Document:

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                                                                    EXHIBIT 10.2

                              ACTIVE POWER, INC.
                           2000 STOCK INCENTIVE PLAN
                           -------------------------

                                  ARTICLE ONE

                              GENERAL PROVISIONS
                              ------------------

     I.    PURPOSE OF THE PLAN

           This 2000 Stock Incentive Plan is intended to promote the interests
of Active Power, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.

           Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.

     II.   STRUCTURE OF THE PLAN

           A.   The Plan shall be divided into three separate equity incentive
programs:

                (i)   the Discretionary Option Grant Program under which
     eligible persons may, at the discretion of the Plan Administrator, be
     granted options to purchase shares of Common Stock,

                (ii)  the Stock Issuance Program under which eligible persons
     may, at the discretion of the Plan Administrator, be issued shares of
     Common Stock directly, either through the immediate purchase of such shares
     or as a bonus for services rendered the Corporation (or any Parent or
     Subsidiary), and

                (iii) the Automatic Option Grant Program under which eligible
     non-employee Board members shall automatically receive options at periodic
     intervals to purchase shares of Common Stock.

           B.   The provisions of Articles One and Five shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.

     III.  ADMINISTRATION OF THE PLAN

           A.   Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board
unless otherwise determined by the Board.  Beginning with the Section 12
Registration Date, the following provisions shall govern the administration of
the Plan:
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                (i)   The Board shall have the authority to administer the
     Discretionary Option Grant and Stock Issuance Programs with respect to
     Section 16 Insiders but may delegate such authority in whole or in part to
     the Primary Committee.

                (ii)  Administration of the Discretionary Option Grant and Stock
     Issuance Programs with respect to all other persons eligible to participate
     in those programs may, at the Board's discretion, be vested in the Primary
     Committee or a Secondary Committee, or the Board may retain the power to
     administer those programs with respect to all such persons.

                (iii) Administration of the Automatic Option Grant Program shall
     be self-executing in accordance with the terms of that program.

           B.   Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:

                (i)   to establish such rules as it may deem appropriate for
     proper administration of the Plan, to make all factual determinations, to
     construe and interpret the provisions of the Plan and the awards thereunder
     and to resolve any and all ambiguities thereunder;

                (ii)  to determine, with respect to awards made under the
     Discretionary Option Grant and Stock Issuance Programs, which eligible
     persons are to receive such awards, the time or times when such awards are
     to be made, the number of shares to be covered by each such award, the
     vesting schedule (if any) applicable to the award, the status of a granted
     option as either an Incentive Option or a Non-Statutory Option and the
     maximum term for which the option is to remain outstanding;

                (iii) to amend, modify or cancel any outstanding award with the
     consent of the holder or accelerate the vesting of such award; and

                (iv)  to take such other discretionary actions as permitted
     pursuant to the terms of the applicable program.

Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.

           C.   Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.

           D.   Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any options or stock issuances under the Plan.

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     IV.   ELIGIBILITY

           A.   The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

                    (i)   Employees,

                    (ii)  non-employee members of the Board or the board of
     directors of any Parent or Subsidiary, and

                    (iii) consultants and other independent advisors who provide
     services to the Corporation (or any Parent or Subsidiary).

           B.   Only non-employee Board members shall be eligible to participate
in the Automatic Option Grant Program.

     V.    STOCK SUBJECT TO THE PLAN

           A.   The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed Nine
Million Sixteen Thousand (9,016,000) shares. Such reserve shall consist of (i)
the number of shares estimated to remain available for issuance, as of the
Section 12 Registration Date, under the Predecessor Plan, including the shares
subject to the outstanding options to be incorporated into the Plan and the
additional shares which would otherwise be available for future grant, plus (ii)
an increase of Two Million Seven Hundred Sixty Thousand (2,760,000) shares
authorized by the Board subject to stockholder approval prior to the Section 12
Registration Date.

           B.   The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with the calendar year
2001, by an amount equal to two percent (2%) of the total number of shares of
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall such annual increase exceed One
Million One Hundred Fifty Thousand (1,150,000) shares.

