S-8

As filed with the Securities and Exchange Commission on November 13, 2002

Registration No. 333-_____

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-8

REGISTRATION STATEMENT
Under
The Securities Act of 1933

CAPSTONE TURBINE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization) 95-4180883
(IRS Employer Identification No.)

21211 Nordhoff Street
Chatsworth, California 91311
(818) 734-5300
(Address of principal executive offices) (Zip Code)

CAPSTONE TURBINE CORPORATION AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT WITH MR. NORMAN CHAMBERS
STOCK OPTION AGREEMENT WITH MS. KAREN CLARK
(Full title of the Plans)

Susan N. Cayley
Vice President and General Counsel
Capstone Turbine Corporation
21211 Nordhoff Street
Chatsworth, California 91311
(818) 734-5300
(Name and address of agent for service)

Copies to:
Brian Cartwright, Esq.
Latham & Watkins
633 West 5th Street, Suite 4000
Los Angeles, California 90071
(213) 485-1234

CALCULATION OF REGISTRATION FEE

				Proposed
		Proposed		Maximum
		Maximum		Aggregate		Amount of
	Amount to be	Offering Price		Offering		Registration
Title of Securities to be Registered	Registered(1)	per Share(2)		Price(3)		Fee
Amended and Restated 2000 Equity Incentive Plan Common Stock, $0.001 par value	400,000 shares	$	0.88	$	352,000	$	33
Stock Option Agreement with Mr Chambers Common Stock, $0.001 par value	200,000 shares	$	4.74	$	948,000	$	88
Stock Option Agreement with Ms. Clark Common Stock, $0.001 par value	350,000 shares	$	4.70	$	1,645,000	$	152
Aggregate Registration Fee						$	273

(1)	The Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan (the “Plan”) authorizes the issuance of a maximum of (i) 3,700,000 shares of common stock of Capstone Turbine Corporation (“Capstone”), plus (ii) the number of shares previously authorized and remaining available under the Capstone Turbine Corporation 1993 Incentive Stock Plan (the “1993 Stock Plan”) as of the closing of Capstone’s initial public offering on July 5, 2000 and any shares covered by options granted under the 1993 Stock Plan that were forfeited or expired unexercised after the closing of Capstone’s initial public offering (the “1993 Plan Shares”). Capstone previously registered (i) 3,300,000 shares of Capstone’s common stock issuable under the Plan and (ii) the 1993 Plan Shares on separate registration statements on Form S-8, each filed with the Securities and Exchange Commission (the “Commission”) on July 6, 2000. The shares registered hereunder comprise (i) the additional 400,000 shares of Capstone’s common stock authorized and available under the Plan, (ii) 200,000 shares of Capstone’s common stock issuable at an exercise price of $4.74 pursuant to options outstanding under the Stock Option Agreement with Mr. Chambers, which will vest prior to the termination of his relationship with Capstone in November 2002, and (iii) 350,000 shares of Capstone’s common stock issuable at an exercise price of $4.70 pursuant to options outstanding under the Stock Option Agreement with Ms. Clark. In addition, pursuant to Rule 416(c) under the Securities Act of 1933, as amended (the “Securities Act”), this Registration Statement also covers an indeterminate number of additional shares of Capstone’s common stock that may be issued in accordance with the provisions of the Plan, the Stock Option Agreement with Mr. Chambers and the Stock Option Agreement with Ms. Clark by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without Capstone’s receipt of consideration, which results in an increase in the number of the outstanding shares of Capstone’s common stock.
(2)	The Proposed Maximum Offering Price Per Share is based upon (i) for the additional 400,000 shares authorized and available under the Plan, the average of the high ($0.91) and low ($0.84) trading prices per share of Capstone’s common stock on November 12, 2002, as reported by the Nasdaq National Market, pursuant to Rule 457(h) of the Securities Act, (ii) the exercise price per share ($4.74) of outstanding options for 200,000 shares under the Stock Option Agreement with Mr. Chambers, and (iii) the exercise price per share ($4.70) of outstanding options for 350,000 shares under the Stock Option Agreement with Ms. Clark.
(3)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(h) of the Securities Act.

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TABLE OF CONTENTS

PART II Information Required in the Registration Statement
	Item 3. Incorporation of Documents by Reference
	Item 4. Description of Securities
	Item 5. Interests of Named Experts and Counsel
	Item 6. Indemnification of Directors and Officers
	Item 7. Exemption from Registration Claimed
	Item 8. Exhibits
	Item 9. Undertakings
SIGNATURES
EXHIBIT INDEX
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 4.3
EXHIBIT 5.1
EXHIBIT 23.1

PART II

Information Required in the Registration Statement

Item 3. Incorporation of Documents by Reference

     Capstone Turbine Corporation hereby incorporates by reference into this Registration Statement the following documents previously filed with the Commission:

(a)	Capstone’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed with the Commission on March 29, 2002;
(b)	Capstone’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002, filed with the Commission on May 15, 2002;
(c)	Capstone’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed with the Commission on August 14, 2002;
(d)	Capstone’s Current Report on Form 8-K, filed with the Commission on August 14, 2002; and
(e)	The description of Capstone’s common stock contained in Capstone’s Registration Statement on Form 8-A, filed with the Commission on June 22, 2000, pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), including any subsequent amendment or report filed for the purpose of amending such description.

     All reports and definitive proxy or information statements filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any subsequently filed document which also is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement.

Item 4. Description of Securities

     The Common Stock is registered pursuant to Section 12 of the 1934 Act, and, therefore, the description of securities is incorporated by reference pursuant to Item 3 herein.

Item 5. Interests of Named Experts and Counsel

     Not Applicable.

Item 6. Indemnification of Directors and Officers

     Section 145 of the Delaware General Corporation Law (“DGCL”) provides in general that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any suit or proceeding because such person is or was a director, officer, employee or agent of the corporation, or is or was serving, at the request of the corporation, as a director, officer, employee or agent of another corporation, against

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expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Similar indemnity, but only for expenses (including attorneys’ fees) actually and reasonably incurred, may be provided in connection with an action or suit by or in the right of a corporation, provided that such person acted in good faith and in a manner such person believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim as to which such person has been adjudged to be liable to the corporation unless and only to the extent that a court shall have determined, upon application, that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

     Section 102(b)(7) of the DGCL provides generally that a corporation may include a provision in its certificate of incorporation which eliminates or limits the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision may not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. Capstone has included provisions of the foregoing type in Article XIII of its Second Amended and Restated Certificate of Incorporation (the “Certificate”), which require Capstone, to the fullest extent permitted by the DGCL, to indemnify all directors and officers of Capstone, and such other persons as may be required by statute or by Capstone’s bylaws (the “Bylaws”), against any liability and to advance indemnification expenses on behalf of all directors and officers of Capstone. The Certificate further requires Capstone to eliminate, to the fullest extent permitted by the DGCL, the liability for monetary damages of directors of Capstone for actions or inactions taken by them as directors. If the DGCL is later amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the Certificate provides that the liability of a director to Capstone shall be limited or eliminated to the fullest extent permitted by the DGCL, as so amended from time to time.

     The Certificate also empowers Capstone, to the fullest extent permitted by the DGCL, to purchase and maintain insurance on behalf of any director or officer, or such other person as may be permitted by statute or the bylaws, against any liability which may be asserted against any director, officer or such other person.

     In addition, the Bylaws require that Capstone indemnify, in the manner and to the full extent permitted by law, any person (or the estate of any person) who was or is a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of Capstone, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is a director or officer of Capstone, and at the discretion of the board of directors may indemnify any person (or the estate of any person) who is such a party or threatened to be made such a party by reason of the fact that such person is or was an employee or agent of Capstone or is or was serving at Capstone’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The Bylaws also provide that Capstone may, to the full extent permitted by law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against him and may enter into contracts providing for the indemnification of such person to the full extent permitted by law. To the full extent permitted by law, the indemnification provided under the Bylaws shall include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, and, in the manner provided by law, any such expenses may be paid by Capstone in advance of the final disposition of such action, suit or proceeding. The indemnification provided under the Bylaws shall not be deemed to limit Capstone’s right to indemnify any other person for any such expenses to the full extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from Capstone may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

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     Furthermore, Capstone has entered into indemnity agreements (the “Indemnity Agreements”) with each director of Capstone, including directors who are also officers and employees of Capstone, and certain senior officers of Capstone. The Indemnity Agreements provide that Capstone will pay any expenses which an indemnitee is or becomes legally obligated to pay in connection with any proceeding, including any threatened, pending or completed claim, action, suit or proceeding, whether brought by or in the right of Capstone or otherwise and whether of a civil, criminal, administrative or investigative nature, in which the indemnitee may be or may have been involved as a party or otherwise, by reason of the fact that the indemnitee is or was, or has agreed to become, a director or officer of Capstone, by reason of any actual or alleged error or misstatement or misleading statement made or suffered by the indemnitee, by reason of any action taken by him or of any inaction on his part while acting as such director or officer, or by reason of the fact that he was serving at the request of Capstone as a director, trustee, officer, employee or agent of Capstone or another corporation, partnership, joint venture, trust or other enterprise; provided, that in each such case the indemnitee acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of Capstone, and, in the case of a criminal proceeding, in addition had no reasonable cause to believe that his conduct was unlawful.

     The payments to be made under the Indemnity Agreements include, but are not limited to, damages, judgments, fines, penalties, settlements and costs, attorneys’ fees and disbursements and costs of attachment or similar bonds, investigations, and any expenses of establishing a right to indemnification under the Indemnity Agreements, except Capstone is not liable to make any payment under the Indemnity Agreements in connection with any claim made against an indemnitee (a) to the extent that payment is actually made to the indemnitee under a valid, enforceable and collectible insurance policy, (b) to the extent that the indemnitee is indemnified and actually paid otherwise than pursuant to the applicable Indemnity Agreement, (c) in connection with a judicial action by or in the right of Capstone, in respect of any claim, issue or matter as to which the indemnitee shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to Capstone unless and only to the extent that any court in which such action was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper, (d) if it is proved by final judgment in a court of law or other final adjudication to have been based upon or attributable to the indemnitee’s in fact having gained any personal profit or advantage to which he was not legally entitled, (e) for a disgorgement of profits made from the purchase and sale by the indemnitee of securities pursuant to Section 16(b) of the 1934 Act and amendments thereto or similar provisions of any state statutory law or common law, (f) brought about or contributed to by the dishonesty of the indemnitee seeking payment pursuant to the applicable Indemnity Agreement (however, notwithstanding the foregoing, the indemnitee shall be protected under the Indemnity Agreement as to any claims upon which suit may be brought against him by reason of any alleged dishonesty on his part, unless a judgment or other final adjudication thereof adverse to the indemnitee shall establish that he committed (i) acts of active and deliberate dishonesty, (ii) with actual dishonest purpose and intent, (iii) which acts were material to the cause of action so adjudicated), or (g) for any judgment, fine or penalty which Capstone is prohibited by applicable law from paying as indemnity or for any other reason.

Item 7. Exemption from Registration Claimed

     Not Applicable.

Item 8. Exhibits

Number	Exhibit
+4.1	Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan
+4.2	Stock Option Agreement with Mr. Chambers
+4.3	Stock Option Agreement with Ms. Clark
+5.1	Opinion of Latham & Watkins
+23.1	Consent of Deloitte & Touche, Independent Accountants
+23.2	Consent of Latham & Watkins is contained in Exhibit 5.1

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Number	Exhibit
+24.1	Power of Attorney (reference is made to page S-1 of this Registration Statement)

+ Filed herewith.

Item 9. Undertakings

          A. The undersigned Registrant hereby undertakes:

     (1)  To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

          (i) To include any prospectus required by Section 10(a)(3) of the Securities Act,

          (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

          (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement;

provided, however, that clauses (1)(i) and (1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are incorporated by reference into this Registration Statement;

     (2)  That for the purpose of determining any liability under the Securities Act each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

          B. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is incorporated by reference into this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

          C. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons of the Registrant pursuant to the indemnification provisions summarized in Item 6 or otherwise, the Registrant has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8, and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chatsworth, State of California on this 13th day of November, 2002.

CAPSTONE TURBINE CORPORATION
By:	/s/   DR. AKE ALMGREN Dr. Ake Almgren President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

     That the undersigned officers and directors of Capstone Turbine Corporation, a Delaware corporation, do hereby constitute and appoint Karen Clark and Susan Cayley and each of them, the lawful attorneys-in-fact and agents with full power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents, and any one of them, determine may be necessary or advisable or required to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules or regulations or requirements of the Securities and Exchange Commission in connection with this Registration Statement. Without limiting the generality of the foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to this Registration Statement, to any and all amendments, both pre-effective and post-effective, and supplements to this Registration Statement, and to any and all instruments or documents filed as part of or in conjunction with this Registration Statement or amendments or supplements thereof, and each of the undersigned hereby ratifies and confirms that all said attorneys and agents, or any one of them, shall do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts.

     IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated.

     Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/   AKE ALMGREN Ake Almgren	President, Chief Executive Officer and Director (Principal Executive Officer)	November 12, 2002

S-1

Signature	Title	Date
/s/   KAREN CLARK Karen Clark	Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	November 12, 2002
/s/   RICHARD AUBE Richard Aube	Director	November 12, 2002
/s/   ELIOT G. PROTSCH Eliot G. Protsch	Chairman of the Board	November 12, 2002
/s/   JOHN JAGGERS John Jaggers	Director	November 12, 2002
/s/   JEAN-RENE MARCOUX Jean-Rene Marcoux	Director	November 12, 2002
/s/   JOHN G. MCDONALD John G. McDonald	Director	November 12, 2002
/s/   ERIC YOUNG Eric Young	Director	November 12, 2002

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EXHIBIT INDEX

Number	Exhibit
+4.1	Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan
+4.2	Stock Option Agreement with Mr. Chambers
+4.3	Stock Option Agreement with Ms. Clark
+5.1	Opinion of Latham & Watkins
+23.1	Consent of Deloitte & Touche LLP, Independent Accountants
+23.2	Consent of Latham & Watkins is contained in Exhibit 5.1
+24.1	Power of Attorney (reference is made to page S-1 of this Registration Statement)

+ Filed herewith.

