Exhibit 10.29


 


WELLS FARGO BUSINESS CREDIT


Credit and Security Agreement


 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  AMOUNT
  AND TERMS OF THE LINE OF CREDIT

  	
  1

  
	
   

  	
  1.1

  	
  Line
  of Credit; Limitations on Borrowings; Termination Date; Use of Proceeds

  	
  1

  
	
   

  	
  1.2

  	
  Borrowing
  Base; Mandatory Prepayment

  	
  2

  
	
   

  	
  1.3

  	
  Procedures
  for Line of Credit Advances

  	
  2

  
	
   

  	
  1.4

  	
  Collection
  of Accounts and Application to Revolving Note

  	
  5

  
	
   

  	
  1.5

  	
  Interest
  and Interest Related Matters

  	
  5

  
	
   

  	
  1.6

  	
  Fees

  	
  7

  
	
   

  	
  1.7

  	
  Interest
  Accrual; Principal and Interest Payments; Computation

  	
  9

  
	
   

  	
  1.8

  	
  Termination,
  Reduction or Non-Renewal of Line of Credit by Company; Notice

  	
  10

  
	
   

  	
  1.9

  	
  Letters
  of Credit

  	
  11

  
	
   

  	
  1.10

  	
  Special
  Account

  	
  12

  
	
  2.

  	
  SECURITY
  INTEREST AND OCCUPANCY OF COMPANY’S PREMISES

  	
  12

  
	
   

  	
  2.1

  	
  Grant
  of Security Interest

  	
  12

  
	
   

  	
  2.2

  	
  Notifying
  Account Debtors and Other Obligors; Collection of Collateral

  	
  12

  
	
   

  	
  2.3

  	
  Assignment
  of Insurance

  	
  12

  
	
   

  	
  2.4

  	
  Company’s
  Premises

  	
  13

  
	
   

  	
  2.5

  	
  License

  	
  13

  
	
   

  	
  2.6

  	
  Financing
  Statements

  	
  14

  
	
   

  	
  2.7

  	
  Setoff

  	
  14

  
	
   

  	
  2.8

  	
  Collateral
  Related Matters

  	
  14

  
	
   

  	
  2.9

  	
  Notices
  Regarding Disposition of Collateral

  	
  14

  
	
  3.

  	
  CONDITIONS
  PRECEDENT

  	
  15

  
	
   

  	
  3.1

  	
  Conditions
  Precedent to Initial Advance and Issuance of Initial Letter of Credit

  	
  15

  
	
   

  	
  3.2

  	
  Additional
  Conditions Precedent to All Advances and Letters of Credit

  	
  15

  
	
  4.

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  15

  
	
  5.

  	
  COVENANTS

  	
  15

  
	
   

  	
  5.1

  	
  Reporting
  Requirements

  	
  15

  
	
   

  	
  5.2

  	
  Financial
  Covenants

  	
  18

  



 


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TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Other
  Liens and Permitted Liens

  	
  19

  
	
   

  	
  5.4

  	
  Indebtedness

  	
  20

  
	
   

  	
  5.5

  	
  Guaranties

  	
  21

  
	
   

  	
  5.6

  	
  Investments
  and Subsidiaries

  	
  21

  
	
   

  	
  5.7

  	
  Dividends
  and Distributions

  	
  21

  
	
   

  	
  5.8

  	
  Salaries

  	
  21

  
	
   

  	
  5.9

  	
  Books
  and Records; Collateral Examination; Inspection and Appraisals

  	
  22

  
	
   

  	
  5.10
  

  	
  Account
  Verification; Payment of Permitted Liens

  	
  22

  
	
   

  	
  5.11
  

  	
  Compliance
  with Laws

  	
  22

  
	
   

  	
  5.12

  	
  Payment
  of Taxes and Other Claims

  	
  23

  
	
   

  	
  5.13
  

  	
  Maintenance
  of Collateral and Properties

  	
  23

  
	
   

  	
  5.14
  

  	
  Insurance

  	
  23

  
	
   

  	
  5.15
  

  	
  Preservation
  of Existence

  	
  24

  
	
   

  	
  5.16
  

  	
  Delivery
  of Instruments, etc.

  	
  24

  
	
   

  	
  5.17
  

  	
  Sale
  or Transfer of Assets; Suspension of Business Operations

  	
  24

  
	
   

  	
  5.18
  

  	
  Consolidation
  and Merger; Asset Acquisitions

  	
  24

  
	
   

  	
  5.19
  

  	
  Sale
  and Leaseback

  	
  24

  
	
   

  	
  5.20
  

  	
  Restrictions
  on Nature of Business

  	
  24

  
	
   

  	
  5.21
  

  	
  Accounting

  	
  24

  
	
   

  	
  5.22
  

  	
  Discounts,
  etc.

  	
  25

  
	
   

  	
  5.23
  

  	
  Pension
  Plans

  	
  25

  
	
   

  	
  5.24
  

  	
  Place
  of Business; Name

  	
  25

  
	
   

  	
  5.25
  

  	
  Constituent
  Documents

  	
  25

  
	
   

  	
  5.26
  

  	
  Performance
  by Wells Fargo

  	
  25

  
	
   

  	
  5.27
  

  	
  Wells
  Fargo Appointed as Company’s Attorney in Fact

  	
  25

  
	
  6.
  

  	
  EVENTS
  OF DEFAULT AND REMEDIES

  	
  25

  
	
   

  	
  6.1

  	
  Events
  of Default

  	
  25

  
	
   

  	
  6.2

  	
  Rights
  and Remedies

  	
  28

  
	
   

  	
  6.3

  	
  Immediate
  Default and Acceleration

  	
  28

  



 


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TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  7.

  	
  MISCELLANEOUS

  	
  29

  
	
   

  	
  7.1

  	
  No
  Waiver; Cumulative Remedies

  	
  29

  
	
   

  	
  7.2

  	
  Amendment;
  Consents and Waivers; Authentication

  	
  29

  
	
   

  	
  7.3

  	
  Execution
  in Counterparts; Delivery of Counterparts

  	
  29

  
	
   

  	
  7.4

  	
  Notices,
  Requests, and Communications; Confidentiality

  	
  30

  
	
   

  	
  7.5

  	
  Company
  Information Reporting; Confidentiality

  	
  30

  
	
   

  	
  7.6

  	
  Further
  Documents

  	
  31

  
	
   

  	
  7.7

  	
  Costs
  and Expenses

  	
  32

  
	
   

  	
  7.8

  	
  Indemnity

  	
  32

  
	
   

  	
  7.9

  	
  Retention
  of Company’s Records

  	
  33

  
	
   

  	
  7.10

  	
  Binding
  Effect; Assignment; Complete Agreement

  	
  33

  
	
   

  	
  7.11

  	
  Sharing
  of Information

  	
  33

  
	
   

  	
  7.12

  	
  Severability
  of Provisions

  	
  33

  
	
   

  	
  7.13

  	
  Headings

  	
  33

  
	
   

  	
  7.14

  	
  Governing
  Law; Jurisdiction; Venue

  	
  33

  
	
  8.

  	
  ARBITRATION

  	
  34

  
	
   

  	
  8.1

  	
  Arbitration

  	
  34

  
	
   

  	
  8.2

  	
  Governing
  Rules

  	
  34

  
	
   

  	
  8.3

  	
  No
  Waiver of Provisional Remedies, Self-Help and Foreclosure

  	
  34

  
	
   

  	
  8.4

  	
  Arbitrator
  Qualifications and Powers

  	
  34

  
	
   

  	
  8.5

  	
  Discovery

  	
  35

  
	
   

  	
  8.6

  	
  Class Proceedings
  and Consolidations

  	
  35

  
	
   

  	
  8.7

  	
  Payment
  of Arbitration Costs and Fees

  	
  35

  
	
   

  	
  8.8

  	
  Miscellaneous

  	
  35

  



 


iii

















 


WELLS FARGO BUSINESS CREDIT


Credit and Security Agreement


 


This
Credit and Security Agreement (the “Agreement”) is dated February 9, 2009,
and is entered into between Capstone Turbine Corporation, a Delaware
corporation (“Company”), and Wells Fargo Bank, National Association (as more
fully defined in Exhibit A, “Wells Fargo”),
acting through its Wells Fargo Business Credit operating division.


 


RECITALS


 


Company
has asked Wells Fargo to provide it with a $10,000,000 revolving line of credit
(the “Line of Credit”) for working capital purposes and to facilitate the
issuance of letters of credit. Wells Fargo is agreeable to meeting Company’s
request, provided that Company agrees to the terms and conditions of this
Agreement.


 


For
purposes of this Agreement, capitalized terms not otherwise defined in the
Agreement shall have the meaning given them in Exhibit A.


 


1.             AMOUNT
AND TERMS OF THE LINE OF CREDIT


 


1.1          Line of
Credit; Limitations on Borrowings; Termination Date; Use of Proceeds.


 


(a)          Line of Credit and Limitations on
Borrowing. Wells Fargo shall make Advances to Company under the
Line of Credit that (i) together with the L/C Amount and the aggregate
outstanding amount of Indebtedness and other obligations owing under or in
connection with the Ex-Im Credit Agreement, shall not at any time exceed in the
aggregate $10,000,000 (the “Maximum Line Amount”), and (ii) together with
the L/C Amount, exceed in the aggregate, the Borrowing Base limitations
described in Section 1.2. Within these limits,
Company may periodically borrow, prepay in whole or in part, and reborrow.
Wells Fargo has no obligation to make an Advance during a Default Period or at
any time Wells Fargo believes that an Advance would result in an Event of
Default.


 


(b)         Maturity and Termination Dates. Company may
request Advances from the date that the conditions set forth in Section 3 are satisfied
until the earlier of: (i) February 9, 2012 (the “Maturity Date”), (ii) the
date Company terminates the Line of Credit, or (iii) the date Wells Fargo
terminates the Line of Credit following an Event of Default (the earliest of
such dates, the “Termination Date”)


 


(c)          Use of Line of Credit Proceeds.
Company shall use the proceeds of each Advance and each Letter of
Credit for ongoing working capital purposes, to cover any book overdraft, and
to fund accounts payable more than 60 days past due.


 


(d)         Revolving Note. Company’s
obligation to repay Line of Credit Advances, regardless of how initiated under Section 1.3, shall be
evidenced by a revolving promissory note (as renewed, amended or replaced from
time to time, the “Revolving Note”).


 


1

















 


1.2          Borrowing
Base; Mandatory Prepayment.


 


(a)          Borrowing Base. The borrowing
base (the “Borrowing Base”) is an  amount equal to:


 


(i)           85% or such lesser percentage of
Eligible Accounts as Wells Fargo in its sole discretion may deem appropriate;
provided that this rate may be reduced at any time by Wells Fargo’s in its sole
discretion by one percent (1%) for each percentage point by which Dilution on
the date of determination is in excess of five percent (5.0%), plus


 


(ii)          the lesser of (i) 25% or such
lesser percentage of Eligible Inventory as Wells Fargo in its sole discretion
may deem appropriate or (ii) $1,000,000, plus


 


(iii)         a reserve equal to ten percent (10%) of
the aggregate outstanding amount of Indebtedness and other obligations owing
under or in connection with the Ex-Im Credit Agreement from time to time, less


 


(vi)        the Borrowing Base Reserve, less


 


(v)         Indebtedness (other than Indebtedness
constituting “Advances” under the Ex-Im Credit Agreement) that is not otherwise
described in Section 1, including Indebtedness that
Wells Fargo in its sole discretion finds on the date of determination to be
equal to Wells Fargo’s net credit exposure with respect to any swap,
derivative, foreign exchange, hedge, deposit, treasury management or similar
transaction or arrangement extended to Company by Wells Fargo and any
Indebtedness owed by Company to Wells Fargo Merchant Services, L.L.C.


 


(b)         Mandatory Prepayment;
Overadvances. If (i) unreimbursed Line of Credit  Advances
evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base,
or (ii) the sum of the unreimbursed Line of Credit Advances evidenced by
the Revolving Note, the L/C Amount, and the aggregate outstanding amount of
Indebtedness and other obligations owing under or in connection with the Ex-Im
Credit Agreement exceeds the Maximum Line Amount at any time, then Company
shall immediately prepay the Revolving Note in an amount sufficient to
eliminate the excess, and if payment in full of the Revolving Note is
insufficient to eliminate this excess and the L/C Amount continues to exceed
the Borrowing Base, then Company shall deliver cash to Wells Fargo in an amount
equal to the remaining excess for deposit to the Special Account, unless in
each case, Wells Fargo has delivered to Company an Authenticated Record
consenting to the Overadvance prior to its
occurrence, in which event the Overadvance shall be temporarily permitted on
such terms and conditions as Wells Fargo in its sole discretion may deem
appropriate, including the payment of additional fees or interest, or both.


 


1.3          Procedures for Line of Credit Advances.


 


(a)          Advances to Operating
Account. Advances shall be credited to Company’s demand deposit account
maintained with Wells Fargo (the “Operating Account”), unless the parties agree
in a Record Authenticated by both of them to disburse to another account.


 


2

















 


(i)           Advances upon Company’s
Request. Line of Credit Advances may be funded upon Company’s request. No
request will be deemed received until Wells Fargo acknowledges receipt, and
Company, if requested by Wells Fargo, confirms the request in an Authenticated
Record. Company shall repay all Advances, even if the Person requesting the
Advance on behalf of Company lacked authorization.


 


(A)        Floating Rate Advances. If
Company wants a Floating Rate Advance, it shall make the request no later than
9:00 a.m. Pasadena, California Time on the Business Day on which it wants the
Floating Rate Advance to be funded, which request shall specify the principal
Advance amount being requested.


 


(B)         LIBOR Advances. If Company wants
a LIBOR Advance, it shall make the request no later than 9:00 a.m. Pasadena,
California Time three (3) Business Days prior to the Business Day on which
it wants the LIBOR Advance to be funded, which request shall specify both the
principal Advance amount and Interest Period being requested. No more than five
(5) separate LIBOR Advance Interest Periods may be outstanding at any time
under this Agreement and the Ex-Im Credit Agreement, on a combined basis. Each
LIBOR Advance shall be in multiples of $500,000 and in the minimum amount of at
least $500,000. LIBOR Advances are not available for Advances made through the
Loan Manager Service, and shall not be available during Default Periods.


 


(ii)          Advances through Loan Manager.
If Wells Fargo has separately agreed that Company may use the Wells Fargo Loan
Manager service (“Loan Manager”), Line of Credit Advances will be initiated by
Wells Fargo and credited to the Operating Account as Floating Rate Advances as
of the end of each Business Day in an amount sufficient to maintain an agreed
upon ledger balance in the Operating Account, subject only to Line of Credit
availability as provided in Section 1.1(a). If Wells Fargo
terminates Company’s access to Loan Manager, Company may continue to request
Line of Credit Advances as provided in Section 1.3(a)(i). Wells
Fargo shall have no obligation to make an Advance through Loan Manager during a
Default Period, or in an amount in excess of Line of Credit availability, and
may terminate Loan Manager at any time in its sole discretion.


 


(b)         Protective Advances; Advances to Pay
Indebtedness Due. Wells Fargo may initiate a Floating Rate Advance on the
Line of Credit in its sole discretion for any reason at any time, without
Company’s compliance with any of the conditions of this Agreement, and (i) disburse
the proceeds directly to third Persons in order to protect Wells Fargo’s
interest in Collateral or to perform any of Company’s obligations under this
Agreement, or (ii) apply the proceeds to the amount of any Indebtedness
then due and payable to Wells Fargo.


 


(c)          LIBOR Advances.


 


(i)           Funding Line of Credit Advances as
LIBOR Advances for Fixed Interest Periods. Subject to the other terms and
conditions of this Agreement, Company may request a Line of Credit Advance as a
LIBOR Advance for one, three, or six month periods (each period, an “Interest
Period”, as more fully defined in Exhibit A).


 


3

















 


(ii)          Procedure for Converting Floating
Rate Advances to LIBOR Advances. Company may request that all or any part
of an outstanding Floating Rate Advance be converted to a LIBOR Advance,
provided that no Default Period is in effect, and that Wells Fargo receives the
request no later than 9:00 a.m. Pasadena, California Time three (3) Business
Days prior to the Business Day on which Company wishes the conversion to become
effective. Each request shall (i) specify the principal amount of the
Floating Rate Advance to be converted, (ii) the Business Day of
conversion, and (iii) the Interest Period desired. The request shall be
confirmed in an Authenticated Record if requested by Wells Fargo. Each
conversion to a LIBOR Advance shall be in multiples of $500,000 and in the
minimum amount of at least $500,000.


 


(iii)         Expiring LIBOR Advance Interest
Periods. Unless Company requests a new LIBOR Advance, or prepays an
outstanding LIBOR Advance at the expiration of an Interest Period, Wells Fargo
shall convert each LIBOR Advance to a Floating Rate Advance on the last day of
the expiring Interest Period. If no Default Period is in effect, Company may
request that all or part of any expiring LIBOR Advance be renewed as a new
LIBOR Advance, provided that Wells Fargo receives the request no later than
9:00 a.m. Pasadena, California Time three (3) Business Days prior to the
Business Day that constitutes the first day of the new Interest Period. Each
request shall specify the principal amount of the expiring LIBOR Advance to be
continued and Interest Period desired, and shall be confirmed in an Authenticated
Record if requested by Wells Fargo. Each renewal of a LIBOR Advance shall be in
multiples of $500,000 and in the minimum amount of at least $500,000.


 


(iv)        Quotation of LIBOR Advance Interest
Rates. Wells Fargo shall, with respect to any request for a new or renewal
LIBOR Advance, or the conversion of a Floating Rate Advance to a LIBOR Advance,
provide Company with a LIBOR quote for each Interest Period identified by
Company on the Business Day on which the request was made, if the request is received
by Wells Fargo no later than 9:00 a.m. Pasadena, California Time three (3) Business
Days prior to the Business Day on which Company has requested that the LIBOR
Advance be made effective. If Company does not immediately accept a LIBOR
quote, the quoted rate shall expire and any subsequent request for a LIBOR
quote shall be subject to redetermination by Wells Fargo.


