be in effect:

 

(i) The right to acquire Common Stock undereach outstanding purchase right shall accrue in a series of installments on each successive Purchase Date during the offering period on which such right remains outstanding. 

 

(ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent theParticipant has already accrued in the same calendar year the right to acquire Common Stock under one (1) or more other purchase rights at a rate equal to Twenty Thousand Dollars ($20,000) worth of Common Stock (determined on the basis of the FairMarket Value per share on the date or dates of grant) for each calendar year such rights were at any time outstanding. 

 

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C. If by reason of such accrual limitations, any purchase right of a Participant does not accrue for aparticular Purchase Interval, then the payroll deductions which the Participant made during that Purchase Interval with respect to such purchase right shall be promptly refunded. 

 

D. In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or anyinstrument issued thereunder, the provisions of this Article shall be controlling. 

 

**IX. EFFECTIVE DATE AND TERM OF THE PLAN**

 

A. The Plan was adopted by the Board on June 8, 2000 and became effective at the Effective Time, subject to the prior conditions that no purchase rights granted under the Plan were to be exercised, and no shares ofCommon Stock were to be issued hereunder, until (i) the Plan had been approved by the stockholders of the Corporation and (ii) the Corporation had complied with all applicable requirements of the 1933 Act (including the registration of the shares ofCommon Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which theCommon Stock is listed for trading and all other applicable requirements established by law or regulation. Such stockholder approval was obtained, and such compliance was effected within twelve (12) months after the date on which the Plan wasadopted by the Board. This amended and restated Plan shall be effective as of the first day of the offering period that begins on February 1, 2005. 

 

B. Unless sooner terminated by the Board, the Plan shall terminate upon the earliest of (i) the last business day in July 2010, (ii) the date onwhich all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan or (iii) the date on which all purchase rights are exercised in connection with a Corporate Transaction. No furtherpurchase rights shall be granted or exercised, and no further payroll deductions shall be collected, under the Plan following such termination. 

 

**X. AMENDMENT/TERMINATION OF THE PLAN**

 

A. The Board may alter, amend, suspend or terminate the Plan at any time to become effective immediately following the close of any Purchase Interval.However, the Plan may be amended or terminated immediately upon Board action, if and to the extent necessary to assure that the Corporation will not recognize, for financial reporting purposes, any compensation expense in connection with the sharesof Common Stock offered for purchase under the Plan, should the financial accounting rules applicable to the Plan at the Effective Time be subsequently revised so as to require the recognition of compensation expense in the absence of such amendmentor termination. 

 

B. In no event may the Board effect any of thefollowing amendments or revisions to the Plan without the approval of the Corporation’s stockholders: (i) increase the number of shares of Common Stock issuable under the Plan, except for permissible adjustments 

in the event of certain changes in the Corporation’s capitalization, (ii) alter the purchase price formula so as toreduce the purchase price payable for the shares of Common Stock purchasable under the Plan or (iii) modify eligibility requirements for participation in the Plan. 

 

**XI. GENERAL PROVISIONS**

 

A. Nothing in the Plan shall confer upon the Participant any right to continue in the employ of the Corporation or any Corporate Affiliate for any periodof specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Corporate Affiliate employing such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate suchperson’s employment at any time for any reason, with or without cause. 

 

B. All costs and expenses incurred in the administration of the Plan shall be paid by the Corporation; however, each Plan Participant shall bear all costs and expenses incurred by such individual in the sale or otherdisposition of any shares purchased under the Plan. 

 

C. Theprovisions of the Plan shall be governed by the laws of the State of Texas without regard to that State’s conflict-of-laws rules. 

**Schedule A**

 

**Corporations Participating in**

**Employee Stock Purchase Plan**

**As of the Effective Time**

 

Active Power, Inc. 

