Exhibit
10.63


CATALYTICA ENERGY
SYSTEMS, INC.


1995
STOCK PLAN


STOCK
OPTION AGREEMENT


Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined
meanings in this Stock Option Agreement (the “Agreement”).


I.                                   NOTICE OF STOCK OPTION GRANT


[Optionee’s Name
and Address]


You have been
granted an option to purchase Common Stock of the Company, subject to the terms
and conditions of the Plan and this Stock Option Agreement, as follows:


	
  Grant Number

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date of Grant

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Vesting Commencement Date

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exercise Price per Share

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Total Number of Shares Granted

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Exercise Price

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Type of Option:

  	
   

  	
  Nonstatutory Stock Option

  
	
   

  	
   

  	
   

  
	
  Term/Expiration Date:

  	
   

  	
   

  



 


Vesting Schedule:


Subject to
accelerated vesting as set forth below, this Option may be exercised, in whole
or in part, in accordance with the following schedule:


1/48th of the Shares subject to the Option shall vest
each month following the Vesting Commencement Date (on the same day of the
month as the Vesting Commencement Date), subject to the Optionee continuing as
a Service Provider through such dates.









 



Accelerated Vesting:


If the Optionee’s Service Provider relationship is terminated by the
Company other than for Cause (as defined herein), or if the Optionee’s Service
Provider relationship terminates due to the Optionee’s death or Disability,
then 100% of the Option shall immediately vest upon such termination.  This accelerated vesting shall be in addition
to, and not in lieu of, any accelerated vesting right set forth in the Plan;
however, in no event shall an Option become vested as to more than the number
of Shares subject to the Option.


Termination Period:


If the Optionee’s
Service Provider relationship is terminated by the Company other than for Cause
(as defined herein), or if the Optionee’s Service Provider relationship
terminates due to the Optionee’s death or Disability, then this Option may be
exercised at any time prior to the Term/Expiration Date as provided above.  If the Optionee’s Service Provider
relationship is terminated voluntarily by Optionee, then this Option may be
exercised, to the extent vested upon the date of termination, for a period
equal to the lesser of five (5) years after the Optionee ceases to be a Service
Provider or the Term/Expiration Date as provided above.  If the Optionee’s Service Provider
relationship is terminated by the Company for Cause (as defined herein), then
this Option may be exercised, to the extent vested upon the date of
termination, for a period equal to the lesser of ninety (90) days after the
Optionee ceases to be a Service Provider or the Term/Expiration Date as
provided above.


Cause Definition:


For purposes of
this Option agreement, “Cause” means (i) any act of personal dishonesty
taken by the Optionee in connection with his or her responsibilities as a
Service Provider and intended to result in substantial personal enrichment of
the Optionee, (ii) Optionee’s conviction of or plea of nolo contendere
to a felony, (iii) a willful act by the Optionee that constitutes gross
misconduct and that is injurious to the Company, or (iv) for a period of
not less than thirty (30) days following delivery to the Optionee of a written
demand for performance from the Company that describes the basis for the
Company’s belief that the Optionee has not substantially performed his duties,
continued violations by the Optionee of the Optionee’s obligations to the
Company that are demonstrably willful and deliberate on the Optionee’s part.


II.                               AGREEMENT


A.                  Grant of Option.


The Plan
Administrator of the Company hereby grants to the Optionee named in the Notice
of Grant attached as Part I of this Agreement (the “Optionee”) an option (the “Option”)
to purchase the number of Shares, as set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of Grant (the “Exercise Price”),
subject to the terms and conditions of the Plan, which is incorporated herein
by reference.  Subject to Section 16(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.



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If designated in
the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is
intended to qualify as an Incentive Stock Option under Section 422 of the
Code.  However, if this Option is
intended to be an Incentive Stock Option, to the extent that it exceeds the
$100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory
Stock Option (“NSO”).


B.                    Exercise of Option.


(a)                                        Right to Exercise.  This
Option is exercisable during its term in accordance with the Vesting Schedule
set out in the Notice of Grant and the applicable provisions of the Plan and
this Option Agreement.


(b)                                       Method of Exercise.  This
Option is exercisable by delivery of an exercise notice, in the form attached
as Exhibit A (the “Exercise Notice”), which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised (the “Exercised Shares”), and such other representations and
agreements as may be required by the Company pursuant to the provisions of the
Plan.  The Exercise Notice shall be
completed by the Optionee and delivered to Stock Administrator of the
Company.  The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares.  This Option shall be deemed to
be exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.


No Shares shall be
issued pursuant to the exercise of this Option unless such issuance and
exercise complies with Applicable Laws. 
Assuming such compliance, for income tax purposes the Exercised Shares
shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.


C.                    Method of Payment.


Payment of the
aggregate Exercise Price shall be by any of the following, or a combination
thereof, at the election of the Optionee:


1.                  cash; or


2.                  check; or


3.                  consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan; or


4.                  surrender of other Shares which (i) in the
case of Shares acquired upon exercise of an option, have been owned by the
Optionee for more than six (6) months on the date of surrender, and (ii) have a
Fair Market Value on the date of surrender equal to the aggregate Exercise
Price of the Exercised Shares; or


5.                  to the extent permitted by the Administrator,
delivery of a properly executed exercise notice together with such other documentation
as the Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale pro­ceeds required
to pay the Exercise Price.



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D.                   Non-Transferability of Option.


This Option may
not be transferred in any manner otherwise than by will or by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by the Optionee.  The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.