           C.   No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than One Million One Hundred Fifty Thousand (1,150,000) shares of Common
Stock in the aggregate per calendar year.

           D.   Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under the Plan.

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However, should the exercise price of an option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised or which vest under the stock issuance, and not by the
net number of shares of Common Stock issued to the holder of such option or
stock issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under the Plan shall not be available for subsequent issuance.

           E.   If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities by which the share reserve is
to increase each calendar year pursuant to the automatic share increase
provisions of the Plan, (iii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan per calendar year, (iv) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members, (v) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan and (vi) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan.  Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

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                                  ARTICLE TWO

                      DISCRETIONARY OPTION GRANT PROGRAM
                      ----------------------------------

     I.    OPTION TERMS

           Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
                                    --------
shall comply with the terms specified below.  Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

           A.   Exercise Price.
                --------------

                1.   The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant and may be less than, equal to or
greater than the Fair Market Value per share of Common Stock on the option grant
date.

                2.   The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section II of
Article Five and the documents evidencing the option, be payable in one or more
of the following forms:

                     (i)   in cash or check made payable to the Corporation;

                     (ii)  shares of Common Stock held for the requisite period
     necessary to avoid a charge to the Corporation's earnings for financial
     reporting purposes and valued at Fair Market Value on the Exercise Date, or

                     (iii) to the extent the option is exercised for vested
     shares, through a special sale and remittance procedure pursuant to which
     the Optionee shall concurrently provide irrevocable instructions to (a) a
     Corporation-designated brokerage firm to effect the immediate sale of the
     purchased shares and remit to the Corporation, out of the sale proceeds
     available on the settlement date, sufficient funds to cover the aggregate
     exercise price payable for the purchased shares plus all applicable
     Federal, state and local income and employment taxes required to be
     withheld by the Corporation by reason of such exercise and (b) the
     Corporation to deliver the certificates for the purchased shares directly
     to such brokerage firm in order to complete the sale.

           Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

           B.   Exercise and Term of Options.  Each option shall be exercisable
                ----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option.  However, no option shall have a term in excess of ten
(10) years measured from the option grant date.

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           C.   Cessation of Service.
                --------------------

                1.   The following provisions shall govern the exercise of any
options outstanding at the time of the Optionee's cessation of Service or death:

                     (i)   Any option outstanding at the time of the Optionee's
     cessation of Service for any reason shall remain exercisable for such
     period of time thereafter as shall be determined by the Plan Administrator
     and set forth in the documents evidencing the option, but no such option
     shall be exercisable after the expiration of the option term.

                     (ii)  Any option exercisable in whole or in part by the
     Optionee at the time of death may be subsequently exercised by his or her
     Beneficiary.

                     (iii) During the applicable post-Service exercise period,
     the option may not be exercised in the aggregate for more than the number
     of vested shares for which the option is exercisable on the date of the
     Optionee's cessation of Service. Upon the expiration of the applicable
     exercise period or (if earlier) upon the expiration of the option term, the
     option shall terminate and cease to be outstanding for any vested shares
     for which the option has not been exercised. However, the option shall,
     immediately upon the Optionee's cessation of Service, terminate and cease
     to be outstanding to the extent the option is not otherwise at that time
     exercisable for vested shares.

                     (iv)  Should the Optionee's Service be terminated for
     Misconduct or should the Optionee engage in Misconduct while his or her
     options are outstanding, then all such options shall terminate immediately
     and cease to be outstanding.

                2.   The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding:

                     (i)   to extend the period of time for which the option is
     to remain exercisable following the Optionee's cessation of Service to such
     period of time as the Plan Administrator shall deem appropriate, but in no
     event beyond the expiration of the option term, and/or

                     (ii)  to permit the option to be exercised, during the
     applicable post-Service exercise period, for one or more additional
     installments in which the Optionee would have vested had the Optionee
     continued in Service.

           D.   Stockholder Rights.  The holder of an option shall have no
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stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

           E.   Repurchase Rights.  The Plan Administrator shall have the
                -----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock.  Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to

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repurchase, at the exercise price paid per share, any or all of those unvested
shares. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.