**APPENDIX**

 

The following definitions shall be in effect under the Plan: 

 

A. **Base Salary** shall mean the base salary payable to a Participant by one or more Participating Corporationsduring such individual’s period of participation in one or more offering periods under the Plan. Such Base Salary shall be calculated before deduction of (A) any income or employment tax withholdings or (B) any actual or deemed pre-taxcontributions made by the Participant to any Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. However, Base Salary shall **not**include any overtime payments, bonuses, commissions, current profit-sharing distributions and other incentive-type payments or contributions (other than Code Section 401(k) or Code Section 125 contributions) made on the Participant’s behalf bythe Corporation or any Corporate Affiliate to any employee benefit or welfare plan now or hereafter established. 

 

B. **Board** shall mean the Corporation’s Board of Directors. 

 

C. **Change in Control** shall mean a change in ownership of the Corporation pursuant to any of the followingtransactions: 

 

(i) a merger or consolidationin which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediatelyprior to such transaction, or 

 

(ii) the sale,transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or 

 

(iii) the acquisition, directly or indirectly, by a person or related group of persons (other than the Corporation or a person thatdirectly or indirectly controls, is controlled by or is under common control with the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the totalcombined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders. 

 

D. **Code** shall mean the Internal Revenue Code of 1986, as amended. 

 

E. **Common Stock** shall mean the Corporation’s common stock.

 

F. **Corporate Affiliate** shall mean any parent orsubsidiary corporation of the Corporation (as determined in accordance with Code Section 424), whether now existing or subsequently established. 

G. **Corporation** shall mean Active Power, Inc., a Delaware corporation, and any corporatesuccessor to all or substantially all of the assets or voting stock of Active Power, Inc. which shall by appropriate action adopt the Plan. 

 

H. **Effective Time** shall mean the time at which the Underwriting Agreement is executed. Any Corporate Affiliate which becomes a ParticipatingCorporation after such Effective Time shall designate a subsequent Effective Time with respect to its employee-Participants. 

 

I. **Eligible Employee** shall mean any person who is employed by a Participating Corporation on a basis under which he or she is regularlyexpected to render more than twenty (20) hours of service per week for more than five (5) months per calendar year for earnings considered wages under Code Section 3401(a). 

 

J. **Entry Date** shall mean the date an Eligible Employee first commences participation in the offering period ineffect under the Plan. 

 

K. **Fair Market Value** pershare of Common Stock on any relevant date shall be determined in accordance with the following provisions: 

 

(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling priceper share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on thedate in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. 

 

(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price pershare of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. Ifthere is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. 

 

(iii) For purposes of the initial offering period whichbegan at the Effective Time, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock was sold in the initial public offering pursuant to the Underwriting Agreement. 

 

L. **1933 Act** shall mean the Securities Act of 1933, as amended.

 

M. **Participant** shall mean any Eligible Employeeof a Participating Corporation who is actively participating in the Plan. 

N. **Participating Corporation** shall mean the Corporation and such Corporate Affiliate orAffiliates as may be authorized from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. The Participating Corporations in the Plan are listed in attached Schedule A. 

 

O. **Plan** shall mean the Corporation’s Employee StockPurchase Plan, as set forth in this document and as amended from time to time. 

 

P. **Plan Administrator** shall mean the committee of two (2) or more Board members appointed by the Board to administer the Plan. 

 

Q. **Purchase Date** shall mean the last business day of each Purchase Interval. 

 

R. **Purchase Interval** shall mean each successive six (6)-monthperiod within the offering period at the end of which there shall be purchased shares of Common Stock on behalf of each Participant. 

 

S. **Semi-Annual Entry Date** shall mean the first business day in February and August each year on which an Eligible Employee may first enteran offering period. 

 

T. **Stock Exchange** shall meaneither the American Stock Exchange or the New York Stock Exchange. 

 

U. **Underwriting Agreement** shall mean the agreement between the Corporation and the underwriter or underwriters managing the Corporation’s initial public offering of its Common Stock.