EX-4.1 3 a85692exv4w1.txt EXHIBIT 4.1 EXHIBIT 4.1 CAPSTONE TURBINE CORPORATION AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN 1. Purposes of the Plan. The purposes of the Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Non-Qualified Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights and Stock Bonuses may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Acquisition" means (i) any consolidation or merger of the Company with or into any other corporation or other entity or person in which the stockholders of the Company prior to such consolidation or merger own less than fifty percent (50%) of the Company's voting power immediately after such consolidation or merger, excluding any consolidation or merger effected exclusively to change the domicile of the Company; or (ii) a sale of all or substantially all of the assets of the Company. (b) "Administrator" means the Board or the Committee responsible for conducting the general administration of the Plan, as applicable, in accordance with Section 4 hereof. (c) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options, Stock Purchase Rights or Stock Bonuses are granted under the Plan. (d) "Board" means the Board of Directors of the Company. (e) "Cause" means (i) with respect to a Holder who is an Employee, and whose employment contract expressly provides for termination of such Holder in certain specified circumstances constituting "cause", those circumstances that constitute "cause" under such Holder's employment contract; (ii) with respect to a Holder who is an Employee, but who does not have an employment contract or whose employment contract does not expressly provide for termination of such Holder in certain specified circumstances constituting "cause", (A) the commission of any act by such Holder involving fraud, embezzlement or a felony, (B) the commission of any act by such Holder constituting financial dishonesty against the Company or its Parent or any of its Subsidiaries, (C) repeated and gross dereliction of duty to the Company or its Parent or any of its Subsidiaries to which such Holder's duties extend, (D) an act involving moral turpitude which (1) brings the Company or its Parent or any of its Subsidiaries into public disrepute or disgrace, or (2) causes material injury to the customer relations, operations or the business prospects of the Company or its Parent or any of its Subsidiaries, (E) the breach by such Holder of any of such Holder's obligations under such Holder's employee or employment agreement with the Company or its Parent or any of its Subsidiaries, or (F) the refusal or failure of such Holder to follow the lawful directives of the Board, the President and Chief Executive Officer of the Company or his designee or such Holder's supervisor; and (iii) with respect to a Holder who is a Director, (A) the commission of any act by such Holder involving fraud, embezzlement or a felony, (B) the commission of any act by such Holder constituting financial dishonesty against the Company or its Parent or any of its Subsidiaries, (C) repeated and gross dereliction of duty to the Company or its Parent or any of its Subsidiaries to which such Holder's duties extend, (D) an act involving moral turpitude which (1) brings the Company or its Parent or any of its Subsidiaries into public disrepute or disgrace, or (2) causes material injury to the customer relations, operations or the business prospects of the Company or its Parent or any of its Subsidiaries. (f) "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute or statutes thereto. Reference to any particular Code section shall include any successor section. (g) "Committee" means a committee appointed by the Board in accordance with Section 4 hereof. (h) "Common Stock" means the Common Stock of the Company, par value $0.001 per share. (i) "Company" means Capstone Turbine Corporation, a Delaware corporation. (j) "Consultant" means any consultant or adviser if: (i) the consultant or adviser renders bona fide services to the Company; (ii) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and (iii) the consultant or adviser is a natural person who has contracted directly with the Company to render such services. (k) "Director" means a member of the Board. (l) "Employee" means any person, including an Officer or Director, who is an employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient, by itself, to constitute "employment" by the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. Reference to any particular Exchange Act section shall include any successor section. 2 (n) "Fair Market Value" means, as of any date, the value of a share of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including, without limitation, the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for a share of such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for a share of the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (o) "Holder" means a person who has been granted or awarded an Option or Stock Purchase Right or who holds Shares acquired pursuant to the exercise of an Option or Stock Purchase Right or pursuant to a Stock Bonus. (p) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and which is designated as an Incentive Stock Option by the Administrator. (q) "Independent Director" means a Director who is not an Employee of the Company. (r) "Non-Qualified Stock Option" means an Option (or portion thereof) that is not designated as an Incentive Stock Option by the Administrator, or which is designated as an Incentive Stock Option by the Administrator but fails to qualify as an incentive stock option within the meaning of Section 422 of the Code. (s) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (t) "Option" means a stock option granted pursuant to the Plan. (u) "Option Agreement" means a written agreement between the Company and a Holder evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (v) "Parent" means any corporation, whether now or hereafter existing (other than the Company), in an unbroken chain of corporations ending with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 3 more than fifty percent of the total combined voting power of all classes of stock in one of the other corporations in such chain. (w) "Plan" means the Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan. (x) "Public Trading Date" means the first date upon which Common Stock of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system. (y) "Restricted Stock" means Shares acquired pursuant to the exercise of an unvested Option in accordance with Section 10(h) below or pursuant to a Stock Purchase Right granted under Section 14 below. (z) "Rule 16b-3" means that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time. (aa) "Section 16(b)" means Section 16(b) of the Exchange Act, as such Section may be amended from time to time. (bb) "Securities Act" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto. Reference to any particular Securities Act section shall include any successor section. (cc) "Service Provider" means an Employee, Director or Consultant. (dd) "Share" means a share of Common Stock, as adjusted in accordance with Section 15 below. (ee) "Stock Bonus" means a grant of Common Stock granted pursuant to Section 14(e) of the Plan. (ff) "Stock Purchase Right" means a right to purchase Common Stock pursuant to Section 14 below or the right to receive a bonus of Common Stock for past services. (gg) "Subsidiary" means any corporation, whether now or hereafter existing (other than the Company), in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing more than fifty percent of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. Stock Subject to the Plan. Subject to the provisions of Section 15 of the Plan, the shares of stock subject to Options, Stock Purchase Rights or Stock Bonuses shall be Common Stock, initially shares of the Company's Common Stock, par value $0.001 per share. Subject to the provisions of Section 15 of the Plan, the maximum aggregate number of Shares which may be issued upon exercise of such Options or Stock Purchase Rights or pursuant to such Stock Bonuses is three million seven hundred thousand (3,700,000) Shares, plus the number of Shares 4 previously authorized and remaining available under the Company's 1993 Stock Incentive Plan, as amended, as of the Public Trading Date, plus any Shares covered by options granted under the Company's 1993 Stock Incentive Plan that are forfeited or expire unexercised or otherwise become available after the Public Trading Date; provided, however, that the maximum aggregate number of Shares which may be issued upon exercise of Incentive Stock Options is three million seven hundred thousand (3,700,000) Shares. Shares issued upon exercise of Options or Stock Purchase Rights or pursuant to Stock Bonuses may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares which are delivered by the Holder or withheld by the Company upon the exercise of an Option or Stock Purchase Right or in respect of a Stock Bonus under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of this Section 3. If Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. Notwithstanding the provisions of this Section 3, no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Code Section 422. 4. Administration of the Plan. (a) Administrator. Unless and until the Board delegates administration to a Committee as set forth below, the Plan shall be administered by the Board. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Notwithstanding the foregoing, however, from and after the Public Trading Date, a Committee of the Board shall administer the Plan and the Committee shall consist solely of two or more Independent Directors each of whom is both an "outside director," within the meaning of Section 162(m) of the Code, and a "non-employee director" within the meaning of Rule 16b-3. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Independent Directors the authority to grant awards under the Plan to eligible persons who are either (1) not then "covered employees," within the meaning of Section 162(m) of the Code and are not expected to be "covered employees" at the time of recognition of income resulting from such award or (2) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a committee of one or more members of the Board who are not "non-employee directors," within the meaning of Rule 16b-3, the authority to grant awards under the Plan to eligible persons who are not then subject to Section 16 of the Exchange Act. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by 5 delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board. (b) Powers of the Administrator. Subject to the provisions of the Plan and the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its sole discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options, Stock Purchase Rights, and Stock Bonuses may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions of any award granted hereunder (such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may vest or be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any award granted hereunder or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine); (vi) to determine whether to offer to buyout a previously granted Option as provided in subsection 10(i) and to determine the terms and conditions of such offer and buyout (including whether payment is to be made in cash or Shares); (vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (viii) to allow Holders to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right or pursuant to a Stock Bonus that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld based on the statutory withholding rates for federal and state tax purposes that apply to supplemental taxable income. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Holders to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (ix) to amend the Plan or any Option or Stock Purchase Right granted under the Plan as provided in Section 17; and (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan and to exercise such powers and perform such acts as the Administrator 6 deems necessary or desirable to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Holders. 5. Eligibility. Non-Qualified Stock Options, Stock Purchase Rights and Stock Bonuses may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. If otherwise eligible, an Employee or Consultant who has been granted an Option, Stock Purchase Right or Stock Bonus may be granted additional Options, Stock Purchase Rights or Stock Bonuses. Each Independent Director shall be eligible to be granted Options at the times and in the manner set forth in Section 12. 6. Limitations. (a) Each Option shall be designated by the Administrator in the Option Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares subject to a Holder's Incentive Stock Options and other incentive stock options granted by the Company, any Parent or Subsidiary, which become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options or other options shall be treated as Non-Qualified Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time of grant. (b) None of the Plan, any Option, Stock Purchase Right or Stock Bonus shall confer upon a Holder any right with respect to continuing the Holder's employment or consulting relationship with the Company, nor shall they interfere in any way with the Holder's right or the Company's right to terminate such employment or consulting relationship at any time, with or without cause. (c) No Service Provider shall be granted, in any calendar year, Options, Stock Purchase Rights or Stock Bonuses to acquire more than three million (3,000,000) Shares. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 15. For purposes of this Section 6(c), if an Option is canceled in the same calendar year it was granted (other than in connection with a transaction described in Section 15), the canceled Option will be counted against the limit set forth in this Section 6(c). For this purpose, if the exercise price of an Option is reduced, the transaction shall be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. The Plan shall become effective upon its initial adoption by the Board and shall continue in effect until it is terminated under Section 17 of the Plan. No Options, Stock Purchase Rights or Stock Bonuses may be issued under the Plan after the tenth (10th) anniversary of the earlier of (i) the date upon which the Plan is adopted by the Board or (ii) the date the Plan is approved by the stockholders. 7 8. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a Holder who, at the time the Option is granted, owns (or is treated as owning under Code Section 424) stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. (a) Except as provided in Section 13, the per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns (or is treated as owning under Code Section 424) stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (ii) In the case of a Non-Qualified Stock Option (A) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of the grant. (B) granted to any other Service Provider, the per Share exercise price shall be no less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required in this subsection (a) above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) with the consent of the Administrator, a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Administrator, (4) with the consent of the Administrator, other Shares which (x) in the case of 8 Shares acquired from the Company, have been owned by the Holder for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) with the consent of the Administrator, surrendered Shares then issuable upon exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate exercise price of the Option or exercised portion thereof, (6) with the consent of the Administrator, property of any kind which constitutes good and valuable consideration, (7) with the consent of the Administrator, delivery of a notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Options and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price, provided, that payment of such proceeds is then made to the Company upon settlement of such sale, or (8) with the consent of the Administrator, any combination of the foregoing methods of payment. 10. Exercise of Option. (a) Vesting; Fractional Exercises. Except as provided in Section 13, Options granted hereunder shall be vested and exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement; provided, however, that, except with regard to Options granted to Officers, Directors or Consultants, in no event shall an Option granted hereunder become vested and exercisable at a rate of less than twenty percent (20%) per year over five (5) years from the date the Option is granted, subject to reasonable conditions, such as continuing to be a Service Provider. An Option may not be exercised for a fraction of a Share. (b) Deliveries upon Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office: (i) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option; (ii) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Laws. The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance, including, without limitation, placing legends on share certificates and issuing stop transfer notices to agents and registrars; (iii) Upon the exercise of all or a portion of an unvested Option pursuant to Section 10(h), a Restricted Stock purchase agreement in a form determined by the Administrator and signed by the Holder or other person then entitled to exercise the Option or such portion of the Option; and 9 (iv) In the event that the Option shall be exercised pursuant to Section 10(f) by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option. (c) Conditions to Delivery of Share Certificates. The Company shall not be required to issue or deliver any certificate or certificates for Shares purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions: (i) The admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (ii) The completion of any registration or other qualification of such Shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Administrator shall, in its sole discretion, deem necessary or advisable; (iii) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its sole discretion, determine to be necessary or advisable; (iv) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and (v) The receipt by the Company of full payment for such Shares, including payment of any applicable withholding tax, which in the sole discretion of the Administrator may be in the form of consideration used by the Holder to pay for such Shares under Section 9(b). (d) Termination of Relationship as a Service Provider. If a Holder ceases to be a Service Provider other than by reason of the Holder's disability or death, such Holder may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Holder's termination. If, on the date of termination, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. If, after termination, the Holder does not exercise his or her Option within the time period specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan. If a Holder is terminated for Cause, the Option shall immediately terminate, and the Shares covered by such Option shall again become available for issuance under the Plan. (e) Disability of Holder. If a Holder ceases to be a Service Provider as a result of the Holder's disability, the Holder may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the 10 Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Holder's termination. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Stock Option from and after the day which is three (3) months and one (1) day following such termination. If, on the date of termination, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. If, after termination, the Holder does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan. (f) Death of Holder. If a Holder dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Holder's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Holder's termination. If, at the time of death, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. The Option may be exercised by the executor or administrator of the Holder's estate or, if none, by the person(s) entitled to exercise the Option under the Holder's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan. The Company shall notify the Holder's estate or the person who acquires the right to exercise the Option by bequest or inheritance of the existence of the Holder's outstanding Option and the date of the expiration of the term of such Option as soon after the death of the Holder as is practicable. (g) Regulatory Extension. A Holder's Option Agreement may provide that if the exercise of the Option following the termination of the Holder's status as a Service Provider (other than upon the Holder's death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in Section 8 or (ii) the expiration of a period of three (3) months after the termination of the Holder's status as a Service Provider during which the exercise of the Option would not be in violation of such registration requirements. (h) Early Exercisability. The Administrator may provide in the terms of a Holder's Option Agreement that the Holder may, at any time before the Holder's status as a Service Provider terminates, exercise the Option in whole or in part prior to the full vesting of the Option; provided, however, that subject to Section 22, Shares acquired upon exercise of an Option which has not fully vested may be subject to any forfeiture, transfer or other restrictions as the Administrator may determine in its sole discretion. 11 (i) Buyout Provisions. The Administrator may at any time offer to buyout for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Holder at the time that such offer is made. 11. Non-Transferability of Options and Stock Purchase Rights. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Holder, only by the Holder. 12. Granting of Options to Independent Directors. (a) During the term of the Plan, a person who is an Independent Director as of the Public Trading Date, or a person who is initially elected to the Board following the Public Trading Date and who is an Independent Director at the time of such initial election, may be granted (i) an Option to purchase twenty-one thousand six hundred (21,600) shares of Common Stock (subject to adjustment as provided in Section 15) on the Public Trading Date or such initial election, as applicable (each, an "Initial Option"), and (ii) an Option to purchase twenty-one thousand six hundred (21,600) shares of Common Stock (subject to adjustment as provided in Section 15) on the date of the first annual meeting of stockholders that occurs in every third year after the Independent Director was granted an Initial Option and at which the Independent Director is reelected to the Board (a "Subsequent Option"). Members of the Board who are employees of the Company who subsequently retire from the Company and remain on the Board will not receive an initial Option grant pursuant to clause (i) of the preceding sentence, but to the extent that they are otherwise eligible, will receive, after retirement from employment with the Company, Options as described in clause (ii) of the preceding sentence. All the foregoing Option grants authorized by this Section 12(a) shall be made by the Board. (b) Cash Compensation in Lieu of Options. In lieu of an Initial Option or a Subsequent Option, or any portion thereof, an Independent Director may elect, in advance of being granted such Initial Option or Subsequent Option, as the case may be, to receive cash compensation in the amount of $5.56 for each share of Common Stock that the Independent Director elects not to receive, with the aggregate amount of such cash compensation to be paid in quarterly installments, in arrears, over three (3) years, subject to the Independent Director's continuing to serve as a Director. Any election made by an Independent Director to receive cash compensation under this Section 12(b) shall be made in writing, shall be delivered to the Board and shall be irrevocable once made. 13. Terms of Options Granted to Independent Directors. The per Share price of each Option granted to an Independent Director shall equal 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted; provided, however, that the per Share price of each Option granted to an Independent Director on the date of the initial public offering of Common Stock shall equal the initial public offering price (net of underwriting discounts and commissions) per Share. Initial Options (as defined in Section 12) granted to Independent Directors shall become exercisable in cumulative annual installments of one third (1/3) of the Shares subject to such option on each of the yearly anniversaries of the date of Initial Option grant, commencing with the first such anniversary, such that each Initial Option shall be one 12 hundred percent (100%) vested on the third anniversary of its date of grant. Subsequent Options (as defined in Section 12) granted to Independent Directors shall become vested in cumulative annual installments of one third (1/3) of the Shares subject to such Option on each of the yearly anniversaries of the date of Subsequent Option grant, commencing with the first anniversary of such date of Subsequent Option grant, such that each Subsequent Option shall be one hundred percent (100%) vested on the third anniversary of the date of Subsequent Option grant. Subject to Section 10, the term of each Option granted to an Independent Director shall be ten (10) years from the date the Option is granted. No portion of an Option which is unexercisable at the time of an Independent Director's termination of membership on the Board shall thereafter become exercisable. 14. Stock Purchase Rights and Stock Bonuses. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with Options granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. (b) Repurchase Right. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company the right to repurchase Shares acquired upon exercise of a Stock Purchase Right upon the termination of the purchaser's status as a Service Provider for any reason. Subject to Section 22, the purchase price for Shares repurchased by the Company pursuant to such repurchase right and the rate at which such repurchase right shall lapse shall be determined by the Administrator in its sole discretion, and shall be set forth in the Restricted Stock purchase agreement. (c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 15 of the Plan. (e) Stock Bonuses. Notwithstanding any other provision of the Plan, the Administrator may grant Stock Bonuses, as compensation or as bonuses, to such Service Providers as the Administrator may select in its sole discretion from time to time. Such Stock Bonuses may be issued either alone, in addition to, or in tandem with Options or Stock Purchase Rights granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Bonuses under the Plan, it shall advise the 13 offeree in writing of the terms and conditions related to the offer, including the number of Shares that such person shall be entitled to receive, the price to be paid, if any, the time within which such person must accept such offer, and the manner of acceptance of such offer. 15. Adjustments upon Changes in Capitalization, Merger or Asset Sale. (a) In the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Administrator's sole discretion, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Option, Stock Purchase Right or Restricted Stock, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of: (i) the number and kind of shares of Common Stock (or other securities or property) with respect to which Options or Stock Purchase Rights may be granted or awarded (including, but not limited to, adjustments of the limitations in Section 3 on the maximum number and kind of shares which may be issued and adjustments of the maximum number of Shares that may be purchased by any Holder in any calendar year pursuant to Section 6(c)); (ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Options, Stock Purchase Rights or Restricted Stock; and (iii) the grant or exercise price with respect to any Option or Stock Purchase Right. (b) In the event of any transaction or event described in Section 15(a), the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Option, Stock Purchase Right or Restricted Stock or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder's request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Option, Stock Purchase Right or Restricted Stock granted or issued under the Plan or to facilitate such transaction or event: (i) To provide for either the purchase of any such Option, Stock Purchase Right or Restricted Stock for an amount of cash equal to the amount that could have been obtained upon the exercise of such Option or Stock Purchase Right or realization of the Holder's rights had such Option, Stock Purchase Right or Restricted Stock been currently 14 exercisable or payable or fully vested or the replacement of such Option, Stock Purchase Right or Restricted Stock with other rights or property selected by the Administrator in its sole discretion; (ii) To provide that such Option or Stock Purchase Right shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Option or Stock Purchase Right; (iii) To provide that such Option, Stock Purchase Right or Restricted Stock be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (iv) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Options and Stock Purchase Rights, and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Options, Stock Purchase Rights or Restricted Stock or Options, Stock Purchase Rights or Restricted Stock which may be granted in the future; and (v) To provide that immediately upon the consummation of such event, such Option or Stock Purchase Right shall not be exercisable and shall terminate; provided, that for a specified period of time prior to such event, such Option or Stock Purchase Right shall be exercisable as to all Shares covered thereby, and the restrictions imposed under an Option Agreement or Restricted Stock purchase agreement upon some or all Shares may be terminated and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to be subject to repurchase, notwithstanding anything to the contrary in the Plan or the provisions of such Option, Stock Purchase Right or Restricted Stock purchase agreement. (c) Subject to Section 3, the Administrator may, in its sole discretion, include such further provisions and limitations in any Option, Stock Purchase Right, Restricted Stock agreement or certificate, as it may deem equitable and in the best interests of the Company. (d) If the Company undergoes an Acquisition, then any surviving corporation or entity or acquiring corporation or entity, or affiliate of such corporation or entity, may assume any Options, Stock Purchase Rights or Restricted Stock outstanding under the Plan or may substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 15(d)) for those outstanding under the Plan. In the event any surviving corporation or entity or acquiring corporation or entity in an Acquisition, or affiliate of such corporation or entity, does not assume such Options, Stock Purchase Rights or Restricted Stock or does not substitute similar stock awards for those outstanding under the Plan, then with respect to (i) Options, Stock Purchase Rights or Restricted Stock held by participants in the Plan whose status as a Service Provider has not terminated prior to such event, the vesting of such Options, Stock Purchase Rights or Restricted Stock (and, if applicable, the time during which such awards may be exercised) shall be accelerated and made fully exercisable and all restrictions thereon shall lapse at least ten (10) days prior to the closing of the Acquisition (and the Options or Stock Purchase Rights terminated if not exercised prior to 15 the closing of such Acquisition), and (ii) any other Options or Stock Purchase Rights outstanding under the Plan, such Options or Stock Purchase rights shall be terminated if not exercised prior to the closing of the Acquisition. (e) In the event the Company undergoes an Acquisition and any surviving corporation or entity or acquiring corporation or entity, or affiliate of such corporation or entity, does assume any Options, Stock Purchase Rights or Restricted Stock outstanding under the Plan (or substitutes similar stock awards, including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 15(e), for those outstanding under the Plan), then, with respect to each stock award held by participants in the Plan then performing services as Employees or Directors, the vesting of each such stock award (and, if applicable, the time during which such stock award may be exercised) shall be accelerated and such stock award shall immediately become fully vested and exercisable, if any of the following events occurs within nine (9) months after the effective date of the Acquisition: (1) the Employee status or Director status, as applicable, of the participant holding such stock award is terminated by the Company without Cause; (2) the Employee holding such stock award terminates his or her Employee status due to the fact that the principal place of the performance of the responsibilities and duties of the Employee is changed to a location more than fifty (50) miles from such Employee's existing work location without the Employee's express consent (this clause (2) is not applicable to Directors); or (3) the Employee holding such stock award terminates his or her Employee status due to the fact that there is a material reduction in such Employee's responsibilities and duties without the Employee's express consent (this clause (3) is not applicable to Directors). (f) The existence of the Plan, any Option Agreement or Restricted Stock purchase agreement and the Options or Stock Purchase Rights granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 16. Time of Granting Options, Stock Purchase Rights and Stock Bonuses. The date of grant of an Option, Stock Purchase Right or Stock Bonus shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, Stock Purchase Right or Stock Bonus, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option, Stock Purchase Right or Stock Bonus is so granted within a reasonable time after the date of such grant. 17. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time wholly or partially amend, alter, suspend or terminate the Plan. However, without approval of the 16 Company's stockholders given within twelve (12) months before or after the action by the Board, no action of the Board may, except as provided in Section 15, increase the limits imposed in Section 3 on the maximum number of Shares which may be issued under the Plan or extend the term of the Plan under Section 7. (b) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Holder, unless mutually agreed otherwise between the Holder and the Administrator, which agreement must be in writing and signed by the Holder and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options, Stock Purchase Rights, Stock Bonuses or Restricted Stock granted or awarded under the Plan prior to the date of such termination. 18. Stockholder Approval. The Capstone Turbine Corporation 2000 Equity Incentive Plan, as originally adopted, was submitted for the approval of the Company's stockholders and such approval was received within twelve (12) months after the date of the Board's initial adoption thereof. In addition, an amendment to increase the number of Shares authorized for issuance hereunder from 3,300,000 to 3,700,000 was approved by the Company's stockholders, and such amendment is incorporated herein. 19. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 20. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 21. Information to Holders and Purchasers. Prior to the Public Trading Date and to the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall provide to each Holder and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Holder or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. Notwithstanding the preceding sentence, the Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. 22. Repurchase Provisions. The Administrator in its sole discretion may provide that the Company may repurchase Shares acquired upon exercise of an Option or Stock Purchase Right upon the occurrence of certain specified events, including, without limitation, a Holder's termination as a Service Provider, divorce, bankruptcy or insolvency; provided, however, that 17 any such repurchase right shall be set forth in the applicable Option Agreement or Restricted Stock purchase agreement or in another agreement referred to in such agreement and, provided, further, that to the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations, any such repurchase right set forth in an Option or Stock Purchase Right granted prior to the Public Trading Date to a person who is not an Officer, Director or Consultant shall be upon the following terms: (i) if the repurchase option gives the Company the right to repurchase the shares upon termination as a Service Provider at not less than the Fair Market Value of the shares to be purchased on the date of termination of status as a Service Provider, then (A) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of termination of status as a Service Provider (or in the case of shares issued upon exercise of Options or Stock Purchase Rights after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Administrator and the Plan participant and (B) the right terminates when the shares become publicly traded; and (ii) if the repurchase option gives the Company the right to repurchase the Shares upon termination as a Service Provider at the original purchase price for such Shares, then (A) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares per year over five (5) years from the date the Option or Stock Purchase Right is granted (without respect to the date the Option or Stock Purchase Right was exercised or became exercisable) and (B) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of termination of status as a Service Provider (or, in the case of shares issued upon exercise of Options or Stock Purchase Rights, after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Plan participant. 23. Investment Intent. The Company may require a Plan participant, as a condition of exercising or acquiring stock under any Option, Stock Purchase Right or Stock Bonus, (i) to give written assurances satisfactory to the Company as to the participant's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option or Stock Purchase Right or accepting the Stock Bonus; and (ii) to give written assurances satisfactory to the Company stating that the participant is acquiring the stock subject to the Option, Stock Purchase Right or Stock Bonus for the participant's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (A) the issuance of the shares upon the exercise or acquisition of stock under the applicable Option, Stock Purchase Right or Stock Bonus has been registered under a then currently effective registration statement under the Securities Act or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. 18 24. Governing Law. The validity and enforceability of this Plan shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law. [Remainder of page intentionally left blank] 19 TABLE OF CONTENTS