 


(v)         Taxes and Regulatory Costs.
Company shall also pay Wells Fargo with respect to any LIBOR Advance all (i) withholdings,
interest equalization taxes, stamp taxes or other taxes (except income and
franchise taxes) imposed by any domestic or foreign governmental authority that
are related to LIBOR, and (ii) future, supplemental, emergency or other
changes in the LIBOR Reserve Percentage, the assessment rates imposed by the
Federal Deposit Insurance Corporation, or similar costs imposed by any domestic
or foreign governmental authority or resulting from compliance by Wells Fargo
with any request or directive (whether or not having the force of law) from any
central bank or other governmental authority that are related to LIBOR but not
otherwise included in the calculation of LIBOR. In determining which of these
amounts are attributable to an existing LIBOR Advance, any reasonable allocation
made by Wells Fargo among its operations shall be deemed conclusive and
binding.


 


4














 


1.4          Collection of Accounts and Application
to Revolving Note.


 


(a)          The Collection Account. Company
has granted a security interest to Wells Fargo in the Collateral, including all
Accounts. Except as otherwise agreed by both parties in an Authenticated Record,
all Proceeds of Accounts and other Collateral, upon receipt or collection,
shall be deposited each Business Day into the Collection Account. Funds so
deposited (“Account Funds”) are the property of Wells Fargo, and may only be
withdrawn from the Collection Account by Wells Fargo for application in
accordance with Section 1.4(c) or as otherwise provided in the Loan
Documents or by applicable law.


 


(b)         Payment of Accounts by Company’s
Account Debtors. Company shall instruct all account debtors to make payments
either directly to the Lockbox for deposit by Wells Fargo directly to the
Collection Account, or instruct them to deliver such payments to Wells Fargo by
wire transfer, ACH, or other means as Wells Fargo may direct for deposit to the
Collection Account or for direct application to the Line of Credit. If Company
receives a payment or the Proceeds of Collateral directly, Company will
promptly deposit the payment or Proceeds into the Collection Account. Until
deposited, it will hold all such payments and Proceeds in trust for Wells Fargo
without commingling with other funds or property. All deposits held in the
Collection Account shall constitute Proceeds of Collateral and shall not
constitute the payment of Indebtedness.


 


(c)          Application of Payments to Revolving
Note. Wells Fargo will withdraw Account Funds deposited to the Collection
Account and pay down borrowings on the Line of Credit by applying them to the
Revolving Note on the first Business Day following the Business Day of deposit
to the Collection Account, or, if payments are received by Wells Fargo that are
not first deposited to the Collection Account pursuant to any treasury
management service provided to Company by Wells Fargo, such payments shall be
applied to the Revolving Note as provided in the Master Agreement for Treasury
Management Services and the relevant service description.


 


1.5          Interest and Interest Related Matters.


 


(a)          Interest Rates Applicable to Line
of Credit. Except as otherwise provided in this Agreement, the unpaid
principal amount of each Line of Credit Advance evidenced by the Revolving Note
shall accrue interest at an annual interest rate calculated as follows:


 


The “Floating Rate” for
Line of Credit Advances = the greater of (i) the Prime Rate plus the
applicable Margin, or (ii) five percent (5.0%), plus the applicable
Margin, which interest rate shall change whenever the Prime Rate changes,
subject to the minimum interest rate floor;


 


Or


 


LIBOR Advance Rate
pricing for one, three, or six month fixed rate Interest Periods: the “LIBOR
Advance Rate” for Line of Credit Advances = LIBOR applicable to the selected
Interest Period plus the applicable Margin;


 


5

















 


Multiple Advances under
the Line of Credit may simultaneously accrue interest at both the Floating Rate
and at the LIBOR Advance Rate, subject to the limitations of Section 1.3(a)(i)


 


If Borrower’s Net Income
for the most recently completed fiscal year is less than $1.00 for such year,
the Margins for the immediately succeeding fiscal year shall be two and
one-half percent (2.5%) per annum for Floating Rate Advances, and three and
one-half percent (3.5%) per annum for LIBOR Advances. If Borrower’s Net Income
for the most recently completed fiscal year equals or exceeds $1.00 for such
year, the Margins for the immediately succeeding fiscal year shall be two
percent (2.0%) per annum for Floating Rate Advances, and three percent (3.0%)
per annum for LIBOR Advances.


 


Each Margin change shall
become effective on the first calendar day of the month following the month of
receipt by Wells Fargo of the audited annual financial statements. If Company
fails to timely deliver audited annual financial statements as agreed, the
Margins shall be at the highest level set forth above and Wells Fargo may
notify Company that an Event of Default has occurred and impose the Default
Rate.


 


If amended or restated
financial statements would change previously calculated Margins, or if Wells
Fargo determines that any financial statements have materially misstated
Company’s financial condition, then Wells Fargo may, using the most accurate
information available to it, recalculate the financial test or tests governing
the Margins and retroactively reduce or increase the Margins from the date of
receipt of such amended or restated financial statements and charge Company
additional interest (such that Wells Fargo receives the interest that it should
have received under this Agreement if the Company’s financial condition had
been properly reported), which may be imposed on them from the beginning of the
appropriate month to which the previous change has been made or to the
beginning of the month in which any Event of Default has occurred, as Wells
Fargo in its sole discretion deems appropriate.


 


(b)         Minimum Interest Charge.
Notwithstanding the other terms of Section 1.5 to the contrary, and except
as limited by the usury savings provision of Section 1.5(e), Company shall
pay Wells Fargo at least $31,000 of interest each calendar month under this Agreement
and the Ex-Im Credit Agreement following the initial Advance (the “Minimum
Interest Charge”) during the term of this Agreement, and Company shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise payable on the first day of each month and on the Termination Date.
When calculating this deficiency, the Default Rate set forth in
Section 1.5(c), if applicable, shall be disregarded.


 


(c)          Default Interest Rate.
Commencing on the day an Event of Default occurs, through and including the
date identified by Wells Fargo in a Record as the date that the Event of
Default has been cured or waived (each such period a “Default Period”), or
during a time period specified in Section 1.8, or at any time
following the Termination Date, in Wells Fargo’s sole discretion and without
waiving any of its other rights or remedies, the principal amount of the
Revolving Note shall bear interest at a rate that is three percent (3.0%) above
the contractual rate set forth in Section 1.5(a) (the “Default
Rate”), or any lesser rate that Wells Fargo may deem appropriate, starting on
the first day of the month in which the Default Period


 


6

















 


begins through the last
day of that Default Period, or any shorter time period to which Wells Fargo may
agree in an Authenticated Record.


 


(d)         Interest Accrual on Payments Applied
to Revolving Note. Payments received by Wells Fargo shall be applied to the
Revolving Note as provided in Section 1.4(c), but the principal
amount paid down shall continue to accrue interest through the end of the first
Business Day following the Business Day that the payment was applied to the
Revolving Note.


 


(e)          Usury. No interest rate shall
be effective which would result in a rate greater than the highest rate
permitted by law. Payments in the nature of interest and other charges made
under any Loan Documents or any other document or agreement described in or
related to this Agreement that are later determined to be in excess of the
limits imposed by applicable usury law will be deemed to be a payment of
principal, and the Indebtedness shall be reduced by that amount so that such
payments will not be deemed usurious.


 


1.6          Fees.


 


(a)          Origination Fee. Company shall
pay Wells Fargo a one time origination fee of $150,000, and payable as follows:
(i) $105,000 upon execution of this Agreement by Borrower, which shall be
fully earned and payable upon the execution of this Agreement, and
(ii) $45,000 which shall be due and payable on June           ,
2009; provided that any remaining unpaid amount of the origination fee shall be
due and payable in full upon the occurrence of the earlier of the termination
of this Agreement by Borrower or an Event of Default.


 


(b)         Unused Line Fee. Company shall
pay Wells Fargo an annual unused line fee of one-quarter of one percent (0.25%)
of the daily average of the Maximum Line Amount reduced by outstanding
Advances, the L/C Amount, and outstanding “Advances” under the Ex-Im Credit
Agreement (the “Unused Amount”), from the date of this Agreement to and
including the Termination Date, which unused line fee shall be payable monthly
in arrears on the first day of each month and on the Termination Date.


 


(c)          Collateral Exam Fees. Company
shall pay Wells Fargo fees in connection with any collateral exams, audits or
inspections conducted by or on behalf of Wells Fargo at the current rates
established from time to time by Wells Fargo as its collateral exam fees (which
fees are currently $125.00 per hour per collateral examiner), together with all
actual out-of-pocket costs and expenses incurred in conducting any collateral
examination or inspection.


 


(d)         Collateral Monitoring Fees.
Company shall pay Wells Fargo a fee rates established from time to time by
Wells Fargo as its Collateral monitoring fees (which fees include an initial
fee of $2,000 and monthly fees which are currently $600 per month), due and
payable monthly in advance on the first day of the month and on the Termination
Date.


 


(e)          Line of Credit Termination and/or
Reduction Fees. If (i) Wells Fargo terminates the Line of Credit
during a Default Period, (ii) Company terminates or reduces the Line of
Credit on a date prior to the Maturity Date, (iii) Company terminates or
reduces the Line of Credit on the Maturity Date in accordance with Section 1.8(b),
or (iv) Company and Wells Fargo agree to reduce the Maximum Line Amount,
then Company shall pay Wells Fargo as


 


7

















 


liquidated damages a
termination or reduction fee in an amount equal to a percentage of the Maximum
Line Amount (or the reduction of the Maximum Line Amount, as the case may be)
calculated as follows: (A) three percent (3.0%) if the termination or
reduction occurs on or before the first anniversary of the first Line of Credit
Advance; (B) two percent (2.0%) if the termination or reduction occurs
after the first anniversary of the first Line of Credit Advance, but on or
before the second anniversary of the first Line of Credit Advance; and
(C) one percent (1.0%) if the termination or reduction occurs after the
second anniversary of the first Line of Credit Advance.


 


(f)          Overadvance Fees. Company shall
pay a $500 Overadvance fee for each day that an Overadvance exists which was
not agreed to by Wells Fargo in an Authenticated Record prior to its
occurrence; provided that Wells Fargo’s acceptance of the payment of such fees
shall not constitute either consent to the Overadvance or waiver of the
resulting Event of Default. Company shall pay additional Overadvance fees and
interest in such amounts and on such terms as Wells Fargo in its sole
discretion may consider appropriate for any Overadvance to which Wells Fargo
has specifically consented in an Authenticated Record prior to its occurrence.


 


(g)         Treasury Management Fees.
Company will pay service fees to Wells Fargo for treasury management services
provided pursuant to the Master Agreement for Treasury Management Services or
any other agreement entered into by the parties, in the amount prescribed in
Wells Fargo’s current service fee schedule.


 


(h)         Letter of Credit Fees. Company
shall pay a fee with respect to each Letter of Credit issued by Wells Fargo of
one and one-half percent (1.5%) of the aggregate undrawn amount of the Letter
of Credit (the “Aggregate Face Amount”) accruing daily from and including the
date the Letter of Credit is issued until the date that it either expires or is
returned, which shall be payable monthly in arrears on the first day of each
month and on the date that the Letter of Credit either expires or is returned;
and following an Event of Default, this fee shall increase to four and one-half
percent (4.5%) of the Aggregate Face Amount, commencing on the first day of the
month in which the Default Period begins and continuing through the last day of
such Default Period, or any shorter time period that Wells Fargo in its sole
discretion may deem appropriate, without waiving any of its other rights and
remedies.


 


(i)           Letter of Credit Administrative
Fees. Company shall pay all administrative fees charged by Wells Fargo in
connection with the honoring of drafts under any Letter of Credit, and any
amendments to or transfers of any Letter of Credit, and any other activity with
respect to the Letters of Credit at the current rates published by Wells Fargo for
such services rendered on behalf of its customers generally.


 


(j)           Other Fees and Charges. Wells
Fargo may impose additional fees and charges during a Default Period for
(i) waiving an Event of Default, or (ii) the administration of
Collateral by Wells Fargo. All such fees and charges shall be imposed at Wells
Fargo’s sole discretion following oral notice to Company on either an hourly,
periodic, or flat fee basis, and in lieu of or in addition to imposing interest
at the Default Rate, and Company’s request for an Advance following such notice
shall constitute Company’s agreement to pay such fees and charges.


 


8

















 


(k)          Termination and Prepayment Fees
Following Refinance by a Wells Fargo Regional Commercial Banking Group. If
after
June                     ,
2010, the Line of Credit is refinanced by a Wells Fargo Regional Commercial
Banking Office and this Agreement is terminated, such refinancing will not be
deemed a termination or prepayment resulting in the payment of termination
and/or prepayment fees, or LIBOR Advance breakage fees, provided that Company
agrees, at the time of transfer, to the payment of comparable fees in an amount
not less than that set forth in this Agreement, in the event that any facilities
extended under this Agreement are terminated early or prepaid after the
transfer.


 


(1)          LIBOR Advance Breakage Fees.
Company may prepay any Revolving Note LIBOR Advance at any time in any amount,
whether voluntarily or by acceleration; provided, however, that
if the LIBOR Advance is prepaid, Company shall pay Wells Fargo upon demand a
LIBOR Advance breakage fee equal to the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Interest Period matures, calculated as follows for each such month:


 


(i)           Determine the amount of
interest which would have accrued each month on the amount prepaid at the
interest rate applicable to such amount had it remained outstanding until the
last day of the applicable Interest Period.


 


(ii)          Subtract from the amount
determined in (i) above the amount of interest which would have accrued
for the same month on the amount prepaid for the remaining term of such
Interest Period at LIBOR in effect on the date of prepayment for new loans made
for such term in a principal amount equal to the amount prepaid.


 


(iii)         If the result obtained in (ii) for
any month is greater than zero, discount that difference by LIBOR used in
(ii) above.


 


Company acknowledges that
prepayment of the Revolving Note may result in Wells Fargo incurring additional
costs, expenses or liabilities, and that it is difficult to ascertain the full
extent of such costs, expenses or liabilities. Company agrees to pay the
above-described LIBOR Advance breakage fee and agrees that this amount
represents a reasonable estimate of the LIBOR Advance breakage costs, expenses
and/or liabilities of Wells Fargo.


 


1.7          Interest Accrual; Principal and
Interest Payments; Computation.


 


(a)          Interest Payments and Interest Accrual.
Accrued and unpaid interest under the Revolving Note on Floating Rate Advances
shall be due and payable on the first day of each month (each an “Interest
Payment Date”) and on the Termination Date, and shall be paid in the manner
provided in Section 1.4(c). Interest shall accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of Advance to the Interest Payment Date. Interest accruing on any
LIBOR Advance shall be due and payable on the last day of the applicable
Interest Period and on the Termination Date; provided, however, for Interest
Periods in excess of one month, interest shall nevertheless be due and payable
monthly on the last day of each month, and on the last day of the Interest
Period.


 


9

















 


(b)         Payment of Revolving Note Principal.
The principal amount of the Revolving Note shall be paid from time to time as
provided in this Agreement, and shall be fully due and payable on the
Termination Date.


 


(c)          Payments Due on Non-Business Days.
If an Interest Payment Date or the Termination Date falls on a day which is not
a Business Day, payment shall be made on the next Business Day, and interest
shall continue to accrue during that time period.


 


(d)         Computation of Interest and Fees.
Interest accruing on the unpaid principal amount of the Revolving Note and fees
payable under this Agreement shall be computed on the basis of the actual
number of days elapsed in a year of 360 days.


 


(e)          Liability Records. Wells Fargo
shall maintain accounting and bookkeeping records of all Advances and payments
under the Line of Credit and all other Indebtedness due to Wells Fargo in such
form and content as Wells Fargo in its sole discretion deems appropriate. Wells
Fargo’s calculation of current Indebtedness shall be presumed correct unless
proven otherwise by Company. Upon Wells Fargo’s request, Company will admit and
certify in a Record the exact principal balance of the Indebtedness that
Company then believes to be outstanding. Any billing statement or accounting
provided by Wells Fargo shall be conclusive and binding unless Company notifies
Wells Fargo in a detailed Record of its intention to dispute the billing
statement or accounting within 30 days of receipt.


 


1.8          Termination, Reduction or Non-Renewal
of Line of Credit by Company; Notice.


 


(a)          Termination or Reduction by Company
after Advance Notice. Company may terminate or reduce the Line of Credit at
any time prior to the Maturity Date, if it (i) delivers an Authenticated
Record notifying Wells Fargo of its intentions at least sixty (60) days prior
to the proposed Termination Date, (ii) pays Wells Fargo the termination or
reduction fee set forth in Section 1.6(e), and (iii) pays the
Indebtedness in full or down to the reduced Maximum Line Amount. Any reduction
in the Maximum Line Amount shall be in multiples of $500,000, with a minimum
reduction of at least $500,000.


 


(b)         Termination or Reduction by Company
without Advance Notice. If Company fails to deliver Wells Fargo timely
notice of its intention to terminate the Line of Credit or reduce the Maximum
Line Amount as provided in Section 1.8(a), Company may nevertheless
terminate the Line of Credit or reduce the Maximum Line Amount and pay the
Indebtedness in full or down to the reduced Maximum Line Amount if it
(i) pays the termination fee set forth in Section 1.6(e), and
(ii) pays additional interest for each day that the notice was short of
the required sixty (60) days notice, which interest shall be in an amount that
is equal to the greater of (A) interest calculated at the Default Rate
based on the Borrower’s average borrowings under the Line of Credit for the two
(2) months prior to the date that Wells Fargo receives delivery of an
Authenticated Record giving it actual notice of Company’s intention to
terminate or reduce the Line of Credit, or (B) the unused line fee for the
three (3) months prior to the date that Wells Fargo receives delivery of
an Authenticated Record giving it actual notice of Company’s intention to
terminate or reduce the Line of Credit, calculated as provided in Section 1.7(b)
of this Agreement.


 


10

















 


(c)          Non-Renewal by Company; Notice.
If Company does not wish Wells Fargo to consider renewal of the Line of Credit
on the next Maturity Date, Company shall deliver an Authenticated Record to
Wells Fargo at least sixty (60) days prior to the Maturity Date notifying Wells
Fargo of its intention not to renew. If Company fails to deliver to Wells Fargo
such timely notice, then the Revolving Note shall accrue interest at the
Default Rate commencing on the sixtieth (60th) day prior to the Maturity Date and
continuing through the date that Wells Fargo receives delivery of an
Authenticated Record giving it actual notice of Company’s intention not to
renew.


