Document:

exv10w4

 

Exhibit 10.4

CAPSTONE TURBINE CORPORATION

AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	1.

	 	PURPOSES OF THE PLAN
	 	 	1	 
	2.

	 	DEFINITIONS
	 	 	1	 
	3.

	 	STOCK SUBJECT TO THE PLAN
	 	 	5	 
	4.

	 	ADMINISTRATION OF THE PLAN
	 	 	7	 
	5.

	 	ELIGIBILITY
	 	 	8	 
	6.

	 	LIMITATIONS
	 	 	8	 
	7.

	 	TERM OF PLAN
	 	 	9	 
	8.

	 	TERM OF OPTION
	 	 	9	 
	9.

	 	OPTION EXERCISE PRICE AND CONSIDERATION
	 	 	9	 
	10.

	 	EXERCISE OF OPTION
	 	 	10	 
	11.

	 	NON-TRANSFERABILITY
	 	 	13	 
	12.

	 	GRANTING OF OPTIONS TO AND STOCK ELECTIONS BY NON-EMPLOYEE DIRECTORS
	 	 	13	 
	13.

	 	TERMS OF NON-EMPLOYEE DIRECTOR OPTIONS
	 	 	13	 
	14.

	 	STOCK PURCHASE RIGHTS AND STOCK BONUSES
	 	 	14	 
	15.

	 	ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE
	 	 	15	 
	16.

	 	TIME OF GRANTING OPTIONS, STOCK PURCHASE RIGHTS AND STOCK BONUSES
	 	 	18	 
	17.

	 	AMENDMENT AND TERMINATION OF THE PLAN
	 	 	18	 
	18.

	 	STOCKHOLDER APPROVAL
	 	 	18	 
	19.

	 	INABILITY TO OBTAIN AUTHORITY
	 	 	18	 
	20.

	 	RESERVATION OF SHARES
	 	 	18	 
	21.

	 	INVESTMENT INTENT
	 	 	19	 
	22.

	 	GOVERNING LAW
	 	 	19	 

i

 

CAPSTONE TURBINE CORPORATION

AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

RECITALS:

     WHEREAS, the Company previously established the Plan as an equity incentive plan, and last
amended and restated the Plan effective January 27, 2005;

     WHEREAS, the Company desires to amend the Plan to conform the terms of the Plan with regard to
a change in the change of control of the Company with the other severance and compensation
arrangements maintained by the Company;

     NOW, THEREFORE, pursuant to authorization by the Board of Directors of the Company, the Plan
is hereby amended and restated, effective on March 17, 2005:

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

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

          (a) “Acquisition” means, unless specified otherwise in an Agreement,

(i) the successful acquisition by a person or related group of persons, (other than
the Company or a person that directly or indirectly controls, is controlled by or
is under common control with, the Company) of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50%
of the total combined voting power of the Company’s outstanding securities pursuant
to a transaction or series of related transactions which the Board does not at any
time recommend the Company’s stockholders to accept or approve;

(ii) the first date within any period of 18 consecutive months or less on which
there is effected a change in the composition of the Board such that a majority of
the Board ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been members of the
Company’s Board continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at least
a majority of the Board members described in clause (A) who
were still in office at the time such election or nomination was approved by the
Board;

 

 

(iii) a merger or consolidation in which the Company is not the surviving entity,
except for a transaction the principal purpose of which is to change the state in
which the Company is incorporated;

(iv) the sale, transfer or other disposition of all or substantially all of the
assets of the Company in complete liquidation or dissolution of the Company;

(v) any reverse merger in which the Company is the surviving entity but in which
securities possessing more than 50% of the total combined voting power of the
Company’s outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such merger; or

(vi) the issuance by the Company to a single person or related group of persons
(other than the Company or a person that directly or indirectly controls, is
controlled by or is under common control with, the Company) of securities
possessing more than 50% of the total combined voting power of the Company’s
outstanding securities (determined after such issuance) in a single transaction or
a series of related transactions.