Page ---- 1. PURPOSES OF THE PLAN................................................................1 2. DEFINITIONS.........................................................................1 3. STOCK SUBJECT TO THE PLAN...........................................................4 4. ADMINISTRATION OF THE PLAN..........................................................5 5. ELIGIBILITY.........................................................................7 6. LIMITATIONS.........................................................................7 7. TERM OF PLAN........................................................................7 8. TERM OF OPTION......................................................................8 9. OPTION EXERCISE PRICE AND CONSIDERATION.............................................8 10. EXERCISE OF OPTION..................................................................9 11. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS...........................12 12. GRANTING OF OPTIONS TO INDEPENDENT DIRECTORS.......................................12 13. TERMS OF OPTIONS GRANTED TO INDEPENDENT DIRECTORS..................................12 14. STOCK PURCHASE RIGHTS AND STOCK BONUSES............................................13 15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE...................14 16. TIME OF GRANTING OPTIONS, STOCK PURCHASE RIGHTS AND STOCK BONUSES..................16 17. AMENDMENT AND TERMINATION OF THE PLAN..............................................16 18. STOCKHOLDER APPROVAL...............................................................17 19. INABILITY TO OBTAIN AUTHORITY......................................................17 20. RESERVATION OF SHARES..............................................................17 21. INFORMATION TO HOLDERS AND PURCHASERS..............................................17 22. REPURCHASE PROVISIONS..............................................................17 23. INVESTMENT INTENT..................................................................18 24. GOVERNING LAW......................................................................19