E.                     Term of Option.


This Option may be
exercised only within the term set out in the Notice of Grant, and may be
exercised during such term only in accordance with the Plan and the terms of
this Option Agreement.


F.                     Tax Consequences.


Some of the
federal tax consequences relating to this Option, as of the date of this
Option, are set forth below.  THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE.  THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.


G.                    Exercising the Option.


1.                  Nonstatutory Stock Option.  The
Optionee may incur regular federal income tax liability upon exercise of a
NSO.  The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price.  If the Optionee is an Employee or a former
Employee, the Company will be required to withhold from his or her compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
in cash equal to a percentage of this compensation income at the time of
exercise, and may refuse to honor the exercise and refuse to deliver Shares if
such withholding amounts are not delivered at the time of exercise.


2.                  Incentive Stock Option.  If
this Option qualifies as an ISO, the Optionee will have no regular federal
income tax liability upon its exercise, although the excess, if any, of the
Fair Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to alternative
minimum taxable income for federal tax purposes and may subject the Optionee to
alternative minimum tax in the year of exercise.  In the event that the Optionee ceases to be
an Employee but remains a Service Provider, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the date three (3) months and one (1) day following such change of status.


3.                  Disposition of Shares.


(a)                   NSO.  If the Optionee holds NSO
Shares for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes.


(b)                  ISO.  If the Optionee holds ISO
Shares for at least one year after exercise and two years after the grant date,
any gain realized on disposition of the Shares will be 



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treated as long-term capital
gain for federal income tax purposes.  If
the Optionee disposes of ISO Shares within one year after exercise or two years
after the grant date, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates), if any, equal to the
lesser of (A) the difference between the Fair Market Value of the Shares
acquired on the date of exercise and the aggregate Exercise Price, or (B) the
difference between the sale price of such Shares and the aggregate Exercise
Price.  Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.


(c)                   Notice of Disqualifying Disposition of ISO
Shares.  If the Optionee sells or otherwise disposes
of any of the Shares acquired pursuant to an ISO on or before the later of
(i) two years after the grant date, or (ii) one year after the
exercise date, the Optionee shall immediately notify the Company in writing of
such disposition.  The Optionee agrees
that he or she may be subject to income tax withholding by the Company on the
compensation income recognized from such early disposition of ISO Shares by
payment in cash or out of the current earnings paid to the Optionee.


H.                   Entire Agreement; Governing Law.


The Plan is
incorporated herein by reference.  The
Plan, this Option Agreement and any written employment agreement or retention
agreement by and between the Optionee and a duly authorized representative of
the Company or its subsidiaries (a “Written Agreement”) constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee’s interest except by means of a writing
signed by the Company and Optionee.  This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of Delaware.


I.                        NO GUARANTEE OF CONTINUED SERVICE.


OPTIONEE
ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING
SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL
OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION
OR PURCHASING SHARES HEREUNDER). 
OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE
OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.



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By your signature
and the signature of the Company’s representative below, you and the Company
agree that this Option is granted under and governed by the terms and
conditions of the Plan and this Option Agreement.  Optionee has reviewed the Plan and this
Option Agreement in their entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Option Agreement and fully understands all
provisions of the Plan and Option Agreement. 
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement.  Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.


	
  OPTIONEE:

  	
   

  	
  CATALYTICA ENERGY SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  	
  By                          ,
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Print Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Residence
  Address

  	
   

  	
   

  	
   

  



 



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EXHIBIT A


CATALYTICA
ENERGY SYSTEMS, INC.


1995
STOCK PLAN


EXERCISE
NOTICE


Catalytica Energy
Systems, Inc.

1388 North Tech Boulevard, Gilbert, AZ 85233

Attention:  Stock Option Plan Administration


1.                                       Exercise
of Option.  Effective as of today,                                 ,
          , the undersigned (“Purchaser”)
hereby elects to purchase                             
shares (the “Shares”) of the Common Stock of Catalytica Energy Systems, Inc. (the
“Company”) under and pursuant to the 1995 Stock Plan (the “Plan”) and the Stock
Option Agreement dated,                                                   
(the “Option Agreement”).  The purchase
price for the Shares shall be $                                  ,
as required by the Option Agreement.


2.                                       Delivery
of Payment.  Purchaser herewith
delivers to the Company the full purchase price for the Shares.


3.                                       Representations
of Purchaser.  Purchaser acknowledges
that Purchaser has received, read and understood the Plan and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.


4.                                       Rights
as Shareholder.  Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exer­cise of the Option.  The Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option.  No adjustment will be made for a divi­dend or
other right for which the record date is prior to the date of issuance, except
as pro­vided in Sec­tion 13 of the Plan.


5.                                       Tax
Consultation.  Purchaser understands
that Purchaser may suffer adverse tax consequences as a result of Purchaser’s
purchase or disposition of the Shares. 
Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or dis­position
of the Shares and that Purchaser is not relying on the Company for any tax
advice.



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6.                                       Entire
Agreement; Governing Law.  The Plan,
Option Agreement and any Written Agreement are incorporated herein by
reference.  This Agreement, the Plan, the
Option Agreement and any Written Agreement con­sti­tute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser
with respect to the subject matter hereof, and may not be modified adversely to
the Purchaser’s interest except by means of a writing signed by the Company and
Purchaser.  This agreement is governed by
the internal substantive laws, but not the choice of law rules, of Delaware.


	
  Submitted by:

  	
   

  	
  Accepted by:

  
	
   

  	
   

  	
   

  
	
  PURCHASER:

  	
   

  	
  CATALYTICA ENERGY SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  By

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Print Name

  	
   

  	
  Its

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 



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