AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN



 





Exhibit 10.4




CAPSTONE TURBINE CORPORATION




AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN





 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page

	1.
	 	PURPOSES OF THE PLAN	 	 	1	 
	2.
	 	DEFINITIONS	 	 	1	 
	3.
	 	STOCK SUBJECT TO THE PLAN	 	 	5	 
	4.
	 	ADMINISTRATION OF THE PLAN	 	 	6	 
	5.
	 	ELIGIBILITY	 	 	7	 
	6.
	 	LIMITATIONS	 	 	7	 
	7.
	 	TERM OF PLAN	 	 	8	 
	8.
	 	TERM OF OPTION	 	 	8	 
	9.
	 	OPTION EXERCISE PRICE AND CONSIDERATION	 	 	8	 
	10.
	 	EXERCISE OF OPTION	 	 	9	 
	11.
	 	NON-TRANSFERABILITY	 	 	12	 
	12.
	 	GRANTING OF OPTIONS TO AND STOCK ELECTIONS BY NON-EMPLOYEE DIRECTORS	 	 	12	 
	13.
	 	TERMS OF NON-EMPLOYEE DIRECTOR OPTIONS	 	 	12	 
	14.
	 	STOCK PURCHASE RIGHTS AND STOCK BONUSES	 	 	13	 
	15.
	 	ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE	 	 	14	 
	16.
	 	TIME OF GRANTING OPTIONS, STOCK PURCHASE RIGHTS AND STOCK BONUSES	 	 	16	 
	17.
	 	AMENDMENT AND TERMINATION OF THE PLAN	 	 	17	 
	18.
	 	STOCKHOLDER APPROVAL	 	 	17	 
	19.
	 	INABILITY TO OBTAIN AUTHORITY	 	 	17	 
	20.
	 	RESERVATION OF SHARES	 	 	17	 
	21.
	 	INVESTMENT INTENT	 	 	17	 
	22.
	 	GOVERNING LAW	 	 	18	 










i









 








CAPSTONE TURBINE CORPORATION




AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN




RECITALS:




     WHEREAS, the Company previously established the Plan as an equity
incentive plan, and last amended and restated the Plan effective March 20,
2003;



     WHEREAS, the Company desires to amend the Plan to (i) conform the Plan to
recent modifications in the Nasdaq listing rules, (ii) rescind a prior action
taken by the Company to increase the number of shares available for grant under
the Plan by 2.5 million, (iii) eliminate the right of directors to receive cash
in lieu of common stock at a fixed value, (iv) provide for the receipt of stock
bonuses by directors in lieu of cash compensation, and (v) adopt administrative
changes recommended by counsel;



     NOW, THEREFORE, pursuant to authorization of the board of directors of the
Company, the Plan is hereby amended and restated, effective on January 26,
2004:



     1. Purposes of the Plan. The purposes of the Capstone Turbine Corporation
Amended and Restated 2000 Equity Incentive Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to Employees, Directors and Consultants and to
promote the success of the Company’s business. Options granted under the Plan
may be Incentive Stock Options or Non-Qualified Stock Options, as determined by
the Committee at the time of grant. Restricted Stock, Stock Purchase Rights and
Stock Bonuses may also be granted under the Plan.



     2. Definitions. As used herein, the following definitions shall apply:



      (a) “Acquisition” means, unless specified otherwise in an Agreement, (i)
any consolidation or merger of the Company with or into any other corporation
or other entity or person in which the stockholders of the Company prior to
such consolidation or merger own less than 50% of the Company’s voting power
immediately after such consolidation or merger, excluding any consolidation or
merger effected exclusively to change the domicile of the Company; or (ii) a
sale of all or substantially all of the assets of the Company.



      (b) “Agreement” means a written agreement between the Company and a Holder
evidencing the terms and conditions of an individual award or grant of an
Option, Restricted Stock, Stock Bonus, or Stock Purchase Right. Each Agreement
is subject to the terms and conditions of the Plan, except as otherwise
provided for herein.



      (c) “Applicable Laws” means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options, Stock Purchase Rights or
Stock Bonuses are granted under the Plan.



 









 





      (d) “Board” means the Board of Directors of the Company.