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

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

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

          (e) “Cause” means the commission of any act of fraud, embezzlement, theft or
dishonesty by a Holder, any unauthorized use or disclosure by a Holder of confidential information
or trade secrets of the Company (or any parent or subsidiary thereof), or any other intentional
misconduct by a Holder adversely affecting the business or affairs of the Company (or any parent or
subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Company (or any parent or subsidiary) may consider as grounds
for the dismissal or discharge of any Holder.

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

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

 

 

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

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

          (j) “Consultant” means any consultant or adviser if: (i) the consultant or adviser
renders bona fide services to the Company; (ii) the services rendered by the consultant or adviser
are not in connection with the offer or sale of securities in a capital-raising transaction and do
not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) the
consultant or adviser is a natural person who has contracted directly with the Company to render
such services.

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

     3. Stock Subject to the Plan. Subject to the provisions of Section 15, the shares of
stock subject to Options, Stock Purchase Rights or Stock Bonuses shall be Common Stock, initially
shares of the Company’s Common Stock, par value $0.001 per share. Subject to the provisions of
Section 15, the maximum aggregate number of Shares which may be issued upon exercise of such
Options or Stock Purchase Rights or pursuant to such Stock Bonuses is
6,080,000 – Shares, plus the
number of Shares previously authorized and remaining available under the Company’s 1993 Stock
Incentive Plan, as amended, as of the Public Trading Date, plus any Shares covered by options
granted under the Company’s 1993 Stock Incentive Plan that are forfeited or expire unexercised or
otherwise become available after the Public Trading Date; provided, however, that the maximum
aggregate number of Shares which may be issued upon exercise of Incentive Stock Options is
13,880,000 Shares. The total shares originally made available under the 1993 Stock Incentive Plan
was 7,800,000. Shares issued upon exercise of Options or Stock Purchase Rights or pursuant to
Stock Bonuses may be authorized but unissued, or reacquired Common Stock. If an Option or Stock
Purchase Right expires or becomes unexercisable without having been exercised in full, or is
surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares which are delivered by the Holder or

 

 

withheld by the Company upon the exercise of an Option or Stock Purchase Right or in respect
of a Stock Bonus under the Plan, in payment of the exercise price thereof or tax withholding
thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of this
Section 3. If Shares of Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan. Notwithstanding the
provisions of this Section 3, no Shares may again be optioned, granted or awarded if such action
would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Code
Section 422.

 

 

     4. Administration of the Plan.

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

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

               (i) to determine the Fair Market Value;

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

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

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

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

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

 

 

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

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

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

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

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

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

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

     6. Limitations.

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

 

 

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

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

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

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

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

     9. Option Exercise Price and Consideration.

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

	 
	(i) In the case of an Incentive Stock Option

	 
	(A) granted to an Employee who, at the time of grant of such Option, owns (or is treated as
owning under Code Section 424) stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the
date of grant.

 

 

 

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

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

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

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

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

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

     10. Exercise of Option.

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

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

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

 

 

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

 

 

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

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

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

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

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

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

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

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

 

 

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

     14. Stock Purchase Rights and Stock Bonuses.

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

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

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

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

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

 

 

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

 

 

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

          (e) In the event the Company undergoes an Acquisition and any surviving corporation or entity
or acquiring corporation or entity, or affiliate of such corporation or entity, does assume any
Options, Stock Purchase Rights or Restricted Stock outstanding under the Plan (or substitutes
similar stock awards, including an award to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 15(e), for those outstanding under the Plan), then,
with respect to each stock award held by participants in the Plan then performing services as
Employees or Directors, the vesting of each such stock award (and, if applicable, the time during
which such stock award may be exercised) shall be accelerated and such stock award shall
immediately become fully vested and exercisable, if any of the following events occurs within 12
months after the effective date of the Acquisition or within the Trial Period (as defined herein)
even if such Trial Period extends beyond 12 months after the effective date of the Acquisition:

	 	(i)	 	the Employee status or Director status, as applicable, of the
participant holding such stock award is terminated by the Company without
Cause; or
	 