 


1.9          Letters of Credit.


 


(a)          Issuance of Letters of Credit;
Amount. Wells Fargo, subject to the terms and conditions of this Agreement,
shall issue, on or after the date that Wells Fargo is obligated to make its
first Advance under this Agreement and prior to the Termination Date, one or
more irrevocable standby or documentary letters of credit (each, a “Letter of
Credit”, and collectively, “Letters of Credit”) for Company’s account. Wells
Fargo will not issue any Letter of Credit if the face amount of the Letter of
Credit would exceed the lesser of: (i) $1,000,000 less the L/C Amount,
(ii) the Borrowing Base, less an amount equal to aggregate unreimbursed
Line of Credit Advances plus the L/C Amount, or (iii) the Maximum Line
Amount, less an amount equal to the aggregate unreimbursed Line of Credit
Advances, plus the L/C Amount, plus the aggregate unreimbursed “Advances” under
the Ex-Im Credit Agreement. Wells Fargo has previously issued Letter of Credit
number NZS606899 for Company’s account in favor of Sinopec in the amount of
$32,415.00 (the “Existing Letter of Credit”), which is secured by cash in the
account number 4121616924 of Borrower. The Existing Letter of Credit shall be
deemed issued under this Agreement.


 


(b)         Additional Letter of Credit
Documentation. Prior to requesting issuance of a Letter of Credit, Company
shall first execute and deliver to Wells Fargo a Standby Letter of Credit
Agreement or a Commercial Letter of Credit Agreement, as applicable, an L/C
Application, and any other documents that Wells Fargo may request, which shall
govern the issuance of the Letter of Credit and Company’s obligation to
reimburse Wells Fargo for any related Letter of Credit draws (the “Obligation
of Reimbursement”).


 


(c)          Expiration. No Letter of Credit
shall be issued that has an expiry date that is later than one (1) year
from the date of issuance, or the Maturity Date in effect on the date of
issuance, whichever is earlier.


 


(d)         Obligation of Reimbursement During Default
Periods. If Company is unable, due to the existence of a Default Period or
for any other reason, to obtain an Advance to pay any Obligation of
Reimbursement, Company shall pay Wells Fargo on demand and in immediately
available funds, the amount of the Obligation of Reimbursement together with
interest, accrued from the date presentment of the underlying draft until
reimbursement in full at the Default Rate. Wells Fargo is authorized,
alternatively and in its sole discretion, to make an Advance in an amount
sufficient to discharge the Obligation of Reimbursement and pay all accrued but
unpaid interest and fees with respect to the Obligation of Reimbursement.


 


11

















 


1.10      Special Account.  If the Line of Credit is terminated for any reason
while a Letter of Credit is outstanding, or if after prepayment of the
Revolving Note the L/C Amount continues to exceed the Borrowing Base, then
Company shall promptly pay Wells Fargo in immediately available funds for deposit
to the Special Account, an amount equal, as the case may be, to either
(a) the L/C Amount plus any anticipated fees and costs, or (b) the
amount by which the L/C Amount exceeds the Borrowing Base. If Company fails to
pay these amounts promptly, then Wells Fargo may in its sole discretion make an
Advance to pay these amounts and deposit the proceeds to the Special Account.
The Special Account shall be an interest bearing account maintained with Wells
Fargo or any other financial institution acceptable to Wells Fargo. Wells Fargo
may in its sole discretion apply amounts on deposit in the Special Account to
the Indebtedness. Company may not withdraw amounts deposited to the Special
Account until the Line of Credit has been terminated and all outstanding Letters
of Credit have either been returned to Wells Fargo or have expired and the
Indebtedness has been fully paid.


 


2.             SECURITY INTEREST AND OCCUPANCY OF
COMPANY’S PREMISES


 


2.1         Grant of Security Interest.  Company hereby pledges, assigns and
grants to Wells Fargo, for the benefit of Wells Fargo and as agent for Wells
Fargo Merchant Services, L.L.C., a Lien and security interest (collectively
referred to as the “Security Interest”) in the Collateral, as security for the
payment and performance of all Indebtedness. Following request by Wells Fargo,
Company shall grant Wells Fargo, for the benefit of Wells Fargo and as agent
for Wells Fargo Merchant Services, L.L.C., a Lien and security interest in all
commercial tort claims that it may have against any Person.


 


2.2         Notifying Account Debtors and Other Obligors; Collection of
Collateral.  Wells Fargo may at any time (whether or not a Default Period then
exists) deliver a Record giving an account debtor or other Person obligated to
pay an Account, a General Intangible, or other amount due, notice that the
Account, General Intangible, or other amount due has been assigned to Wells
Fargo for security and must be paid directly to Wells Fargo. Company shall join
in giving such notice and shall Authenticate any Record giving such notice upon
Wells Fargo’s request. After Company or Wells Fargo gives such notice, Wells
Fargo may, but need not, in Wells Fargo’s or in Company’s name, demand, sue
for, collect or receive any money or property at any time payable or receivable
on account of, or securing, such Account, General Intangible, or other amount
due, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any account debtor or other obligor. Wells Fargo
may, in Wells Fargo’s name or in Company’s name, as Company’s agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of Company’s mail to any address designated by Wells Fargo,
otherwise intercept Company’s mail, and receive, open and dispose of Company’s
mail, applying all Collateral as permitted under this Agreement and holding all
other mail for Company’s account or forwarding such mail to Company’s last known
address.


 


2.3         Assignment of Insurance. As additional security for the
Indebtedness, Company hereby assigns to Wells Fargo and to Wells Fargo Merchant
Services, L.L.C., all rights of Company under every policy of insurance
covering the Collateral and all business records and other documents relating
to it, and all monies (including proceeds and refunds) that may be payable
under any policy, and Company hereby directs the issuer of each policy to pay
all such


 


12

















 


monies directly to Wells
Fargo. At any time, whether or not a Default Period then exists, Wells Fargo
may (but need not), in Wells Fargo’s or Company’s name, execute and deliver
proofs of claim, receive payment of proceeds and endorse checks and other instruments
representing payment of the policy of insurance, and adjust, litigate,
compromise or release claims against the issuer of any policy. Any monies
received under any insurance policy assigned to Wells Fargo, other than
liability insurance policies, or received as payment of any award or
compensation for condemnation or taking by eminent domain, shall be paid to
Wells Fargo and, as determined by Wells Fargo in its sole discretion, either be
applied to prepayment of the Indebtedness or disbursed to Company under staged
payment terms reasonably satisfactory to Wells Fargo for application to the
cost of repairs, replacements, or restorations which shall be effected with
reasonable promptness and shall be of a value at least equal to the value of
the items or property destroyed.


 


2.4          Company’s Premises.


 


(a)          Wells Fargo’s Right to Occupy
Company’s Premises. Company hereby grants to Wells Fargo the right, at any
time during a Default Period and without notice or consent, to take exclusive
possession of all locations where Company conducts its business or has any
rights of possession, including the locations described on Exhibit B
(the “Premises”), until the earlier of (i) payment in full and discharge
of all Indebtedness and termination of the Line of Credit, or (ii) final
sale or disposition of all items constituting Collateral and delivery of those
items to purchasers.


 


(b)         Wells Fargo’s Use of Company’s
Premises. Wells Fargo may use the Premises to store, process, manufacture,
sell, use, and liquidate or otherwise dispose of items that are Collateral, and
for any other incidental purposes deemed appropriate by Wells Fargo in good
faith.


 


(c)          Company’s Obligation to Reimburse
Wells Fargo. Wells Fargo shall not be obligated to pay the Company rent or
other compensation for the possession or use of any Premises, but if Wells
Fargo elects to pay rent or other compensation to the owner of any Premises in
order to have access to the Premises, then Company shall promptly reimburse
Wells Fargo all such amounts, as well as all taxes, fees, charges and other
expenses at any time payable by Wells Fargo with respect to the Premises by
reason of the execution, delivery, recordation, performance or enforcement of
any terms of this Agreement.


 


2.5          License. Without limiting the generality of any
other Security Document, Company hereby grants to Wells Fargo a non-exclusive,
worldwide and royalty-free license to use or otherwise exploit all Intellectual
Property Rights of Company for the purpose of: (a) completing the manufacture
of any in-process materials during any Default Period so that such materials
become saleable Inventory, all in accordance with the same quality standards
previously adopted by Company for its own manufacturing and subject to
Company’s reasonable exercise of quality control; and (b) selling, leasing
or otherwise disposing of any or all Collateral during any Default Period.


 


13














 


2.6                   Financing
Statements.


 


(a)     Authorization to File.
Company authorizes Wells Fargo to file
financing statements describing Collateral to perfect Wells Fargo’s Security
Interest in the Collateral, and Wells Fargo may describe the Collateral as “all
personal property” or “all assets” or describe specific items of Collateral
including commercial tort claims as Wells Fargo may consider necessary or
useful to perfect the Security Interest. All financing statements filed before
the date of this Agreement to perfect the Security Interest were authorized by
Company and are hereby re-authorized. Following the termination of the Line of
Credit and payment of all Indebtedness, Wells Fargo shall, at Company’s expense
and within the time periods required under applicable law, release or terminate
any filings or other agreements that perfect the Security Interest.


 


(b)     Termination. Wells Fargo shall, at Company’s expense,
release or terminate any filings or other agreements that perfect the Security
Interest, provided that there are no suits, actions, proceedings or claims
pending or threatened against any Indemnitee under this Agreement with respect
to any Indemnified Liabilities, upon Wells Fargo’s receipt of the following, in
form and content satisfactory to Wells Fargo: (i) cash payment in full of
all Indebtedness and a completed performance by Company with respect to its
other obligations under this Agreement, (ii) evidence that the commitment
of Wells Fargo to make Advances under the Line of Credit or under any other
facility with Company has been terminated, (iii) a release of all claims
against Wells Fargo by Company relating to Wells Fargo’s performance and
obligations under the Loan Documents, and (iv) an agreement by Company,
any Guarantor, and any new lender to Company to indemnify Wells Fargo for any
payments received by Wells Fargo that are applied to the Indebtedness as a
final payoff that may subsequently be returned or otherwise not paid for any
reason.


 


2.7                  Setoff. Wells Fargo may at any time, in its sole discretion
and without demand or notice to anyone, setoff any liability owed to Company by
Wells Fargo against any Indebtedness, whether or not due.


 


2.8                  Collateral
Related Matters. This
Agreement does not contemplate a sale of Accounts or chattel paper, and, as
provided by law, Company is entitled to any surplus and shall remain liable for
any deficiency. Wells Fargo’s duty of care with respect to Collateral in its
possession (as imposed by law) will be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third Person,
exercises reasonable care in the selection of the bailee or third Person, and
Wells Fargo need not otherwise preserve, protect, insure or care for such
Collateral. Wells Fargo shall not be obligated to preserve rights Company may
have against prior parties, to liquidate the Collateral at all or in any
particular manner or order or apply the Proceeds of the Collateral in any particular
order of application. Wells Fargo has no obligation to clean-up or prepare
Collateral for sale. Company waives any right it may have to require Wells
Fargo to pursue any third Person for any of the Indebtedness.


 


2.9                  Notices
Regarding Disposition of Collateral. If notice to Company of any intended disposition of Collateral or any
other intended action is required by applicable law in a particular situation,
such notice will be deemed commercially reasonable if given in the manner
specified in Section 7.4
at least ten calendar days before the date of intended disposition or other
action.


 


14

















 


3.           CONDITIONS PRECEDENT


 


3.1          Conditions
Precedent to Initial Advance and Issuance of Initial Letter of Credit. Wells Fargo’s obligation to make the initial
Advance or issue the first Letter of Credit shall be subject to the condition
that Wells Fargo shall have received this Agreement and each of the Loan
Documents, and any document, agreement, or other item described in or related
to this Agreement, and all fees and information described in Exhibit C,
executed and in form and content
satisfactory to Wells Fargo.


 


3.2          Additional Conditions
Precedent to All Advances and Letters of Credit. Wells Fargo’s obligation to make any Advance
(including the initial Advance) or issue any Letter of Credit shall be subject
to the further additional conditions: (a) that the representations and
warranties described in Exhibit D are correct on the date of the Advance or the issuance of the Letter
of Credit, except to the extent that such representations and warranties relate
solely to an earlier date; and (b) that no event has occurred and is
continuing, or would result from the requested Advance or issuance of the
Letter of Credit that would result in an Event of Default.


 


4.           REPRESENTATIONS AND
WARRANTIES


 


To induce Wells Fargo to enter into this Agreement,
Company makes the representations and warranties described in Exhibit
D. Any request for an
Advance will be deemed a representation by Company that all representations and
warranties described in Exhibit D are true, correct, and complete as of the time of the request, unless
they relate exclusively to an earlier date. Company shall promptly deliver a
Record notifying Wells Fargo of any change in circumstance that would affect
the accuracy of any representation or warranty, unless the representation and
warranty specifically relates to an earlier date.


 


5.           COVENANTS


 


So long as the Indebtedness remains unpaid, or the
Line of Credit has not been terminated, Company shall comply with each of the
following covenants, unless Wells Fargo shall consent otherwise in an
Authenticated Record delivered to Company.


 


5.1          Reporting Requirements. Company shall deliver to Wells Fargo the
following information, compiled where applicable using GAAP consistently
applied, in form and content acceptable to Wells Fargo:


 


(a)           Annual
Financial Statements. As soon as
available and in any event within ninety (90) days after Company’s fiscal year
end, Company’s audited financial statements prepared by an independent
certified public accountant acceptable to Wells Fargo, which shall include
Company’s balance sheet, income statement, and statement of retained earnings
and cash flows prepared, if requested by Wells Fargo, on a consolidated and
consolidating basis to include Company’s Subsidiaries. The annual financial
statements shall be accompanied by a certificate (the “Compliance Certificate”)
in the form of Exhibit E
that is signed by Company’s chief financial officer. Each Compliance
Certificate that accompanies an annual financial statement shall also be
accompanied by (i) copies of all management letters prepared by Company’s
accountants; and (ii) a report signed by the accountant stating that in
making the investigations


 


15

















 


necessary to render the opinion, the
accountant obtained no knowledge, except as specifically stated, of any Event
of Default under the Agreement, and a detailed statement, including computations,
demonstrating whether or not Company is in compliance with the financial
covenants of this Agreement.


 


(b)             10-Q
Financial Reports. As soon as available
and in any event within forty-five (45) days after the end of each fiscal
quarter of Company, Company’s 10-Q financial reports filed with the Securities
and Exchange Commission. This requirement may be satisfied by Company by
posting a link to the filing on the Company’s publicly-accessible website.


 


(c)             Monthly
Financial Statements. As soon as available
and in any event within thirty (30) days after the end of each month, a Company
prepared balance sheet, income statement, and statement of retained earnings
prepared for that month and for the year–to-date period then ended, prepared,
if requested by Wells Fargo, on a consolidated and consolidating basis to
include Company’s Subsidiaries, and stating in comparative form the figures for
the corresponding date and periods in the prior fiscal year, subject to
year-end adjustments. The financial statements shall be accompanied by a
Compliance Certificate in the form of Exhibit E that is signed by Company’s chief financial
officer.


 


(d)             Collateral
Reports. No later than 20 days after each
month end (or more frequently if Wells Fargo shall request it), detailed agings
of Company’s accounts receivable and accounts payable, an accounts receivable
reconciliation report and a calculation of Company’s Accounts, including an
accounts receivable ineligibility report, Eligible Accounts, Inventory and
Eligible Inventory as of the end of that month or shorter time period requested
by Wells Fargo.


 


(e)             Projections.
No later than sixty (60) days prior to each
fiscal year end, Company’s projected balance sheet and income statement and
statement of retained earnings and cash flows for each month of the next fiscal
year, certified as accurate by Company’s chief financial officer and
accompanied by a statement of assumptions and supporting schedules and
information. Wells Fargo acknowledges that such projections are estimates only
and not promises of performance.


 


(f)              Supplemental
Reports. Weekly, or more frequently if
Wells Fargo requests, Wells Fargo’s standard form of “daily collateral report”,
together with receivables schedules, collection reports, credit memos, sales
reports, adjustments to accounts receivable and copies of invoices in excess of
$100,000, shipment documents and delivery receipts for goods sold to account
debtors in excess of $100,000.


 


(g)             Customer
Lists. On January 1 and July 1
of each calendar year, an updated customer listing (with contact names and
addresses).


 


(h)             Litigation.
No later than three (3) Business Days
after discovery, a Record notifying Wells Fargo of any litigation or other
proceeding before any court or governmental agency which seeks a monetary
recovery against Company in excess of $100,000.


 


(i)              Intellectual
Property. (i) No later than 30
Business Days after it acquires material Intellectual Property Rights, a Record
notifying Wells Fargo of Company’s acquisition


 


16

















 


of such rights; (ii) except for
transfers permitted under Section 5.17, no later than 15 Business Days before it disposes
of material Intellectual Property Rights, a Record notifying Wells Fargo of
Company’s intention to dispose of such rights, along with copies of all
proposed documents and agreements concerning the disposal of such rights as
requested by Wells Fargo; (iii) promptly upon discovery, a Record
notifying Wells Fargo of (A) any Infringement of Company’s Intellectual
Property Rights by any Person, (B) claims that Company is Infringing
another Person’s Intellectual Property Rights and (C) any threatened
cancellation, termination or material limitation of Company’s Intellectual
Property Rights; and (iv) promptly upon receipt, copies of all
registrations and filings with respect to Company’s Intellectual Property
Rights.


 


(j)              Defaults. No later than three days
after learning of the probable occurrence of any Event of Default, a Record
notifying Wells Fargo of the Event of Default and the steps being taken by
Company to cure the Event of Default.


 


(k)             Disputes. Promptly upon discovery, a
Record notifying Wells Fargo of (i) any disputes or claims by Company’s
customers exceeding $20,000 individually or $75,000 in the aggregate during any
fiscal year; (ii) credit memos not previously reported in Section 5.1(f); and
(iii) any goods returned to or recovered by Company outside of the
ordinary course of business or in the ordinary course of business but with a
value in an amount in excess of $50,000.


 


(l)              Changes in Officers and Directors. Promptly
following occurrence, a Record notifying Wells Fargo of any change in the
persons constituting Company’s Officers and Directors.


 


(m)            Collateral. Promptly upon discovery, a
Record notifying Wells Fargo of any loss of or material damage to any
Collateral having a fair market value, individually or in the aggregate, of
$50,000 or more, or of any substantial adverse change in (i) any
Collateral having a fair market value, individually or in the aggregate, of
$50,000 or more, or (ii) the prospect of such Collateral’s payment.


 


(n)             Commercial Tort Claims. Promptly
upon discovery, a Record notifying Wells Fargo of any commercial tort claims in
excess of $50,000 individually or $100,000 in the aggregate brought by Company
against any Person, including the name and address of each defendant, a summary
of the facts, an estimate of Company’s damages, copies of any complaint or
demand letter submitted by Company, and such other information as Wells Fargo may
reasonably request.