i EX-4.2 4 a85692exv4w2.txt EXHIBIT 4.2 EXHIBIT 4.2 CAPSTONE TURBINE CORPORATION STOCK OPTION AGREEMENT WITH MR. NORMAN CHAMBERS This Stock Option Agreement with Mr. Norman Chambers (the "Stock Option Agreement") is entered into as of November 29, 2001 to attract and retain Mr. Chambers for the position of Senior Vice President and Chief Operating Officer of Capstone Turbine Corporation (the "Company") to promote the success of the Company's business. This Stock Option Agreement constitutes a plan separate from the Capstone Turbine Corporation 2000 Equity Incentive Plan (as such plan has been and may be amended from time to time, the "2000 Plan") for all purposes, including with respect to the Company's filing obligations under the Securities Act of 1933, as amended ("Securities Act") on Form S-8. Although the Option (as defined below) granted hereunder is not granted under the 2000 Plan, it shall be governed by terms and conditions identical to those under the 2000 Plan, as further provided herein. All capitalized terms used in this Stock Option Agreement without definition shall have the meanings ascribed to such terms in the 2000 Plan. I. NOTICE OF STOCK OPTION GRANT Norman Chambers 6 Maple Loft Place The Woodlands, TX 77381 You, Mr. Chambers ("Optionee"), have been granted an option (the "Option") to purchase shares of Common Stock of the Company, subject to the terms and conditions of the 2000 Plan and this Stock Option Agreement. The terms of your grant are set forth below: Date of Grant: November 29, 2001 Vesting Commencement Date: November 29, 2001 Exercise Price per Share: $4.74 per Share Total Number of Shares Granted: 800,000 Total Exercise Price: $948,000.00 Type of Option: Non-Qualified Stock Option Term: 10 years commencing on Date of Grant Expiration Date: November 29, 2011 Exercise and Vesting Schedule: The Shares (as defined below) subject to this Option shall vest according to the following schedule: Twenty-five percent (25%) of the Shares subject to the Option (rounded down to the next whole number of shares) shall vest one year after the Date of Grant, and 1/48th of the Shares subject to the Option (rounded down to the next whole number of shares) shall vest on the first day of each full month thereafter, so that all of the Shares shall be vested on the first day of the forty-eighth (48th) month after the Date of Grant. Optionee agrees to be bound by the terms of the Option as set forth in this Stock Option Agreement. Optionee hereby acknowledges receipt of a copy of the official prospectus for the 2000 Plan. A copy of the 2000 Plan is available upon request made to the Corporate Secretary at the Company's principal offices at 21211 Nordhoff Street, Chatsworth, California 91311. Termination Period: The Option shall terminate on the Expiration Date; provided, however, that if Optionee ceases to be a Service Provider prior to the Expiration Date, then the Option shall terminate earlier pursuant to Sections 5, 6, and 7 of Article II below. II. AGREEMENT 1. Grant of Option. The Company hereby grants to the Optionee an Option to purchase the Common Stock (the "Shares") as set forth in the Notice of Stock Option Grant in Article I above, at the exercise price per Share set forth in the Notice of Stock Option Grant (the "Exercise Price"). Notwithstanding anything to the contrary in this Stock Option Agreement, the Option is subject to the terms, definitions and provisions of the 2000 Plan, which are incorporated herein by reference. 2. Exercise of Option. The Option is exercisable as follows: (a) Right to Exercise. (i) The Option shall be exercisable cumulatively according to the vesting schedule set forth in the Notice of Stock Option Grant. For purposes of this Stock Option Agreement, Shares subject to this Option shall vest based on Optionee's continued status as a Service Provider. (ii) The Option may not be exercised for a fraction of a Share. (iii) In the event of Optionee's death, disability or other termination of the Optionee's status as a Service Provider, the exercisability of the Option is governed by Sections 5, 6 and 7 of this Article II. (iv) In no event may the Option be exercised after the Expiration Date of the Option as set forth in the Notice of Stock Option Grant in Article I above. 2 (b) Method of Exercise. The Option shall be exercisable by written Notice (in the form attached as Exhibit A). The Notice must state the number of Shares for which the Option is being exercised, and such other representations and agreements with respect to such Shares as may be required by the Company pursuant to the provisions of the 2000 Plan. The Notice must be signed by the Optionee and shall be delivered in person or by certified mail to the Corporate Secretary of the Company. The Notice must be accompanied by payment of the Exercise Price, including payment of any applicable withholding tax. The Option shall be deemed to be exercised upon receipt by the Company of such written Notice accompanied by the Exercise Price and payment of any applicable withholding tax. No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Lock-Up Period. Optionee hereby agrees that if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act or any applicable state laws, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 4. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) with the consent of the Administrator, a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Administrator; (d) with the consent of the Administrator, surrender of other Shares which (A) in the case of Shares acquired from the Company, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; (e) with the consent of the Administrator, surrendered Shares issuable upon the exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate Exercise Price of the Option or exercised portion thereof; (f) with the consent of the Administrator, property of any kind which constitutes good and valuable consideration; or 3 (g) with the consent of the Administrator, delivery of a notice that the Optionee has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate Exercise Price; provided, that payment of such proceeds is then made to the Company upon settlement of such sale. 5. Termination of Relationship. If Optionee ceases to be a Service Provider (other than for Cause or by reason of the Optionee's death or the total and permanent disability of the Optionee as defined in Code Section 22(e)(3)), the Option, to the extent vested as of the date on which Optionee ceases to be a Service Provider, shall remain exercisable for three (3) months from such date (but in no event later than the Expiration Date of the term of the Option as set forth in the Notice of Stock Option Grant). To the extent that the Option is not vested at the date on which Optionee ceases to be a Service Provider, or if Optionee does not exercise the Option within the time specified herein, the Option shall terminate. If Optionee's status as a Service Provider is terminated for Cause, the Option, whether vested (in whole or in part) or unvested, shall immediately terminate. 6. Disability of Optionee. If Optionee ceases to be a Service Provider as a result of his total and permanent disability as defined in Code Section 22(e)(3), the Option, to the extent vested as of the date on which Optionee ceases to be a Service Provider, shall remain exercisable for twelve (12) months from such date (but in no event later than the Expiration Date of the term of the Option as set forth in the Notice of Stock Option Grant). To the extent that the Option is not vested as of the date on which Optionee ceases to be a Service Provider, or if Optionee does not exercise such Option within the time specified herein, the Option shall terminate. 7. Death of Optionee. If Optionee ceases to be a Service Provider as a result of the Optionee's death, the Option, to the extent vested as of the date of death, shall remain exercisable for twelve (12) months following the date of death (but in no event later than the Expiration Date of the term of the Option as set forth in the Notice of Stock Option Grant) by Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. To the extent that the Option is not vested as of the date of death, or if the Option is not exercised within the time specified herein, the Option shall terminate. 8. Non-Transferability of Option. The Option may not be transferred in any manner except by will or by the laws of descent or distribution. It may be exercised during the lifetime of Optionee only by Optionee. The terms of the Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 9. Term of Option. The Option may be exercised only within the term set forth in the Notice of Stock Option Grant. [Signature page follows] 4 This Stock Option Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall constitute one document. CAPSTONE TURBINE CORPORATION By: /s/ AKE ALMGREN -------------------------------------- Name: Ake Almgren ------------------------------------ Title: President, Chief Executive Officer ----------------------------------- OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS STOCK OPTION AGREEMENT, NOR IN THE CAPSTONE TURBINE CORPORATION 2000 EQUITY INCENTIVE PLAN, WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the 2000 Plan and represents that he is familiar with the terms and provisions thereof. Optionee hereby accepts the Option subject to all of the terms and provisions hereof. Optionee has reviewed the 2000 Plan and this Stock Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Stock Option Agreement and fully understands all provisions of the Stock Option Agreement and the Option granted hereunder. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the 2000 Plan or the Stock Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: November 29, 2001 /s/Norman Chambers ---------------------------- ---------------------------------- Norman Chambers, OPTIONEE Residence Address: 6 Maple Loft Place The Woodlands, TX 77381 5 EXHIBIT A CAPSTONE TURBINE CORPORATION EXERCISE NOTICE Capstone Turbine Corporation 21211 Nordhoff Street Chatsworth, CA 91311 Attention: Corporate Secretary 1. Exercise of Option. Effective as of today, ___________, 20__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Capstone Turbine Corporation (the "Company") under and pursuant to the terms of that certain Option granted to me on November 29, 2001 under the Stock Option Agreement of the same date (the "Stock Option Agreement"). The Stock Option Agreement constitutes a plan separate from the Capstone Turbine Corporation 2000 Equity Incentive Plan (as such plan has been and may be amended from time to time, the "2000 Plan") for all purposes, including with respect to the Company's filing obligations under the Securities Act of 1933, as amended ("Securities Act") on Form S-8. Although the Option granted under the Stock Option Agreement is not granted under the 2000 Plan, it shall be governed by terms and conditions identical to those under the 2000 Plan, which are incorporated into the Stock Option Agreement by reference. Optionee agrees to be bound by the terms of the Option as set forth in the Stock Option Agreement. Optionee hereby further acknowledges receipt of a copy of the official prospectus for the 2000 Plan. A copy of the 2000 Plan is available upon request made to the Corporate Secretary at the Company's principal offices at 21211 Nordhoff Street, Chatsworth, California 91311. 2. Representations of Optionee. Optionee acknowledges that Optionee has received, read and understands the 2000 Plan and the Stock Option Agreement. Optionee agrees to abide by and be bound by the terms and conditions of the 2000 Plan and the Stock Option Agreement. 3. Rights as Stockholder. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to the Option, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 15 of the 2000 Plan. Optionee shall enjoy rights as a stockholder until such time as Optionee disposes of the Shares. 4. Tax Consultation. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 5. Successors and Assigns. The Company may assign any of its rights under this Notice to single or multiple assignees, and this Notice shall inure to the benefit of the successors and assigns of the Company. This Notice shall be binding upon Optionee and his heirs, executors, administrators, successors and assigns. 6. Interpretation. Any dispute regarding the interpretation of this Notice shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the 2000 Plan (the "Administrator"), which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on the Company and on Optionee. 7. Governing Law; Severability. This Notice shall be governed by and construed in accordance with the laws of the State of Delaware excluding that body of law pertaining to conflicts of law. Should any provision of this Notice be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 8. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 9. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Notice. 10. Delivery of Payment. Optionee herewith delivers to the Company the full Exercise Price for the Shares, as well as any applicable withholding tax. 11. Entire Agreement. The 2000 Plan and the Stock Option Agreement are incorporated herein by reference. This Notice, the 2000 Plan and the Stock Option Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. [Signature page follows] 1 Submitted by: Accepted by: OPTIONEE: Norman Chambers CAPSTONE TURBINE CORPORATION __________________________ By: ________________________ Name: ______________________ Title: _____________________ Residence Address: 6 Maple Loft Place The Woodlands, TX 77381 2 EX-4.3 5 a85692exv4w3.txt EXHIBIT 4.3 EXHIBIT 4.3 CAPSTONE TURBINE CORPORATION STOCK OPTION AGREEMENT WITH MS. KAREN CLARK This Stock Option Agreement with Ms. Karen Clark (the "Stock Option Agreement") is entered into as of January 29, 2002 to attract and retain Ms. Clark for the position of Senior Vice President and Chief Financial Officer of Capstone Turbine Corporation (the "Company") to promote the success of the Company's business. This Stock Option Agreement constitutes a plan separate from the Capstone Turbine Corporation 2000 Equity Incentive Plan (as such plan has been and may be amended from time to time, the "2000 Plan") for all purposes, including with respect to the Company's filing obligations under the Securities Act of 1933, as amended ("Securities Act") on Form S-8. Although the Option (as defined below) granted hereunder is not granted under the 2000 Plan, it shall be governed by terms and conditions identical to those under the 2000 Plan, as further provided herein. All capitalized terms used in this Stock Option Agreement without definition shall have the meanings ascribed to such terms in the 2000 Plan. I. NOTICE OF STOCK OPTION GRANT Karen Clark 1674 Amarelle Street Thousand Oaks, CA 91320 You, Ms. Clark ("Optionee"), have been granted an option (the "Option") to purchase shares of Common Stock of the Company, subject to the terms and conditions of the 2000 Plan and this Stock Option Agreement. The terms of your grant are set forth below: Date of Grant: January 29, 2002 Vesting Commencement Date: January 7, 2002 Exercise Price per Share: $4.70 per Share Total Number of Shares Granted: 350,000 Total Exercise Price: $1,645,000.000 Type of Option: Non-Qualified Stock Option Term: 10 years commencing on Date of Grant Expiration Date: January 29, 2012 Exercise and Vesting Schedule: The Shares (as defined below) subject to this Option shall vest according to the following schedule: Twenty-five percent (25%) of the Shares subject to the Option (rounded down to the next whole number of shares) shall vest one year after the Vesting Commencement Date, and 1/48th of the Shares subject to the Option (rounded down to the next whole number of shares) shall vest on the first day of each full month thereafter, so that all of the Shares shall be vested on the first day of the forty-eighth (48th) month after the Date of Grant. Optionee agrees to be bound by the terms of the Option as set forth in this Stock Option Agreement. Optionee hereby acknowledges receipt of a copy of the official prospectus for the 2000 Plan. A copy of the 2000 Plan is available upon request made to the Corporate Secretary at the Company's principal offices at 21211 Nordhoff Street, Chatsworth, California 91311. Termination Period: The Option shall terminate on the Expiration Date; provided, however, that if Optionee ceases to be a Service Provider prior to the Expiration Date, then the Option shall terminate earlier pursuant to Sections 5, 6, and 7 of Article II below. II. AGREEMENT 1. Grant of Option. The Company hereby grants to the Optionee an Option to purchase the Common Stock (the "Shares") as set forth in the Notice of Stock Option Grant in Article I above, at the exercise price per Share set forth in the Notice of Stock Option Grant (the "Exercise Price"). Notwithstanding anything to the contrary in this Stock Option Agreement, the Option is subject to the terms, definitions and provisions of the 2000 Plan, which are incorporated herein by reference. 2. Exercise of Option. The Option is exercisable as follows: (a) Right to Exercise. (i) The Option shall be exercisable cumulatively according to the vesting schedule set forth in the Notice of Stock Option Grant. For purposes of this Stock Option Agreement, Shares subject to this Option shall vest based on Optionee's continued status as a Service Provider. (ii) The Option may not be exercised for a fraction of a Share. (iii) In the event of Optionee's death, disability or other termination of the Optionee's status as a Service Provider, the exercisability of the Option is governed by Sections 5, 6 and 7 of this Article II. (iv) In no event may the Option be exercised after the Expiration Date of the Option as set forth in the Notice of Stock Option Grant in Article I above. 2 (b) Method of Exercise. The Option shall be exercisable by written Notice (in the form attached as Exhibit A). The Notice must state the number of Shares for which the Option is being exercised, and such other representations and agreements with respect to such Shares as may be required by the Company pursuant to the provisions of the 2000 Plan. The Notice must be signed by the Optionee and shall be delivered in person or by certified mail to the Corporate Secretary of the Company. The Notice must be accompanied by payment of the Exercise Price, including payment of any applicable withholding tax. The Option shall be deemed to be exercised upon receipt by the Company of such written Notice accompanied by the Exercise Price and payment of any applicable withholding tax. No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. Lock-Up Period. Optionee hereby agrees that if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act or any applicable state laws, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 4. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) with the consent of the Administrator, a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Administrator; (d) with the consent of the Administrator, surrender of other Shares which (A) in the case of Shares acquired from the Company, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; (e) with the consent of the Administrator, surrendered Shares issuable upon the exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate Exercise Price of the Option or exercised portion thereof; (f) with the consent of the Administrator, property of any kind which constitutes good and valuable consideration; or 3 (g) with the consent of the Administrator, delivery of a notice that the Optionee has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate Exercise Price; provided, that payment of such proceeds is then made to the Company upon settlement of such sale. 5. Termination of Relationship. If Optionee ceases to be a Service Provider (other than for Cause or by reason of the Optionee's death or the total and permanent disability of the Optionee as defined in Code Section 22(e)(3)), the Option, to the extent vested as of the date on which Optionee ceases to be a Service Provider, shall remain exercisable for three (3) months from such date (but in no event later than the Expiration Date of the term of the Option as set forth in the Notice of Stock Option Grant). To the extent that the Option is not vested at the date on which Optionee ceases to be a Service Provider, or if Optionee does not exercise the Option within the time specified herein, the Option shall terminate. If Optionee's status as a Service Provider is terminated for Cause, the Option, whether vested (in whole or in part) or unvested, shall immediately terminate. 6. Disability of Optionee. If Optionee ceases to be a Service Provider as a result of her total and permanent disability as defined in Code Section 22(e)(3), the Option, to the extent vested as of the date on which Optionee ceases to be a Service Provider, shall remain exercisable for twelve (12) months from such date (but in no event later than the Expiration Date of the term of the Option as set forth in the Notice of Stock Option Grant). To the extent that the Option is not vested as of the date on which Optionee ceases to be a Service Provider, or if Optionee does not exercise such Option within the time specified herein, the Option shall terminate. 7. Death of Optionee. If Optionee ceases to be a Service Provider as a result of the Optionee's death, the Option, to the extent vested as of the date of death, shall remain exercisable for twelve (12) months following the date of death (but in no event later than the Expiration Date of the term of the Option as set forth in the Notice of Stock Option Grant) by Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. To the extent that the Option is not vested as of the date of death, or if the Option is not exercised within the time specified herein, the Option shall terminate. 8. Non-Transferability of Option. The Option may not be transferred in any manner except by will or by the laws of descent or distribution. It may be exercised during the lifetime of Optionee only by Optionee. The terms of the Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 9. Term of Option. The Option may be exercised only within the term set forth in the Notice of Stock Option Grant. [Signature page follows] 4 This Stock Option Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall constitute one document. CAPSTONE TURBINE CORPORATION By: /s/ AKE ALMREN -------------------------------- Name: Ake Almgren Title: President, Chief Executive Officer OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS STOCK OPTION AGREEMENT, NOR IN THE CAPSTONE TURBINE CORPORATION 2000 EQUITY INCENTIVE PLAN, WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the 2000 Plan and represents that she is familiar with the terms and provisions thereof. Optionee hereby accepts the Option subject to all of the terms and provisions hereof. Optionee has reviewed the 2000 Plan and this Stock Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Stock Option Agreement and fully understands all provisions of the Stock Option Agreement and the Option granted hereunder. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the 2000 Plan or the Stock Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: January 29, 2002 /s/ KAREN CLARK ------------------------------- Karen Clark, OPTIONEE Residence Address: 1674 Amarelle Street Thousand Oaks, CA 91320 5 EXHIBIT A CAPSTONE TURBINE CORPORATION EXERCISE NOTICE Capstone Turbine Corporation 21211 Nordhoff Street Chatsworth, CA 91311 Attention: Corporate Secretary 1. Exercise of Option. Effective as of today, ___________, 20__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Capstone Turbine Corporation (the "Company") under and pursuant to the terms of that certain Option granted to me on January 29, 2002 under the Stock Option Agreement of the same date (the "Stock Option Agreement"). The Stock Option Agreement constitutes a plan separate from the Capstone Turbine Corporation 2000 Equity Incentive Plan (as such plan has been and may be amended from time to time, the "2000 Plan") for all purposes, including with respect to the Company's filing obligations under the Securities Act of 1933, as amended ("Securities Act") on Form S-8. Although the Option granted under the Stock Option Agreement is not granted under the 2000 Plan, it shall be governed by terms and conditions identical to those under the 2000 Plan, which are incorporated into the Stock Option Agreement by reference. Optionee agrees to be bound by the terms of the Option as set forth in the Stock Option Agreement. Optionee hereby further acknowledges receipt of a copy of the official prospectus for the 2000 Plan. A copy of the 2000 Plan is available upon request made to the Corporate Secretary at the Company's principal offices at 21211 Nordhoff Street, Chatsworth, California 91311. 2. Representations of Optionee. Optionee acknowledges that Optionee has received, read and understands the 2000 Plan and the Stock Option Agreement. Optionee agrees to abide by and be bound by the terms and conditions of the 2000 Plan and the Stock Option Agreement. 3. Rights as Stockholder. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to the Option, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 15 of the 2000 Plan. Optionee shall enjoy rights as a stockholder until such time as Optionee disposes of the Shares. 4. Tax Consultation. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with 6 the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 5. Successors and Assigns. The Company may assign any of its rights under this Notice to single or multiple assignees, and this Notice shall inure to the benefit of the successors and assigns of the Company. This Notice shall be binding upon Optionee and her heirs, executors, administrators, successors and assigns. 6. Interpretation. Any dispute regarding the interpretation of this Notice shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the 2000 Plan (the "Administrator"), which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on the Company and on Optionee. 7. Governing Law; Severability. This Notice shall be governed by and construed in accordance with the laws of the State of Delaware excluding that body of law pertaining to conflicts of law. Should any provision of this Notice be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 8. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 9. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Notice. 10. Delivery of Payment. Optionee herewith delivers to the Company the full Exercise Price for the Shares, as well as any applicable withholding tax. 11. Entire Agreement. The 2000 Plan and the Stock Option Agreement are incorporated herein by reference. This Notice, the 2000 Plan and the Stock Option Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. [Signature page follows] 1 Submitted by: Accepted by: OPTIONEE: Karen Clark CAPSTONE TURBINE CORPORATION ____________________________ By: _________________________ Name: _______________________ Title: ______________________ Residence Address: 1674 Amarelle Street Thousand Oaks, CA 91320 2 EX-5.1 6 a85692exv5w1.txt EXHIBIT 5.1 EXHIBIT 5.1 OPINION OF LATHAM & WATKINS [LETTERHEAD OF LATHAM & WATKINS] November 13, 2002 Capstone Turbine Corporation 21211 Nordhoff Street Chatsworth, California 91311 Re: Registration Statement on Form S-8 for Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan, Stock Option Agreement with Mr. Chambers and Stock Option Agreement with Ms. Clark; 950,000 shares of Common Stock, par value $.001 per share Ladies and Gentlemen: In connection with the registration by Capstone Turbine Corporation, a Delaware corporation (the "Company") of 950,000 shares of common stock, par value $.001 per share (the "Shares") of the Company, under the Securities Act of 1933, as amended, on Form S-8 filed with the Securities and Exchange Commission (the "Commission") on November 13, 2002 (the "Registration Statement"), you have requested our opinion with respect to the matters set forth below. In our capacity as your counsel in connection with such registration, we are familiar with the proceedings taken and proposed to be taken by the Company pursuant to the Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan, the Stock Option Agreement with Mr. Chambers, and the Stock Option Agreement with Ms. Clark (collectively, the "Plans") in connection with the authorization, issuance and sale of the Shares, which are to be offered and sold by the Company pursuant to the Plans, and for the purposes of this opinion, have assumed such proceedings will be timely completed in the manner presently proposed in the Plans. In addition, we have made such legal and factual examinations and inquiries, including an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and instruments, as we have deemed necessary or appropriate for purposes of this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. We are opining herein as to the effect on the subject transaction only of the General Corporation Law of the State of Delaware, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws, or as to any matters of municipal law or the laws of any local agencies within any state. Subject to the foregoing, it is our opinion that the Shares have been duly authorized by all necessary corporate action of the Company, and, upon issuance, delivery and payment therefor in the manner contemplated by the applicable Plan, will be validly issued, fully paid and nonassessable. We consent to your filing this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Latham & Watkins EX-23.1 7 a85692exv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Registration Statement of Capstone Turbine Corporation on Form S-8 of our report dated March 28, 2002 appearing in the Annual Report on Form 10-K of Capstone Turbine Corporation for the year ended December 31, 2001. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Los Angeles, California November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.1