	 	(ii)	 	the Employee holding such stock award terminates his or her
Employee status following (A) a change in position with the Company or any
reduction in his or her level of responsibility; (B) any reduction in his or
her level of compensation (including base salary, fringe benefits,
participation in any plans and target bonuses under any corporate-performance
based bonus or incentive programs); or (C) a relocation of the place of
employment of the Employee by more than 50 miles; provided and only if such
change, reduction or relocation is effected without such individual’s consent.
In the event that an individual consents to such change, the individual enters
a trial period (the “Trial Period”) of six months from the date of consent. At
any time during the Trial Period an individual may revoke his or her consent
and meet the conditions of a voluntary resignation following a change as stated
in (A), (B), or (C) above, without the individual’s consent.

          (f) The existence of the Plan, any Agreement and the Options or Stock Purchase Rights granted
hereunder shall not affect or restrict in any way the right or power of the Company or the
stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization
or other change in the Company’s capital structure or its business, any merger or consolidation of
the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose

 

 

rights are superior to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.

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

     17. Amendment and Termination of the Plan.

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

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

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

     18. Stockholder Approval. The Capstone Turbine Corporation 2000 Equity Incentive Plan,
as originally adopted, was submitted for the approval of the Company’s stockholders and such
approval was received within 12 months after the date of the Board’s initial adoption thereof. In
addition, amendments to increase the number of Shares authorized for issuance hereunder have been
previously approved by the Company’s stockholders, and such amendments are incorporated herein.

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

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

 

 

     21. Investment Intent. The Company may require a Plan participant, as a condition of
exercising or acquiring stock under any Option, Stock Purchase Right or Stock Bonus, (i) to give
written assurances satisfactory to the Company as to the participant’s knowledge and experience in
financial and business matters and/or to employ a purchaser representative reasonably satisfactory
to the Company who is knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser representative, the merits
and risks of exercising the Option or Stock Purchase Right, electing or accepting the Stock Bonus;
and (ii) to give written assurances satisfactory to the Company stating that the participant is
acquiring the stock subject to the Option, Stock Purchase Right or Stock Bonus for the
participant’s own account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (A) the issuance of the shares upon the exercise or acquisition of stock
under the applicable Option, Stock Purchase Right or Stock Bonus has been registered under a then
currently effective registration statement under the Securities Act or (B) as to any particular
requirement, a determination is made by counsel for the Company that such requirement need not be
met in the circumstances under the then applicable securities laws. The Company may, upon advice of
counsel to the Company, place legends on stock certificates issued under the Plan as such counsel
deems necessary or appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

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

[Remainder of page intentionally left blank]exv10w12

 

Exhibit 10.12

CAPSTONE TURBINE CORPORATION

CHANGE OF CONTROL SEVERANCE PLAN

Amended and Restated March 17, 2005

Capstone Turbine Company (the “Company”) established the Capstone Turbine Corporation Change in
Control Severance Plan (the “Plan”) effective April 24, 2002 for the purpose of retaining its key
executives by assuring them of adequate severance pay in the event of a change in the control of
the Company. As authorized by its board of directors, the Company desires to amend the Plan,
effective March 17, 2005, to: (1) modify the period for a Change of Control via a contested Board
election to the first date within any period of 18 consecutive months or less on which there is
effected a change in the composition of the Board from 12 months, and (2) to modify the Involuntary
Termination language to provide that even if an individual consents to a change in position,
compensation or location (as such items are used in the Involuntary Termination language) following
a Change of Control, for a trial period of six months following such consent an individual may
revoke his or her consent, thereby creating an Involuntary Termination. If the trial period
extends beyond 12 months from the Change in Control event, the Executive will have the option for
the remainder of the trial period to revoke his or her consent and, if so revoked, to be eligible
for the Change of Control benefits as provided herein.

ELIGIBILITY

Eligibility in the Plan is limited to the executive officers or employees of the Company who are
designated to participate in the Plan by the Company’s board of directors (the “Board”) from time
to time. Each officer or employee who is so designated as eligible to participate in the Plan is
referred to hereinafter as an “Executive.” Executives may be added or deleted based on Board
approval; provided that, only such Board approvals which have been received prior to the
consummation of the applicable Change of Control shall be effective as to the addition or deletion
of Executives.