 


(o)             Reports to Owners. Promptly
upon distribution, copies of all financial statements, reports and proxy
statements which Company shall have sent to its Owners. This requirement may be
satisfied by Company by posting a link to the filings attaching such documents
on the Company’s publicly-accessible website.


 


(p)             Tax Returns of Company. No
later than 15 Business Days after they are required to be filed, copies of
Company’s signed and dated state and federal income tax returns and all related
schedules, and copies of any extension requests.


 


17

















 


(q)           Violations of Law. No later than three (3) Business
Days after discovery of any violation, a Record notifying Wells Fargo of
Company’s violation of any law, rule or regulation, the non-compliance
with which could have a Material Adverse Effect on Company.


 


(r)            Pension Plans. (i) Promptly upon
discovery, and in any event within 30 days after Company knows or has reason to
know that any Reportable Event with respect to any Pension Plan has occurred, a
Record authenticated by Company’s chief financial officer notifying Wells Fargo
of the Reportable Event in detail and the actions which Company proposes to
take to correct the deficiency, together with a copy of any related notice sent
to the Pension Benefit Guaranty Corporation; (ii) promptly upon discovery,
and in any event within 10 days after Company fails to make a required
quarterly Pension Plan contribution under Section 412(m) of the IRC,
a Record authenticated by Company’s chief financial officer notifying Wells
Fargo of the failure in detail and the actions that Company will take to cure
the failure, together with a copy of any related notice sent to the Pension
Benefit Guaranty Corporation; and (iii) promptly upon discovery, and in
any event within 10 days after Company knows or has reason to know that it may
be liable or may be reasonably expected to have liability for any withdrawal,
partial withdrawal, reorganization or other event under any Multiemployer Plan
under Sections 4201 or 4243 of ERISA, a Record authenticated by Company’s chief
financial officer notifying Wells Fargo of the details of the event and the
actions that Company proposes to take in response.


 


(s)           Other Reports. From time to time, with
reasonable promptness, all customer lists, receivables schedules, inventory
reports, collection reports, deposit records, equipment schedules, invoices to
account debtors, shipment documents and delivery receipts for goods sold, and
such other materials, reports, records or information as Wells Fargo may
request.


 


5.2            Financial
Covenants. Company agrees to
comply with the financial covenants described below, which shall be calculated
using GAAP consistently applied, except as they may be otherwise modified by
the following capitalized definitions:


 


(a)           Minimum Book Net Worth. Company
shall maintain a Book Net Worth, determined as of the following test dates, in
an amount not less than the amount set forth for each such test date (numbers
appearing between “< >” are negative):


 




	
  Test Date

  	
   

  	
  Minimum Book Net Worth

  	
   

  
	
  December 31, 2008

  	
   

  	
  $

  	
  61,000,000

  	
   

  
	
  January 31, 2009

  	
   

  	
  $

  	
  57,000,000

  	
   

  
	
  February 28, 2009

  	
   

  	
  $

  	
  52,700,000

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  51,000,000

  	
   

  
	
  April 30, 2009

  	
   

  	
  $

  	
  48,150,000

  	
   

  
	
  May 31, 2009

  	
   

  	
  $

  	
  45,300,000

  	
   

  
	
  June 30, 2009

  	
   

  	
  $

  	
  46,500,000

  	
   

  
	
  July 31, 2009

  	
   

  	
  $

  	
  43,900,000

  	
   

  
	
  August 31, 2009

  	
   

  	
  $

  	
  41,300,000

  	
   

  
	
  September 30, 2009

  	
   

  	
  $

  	
  44,450,000

  	
   

  
	
  October 31, 2009

  	
   

  	
  $

  	
  42,100,000

  	
   

  
	
  November 30,
  2009

  	
   

  	
  $

  	
  39,850,000

  	
   

  
	
  December 31,
  2009

  	
   

  	
  $

  	
  44,600,000

  	
   

  
	
  January 31,
  2010

  	
   

  	
  $

  	
  42,250,000

  	
   

  
	
  February 28,
  2010

  	
   

  	
  $

  	
  40,000,000

  	
   

  
	
  March 31,
  2010

  	
   

  	
  $

  	
  45,150,000

  	
   

  






 


18

















 


(b)           Minimum Net Income. Company
shall achieve Net Income, measured on each of the following test dates
described below, for the quarter period ending on each such test date, Net
Income of not less than the amount set forth opposite each such test date
(numbers appearing between “< >” are negative):


 




	
  Test Date

  	
   

  	
  Minimum Net Income

  	
   

  
	
  December 31,
  2008

  	
   

  	
  $

  	
  <10,800,000>

  	
   

  
	
  March 31,
  2009

  	
   

  	
  $

  	
  <11,000,000>

  	
   

  
	
  June 30,
  2009

  	
   

  	
  $

  	
  <5,750,000>

  	
   

  
	
  September 30,
  2009

  	
   

  	
  $

  	
  <3,200,000>

  	
   

  
	
  December 31,
  2009

  	
   

  	
  $

  	
  <1,000,000>

  	
   

  
	
  March 31,
  2010

  	
   

  	
  $

  	
  <500,000>

  	
   

  






 


(c)           Minimum Cash to Unreimbursed Line of Credit Advances
Coverage Ratio. At all times, the sum of the outstanding Advances
under the Revolving Note plus the L/C Amount plus the outstanding “Advances”
under the Ex-Im Credit Agreement shall not exceed eighty percent (80%) of cash
and Cash Equivalents of Company in which Wells Fargo has a perfected first priority
security interest. Compliance with the foregoing covenant shall be reported as
Wells Fargo shall request from time to time in its sole discretion.


 


(d)           Capital Expenditures. Company
shall not incur or contract to incur Capital Expenditures of more than (i) $7,500,000
in the aggregate during Company’s fiscal year ending March 31, 2009, (ii) $10,000,000
in the aggregate during Company’s fiscal year ending March 31, 2010, and (iii) zero
for each subsequent year until Company and Wells Fargo agree on limits on
Capital Expenditures for subsequent periods based on Company’s projections for
such periods.


 


5.3            Other Liens and
Permitted Liens.


 


(a)           Other Liens; Permitted Liens. Company
shall not create, incur or suffer to exist any Lien upon any of its assets, now
owned or later acquired, as security for any indebtedness, with the exception
of the following (each a “Permitted Lien”; collectively, “Permitted Liens”): (i) In
the case of real property, covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with Company’s
business or operations as presently conducted; (ii) Liens in existence on
the date of this Agreement that are described in Exhibit F and secure indebtedness for borrowed money
permitted under Section 5.4


 


19

















 


(iii) The
Security Interest and Liens created by the Security Documents; (iv) Purchase
money Liens relating to the acquisition of Equipment not exceeding the lesser
of cost or fair market value, not exceeding $3,000,000 for any one purchase or
$7,000,000 in the aggregate during the fiscal year ending March 31, 2009,
and $10,000,000 in the aggregate during the fiscal year ending March 31,
2010, and so long as no Default Period is then in existence and none would
exist because of any such acquisition; (v) liens for taxes not yet due or
that are being contested in good faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Company, in conformity with
GAAP; (vi) carriers’, warehousemen’s, mechanics’, materialmen’s,
repairmen’s or other like liens arising in the ordinary course of business that
are being contested in good faith by appropriate proceedings; (vii) pledges
or deposits in connection with workers’ compensation, unemployment insurance
and other social security legislation; (viii) deposits to secure the
performance of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (ix) liens
securing Indebtedness of Company incurred to finance capital expenditures
otherwise permitted hereunder (and, without limitation, subject to Section 5.2(d) of
this Agreement), provided that (a) such
liens shall be created concurrently or within 90 Business Days after the
acquisition of the property being financed, (b) such liens do not at any
time encumber any property other than the property financed by such
Indebtedness, and (c) Indebtedness secured by such liens does not cause or
result in an Event of Default; (x) any interest or title of a lessor under
any lease entered into by the Company or any other Subsidiary in the ordinary
course of its business and covering only the assets so leased; and (xi) liens
that are junior in priority to Wells Fargo’s liens on the Collateral that arise
from judgments and attachments in connection with court proceedings provided
that the attachment or enforcement of such liens would not result in an Event
of Default hereunder and such liens are being contested in good faith by
appropriate proceedings, adequate reserves have been set aside and no material
Collateral is subject to a material risk of loss or forfeiture and the claims
in respect of such liens are fully covered by insurance (subject to ordinary
and customary deductibles) and a stay of execution pending appeal or proceeding
for review is in effect.


 


(b)           Financing Statements. Company shall not authorize the filing of any
financing statement by any Person as Secured Party with respect to any of
Company’s assets, other than (i) filings by Wells Fargo and (ii) filings
in connection with Permitted Liens. Company shall not amend any financing
statement filed by Wells Fargo as Secured Party except as permitted by law.


 


5.4            Indebtedness.
Company shall not incur,
create, assume or permit to exist any indebtedness or liability on account of
deposits or letters of credit issued on Company’s behalf, or advances or any
indebtedness for borrowed money of any kind, whether or not evidenced by an
instrument, except: (a) Indebtedness described in this Agreement and the
Ex-Im Credit Agreement; (b) indebtedness of Company described in Exhibit F, and extensions and refinancings thereof (so long as the
principal amount thereof is not increased, the maturity date is not shortened,
the average life is not shortened, no additional mandatory prepayments or
sinking fund payments are required and the cash payment portion of the interest
due on any such Indebtedness is not increased); (c) indebtedness secured
by Permitted Liens; (d) Indebtedness


 


20

















 


constitution
guaranties permitted by Section 5.5 hereof; and (e) Indebtedness
constituting Subordinated Debt not to exceed $7,500,000 in the aggregate
outstanding at any time.


 


5.5          Guaranties.
Company shall not assume,
guarantee, endorse or otherwise become directly or contingently liable for the
obligations of any Person (collectively, “Guarantee Obligations”), except: (a) the
endorsement of negotiable instruments by Company for deposit or collection or
similar transactions in the ordinary course of business; (b) guaranties,
endorsements and other direct or contingent liabilities in connection with the
obligations of other Persons in existence on the date of this Agreement and
described in Exhibit F; (c) Guarantee
Obligations in respect of performance bonds, surety bonds, appeal bonds or
custom bonds required in the ordinary course of business or in connection with
the enforcement of rights or claims of Company or in connection with judgments
that do not result in an Event of Default; and (d) Guarantee Obligations
in the form of endorsements in the ordinary course of business of negotiable
instruments for deposit or collection.


 


5.6         Investments
and Subsidiaries. Company
shall not make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any Person or Affiliate,
including any partnership or joint venture, nor purchase or hold beneficially
any stock or other securities or evidence of indebtedness of any Person or
Affiliate, except:


 


(a)              Investments in direct obligations of the
United States of America or any of its political subdivisions whose obligations
constitute the full faith and credit obligations of the United States of
America and have a maturity of one year or less, commercial paper issued by
U.S. corporations rated “A-1” or “A-2” by Standard & Poor’s Ratings
Services or “P-1” or “P-2” by Moody’s Investors Service or certificates of
deposit or bankers’ acceptances having a maturity of one year or less issued by
members of the Federal Reserve System having deposits in excess of $100,000,000
(which certificates of deposit or bankers’ acceptances are fully insured by the
Federal Deposit Insurance Corporation);


 


(b)              Travel advances or loans to Company’s
Officers and employees not exceeding at any one time an aggregate of $25,000;


 


(c)              Prepaid rent not exceeding one month or
security deposits; and


 


(d)              Current investments in those Subsidiaries in
existence on the date of this Agreement which are identified on Exhibit
D.


 


5.7         Dividends
and Distributions. Company
shall not declare or pay any dividends (other than dividends payable solely in
stock of Company) on any class of its stock, or make any payment on account of
the purchase, redemption or retirement of any shares of its stock, or other
securities or evidence of its indebtedness or make any distribution regarding
its stock, either directly or indirectly.


 


5.8         Salaries. [INTENTIONALLY OMITTED].


 


21














 


5.9                               Books and Records; Collateral Examination; Inspection
and Appraisals.


 


(a)                                  Books and
Records; Inspection. Company shall keep complete and accurate books and
records with respect to the Collateral and Company’s business and financial
condition and any other matters that Wells Fargo may reasonably request, in
accordance with GAAP. Company shall permit any employee, attorney, accountant
or other agent of Wells Fargo to audit, review, make extracts from and copy any
of its books and records at any time during ordinary business hours, and to
discuss Company’s affairs with any of its Directors, Officers, employees,
Owners or agents.


 


(b)                                 Authorization
to Company’s Agents to Make Disclosures to Wells Fargo. Company
authorizes all accountants and other Persons acting as its agent to disclose
and deliver to Wells Fargo’s employees, accountants, attorneys and other
Persons acting as its agent, at Company’s expense, all financial information,
books and records, work papers, management reports and other information in
their possession regarding Company.


 


(c)                                  Collateral
Exams and Inspections. Company shall permit Wells Fargo’s
employees, accountants, attorneys or other Persons acting as its agent, to
examine and inspect any Collateral or any other property of Company at any time
during ordinary business hours.


 


(d)                                 Collateral
Appraisals. Wells Fargo may also obtain, from time to time, at
Company’s expense, an appraisal of Company’s Collateral, by an appraiser
acceptable to Wells Fargo in its sole discretion.


 


5.10                        Account
Verification; Payment of Permitted Liens.


 


(a)                                  Account
Verification. Wells Fargo or its agents may (i) contact
account debtors and other obligors at any time to verify Company’s Accounts;
and (ii) require Company to send requests for verification of Accounts or
send notices of assignment of Accounts to account debtors and other obligors.


 


(b)                                 Covenant to Pay
Permitted Liens. Company shall pay when due, subject to applicable
cure periods, each account payable due to any Person holding a Permitted Lien
(as a result of such payable) on any Collateral.


 


5.11                        Compliance
with Laws.


 


(a)                                  General
Compliance with Applicable Law; Use of Collateral. Company shall
(i) comply, and cause each Subsidiary to comply, with the requirements of
applicable laws and regulations, the non-compliance with which would have a
Material Adverse Effect on its business or its financial condition and (ii) use
and keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.


 


(b)                                 Compliance with
Federal Regulatory Laws. Company shall (i) prohibit, and cause
each Subsidiary to prohibit, any Person that is an Owner or Officer from being
listed on the Specially Designated Nationals and Blocked Person List or other
similar lists maintained by the Office of Foreign Assets Control (“OFAC”),
the Department of the Treasury or included in any Executive Orders, (ii) not
permit the proceeds of the Line of Credit or any other financial


 


22

















 


accommodation
extended by Wells Fargo to be used in any way that violates any foreign asset
control regulations of OFAC or other applicable law, (iii) comply, and
cause each Subsidiary to comply, with all applicable Bank Secrecy Act laws and
regulations, as amended from time to time, and (iv) otherwise comply with
the USA Patriot Act and Wells Fargo’s related policies and procedures.


 


(c)                                  Compliance with
Environmental Laws. Company shall (i) comply, and cause each
Subsidiary to comply, with the requirements of applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by them, and (ii) not generate, use, transport, treat, store or dispose of
any Hazardous Substances in such a manner as to create any material liability
or obligation under the common law of any jurisdiction or any Environmental
Law.


 


5.12                        Payment of
Taxes and Other Claims. Company shall pay or discharge, when due, and
cause each Subsidiary to pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including the
Collateral) or upon or against the creation, perfection or continuance of the
Security Interest, prior to the date on which penalties attach, (b) all
federal, state and local taxes required to be withheld by it, and (c) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a Lien upon any properties of Company, although Company shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.


 


5.13                        Maintenance
of Collateral and Properties.


 


(a)                                  Company shall
keep and maintain the Collateral and all of its other properties necessary or
useful in its business in good condition, repair and working order (normal wear
and tear excepted) and will from time to time replace or repair any worn,
defective or broken parts, although Company may discontinue the operation and
maintenance of any properties if Company believes that such discontinuance is
desirable to the conduct of its business and not disadvantageous in any
material respect to Wells Fargo. Company shall take all commercially reasonable
steps necessary to protect and maintain its Intellectual Property Rights.


 


(b)                                 Company shall
defend the Collateral against all Liens, claims and demands of all third
Persons claiming any interest in the Collateral, other than Permitted Liens.
Company shall keep all Collateral free and clear of all Liens except Permitted
Liens. Company shall take all commercially reasonable steps necessary to
prosecute any Person Infringing its Intellectual Property Rights and to defend
itself against any Person accusing it of Infringing any Person’s Intellectual
Property Rights.


 


5.14                        Insurance. Company shall
at all times maintain insurance with insurers acceptable to Wells Fargo, in
such amounts and on such terms (including deductibles) as Wells Fargo in its
sole discretion may require and including, as applicable and without
limitation, business interruption insurance (including force majeure coverage),
hazard coverage on an “all risks” basis for all tangible Collateral, and theft
and physical damage coverage for Collateral


 


23

















 


consisting
of motor vehicles. All insurance policies must contain an appropriate lender’s
interest endorsement or clause, and name Wells Fargo as an additional insured.


 


5.15                        Preservation of Existence. Company shall
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.


 


5.16                        Delivery of Instruments, etc. Upon request by
Wells Fargo, Company shall promptly deliver to Wells Fargo in pledge all
instruments, documents and chattel paper in excess of $50,000 individually and
$75,000 in the aggregate and constituting Collateral, endorsed or assigned by
Company.


 


5.17                        Sale or Transfer of Assets; Suspension of Business
Operations. Company shall not sell, lease, assign, transfer or
otherwise dispose of (a) the stock of any Subsidiary, (b) all or a
substantial part of its assets, or (c) any Collateral or any interest in
Collateral (whether in one transaction or in a series of transactions) to any
other Person other than the sale of Inventory in the ordinary course of
business, the disposition of Collateral no longer useful in its business, and
other Collateral having a fair market value not in excess of $100,000 in the
aggregate for each fiscal year and shall not liquidate, dissolve or suspend
business operations. Company shall not transfer any part of its ownership
interest in any Intellectual Property Rights and shall not permit its rights as
licensee of Licensed Intellectual Property to lapse, except that Company may
transfer such rights or permit them to lapse if it has reasonably determined
that such Intellectual Property Rights are no longer useful in its business. If
Company transfers any Intellectual Property Rights for value, Company shall pay
the Proceeds to Wells Fargo for application to the Indebtedness. Company shall
not license any other Person to use any of Company’s Intellectual Property
Rights, except that Company may grant licenses in the ordinary course of its
business in connection with sales of Inventory or the provision of services to
its customers.