                                                                    EXHIBIT 4.1

                          CAPSTONE TURBINE CORPORATION

                 AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

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

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

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

               (b) "Administrator" means the Board or the Committee responsible
for conducting the general administration of the Plan, as applicable, in
accordance with Section 4 hereof.

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

               (d) "Board" means the Board of Directors of the Company.

               (e) "Cause" means (i) with respect to a Holder who is an
Employee, and whose employment contract expressly provides for termination of
such Holder in certain specified circumstances constituting "cause", those
circumstances that constitute "cause" under such Holder's employment contract;
(ii) with respect to a Holder who is an Employee, but who does not have an
employment contract or whose employment contract does not expressly provide for
termination of such Holder in certain specified circumstances constituting
"cause", (A) the commission of any act by such Holder involving fraud,
embezzlement or a felony, (B) the commission of any act by such Holder
constituting financial dishonesty against the Company or its Parent or any of
its Subsidiaries, (C) repeated and gross dereliction of duty to the Company or
its Parent or any of its Subsidiaries to which such Holder's duties extend, (D)
an act involving moral turpitude which (1) brings the Company or its Parent or
any of its Subsidiaries into public disrepute or disgrace, or (2) causes
material injury to the customer relations, operations or the business prospects
of the Company or its Parent or any of its Subsidiaries, (E) the breach by such
Holder of any of such Holder's obligations under such Holder's employee or
employment




agreement with the Company or its Parent or any of its Subsidiaries, or (F) the
refusal or failure of such Holder to follow the lawful directives of the Board,
the President and Chief Executive Officer of the Company or his designee or such
Holder's supervisor; and (iii) with respect to a Holder who is a Director, (A)
the commission of any act by such Holder involving fraud, embezzlement or a
felony, (B) the commission of any act by such Holder constituting financial
dishonesty against the Company or its Parent or any of its Subsidiaries, (C)
repeated and gross dereliction of duty to the Company or its Parent or any of
its Subsidiaries to which such Holder's duties extend, (D) an act involving
moral turpitude which (1) brings the Company or its Parent or any of its
Subsidiaries into public disrepute or disgrace, or (2) causes material injury to
the customer relations, operations or the business prospects of the Company or
its Parent or any of its Subsidiaries.

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

               (g) "Committee" means a committee appointed by the Board in
accordance with Section 4 hereof.

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

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

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

               (k) "Director" means a member of the Board.

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

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


                                       2


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

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

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

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

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

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

               (q) "Independent Director" means a Director who is not an
Employee of the Company.

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

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

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

               (u) "Option Agreement" means a written agreement between the
Company and a Holder evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

               (v) "Parent" means any corporation, whether now or hereafter
existing (other than the Company), in an unbroken chain of corporations ending
with the Company if each of the corporations other than the last corporation in
the unbroken chain owns stock possessing



                                       3


more than fifty percent of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

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

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

               (y) "Restricted Stock" means Shares acquired pursuant to the
exercise of an unvested Option in accordance with Section 10(h) below or
pursuant to a Stock Purchase Right granted under Section 14 below.

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

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

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

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

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

               (ee) "Stock Bonus" means a grant of Common Stock granted pursuant
to Section 14(e) of the Plan.

               (ff) "Stock Purchase Right" means a right to purchase Common
Stock pursuant to Section 14 below or the right to receive a bonus of Common
Stock for past services.

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

        3. Stock Subject to the Plan. Subject to the provisions of Section 15 of
the Plan, the shares of stock subject to Options, Stock Purchase Rights or Stock
Bonuses shall be Common Stock, initially shares of the Company's Common Stock,
par value $0.001 per share. Subject to the provisions of Section 15 of the Plan,
the maximum aggregate number of Shares which may be issued upon exercise of such
Options or Stock Purchase Rights or pursuant to such Stock Bonuses is three
million seven hundred thousand (3,700,000) Shares, plus the number of Shares



                                       4


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

        4. Administration of the Plan.

               (a) Administrator. Unless and until the Board delegates
administration to a Committee as set forth below, the Plan shall be administered
by the Board. The Board may delegate administration of the Plan to a Committee
or Committees of one or more members of the Board, and the term "Committee"
shall apply to any person or persons to whom such authority has been delegated.
If administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or subcommittee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. Notwithstanding the
foregoing, however, from and after the Public Trading Date, a Committee of the
Board shall administer the Plan and the Committee shall consist solely of two or
more Independent Directors each of whom is both an "outside director," within
the meaning of Section 162(m) of the Code, and a "non-employee director" within
the meaning of Rule 16b-3. Within the scope of such authority, the Board or the
Committee may (i) delegate to a committee of one or more members of the Board
who are not Independent Directors the authority to grant awards under the Plan
to eligible persons who are either (1) not then "covered employees," within the
meaning of Section 162(m) of the Code and are not expected to be "covered
employees" at the time of recognition of income resulting from such award or (2)
not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code and/or (ii) delegate to a committee of one or more
members of the Board who are not "non-employee directors," within
the meaning of Rule 16b-3, the authority to grant awards under the Plan to
eligible persons who are not then subject to Section 16 of the Exchange Act. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Appointment of Committee members shall be effective
upon acceptance of appointment. Committee members may resign at any time by




                                       5


delivering written notice to the Board. Vacancies in the Committee may only be
filled by the Board.

