Document:

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                                                                   Exhibit 10.17

                        CATALYTICA ENERGY SYSTEMS, INC.
                         STOCKHOLDER RIGHTS AGREEMENT

          This Stockholder Rights Agreement (the "Agreement"), dated as of
__________, ___, 2000, is entered into by and among Catalytica Energy Systems,
Inc., a Delaware corporation (the "Company"), and the entities listed on Exhibit
A attached hereto (collectively, the "Stockholder").

                                R E C I T A L S
                                ----------------

A.   The Stockholder and Catalytica, Inc., a Delaware corporation ("Catalytica")
are parties to the Investment Agreement (the "Investment Agreement") dated as of
June 25, 1997, pursuant to which the Stockholder became a major stockholder in
Catalytica.

B.   Catalytica entered into the Agreement and Plan of Merger dated as of August
2, 2000,(the "Merger Agreement"), with Synotex Company, Inc. ("Synotex") and
Synotex Acquisition Corporation pursuant to which, (i) Catalytica will
distribute to its stockholders all of the shares of the Company that it owns,
and (ii) Synotex Acquisition Corporation will then merge with and into
Catalytica (the "Merger"), resulting in Catalytica becoming a wholly-owned
subsidiary of Synotex.

C.   As a result of the distribution by Catalytica of its shares of the Company
to its stockholders pursuant to the Merger Agreement (the "Distribution"),
Stockholder will become a major stockholder in the Company.

D.   In order to induce the Stockholder to provide support for the Merger, the
Company wishes to enter into this Agreement to afford certain rights and
privileges to Stockholder.

     NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:

     1.   Board Representation.  The Company agrees Stockholder shall have
          --------------------
the right, so long as Stockholder, in the aggregate, shall continue to
beneficially own more than 5% of the outstanding common stock of the Company, to
cause the Company to include one (1) individual, as nominee for the Company's
Board of Directors recommended by the Board.

     2.   Registration Rights.
          -------------------

          2.1  Definitions.  The following terms, as used herein, have the
               -----------
following meanings:

               "Affiliate" means, with respect to an entity, any other entity
that controls, is controlled by, or is under common control with, such entity.

               "Commission" means the Securities and Exchange Commission.

               "Common Stock" means common stock, par value $0.0005 per share of
the Company.
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               "Demand Registration" means a Demand Registration as defined in
Section 2.2.1.

               "Piggyback Registration" means a Piggyback Registration as
defined in Section 2.2.2.

               "Person" means any individual, corporation, partnership, limited
liability company, joint venture, governmental agency or instrumentality, or any
other entity.

               "Registrable Securities" means shares of Common Stock owned from
time to time by the Stockholder and Stockholder's Affiliates, and any other
securities issued by the Company in exchange for or upon conversion of any such
securities.

               "Restricted Securities" means the shares of Class A Common Stock
and Class B Common Stock to be purchased by the Stockholder pursuant to the
Investment Agreement and any other securities or rights convertible into or
exchangeable or exercisable (whether immediately or otherwise) for such shares.

               "Stockholder Group" means the Stockholder and the Stockholder's
Affiliates.

               "Total Voting Power" means the aggregate number of votes which
may be cast by holders of outstanding Voting Securities.

               "Underwriter" means a securities dealer who purchases any
Registrable Securities as principal and not as part of such dealer's market-
making activities.

               "Voting Securities" means all securities of the Company entitled,
in the ordinary course, to vote in the election of Directors of the Company.

               "1933 Act" means the Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.

               "1934 Act" means the Securities Exchange Act of 1934, as amended,
and any rules and regulations promulgated thereunder.

          2.2  Registration Rights.
               -------------------

               2.2.1  Demand Registration.
                      -------------------

                      (a)  At any time Stockholder may make up to four written
requests for registration under the 1933 Act of all or part of its Registrable
Securities (a "Demand Registration"); provided that the Company shall not be
obligated to effect (i) more than one Demand Registration in any 6-month period
or (ii) a Demand Registration for Registrable Securities having an aggregate
offering price of less than $15 million. Such request will specify the number of
shares of Registrable Securities proposed to be sold and will also specify the
intended method of

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disposition thereof. A registration will not count as a Demand Registration
until a registration statement relating to such Demand Registration has become
effective.

                    (b)  If Stockholder so elects, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of an underwritten offering. Stockholder shall select the book-running and other
managing Underwriters in connection with such offering and any additional
investment bankers and managers to be used in connection with the offering. The
Company shall be obligated to cause senior management of the Company to
participate in any "road-show" in connection with the offering.

          2.2.2     Piggyback Registration.  If the Company proposes to file a
                    ----------------------
registration statement under the 1933 Act with respect to an offering of Common
Stock (i) for the Company's own account (other than a registration statement on
Form S-4 or S-8 (or any substitute form that may be adopted by the Commission))
or relating solely to securities issued pursuant to any present or future
restricted stock, stock option, stock purchase or dividend reinvestment plan or
other similar type of plan of the Company which provides for the issuance of
equity securities or options or rights to purchase equity securities of the
Company, or (ii) for the account of any of its holders of Common Stock, then the
Company shall give written notice of such proposed filing to Stockholder as soon
as practicable (but in no event less than 15 days before the anticipated filing
date), and such notice shall offer, subject to the terms and conditions hereof,
Stockholder the opportunity to register such Registrable Securities as
Stockholder may request on the same terms and conditions as the Company's or
such holders' shares (a "Piggyback Registration").