           F.   Limited Transferability of Options.  During the lifetime of the
                ----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee's death.  Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order.  The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.

           Notwithstanding the foregoing, the Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options.  Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.

     II.   INCENTIVE OPTIONS

           The terms specified below shall be applicable to all Incentive
Options.  Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options.  Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
                                 ---

           A.   Eligibility.  Incentive Options may only be granted to
                -----------
Employees.

           B.   Exercise Price.  The exercise price per share shall not be less
                --------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

           C.   Dollar Limitation.  The aggregate Fair Market Value of the
                -----------------
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

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           D.   10% Stockholder.  If any Employee to whom an Incentive Option is
                ---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

     III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

           A.   Each option outstanding at the time of a Change in Control but
not otherwise fully-vested shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock.  However, an outstanding option shall not so accelerate
if and to the extent:  (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant.  Each option outstanding
at the time of the Change in Control shall terminate as provided in Section
III.C. of this Article Two.

           B.   All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.

           C.   Immediately following the consummation of the Change in Control,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.

           D.   Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control.  Appropriate
adjustments to reflect such Change in Control shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
                                                                --------
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.  To the extent the actual holders of the Corporation's
outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Change in Control, the successor

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corporation may, in connection with the assumption of the outstanding options,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Change in Control.

           E.   The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Change in Control,
whether or not those options are assumed or otherwise continued in full force
and effect pursuant to the terms of the Change in Control.  Any such option
shall accordingly become exercisable, immediately prior to the effective date of
such Change in Control, for all of the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock.  In addition, the Plan Administrator may at
any time provide that one or more of the Corporation's repurchase rights shall
not be assignable in connection with such Change in Control and shall terminate
upon the consummation of such Change in Control.

           F.   The Plan Administrator may at any time provide that one or more
options will automatically accelerate upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed twenty-four (24)
months) following the effective date of any Change in Control in which those
options do not otherwise accelerate.  Any options so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the expiration of
                                              -------
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of the Involuntary Termination.  In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.

           G.   The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Hostile Take-Over.
Any such option shall become exercisable, immediately prior to the effective
date of such Hostile Take-Over, for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. In addition, the Plan Administrator may
at any time provide that one or more of the Corporation's repurchase rights
shall terminate automatically upon the consummation of such Hostile Take-Over.
Alternatively, the Plan Administrator may condition such automatic acceleration
and termination upon an Involuntary Termination of the Optionee's Service within
a designated period (not to exceed twenty-four (24) months) following the
effective date of such Hostile Take-Over.  Each option so accelerated shall
remain exercisable for fully-vested shares until the expiration or sooner
termination of the option term.

           H.   The portion of any Incentive Option accelerated in connection
with a Change in Control or Hostile Take Over shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded.  To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a Non-
Statutory Option under the Federal tax laws.

     IV.   STOCK APPRECIATION RIGHTS

           The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to

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elect between the exercise of the underlying option for shares of Common Stock
and the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Option Surrender Value
of the number of shares for which the option is surrendered over (b) the
aggregate exercise price payable for such shares. The distribution may be made
in shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.

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                                 ARTICLE THREE

                            STOCK ISSUANCE PROGRAM
                            ----------------------

     I.    STOCK ISSUANCE TERMS

           Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening options.  Shares
of Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or Service requirements.  Each such
award shall be evidenced by one or more documents which comply with the terms
specified below.

           A.   Purchase Price.
                --------------

                1.   The purchase price per share of Common Stock subject to
direct issuance shall be fixed by the Plan Administrator and may be less than,
equal to or greater than the Fair Market Value per share of Common Stock on the
issue date.

                2.   Subject to the provisions of Section II of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

                     (i)   cash or check made payable to the Corporation, or

                     (ii)  past services rendered to the Corporation (or any
     Parent or Subsidiary).

           B.   Vesting/Issuance Provisions.
                ---------------------------

                1.   The Plan Administrator may issue shares of Common Stock
which are fully and immediately vested upon issuance or which are to vest in one
or more installments over the Participant's period of Service or upon attainment
of specified performance objectives.  Alternatively, the Plan Administrator may
issue share right awards which shall entitle the recipient to receive a
specified number of vested shares of Common Stock upon the attainment of one or
more performance goals or Service requirements established by the Plan
Administrator.