 


5.18                        Consolidation and Merger; Asset Acquisitions. Company shall
not consolidate with or merge into any other entity, or permit any other entity
to merge into it, or acquire (in a transaction analogous in purpose or effect
to a consolidation or merger) all or substantially all of the assets of any
other entity.


 


5.19                        Sale and Leaseback. Company shall not enter into
any arrangement, directly or indirectly, with any other Person pursuant to
which Company shall sell or transfer any real or personal property, whether
owned now or acquired in the future, and then rent or lease all or part of such
property or any other property which Company intends to use for substantially
the same purpose or purposes as the property being sold or transferred.


 


5.20                        Restrictions on Nature of Business. Company will
not engage in any line of business materially different from that presently
engaged in by Company, and will not purchase, lease or otherwise acquire assets
not related to its business.


 


5.21                        Accounting. Company will not adopt any
material change in accounting principles except as required by GAAP,
consistently applied. Company will not change its fiscal year.


 


24

















 


5.22                        Discounts, etc. During a Default Period and
after notice from Wells Fargo, (i)  Company will not grant any discount, credit
or allowance to any customer of Company or accept any return of goods sold, and
(ii) Company will not modify, amend, subordinate, cancel or terminate any
Account.


 


5.23                        Pension Plans. Except as disclosed to Wells
Fargo in a Record prior to the date of this Agreement, neither Company nor any
ERISA Affiliate will (a) adopt, create, assume or become party to any
Pension Plan, (b) become obligated to contribute to any Multiemployer
Plan, (c) incur any obligation to provide post-retirement medical or
insurance benefits with respect to employees or former employees (other than
benefits required by law) or (d) amend any Plan in a manner that would
materially increase its funding obligations.


 


5.24                        Place of Business; Name. Company will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business Premises without providing 30 days advance written
notice to Wells Fargo. Company will not permit any tangible Collateral or any
records relating to the Collateral to be located in any state or area in which,
in the event of such location, a financing statement covering such Collateral
would be required to be, but has not in fact been, filed in order to perfect
the Security Interest. Company will not change its name or jurisdiction of
organization.


 


5.25                        Constituent Documents. Company will not amend its
Constituent Documents in any manner that is materially adverse to Wells Fargo
(as determined by Wells Fargo in Wells Fargo’s reasonable discretion). No later
than 10 days after any change to Company’s Constituent Documents, Company shall
(i) notify Wells Fargo in writing of such change, and (iii) provide
copies of such changes to Wells Fargo.


 


5.26                        Performance by Wells Fargo. If Company
fails to perform or observe any of its obligations under this Agreement at any
time, Wells Fargo may, but need not, perform or observe them on behalf of
Company and may, but need not, take any other actions which Wells Fargo may
reasonably deem necessary to cure or correct this failure; and Company shall
pay Wells Fargo upon demand the amount of all costs and expenses (including
reasonable attorneys’ fees and legal expense) incurred by Wells Fargo in
performing these obligations, together with interest on these amounts at the
Default Rate.


 


5.27                        Wells Fargo Appointed as Company’s Attorney in Fact. To facilitate
Wells Fargo’s performance or observance of Company’s obligations under this
Agreement, Company hereby irrevocably appoints Wells Fargo and Wells Fargo’s
agents, as Company’s attorney in fact (which appointment is coupled with an
interest) with the right (but not the duty) to create, prepare, complete,
execute, deliver, endorse or file on behalf of Company any instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and any other agreements or any Record required to be obtained,
executed, delivered or endorsed by Company in accordance with the terms of this
Agreement.


 


6.                                      EVENTS OF DEFAULT AND REMEDIES


 


6.1                               Events of Default. An “Event of Default” means
any of the following:


 


25

















 


(a)                                  Company fails to pay any the amount of any Indebtedness on the date that
it becomes due and payable;


 


(b)                                 Company fails to observe or perform any covenant or agreement of Company
set forth in this Agreement, or in any of the Loan Documents, or in any other
document or agreement described in or related to this Agreement or to any
Indebtedness, or any covenant in Section 5.2 becomes inapplicable
due to the lapse of time, and Company and Wells Fargo fail to come to an
agreement, acceptable to Wells Fargo in its sole discretion, to amend the
covenant to apply to future periods;


 


(c)                                  An Overadvance arises as the result of any reduction in the Borrowing
Base, or arises in any manner or on terms not otherwise approved of in advance
by Wells Fargo in a Record that it has Authenticated;


 


(d)                                 An event of default or termination event (however defined) occurs under
any swap, derivative, foreign exchange, hedge or any similar transaction or
arrangement entered into between Company and Wells Fargo;


 


(e)                                  A Change of Control or Material Adverse Effect shall occur;


 


(f)                                    Company or any Guarantor becomes insolvent or admits in a Record an
inability to pay debts as they mature, or Company or any Guarantor makes an
assignment for the benefit of creditors; or Company or any Guarantor applies
for or consents to the appointment of any receiver, trustee, or similar officer
for the benefit of Company or any Guarantor, or for any of their properties; or
any receiver, trustee or similar officer is appointed without the application
or consent of Company or such Guarantor; or any judgment, writ, warrant of
attachment or execution or similar process is issued or levied against a
substantial part of the property of Company or any Guarantor;


 


(g)                                 Company or any Guarantor files a petition under any chapter of the United
States Bankruptcy Code or under the laws of any other jurisdiction naming
Company or such Guarantor as debtor; or any such petition is instituted against
Company or any such Guarantor; or Company or any Guarantor institutes (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, debt arrangement, dissolution, liquidation or
similar proceeding under the laws of any jurisdiction; or any such proceeding
is instituted (by petition, application or otherwise) against Company or any
such Guarantor;


 


(h)                                 Any representation or warranty made by Company in this Agreement or by
any Guarantor in any Guaranty, or by Company (or any of its Officers) or any
Guarantor in any agreement, certificate, instrument or financial statement or
other statement delivered to Wells Fargo in connection with this Agreement or
pursuant to such Guaranty is untrue or misleading in any material respect when
delivered to Wells Fargo;


 


(i)                                     A final, non-appealable arbitration award, judgment, or decree or order
for the payment of money in an amount in excess of $50,000 which is not insured
or subject to indemnity, is entered against Company which is not immediately
stayed or appealed;


 


26

















 


(j)                                     Company is in
default with respect to any bond, debenture, note or other evidence of material
indebtedness issued by Company that is held by any third Person other than
Wells Fargo, or under any instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any material
lease or other contract, and the applicable grace period, if any, has expired,
regardless of whether such default has been waived by the holder of such
indebtedness;


 


(k)                                  Company
liquidates, dissolves, terminates or suspends its business operations or
otherwise fails to operate its business in the ordinary course, or merges with
another Person; or sells or attempts to sell all or substantially all of its
assets;


 


(1)                                  Company fails
to pay any indebtedness or obligation owed to Wells Fargo which is unrelated to
the Line of Credit or this Agreement as it becomes due and payable;


 


(m)                               Any Guarantor
repudiates or purports to revoke the Guarantor’s Guaranty, or fails to perform
any obligation under such Guaranty, or any individual Guarantor dies or becomes
incapacitated, or any other Guarantor ceases to exist for any reason;


 


(n)                                 Company engages
in any act prohibited by any Subordination Agreement, or makes any payment on
Subordinated Indebtedness (as defined in the Subordination Agreement) that the
Subordinated Creditor was not contractually entitled to receive;


 


(o)                                 Any event or
circumstance occurs that Wells Fargo in good faith believes may impair the
prospect of payment of all or part of the Indebtedness, or Company’s ability to
perform any of its material obligations under any of the Loan Documents, or any
other document or agreement described in or related to this Agreement, or there
occurs any material adverse change in the business or financial condition of
Company;


 


(p)                                 (i) Company
hires an Officer or appoints a Director who has been convicted of any felony
offense under state or federal law, or (ii) any Director, Officer, or
Designated Person is indicted for a felony offence under state or federal law
if, with respect to this clause (ii), (x) such indictment has not been
dismissed within 15 days of the indictment of such Director, Officer, or
Designated Person, or (y) such Director, Officer, or Designated Person has
not been relieved of his or her duties as a Director, Officer, or Designated
Officer, as applicable, within 15 days of such indictment;


 


(q)                                 Any Reportable
Event, which Wells Fargo in good faith believes to constitute sufficient
grounds for termination of any Pension Plan or for the appointment of a trustee
to administer any Pension Plan, has occurred and is continuing 30 days after
Company gives Wells Fargo a Record notifying it of the Reportable Event; or a
trustee is appointed by an appropriate court to administer any Pension Plan; or
the Pension Benefit Guaranty Corporation institutes proceedings to terminate or
appoint a trustee to administer any Pension Plan; or Company or any ERISA
Affiliate files for a distress termination of any Pension Plan under Title IV
of ERISA; or Company or any ERISA Affiliate fails to make any quarterly Pension
Plan contribution required under Section 412(m) of the IRC, which Wells
Fargo in good faith believes may, either by itself or in combination with other
failures, result in the imposition of a Lien on Company’s assets in favor of
the Pension Plan; or any withdrawal, partial withdrawal,


 


27

















 


reorganization
or other event occurs with respect to a Multiemployer Plan which could
reasonably be expected to result in a material liability by Company to the
Multiemployer Plan under Title IV of ERISA; or


 


(r)                                    Any “Event of
Default” occurs under any of the Ex-Im Loan Documents.


 


6.2                               Rights and Remedies. During any Default Period,
Wells Fargo may in its discretion exercise any or all of the following rights
and remedies:


 


(a)                                  Wells Fargo may
terminate the Line of Credit and decline to make Advances, and terminate any
services extended to Company under the Master Agreement for Treasury Management
Services;


 


(b)                                 Wells Fargo may
declare the Indebtedness to be immediately due and payable and accelerate
payment of the Revolving Note, and all Indebtedness shall immediately become
due and payable, without presentment, notice of dishonor, protest or further
notice of any kind, all of which Company hereby expressly waives;


 


(c)                                  Wells Fargo
may, without notice to Company, apply any money owing by Wells Fargo to Company
to payment of the Indebtedness;


 


(d)                                 Wells Fargo may exercise and enforce any
rights and remedies available upon default to a secured party under the UCC,
including the right to take possession of Collateral, proceeding with or
without judicial process (without a prior hearing or notice of hearing, which
Company hereby expressly waives) and sell, lease or otherwise dispose of
Collateral for cash or on credit (with or without giving warranties as to
condition, fitness, merchantability or title to Collateral, and in the event of
a credit sale, Indebtedness shall be reduced only to the extent that payments
are actually received), and Company will upon Wells Fargo’s demand assemble the
Collateral and make it available to Wells Fargo at any place designated by
Wells Fargo which is reasonably convenient to both parties;


 


(e)                                  Wells Fargo may
exercise and enforce its rights and remedies under any of the Loan Documents
and any other document or agreement described in or related to this Agreement;


 


(f)                                    Company will
pay Wells Fargo upon demand in immediately available funds an amount equal to
the Aggregate Face Amount plus any anticipated costs and fees for deposit to
the Special Account pursuant to Section 1.10;


 


(g)                                 Wells Fargo may
for any reason apply for the appointment of a receiver of the Collateral, to
which appointment Company hereby consents; and


 


(h)                                 Wells Fargo may
exercise any other rights and remedies available to it by law or agreement.


 


6.3                               Immediate Default and Acceleration. Following the
occurrence of an Event of Default described in Section 6.1(f) or
(g), the Line of
Credit shall immediately terminate and all


 


28

















 


of
Company’s Indebtedness shall immediately become due and payable without
presentment, demand, protest or notice of any kind.


 


7.             MISCELLANEOUS


 


7.1                               No Waiver;
Cumulative Remedies. No delay or any single or partial exercise by
Wells Fargo of any right, power or remedy under the Loan Documents, or under
any other document or agreement described in or related to this Agreement,
shall constitute a waiver of any other right, power or remedy under the Loan
Documents or granted by Company to Wells Fargo under other agreements or documents
that are unrelated to the Loan Documents. No notice to or demand on Company in
any circumstance shall entitle Company to any additional notice or demand in
any other circumstances. The remedies provided in the Loan Documents or in any
other document or agreement described in or related to this Agreement are
cumulative and not exclusive of any remedies provided by law. Wells Fargo may
comply with applicable law in connection with a disposition of Collateral, and
such compliance will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.


 


7.2                               Amendment;
Consents and Waivers; Authentication. No amendment or modification
of any Loan Documents, or any other document or agreement described in or
related to this Agreement, or consent to or waiver of any Event of Default, or
consent to or waiver of the application of any covenant or representation set
forth in any of the Loan Documents, or any other document or agreement
described in or related to this Agreement, or any release of Wells Fargo’s
Security Interest in any Collateral, shall be effective unless it has been
agreed to by Wells Fargo and memorialized in a Record that: (a) specifically
states that it is intended to amend or modify specific Loan Documents, or any
other document or agreement described in or related to this Agreement, or waive
any Event of Default or the application of any covenant or representation of
any terms of specific Loan Documents, or any other document or agreement
described in or related to this Agreement, or is intended to release Wells
Fargo’s Security Interest in specific Collateral; and (b) is Authenticated
by the signature of an authorized employee of both parties, or by an authorized
employee of Wells Fargo with respect to a consent or waiver. The terms of an
amendment, consent or waiver memorialized in any Record shall be effective only
to the extent, and in the specific instance, and for the limited purpose to
which Wells Fargo has agreed.


 


7.3                               Execution
in Counterparts; Delivery of Counterparts. This Agreement and all other
Loan Documents, or any other document or agreement described in or related to
this Agreement, and any amendment or modification to them may be Authenticated
by the parties in any number of counterparts, each of which, once authenticated
and delivered in accordance with the terms of this Section 7.3, will be deemed
an original, and all such counterparts, taken together, shall constitute one
and the same instrument. Delivery by fax or by encrypted e-mail or e-mail file
attachment of any counterpart to any Loan Document Authenticated by an
authorized signature will be deemed the equivalent of the delivery of the
original Authenticated instrument. Company shall send the original
Authenticated counterpart to Wells Fargo by first class U.S. mail or by
overnight courier, but Company’s failure to deliver a Record in this form shall
not affect the validity, enforceability, and binding effect of this Agreement
or the other Loan Documents, or any other document or agreement described in or
related to this Agreement.


 


29

















 


7.4                               Notices,
Requests, and Communications; Confidentiality. Except as otherwise expressly provided in
this Agreement:


 


(a)                                  Delivery of
Notices, Requests and Communications. Any notice,
request, demand, or other communication by either party that is required under
the Loan Documents, or any other document or agreement described in or related
to this Agreement, to be in the form of a Record (but excluding any Record containing
information Company must report to Wells Fargo under Section 5.1) may be
delivered (i) in person, (ii) by first class U.S. mail, (iii) by
overnight courier of national reputation, or (iv) by fax, or the Record
may be sent as an Electronic Record and delivered (v) by an encrypted
e-mail, or (vi) through Wells Fargo’s Commercial Electronic Office® (“CEO”)
portal or other secure electronic channel to which the parties have agreed.


 


(b)                                 Addresses for
Delivery. Delivery of any Record under this Section 7.4  shall be made
to the appropriate address set forth on the last page of this Agreement
(which either party may modify by a Record sent to the other party), or through
Wells Fargo’s CEO portal or other secure electronic channel to which the
parties have agreed.


 


(c)                                  Date of Receipt. Each Record
sent pursuant to the terms of this Section 7.4 will be deemed
to have been received on (i) the date of delivery if delivered in person, (ii) the
date deposited in the mail if sent by mail, (iii) the date delivered to
the courier if sent by overnight courier, (iv) the date of transmission if
sent by fax, or (v) the date of transmission, if sent as an Electronic
Record by electronic mail or through Wells Fargo’s CEO portal or similar secure
electronic channel to which the parties have agreed; except that any
request for an Advance or any other notice, request, demand or other
communication from Company required under Section 1, and any request
for an accounting under Section 9-210 of the UCC, will not be deemed to
have been received until actual receipt by Wells Fargo on a Business Day by an
authorized employee of Wells Fargo.


 


(d)                                 Confidentiality
of Unencrypted E-mail. Company acknowledges that if
it sends or receives an Electronic Record to or from Wells Fargo without
encryption by e-mail or as an e-mail file attachment, there is a risk that the
Electronic Record may be received by unauthorized Persons, and that by so doing
it will be deemed to have accepted this risk and the consequences of any such
unauthorized disclosure.


 


7.5                               Company
Information Reporting; Confidentiality. Except as otherwise
expressly provided in this Agreement:


 


(a)                                  Delivery of
Company Information Records. Any information
that Company is required to deliver under Section 5.1 in the form of
a Record may be delivered to Wells Fargo (i) in person, or by (ii) first
class U.S. mail, (iii) overnight courier of national reputation, or (iv) fax,
or the Record may be sent as an Electronic Record (v) by encrypted e-mail,
or (vi) through the file upload service of Wells Fargo’s CEO portal or
other secure electronic channel to which the parties have agreed.


 


(b)                                 Addresses for
Delivery. Delivery of any Record to Wells Fargo under
this Section 7.5 shall be made to the appropriate address set
forth on the last page of this Agreement


 


30

















 


(which
Wells Fargo may modify by a Record sent to Company), or through Wells Fargo’s
CEO portal or other secure electronic channel to which the parties have agreed.


 


(c)                                  Date of Receipt. Each Record
sent pursuant to this Section will be deemed to have been received on (i) the
date of delivery to an authorized employee of Wells Fargo, if delivered in
person, or by U.S. mail, overnight courier, fax, or e-mail; or (ii) the
date of transmission, if sent as an Electronic Record through Wells Fargo’s CEO
portal or similar secure electronic channel to which the parties have agreed.


 


(d)                                 Authentication
of Company Information Records. Company shall
Authenticate any Record delivered (i) in person, or by U.S. mail,
overnight courier, or fax, by the signature of the Officer or employee of
Company who prepared the Record; (ii) as an Electronic Record sent via
encrypted e-mail, by the signature of the Officer or employee of Company who
prepared the Record by any file format signature that is acceptable to Wells
Fargo, or by a separate certification signed and sent by fax; or (iii) as
an Electronic Record via the file upload service of Wells Fargo’s CEO portal or
similar secure electronic channel to which the parties have agreed, through
such credentialing process as Wells Fargo and Company may agree to under the
CEO agreement.