          2.2.3     Reduction of Offering.  Notwithstanding anything contained
                    ---------------------
herein, if the managing Underwriter or Underwriters of an offering described in
Section 2.2.1 or 2.2.2 shall advise the Company that (i) the size of the
offering that Stockholder, the Company and any other Persons intend to make or
(ii) the kind of securities that Stockholder, the Company and such other Persons
intend to include in such offering are such that the success of the offering
would be materially and adversely affected, then (A) if the size of the offering
is the basis of such Underwriter's advice, the amount of Registrable Securities
to be offered for the account of Stockholder shall be reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing Underwriter or Underwriters;
provided that (x) in the case of a Demand Registration, the amount of
Registrable Securities to be offered for the account of the Stockholder shall be
reduced only after the amount of securities to be offered for the account of the
Company and such other Persons has been reduced to zero, and (y) in the case of
a Piggyback Registration, if securities are being offered for the account of
Persons other than the Company, then the proportion by which the amount of such
Registrable Securities intended to be offered for the account of Stockholder is
reduced shall not exceed the proportion by which the amount of such securities
intended to be offered for the account of such other Persons is reduced; and (B)
if the combination of securities to be offered is the basis of such
Underwriter's advice, (x) the Registrable Securities to be included in such
offering shall be reduced as described in clause (A) above (subject to the
proviso in clause (A)), or (y) in the case of a Piggyback Registration, if the
actions described in sub-clause (x) of this clause (B) would, in the judgment of
the managing Underwriter, be insufficient to eliminate the adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering.

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          2.3  Registration Procedures.
               -----------------------

               2.3.1     Filings; Information.  Whenever Stockholder requests a
                         --------------------
Demand Registration, the Company will use its best efforts to effect the
registration of such Registrable Securities as quickly as practicable, and in
connection with any such request:

                         (a)  The Company will as expeditiously as possible
prepare and file with the Commission a registration statement on any form for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use reasonable best efforts to cause such filed registration
statement to become and remain effective for a period of not less than 90 days;
provided that if the Company shall furnish to Stockholder a certificate signed
by its Chairman, Chief Executive Officer or Chief Financial Officer stating that
in his or her good faith judgment it would be detrimental or otherwise
disadvantageous to the Company or its stockholders for such a registration
statement to be filed, or, in the case of an effective registration statement,
for sales to be effected thereunder, the Company shall have a period of not more
than 90 days within which to file such registration statement measured from the
date of receipt of the request in accordance with Section 2.2.1 or, in the case
of an effective registration statement, the Company shall be entitled to require
Stockholder to refrain from selling Registrable Securities under such
registration statement for a period of up to 90 days; provided further that, in
the case of a registration statement to be filed, the Company shall be entitled
to only one 90 day delay in any 360 day period, and, in the case of an effective
registration statement, the Company shall be entitled to require Stockholder to
refrain from selling Registrable Securities under such Registration Statement
for an aggregate of 90 days in any 360 day period. If the Company furnishes a
notice under this paragraph at a time when a registration statement filed
pursuant to this Agreement is effective, the Company shall extend the period
during which such registration statement shall be maintained effective as
provided in this Section 2.3.1(a) hereof by the number of days during the period
from and including the date of the giving of notice under this paragraph to the
date when sales under the registration statement may recommence.

                         (b)  The Company will, if requested, prior to filing
such registration statement or any amendment or supplement thereto, furnish to
Stockholder and each managing Underwriter, if any, copies thereof, and
thereafter furnish to Stockholder and each such Underwriter, if any, such number
of copies of such registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto and documents incorporated by
reference therein) and the prospectus included in such registration statement
(including each preliminary prospectus) as Stockholder or such Underwriter may
reasonably request in order to facilitate the sale of the Registrable
Securities.

                         (c)  After the filing of the registration statement,
the Company will promptly notify Stockholder of any stop order issued or, to the
knowledge of the Company, threatened to be issued by the Commission and take all
necessary actions required to prevent the entry of such stop order or to remove
it if entered.

                         (d)  The Company will use its reasonable best efforts
to qualify the Registrable Securities for offer and sale under such other
securities or blue sky laws of such

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jurisdictions in the United States as Stockholder reasonably (in light of
Stockholder's intended plan of distribution) requests; provided that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (d),
(ii) subject itself to taxation in any such jurisdiction or (iii) generally
consent to service of process in any such jurisdiction.

                         (e)  The Company shall, as promptly as practicable,
notify Stockholder, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered in connection with
sales by an Underwriter or dealer, of the occurrence of an event requiring the
preparation of a supplement or amendment to such registration statement or
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such registration statement or prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and as promptly as practicable make available to Stockholder and to the
Underwriters any such supplement or amendment. Stockholder agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in the preceding sentence, Stockholder will forthwith discontinue the
offer and sale of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until receipt of the copies of such
supplemented or amended prospectus and, if so directed by the Company,
Stockholder will deliver to the Company all copies, other than permanent file
copies then in Stockholder's possession, of the most recent prospectus covering
such Registrable Securities at the time of receipt of such notice. In the event
the Company shall give such notice, the Company shall extend the period during
which such registration statement shall be maintained effective as provided in
Section 2.3.1(a) hereof by the number of days during the period from and
including the date of the giving of such notice to the date when the Company
shall make available to Stockholder such supplemented or amended prospectus.

                         (f)  The Company will enter into customary agreements
(including an underwriting agreement in customary form and satisfactory in form
and substance to the Company in its reasonable judgment) and take such other
actions as are reasonably required in order to expedite or facilitate the sale
of such Registrable Securities.

                         (g)  The Company will furnish to Stockholder and to
each managing Underwriter, if any, a signed counterpart, addressed to
Stockholder and each Underwriter, of (i) an opinion or opinions of counsel to
the Company and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters delivered to such
parties.

                         (h)  The Company will make generally available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the 1933 Act.

                         (i)  The Company will use its best efforts to cause all
such Registrable Securities to be listed on each securities exchange on which
similar securities issued by the Company are then listed.

                                       5
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     The Company may require Stockholder promptly to furnish in writing to the
Company such information regarding Stockholder, the plan of distribution of the
Registrable Securities and other information as the Company may from time to
time reasonably request or as may be legally required in connection with such
registration.