                2.   Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

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                3.   The Participant shall have full stockholder rights with
respect to the issued shares of Common Stock, whether or not the Participant's
interest in those shares is vested. Accordingly, the Participant shall have the
right to vote such shares and to receive any regular cash dividends paid on such
shares.

                4.   Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock, or should the performance
objectives not be attained with respect to one or more such unvested shares of
Common Stock, then those shares shall be immediately surrendered to the
Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares.  To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money indebtedness),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.

                5.   The Plan Administrator may waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-attainment of the performance objectives
applicable to those shares.  Such waiver shall result in the immediate vesting
of the Participant's interest in the shares of Common Stock as to which the
waiver applies.  Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.

                6.   Outstanding share right awards shall automatically
terminate, and no shares of Common Stock shall actually be issued in
satisfaction of those awards, if the performance goals or Service requirements
established for such awards are not attained.  The Plan Administrator, however,
shall have the authority to issue shares of Common Stock in satisfaction of one
or more outstanding share right awards as to which the designated performance
goals or Service requirements are not attained.

     II.   CHANGE IN CONTROL/HOSTILE TAKE-OVER

           A.   All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control, except to the extent (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.

           B.   The Plan Administrator may at any time provide for the automatic
termination of one or more of those outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed twenty-four (24) months) following the effective date of any

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Change in Control or Hostile Take-Over in which those repurchase rights are
assigned to the successor corporation (or parent thereof) or otherwise continue
in full force and effect.

     III.  SHARE ESCROW/LEGENDS

           Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

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                                 ARTICLE FOUR

                        AUTOMATIC OPTION GRANT PROGRAM
                        ------------------------------

     I.    OPTION TERMS

           A.   Grant Dates.  Options shall be made on the dates specified
                -----------
below:

                1.   Each individual who is first elected or appointed as a non-
employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase Twenty-Five Thousand (25,000) shares of Common
Stock, provided that individual has not been in the employ of the Corporation
(or any Parent or Subsidiary) in the two (2) years immediately preceding such
election or appointment.

                2.   On the date of each Annual Stockholders Meeting beginning
with the 2001 Annual Stockholder Meeting, each individual who is to continue to
serve as a non-employee Board member shall automatically be granted a Non-
Statutory Option to purchase Seven Thousand Five Hundred (7,500) shares of
Common Stock, provided that individual has served as a non-employee Board member
for at least six (6) months.

           B.   Exercise Price.
                --------------

                1.   The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.

                2.   The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

           C.   Option Term.  Each option shall have a term of ten (10) years
                -----------
measured from the option grant date.

           D.   Exercise and Vesting of Options.  Each option shall be
                -------------------------------
immediately exercisable for any or all of the option shares. However, any
unvested shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. Each initial 25,000-share
option shall vest, and the Corporation's repurchase right shall lapse, in a
series of three (3) successive equal annual installments over the Optionee's
period of continued service as a Board member, with the first such installment
to vest upon the Optionee's completion of one (1) year of Board service measured
from the option grant date. Each annual 7,500-share option shall vest, and the
Corporation's repurchase right shall lapse, upon Optionee's completion of one
(1) year of Board service measured from the option grant date.

                                       14
<PAGE>

           E.   Cessation of Board Service.  The following provisions shall
                --------------------------
govern the exercise of any options outstanding at the time of the Optionee's
cessation of Board service:

                     (i)   Any option outstanding at the time of the Optionee's
     cessation of Board service for any reason shall remain exercisable for a
     twelve (12)-month period following the date of such cessation of Board
     service, but in no event shall such option be exercisable after the
     expiration of the option term.

                     (ii)  Any option exercisable in whole or in part by the
     Optionee at the time of death may be subsequently exercised by his or her
     Beneficiary.