      (e) “Cause” means (i) with respect to a Holder who is an Employee, and
whose employment contract expressly provides for termination of such Holder in
certain specified circumstances constituting “cause,” those circumstances that
constitute “cause” under such Holder’s employment contract; (ii) with respect
to a Holder who is an Employee, but who does not have an employment contract or
whose employment contract does not expressly provide for termination of such
Holder in certain specified circumstances constituting “cause,” (A) the
commission of any act by such Holder involving fraud, embezzlement or a felony,
(B) the commission of any act by such Holder constituting financial dishonesty
against the Company or its Parent or any of its Subsidiaries, (C) repeated and
gross dereliction of duty to the Company or its Parent or any of its
Subsidiaries to which such Holder’s duties extend, (D) an act involving moral
turpitude which (1) brings the Company or its Parent or any of its Subsidiaries
into public disrepute or disgrace, or (2) causes material injury to the
customer relations, operations or the business prospects of the Company or its
Parent or any of its Subsidiaries, (E) the breach by such Holder of any of such
Holder’s obligations under such Holder’s employee or employment agreement with
the Company or its Parent or any of its Subsidiaries, or (F) the refusal or
failure of such Holder to follow the lawful directives of the Board, the
President and Chief Executive Officer of the Company or his designee or such
Holder’s supervisor; and (iii) with respect to a Holder who is a Director, (A)
the commission of any act by such Holder involving fraud, embezzlement or a
felony, (B) the commission of any act by such Holder constituting financial
dishonesty against the Company or its Parent or any of its Subsidiaries, (C)
repeated and gross dereliction of duty to the Company or its Parent or any of
its Subsidiaries to which such Holder’s duties extend, (D) an act involving
moral turpitude which (1) brings the Company or its Parent or any of its
Subsidiaries into public disrepute or disgrace, or (2) causes material injury
to the customer relations, operations or the business prospects of the Company
or its Parent or any of its Subsidiaries. Notwithstanding the foregoing, for
Options and other awards issued on or after April 15, 2004, “Cause” shall
instead be defined by the terms of a Holder’s Agreement with respect to the
Shares covered thereby, in those circumstances in which the Agreement addresses
or defines a termination for reasons of “cause.”



      (f) “Code” means the Internal Revenue Code of 1986, as amended, or any
successor statute or statutes thereto. Reference to any particular Code section
shall include any successor section.



      (g) “Committee” means a committee appointed by the Board in accordance
with Section 4 hereof to administer the Plan.



      (h) “Common Stock” means the Common Stock of the Company, par value $0.001
per share.



      (i) “Company” means Capstone Turbine Corporation, a Delaware corporation.



      (j) “Consultant” means any consultant or adviser if: (i) the consultant or
adviser renders bona fide services to the Company; (ii) the services rendered
by the consultant or adviser are not in connection with the offer or sale of
securities in a capital-raising transaction



 









 





and do not directly or indirectly promote or maintain a market for the
Company’s securities; and (iii) the consultant or adviser is a natural person
who has contracted directly with the Company to render such services.




      (k) “Director” means a member of the Board.



      (l) “Employee” means any person, including an Officer or Director, who is
an employee (as defined in accordance with Section 3401(c) of the Code) of the
Company or any Parent or Subsidiary of the Company. A Service Provider shall
not cease to be an Employee in the case of (i) any leave of absence approved by
the Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. For purposes of
Incentive Stock Options, no such leave may exceed 90 days, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. Neither
service as a Director nor payment of a director’s fee by the Company shall be
sufficient, by itself, to constitute “employment” by the Company.



      (m) “Exchange Act” means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto. Reference to any particular
Exchange Act section shall include any successor section.



      (n) “Fair Market Value” means, as of any date, the value of a share of
Common Stock determined as follows:



         (i) If the Common Stock is listed on any established stock exchange or a
national market system, including, without limitation, the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for a share of such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system,
as reported in The Wall Street Journal or such other source as the Committee
deems reliable;



         (ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for a share of the Common Stock;
or



         (iii) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Committee.



      (o) “Holder” means a person who has been granted or awarded an Option,
Restricted Stock or Stock Purchase Right, or who holds Shares acquired pursuant
to the exercise of an Option or Stock Purchase Right or pursuant to a Stock
Bonus.



      (p) “Incentive Stock Option” means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Committee.



      (q) “Independent Director” means a Director who is:



 









 





         (i) An “outside director,” within the meaning of Section 162(m) of the
Code;



         (ii) A “non-employee director” within the meaning of Rule 16b-3; and



         (iii) An “independent director” under the listing standards of The Nasdaq
Stock Market.



      (r) “Non-Qualified Stock Option” means an Option (or portion thereof) that
is not designated as an Incentive Stock Option by the Committee, or which is
designated as an Incentive Stock Option by the Committee but fails to qualify
as an incentive stock option within the meaning of Section 422 of the Code.



      (s) “Officer” means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.



      (t) “Option” means a stock option granted pursuant to the Plan.



      (u) “Option Exchange Program” means a program whereby outstanding Options
are surrendered or cancelled in exchange for Options that are granted more than
six months and one day following such surrender or cancellation and are of the
same type (which may have a lower exercise price or purchase price), of a
different type and/or cash, and subject to certain conditions (e.g., continued
employment).



      (v) “Parent” means any corporation, whether now or hereafter existing
(other than the Company), in an unbroken chain of corporations ending with the
Company if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing more than fifty percent of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.



      (w) “Plan” means the Capstone Turbine Corporation Amended and Restated
2000 Equity Incentive Plan.



      (x) “Public Trading Date” means the first date upon which Common Stock of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.



      (y) “Restricted Stock” means Shares acquired pursuant to the exercise of
an unvested Option in accordance with Section 10(h), or pursuant to an election
pursuant to a Stock Purchase Right granted under Section 12(b) or Section 14.



      (z) “Rule 16b-3” means that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.



      (aa) “Section 16(b)” means Section 16(b) of the Exchange Act, as such
Section may be amended from time to time.



 









 





      (bb) “Securities Act” means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto. Reference to any particular Securities
Act section shall include any successor section.