               2.3.2     Registration Expenses.  In connection with any Demand
                         ---------------------
Registration or Piggyback Registration, the Company shall pay the following
expenses incurred in connection with such registration (the "Registration
Expenses"): (i) all filing fees with the Commission and the National Association
of Securities Dealers, (ii) fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
printing expenses, (iv)  the fees and expenses incurred in connection with the
listing of the Registrable Securities, (v) fees and expenses of counsel and
independent certified public accountants for the Company (including the expenses
of any comfort letters pursuant to Section 2.3.1(g) hereof) and (vi) the
reasonable fees and expenses of any additional experts retained by the Company
in connection with such registration. The Stockholder shall pay any underwriting
fees, discounts or commissions attributable to the sale of Registrable
Securities of the Stockholder.   The Company shall pay (i) internal Company
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties) and (ii) the
reasonable out-of-pocket expenses of Stockholder (excluding the fees and
expenses of counsel to Stockholder).

          2.4  Indemnification and Contribution.
               --------------------------------

               2.4.1     Indemnification by the Company.  The Company agrees to
                         ------------------------------
indemnify and hold harmless Stockholder, its officers and directors, and each
Person, if any, who controls Stockholder within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus (including documents incorporated by
reference therein), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished in writing
to the Company by or on behalf of Stockholder expressly for use therein;
provided that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of Stockholder if a copy of the then
current prospectus was not provided to purchaser at or prior to the time of such
purchase and such current prospectus would have cured the defect giving rise to
such loss, claim, damage or liability or for any sales occurring during the
period in which the Company is not required to keep the registration statement
effective as provided in Section 2.3.1(a) or after the Company has informed
Stockholder under Section 2.3.1(e) and prior to the delivery by the Company of
any supplement or amendment to such prospectus. The Company also agrees to
indemnify any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of Stockholder provided in this
Section 2.4.1.

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          2.4.2     Indemnification by Stockholder.  Stockholder agrees to
                    ------------------------------
indemnify and hold harmless the Company, its officers and directors, and each
Person, if any, who controls the Company within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to Stockholder, but only with reference to
information furnished in writing by or on behalf of Stockholder expressly for
use in any registration statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus. Stockholder also agrees to indemnify and hold harmless Underwriters
of the Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 2.4.2.

          2.4.3     Conduct of Indemnification Proceedings.  In case any
                    --------------------------------------
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 2.4.1 or 2.4.2, such Person (the "Indemnified Party") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Party") in writing and the Indemnifying Party, upon the request of the
Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would, in the opinion of counsel reasonably
acceptable to the Indemnifying Party, be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all such Indemnified Parties, and that all such fees and expenses
shall be reimbursed as they are incurred. In the case of any such separate firm
for the Indemnified Parties, such firm shall be designated in writing by the
Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment.

          2.4.4     Contribution.  If the indemnification provided for in this
                    ------------
Article 4 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and Stockholder from the offering of
the securities, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) but also the relative fault
of the Company and Stockholder in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits

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received by the Company and Stockholder shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by each of the
Company and Stockholder, in each case as set forth in the table on the cover
page of the prospectus, bear to the aggregate public offering price of the
securities. The relative fault of the Company and Stockholder shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

     The Company and Stockholder agree that it would not be just and equitable
if contribution pursuant to this Section 2.4.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.

          2.5  Miscellaneous.
               -------------

               2.5.1  Participations in Underwritten Registrations. No Person
                      --------------------------------------------
may participate in any underwritten registered offering contemplated hereunder
unless such Person (A) agrees to sell its securities on the basis provided in
any underwriting arrangements and (B) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and these
Registration Rights.

               2.5.2  Rule 144.  The Company covenants that it will use best
                      --------
efforts to file any reports required to be filed by it under the 1933 Act and
the 1934 Act and that it will take such further action as Stockholder may
reasonably request, all to the extent required from time to time to enable
Stockholder to sell Registrable Securities without registration under the 1933
Act within the limitation of the exemptions provided by Rule 144 under the 1933
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission. Upon the request of Stockholder,
the Company will deliver to Stockholder a written statement as to whether it has
complied with such requirements.

               2.5.3  Holdback Agreements.
                      -------------------

                      (a) Stockholder agrees not to offer, sell, contract to
sell or otherwise dispose of any Registrable Securities, or any securities
convertible into or exchangeable or exercisable for such securities, from the
date of filing of a registration statement relating to the sale of Registrable
Securities through the 90 day period beginning on the date of the first sale of

                                       8
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Registrable Securities pursuant to the registration statement other than the
Registrable Securities to be sold pursuant to such registration statement.

                      (b) The Company agrees not to offer, sell, contract to
sell or otherwise dispose of any securities similar to the Registrable
Securities to be sold pursuant hereto, or any securities convertible into or
exchangeable or exercisable for such securities, during the 14 days prior to,
and during the 90 day period beginning on, the effective date of any
registration statement registering the Registrable Securities other than any
shares of Common Stock sold upon the exercise of an option or warrant or the
conversion of a security outstanding at such date or pursuant to any Company
stock option plan or issued by the Company as consideration for an acquisition.

               2.5.4  Termination of Company Obligation. All registration rights
                      ---------------------------------
provided hereunder shall terminate at such time as Stockholder holds less than
5% of the outstanding common stock and is able to sell all of its Registrable
Securities without registration under the 1933 Act during any single three month
period.

               2.5.5  No Transfer or Assignment of Registration Rights.  The
                      ------------------------------------------------
registration rights set forth in this Agreement shall not be transferable or
assignable by the Stockholder except:

                      (a) to an Affiliate or partner of such Stockholder;
provided that such Affiliate or partner who would beneficially own Voting
Securities representing in the aggregate 5% or more of Total Voting Power agrees
in writing to be bound by the terms of the Investment Agreement;

                      (b) to any Person who, after giving effect to such sale,
pledge, encumbrance or transfer, would beneficially own Voting Securities
representing in the aggregate 10% or less of Total Voting Power (except for an
institutional investor which may own up to 20% of the Total Voting Power);

                      (c) pursuant to a firm commitment, underwritten
distribution to the public, registered under the 1933 Act in accordance with the
registration rights set forth in this Section 2.2, in which the Stockholder
Group uses its reasonable best efforts to effect as wide a distribution of such
Restricted Securities as is reasonably practicable;

                      (d) pursuant to Rule 144 under the 1933 Act in compliance
with the provisions of Section 2.5.5(b);

                      (e) pursuant to a tender or exchange offer made (i) by the
Company or (ii) to the Company's stockholders and not opposed by the Company,s
Board of Directors; or

                      (f) with the prior written consent of the Company, which
consent shall not be unreasonably withheld.