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

                      (i) to determine the Fair Market Value;

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

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

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

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

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

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

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

                      (ix) to amend the Plan or any Option or Stock Purchase
Right granted under the Plan as provided in Section 17; and

                      (x) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan and to exercise such powers and perform such
acts as the Administrator



                                       6


deems necessary or desirable to promote the best interests of the Company which
are not in conflict with the provisions of the Plan.

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

        5. Eligibility. Non-Qualified Stock Options, Stock Purchase Rights and
Stock Bonuses may be granted to Service Providers. Incentive Stock Options may
be granted only to Employees. If otherwise eligible, an Employee or Consultant
who has been granted an Option, Stock Purchase Right or Stock Bonus may be
granted additional Options, Stock Purchase Rights or Stock Bonuses. Each
Independent Director shall be eligible to be granted Options at the times and in
the manner set forth in Section 12.

        6. Limitations.

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

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

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

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

        7. Term of Plan. The Plan shall become effective upon its initial
adoption by the Board and shall continue in effect until it is terminated under
Section 17 of the Plan. No Options, Stock Purchase Rights or Stock Bonuses may
be issued under the Plan after the tenth (10th) anniversary of the earlier of
(i) the date upon which the Plan is adopted by the Board or (ii) the date the
Plan is approved by the stockholders.



                                       7


        8. Term of Option. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to a Holder who, at the time the Option is granted, owns (or is treated as
owning under Code Section 424) stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.

        9. Option Exercise Price and Consideration.

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

                      (i) In the case of an Incentive Stock Option

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

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

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

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

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

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

               (b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) with the consent of the Administrator, a full recourse promissory
note bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code) and payable upon such terms as may be
prescribed by the Administrator, (4) with the consent of the Administrator,
other Shares which (x) in the case of



                                       8


Shares acquired from the Company, have been owned by the Holder for more than
six (6) months on the date of surrender, and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) with the consent of the Administrator,
surrendered Shares then issuable upon exercise of the Option having a Fair
Market Value on the date of exercise equal to the aggregate exercise price of
the Option or exercised portion thereof, (6) with the consent of the
Administrator, property of any kind which constitutes good and valuable
consideration, (7) with the consent of the Administrator, delivery of a notice
that the Holder has placed a market sell order with a broker with respect to
Shares then issuable upon exercise of the Options and that the broker has been
directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the Option exercise price, provided, that payment of
such proceeds is then made to the Company upon settlement of such sale, or (8)
with the consent of the Administrator, any combination of the foregoing methods
of payment.

        10. Exercise of Option.

               (a) Vesting; Fractional Exercises. Except as provided in Section
13, Options granted hereunder shall be vested and exercisable according to the
terms hereof at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement; provided, however, that,
except with regard to Options granted to Officers, Directors or Consultants, in
no event shall an Option granted hereunder become vested and exercisable at a
rate of less than twenty percent (20%) per year over five (5) years from the
date the Option is granted, subject to reasonable conditions, such as continuing
to be a Service Provider. An Option may not be exercised for a fraction of a
Share.

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

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

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

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


                                       9


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

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

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

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

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

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

                      (v) The receipt by the Company of full payment for such
Shares, including payment of any applicable withholding tax, which in the sole
discretion of the Administrator may be in the form of consideration used by the
Holder to pay for such Shares under Section 9(b).

               (d) Termination of Relationship as a Service Provider. If a
Holder ceases to be a Service Provider other than by reason of the Holder's
disability or death, such Holder may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of the Option as set forth in the Option Agreement). In
the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Holder's termination. If, on the
date of termination, the Holder is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option immediately cease to be
issuable under the Option and shall again become available for issuance under
the Plan. If, after termination, the Holder does not exercise his or her Option
within the time period specified herein, the Option shall terminate, and the
Shares covered by such Option shall again become available for issuance under
the Plan. If a Holder is terminated for Cause, the Option shall immediately
terminate, and the Shares covered by such Option shall again become available
for issuance under the Plan.

               (e) Disability of Holder. If a Holder ceases to be a Service
Provider as a result of the Holder's disability, the Holder may exercise his or
her Option within such period of time as is specified in the Option Agreement to
the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the



                                       10


Option Agreement). In the absence of a specified time in the Option Agreement,
the Option shall remain exercisable for twelve (12) months following the
Holder's termination. If such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified
Stock Option from and after the day which is three (3) months and one (1) day
following such termination. If, on the date of termination, the Holder is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately cease to be issuable under the Option
and shall again become available for issuance under the Plan. If, after
termination, the Holder does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall again become available for issuance under the Plan.

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

               (g) Regulatory Extension. A Holder's Option Agreement may provide
that if the exercise of the Option following the termination of the Holder's
status as a Service Provider (other than upon the Holder's death or Disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Securities Act, then the Option
shall terminate on the earlier of (i) the expiration of the term of the Option
set forth in Section 8 or (ii) the expiration of a period of three (3) months
after the termination of the Holder's status as a Service Provider during which
the exercise of the Option would not be in violation of such registration
requirements.

               (h) Early Exercisability. The Administrator may provide in the
terms of a Holder's Option Agreement that the Holder may, at any time before the
Holder's status as a Service Provider terminates, exercise the Option in whole
or in part prior to the full vesting of the Option; provided, however, that
subject to Section 22, Shares acquired upon exercise of an Option which has not
fully vested may be subject to any forfeiture, transfer or other restrictions as
the Administrator may determine in its sole discretion.




                                       11


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

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

        12. Granting of Options to Independent Directors.

               (a) During the term of the Plan, a person who is an Independent
Director as of the Public Trading Date, or a person who is initially elected to
the Board following the Public Trading Date and who is an Independent Director
at the time of such initial election, may be granted (i) an Option to purchase
twenty-one thousand six hundred (21,600) shares of Common Stock (subject to
adjustment as provided in Section 15) on the Public Trading Date or such initial
election, as applicable (each, an "Initial Option"), and (ii) an Option to
purchase twenty-one thousand six hundred (21,600) shares of Common Stock
(subject to adjustment as provided in Section 15) on the date of the first
annual meeting of stockholders that occurs in every third year after the
Independent Director was granted an Initial Option and at which the Independent
Director is reelected to the Board (a "Subsequent Option"). Members of the Board
who are employees of the Company who subsequently retire from the Company and
remain on the Board will not receive an initial Option grant pursuant to clause
(i) of the preceding sentence, but to the extent that they are otherwise
eligible, will receive, after retirement from employment with the Company,
Options as described in clause (ii) of the preceding sentence. All the foregoing
Option grants authorized by this Section 12(a) shall be made by the Board.

               (b) Cash Compensation in Lieu of Options. In lieu of an Initial
Option or a Subsequent Option, or any portion thereof, an Independent Director
may elect, in advance of being granted such Initial Option or Subsequent Option,
as the case may be, to receive cash compensation in the amount of $5.56 for each
share of Common Stock that the Independent Director elects not to receive, with
the aggregate amount of such cash compensation to be paid in quarterly
installments, in arrears, over three (3) years, subject to the Independent
Director's continuing to serve as a Director. Any election made by an
Independent Director to receive cash compensation under this Section 12(b) shall
be made in writing, shall be delivered to the Board and shall be irrevocable
once made.

        13. Terms of Options Granted to Independent Directors. The per Share
price of each Option granted to an Independent Director shall equal 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted;
provided, however, that the per Share price of each Option granted to an
Independent Director on the date of the initial public offering of Common Stock
shall equal the initial public offering price (net of underwriting discounts and
commissions) per Share. Initial Options (as defined in Section 12) granted to
Independent Directors shall become exercisable in cumulative annual installments
of one third (1/3) of the Shares subject to such option on each of the yearly
anniversaries of the date of Initial Option grant, commencing with the first
such anniversary, such that each Initial Option shall be one



                                       12


hundred percent (100%) vested on the third anniversary of its date of grant.
Subsequent Options (as defined in Section 12) granted to Independent Directors
shall become vested in cumulative annual installments of one third (1/3) of the
Shares subject to such Option on each of the yearly anniversaries of the date of
Subsequent Option grant, commencing with the first anniversary of such date of
Subsequent Option grant, such that each Subsequent Option shall be one hundred
percent (100%) vested on the third anniversary of the date of Subsequent Option
grant. Subject to Section 10, the term of each Option granted to an Independent
Director shall be ten (10) years from the date the Option is granted. No portion
of an Option which is unexercisable at the time of an Independent Director's
termination of membership on the Board shall thereafter become exercisable.

        14. Stock Purchase Rights and Stock Bonuses.

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

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

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

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

               (e) Stock Bonuses. Notwithstanding any other provision of the
Plan, the Administrator may grant Stock Bonuses, as compensation or as bonuses,
to such Service Providers as the Administrator may select in its sole discretion
from time to time. Such Stock Bonuses may be issued either alone, in addition
to, or in tandem with Options or Stock Purchase Rights granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Bonuses under the Plan, it shall advise the



                                       13


offeree in writing of the terms and conditions related to the offer, including
the number of Shares that such person shall be entitled to receive, the price to
be paid, if any, the time within which such person must accept such offer, and
the manner of acceptance of such offer.

        15. Adjustments upon Changes in Capitalization, Merger or Asset Sale.

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

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

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

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

               (b) In the event of any transaction or event described in Section
15(a), the Administrator, in its sole discretion, and on such terms and
conditions as it deems appropriate, either by the terms of the Option, Stock
Purchase Right or Restricted Stock or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the Holder's request,
is hereby authorized to take any one or more of the following actions whenever
the Administrator determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended by the
Company to be made available under the Plan or with respect to any Option, Stock
Purchase Right or Restricted Stock granted or issued under the Plan or to
facilitate such transaction or event:

                      (i) To provide for either the purchase of any such Option,
Stock Purchase Right or Restricted Stock for an amount of cash equal to the
amount that could have been obtained upon the exercise of such Option or Stock
Purchase Right or realization of the Holder's rights had such Option, Stock
Purchase Right or Restricted Stock been currently



                                       14


exercisable or payable or fully vested or the replacement of such Option, Stock
Purchase Right or Restricted Stock with other rights or property selected by the
Administrator in its sole discretion;

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

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

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

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

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

               (d) If the Company undergoes an Acquisition, then any surviving
corporation or entity or acquiring corporation or entity, or affiliate of such
corporation or entity, may assume any Options, Stock Purchase Rights or
Restricted Stock outstanding under the Plan or may substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 15(d)) for those
outstanding under the Plan. In the event any surviving corporation or entity or
acquiring corporation or entity in an Acquisition, or affiliate of such
corporation or entity, does not assume such Options, Stock Purchase Rights or
Restricted Stock or does not substitute similar stock awards for those
outstanding under the Plan, then with respect to (i) Options, Stock Purchase
Rights or Restricted Stock held by participants in the Plan whose status as a
Service Provider has not terminated prior to such event, the vesting of such
Options, Stock Purchase Rights or Restricted Stock (and, if applicable, the time
during which such awards may be exercised) shall be accelerated and made fully
exercisable and all restrictions thereon shall lapse at least ten (10) days
prior to the closing of the Acquisition (and the Options or Stock Purchase
Rights terminated if not exercised prior to



                                       15


the closing of such Acquisition), and (ii) any other Options or Stock Purchase
Rights outstanding under the Plan, such Options or Stock Purchase rights shall
be terminated if not exercised prior to the closing of the Acquisition.

               (e) In the event the Company undergoes an Acquisition and any
surviving corporation or entity or acquiring corporation or entity, or affiliate
of such corporation or entity, does assume any Options, Stock Purchase Rights or
Restricted Stock outstanding under the Plan (or substitutes similar stock
awards, including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 15(e), for those
outstanding under the Plan), then, with respect to each stock award held by
participants in the Plan then performing services as Employees or Directors, the
vesting of each such stock award (and, if applicable, the time during which such
stock award may be exercised) shall be accelerated and such stock award shall
immediately become fully vested and exercisable, if any of the following events
occurs within nine (9) months after the effective date of the Acquisition: (1)
the Employee status or Director status, as applicable, of the participant
holding such stock award is terminated by the Company without Cause; (2) the
Employee holding such stock award terminates his or her Employee status due to
the fact that the principal place of the performance of the responsibilities and
duties of the Employee is changed to a location more than fifty (50) miles from
such Employee's existing work location without the Employee's express consent
(this clause (2) is not applicable to Directors); or (3) the Employee holding
such stock award terminates his or her Employee status due to the fact that
there is a material reduction in such Employee's responsibilities and duties
without the Employee's express consent (this clause (3) is not applicable to
Directors).

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

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

        17. Amendment and Termination of the Plan.

               (a) Amendment and Termination. The Board may at any time wholly
or partially amend, alter, suspend or terminate the Plan. However, without
approval of the



                                       16


Company's stockholders given within twelve (12) months before or after the
action by the Board, no action of the Board may, except as provided in Section
15, increase the limits imposed in Section 3 on the maximum number of Shares
which may be issued under the Plan or extend the term of the Plan under Section
7.

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

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

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

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

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

        21. Information to Holders and Purchasers. Prior to the Public Trading
Date and to the extent required by Section 260.140.46 of Title 10 of the
California Code of Regulations, the Company shall provide to each Holder and to
each individual who acquires Shares pursuant to the Plan, not less frequently
than annually during the period such Holder or purchaser has one or more Options
or Stock Purchase Rights outstanding, and, in the case of an individual who
acquires Shares pursuant to the Plan, during the period such individual owns
such Shares, copies of annual financial statements. Notwithstanding the
preceding sentence, the Company shall not be required to provide such statements
to key employees whose duties in connection with the Company assure their access
to equivalent information.