SEVERANCE BENEFITS

In the event that an Executive is Involuntarily Terminated within 12 months of a Change of Control
(as such terms are defined herein) or within the Trial Period (as hereinafter defined), even if
such Trial Period extends beyond 12 months of a Change of Control, such Executive shall be entitled
to receive from the Company an amount equal to such Executive’s annual base salary plus the cash
incentive compensation paid for the year in which the effective date for the Change in Control
occurs (such amount, the “Salary”). The Salary shall be paid in one lump sum on the date such
Executive was Involuntarily Terminated (the “Termination Date”). Pursuant to COBRA, the Company
shall continue such Executive Officer’s health care coverage as under the Company’s medical and
dental plans. The Company will pay for such coverage until 12 months after the Termination Date.
Thereafter, such Executive shall be eligible to continue such coverage at his or her own expense
for the remainder of his or her applicable COBRA continuation period. As used herein, the term
“Involuntarily Terminated” shall mean the termination of an Executive’s service by reason of:

 

 

     1. involuntary dismissal or discharge by the Company for reasons other than Misconduct (as
defined below), or

     2. voluntary resignation following (A) a change in position with the Company or a reduction in
his or her level of responsibility, (B) any reduction in his or her level of compensation
(including base salary, fringe benefits, participation in any plans and target bonuses under any
corporate-performance based bonus or incentive programs) or (C) a relocation of such individual’s
place of employment by more than 50 miles, provided and only if such change, reduction or
relocation is effected without the individual’s consent. In the event that an individual consents
to such change, the individual enters a trial period (the “Trial Period”) of six months from the
date of consent. At any time during the Trial Period an individual may revoke his or her consent
and meet the conditions of a voluntary resignation following a change as stated in (A), (B), or (C)
above, without the individual’s consent.

As used herein, “Misconduct” shall mean the commission of any act of fraud, embezzlement, theft or
dishonesty by such individual, any unauthorized use or disclosure by such individual of
confidential information or trade secrets of the Company (or any parent or subsidiary thereof), or
any other intentional misconduct by such individual adversely affecting the business or affairs of
the Company (or any parent or subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Company (or any parent or
subsidiary) may consider as grounds for the dismissal or discharge of any Executive.

CHANGE OF CONTROL

For the purposes of this severance plan, the term “Change in Control” means any of the following:

     1. the successful acquisition by a person or related group of persons, (other than the Company
or a person that directly or indirectly controls, is controlled by or is under common control with,
the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended) of securities possessing more than 50% of the total combined voting power
of the Company’s outstanding securities pursuant to a transaction or series of related transactions
which the Board does not at any time recommend the Company’s stockholders to accept or approve;

     2. the first date within any period of 18 consecutive months or less on which there is
effected a change in the composition of the Company’s Board such that a majority of the Board
ceases, by reason of one or more contested elections for Board membership, to be comprised of
individuals who either (i) have been members of the Company’s Board continuously since the
beginning of such period or (ii) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in clause (i) who were
still in office at the time such election or nomination was approved by the Board;

     3. a merger or consolidation in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state in which the Company is
incorporated;

2

 

     4. the sale, transfer or other disposition of all or substantially all of the assets of the
Company in complete liquidation or dissolution of the Company;

     5. any reverse merger in which the Company is the surviving entity but in which securities
possessing more than 50% of the total combined voting power of the Company’s outstanding securities
are transferred to a person or persons different from the persons holding those securities
immediately prior to such merger; or

     6. the issuance by the Company to a single person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by or is under common
control with, the Company) of securities possessing more than 50% of the total combined voting
power of the Company’s outstanding securities (determined after such issuance) in a single
transaction or a series of related transactions.

SUMMARY OF PLAN INFORMATION

The information in this section is intended to answer general questions regarding the operation of
the Plan.