                     (iii) Following the Optionee's cessation of Board service,
     the option may not be exercised in the aggregate for more than the number
     of shares for which the option was exercisable on the date of such
     cessation of Board service. Upon the expiration of the applicable exercise
     period or (if earlier) upon the expiration of the option term, the option
     shall terminate and cease to be outstanding for any vested shares for which
     the option has not been exercised. However, the option shall, immediately
     upon the Optionee's cessation of Board service, terminate and cease to be
     outstanding for any and all shares for which the option is not otherwise at
     that time exercisable.

                     (iv)  However, should the Optionee cease to serve as a
     Board member by reason of death or Permanent Disability, then all shares at
     the time subject to the option shall immediately vest so that such option
     may, during the twelve (12)-month exercise period following such cessation
     of Board service, be exercised for all or any portion of those shares as
     fully-vested shares of Common Stock.

     II.   CHANGE IN CONTROL/HOSTILE TAKE-OVER

           A.   In the event of any Change in Control or Hostile Take-Over, the
shares of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option may,
immediately prior to the effective date of such Change in Control or Hostile
Take-Over, became fully exercisable for all of the shares of Common Stock at the
time subject to such option and maybe exercised for all or any of those shares
as fully-vested shares of Common Stock.  Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control.  Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.

           B.   All outstanding repurchase rights shall automatically terminate
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Change in Control or Hostile Take-
Over.

           C.   Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding options.  The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Option Surrender Value of the shares of Common Stock at

                                       15
<PAGE>

the time subject to each surrendered option (whether or not the option is
otherwise at the time exercisable for those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.

           D.   Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control.  Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, provided the aggregate
                                                       --------
exercise price payable for such securities shall remain the same.  To the extent
the actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options, substitute one or more shares of its own common stock with
a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Change in Control.

     III.  REMAINING TERMS

           The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for options made under
the Discretionary Option Grant Program.

                                       16
<PAGE>

                                 ARTICLE FIVE

                                 MISCELLANEOUS
                                 -------------

     I.    NO IMPAIRMENT OF AUTHORITY

           Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

     II.   FINANCING

           The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments.  The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion.  In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

     III.  TAX WITHHOLDING

           A.  The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.

           B.  The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan with the right to use shares of Common Stock in satisfaction of all or
part of the Withholding Taxes incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:

               Stock Withholding: The election to have the Corporation withhold,
               -----------------
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

               Stock Delivery: The election to deliver to the Corporation, at
               --------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.

                                       17
<PAGE>

     IV.   EFFECTIVE DATE AND TERM OF THE PLAN

           A.   The Plan shall become effective immediately upon the Plan
Effective Date.  Options may be granted under the Discretionary Option Grant
Program at any time on or after the Plan Effective Date.  However, no options
granted under the Plan may be exercised, and no shares shall be issued under the
Plan, until the Plan is approved by the Corporation's stockholders.  If such
stockholder approval is not obtained within twelve (12) months after the Plan
Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.

           B.   The Plan shall serve as the successor to the Predecessor Plan,
and no further options or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date.   All options
outstanding under the Predecessor Plan on the Section 12 Registration Date shall
be incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan.  However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.

           C.   One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Changes in Control, may, in the Plan Administrator's discretion, be extended
to one or more options incorporated from the Predecessor Plan which do not
otherwise contain such provisions.

           D.   The Plan shall terminate upon the earliest of (i) ______, 2010,
                                                  --------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control.  Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.

     V.    AMENDMENT OF THE PLAN

           A.   The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects.  However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

           B.   Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently

                                       18
<PAGE>

increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.

     VI.   USE OF PROCEEDS

           Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

     VII.  REGULATORY APPROVALS

           A.   The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

           B.   No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

     VIII.  NO EMPLOYMENT/SERVICE RIGHTS

            Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

                                       19
<PAGE>

                                   APPENDIX
                                   ---------

           The following definitions shall be in effect under the Plan:

           A.   Automatic Option Grant Program shall mean the automatic option
                ------------------------------
grant program in effect under the Plan.

           B.   Beneficiary shall mean, in the event the Plan Administrator
                -----------
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such person's
rights under any outstanding awards held by him or her at the time of death.  In
the absence of such designation or procedure, the Beneficiary shall be the
personal representative of the estate of the Optionee or Participant or the
person or persons to whom the award is transferred by will or the laws of
inheritance.