 


(e)                                  Certification
of Company Information Records. Any Record
(including any Electronic Record) Authenticated and delivered to Wells Fargo
under this Section 7.5 will be deemed to have been
certified as materially true, correct, and complete by Company and each Officer
or employee of Company who prepared and Authenticated the Record on behalf of
Company, and may be legally relied upon by Wells Fargo without regard to method
of delivery or transmission.


 


(f)                                    Confidentiality
of Company Information Records Sent by Unencrypted E-mail. Company
acknowledges that if it sends an Electronic Record to Wells Fargo without
encryption by e-mail or as an e-mail file attachment, there is a risk that the
Electronic Record may be received by unauthorized Persons, and that by so doing
it will be deemed to have accepted this risk and the consequences of any such
unauthorized disclosure. Company acknowledges that it may deliver Electronic
Records containing Company information to Wells Fargo by e-mail pursuant to any
encryption tool acceptable to Wells Fargo and Company, or through Wells Fargo’s
CEO portal file upload service without risk of unauthorized disclosure.


 


7.6                               Further Documents. Company will from time to
time execute, deliver, endorse and authorize the filing of any instruments,
documents, conveyances, assignments, security agreements, financing statements,
control agreements and other agreements that Wells Fargo may reasonably request
in order to secure, protect, perfect or enforce the Security Interest or Wells
Fargo’s rights under the Loan Documents, or any other document or agreement
described in or related to this Agreement (but any failure to request or assure
that Company executes, delivers, endorses or authorizes the filing of any such
item shall not affect or impair the validity, sufficiency or enforceability of
the Loan Documents, or any other document or agreement described in or related
to this Agreement, and the Security Interest, regardless of whether any such
item was or was not executed, delivered or endorsed in a similar context or on
a prior occasion).


 


31

















 


7.7                               Costs and Expenses. Company shall pay on demand
all costs and expenses, including reasonable attorneys’ fees, incurred by Wells
Fargo in connection with the Indebtedness, this Agreement, the Loan Documents,
or any other document or agreement described in or related to this Agreement,
and the transactions contemplated by this Agreement, including all such costs,
expenses and fees incurred in connection with the negotiation, preparation,
execution, delivery, amendment, administration, performance, collection and
enforcement of the Indebtedness and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.


 


7.8                               Indemnity. In addition to its
obligation to pay Wells Fargo’s expenses under the terms of this Agreement,
Company shall indemnify, defend and hold harmless Wells Fargo, its parent Wells
Fargo & Company, and any of its affiliates and successors, and all of
their present and future Officers, Directors, employees, attorneys and agents
(each an “Indemnitee”) from and against any of the following (collectively, “Indemnified
Liabilities”):


 


(a)                                  Any and all
transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of the Loan Documents,
or any other document or agreement described in or related to this Agreement or
the making of the Advances;


 


(b)                                 Any claims,
loss or damage to which any Indemnitee may be subjected if any representation
or warranty contained in Exhibit D proves to be incorrect in any respect or as a result of any violation
of the covenants contained in Section 5.11;  and


 


(c)                                  Any and all
other liabilities, losses, damages, penalties, judgments, suits, claims, costs
and expenses of any kind or nature whatsoever (including the reasonable fees
and disbursements of counsel) in connection with this Agreement and any other
investigative, administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party to such proceedings, which may be imposed
on, incurred by or asserted against any such Indemnitee, in any manner related
to or arising out of or in connection with the making of the Advances and the
Loan Documents, or any other document or agreement described in or related to
this Agreement, or the use or intended use of the proceeds of the Advances,
with the exception of any Indemnified Liability caused by the gross negligence
or willful misconduct of an Indemnitee.


 


If
any investigative, judicial or administrative proceeding described in this Section is
brought against any Indemnitee, upon the Indemnitee’s request, Company, or
counsel designated by Company and satisfactory to the Indemnitee, will resist
and defend the action, suit or proceeding to the extent and in the manner
directed by the Indemnitee, at Company’s sole cost and expense. Each Indemnitee
will use its best efforts to cooperate in the defense of any such action, suit
or proceeding. If this agreement to indemnify is held to be unenforceable
because it violates any law or public policy, Company shall nevertheless make
the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities to the extent permissible under applicable law. Company’s
obligations under this Section shall survive the termination of this
Agreement and the discharge of Company’s other obligations under this
Agreement.


 


32














 


7.9          Retention
of Company’s Records. Wells Fargo shall have no obligation to maintain
Electronic Records or retain any documents, schedules, invoices, agings, or
other Records delivered to Wells Fargo by Company in connection with the Loan
Documents, or any other document or agreement described in or related to this
Agreement for more than 30 days after receipt by Wells Fargo. If there is a
special need to retain specific Records, Company must notify Wells Fargo of its
need to retain or return such Records with particularity, which notice must be
delivered to Wells Fargo in accordance with the terms of this Agreement at the
time of the initial delivery of the Record to Wells Fargo.


 


7.10        Binding
Effect; Assignment; Complete Agreement. The Loan Documents, or any
other document or agreement described in or related to this Agreement, shall be
binding upon and inure to the benefit of Company and Wells Fargo and their
respective successors and assigns, except that Company shall not have the right
to assign its rights under this Agreement or any interest in this Agreement
without Wells Fargo’s prior consent, which must be confirmed in a Record
Authenticated by Wells Fargo. To the extent permitted by law, Company waives
and will not assert against any assignee any claims, defenses or set-offs which
Company could assert against Wells Fargo. This Agreement shall also bind all
Persons who become a party to this Agreement as a borrower. This Agreement,
together with the Loan Documents, or any other document or agreement described
in or related to this Agreement, comprises the complete and integrated
agreement of the parties on the subject matter of this Agreement and supersedes
all prior agreements, whether oral or evidenced in a Record. To the extent that
any provision of this Agreement contradicts other provisions of the Loan
Documents other than this Agreement, or any other document or agreement
described in or related to this Agreement, this Agreement shall control.


 


7.11        Sharing
of Information. Wells Fargo may share any Confidential Information
that it may have regarding Company and its Affiliates with its accountants,
lawyers, and other advisors, and with each business unit and line of business
within Wells Fargo and each direct and indirect subsidiary of Wells Fargo &
Company; provided that Wells Fargo shall advise such accountants, lawyers,
other advisors, business units, line of business, and subsidiaries of the
confidential nature of such Confidential Information and that all such
Confidential Information is subject to the terms of this Agreement (including
this Section 7.11).


 


7.12        Severability
of Provisions. Any provision of this Agreement which is prohibited
or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining terms of this Agreement.


 


7.13        Headings.
Section and subsection headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.


 


7.14        Governing
Law; Jurisdiction; Venue. The Loan Documents (other
than real estate related documents, if any) shall be governed by and construed
in accordance with the substantive laws (other than conflict laws) of the State
of California. The parties to this Agreement (a) consent to the personal
jurisdiction of the state and federal courts located in the State of California
in connection with any controversy related to this Agreement; (b) waive any
argument that venue in any such forum is not convenient; (c) agree that any
litigation initiated by


 


33

















 


Wells
Fargo or Company in connection with this Agreement or the other Loan Documents
may be venued in either the state or federal courts located in the City of Los
Angeles, County of Los Angeles, State of California; and (d) agree that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.


 


8.             ARBITRATION


 


8.1          Arbitration.
Wells Fargo and Company agree, upon demand by either party, to submit
to binding arbitration all claims, disputes and controversies between or among
them (and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise, in any way arising out of or
relating to (a) any credit subject hereto, or any of the Loan Documents, and
their negotiation, execution, collateralization, administration, repayment,
modification, extension, substitution, formation, inducement, enforcement,
default or termination; or (b) requests for additional credit.


 


8.2          Governing
Rules. Any arbitration proceeding will (a) proceed in a location in Los
Angeles, California selected by the American Arbitration Association (“AAA”); (b)
be governed by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents
between the parties; and (c) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to herein, as applicable,
as the “Rules”). If there is any inconsistency between the terms hereof and the
Rules, the terms and procedures set forth herein shall control. Any party who
fails or refuses to submit to arbitration following a demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any dispute. Nothing contained herein shall be deemed to be a
waiver by any party that is a bank of the protections afforded to it under 12
U.S.C. §91 or any similar applicable state law.


 


8.3          No
Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration
requirement does not limit the right of any party to (a) foreclose against real
or personal property collateral; (b) exercise self-help remedies relating to collateral
or proceeds of collateral such as setoff or repossession; or (c) obtain
provisional or ancillary remedies such as replevin, injunctive relief,
attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise
of the actions detailed in paragraphs (a), (b) and (c) of this Section 8.3.


 


8.4          Arbitrator
Qualifications and Powers. Any arbitration proceeding
in which the amount in controversy is $5,000,000.00 or less will be decided by
a single arbitrator selected according to the Rules, and who shall not render
an award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority


 


34

















 


vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations. The arbitrator
will be a neutral attorney licensed in the State of California or a neutral
retired judge of the state or federal judiciary of California, in either case
with a minimum of ten years experience in the substantive law applicable to the
subject matter of the dispute to be arbitrated. The arbitrator will determine
whether or not an issue is arbitratable and will give effect to the statutes of
limitation in determining any claim. In any arbitration proceeding the
arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication. The arbitrator
shall resolve all disputes in accordance with the substantive law of California
and may grant any remedy or relief that a court of such state could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award. The arbitrator shall also have the power to award recovery
of all costs and fees, to impose sanctions and to take such other action as the
arbitrator deems necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.


 


8.5          Discovery.
In any arbitration proceeding, discovery will be permitted in accordance
with the Rules. All discovery shall be expressly limited to matters directly
relevant to the dispute being arbitrated and must be completed no later than 20
days before the hearing date. Any requests for an extension of the discovery
periods, or any discovery disputes, will be subject to final determination by
the arbitrator upon a showing that the request for discovery is essential for
the party’s presentation and that no alternative means for obtaining
information is available.


 


8.6          Class
Proceedings and Consolidations. No party hereto shall be
entitled to join or consolidate disputes by or against others in any
arbitration, except parties who have executed any Loan Document, or to include
in any arbitration any dispute as a representative or member of a class, or to
act in any arbitration in the interest of the general public or in a private
attorney general capacity.


 


8.7          Payment
of Arbitration Costs and Fees. The arbitrator shall award
all costs and expenses of the arbitration proceeding.


 


8.8          Miscellaneous.
To the maximum extent practicable, the AAA, the arbitrators and the
parties shall take all action required to conclude any arbitration proceeding
within 180 days of the filing of the dispute with the AAA. No arbitrator or
other party to an arbitration proceeding may disclose the existence, content or
results thereof, except for disclosures of information by a party required in
the ordinary course of its business or by applicable law or regulation. If more
than one agreement for arbitration by or between the parties potentially
applies to a dispute, the arbitration provision most directly related to the
Loan Documents or the subject matter of the dispute shall control. This
arbitration provision shall survive termination, amendment or expiration of any
of the Loan Documents or any relationship between the parties.


 


35

















 


[signatures on the following page]


 


36

















 


COMPANY AND WELLS FARGO  have executed this Agreement
through their authorized officers as of the date set forth above.


 


	
  WELLS
  FARGO BANK,

  	
   

  	
  CAPSTONE
  TURBINE CORPORATION

  
	
  NATIONAL
  ASSOCIATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  John Curry

  	
   

  	
  By:

  	
  /s/
  Darren Jamison

  
	
  Name:

  	
  John
  Curry

  	
   

  	
  Name:

  	
  Darren
  Jamison

  
	
  Its:

  	
  Vice
  President

  	
   

  	
  Its:

  	
  CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Wells
  Fargo Bank, National Association

  	
   

  	
  Capstone
  Turbine Corporation

  
	
  245 S. Los Robles Avenue, Suite 700

  	
   

  	
  21211
  Nordhoff Street

  
	
  Pasadena,
  CA 91101

  	
   

  	
  Chatsworth,
  California 91311

  
	
  Fax:
  626.844.9063

  	
   

  	
  Fax:
  818.734.5380

  
	
  Attention:
  Capstone Turbine Account Officer

  	
   

  	
  Attention:

  
	
  email:
  curry.john@wellsfargo. com

  	
   

  	
  e-mail:

  
	
   

  	
   

  	
  Federal
  Employer Identification No.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Organizational
  Identification No.

  
	
   

  	
   

  	
   

  



 


S-1

















 


Exhibit A to Credit and
Security Agreement


 


DEFINITIONS


 


“AAA” is defined in Section 8.2


 


“Account Funds” is defined in Section
1.4(a).


 


“Accounts” shall have the meaning given it under the UCC.


 


“Advance” and “Advances” means an advance or advances under the Line of
Credit.


 


“Affiliate” or “Affiliates” means Capstone Turbine International, Inc.
and any other Person controlled by, controlling or under common control with
Company, including any Subsidiary of Company. For purposes of this definition,
“control,” when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.


 


“Aggregate Face Amount” means the aggregate amount that may then be
drawn under each outstanding Letter of Credit, assuming compliance with all
conditions for drawing.


 


“Agreement” means this Credit and Security Agreement.


 


“Authenticated” means (a) to have signed; or (b) to have executed or to
have otherwise adopted a symbol, or have encrypted or similarly processed a
Record in whole or in part, with the present intent of the authenticating
Person to identify the Person and adopt or accept a Record.


 


“Book Net Worth” means the aggregate of the common and preferred
shareholder’s equity in Company, determined in accordance with GAAP, and
calculated without regard to (a) any change in the valuation of goodwill made
in accordance with FASB Accounting Standard 142, and (b) any non-cash effects
of accounting for stock based compensation in accordance with FASB
pronouncement SFAS 123(r).


 


“Borrowing Base” is defined in Section
1.2(a).


 


“Borrowing Base Reserve” means, as of any date of determination, an
amount or a percent of a specified category or item that Wells Fargo
establishes in its sole discretion from time to time to reduce availability
under the Borrowing Base (a) to reflect events, conditions, contingencies or
risks which affect the assets, business or prospects of Company, or the
Collateral or its value, or the enforceability, perfection or priority of Wells
Fargo’s Security Interest in the Collateral, as the term “Collateral” is
defined in this Agreement, or (b) to reflect Wells Fargo’s judgment that any
collateral report or financial information relating to Company and furnished to
Wells Fargo may be incomplete, inaccurate or misleading in any material
respect.


 


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“Business Day” means a day on which the Federal Reserve Bank of New
York is open for business and, if such day relates to a LIBOR Advance, a day on
which dealings are carried on in the London interbank eurodollar market.


 


“Capital Expenditures” means for a period, any expenditure of money
during such period for the lease, purchase or other acquisition of any capital
asset, or for the lease of any other asset whether payable currently or in the
future.


 


“Cash Equivalents” means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
eurodollar certificates of deposit and time deposits, bankers’ acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies, the long-term
indebtedness of which institution at the time of acquisition is rated A- (or
better) by S&P or A3 (or better) by Moody’s, and which certificates of
deposit and time deposits are fully protected against currency fluctuations for
any such deposits with a term of more than ninety (90) days; (iii) shares of
money market, mutual or similar funds having assets in excess of $100,000,000
and the investments of which are limited to (a) investment grade securities
(i.e., securities rated at least Baa by Moody’s or at least BBB by S&P) and
(b) commercial paper of United States and foreign banks and bank holding companies
and their subsidiaries and United States and foreign finance, commercial
industrial or utility companies which, at the time of acquisition, are rated
A-1 (or better) by S&P or P-1 (or better) by Moody’s (all such institutions
being, “Qualified Institutions”); and (iv) commercial paper of Qualified
Institutions; provided that the
maturities of such Cash Equivalents shall not exceed three hundred sixty-five
(365) days from the date of acquisition thereof.


 


“CEO” is defined in Section 7.4(a).


 


“Change of Control” means the occurrence of any of the following
events:


 


(a)             Any Person or
“group” (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) who does not have an ownership interest in Company on the
date of the initial Advance is or becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that
any such Person, entity or group will be deemed to have “beneficial ownership”
of all securities that such Person, entity or group has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than twenty percent (20%) of the voting
power of all classes of ownership of Company;


 


(b)             During any consecutive
two-year period, individuals who at the beginning of such period constituted
the board of Directors of Company (together with any new Directors whose
election to such board of Directors, or whose nomination for election by the
Owners of Company, was approved by a vote of two thirds of the Directors then
still in office who were either Directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the board of Directors of Company then
in office.


 


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“Collateral” means all of Company’s Accounts, chattel paper and
electronic chattel paper, deposit accounts, documents, Equipment, General
Intangibles, goods, instruments, Inventory, Investment Property,
letter-of-credit rights, letters of credit, all sums on deposit in any
Collection Account, and any items in any Lockbox; together with (a) all
substitutions and replacements for and products of such property; (b) in the
case of all goods, all accessions; (c) all accessories, attachments, parts,
Equipment and repairs now or subsequently attached or affixed to or used in
connection with any goods; (d) all warehouse receipts, bills of lading and
other documents of title that cover such goods now or in the future; (e) all
collateral subject to the Lien of any of the Security Documents; (f) any money,
or other assets of Company that come into the possession, custody, or control
of Wells Fargo now or in the future; (g) Proceeds of any of the above
Collateral; (h) books and records of Company, including all mail or e-mail
addressed to Company; and (i) all of the above Collateral, whether now owned or
existing or acquired now or in the future or in which Company has rights now or
in the future.


 


“Collateral Pledge Agreement” means each Collateral Pledge Agreement
entered into between Company and Wells Fargo.


 


“Collection Account” means “Collection Account” as defined in the
Master Agreement for Treasury Management Services and related Lockbox and
Collection Account Service Description or Collection Account Service
Description, whichever is applicable..


 


“Compliance Certificate” is defined in Section 5.1(a) and is in
the form of Exhibit E.


 


“Commercial Letter of Credit Agreement” means an agreement governing
the issuance of documentary letters of credit entered into between Company as
applicant and Wells Fargo as issuer.


 


“Company” is defined in the Recitals.


 


“Constituent Documents” means with respect to any Person, as applicable,
that Person’s certificate of incorporation, articles of incorporation, by-laws,
certificate of formation, articles of organization, limited liability company
agreement, management agreement, operating agreement, shareholder agreement,
partnership agreement or similar document or agreement governing such Person’s
existence, organization or management or concerning disposition of ownership
interests of such Person or voting rights among such Person’s owners.