        22. Repurchase Provisions. The Administrator in its sole discretion may
provide that the Company may repurchase Shares acquired upon exercise of an
Option or Stock Purchase Right upon the occurrence of certain specified events,
including, without limitation, a Holder's termination as a Service Provider,
divorce, bankruptcy or insolvency; provided, however, that



                                       17


any such repurchase right shall be set forth in the applicable Option Agreement
or Restricted Stock purchase agreement or in another agreement referred to in
such agreement and, provided, further, that to the extent required by Section
260.140.41 and Section 260.140.42 of Title 10 of the California Code of
Regulations, any such repurchase right set forth in an Option or Stock Purchase
Right granted prior to the Public Trading Date to a person who is not an
Officer, Director or Consultant shall be upon the following terms: (i) if the
repurchase option gives the Company the right to repurchase the shares upon
termination as a Service Provider at not less than the Fair Market Value of the
shares to be purchased on the date of termination of status as a Service
Provider, then (A) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares within ninety (90)
days of termination of status as a Service Provider (or in the case of shares
issued upon exercise of Options or Stock Purchase Rights after such date of
termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Administrator and the Plan participant
and (B) the right terminates when the shares become publicly traded; and (ii) if
the repurchase option gives the Company the right to repurchase the Shares upon
termination as a Service Provider at the original purchase price for such
Shares, then (A) the right to repurchase at the original purchase price shall
lapse at the rate of at least twenty percent (20%) of the shares per year over
five (5) years from the date the Option or Stock Purchase Right is granted
(without respect to the date the Option or Stock Purchase Right was exercised or
became exercisable) and (B) the right to repurchase shall be exercised for cash
or cancellation of purchase money indebtedness for the shares within ninety (90)
days of termination of status as a Service Provider (or, in the case of shares
issued upon exercise of Options or Stock Purchase Rights, after such date of
termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Plan participant.

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




                                       18


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

                  [Remainder of page intentionally left blank]



                                       19


                               TABLE OF CONTENTS



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



                                       i

EX-4.2

                                                                     EXHIBIT 4.2


                          CAPSTONE TURBINE CORPORATION

                 STOCK OPTION AGREEMENT WITH MR. NORMAN CHAMBERS

        This Stock Option Agreement with Mr. Norman Chambers (the "Stock Option
Agreement") is entered into as of November 29, 2001 to attract and retain Mr.
Chambers for the position of Senior Vice President and Chief Operating Officer
of Capstone Turbine Corporation (the "Company") to promote the success of the
Company's business. This Stock Option Agreement constitutes a plan separate from
the Capstone Turbine Corporation 2000 Equity Incentive Plan (as such plan has
been and may be amended from time to time, the "2000 Plan") for all purposes,
including with respect to the Company's filing obligations under the Securities
Act of 1933, as amended ("Securities Act") on Form S-8. Although the Option (as
defined below) granted hereunder is not granted under the 2000 Plan, it shall be
governed by terms and conditions identical to those under the 2000 Plan, as
further provided herein.

        All capitalized terms used in this Stock Option Agreement without
definition shall have the meanings ascribed to such terms in the 2000 Plan.

I.      NOTICE OF STOCK OPTION GRANT

        Norman Chambers
        6 Maple Loft Place
        The Woodlands, TX  77381

        You, Mr. Chambers ("Optionee"), have been granted an option (the
"Option") to purchase shares of Common Stock of the Company, subject to the
terms and conditions of the 2000 Plan and this Stock Option Agreement. The terms
of your grant are set forth below:

         Date of Grant:                     November 29, 2001

         Vesting Commencement Date:         November 29, 2001

         Exercise Price per Share:          $4.74 per Share

         Total Number of Shares Granted:    800,000

         Total Exercise Price:              $948,000.00

         Type of Option:                    Non-Qualified Stock Option

         Term:                              10 years commencing on Date of Grant

         Expiration Date:                   November 29, 2011




        Exercise and Vesting Schedule:

        The Shares (as defined below) subject to this Option shall vest
according to the following schedule:

        Twenty-five percent (25%) of the Shares subject to the Option (rounded
down to the next whole number of shares) shall vest one year after the Date of
Grant, and 1/48th of the Shares subject to the Option (rounded down to the next
whole number of shares) shall vest on the first day of each full month
thereafter, so that all of the Shares shall be vested on the first day of the
forty-eighth (48th) month after the Date of Grant.

        Optionee agrees to be bound by the terms of the Option as set forth in
this Stock Option Agreement. Optionee hereby acknowledges receipt of a copy of
the official prospectus for the 2000 Plan. A copy of the 2000 Plan is available
upon request made to the Corporate Secretary at the Company's principal offices
at 21211 Nordhoff Street, Chatsworth, California 91311.

        Termination Period:

        The Option shall terminate on the Expiration Date; provided, however,
that if Optionee ceases to be a Service Provider prior to the Expiration Date,
then the Option shall terminate earlier pursuant to Sections 5, 6, and 7 of
Article II below.

II.     AGREEMENT

        1. Grant of Option. The Company hereby grants to the Optionee an Option
to purchase the Common Stock (the "Shares") as set forth in the Notice of Stock
Option Grant in Article I above, at the exercise price per Share set forth in
the Notice of Stock Option Grant (the "Exercise Price"). Notwithstanding
anything to the contrary in this Stock Option Agreement, the Option is subject
to the terms, definitions and provisions of the 2000 Plan, which are
incorporated herein by reference.

        2. Exercise of Option. The Option is exercisable as follows:

               (a) Right to Exercise.

                      (i) The Option shall be exercisable cumulatively according
to the vesting schedule set forth in the Notice of Stock Option Grant. For
purposes of this Stock Option Agreement, Shares subject to this Option shall
vest based on Optionee's continued status as a Service Provider.

                      (ii) The Option may not be exercised for a fraction of a
Share.

                      (iii) In the event of Optionee's death, disability or
other termination of the Optionee's status as a Service Provider, the
exercisability of the Option is governed by Sections 5, 6 and 7 of this Article
II.

                      (iv) In no event may the Option be exercised after the
Expiration Date of the Option as set forth in the Notice of Stock Option Grant
in Article I above.



                                       2


               (b) Method of Exercise. The Option shall be exercisable by
written Notice (in the form attached as Exhibit A). The Notice must state the
number of Shares for which the Option is being exercised, and such other
representations and agreements with respect to such Shares as may be required by
the Company pursuant to the provisions of the 2000 Plan. The Notice must be
signed by the Optionee and shall be delivered in person or by certified mail to
the Corporate Secretary of the Company. The Notice must be accompanied by
payment of the Exercise Price, including payment of any applicable withholding
tax. The Option shall be deemed to be exercised upon receipt by the Company of
such written Notice accompanied by the Exercise Price and payment of any
applicable withholding tax.

               No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

        3. Lock-Up Period. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act or any applicable state laws, Optionee shall
not sell or otherwise transfer any Shares or other securities of the Company
during the 180-day period (or such longer period as may be requested in writing
by the Managing Underwriter and agreed to in writing by the Company) (the
"Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.

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

               (a) cash;

               (b) check;

               (c) with the consent of the Administrator, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Administrator;

               (d) with the consent of the Administrator, surrender of other
Shares which (A) in the case of Shares acquired from the Company, have been
owned by the Optionee for more than six (6) months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised;

               (e) with the consent of the Administrator, surrendered Shares
issuable upon the exercise of the Option having a Fair Market Value on the date
of exercise equal to the aggregate Exercise Price of the Option or exercised
portion thereof;

               (f) with the consent of the Administrator, property of any kind
which constitutes good and valuable consideration; or



                                       3


               (g) with the consent of the Administrator, delivery of a notice
that the Optionee has placed a market sell order with a broker with respect to
Shares then issuable upon exercise of the Option and that the broker has been
directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the aggregate Exercise Price; provided, that payment
of such proceeds is then made to the Company upon settlement of such sale.

        5. Termination of Relationship. If Optionee ceases to be a Service
Provider (other than for Cause or by reason of the Optionee's death or the total
and permanent disability of the Optionee as defined in Code Section 22(e)(3)),
the Option, to the extent vested as of the date on which Optionee ceases to be a
Service Provider, shall remain exercisable for three (3) months from such date
(but in no event later than the Expiration Date of the term of the Option as set
forth in the Notice of Stock Option Grant). To the extent that the Option is not
vested at the date on which Optionee ceases to be a Service Provider, or if
Optionee does not exercise the Option within the time specified herein, the
Option shall terminate. If Optionee's status as a Service Provider is terminated
for Cause, the Option, whether vested (in whole or in part) or unvested, shall
immediately terminate.

        6. Disability of Optionee. If Optionee ceases to be a Service Provider
as a result of his total and permanent disability as defined in Code Section
22(e)(3), the Option, to the extent vested as of the date on which Optionee
ceases to be a Service Provider, shall remain exercisable for twelve (12) months
from such date (but in no event later than the Expiration Date of the term of
the Option as set forth in the Notice of Stock Option Grant). To the extent that
the Option is not vested as of the date on which Optionee ceases to be a Service
Provider, or if Optionee does not exercise such Option within the time specified
herein, the Option shall terminate.

        7. Death of Optionee. If Optionee ceases to be a Service Provider as a
result of the Optionee's death, the Option, to the extent vested as of the date
of death, shall remain exercisable for twelve (12) months following the date of
death (but in no event later than the Expiration Date of the term of the Option
as set forth in the Notice of Stock Option Grant) by Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance.
To the extent that the Option is not vested as of the date of death, or if the
Option is not exercised within the time specified herein, the Option shall
terminate.

        8. Non-Transferability of Option. The Option may not be transferred in
any manner except by will or by the laws of descent or distribution. It may be
exercised during the lifetime of Optionee only by Optionee. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.

        9. Term of Option. The Option may be exercised only within the term set
forth in the Notice of Stock Option Grant.


                            [Signature page follows]


                                       4




               This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one document.

                                      CAPSTONE TURBINE CORPORATION

                                      By: /s/ AKE ALMGREN
                                         --------------------------------------
                                      Name: Ake Almgren
                                           ------------------------------------
                                      Title: President, Chief Executive Officer
                                            -----------------------------------


        OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
        THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT, DIRECTORSHIP
        OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING
        HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE
        FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS STOCK OPTION
        AGREEMENT, NOR IN THE CAPSTONE TURBINE CORPORATION 2000 EQUITY INCENTIVE
        PLAN, WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
        OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT,
        DIRECTORSHIP OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN
        ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
        OPTIONEE'S EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY AT ANY TIME, WITH OR
        WITHOUT CAUSE.

        Optionee acknowledges receipt of a copy of the 2000 Plan and represents
that he is familiar with the terms and provisions thereof. Optionee hereby
accepts the Option subject to all of the terms and provisions hereof. Optionee
has reviewed the 2000 Plan and this Stock Option Agreement in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this
Stock Option Agreement and fully understands all provisions of the Stock Option
Agreement and the Option granted hereunder. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the 2000 Plan or the Stock Option
Agreement. Optionee further agrees to notify the Company upon any change in the
residence address indicated below.

Dated: November 29, 2001                    /s/Norman Chambers
      ----------------------------          ----------------------------------
                                            Norman Chambers, OPTIONEE

                                            Residence Address:
                                            6 Maple Loft Place
                                            The Woodlands, TX  77381



                                       5


                                    EXHIBIT A

                          CAPSTONE TURBINE CORPORATION

                                 EXERCISE NOTICE

Capstone Turbine Corporation
21211 Nordhoff Street
Chatsworth, CA 91311

Attention:  Corporate Secretary

        1. Exercise of Option. Effective as of today, ___________, 20__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Capstone Turbine
Corporation (the "Company") under and pursuant to the terms of that certain
Option granted to me on November 29, 2001 under the Stock Option Agreement of
the same date (the "Stock Option Agreement").

        The Stock Option Agreement constitutes a plan separate from the Capstone
Turbine Corporation 2000 Equity Incentive Plan (as such plan has been and may be
amended from time to time, the "2000 Plan") for all purposes, including with
respect to the Company's filing obligations under the Securities Act of 1933, as
amended ("Securities Act") on Form S-8. Although the Option granted under the
Stock Option Agreement is not granted under the 2000 Plan, it shall be governed
by terms and conditions identical to those under the 2000 Plan, which are
incorporated into the Stock Option Agreement by reference. Optionee agrees to be
bound by the terms of the Option as set forth in the Stock Option Agreement.

        Optionee hereby further acknowledges receipt of a copy of the official
prospectus for the 2000 Plan. A copy of the 2000 Plan is available upon request
made to the Corporate Secretary at the Company's principal offices at 21211
Nordhoff Street, Chatsworth, California 91311.

        2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understands the 2000 Plan and the Stock Option Agreement.
Optionee agrees to abide by and be bound by the terms and conditions of the 2000
Plan and the Stock Option Agreement.

        3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to Shares subject to the Option, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 15 of the 2000 Plan.
Optionee shall enjoy rights as a stockholder until such time as Optionee
disposes of the Shares.

        4. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with





the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.

        5. Successors and Assigns. The Company may assign any of its rights
under this Notice to single or multiple assignees, and this Notice shall inure
to the benefit of the successors and assigns of the Company. This Notice shall
be binding upon Optionee and his heirs, executors, administrators, successors
and assigns.

        6. Interpretation. Any dispute regarding the interpretation of this
Notice shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the 2000
Plan (the "Administrator"), which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.

        7. Governing Law; Severability. This Notice shall be governed by and
construed in accordance with the laws of the State of Delaware excluding that
body of law pertaining to conflicts of law. Should any provision of this Notice
be determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.

        8. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.

        9. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Notice.

        10. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares, as well as any applicable withholding tax.

        11. Entire Agreement. The 2000 Plan and the Stock Option Agreement are
incorporated herein by reference. This Notice, the 2000 Plan and the Stock
Option Agreement constitute the entire agreement of the parties and supersede in
their entirety all prior undertakings and agreements of the Company and Optionee
with respect to the subject matter hereof.

                            [Signature page follows]



                                       1


Submitted by:                                     Accepted by:

OPTIONEE:  Norman Chambers                        CAPSTONE TURBINE CORPORATION


__________________________                        By: ________________________

                                                  Name: ______________________

                                                  Title: _____________________

Residence Address:

6 Maple Loft Place
The Woodlands, TX  77381



                                       2

EX-4.3

                                                                     EXHIBIT 4.3

                          CAPSTONE TURBINE CORPORATION

                   STOCK OPTION AGREEMENT WITH MS. KAREN CLARK

        This Stock Option Agreement with Ms. Karen Clark (the "Stock Option
Agreement") is entered into as of January 29, 2002 to attract and retain Ms.
Clark for the position of Senior Vice President and Chief Financial Officer of
Capstone Turbine Corporation (the "Company") to promote the success of the
Company's business. This Stock Option Agreement constitutes a plan separate from
the Capstone Turbine Corporation 2000 Equity Incentive Plan (as such plan has
been and may be amended from time to time, the "2000 Plan") for all purposes,
including with respect to the Company's filing obligations under the Securities
Act of 1933, as amended ("Securities Act") on Form S-8. Although the Option (as
defined below) granted hereunder is not granted under the 2000 Plan, it shall be
governed by terms and conditions identical to those under the 2000 Plan, as
further provided herein.