           C.   Board shall mean the Corporation's Board of Directors.
                -----

           D.   Change in Control shall mean a change in ownership or control of
                -----------------
the Corporation effected through any of the following transactions:

                (i)   a merger, consolidation or reorganization approved by the
     Corporation's stockholders, unless securities representing more than fifty
                                 ------
     percent (50%) of the total combined voting power of the voting securities
     of the successor corporation are immediately thereafter beneficially owned,
     directly or indirectly and in substantially the same proportion, by the
     persons who beneficially owned the Corporation's outstanding voting
     securities immediately prior to such transaction,

                (ii)  any stockholder-approved transfer or other disposition of
     all or substantially all of the Corporation's assets, or

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

           E.   Code shall mean the Internal Revenue Code of 1986, as amended.
                ----

           F.   Common Stock shall mean the Corporation's common stock.
                ------------

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

                                      A-1
<PAGE>

           H.   Discretionary Option Grant Program shall mean the discretionary
                ----------------------------------
option grant program in effect under the Plan.

           I.   Employee shall mean an individual who is in the employ of the
                --------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

           J.   Exercise Date shall mean the date on which the Corporation shall
                -------------
have received written notice of the option exercise.

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

                (i)   If the Common Stock is at the time traded on the Nasdaq
     National Market, then the Fair Market Value shall be the closing selling
     price per share of Common Stock on the date in question, as such price is
     reported on the Nasdaq National Market or any successor system and in The
     Wall Street Journal.  If there is no closing selling price for the Common
     Stock on the date in question, then the Fair Market Value shall be the
     closing selling price on the last preceding date for which such quotation
     exists.

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

                (iii) For purposes of any option grants made on the Underwriting
     Date, the Fair Market Value shall be deemed to be equal to the price per
     share at which the Common Stock is to be sold in the initial public
     offering pursuant to the Underwriting Agreement.

                (iv)  For purposes of any options made prior to the Underwriting
     Date, the Fair Market Value shall be determined by the Plan Administrator,
     after taking into account such factors as it deems appropriate.

           L.   Hostile Take-Over shall mean:
                -----------------

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

                                      A-2
<PAGE>

     Corporation's stockholders which the Board does not recommend such
     stockholders to accept, or

                    (ii)   a change in the composition of the Board over a
     period of thirty-six (36) consecutive months or less such that a majority
     of the Board members ceases, by reason of one or more contested elections
     for Board membership, to be comprised of individuals who either (A) have
     been Board members 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 the Board approved such election or
     nomination.

           M.   Incentive Option shall mean an option which satisfies the
                ----------------
requirements of Code Section 422.

           N.   Involuntary Termination shall mean the termination of the
                -----------------------
Service of any individual which occurs by reason of:

                    (i)    such individual's involuntary dismissal or discharge
     by the Corporation for reasons other than Misconduct, or

                    (ii)   such individual's voluntary resignation following (A)
     a change in his or her position with the Corporation or Parent or
     Subsidiary employing the individual which materially reduces his or her
     duties and responsibilities or the level of management to which he or she
     reports, (B) a reduction in his or her level of compensation (including
     base salary, fringe benefits and target bonus under any corporate-
     performance based bonus or incentive programs) by more than fifteen percent
     (15%) or (C) a relocation of such individual's place of employment by more
     than fifty (50) miles, provided and only if such change, reduction or
     relocation is effected by the Corporation without the individual's consent.

           O.   Misconduct shall mean the commission of any act of fraud,
                ----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by such
person, whether by omission or commission, which adversely affects the business
or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner.  This shall not limit the grounds for the dismissal or discharge of any
person in the Service of the Corporation (or any Parent or Subsidiary).

           P.   1934 Act shall mean the Securities Exchange Act of 1934, as
                --------
amended.

           Q.   Non-Statutory Option shall mean an option not intended to
                --------------------
satisfy the requirements of Code Section 422.