      (cc) “Service Provider” means an Employee, Director or Consultant.



      (dd) “Share” means a share of Common Stock, as adjusted in accordance with
Section 15 below.



      (ee) “Stock Bonus” means a grant of Common Stock granted pursuant to
Section 14(e) or elected pursuant to Section 12(b).



      (ff) “Stock Purchase Right” means a right to purchase Common Stock
pursuant to Section 14.



      (gg) “Subsidiary” means any corporation, whether now or hereafter existing
(other than the Company), in an unbroken chain of corporations beginning with
the Company if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing more than 50% of the total combined voting
power of all classes of stock in one of the other corporations in such chain.



     3. Stock Subject to the Plan. Subject to the provisions of Section 15, the
shares of stock subject to Options, Stock Purchase Rights or Stock Bonuses
shall be Common Stock, initially shares of the Company’s Common Stock, par
value $0.001 per share. Subject to the provisions of Section 15, the maximum
aggregate number of Shares which may be issued upon exercise of such Options or
Stock Purchase Rights or pursuant to such Stock Bonuses is 3,700,000 Shares,
plus the number of Shares previously authorized and remaining available under
the Company’s 1993 Stock Incentive Plan, as amended, as of the Public Trading
Date, plus any Shares covered by options granted under the Company’s 1993 Stock
Incentive Plan that are forfeited or expire unexercised or otherwise become
available after the Public Trading Date; provided, however, that the maximum
aggregate number of Shares which may be issued upon exercise of Incentive Stock
Options is 11,500,000 Shares. Shares issued upon exercise of Options or Stock
Purchase Rights or pursuant to Stock Bonuses may be authorized but unissued, or
reacquired Common Stock. If an Option or Stock Purchase Right expires or
becomes unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the Plan
(unless the Plan has terminated). Shares which are delivered by the Holder or
withheld by the Company upon the exercise of an Option or Stock Purchase Right
or in respect of a Stock Bonus under the Plan, in payment of the exercise price
thereof or tax withholding thereon, may again be optioned, granted or awarded
hereunder, subject to the limitations of this Section 3. If Shares of
Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
Notwithstanding the provisions of this Section 3, no Shares may again be
optioned, granted or awarded if such action would cause an Incentive Stock
Option to fail to qualify as an Incentive Stock Option under Code Section 422.



 









 





     4. Administration of the Plan.



      (a) Administration Committee. The Plan shall be administered by the
Committee that is established and designated by the Board to administer the
Plan. Prior to the 2004 annual meeting of shareholders of the Company, the
Committee shall be comprised of at least two individuals who are all
Independent Directors. Effective at the conclusion of the 2004 annual meeting
of shareholders of the Company, the Committee shall be comprised of at least
three individuals who are all Independent Directors. The Committee shall have,
in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any
of the administrative powers the Committee is authorized to exercise, subject,
however, to such resolutions or Committee charter, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board.
Within the scope of such authority, the Committee may delegate (i) to the chief
executive officer of the Company the authority to grant awards under the Plan
to eligible persons who are (1) not “covered employees,” within the meaning of
Section 162(m) of the Code, (2) not expected to be “covered employees” at the
time of recognition of income resulting from such award, and (3) not subject to
liability under Section 16 of the Exchange Act, and/or (ii) to any officer of
the Company any other authority that is included in Sections 4(b)(iv), (viii),
(ix) or (xi) or Section 9(b).



      (b) Powers of the Committee. Subject to the provisions of the Plan and the
specific duties delegated by the Board to such Committee, and subject to the
approval of any relevant authorities, the Committee shall have the authority in
its sole discretion:



         (i) to determine the Fair Market Value;



         (ii) to select the Service Providers to whom Options, Stock Purchase
Rights, and Stock Bonuses may from time to time be granted hereunder;



         (iii) to determine the number of Shares to be covered by each such award
granted hereunder;



         (iv) to approve forms of Agreement for use under the Plan;



         (v) to determine the terms and conditions of any award granted hereunder
(such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may vest or be
exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any award granted hereunder or the Common Stock relating
thereto, based in each case on such factors as the Committee, in its sole
discretion, shall determine);



         (vi) to institute an Option Exchange Program that has been approved by the
Board; provided, however, that the effectiveness of the Option Exchange Program
is subject to the approval of the Company’s shareholders;



 









 





         (vii) to determine whether to offer to buyout a previously granted Option
as provided in subsection 10(i) and to determine the terms and conditions of
such offer and buyout (including whether payment is to be made in cash or
Shares);



         (viii) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign tax laws;



         (ix) to allow Holders to satisfy withholding tax obligations by electing
to have the Company withhold from the Shares to be issued upon exercise of an
Option or Stock Purchase Right or pursuant to a Stock Bonus that number of
Shares having a Fair Market Value equal to the minimum amount required to be
withheld based on the statutory withholding rates for federal and state tax
purposes that apply to supplemental taxable income. The Fair Market Value of
the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined. All elections by Holders to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Committee may deem necessary or advisable;



         (x) to amend any Option or Stock Purchase Right granted under the Plan as
provided in Section 14; and



         (xi) to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan and to exercise such powers and perform such acts as the
Committee deems necessary or desirable to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.