 


“Debt” means of a Person as of a given date, all items of indebtedness
or liability which in accordance with GAAP would be included in determining
total liabilities as shown on the liabilities side of a balance sheet for such
Person and shall also include the aggregate payments required to be made by
such Person at any time under any lease that is considered a capitalized lease
under GAAP.


 


“Default Period” is defined in Section 1.5(c).


 


“Default Rate” is defined in Section 1.5(c).


 


“Designated Person” means any of Darren R. Jamison or Edward I. Reich.


 


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“Dilution” means, as of any date of determination,
a percentage, based upon the prior six (6) months, which is the result of
dividing (a) actual bad debt write-downs, discounts, advertising allowances,
credits, and any other items with respect to the Accounts determined to be
dilutive by Wells Fargo in its sole discretion during this period, by (b) Company’s
net sales during such period (excluding extraordinary items) plus the amount of
clause (a).


 


“Director” means a director if Company is a
corporation, or a governor or manager if Company is a limited liability
company.


 


“Electronic Record” means a Record that is created,
generated, sent, communicated, received, or stored by electronic means, but does
not include any Record that is sent, communicated, or received by fax.


 


“Eligible Accounts” means all unpaid Accounts of
Company arising from the sale or lease of goods or the performance of services,
net of any credits, but excluding any Accounts having any of the following
characteristics:


 


(c)             That
portion of Accounts unpaid 90 days or more after the invoice date; provided
that, in the case of Banking Production Centre, Accounts owed by Banking
Production Centre that are not paid within one hundred fifty (150) days from
the invoice date shall not be Eligible Accounts;


 


(d)             That
portion of Accounts related to goods or services with respect to which Company
has received notice of a claim or dispute, which are subject to a claim of
offset or a contra account, or which reflect a reasonable reserve for warranty
claims or returns unless Wells Fargo has received a satisfactory non-offset
letter;


 


(e)             That
portion of Accounts not yet earned by the final delivery of goods or that
portion of Accounts not yet earned by the final rendition of services by
Company to the account debtor, including with respect to both goods and
services, progress billings, and that portion of Accounts for which an invoice
has not been sent to the applicable account debtor;


 


(f)              Accounts constituting (i) Proceeds
of copyrightable material unless such copyrightable material shall have been
registered with the United States Copyright Office, or (ii) Proceeds of
patentable inventions unless such patentable inventions have been registered
with the United States Patent and Trademark Office;


 


(g)             Accounts
owed by any unit of government, whether foreign or domestic (except that there
shall be included in Eligible Accounts that portion of Accounts owed by such
units of government for which Company has provided evidence satisfactory to
Wells Fargo that (i) Wells Fargo’s Security Interest constitutes a perfected
first priority Lien in such Accounts, and (ii) such Accounts may be enforced by
Wells Fargo directly against such unit of government under all applicable
laws);


 


(h)             Accounts
denominated in any currency other than United States Dollars;


 


(i)              Accounts
owed by an account debtor located outside the United States;


 


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(j)              Accounts
owed by an account debtor who is insolvent or is the subject of bankruptcy
proceedings or who has gone out of business;


 


(k)             Accounts
owed by an Owner, Subsidiary, Affiliate, Officer or employee of  Company;


 


(1)             Accounts
not subject to the Security Interest or which are subject to any Lien in favor
of any Person other than Wells Fargo;


 


(m)            That
portion of Accounts that has been restructured, extended, amended or modified;


 


(n)             That
portion of Accounts that constitutes advertising, finance charges, service
charges or sales or excise taxes;


 


(o)             Accounts
owed by an account debtor, regardless of whether otherwise eligible, to the
extent that the aggregate balance of such Accounts exceeds 15% of the aggregate
amount of all Accounts;


 


(p)             Accounts
owed by an account debtor, regardless of whether otherwise eligible, if 25% or
more of the total amount of Accounts due from such debtor is ineligible under
clauses (a), (b), or (k) above;


 


(q)             Accounts
arising from the sale of warranty or service contracts, maintenance service, warranty
service or replacement parts;


 


(r)              Any Accounts deemed to be
“Eligible Accounts” under the Ex-Im Credit Agreement; and


 


(s)             Accounts,
or portions of Accounts, otherwise deemed ineligible by Wells Fargo in its sole
discretion.


 


“Eligible Inventory” means all Inventory of
Company, valued at the lower of cost or market in accordance with GAAP; but
excluding Inventory having any of the following characteristics:


 


(t)              Inventory
that is: in-transit; located at any warehouse, job site or other premises not
approved by Wells Fargo in an Authenticated Record delivered to Company; not
subject to a perfected first priority Lien in Wells Fargo’s favor; covered by
any negotiable or non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment from any consignor; or on consignment to any
consignee or subject to any bailment unless the consignee or bailee has
executed an agreement with Wells Fargo;


 


(u)             Supplies,
packaging, maintenance parts or sample Inventory, or customer supplied parts or
Inventory;


 


(v)             Work-in-process
Inventory;


 


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(w)                               Finished goods
Inventory;


 


(x)                                   Inventory that is
damaged, defective, obsolete, slow moving or not currently saleable in the
normal course of Company’s operations, or the amount of such Inventory that has
been reduced by shrinkage;


 


(y)                                 Inventory that Company
has returned, has attempted to return, is in the process of returning or
intends to return to the vendor of the Inventory;


 


(z)                                   Inventory that is
perishable or live;


 


(aa)                            Inventory
manufactured by Company pursuant to a license unless the applicable licensor
has agreed in a Record that has been Authenticated by licensor to permit Wells
Fargo to exercise its rights and remedies against such Inventory;


 


(bb)                          Inventory that is
subject to a Lien in favor of any Person other than Wells Fargo;


 


(cc)                            Inventory stored at
locations holding less than 10% of the aggregate value of
Company’s Inventory;


 


(dd)                          Inventory that is
deemed to be “Eligible Inventory” under the Ex-Im Credit Agreement; and


 


(ee)                            Inventory otherwise
deemed ineligible by Wells Fargo in its sole discretion.


 


“Environmental Law” means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection of human
health and the environment.


 


“Equipment” shall have the meaning given it under the Uniform Commercial
Code in effect in the state whose laws govern this Agreement.


 


“ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time.


 


“ERISA Affiliate” means any trade or business (whether or not
incorporated) that is a member of a group which includes Company and which is
treated as a single employer under Section 414 of the IRC.


 


“Event of Default” is defined in Section 6.1.


 


“Existing Letter of Credit” is defined in Section 1.9 (a).


 


“Ex-Im Credit Agreement” means that certain Credit and Security Agreement
(Ex-Im Subfacility), between the Company and Wells Fargo of even date with this
Agreement.


 


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“Ex-Im Loan
Documents” means the Ex-Im Credit Agreement and all other documents,
agreements, instruments, and certificates now or hereafter executed or provided
in connection with the Ex-Im Credit Agreement.


 


“Floating Rate” is
defined in Section 1.5 (a).


 


“Floating Rate
Advance” means an Advance bearing interest at the Floating Rate.


 


“GAAP” means
generally accepted accounting principles, applied on a basis consistent with
the accounting practices applied in the financial statements described on Exhibit D.


 


“General
Intangibles” shall have the meaning given it under the UCC.


 


“Guarantor” means
Capstone Turbine International, Inc., and any other Person now or in the
future guaranteeing any Indebtedness through the issuance of a Guaranty.


 


“Guaranty” means
an unconditional continuing guaranty executed by a Guarantor in favor of Wells
Fargo (if more than one, the “Guaranties”).


 


“Hazardous
Substances” means pollutants, contaminants, hazardous substances, hazardous
wastes, petroleum and fractions thereof, and all other chemicals, wastes,
substances and materials listed in, regulated by or identified in any
Environmental Law.


 


“Indebtedness” is
used in its most comprehensive sense and means any debts, obligations and
liabilities of Company to Wells Fargo, whether incurred in the past, present or
future, whether voluntary or involuntary, and however arising, and whether due
or not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and including without limitation all obligations arising under
any swap, derivative, foreign exchange, hedge, deposit, treasury management or
similar transaction or arrangement however described or defined that Company
may enter into at any time with Wells Fargo or with Wells Fargo Merchant
Services, L.L.C., whether or not Company may be liable individually or jointly
with others, or whether recovery upon such Indebtedness may subsequently become
unenforceable.


 


“Indemnified
Liabilities” is defined in Section 7.8.


 


“Indemnitee” is
defined in Section 7.8.


 


“Infringement” or
“Infringing” when used with respect to Intellectual Property Rights means any
infringement or other violation of Intellectual Property Rights.


 


“Intellectual
Property Rights” means all actual or prospective rights arising in connection
with any intellectual property or other proprietary rights, including all
rights arising in connection with copyrights, patents, service marks, trade
dress, trade secrets, trademarks, trade names or mask works.


 


“Interest Payment
Date” is defined in Section 1.7 (a).


 


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“Interest Period”
means the period that commences on (and includes) the Business Day on which
either a LIBOR Advance is made or continued or on which a Floating Rate Advance
is converted to a LIBOR Advance, and ending on (but excluding) the Business Day
numerically corresponding to that date that falls the number of months
afterward as selected by Company pursuant to Section 1.3 (c),
during which period the outstanding principal amount of the LIBOR Advance shall
bear interest at the LIBOR Advance Rate; provided, however, that:


 


(ff)                                If an Interest Period would otherwise end
on a day which is not a Business Day, then it shall end on the next Business
Day, unless that day is the first Business Day of a month, in which case the
Interest Period shall end on the last Business Day of the preceding month;


 


(gg)                          No Interest Period applicable to an
Advance may end later than the Maturity Date; and


 


(hh)                          In no event shall Company select Interest
Periods with respect to LIBOR Advances which would result in the payment of a LIBOR
Advance breakage fee under this Agreement in order to make required principal
payments.


 


“Inventory” shall
have the meaning given it under the UCC.


 


“Investment
Property” shall have the meaning given it under the UCC.


 


“L/C Amount” means
the sum of (a) the Aggregate Face Amount of any outstanding Letters of
Credit, plus (b) the amount of each Obligation of Reimbursement that
either remains unreimbursed or has not been paid through an Advance on the Line
of Credit.


 


“L/C Application”
means an application for the issuance of standby or documentary Letters of
Credit pursuant to the terms of a Standby Letter of Credit Agreement or
Commercial Letter of Credit Agreement, in form acceptable to Wells Fargo.


 


“Letter of Credit”
and “Letters of Credit” are each defined in Section 1.9 (a).


 


“LIBOR” means the
rate per annum (rounded upward, if necessary, to the nearest whole 1/8th of one percent
(1%)) determined pursuant to the following formula:


 


	
  LIBOR
  =

  	
  Base
  LIBOR

  
	
   

  	
  100%
  - LIBOR Reserve Percentage

  



 


(a)                                  “Base LIBOR” means the rate per annum for
United States dollar deposits quoted by Wells Fargo as the Inter-Bank Market
Offered Rate, with the understanding that such rate is quoted by Wells Fargo
for the purpose of calculating effective rates of interest for loans making
reference to it, on the first day of an Interest Period for delivery of funds
on that date for a period of time approximately equal to the number of days in
that Interest Period and in an amount approximately equal to the principal
amount to which that Interest Period applies. Company understands and agrees
that Wells Fargo may base its quotation of the Inter-Bank


 


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Market Offered Rate upon
such offers or other market indicators of the Inter-Bank Market as Wells Fargo
in its discretion deems appropriate including the rate offered for U.S. dollar
deposits on the London Inter-Bank Market.


 


(b)                                 “LIBOR Reserve Percentage” means the
reserve percentage prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for “Eurocurrency Liabilities” (as defined in
Regulation D of the Federal Reserve Board, as amended), adjusted by Wells Fargo
for expected changes in such reserve percentage during the applicable Interest
Period.


 


“LIBOR Advance”
means an Advance bearing interest at the LIBOR Advance Rate.


 


“LIBOR Advance
Rate” is defined in Section 1.5 (a).


 


“Licensed
Intellectual Property” is defined in Exhibit D.


 


“Lien” means any
security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance,
title retention agreement or analogous instrument or device, including the
interest of each lessor under any capitalized lease and the interest of any
bondsman under any payment or performance bond, in, of or on any assets or
properties of a Person, whether now owned or subsequently acquired and whether
arising by agreement or operation of law.


 


“Line of Credit”
is defined in the Recitals.


 


“Loan Documents”
means this Agreement, the Revolving Note, the Master Agreement for Treasury
Management Services, each Guaranty, each Subordination Agreement, each Standby
Letter of Credit Agreement, each Commercial Letter of Credit Agreement, any L/C
Applications, and the Security Documents, together with every other agreement,
note, document, contract or instrument to which Company now or in the future
may be a party and which may be required by Wells Fargo in connection with, or
as a condition to, the execution of this Agreement. Any documents or other
agreements entered into between Company and Wells Fargo that relate to any
swap, derivative, foreign exchange, hedge, or similar product or transaction,
or which are entered into with an operating division of Wells Fargo other than
Wells Fargo Business Credit, shall not be included in this definition.


 


“Loan Manager”
means the treasury management service defined in the Master Agreement for
Treasury Management Services and related Loan Manager Service Description.


 


“Lockbox” means
“Lockbox” as defined in the Master Agreement for Treasury Management Services
and related Lockbox and Collection Account Service Description.


 


“Margin” means a
rate per annum, expressed as a percentage, as more fully described in Section 1.5
(a).


 


“Master Agreement
for Treasury Management Services” means the Master Agreement for Treasury
Management Services, the related Acceptance of Services, and the Service
Description governing each treasury management service used by Company.


 


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“Material Adverse
Effect” means any of the following:


 


(ii)                                  A material adverse effect on the
business, operations, results of operations, assets, liabilities or financial
condition of Company;


 


(jj)                                  A material adverse effect on the ability
of Company to perform its obligations under the Loan Documents, or any other
document or agreement related to this Agreement;


 


(kk)                            A material adverse effect on the ability
of Wells Fargo to enforce the Indebtedness or to realize the intended benefits
of the Security Documents, including a material adverse effect on the validity
or enforceability of any Loan Document or of any rights against any Guarantor,
or on the status, existence, perfection, priority (subject to Permitted Liens)
or enforceability of any Lien securing payment or performance of the
Indebtedness; or


 


(ll)                                  Any claim against Company or threat of
litigation which if determined adversely to Company would cause Company to be
liable to pay an amount exceeding $500,000 or would result in the occurrence of
an event described in clauses (a), (b) and (c) above.


 


“Maturity Date” is
defined in Section 1.1 (b).


 


“Maximum Line
Amount” is defined in Section 1.1 (a).


 


“Minimum Interest
Charge” is defined in Section 1.5 (b).


 


“Multiemployer
Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of
ERISA) to which Company or any ERISA Affiliate contributes or is obligated to
contribute.


 


“Net Income” means
fiscal year-to-date after-tax net income from continuing operations, including
extraordinary losses but excluding extraordinary gains, all as determined in accordance
with GAAP.


 


“Obligation of
Reimbursement” is defined in Section 1.9 (b).


 


“OFAC” is defined
in Section 5.11 (b).


 


“Officer” means
with respect to Company, an officer if Company is a corporation, a manager if
Company is a limited liability company, or a partner if Company is a
partnership.


 


“Operating
Account” is defined in Section 1.3 (a), and maintained in
accordance with the terms of Wells Fargo’s Commercial Account Agreement in
effect for demand deposit accounts.


 


“Overadvance”
means the amount, if any, by which the unpaid principal amount of the Revolving
Note, plus the L/C Amount, is in excess of the then-existing Borrowing Base.


 


“Owned
Intellectual Property” is defined in Exhibit D.


 


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“Owner” means with
respect to Company, each Person having legal or beneficial title to an
ownership interest in Company or a right to acquire such an interest.


 


“Patent and
Trademark Security Agreement” means each Patent and Trademark Security
Agreement entered into between Company and Wells Fargo.


 


“Pension Plan”
means a pension plan (as defined in Section 3(2) of ERISA) maintained
for employees of Company or any ERISA Affiliate and covered by Title IV of
ERISA.


 


“Permitted Lien”
and “Permitted Liens” are defined in Section 5.3 (a).


 


“Person” means any
individual, corporation, partnership, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision of a governmental entity.


 


“Plan” means an
employee benefit plan (as defined in Section 3(3) of ERISA)
maintained for employees of Company or any ERISA Affiliate.


 


“Premises” is
defined in Section 2.4 (a).


 


“Prime Rate” means
at any time the rate of interest most recently announced by Wells Fargo at its
principal office as its Prime Rate, with the understanding that the Prime Rate
is one of Wells Fargo’s base rates, and serves as the basis upon which
effective rates of interest are calculated for those loans making reference to
it, and is evidenced by its recording in such internal publication or
publications as Wells Fargo may designate. Each change in the rate of interest
shall become effective on the date each Prime Rate change is announced by Wells
Fargo.


 


“Proceeds” shall
have the meaning given it under the UCC.


 


“Record” means
information that is inscribed on a tangible medium or that is stored in an
electronic or other medium and is retrievable in perceivable form, and includes
all information that is required to be reported by Company to Wells Fargo
pursuant to Section 5.1.


 


“Reportable Event”
means a reportable event (as defined in Section 4043 of ERISA), other than
an event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the Pension Benefit Guaranty Corporation.


 


“Revolving Note”
is defined in Section 1.1 (d).


 


“Security
Documents” means this Agreement, the Collateral Pledge Agreement, the Patent and
Trademark Security Agreement(s), and any other document delivered to Wells
Fargo from time to time to secure the Indebtedness.


 


“Security
Interest” is defined in Section 2.1.


 


“Special Account”
means a specified cash collateral account maintained with Wells Fargo or
another financial institution acceptable to Wells Fargo in connection with each
undrawn Letter of Credit issued by Wells Fargo, as more fully described in Section 1.10.


 


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“Standby Letter of
Credit Agreement” means an agreement governing the issuance of standby letters
of credit by Wells Fargo entered into between Company as applicant and Wells
Fargo as issuer.


 


“Subordinated
Creditor(s)” means any Person now or in the future subordinating indebtedness
of Company held by that Person to the payment of the Indebtedness.


 


“Subordinated
Debt” means any Debt, contingent equity, earnout or other obligations of
Company that is unsecured and has subordination terms, covenants, pricing and
other terms which have been approved in an Authenticated Record from Wells
Fargo and with respect to which the holder thereof has executed and delivered
to Wells Fargo a Subordination Agreement.