           R.   Option Surrender Value shall mean the Fair Market Value per
                ----------------------
share of Common Stock on the date the option is surrendered to the Corporation
or, in the event of a Hostile Take-Over, effected through a tender offer, the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over, if greater.

                                      A-3
<PAGE>

However, if the surrendered option is an Incentive Option, the Option Surrender
Value shall not exceed the Fair Market Value per share.

           S.   Optionee shall mean any person to whom an option is granted
                --------
under the Discretionary Option Grant or Automatic Option Grant Program.

           T.   Parent shall mean any corporation (other than the Corporation)
                ------
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

           U.   Participant shall mean any person who is issued shares of Common
                -----------
Stock under the Stock Issuance Program.

           V.   Permanent Disability or Permanently Disabled shall mean the
                --------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.  However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.

           W.   Plan shall mean the Corporation's 2000 Stock Incentive Plan, as
                ----
set forth in this document.

           X.   Plan Administrator shall mean the particular entity, whether the
                ------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.  However, the Primary Committee shall have
the plenary authority to make all factual determinations and to construe and
interpret any and all ambiguities under the Plan to the extent such authority is
not otherwise expressly delegated to any other Plan Administrator.

           Y.   Plan Effective Date shall mean ______, 2000 the date on which
                -------------------
the Plan was adopted by the Board.

           Z.   Predecessor Plan shall mean the Corporation's pre-existing 1993
                ----------------
Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.

           AA.  Primary Committee shall mean the committee of two (2) or more
                -----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.

                                      A-4
<PAGE>

           BB.  Secondary Committee shall mean a committee of one (1) or more
                -------------------
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.

           CC.  Section 12 Registration Date shall mean the date on which the
                ----------------------------
Common Stock is first registered under Section 12(g) of the 1934 Act.

           DD.  Section 16 Insider shall mean an officer or director of the
                ------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

           EE.  Service shall mean the performance of services for the
                -------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.

           FF.  Stock Exchange shall mean either the American Stock Exchange or
                --------------
the New York Stock Exchange.

           GG.  Stock Issuance Program shall mean the stock issuance program in
                ----------------------
effect under the Plan.

           HH.  Subsidiary shall mean any corporation (other than the
                ----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

           II.  10% Stockholder shall mean the owner of stock (as determined
                ---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

           JJ.  Underwriting Agreement shall mean the agreement between the
                ----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

           KK.  Underwriting Date shall mean the date on which the Underwriting
                -----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.

           LL.  Withholding Taxes shall mean the Federal, state and local income
                -----------------
and employment withholding tax liabilities to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.

                                      A-5<PAGE>

                                                                    EXHIBIT 10.3

                              ACTIVE POWER, INC.
                         EMPLOYEE STOCK PURCHASE PLAN
                         ----------------------------

     I.    PURPOSE OF THE PLAN

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

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

     II.   ADMINISTRATION OF THE PLAN

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

     III.  STOCK SUBJECT TO PLAN

           A.   The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market.  The maximum number of shares of Common
Stock which may be issued in the aggregate under the Plan shall not exceed One
Million One Hundred and Fifty Thousand (1,150,000) shares.

           B.   The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2001, by an amount equal to one half of one percent (0.5%) of the total number
of shares of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed Three Hundred Forty Five Thousand (345,000) shares.

           C.   Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to the maximum number and class of securities issuable in the
aggregate under the Plan, (ii) the maximum number and class of securities by
which the share reserve is to increase automatically each calendar year, (iii)
the maximum number and class of securities purchasable per Participant and in
the aggregate on any one Purchase Date and (iv) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
<PAGE>

     IV.   OFFERING PERIODS

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

           B.   Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period.  However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2002.  Subsequent offering periods shall commence as designated by the Plan
Administrator.

           C.   Each offering period shall be comprised of a series of one or
more successive Purchase Intervals.  Purchase Intervals shall run from the first
business day in February each year to the last business day in July of the same
year and from the first business day in August each year to the last business
day in January of the following year.  However, the first Purchase Interval in
effect under the initial offering period shall commence at the Effective Time
and terminate on the last business day in January 2001.