        All capitalized terms used in this Stock Option Agreement without
definition shall have the meanings ascribed to such terms in the 2000 Plan.

I.      NOTICE OF STOCK OPTION GRANT

        Karen Clark
        1674 Amarelle Street
        Thousand Oaks, CA  91320

        You, Ms. Clark ("Optionee"), have been granted an option (the "Option")
to purchase shares of Common Stock of the Company, subject to the terms and
conditions of the 2000 Plan and this Stock Option Agreement. The terms of your
grant are set forth below:

         Date of Grant:                     January 29, 2002

         Vesting Commencement Date:         January 7, 2002

         Exercise Price per Share:          $4.70 per Share

         Total Number of Shares Granted:    350,000

         Total Exercise Price:              $1,645,000.000

         Type of Option:                    Non-Qualified Stock Option

         Term:                              10 years commencing on Date of Grant

         Expiration Date:                   January 29, 2012





        Exercise and Vesting Schedule:

        The Shares (as defined below) subject to this Option shall vest
according to the following schedule:

        Twenty-five percent (25%) of the Shares subject to the Option (rounded
down to the next whole number of shares) shall vest one year after the Vesting
Commencement Date, and 1/48th of the Shares subject to the Option (rounded down
to the next whole number of shares) shall vest on the first day of each full
month thereafter, so that all of the Shares shall be vested on the first day of
the forty-eighth (48th) month after the Date of Grant.

        Optionee agrees to be bound by the terms of the Option as set forth in
this Stock Option Agreement. Optionee hereby acknowledges receipt of a copy of
the official prospectus for the 2000 Plan. A copy of the 2000 Plan is available
upon request made to the Corporate Secretary at the Company's principal offices
at 21211 Nordhoff Street, Chatsworth, California 91311.

        Termination Period:

        The Option shall terminate on the Expiration Date; provided, however,
that if Optionee ceases to be a Service Provider prior to the Expiration Date,
then the Option shall terminate earlier pursuant to Sections 5, 6, and 7 of
Article II below.

II.     AGREEMENT

        1. Grant of Option. The Company hereby grants to the Optionee an Option
to purchase the Common Stock (the "Shares") as set forth in the Notice of Stock
Option Grant in Article I above, at the exercise price per Share set forth in
the Notice of Stock Option Grant (the "Exercise Price"). Notwithstanding
anything to the contrary in this Stock Option Agreement, the Option is subject
to the terms, definitions and provisions of the 2000 Plan, which are
incorporated herein by reference.

        2. Exercise of Option. The Option is exercisable as follows:

               (a) Right to Exercise.

                      (i) The Option shall be exercisable cumulatively according
to the vesting schedule set forth in the Notice of Stock Option Grant. For
purposes of this Stock Option Agreement, Shares subject to this Option shall
vest based on Optionee's continued status as a Service Provider.

                      (ii) The Option may not be exercised for a fraction of a
Share.

                      (iii) In the event of Optionee's death, disability or
other termination of the Optionee's status as a Service Provider, the
exercisability of the Option is governed by Sections 5, 6 and 7 of this Article
II.

                      (iv) In no event may the Option be exercised after the
Expiration Date of the Option as set forth in the Notice of Stock Option Grant
in Article I above.



                                       2


               (b) Method of Exercise. The Option shall be exercisable by
written Notice (in the form attached as Exhibit A). The Notice must state the
number of Shares for which the Option is being exercised, and such other
representations and agreements with respect to such Shares as may be required by
the Company pursuant to the provisions of the 2000 Plan. The Notice must be
signed by the Optionee and shall be delivered in person or by certified mail to
the Corporate Secretary of the Company. The Notice must be accompanied by
payment of the Exercise Price, including payment of any applicable withholding
tax. The Option shall be deemed to be exercised upon receipt by the Company of
such written Notice accompanied by the Exercise Price and payment of any
applicable withholding tax.

               No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

        3. Lock-Up Period. Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act or any applicable state laws, Optionee shall
not sell or otherwise transfer any Shares or other securities of the Company
during the 180-day period (or such longer period as may be requested in writing
by the Managing Underwriter and agreed to in writing by the Company) (the
"Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.

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

               (a) cash;

               (b) check;

               (c) with the consent of the Administrator, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Administrator;

               (d) with the consent of the Administrator, surrender of other
Shares which (A) in the case of Shares acquired from the Company, have been
owned by the Optionee for more than six (6) months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised;

               (e) with the consent of the Administrator, surrendered Shares
issuable upon the exercise of the Option having a Fair Market Value on the date
of exercise equal to the aggregate Exercise Price of the Option or exercised
portion thereof;

               (f) with the consent of the Administrator, property of any kind
which constitutes good and valuable consideration; or



                                       3


               (g) with the consent of the Administrator, delivery of a notice
that the Optionee has placed a market sell order with a broker with respect to
Shares then issuable upon exercise of the Option and that the broker has been
directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the aggregate Exercise Price; provided, that payment
of such proceeds is then made to the Company upon settlement of such sale.

        5. Termination of Relationship. If Optionee ceases to be a Service
Provider (other than for Cause or by reason of the Optionee's death or the total
and permanent disability of the Optionee as defined in Code Section 22(e)(3)),
the Option, to the extent vested as of the date on which Optionee ceases to be a
Service Provider, shall remain exercisable for three (3) months from such date
(but in no event later than the Expiration Date of the term of the Option as set
forth in the Notice of Stock Option Grant). To the extent that the Option is not
vested at the date on which Optionee ceases to be a Service Provider, or if
Optionee does not exercise the Option within the time specified herein, the
Option shall terminate. If Optionee's status as a Service Provider is terminated
for Cause, the Option, whether vested (in whole or in part) or unvested, shall
immediately terminate.

        6. Disability of Optionee. If Optionee ceases to be a Service Provider
as a result of her total and permanent disability as defined in Code Section
22(e)(3), the Option, to the extent vested as of the date on which Optionee
ceases to be a Service Provider, shall remain exercisable for twelve (12) months
from such date (but in no event later than the Expiration Date of the term of
the Option as set forth in the Notice of Stock Option Grant). To the extent that
the Option is not vested as of the date on which Optionee ceases to be a Service
Provider, or if Optionee does not exercise such Option within the time specified
herein, the Option shall terminate.

        7. Death of Optionee. If Optionee ceases to be a Service Provider as a
result of the Optionee's death, the Option, to the extent vested as of the date
of death, shall remain exercisable for twelve (12) months following the date of
death (but in no event later than the Expiration Date of the term of the Option
as set forth in the Notice of Stock Option Grant) by Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance.
To the extent that the Option is not vested as of the date of death, or if the
Option is not exercised within the time specified herein, the Option shall
terminate.

        8. Non-Transferability of Option. The Option may not be transferred in
any manner except by will or by the laws of descent or distribution. It may be
exercised during the lifetime of Optionee only by Optionee. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.

        9. Term of Option. The Option may be exercised only within the term set
forth in the Notice of Stock Option Grant.


                            [Signature page follows]



                                       4



               This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one document.

                                       CAPSTONE TURBINE CORPORATION

                                       By: /s/ AKE ALMREN
                                          --------------------------------
                                       Name: Ake Almgren
                                       Title: President, Chief Executive
                                              Officer

        OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
        THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT, DIRECTORSHIP
        OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING
        HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE
        FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS STOCK OPTION
        AGREEMENT, NOR IN THE CAPSTONE TURBINE CORPORATION 2000 EQUITY INCENTIVE
        PLAN, WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
        OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT,
        DIRECTORSHIP OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN
        ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
        OPTIONEE'S EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY AT ANY TIME, WITH OR
        WITHOUT CAUSE.

        Optionee acknowledges receipt of a copy of the 2000 Plan and represents
that she is familiar with the terms and provisions thereof. Optionee hereby
accepts the Option subject to all of the terms and provisions hereof. Optionee
has reviewed the 2000 Plan and this Stock Option Agreement in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this
Stock Option Agreement and fully understands all provisions of the Stock Option
Agreement and the Option granted hereunder. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the 2000 Plan or the Stock Option
Agreement. Optionee further agrees to notify the Company upon any change in the
residence address indicated below.

Dated: January 29, 2002                     /s/ KAREN CLARK
                                            -------------------------------
                                            Karen Clark, OPTIONEE


                                            Residence Address:

                                            1674 Amarelle Street
                                            Thousand Oaks, CA 91320


                                       5


                                    EXHIBIT A

                          CAPSTONE TURBINE CORPORATION

                                 EXERCISE NOTICE

Capstone Turbine Corporation
21211 Nordhoff Street
Chatsworth, CA 91311

Attention:  Corporate Secretary

        1. Exercise of Option. Effective as of today, ___________, 20__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Capstone Turbine
Corporation (the "Company") under and pursuant to the terms of that certain
Option granted to me on January 29, 2002 under the Stock Option Agreement of the
same date (the "Stock Option Agreement").

        The Stock Option Agreement constitutes a plan separate from the Capstone
Turbine Corporation 2000 Equity Incentive Plan (as such plan has been and may be
amended from time to time, the "2000 Plan") for all purposes, including with
respect to the Company's filing obligations under the Securities Act of 1933, as
amended ("Securities Act") on Form S-8. Although the Option granted under the
Stock Option Agreement is not granted under the 2000 Plan, it shall be governed
by terms and conditions identical to those under the 2000 Plan, which are
incorporated into the Stock Option Agreement by reference. Optionee agrees to be
bound by the terms of the Option as set forth in the Stock Option Agreement.

        Optionee hereby further acknowledges receipt of a copy of the official
prospectus for the 2000 Plan. A copy of the 2000 Plan is available upon request
made to the Corporate Secretary at the Company's principal offices at 21211
Nordhoff Street, Chatsworth, California 91311.

        2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understands the 2000 Plan and the Stock Option Agreement.
Optionee agrees to abide by and be bound by the terms and conditions of the 2000
Plan and the Stock Option Agreement.

        3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to Shares subject to the Option, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 15 of the 2000 Plan.
Optionee shall enjoy rights as a stockholder until such time as Optionee
disposes of the Shares.

        4. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with


                                       6


the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.

        5. Successors and Assigns. The Company may assign any of its rights
under this Notice to single or multiple assignees, and this Notice shall inure
to the benefit of the successors and assigns of the Company. This Notice shall
be binding upon Optionee and her heirs, executors, administrators, successors
and assigns.

        6. Interpretation. Any dispute regarding the interpretation of this
Notice shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the 2000
Plan (the "Administrator"), which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.

        7. Governing Law; Severability. This Notice shall be governed by and
construed in accordance with the laws of the State of Delaware excluding that
body of law pertaining to conflicts of law. Should any provision of this Notice
be determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.

        8. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.

        9. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Notice.

        10. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares, as well as any applicable withholding tax.

        11. Entire Agreement. The 2000 Plan and the Stock Option Agreement are
incorporated herein by reference. This Notice, the 2000 Plan and the Stock
Option Agreement constitute the entire agreement of the parties and supersede in
their entirety all prior undertakings and agreements of the Company and Optionee
with respect to the subject matter hereof.

                            [Signature page follows]


                                       1




Submitted by:                                     Accepted by:

OPTIONEE:  Karen Clark                            CAPSTONE TURBINE CORPORATION

____________________________                      By: _________________________

                                                  Name: _______________________

                                                  Title: ______________________

Residence Address:

1674 Amarelle Street
Thousand Oaks, CA  91320


                                       2

EX-5.1

                                                                     EXHIBIT 5.1

                           OPINION OF LATHAM & WATKINS

                        [LETTERHEAD OF LATHAM & WATKINS]


                               November 13, 2002


Capstone Turbine Corporation
21211 Nordhoff Street
Chatsworth, California  91311

      Re:  Registration Statement on Form S-8 for Capstone Turbine Corporation
           Amended and Restated 2000 Equity Incentive Plan, Stock Option
           Agreement with Mr. Chambers and Stock Option Agreement with Ms.
           Clark; 950,000 shares of Common Stock, par value $.001 per share

Ladies and Gentlemen:

               In connection with the registration by Capstone Turbine
Corporation, a Delaware corporation (the "Company") of 950,000 shares of common
stock, par value $.001 per share (the "Shares") of the Company, under the
Securities Act of 1933, as amended, on Form S-8 filed with the Securities and
Exchange Commission (the "Commission") on November 13, 2002 (the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below.

               In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company pursuant to the Capstone Turbine Corporation Amended and
Restated 2000 Equity Incentive Plan, the Stock Option Agreement with Mr.
Chambers, and the Stock Option Agreement with Ms. Clark (collectively, the
"Plans") in connection with the authorization, issuance and sale of the Shares,
which are to be offered and sold by the Company pursuant to the Plans, and for
the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed in the Plans. In addition, we have
made such legal and factual examinations and inquiries, including an examination
of originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.

               In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.

               We are opining herein as to the effect on the subject transaction
only of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or, in the case






of Delaware, any other laws, or as to any matters of municipal law or the laws
of any local agencies within any state.

               Subject to the foregoing, it is our opinion that the Shares have
been duly authorized by all necessary corporate action of the Company, and, upon
issuance, delivery and payment therefor in the manner contemplated by the
applicable Plan, will be validly issued, fully paid and nonassessable.

               We consent to your filing this opinion as an exhibit to the
Registration Statement.

                                            Very truly yours,

                                            /s/  Latham & Watkins

EX-23.1

                                                                    EXHIBIT 23.1


                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Registration Statement of
Capstone Turbine Corporation on Form S-8 of our report dated March 28, 2002
appearing in the Annual Report on Form 10-K of Capstone Turbine Corporation for
the year ended December 31, 2001.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Los Angeles, California
November 12, 2002