Except for those responsibilities specifically reserved to the Board herein, the Plan is
administered by the “Administrator.” The Administrator is the committee of officers or Board
members designated from time to time by the Company to administer the Plan. In the absence of such
designation, the Company shall be the Administrator. The Administrator may delegate any of its
duties or authorities to any person or entity. The Administrator has absolute discretion to make
all decisions under the Plan, including making determinations about eligibility for and the amounts
of benefits payable under the Plan and interpreting all Plan provisions. All decisions of the
Administrator are final, binding and conclusive. If a Change in Control occurs, as determined by
the Administrator in its discretion, the Administrator shall consist of a committee of the
individuals who were the chief executive officer of the Company, the chief financial officer of the
Company and the senior human resources officer of the Company immediately prior to the Change in
Control.

How to Make a Claim for Benefits

If severance benefits are not automatically paid upon a payment event, an Executive may file a
request for benefits in writing with the “Administrator” (as defined in this section). Failure to
timely submit an application for benefits in writing, as specified in Section 5, will result in a
loss of Plan benefits. You may not assign your benefits. Any attempted assignment is void.

If an individual’s claim for Benefits is denied, the Administrator will furnish written notice of
denial to the individual (“Claimant”) within 90 days of the date the claim is received, unless
special circumstances require an extension of time for processing the claim. This extension will
not exceed 90 days, and the Claimant must receive written notice stating the grounds for the
extension and the length of the extension within the initial 90-day review period. If the
Administrator does not provide written notice, the Claimant may deem the claim denied and seek
review according to the appeals procedures set forth below.

3

 

     1. The notice of denial to the Claimant shall state:

	 	(a)	 	The specific reasons for the denial;
	 
	 	(b)	 	Specific references to pertinent provisions of the Plan on
which the denial was based;
	 
	 	(c)	 	A description of any additional material or information needed
for the Claimant to perfect his or her claim and an explanation of why the
material or information is needed;
	 
	 	(d)	 	A statement that the Claimant may request a review upon written
application to the Administrator, review pertinent Plan documents, and submit
issues and comments in writing and that any appeal that the Claimant wishes to
make of the adverse determination must be in writing to the Administrator
within 60 days after the Claimant receives notice of denial of benefits; and
	 
	 	(e)	 	The name and address of the Administrator to which the Claimant
may forward an appeal. The notice may state that failure to appeal the action
to the Administrator in writing within the 60-day period will render the
determination final, binding and conclusive.

     2. If the Claimant appeals to the Administrator, the Claimant or his or her authorized
representative may submit in writing whatever issues and comments he or she believes to be
pertinent. The Administrator shall reexamine all facts related to the appeal and make a final
determination of whether the denial of benefits is justified under the circumstances. The
Administrator shall advise the Claimant in writing of:

	 	(a)	 	The Administrator’s decision on appeal.
	 
	 	(b)	 	The specific reasons for the decision.
	 
	 	(c)	 	The specific provisions of the Plan on which the decision is
based.

Notice of the Administrator’s decision shall be given within 60 days of the Claimant’s written
request for review, unless additional time is required due to special circumstances. In no event
shall the Administrator render a decision on an appeal later than 120 days after receiving a
request for a review.

Plan Amendment or Termination

The Company may terminate or amend the Plan in its sole discretion at any time prior to a Change in
Control by a written amendment that is authorized by the Company. However, once a Change in Control
occurs, or upon the execution of a letter of intent or definitive agreement for the Company to
engage in a transaction that will result in a Change in Control, (i) no amendment or termination

4

 

will be effective with respect to an Executive unless he or she receives 30 days written notice of
such amendment and consents thereto in writing after consultation with legal counsel, (ii) the
identity of the Administrator may not be changed by an amendment without the express written
consent of a majority of individuals who are or will become eligible to receive benefits hereunder
as a result of the Change in Control.