               2.5.6  Effectiveness. This Agreement will become effective upon
the effectiveness of the Distribution. If the Distribution is not consummated
for any reason, this Agreement shall have no force and effect.

                                       9
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
                         CATALYTICA ENERGY SYSTEMS, INC.

                         By:_______________________________
                         Name: Craig N. Kitchen
                         Title: President and Chief Executive Officer

                         MORGAN STANLEY CAPITAL PARTNERS III, L.P.

                         By: MSCP III, L.P.
                             its General Partner
                         By: Morgan Stanley Capital Partners III, Inc.,
                             its General Partner

                         By:_______________________________
                         Name: Alan E. Goldberg
                         Title: Managing Director

                         By:_______________________________
                         Name: Lawrence B. Sorrel
                         Title: Managing Director

                         MORGAN STANLEY CAPITAL INVESTORS, L.P.

                         By: MSCP III, L.P.
                             its General Partner
                         By: Morgan Stanley Capital Partners III, Inc.,
                             its General Partner

               [SIGNATURE PAGE TO STOCKHOLDER RIGHTS AGREEMENT]

<PAGE>

                         By:_______________________________
                         Name: Alan E. Goldberg
                         Title: Managing Director

                         By:_______________________________
                         Name: Lawrence B. Sorrel
                         Title: Managing Director

                         MSCP III 892 INVESTORS, L.P.

                         By: MSCP III, L.P.,
                             its General Partner
                         By: Morgan Stanley Capital Partners III, Inc.,
                             its General Partner

                         By:_______________________________
                         Name: Alan E. Goldberg
                         Title: Managing Director

                         By:_______________________________
                         Name: Lawrence B. Sorrel
                         Title: Managing Director

               [SIGNATURE PAGE TO STOCKHOLDER RIGHTS AGREEMENT]

<PAGE>

                                   EXHIBIT A

                            SCHEDULE OF STOCKHOLDER

Morgan Stanley Capital Partners III, L.P.

MSCP III 892 Investors L.P.

Morgan Stanley Capital Investors, L.P.<PAGE>

                                                                   EXHIBIT 10.20

                        CATALYTICA ENERGY SYSTEMS, INC.
                (formerly Catalytica Combustion Systems, Inc.)

                                1995 STOCK PLAN
                  (as amended and restated October 26, 2000)

     1.   Purposes of the Plan.  The purposes of this 2000 Stock 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
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.  Stock Purchase Rights may also be granted under the Plan.

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

          (a)  "Administrator" means the Board or any of its Committees as shall
                -------------
be administering the Plan, in accordance with Section 4 of the Plan.

          (b)  "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 or Stock Purchase Rights are,
or will be, granted under the Plan.

          (c)  "Board" means the Board of Directors of the Company.
                -----

          (d)  "Code" means the Internal Revenue Code of 1986, as amended.
                ----

          (e)  "Committee" means a committee of Directors appointed by the
               ---------
Board in accordance with Section 4 of the Plan.

          (f)  "Common Stock" means the common stock of the Company.
                ------------

          (g)  "Company" means Catalytica Energy Systems, Inc., a Delaware
                -------
corporation.

          (h)  "Consultant" means any person, including an advisor, engaged by
                ----------
the Company or a Parent or Subsidiary to render services to such entity.

          (i)  "Director" means a member of the Board.
                --------
<PAGE>

          (j)  "Disability" means total and permanent disability as defined
                ----------
in Section 22(e)(3) of the Code.

          (k)  "Employee" means any person, including Officers and Directors,
                --------
employed by 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 ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

          (l)  "Exchange Act" means the Securities Exchange Act of 1934, as
                ------------
amended.

          (m)  "Fair Market Value" means, as of any date, the value 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 such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or

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

          (n)  "Incentive Stock Option" means an Option intended to qualify as
                ----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

          (o)  "Nonstatutory Stock Option" means an Option not intended to
                -------------------------
qualify as an Incentive Stock Option.

          (p)  "Notice of Grant" means a written or electronic notice evidencing
                ---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant.  The Notice of Grant is part of the Option Agreement.

                                       2
<PAGE>

          (q)   "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.

          (r)   "Option" means a stock option granted pursuant to the Plan.
                 ------

          (s)   "Option Agreement" means an agreement between the Company and an
                 ----------------
Optionee evidencing the terms and conditions of an individual Option grant.  The
Option Agreement is subject to the terms and conditions of the Plan.

          (t)   "Option Exchange Program" means a program whereby outstanding
                 -----------------------
Options are surrendered in exchange for Options with a lower exercise price.

          (u)   "Optioned Stock" means the Common Stock subject to an Option
                 --------------
or Stock Purchase Right.

          (v)   "Optionee" means the holder of an outstanding Option or Stock
                 --------
Purchase Right granted under the Plan.

          (w)   "Parent" means a "parent corporation," whether now or hereafter
                 ------
existing, as defined in Section 424(e) of the Code.

          (x)   "Plan" means this 1995 Stock Plan.
                 ----

          (y)   "Restricted Stock" means shares of Common Stock acquired
                 ----------------
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

          (z)   "Restricted Stock Purchase Agreement" means a written agreement
                 -----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right.  The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.

          (aa)  "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
                 ----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

          (bb)  "Section 16(b) " means Section 16(b) of the Exchange Act.
                 -------------

          (cc)  "Service Provider" means an Employee, Director or
                 ----------------
Consultant.