      (c) Effect of Committee’s Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Holders.



     5. Eligibility. Non-Qualified Stock Options, Stock Purchase Rights and
Stock Bonuses may be granted to Service Providers. Incentive Stock Options may
be granted only to Employees. If otherwise eligible, an Employee or Consultant
who has been granted an Option, Stock Purchase Right or Stock Bonus may be
granted additional Options, Stock Purchase Rights or Stock Bonuses. In addition
to the foregoing, each Non-Employee Director (defined in Section 12) shall be
granted Options at the times and in the manner set forth in Section 12 and may
receive Stock Bonuses in lieu of cash compensation as described in Section 12.



     6. Limitations.



      (a) Each Option shall be designated by the Committee in the Agreement as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to a Holder’s Incentive Stock Options and other
incentive stock options granted by the Company, any Parent or Subsidiary, which
become exercisable for the first time during any calendar year (under all plans
of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options or other options shall be treated as Non-Qualified Stock Options.



 









 





      For purposes of this Section 6(a), Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of the Shares shall be determined as of the time of grant.



      (b) None of the Plan, any Option, Stock Purchase Right or Stock Bonus
shall confer upon a Holder any right with respect to continuing the Holder’s
employment or consulting relationship with the Company, nor shall they
interfere in any way with the Holder’s right or the Company’s right to
terminate such employment or consulting relationship at any time, with or
without cause.



      (c) No Service Provider shall be granted, in any calendar year, Options,
Stock Purchase Rights or Stock Bonuses to acquire more than 3,000,000 Shares.
The foregoing limitation shall be adjusted proportionately in connection with
any change in the Company’s capitalization as described in Section 15. For
purposes of this Section 6(c), if an Option is canceled in the same calendar
year it was granted (other than in connection with a transaction described in
Section 15), the canceled Option will be counted against the limit set forth in
this Section 6(c). For this purpose, if the exercise price of an Option is
reduced, the transaction shall be treated as a cancellation of the Option and
the grant of a new Option.



     7. Term of Plan. The Plan shall become effective upon its initial adoption
by the Board and shall continue in effect until it is terminated under Section
17. No Options, Stock Purchase Rights or Stock Bonuses may be issued under the
Plan with respect to the shares specified in Section 3 hereof after the tenth
anniversary of the earlier of (i) the date upon which the Plan is adopted by
the Board or (ii) the date the Plan is approved by the stockholders. If the
number of shares specified in Section 3 is increased by an amendment to this
Plan, Options Stock Purchase Rights or Stock Bonuses may be awarded with
respect to such increased shares for a period of ten years after the earlier of
the date that the amendment to the Plan is adopted by the Board or the date
that the amendment is approved by the stockholders. Options, Stock Purchase
Rights and Stock Bonuses granted before such dates shall remain valid in
accordance with their terms.



     8. Term of Option. The term of each Option shall be stated in the
Agreement; provided, however, that the term shall be no more than ten years
from the date of grant thereof; and provided further that, in the case of an
Incentive Stock Option granted to a Holder who, at the time the Option is
granted, owns (or is treated as owning under Code Section 424) stock
representing more than 10% of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be no more
than five years from the date of grant thereof.



     9. Option Exercise Price and Consideration.



      (a) Except as provided in Section 13, the per share exercise price for the
Shares to be issued upon exercise of an Option shall be such price as is
determined by the Committee, but shall be subject to the following:



         (i) In the case of an Incentive Stock Option



            (A) granted to an Employee who, at the time of grant of such Option, owns
(or is treated as owning under Code Section 424) stock representing more than



 









 





10% of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant.




            (B) granted to any other Employee, the per Share exercise price shall be
no less than 100% of the Fair Market Value per Share on the date of grant.



         (ii) In the case of a Non-Qualified Stock Option



            (A) granted to a Service Provider who, at the time of grant of such
Option, owns stock representing more than 10% of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of
the grant.



            (B) granted to any other Service Provider, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.



         (iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price other than as required in this subsection (a) above
pursuant to a merger or other corporate transaction.



      (b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Committee (and, in the case of an Incentive Stock Option, shall be determined
at the time of grant). Such consideration may consist of (1) cash, (2) check,
(3) with the consent of the Committee, actual or constructive delivery of
Shares which (x) in the case of Shares acquired from the Company, have been
owned by the Holder for more than six months on the date of surrender, and (y)
have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which such Option shall be exercised, (4)
with the consent of the Committee, payment in connection with the pledge of
Shares and a loan through a broker in a transaction described in Securities and
Exchange Commission Regulation T, (5) any other consideration acceptable to the
Committee, or (6) with the consent of the Committee, any combination of the
foregoing methods of payment.



     10. Exercise of Option.



      (a) Vesting; Fractional Exercises. Except as provided in Section 13,
Options granted hereunder shall be vested and exercisable according to the
terms hereof at such times and under such conditions as determined by the
Committee and set forth in the Agreement. An Option may not be exercised for a
fraction of a Share.