The Company’s authorization of an amendment must be evidenced by one of the following: (1) a
resolution of the board of directors; (2) execution of the amendment by the Company’s chief
executive officer, president or secretary; or (3) ratification of the amendment by either a
resolution of the board of directors or written confirmation of ratification by the chief executive
officer, president or secretary. Notice of any amendment must be provided to or made available to
the Administrator. Oral amendments and modifications of this Plan are not effective. All amendments
and modifications must be in writing and signed as provided above to be effective.

Additional Information

Benefits are paid out of the general assets of the Company. The Company may, in its discretion
establish a “grantor trust” to fund the payment of Benefits. Otherwise, this Plan does not give an
Executive any rights to any particular assets of the Company. Cash amounts paid under a severance
plan are generally considered taxable income to the recipient.

ERISA Rights

Participant in the Plan are entitled to certain rights and protections under ERISA. ERISA provides
that all Plan participants shall be entitled to:

	 	•	 	Examine, without charge, at the Plan Administrator’s office and at other specified
locations, all Plan documents, including insurance contracts, and copies of all documents
filed by the Plan with the U.S. Department of Labor, such as detailed annual reports and
plan descriptions.
	 
	 	•	 	Obtain copies of all Plan documents and other Plan information upon written request to
the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies.
	 
	 	•	 	Receive a summary of the Plan’s annual financial report. The Plan Administrator is
required by law to furnish each participant with a copy of this summary annual report.

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are
responsible for the operation of the employee benefit Plan. The people who operate your Plan,
called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and
other Plan participants and beneficiaries. No one, including the Company or any other person, may
fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit
under this Plan or from exercising your rights under ERISA. If a claim for a Benefit is denied in
whole or in part, you must receive a written explanation of the reason for the denial. You have the
right to have the Plan Administrator review and reconsider your claim.

5

 

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request
materials from the Plan and do not receive them within 30 days, you may file suit in a federal
court. In such a case, the court may require the Plan Administrator to provide the materials and
pay you up to $110 a day until you receive the materials, unless the materials were not sent
because of reasons beyond the control of the Administrator.

If you have a claim for benefits that is denied or ignored, in whole or in part, and you have
exhausted all administrative remedies provided herein and ERISA, you may file suit in a federal
court. If it should happen that Plan fiduciaries misuse the Plan’s money or if you are
discriminated against for asserting your rights, you may seek assistance from the U.S. Department
of Labor or you may file suit in a federal court. The court will decide who should pay court costs
and fees. If you lose, the court may order you to pay these costs and fees, for example, if it
finds your claim is frivolous.

If you have any questions about your Plan, you should contact the Plan Administrator. If you have
any questions about this statement or about your rights under ERISA, you should contact the nearest
Area Office of the U.S. Labor-Management Services Administration, Department of Labor.

Summary of Plan Information

	 	 	 
	Name of Plan:

	 	Capstone Turbine Corporation Change in Control Severance Plan
	 
	 	 
	Company Address:

	 	Capstone Turbine Corporation
	 

	 	21211 Nordhoff Street
	 

	 	Chatsworth, CA 91311
	 
	 	 
	Who Pays for the Plan:

	 	The cost of the Plan is paid entirely by the Company.
	 
	 	 
	The Company’s Employer Identification No.: 95-4180883
	 
	 	 
	Plan Number: 510
	 	 
	 
	 	 
	Plan Year: January 1 to December 31
	 
	 	 
	Plan Administrator:

	 	Administrator of the Change in Control Severance Plan
	 

	 	c/o Sharon Faltemier
	 

	 	Capstone Turbine Corporation
	 

	 	21211 Nordhoff Street
	 

	 	Chatsworth, CA 91311
	 
	 	 
	 

	 	(818) 734-5300

Agent for Service of Legal Process on the Plan: Chief executive officer of the Company or the Plan
Administrator.

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     IN WITNESS WHEREOF, Capstone Turbine Corporation, acting through the undersigned authorized
representative, has executed this Plan on the 20th day of March, 2005, to be effective as of March
17, 2005.

	 	 	 	 	 	 	 
	 	 	CAPSTONE TURBINE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Karen Clark 	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:	 	Secretary to the Board 	 	 
	 

	 	 	 	 	 	 

7

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