          (dd)  "Share" means a share of the Common Stock, as adjusted in
                 -----
accordance with Section 13 of the Plan.

          (ee)  "Stock Purchase Right" means the right to purchase Common Stock
                 --------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

          (ff)  "Subsidiary" means a "subsidiary corporation", whether now or
                 ----------
hereafter existing, as defined in Section 424(f) of the Code.

                                       3
<PAGE>

     3.   Stock Subject to the Plan.  Subject to the provisions of Section 13
          -------------------------
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is [1,162,125] Shares. The Shares 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); provided, however, that Shares that have actually been issued under
             --------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that 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.

     4.   Administration of the Plan.
          --------------------------

          (a)  Procedure.
               ---------

                (i)   Multiple Administrative Bodies. Different Committees with
                      ------------------------------
respect to different groups of Service Providers may administer the Plan.

                (ii)  Section 162(m). To the extent that the Administrator
                      --------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

                (iii) Rule 16b-3.  To the extent desirable to qualify
                      ----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

                (iv)  Other Administration. Other than as provided above, the
                      --------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

          (b)  Powers of the Administrator.  Subject to the provisions of the
               ---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
                (i)   to determine the Fair Market Value;

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

                (iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

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

                                       4
<PAGE>

                (v)    to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right 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 be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

                (vi)   to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

                (vii)  to institute an Option Exchange Program;

                (viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;

                (ix)   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;

                (x)    to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

                (xi)   to allow Optionees 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 that number of Shares having a
Fair Market Value equal to the amount required to be withheld. 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 an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;

                (xii)  to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

                (xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

          (c)  Effect of Administrator's Decision.  The Administrator's
               ----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

     5.   Eligibility.  Nonstatutory Stock Options and Stock Purchase
          -----------
Rights may be granted to Service Providers.  Incentive Stock Options may be
granted only to Employees.

                                       5
<PAGE>

     6.   Limitations.
          -----------

          (a)  Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option.  However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory 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.  The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

          (b)  Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.

          (c)  The following limitations shall apply to grants of Options:

               (i)   No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.

               (ii)  In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares,
which shall not count against the limit set forth in subsection (i) above.

               (iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.

               (iv)  If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

     7.   Term of Plan.  Subject to Section 20 of the Plan, the Plan shall
          ------------
become effective upon its adoption by the Board. Unless terminated earlier under
Section 16, it shall continue in effect for a term of ten (10) years from the
later of (i) the effective date of the Plan, or (ii) the date of the most recent
Board approval of an increase in the number of shares reserved for issuance
under the Plan.

     8.   Term of Option.  The term of each Option shall be stated in the
          --------------
Option Agreement.  In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement.  Moreover, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.

                                       6
<PAGE>

     9.   Option Exercise Price and Consideration.
          ---------------------------------------

          (a)  Exercise Price. The per share exercise price for the Shares to be
               --------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

               (i)   In the case of an Incentive Stock Option

                     (A)  granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (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 Employee other than an Employee
described in paragraph (A) immediately above, 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 Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.  In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% 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 of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

          (b)  Waiting Period and Exercise Dates.  At the time an Option is
               ---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

          (c)  Form of Consideration.  The Administrator shall determine the
               ---------------------
acceptable form of consideration for exercising an Option, including the method
of payment.  In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant.  Such
consideration may consist entirely of:

                 (i) cash;

                (ii) check;

               (iii) promissory note;

                (iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

                 (v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

                                       7
<PAGE>

                    (vi)     a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;

                    (vii)    any combination of the foregoing methods of
payment; or

                    (viii)   such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.

          10.  Exercise of Option.
               ------------------

               (a)  Procedure for Exercise; Rights as a Shareholder.  Any Option
                    -----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.  Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence.  An Option may not be exercised for a fraction of a Share.

                    An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), 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 Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.

                    Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

               (b)  Termination of Relationship as a Service Provider.  If an
                    -------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

                                       8
<PAGE>

          (c)  Disability of Optionee.  If an Optionee ceases to be a Service
               ----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

          (d)  Death of Optionee. If an Optionee dies while a Service Provider,
               -----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

     11.  Stock Purchase Rights.
          ---------------------

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

          (b)  Repurchase Option.  Unless the Administrator determines
               -----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.

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

                                       9
<PAGE>

          (d)  Rights as a Shareholder.  Once the Stock Purchase Right is
               -----------------------
exercised, the purchaser shall have the 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
will 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 13
of the Plan.

     12.  Non-Transferability of Options and Stock Purchase Rights.  Unless
          --------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right 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 Optionee, only by the Optionee.  If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

     13.  Adjustments Upon Changes in Capitalization, Dissolution, Merger
          ---------------------------------------------------------------
or Asset Sale.
-------------

          (a)  Changes in Capitalization.  Subject to any required action by the
               -------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration."  Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.

          (b)  Dissolution or Liquidation.  In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction.  The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable.  In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated.  To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.

                                      10
<PAGE>

          (c)  Merger or Asset Sale.  In the event of a merger of the Company
               --------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company:

               (i)  Options and Stock Purchase Rights.  Unless otherwise
                    ---------------------------------
provided in the Notice of Grant and Option Agreement or Restricted Stock
Purchase Agreement, each Option and Stock Purchase Right may be assumed or an
equivalent option or right substituted by such successor corporation (including
as a "successor" any purchaser of substantially all of the assets of the
Company) or a parent or subsidiary of such successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option and Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. In
such event the Administrator shall notify the Optionee as soon as practicable
prior to the effective date of such transaction that the Option or Stock
Purchase Right shall be fully exercisable for a period of ten (10) days from the
date of such notice, and the Option or Stock Purchase Right shall terminate upon
the expiration of such period if the successor corporation does not assume or
substitute for such option or right. For the purposes of this paragraph, an
Option or Stock Purchase Right shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares). If such consideration received in the merger is not
solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.