      (b) Deliveries upon Exercise. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the
Secretary of the Company or his or her office:



         (i) A written or electronic notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Holder or other person then
entitled to exercise the Option or such portion of the Option;



 









 





         (ii) Such representations and documents as the Committee, in its sole
discretion, deems necessary or advisable to effect compliance with Applicable
Laws. The Committee may, in its sole discretion, also take whatever additional
actions it deems appropriate to effect such compliance, including, without
limitation, placing legends on share certificates and issuing stop transfer
notices to agents and registrars;



         (iii) Upon the exercise of all or a portion of an unvested Option pursuant
to Section 10(h), an Agreement covering the purchase of the Restricted Stock in
a form determined by the Committee and signed by the Holder or other person
then entitled to exercise the Option or such portion of the Option;



         (iv) In the event that the Option shall be exercised pursuant to Section
10(f) by any person or persons other than the Holder, appropriate proof of the
right of such person or persons to exercise the Option; and



         (v) The receipt by the Company of full payment for such Shares, including
payment of any applicable withholding tax. Tax withholding may, in the sole
discretion of the Committee, be paid in the form of (i) deduction from wages
otherwise payable to the Holder, (ii) consideration used by the Holder to pay
for such Shares under Section 9(b), or (iii) Shares that have a Fair Market
Value equal to the minimum required withholdings and that would otherwise be
deliverable to the Holder upon exercise of the Option.



      (c) Conditions to Delivery of Share Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for Shares
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:



         (i) The admission of such Shares to listing on all stock exchanges on
which such class of stock is then listed;



         (ii) The completion of any registration or other qualification of such
Shares under any state or federal law, or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory
body which the Committee shall, in its sole discretion, deem necessary or
advisable;



         (iii) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its sole discretion,
determine to be necessary or advisable; and



         (iv) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may establish from time to time for reasons of
administrative convenience.



      (d) Termination of Relationship as a Service Provider. If a Holder ceases
to be a Service Provider for any reason, the Holder’s continuing rights, if
any, to Options, Restricted Stock, Stock Bonuses or Stock Purchase Rights will
be as specified in the terms of the Agreement. In the absence of a provision in
the Agreement that specifies the date of expiration when the Holder ceases to
be a Service Provider, each Option shall remain exercisable in accordance with
the provisions set forth herein, as follows: (i) upon termination as a Service



 









 





Provider for reasons other than Cause, death or disability, the Option
shall remain exercisable for three months following the termination of the
Holder’s relationship as a Service Provider (but in no event later than the
expiration of the term of such Option as set forth in the Agreement or terms of
the grant) to the extent that the Option is then vested and the Shares covered
by the unvested portion of the Option shall immediately become available for
issuance under the Plan; (ii) any unexercised portion of the Option shall
terminate at the end of the three-month period specified herein and the Shares
covered thereby shall immediately become available for issuance under the Plan;
(iii) if a Holder’s relationship as a Service Provider is terminated for Cause,
the entire Option shall immediately terminate, and the Shares covered thereby
shall immediately become available for issuance under the Plan, and (iv) if a
Holder is terminated for reasons of death or disability, the rights under the
Option shall be determined by Sections 10(e) and 10(f).




      (e) Disability of Holder. If a Holder ceases to be a Service Provider as a
result of the Holder’s disability, and the applicable Agreement does not
specify the date of expiration when the Holder ceases to be a Service Provider,
an Option shall remain exercisable for 12 months following the Holder’s
termination due to disability (but in no event later than the expiration of the
term of such Option as set forth in the Agreement or terms of the grant), but
only to the extent that the Option was exercisable on the date of disability,
and the Shares covered by the unvested portion of the Option shall immediately
become available for issuance under the Plan. To the extent that the Option is
not exercised by the end of the 12 month period, the Option shall expire and
the Shares covered thereby shall again become available for issuance under the
Plan. For purposes of Incentive Stock Options, the term “disability” shall be
defined in accordance with Section 22(e)(3) of the Code.



      (f) Death of Holder. If a Holder dies while a Service Provider, and the
applicable Agreement does not specify the date of expiration when the Holder
ceases to be a Service Provider, an Option shall remain exercisable for 12
months following the Holder’s death (but in no event later than the expiration
of the term of such Option as set forth in the Agreement or terms of the
grant), but only to the extent that the Option was exercisable on the date of
death, and the Shares covered by the unvested portion of the Option shall
immediately become available for issuance under the Plan. To the extent that
the Option is not exercised by the end of the 12 month period, the Option shall
expire and the Shares covered thereby shall again become available for issuance
under the Plan. The Option may be exercised by the executor or administrator of
the Holder’s estate or, if applicable, by the person(s) entitled to exercise
the Option under the Holder’s will or the laws of descent or distribution.



      (g) Regulatory Extension. A Holder’s Agreement may provide that if the
exercise of the Option following the termination of the Holder’s status as a
Service Provider (other than upon the Holder’s death or Disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in Section 8 or (ii) the expiration of a period of three months after the
termination of the Holder’s status as a Service Provider during which the
exercise of the Option would not be in violation of such registration
requirements.