           D.   Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date.  The new
offering period shall have a duration of twenty-four (24) months, unless a
shorter duration is established by the Plan Administrator within five (5)
business days following the start date of that offering period.

     V.    ELIGIBILITY

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

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

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

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

                                       2
<PAGE>

     VI.   PAYROLL DEDUCTIONS

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

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

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

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

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

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

     VII.  PURCHASE RIGHTS

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

                                       3
<PAGE>

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

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

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

           D.   Number of Purchasable Shares.  The number of shares of Common
                ----------------------------
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed Five Thousand Seven Hundred Fifty (5,750) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
In addition, the maximum number of shares of Common Stock purchasable in the
aggregate by all Participants on any one Purchase Date shall not exceed Two
Hundred Eighty Seven Thousand Five Hundred (287,500) shares, subject to periodic
adjustments in the event of certain changes in the corporation's capitalization.

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

           F.   Termination of Purchase Right.  The following provisions shall
                -----------------------------
govern the termination of outstanding purchase rights:

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

                                       4
<PAGE>

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

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

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

           G.   Change in Control.  Each outstanding purchase right shall
                -----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
                     -----
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control.  However, the
applicable limitation on the number of shares of

                                       5
<PAGE>

Common Stock purchasable by all Participants in the aggregate shall not apply to
any such purchase.

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

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

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

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

     VIII. ACCRUAL LIMITATIONS

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

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

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

                (ii) No right to acquire Common Stock under any
     outstanding purchase right shall accrue to the extent the
     Participant has already accrued in the same calendar year the
     right to acquire Common Stock under one (1) or more other
     purchase rights at a rate equal to Twenty-Five Thousand Dollars
     ($25,000) worth of Common Stock (determined on the basis of the
     Fair Market Value per

                                       6
<PAGE>

     share on the date or dates of grant) for each calendar year such
     rights were at any time outstanding.

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

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

     IX.   EFFECTIVE DATE AND TERM OF THE PLAN

           A.   The Plan was adopted by the Board on June 8, 2000 and shall
become effective at the Effective Time, provided no purchase rights granted
                                        --------
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation.  In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.

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

     X.    AMENDMENT/TERMINATION OF THE PLAN

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

           B.   In no event may the Board effect any of the following amendments
or revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the

                                       7
<PAGE>

number of shares of Common Stock issuable under the Plan, except for permissible
adjustments in the event of certain changes in the Corporation's capitalization,
(ii) alter the purchase price formula so as to reduce the purchase price payable
for the shares of Common Stock purchasable under the Plan or (iii) modify
eligibility requirements for participation in the Plan.

     XI.   GENERAL PROVISIONS

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

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

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

                                       8
<PAGE>

                                  Schedule A
                                  ----------

                         Corporations Participating in
                         Employee Stock Purchase Plan
                           As of the Effective Time
                           ------------------------

                              Active Power, Inc.

<PAGE>

                                   APPENDIX
                                   --------

          The following definitions shall be in effect under the Plan:

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

          B.   Board shall mean the Corporation's Board of Directors.
               -----

          C.   Change in Control shall mean a change in ownership of the
               -----------------
Corporation pursuant to any of the following transactions:

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

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

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

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

          E.   Common Stock shall mean the Corporation's common stock.
               ------------

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

                                   A-1
<PAGE>

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

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

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

          J.   Entry Date shall mean the date an Eligible Employee first
               ----------
commences participation in the offering period in effect under the Plan.  The
earliest Entry Date under the Plan shall be the Effective Time.

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

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

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

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

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

          M.   Participant shall mean any Eligible Employee of a Participating
               -----------
Corporation who is actively participating in the Plan.

                                      A-2
<PAGE>

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

          O.   Plan shall mean the Corporation's Employee Stock Purchase Plan,
               ----
as set forth in this document.

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

          Q.   Purchase Date shall mean the last business day of each Purchase
               -------------
Interval.  The initial Purchase Date shall be January 31, 2001.

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

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

          T.   Stock Exchange shall mean either the American Stock Exchange or
               --------------
the New York Stock Exchange.

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

                                      A-3

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