               (ii) Shares Subject to Repurchase Option.  Any Shares subject
                    -----------------------------------
to a repurchase option of the Company shall be exchanged for the consideration
(whether stock, cash, or other securities or property) received in the merger or
asset sale by the holders of Common Stock for each Share held on the effective
date of the transaction, as described in the preceding paragraph.  If in such
exchange the Optionee receives shares of stock of the successor corporation or a
parent or subsidiary of such successor corporation, and if the successor
corporation has agreed to assume or substitute for Options as provided in the
preceding paragraph, such exchanged shares shall continue to be subject to a
repurchase option as provided in the Optionee's restricted stock purchase
agreement.  If, as provided in the preceding paragraph, the Optionees shall have
the right to exercise Options as to all of the Optioned Stock covered thereby,
all of the Shares that are subject to a repurchase option of the Company will
automatically be released from such repurchase option.

     14.  Change of Control.
          -----------------

                                      11
<PAGE>

          (a)  In the event of a Change of Control (as defined below), an
Optionee shall have the right to exercise each Option and Stock Purchase Right
as to all or a portion of the Optioned Stock covered thereby, including Shares
as to which the Option or Stock Purchase Right would not otherwise be
exercisable on the date six (6) months after such Change of Control or earlier
if an Optionee's status as a Service Provider with the successor corporation is
terminated by the successor corporation as a result of an Involuntary
Termination (as defined below).  Thereafter, the Option or Stock Purchase Right
shall remain exercisable in accordance with Section 10.

          (a)  For purposes of this Section 14, the following definitions shall
apply:

                    (i)   a "Change of Control" means the happening of any of
the following events:

                          (A)   Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or

                          (B)   A change in the composition of the Board
occurring within a one-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (i) are directors of the Company as of the date hereof, or
(ii) are elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors at the time of such
election or nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company); or

                          (C)   The consummation of a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or

                          (D)   the consummation of the sale or disposition by
the Company of all or substantially all of the Company's assets.

                    (ii)  "Involuntary Termination" shall mean any of the
following events: (A) without the Optionee's express written consent, a
significant reduction of the Optionee's duties, authority or responsibilities,
relative to the Optionee's duties, authority or responsibilities as in effect
immediately prior to the Change of Control; (B) without the Optionee's express
written consent, a substantial reduction, without good business reasons, of the
facilities and perquisites (including office space and location) available to
the Optionee immediately prior to the Change of Control; (C) without the
Optionee's express written consent, a reduction in the base salary of the
Optionee as in effect immediately prior to the Change of Control; (D) without
the Optionee's express written consent, a material reduction in the kind or
level of employee benefits, including bonuses, to which the Optionee was
entitled immediately prior to the Change of Control with the result that the

                                      12
<PAGE>

Optionee's overall benefits package is significantly reduced; (E) without the
Optionee's express written consent, the relocation of the Optionee to a facility
or a location more than thirty (30) miles from the Optionee's then present
location; (F) any purported termination of the Optionee which is not effected
for Disability or for Cause (as defined below), or any purported termination for
which the grounds relied upon are not valid; or (G) or any act or set of facts
or circumstances which would, under California case law or statute, constitute a
constructive termination of the Optionee.

                    (iii)  "Cause" shall mean (A) any act of personal dishonesty
taken by the Optionee in connection with his responsibilities as a Service
Provider and intended to result in substantial personal enrichment of the
Optionee, (B) Optionee's conviction of or plea of nolo contendre to a felony,
(C) a willful act by the Optionee which constitutes gross misconduct and which
is injurious to the successor corporation, or (D) following delivery to the
Optionee of a written demand for performance from the successor corporation
which describes the basis for the successor corporation's belief that the
Optionee has not substantially performed his duties, continued violations by the
Optionee of the Optionee's obligations to the successor corporation which are
demonstrably willful and deliberate on the Optionee's part.

     15.  Date of Grant.  The date of grant of an Option or Stock Purchase Right
          -------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

     16.  Amendment and Termination of the Plan.
          -------------------------------------

          (a)  Amendment and Termination.  The Board may at any time amend,
               -------------------------
alter, suspend or terminate the Plan.

          (b)  Shareholder Approval.  The Company shall obtain shareholder
               --------------------
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 Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

     17.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Legal Compliance.  Shares shall not be issued pursuant to the
               ----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

          (b)  Investment Representations.  As a condition to the exercise of an
               --------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being

                                      13
<PAGE>

purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

     18.  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.

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

     20.  Shareholder Approval.  The Plan shall be subject to approval by the
          --------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

                                      14

<PAGE>

                        CATALYTICA ENERGY SYSTEMS, INC.
                (formerly Catalytica Combustion 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:                   ___ Incentive Stock 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:

     [12.5% of the Shares subject to the Option shall vest six months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter on the same day of the month as the Vesting
Commencement Date, subject to the Optionee continuing to be a Service Provider
on such dates].

                                       15
<PAGE>

     Termination Period:
     ------------------

     This Option may be exercised for [three months] after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for [twelve months] after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.

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.

          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 [title] 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.

                                       16
<PAGE>

     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.   with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
                                                            ---------
amount of the aggregate Exercise Price of the Exercised Shares together with
the execution and delivery by the Optionee of the Security Agreement attached
hereto as Exhibit B, provided that, if the Company is incorporated in the
          ---------
State of Delaware, the Optionee shall pay in cash, or through one of the other
methods of payment listed herein, that portion of the aggregate Exercise Price
which equals the aggregate par value of the Shares being purchased. The Note
shall bear interest at the "applicable federal rate" prescribed under the Code
and its regulations at time of purchase, and shall be secured by a pledge of the
Shares purchased by the Note pursuant to the Security Agreement][; or

          6.   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.]

     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.

                                       17
<PAGE>

     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 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.

                                       18
<PAGE>

               (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 and this Option
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
California .

     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.