 









 





      (h) Buyout Provisions. The Committee may at any time offer to buyout for a
payment in cash or Shares, an Option previously granted, based on such terms
and conditions as the Committee shall establish and communicate to the Holder
at the time that such offer is made.



     11. Non-Transferability. Options, Restricted Stock, Stock Bonuses and
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Holder, only by the Holder.



     12. Granting of Options to and Stock Elections by Non-Employee Directors.



      (a) A person who is a Director but is not an employee of the Company or
any of its affiliates (a “Non-Employee Director”) who is initially elected to
the Board shall, during the term of the Plan, be granted an Option to purchase
21,600 Shares (subject to adjustment as provided in Section 15) on such initial
election (an “Initial Option”), and (ii) an Option to purchase 10,000 Shares
(subject to adjustment as provided in Section 15) on the date of the first
annual meeting of stockholders that occurs each year that the Non-Employee
Director is reelected to the Board (the “Annual Option”). Members of the Board
who are employees of the Company who subsequently retire from the Company and
remain on the Board will not receive an Initial Option but, to the extent that
they are otherwise eligible as Non-Employee Directors, will receive, after
retirement from employment with the Company, the Annual Option.



      (b) In the event that the Company provides cash compensation to
Non-Employee Directors for service as a Director or for service as a member or
chairperson of a committee of the Board (collectively “Cash Compensation”),
each Non-Employee Director may elect to receive (subject to limitations in
Section 12(b)(i)), in lieu of receiving any portion of his or her Cash
Compensation, a Stock Bonus. Such an election shall be made by filing an
election with the Company, in accordance with procedures adopted by the
Committee, prior to the time that such Cash Compensation is paid. All elections
made hereunder are subject to the following:



         (i) The number of Shares payable under a Stock Bonus shall be calculated
by dividing (A) the amount of the Cash Compensation that would have been
payable to the Non-Employee Director in the absence of an election, by (B) the
Fair Market Value of a Share on the date that the Cash Compensation would have
otherwise been paid; provided, however, that no more than 20,000 Shares can be
made subject to a Stock Bonus during any 12-month period that begins with the
annual meeting of the shareholders of the Company in which Board members are
elected. Any amount of the Cash Compensation subject to the election that
exceeds the Fair Market Value of the Shares that are calculated hereunder shall
be paid in cash to the Non-Employee Director.



         (ii) Other than the right of the Non-Employee Director herein to elect to
receive a Stock Bonus, the terms thereof shall be subject to the provisions of
Section 14.



     13. Terms of Non-Employee Director Options. The per Share price of each
Option granted to a Non-Employee Director (as defined in Section 12) shall be
equal to 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted. Initial Options (as defined in Section 12) granted to
Non-Employee Directors shall become exercisable in



 









 





cumulative annual installments of one-third of the Shares subject to such
option on each of the yearly anniversaries of the date of Initial Option grant
that the Non-Employee Director remains a Director, commencing with the first
such anniversary, such that each Initial Option shall be 100% vested on the
third anniversary of its date of grant if the Non-Employee Director continues
to be a Director on such date. Annual Options (as defined in Section 12)
granted to Non-Employee Directors shall become exercisable in cumulative
quarterly installments of one-fourth of the Shares subject to such Option on
the first day of each of calendar quarter that follows the date of the Annual
Option grant that the Non-Employee Director remains a Director, such that each
Annual Option shall be 100% vested on the one-year anniversary of its date of
grant if the Non-Employee Director continues to be a Director on such date.
Subject to Section 10, the term of each Option granted to a Non-Employee
Director shall be ten years from the date the Option is granted. No portion of
an Option which is unexercisable at the time of an Non-Employee Director’s
termination of membership on the Board shall thereafter become exercisable.




     14. Stock Purchase Rights and Stock Bonuses.



      (a) Rights to Purchase. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with Options granted under the Plan and/or cash
awards made outside of the Plan. After the Committee determines that it will
offer Stock Purchase Rights under the Plan, it shall advise the offeree in
writing of the terms, conditions and restrictions related to the offer,
including the number of Shares that such person shall be entitled to purchase,
the price to be paid, and the time within which such person must accept such
offer. The offer shall be accepted by execution of an Agreement that covers the
purchase of Restricted Stock in the form determined by the Committee.



      (b) Repurchase Right. Unless the Committee determines otherwise, the
Agreement for the purchase of Restricted Stock shall grant the Company the
right to repurchase Shares acquired upon exercise of a Stock Purchase Right
upon the termination of the purchaser’s status as a Service Provider for any
reason. Subject to Section 22, the purchase price for Shares repurchased by the
Company pursuant to such repurchase right and the rate at which such repurchase
right shall lapse shall be determined by the Committee in its sole discretion,
and shall be set forth in the Agreement.



      (c) Other Provisions. The Agreement shall contain such other terms,
provisions and conditions not inconsistent with the Plan as may be determined
by the Committee in its sole discretion.



      (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised,
the purchaser shall have rights equivalent to those of a shareholder and shall
be a shareholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. No adjustment shall be made for
a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 15 of the
Plan.



      (e) Stock Bonuses. Notwithstanding any other provision of the Plan, the
Committee may grant Stock Bonuses, as compensation or as bonuses, to such
Service Providers as the Committee may select in its sole discretion from time
to time. Such Stock Bonuses may be



 









 





issued either alone, in addition to, or in tandem with Options or Stock
Purchase Rights granted under the Plan and/or cash awards made outside of the
Plan. After the Committee determines that it will offer Stock Bonuses under the
Plan, it shall advise the offeree in writing of the terms and conditions
related to the offer, including the number of Shares that such person shall be
entitled to receive, the time within which such person must accept such offer,
and the manner of acceptance of such offer.




     15. Adjustments upon Changes in Capitalization, Merger or Asset Sale. The
terms of this Section 15 will apply to the rights of a Holder under all
Agreements issued hereunder; provided, however, that the terms of an Agreement
will control with respect to the Holder’s rights and adjustments that are made
with respect to a merger, asset purchase or other acquisition transaction if
the Agreement specifically makes provision for rights and adjustments upon the
occurrence of any such acquisition transaction.



      (a) In the event that the Committee determines that any dividend or other
distribution (whether in the form of cash, Common Stock, other securities, or
other property), recapitalization, reclassification, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company, or
exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event, in the Committee’s
sole discretion, affects the Common Stock such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan or with respect to any Option, Stock Purchase Right or Restricted Stock,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of:



         (i) the number and kind of shares of Common Stock (or other securities or
property) with respect to which Options or Stock Purchase Rights may be granted
or awarded (including, but not limited to, adjustments of the limitations in
Section 3 on the maximum number and kind of shares which may be issued and
adjustments of the maximum number of Shares that may be purchased by any Holder
in any calendar year pursuant to Section 6(c));



         (ii) the number and kind of shares of Common Stock (or other securities or
property) subject to outstanding Options, Stock Purchase Rights or Restricted
Stock; and



         (iii) the grant or exercise price with respect to any Option or Stock
Purchase Right.



      (b) In the event of any transaction or event described in Section 15(a),
the Committee, in its sole discretion, and on such terms and conditions as it
deems appropriate, either by the terms of the Option, Stock Purchase Right or
Restricted Stock or by action taken prior to the occurrence of such transaction
or event and either automatically or upon the Holder’s request, is hereby
authorized to take any one or more of the following actions whenever the
Committee determines that such action is appropriate in order to prevent
dilution or enlargement



 









 





of the benefits or potential benefits intended by the Company to be made
available under the Plan or with respect to any Option, Stock Purchase Right or
Restricted Stock granted or issued under the Plan or to facilitate such
transaction or event:




         (i) To provide for either the purchase of any such Option, Stock Purchase
Right or Restricted Stock for an amount of cash equal to the amount that could
have been obtained upon the exercise of such Option or Stock Purchase Right or
realization of the Holder’s rights had such Option, Stock Purchase Right or
Restricted Stock been currently exercisable or payable or fully vested or the
replacement of such Option, Stock Purchase Right or Restricted Stock with other
rights or property selected by the Committee in its sole discretion;



         (ii) To provide that such Option or Stock Purchase Right shall be
exercisable as to all shares covered thereby, notwithstanding anything to the
contrary in the Plan or the provisions of such Option or Stock Purchase Right;



         (iii) To provide that such Option, Stock Purchase Right or Restricted
Stock be assumed by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar options, rights or
awards covering the stock of the successor or survivor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind
of shares and prices;



         (iv) To make adjustments in the number and type of shares of Common Stock
(or other securities or property) subject to outstanding Options and Stock
Purchase Rights, and/or in the terms and conditions of (including the grant or
exercise price), and the criteria included in, outstanding Options, Stock
Purchase Rights or Restricted Stock or Options, Stock Purchase Rights or
Restricted Stock which may be granted in the future; and



         (v) To provide that immediately upon the consummation of such event, such
Option or Stock Purchase Right shall not be exercisable and shall terminate;
provided, that for a specified period of time prior to such event, such Option
or Stock Purchase Right shall be exercisable as to all Shares covered thereby,
and the restrictions imposed under an Agreement upon some or all Shares may be
terminated and, in the case of Restricted Stock, some or all shares of such
Restricted Stock may cease to be subject to repurchase, notwithstanding
anything to the contrary in the Plan or the provisions of such Option, Stock
Purchase Right or Restricted Stock or any Agreement.



      (c) Subject to Section 3, the Committee may, in its sole discretion,
include such further provisions and limitations in any Option, Stock Purchase
Right, Restricted Stock, Agreement or certificate, as it may deem equitable and
in the best interests of the Company.



      (d) If the Company undergoes an Acquisition, then any surviving
corporation or entity or acquiring corporation or entity, or affiliate of such
corporation or entity, may assume any Options, Stock Purchase Rights or
Restricted Stock outstanding under the Plan or may substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 15(d)) for those
outstanding under the Plan. In the event any surviving corporation or entity or
acquiring corporation or entity in an Acquisition, or affiliate of such
corporation or entity, does not assume such Options, Stock



 









 





Purchase Rights or Restricted Stock or does not substitute similar stock
awards for those outstanding under the Plan, then with respect to (i) Options,
Stock Purchase Rights or Restricted Stock held by participants in the Plan
whose status as a Service Provider has not terminated prior to such event, the
vesting of such Options, Stock Purchase Rights or Restricted Stock (and, if
applicable, the time during which such awards may be exercised) shall be
accelerated and made fully exercisable and all restrictions thereon shall lapse
at least ten days prior to the closing of the Acquisition (and the Options or
Stock Purchase Rights terminated if not exercised prior to the closing of such
Acquisition), and (ii) any other Options or Stock Purchase Rights outstanding
under the Plan, such Options or Stock Purchase rights shall be terminated if
not exercised prior to the closing of the Acquisition.