     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

                                       19
<PAGE>

_______________________________     ____________________________________
Print Name                          Title

_______________________________

_______________________________
Residence Address

                                       20
<PAGE>

                                   EXHIBIT A
                                   ---------

                        CATALYTICA ENERGY SYSTEMS, INC.

                                1995 STOCK PLAN

                                EXERCISE NOTICE

Catalytica Energy Systems, Inc.
[Address]

Attention:  [Title]

     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.

                                       21
<PAGE>

     6.   Entire Agreement; Governing Law.  The Plan and Option Agreement are
          -------------------------------
incorporated herein by reference.  This Agreement, the Plan and the Option
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
California.

Submitted by:                            Accepted by:

PURCHASER:                               CATALYTICA ENERGY SYSTEMS, INC.

_______________________________          _______________________________
Signature                                By

_______________________________          _______________________________
Print Name          Its

Address:                                 Address:
-------                                  -------

_______________________________          CATALYTICA ENERGY SYSTEMS, INC.

_______________________________          [address]

                                         _______________________________
                                         Date Received

                                       22
<PAGE>

                                   EXHIBIT B
                                   ---------

                               SECURITY AGREEMENT

     This Security Agreement is made as of __________, _____ between Catalytica
Energy Systems, Inc., a Delaware corporation ("Pledgee"), and
_________________________ ("Pledgor").

                                   Recitals
                                   --------

     Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1995 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________.  The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
                                               ---------

     NOW, THEREFORE, it is agreed as follows:

     1.   Creation and Description of Security Interest.  In consideration of
          ---------------------------------------------
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.

          The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder shall not encumber or dispose of such Shares except in
accordance with the provisions of this Security Agreement.

     2.   Pledgor's Representations and Covenants.  To induce Pledgee to enter
          ---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:

          (a)  Payment of Indebtedness.  Pledgor will pay the principal sum of
               -----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.

          (b)  Encumbrances.  The Shares are free of all other encumbrances,
               ------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.

                                       23
<PAGE>

          (c)  Margin Regulations.  In the event that Pledgee's Common Stock is
               ------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.

     3.   Voting Rights.  During the term of this pledge and so long as all
          -------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.

     4.   Stock Adjustments.  In the event that during the term of the pledge
          -----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.

     5.   Options and Rights.  In the event that, during the term of this
          ------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.

     6.   Default.  Pledgor shall be deemed to be in default of the Note and of
          -------
this Security Agreement in the event:

          (a)  Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or

          (b)  Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.

          In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.

     7.   Release of Collateral.  Subject to any applicable contrary rules under
          ---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note.  The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of

                                       24
<PAGE>

Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.

     8.   Withdrawal or Substitution of Collateral.  Pledgor shall not sell,
          ----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.

     9.   Term.  The within pledge of Shares shall continue until the payment of
          ----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.

     10.  Insolvency.  Pledgor agrees that if a bankruptcy or insolvency
          ----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.

     11.  Pledgeholder Liability.  In the absence of willful or gross
          ----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.

     12.  Invalidity of Particular Provisions.  Pledgor and Pledgee agree that
          -----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.

     13.  Successors or Assigns.  Pledgor and Pledgee agree that all of the
          ---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.

     14.  Governing Law.  This Security Agreement shall be interpreted and
          -------------
governed under the internal substantive laws, but not the choice of law rules,
of California.

                                       25
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

"PLEDGOR"                        ____________________________________________
                                 Signature

                                 ____________________________________________
                                 Print Name

                                 Address: ___________________________________

                                          ___________________________________

"PLEDGEE"                        CATALYTICA ENERGY SYSTEMS, INC.
                                 a Delaware corporation

                                 ____________________________________________
                                 Signature

                                 ____________________________________________
                                 Print Name

                                 ____________________________________________
                                 Title

"PLEDGEHOLDER"                   ____________________________________________
                                 Secretary of Catalytica Energy Systems, Inc.

                                       26
<PAGE>

                                   EXHIBIT C
                                   ---------

                                     NOTE

$_______________                                       [City, State]

                                                       __________________, _____

     FOR VALUE RECEIVED, _____________________ promises to pay to Catalytica
Energy Systems, Inc., a Delaware corporation (the "Company"), or order, the
principal sum of _______________________ ($_____________), together with
interest on the unpaid principal hereof from the date hereof at the rate of
_______________ percent (____%) per annum, compounded semiannually.

     Principal and interest shall be due and payable on _______________, _____.
Payment of principal and interest shall be made in lawful money of the United
States of America.

     The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.

     This Note is subject to the terms of the Option, dated as of ____________.
This Note is secured in part by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.

     The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.

     In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.

     Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.

                                            ____________________________________

                                            ____________________________________

                                       27
<PAGE>

                        CATALYTICA ENERGY SYSTEMS, INC.

                                1995 STOCK PLAN

                    NOTICE OF GRANT OF STOCK PURCHASE RIGHT

     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.

     [Grantee's Name and Address]

     You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:

     Grant Number                            _________________________

     Date of Grant                           _________________________

     Price Per Share                         $________________________

     Total Number of Shares Subject          _________________________
      to This Stock Purchase Right

     Expiration Date:                        _________________________

     YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.  By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1995 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
                                       -----------
part of this document.  You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.

GRANTEE:                                     CATALYTICA ENERGY SYSTEMS, INC.

________________________________             ___________________________________
Signature                                    By

________________________________             ___________________________________
Print Name                                   Title

                                       28
<PAGE>

                                  EXHIBIT A-1
                                  -----------

                        CATALYTICA ENERGY SYSTEMS, INC.

                                1995 STOCK PLAN

                      RESTRICTED STOCK PURCHASE AGREEMENT

     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.

     WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and

     WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").

     NOW THEREFORE, the parties agree as follows:

     1.   Sale of Stock. The Company hereby agrees to sell to the Purchaser and
          -------------
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.

     2.   Payment of Purchase Price.  The purchase price for the Shares may be
          -------------------------
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.

     3.   Repurchase Option.
          -----------------

          (a)  In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of

                                       29
<PAGE>

(i) and (ii) so that the combined payment and cancellation of indebtedness
equals the aggregate Repurchase Price. Upon delivery of such notice and the
payment of the aggregate Repurchase Price, the Company shall become the legal
and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.

          (b)  Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.

      4.  Release of Shares From Repurchase Option.
          ----------------------------------------

          (a)  _______________________  percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of Grant
                                               --------
and __________________ percent (______%) of the Shares [at the end of each month
                                                        ------------------------
thereafter], provided that the Purchaser does not cease to be a Service Provider
----------
prior to the date of any such release.

          (b)  Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."

          (c)  The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).

     6.   Restriction on Transfer. Except for the escrow described in Section 6
          -----------------------
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.

     6.   Escrow of Shares.
          ----------------

          (a)  To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2.  The
                                                            -----------
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
          -----------
expires.

                                       30
<PAGE>

          (b)  The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.

          (c)  If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
          (d)  When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.

          (e)  Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon.  If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.

     7.   Legends. The share certificate evidencing the Shares, if any, issued
          -------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):

          THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.

     8.   Adjustment for Stock Split.  All references to the number of Shares
          --------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.

     9.   Tax Consequences.  The Purchaser has reviewed with the Purchaser's own
          ----------------
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement.  The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents.  The Purchaser understands that the
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Purchaser understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the purchase price for the Shares and the Fair Market Value of the
Shares as of the date any restrictions on the Shares lapse.  In this context,
"restriction" includes the

                                       31
<PAGE>

right of the Company to buy back the Shares pursuant to the Repurchase Option.
The Purchaser understands that the Purchaser may elect to be taxed at the time
the Shares are purchased rather than when and as the Repurchase Option expires
by filing an election under Section 83(b) of the Code with the IRS within 30
days from the date of purchase. The form for making this election is attached as
Exhibit A-4 hereto.
-----------

          THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.

     10.  General Provisions.
          ------------------

          (a)  This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. 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 Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.

          (b)  Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.

               Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.

          (c)  The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns.  The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.

          (d)  Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement.  The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.

          (e)  The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.

          (f)  PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING

                                       32
<PAGE>

SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE
ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER 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 PURCHASER'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

     By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof.  Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement.  Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.

DATED:  __________________________

PURCHASER:                                   CATALYTICA ENERGY SYSTEMS, INC.

__________________________________           ________________________________
Signature                                    By

__________________________________           ________________________________
Print Name                                   Title

                                       33
<PAGE>

                                  EXHIBIT A-2
                                  -----------

                      ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED I, _______________________________, hereby sell, assign
and transfer unto __________________________ ___________________ (__________)
shares of the Common Stock of Catalytica Energy Systems, Inc., standing in my
name of the books of said corporation represented by Certificate No. _____
herewith and do hereby irrevocably constitute and appoint _____________________
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.

     This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between ________________________ and
the undersigned dated ______________, _____.

Dated: _______________, _____

                                        Signature: _____________________________

     INSTRUCTIONS: Please do not fill in any blanks other than the signature
line.  The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.

                                       34
<PAGE>

                                  EXHIBIT A-3
                                  -----------

                           JOINT ESCROW INSTRUCTIONS

                                                        __________________, ____

Corporate Secretary
Catalytica Energy Systems, Inc.
[address]

Dear __________:

     As Escrow Agent for both Catalytica Energy Systems, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:

     1.   In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.

     2.   At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.

     3.   Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities.  Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.

                                       35
<PAGE>

     4.   Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.

     5.   If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.

     6.   Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.

     7.   You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.

     8.   You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.

     9.   You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.

     10.  You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.

     11.  You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.

     12.  Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party.  In the event of any such termination, the Company
shall appoint a successor Escrow Agent.

                                       36
<PAGE>

     13.  If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.

     14.  It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.

     15.  Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.

          COMPANY:                 CATALYTICA ENERGY SYSTEMS, INC.
                                   [address]

          PURCHASER:               _____________________________
                                   _____________________________
                                   _____________________________

          ESCROW AGENT:            Corporate Secretary
                                   Catalytica Energy Systems, Inc.
                                   [address]

     16.  By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.

     17.  This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.

                                       37
<PAGE>

     18.  These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.

                                        Very truly yours,

                                        CATALYTICA ENERGY SYSTEMS, INC.

                                        _____________________________________
                                        By

                                        _____________________________________
                                        Title

                                        PURCHASER:
                                        _____________________________________
                                        Signature

                                        _____________________________________
                                        Print Name

ESCROW AGENT:

___________________________________
Corporate Secretary

                                       38
<PAGE>

                                  EXHIBIT A-4
                                  -----------

                          ELECTION UNDER SECTION 83(b)

                      OF THE INTERNAL REVENUE CODE OF 1986

The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:

1.   The name, address, taxpayer identification number and taxable year of the
     undersigned are as follows:

     NAME:                             TAXPAYER:                  SPOUSE:

     ADDRESS:

     IDENTIFICATION NO.:               TAXPAYER:                  SPOUSE:

     TAXABLE YEAR:

2.   The property with respect to which the election is made is described as
     follows: ________ shares (the "Shares") of the (the Common Stock of
     Catalytica Energy Systems, Inc. "Company").

3.   The date on which the property was transferred is: ______________, _______.

4.   The property is subject to the following restrictions:

     The Shares may be repurchased by the Company, or its assignee, upon certain
     events. This right lapses with regard to a portion of the Shares based on
     the continued performance of services by the taxpayer over time.

5.   The fair market value at the time of transfer, determined without regard to
     any restriction other than a restriction which by its terms will never
     lapse, of such property is: $__________.

6.   The amount (if any) paid for such property is: $___________.

The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property.  The transferee of such property is the person
performing the services in connection with the transfer of said property.

The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.

Dated:   _________________, ____        ___________________________________
                                        Taxpayer

The undersigned spouse of taxpayer joins in this election.

Dated:   _________________, ____        ___________________________________
                                        Spouse of Taxpayer

                                       39

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