      (e) In the event the Company undergoes an Acquisition and any surviving
corporation or entity or acquiring corporation or entity, or affiliate of such
corporation or entity, does assume any Options, Stock Purchase Rights or
Restricted Stock outstanding under the Plan (or substitutes similar stock
awards, including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 15(e), for those
outstanding under the Plan), then, with respect to each stock award held by
participants in the Plan then performing services as Employees or Directors,
the vesting of each such stock award (and, if applicable, the time during which
such stock award may be exercised) shall be accelerated and such stock award
shall immediately become fully vested and exercisable, if any of the following
events occurs within nine months after the effective date of the Acquisition:
(1) the Employee status or Director status, as applicable, of the participant
holding such stock award is terminated by the Company without Cause; (2) the
Employee holding such stock award terminates his or her Employee status due to
the fact that the principal place of the performance of the responsibilities
and duties of the Employee is changed to a location more than 50 miles from
such Employee’s existing work location without the Employee’s express consent
(this clause (2) is not applicable to Directors); or (3) the Employee holding
such stock award terminates his or her Employee status due to the fact that
there is a material reduction in such Employee’s responsibilities and duties
without the Employee’s express consent (this clause (3) is not applicable to
Directors).



      (f) The existence of the Plan, any Agreement and the Options or Stock
Purchase Rights granted hereunder shall not affect or restrict in any way the
right or power of the Company or the stockholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change in
the Company’s capital structure or its business, any merger or consolidation of
the Company, any issue of stock or of options, warrants or rights to purchase
stock or of bonds, debentures, preferred or prior preference stocks whose
rights are superior to or affect the Common Stock or the rights thereof or
which are convertible into or exchangeable for Common Stock, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.



     16. Time of Granting Options, Stock Purchase Rights and Stock Bonuses. The
date of grant of an Option, Stock Purchase Right or Stock Bonus shall, for all
purposes, be the date on which the Committee makes the determination granting
such Option, Stock Purchase Right or Stock Bonus, or such other date as is
determined by the Committee. Notice of the determination shall be given to each
Employee or Consultant to whom an Option, Stock Purchase Right or Stock Bonus
is so granted within a reasonable time after the date of such grant.



 









 





     17. Amendment and Termination of the Plan.



      (a) Amendment and Termination. The Board may at any time wholly or
partially amend, alter, suspend or terminate the Plan. However, without
approval of the Company’s stockholders given within 12 months before or after
the action by the Board, no action of the Board may, except as provided in
Section 15, increase the limits imposed in Section 3 on the maximum number of
Shares which may be issued under the Plan or extend the term of the Plan under
Section 7.



      (b) Stockholder Approval. The Board shall obtain stockholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.



      (c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Holder,
unless mutually agreed otherwise between the Holder and the Committee, which
Agreement must be in writing and signed by the Holder and the Company.
Termination of the Plan shall not affect the Committee’s ability to exercise
the powers granted to it hereunder with respect to Options, Stock Purchase
Rights, Stock Bonuses or Restricted Stock granted or awarded under the Plan
prior to the date of such termination.



     18. Stockholder Approval. The Capstone Turbine Corporation 2000 Equity
Incentive Plan, as originally adopted, was submitted for the approval of the
Company’s stockholders and such approval was received within 12 months after
the date of the Board’s initial adoption thereof. In addition, an amendment to
increase the number of Shares authorized for issuance hereunder from 3,300,000
to 3,700,000 was approved by the Company’s stockholders, and such amendment is
incorporated herein.



     19. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.



     20. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.



     21. Investment Intent. The Company may require a Plan participant, as a
condition of exercising or acquiring stock under any Option, Stock Purchase
Right or Stock Bonus, (i) to give written assurances satisfactory to the
Company as to the participant’s knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Option or Stock Purchase Right, electing or accepting the Stock Bonus; and
(ii) to give written assurances satisfactory to the Company stating that the
participant is acquiring the stock subject to the Option, Stock Purchase Right
or Stock Bonus for the participant’s own account and not with any present
intention of selling or



 









 





otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (A) the
issuance of the shares upon the exercise or acquisition of stock under the
applicable Option, Stock Purchase Right or Stock Bonus has been registered
under a then currently effective registration statement under the Securities
Act or (B) as to any particular requirement, a determination is made by counsel
for the Company that such requirement need not be met in the circumstances
under the then applicable securities laws. The Company may, upon advice of
counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.




     22. Governing Law. The validity and enforceability of this Plan shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to otherwise governing principles of conflicts of law.



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