 


“Subordination
Agreement” means any agreement between Wells Fargo and the holder(s) of
Subordinated Debt pursuant to which such Subordinated Debt is subordinated in
right of payment, liens, security and remedies to all of the Indebtedness and
all of Wells Fargo’s rights, liens and remedies, in form and substance
satisfactory to Wells Fargo (if more than one, the “Subordination Agreements”).


 


“Subsidiary” means
any Person of which more than 50% of the outstanding ownership interests having
general voting power under ordinary circumstances to elect a majority of the
board of directors or the equivalent of such Person, irrespective of whether or
not at the time ownership interests of any other class or classes shall have or
might have voting power by reason of the happening of any contingency, is at
the time directly or indirectly owned by Company, by Company and one or more
other Subsidiaries, or by one or more other Subsidiaries.


 


“Termination Date”
is defined in Section 1.1 (b).


 


“UCC” means the
Uniform Commercial Code in effect in the state designated in this Agreement as
the state whose laws shall govern this Agreement, or in any other state whose
laws are held to govern this Agreement or any portion of this Agreement.


 


“Unused Amount” is
defined in Section 1.6 (b).


 


“Wells Fargo”
means Wells Fargo Bank, National Association in its broadest and most
comprehensive sense as a legal entity, and is not limited in its meaning to the
Wells Fargo Business Credit operating division, or to any other operating
division of Wells Fargo.


 


A-12














 


Exhibit B to Credit and
Security Agreement


 


PREMISES 


 


The
Premises referred to in the Credit and Security Agreement have an address of:


 


21211
Nordhoff Street, Chatsworth, CA 91311


16640
Stagg Street, Van Nuys, CA 91406


10101-C
Avenue D, Brooklyn, NY 11236


495
Boulevard #3, Elmwood Park, NJ 07407


 


B-1

















 


Exhibit C to Credit and
Security Agreement


 


Conditions Precedent


 


Wells
Fargo’s obligation to make an initial Advance shall be subject to the condition
that Wells Fargo shall have received the following, executed and in form and
content satisfactory to Wells Fargo. The following descriptions are limited
descriptions for reference purposes only and should not be construed as
limiting in any way the subject matter that Wells Fargo requires each document
to address.


 


A.                                   Loan Documents to be Executed by Company:


 


(1)                                 The Revolving
Note.


 


(2)                                 The Credit and
Security Agreement.


 


(3)                                 The Master
Agreement for Treasury Management Services, the Acceptance of Services, and the
related Service Description for each deposit or treasury management related
product or service that Company will subscribe to, including without limitation
the Loan Manager Service Description and the Lockbox and Collection Account
Service Description.


 


(4)                                 The Collateral
Pledge Agreement, pursuant to which Company grants Wells Fargo a security
interest in the shares of stock more fully described in the Collateral Pledge
Agreement, together with the stock certificates and stock powers, as security for
the full and prompt payment of Company’s Indebtedness.


 


(5)                                 The Patent and
Trademark Security Agreement.


 


(6)                                 The Ex-Im Loan
Documents.


 


(7)                                 A Standby
Letter of Credit Agreement and the Commercial Letter of Credit Agreement, and a
separate L/C Application for each Letter of Credit that Company has requested
that Wells Fargo issue.


 


 


B.                                   Loan Documents to be Executed by Third Parties:


 


(1)                                 The Guaranty by
Corporation of Capstone Turbine International, Inc., pursuant to which
that Person unconditionally guarantees the full and prompt payment of Company’s
Indebtedness.


 


(2)                                 The Security
Agreement of Capstone Turbine International, Inc., pursuant to which that
Person grants Wells Fargo a security interest in the personal property more
fully described in the Security Agreement, as security for the full and prompt
payment of Company’s Indebtedness.


 


C-1

















 


(3)                                 Certificates of
Insurance required under this Agreement, with all hazard insurance containing a
lender’s interest endorsement in Wells Fargo’s favor and with all liability
insurance naming Wells Fargo as additional insured.


 


(4)                                 Any Ex-Im Loan
Documents requiring the execution by a third party (including, but not limited
to, the Export-Import Bank of the United States).


 


C.                                   Documents
Related to the Premises


 


(1)                                 Any leases
pursuant to which Company is leasing the Premises from a lessor.


 


D.                                   Federal
Tax, State Tax, Judgment, UCC and Intellectual Property Lien Searches


 


(1)                                 Current
searches of Company in appropriate filing offices showing that (i) no
Liens have been filed and remain in effect against Company and Collateral
except Permitted Liens or Liens held by Persons who have agreed in an
Authenticated Record that upon receipt of proceeds of the initial Advances,
they will satisfy, release or terminate such Liens in a manner satisfactory to
Wells Fargo, and (ii) Wells Fargo has filed all UCC financing statements
necessary to perfect the Security Interest, to the extent the Security Interest
is capable of being perfected by filing.


 


(2)                                 Current
searches of Third Persons in appropriate filing offices with respect to any of
the Collateral that is in the possession of a Person other than Company that is
held for resale, showing that (i) UCC financing statements sufficient to
protect Company’s and Wells Fargo’s interests in such Collateral have been
filed, and (ii) no other secured party has filed a financing statement
against such Person and covering property similar to Company’s, other than
Company, or if there exists any such secured party, evidence that each such
party has received notice from Company and Wells Fargo sufficient to protect
Company’s and Wells Fargo’s interests in Company’s goods from any claim by such
secured party.


 


E.                                     Constituent Documents:


 


(1)                                 The Certificate
of Authority of Company, which shall include as part of the Certificate or as
exhibits to the Certificate, (i) the Resolution of Company’s Directors
and, if required, Owners, authorizing the execution, delivery and performance
of those Loan Documents and other documents or agreements described in or
related to this Agreement to which Company is a party, (ii) an Incumbency
Certificate containing the signatures of Company’s Officers or agents
authorized to execute and deliver those instruments, agreements and
certificates referenced in (i) above, as well as Advance requests, on
Company’s behalf, (iii) Company’s Constituent Documents, (iv) a
current Certificate of Good Standing or Certificate of Status issued by the
secretary of state or other appropriate authority for Company’s state of
organization, certifying that Company is in good standing and in compliance
with all applicable organizational requirements of the state of organization,
and (v) a Secretary’s Certificate of 


 


C-2

















 


Company’s secretary or assistant secretary certifying that the
Certificate of Authority of Company is true, correct and complete.


 


(2)                                 The Certificate
of Authority of Corporate Guarantor, which shall include as part of the Certificate
or as exhibits to the Certificate, (i) the Resolution of Guarantor’s
Directors and, if required, Owners, authorizing the execution, delivery and
performance of the Guaranty of Corporation, (ii) an Incumbency Certificate
containing the signatures of Guarantor’s Officers or agents authorized to
execute and deliver the Guaranty by Corporation on Guarantor’s behalf, (iii) Guarantor’s
Constituent Documents, (iv) a current Certificate of Good Standing or
Certificate of Status issued by the secretary of state or other appropriate
authority for Guarantor’s state of organization, certifying that Guarantor is
in good standing and in compliance with all applicable organizational
requirements of the state of organization, and (v) a Secretary’s
Certificate of Guarantor’s secretary or assistant secretary certifying that the
Certificate of Authority of Corporate Guarantor and all attached exhibits are
true, correct and complete.


 


(3)                                 Evidence that
Company is licensed or qualified to transact business in all jurisdictions
where the character of the property owned or leased or the nature of the
business transacted by it makes such licensing or qualification necessary.


 


(4)                                 An Officer’s
Certificate of an appropriate Officer of Company confirming, in his or her
capacity as an Officer, the representations and warranties set forth in this
Agreement.


 


(5)                                 A Customer
Identification Information Form and such other forms and verification as
Wells Fargo may need to comply with the U.S.A. Patriot Act.


 


F.                                     Miscellaneous Matters or Documents:


 


(1)                                 Final approval
of the Ex-Im Credit Agreement by the Export-Import Bank of the United States.


 


(2)                                 Payment of fees
and reimbursable costs and expenses due under this Agreement through the date
of initial Advance or issuance of a Letter of Credit, including all legal
expenses incurred through the date of the closing of this Agreement.


 


(3)                                 Evidence that
after making the initial Advance and issuing the initial Letter of Credit,
establishing all reserves under the Borrowing Base (including a reserve equal
to 10% of the outstanding balance (or initial projected balance) under the
Ex-Im Credit Agreement), paying all trade payables older than sixty (60) days
from invoice date, and paying all book overdrafts and closing costs and fees
(including any fees deemed paid), the combined availability under the Line of
Credit under this Agreement and the “Line of Credit” under the Ex-Im Credit
Agreement is not less than $750,000.


 


C-3

















 


(4)                                 Any documents
or other agreements entered into by Company and Wells Fargo that relate to any
swap, derivative, foreign exchange, hedge, deposit, treasury management or
similar product or transaction extended to Company by Wells Fargo not already
provided pursuant to the requirements of (A) through (E) above.


 


(5)                                 Such other
documents as Wells Fargo in its sole discretion may require.


 


C-4














 


Exhibit D
to Credit and Security Agreement


 


REPRESENTATIONS
AND WARRANTIES


 


Company represents and
warrants to Wells Fargo as follows:


 


(a)                                  Existence and
Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal
Employer Identification Number and Organizational Identification Number.
Company is a corporation, organized, validly existing and in good standing
under the laws of the State of Delaware and is licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary, except where failure to do so could not
reasonably be expected to have a Material Adverse Effect. Company has all
requisite power and authority to conduct its business, to own its properties
and to execute and deliver, and to perform all of its obligations under, those
Loan Documents and any other documents or agreements that it has entered into
with Wells Fargo related to this Agreement. During the last five (5) years
of its existence, Company has done business solely under the names set forth
below in addition to its correct legal name. Company’s chief executive office
and principal place of business is located at the address set forth below, and
all of Company’s records relating to its business or the Collateral are kept at
that location. All Inventory and Equipment is located at that location or at
one of the other locations set forth below. Company’s name, Federal Employer Identification
Number and Organization Identification Number are correctly set forth at the
end of the Agreement next to Company’s signature.


 


Trade Names


 


Capstone


Capstone Microturbine


 


Chief Executive Office / Principal Place of Business


 


21211 Nordhoff Street,
Chatsworth, California 91311


 


Other Inventory and Equipment Locations


 


Aard Stamping, 42075 Avenida
Alvarado, Temecula, CA 92590


Accurate Electronics, 20700
Lassen Street, Chatsworth, CA 91311


Alliance Metal Products,
20620 Superior Street, Unit #4, Chatsworth, CA 91311


Allied Fastners, 814 Calle
Plano, Camarillo, CA 93010


 


D-1

















 


AMANET, 16525 Sherman
Way#C-11, Van Nuys, CA 91406


American Aikoku Alpha, Inc.,
520 Lake Cook Rd, Ste. 180, Deerfield, IL 60015


Asigma, 2930 San Luis Rey
Road, Oceanside CA 92054


Auer Precision Co., 1050 W.
Birchwood, Mesa, AZ 85210


Axiomtek, 18138 Rowland,
City of Industry, CA 91748


Bebco Industries, 4725 Lawndale, Lamarque, TX 77568


Cliffdale Mfg. Company,
20409 Prairie Street, Chatsworth, CA 91311


Delafield, 152 Flower
Avenue, Duarte, CA 91010


Dry Coolers, 3232 Adventure
Ln., Oxford, MI 48371


Electro Controls, Inc.,
1625 Ferguson Ct., Sidney, OH 45365


Elgiloy Specialty Metals,
1565 Fleetwood Drive, Elgin, IL 68123


EM Corporation, 1 John
Downey Drive, New Britain, CT 06051


Enercon Engineering, Inc.,
No. 1 Altofrer Lane, East Peoria, IL 61611


Erico, Inc., 34600
Solon Road, Solon, OH 44139


Frost Magnatics, Inc.,
49643 Hartwell Road, Oakhurst, CA 93644


Fuses Unlimited, 9248 Eton Avenue,
Chatsworth, CA 91311


Ovison Manufacturing, 750 W.
Southern Ave., Tempe, AZ 85282


Extrude Hone, 8800 Somerset
Blvd., Paramount, CA 90723


J&F Machine, Inc.,
10563 Progress Way, Cypress, CA 90630


Karel Manufacturing, 280
Campillo Ave, Suite G, Calexico, CA 92231


Mc Donald Packaging, 2601
Garnsey Street, Santa Ana, CA 92707-3338


Pacific Transformer, 5399 E.
Hunter Avenue, Anaheim, CA 92807


Parker Energy Systems, 95
Edgewood Avenue, New Brittain, CT 06051


 


D-2

















 


Polymax, 1224 W 130th St.,
Gardena, CA 90247


Precision Resources, 13916
Cordary Avenue, Hawthorne, CA 90250


RND Enterprises, 42122 8th
Street East, Lancaster, CA 93535


Robinson FIN Machines, 13670
Highway 68 South, Kenton, OH 43326


Schneider’s Mfg. Co, Inc.,
11122 Pernrose Street, Sun Valley, CA 91352


Semikron, 11 Executive
Drive, Hudson, NH 03051


Sermatech Int’l, 7615
Fairview, Houston, TX 77041


Sermatech Int’l Tech, 24
Landry Street, Biddeford, ME 04005


T.H.T Machining, Inc.,
3617 West Cambridge Suite 1B, Phoenix, AZ 85009


Arbo Box, Inc., 12468
Putnam Street, Whittier, CA 90602


Trend Technologies LLC, 4626 Eucalyptus Ave., Chino, CA 91710


Triumph Components –
Arizonia, 6733 Westhills Road, Chandler AZ 85226


Turbocam, 5 Faraday Drive,
Dover NH 03820


CKE/Verdesis, 1000 Lucernce
Road, Lucernemines, PA 15754


Victron, 6600 Stevenson
Blvd., Fremont, CA 94538


Weldmac, 1533 North Johnson,
El Cajon, CA 92020


Windings, Inc., 208
North Valley Street, P.O. Box 566, New Ulm, MN 56073-0566


F Building, 2-26-5 Nishihara,
Shibuya-ku, Tokyo, JAPAN


1 Room 1105, No.317,
Xian Xia Road, Far East Int’l Plaza, Changning District Shanghai, China 200051


Via Fatebenefratelli 15,
Milano, Italy 20121


Suite 4, Floor 6, City
Gate East, Toll House Hill, Nottingham, England NG 1 5SF


Campos Eliseos 154-101,
11580 Polanco, Mexico


 


D-3

















 


(b)                                 Organization. The
Organizational Chart below shows the ownership structure of all Subsidiaries of
Company.


 


	
  Holder

  	
   

  	
  Type of

  Rights/Stock

  	
   

  	
  No. of Shares

  (after exercise of

  all rights to

  acquire shares)

  	
   

  	
  % Interest (on a

  fully diluted

  basis)

  	
   

  
	
  Capstone Turbine Corporation

  	
   

  	
  Common

  	
   

  	
  1000

  	
   

  	
  100

  	
  %

  



 


(c)                                  Authorization
of Borrowing; No Conflict as to Law or Agreements. The
execution, delivery and performance by Company of the Loan Documents and any
other documents or agreements described in or related to this Agreement, and
all borrowing under the Line of Credit have been authorized and do not (i) require
the consent or approval of Company’s Owners; (ii) require the authorization,
consent or approval by, or registration, declaration or filing with (except for
the filing of any financing statements or similar documents), or notice to, any
governmental agency or instrumentality, whether domestic or foreign, or any
other Person, except to the extent obtained, accomplished or given prior to the
date of this Agreement; (iii) violate any provision of any law, rule or
regulation (including Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in effect
having applicability to Company or of Company’s Constituent Documents; (iv) result
in a breach of or constitute a default or event of default under any indenture
or loan or credit agreement or any other material agreement, lease or
instrument to which Company is a party or by which it or its properties may be
bound or affected; or (v) result in, or require, the creation or
imposition of any Lien (other than the Security Interest) upon or with respect
to any of the properties now owned or subsequently acquired by Company.


 


(d)                                 Legal
Agreements. This Agreement, the other Loan Documents, and any
other document or agreement described in or related to this Agreement, will
constitute the legal, valid and binding obligations of Company, enforceable
against Company in accordance with their respective terms.


 


(e)                                  Subsidiaries. Except as
disclosed below, Company has no Subsidiaries.


 


Subsidiaries


 


Capstone Turbine
International, Inc., a Delaware corporation


 


 


(f)                                    Financial Condition;
No Adverse Change. Company has furnished to Wells Fargo its audited
financial statements for its fiscal year ended March 31, 2008, and
unaudited financial statements for the fiscal-year-to-date period ended September 30,
2008, and those statements fairly present Company’s financial condition as of
those dates and the results of Company’s operations and cash


 


D-4

















 


flows for the periods then
ended and were prepared in accordance with GAAP. Since the date of the most
recent financial statements, there has been no Material Adverse Effect.


 


(g)                                 Litigation. Except as
disclosed below, there are no actions, suits or proceedings pending or, to
Company’s knowledge, threatened against or affecting Company or any of its
Affiliates or the properties of Company or any of its Affiliates before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to Company
or any of its Affiliates, would have a Material Adverse Effect on the financial
condition, properties or operations of Company or any of its Affiliates.


 


Litigation


 


In December 2001,
a purported stockholder class action lawsuit was filed in the United States
District Court for the Southern District of New York (the “District Court”)
against the Company, two of its then officers, and the underwriters of the
Company’s initial public offering. The suit purports to be a class action filed
on behalf of purchasers of the Company’s common stock during the period from June 28,2000
to December 6,2000. An amended complaint was filed on April 19,2002.
The Plaintiffs allege that the underwriter defendants agreed to allocate stock
in the Company’s June 28, 2000 initial public offering and November 16,2000
secondary offering to certain investors in exchange for excessive and
undisclosed commissions and agreements by those investors to make additional
purchases of stock in the aftermarket at pre-determined prices. The Plaintiffs
allege that the prospectuses for these two public offerings were false and
misleading in violation of the securities laws because they did not disclose these
arrangements.


 


(h)                                 Intellectual
Property Rights.


 


(i)                                     Owned
Intellectual Property. Set forth below is a complete list of all
patents, applications for patents, trademarks, applications to register
trademarks, service marks, applications to register service marks, mask works,
trade dress and copyrights for which Company is the owner of record (the “Owned
Intellectual Property”). Except as set forth below, (A) Company owns the
Owned Intellectual Property free and clear of all restrictions (including
covenants not to sue any Person), court orders, injunctions, decrees, writs or
Liens, whether by agreement memorialized in a Record Authenticated by Company
or otherwise, (B) no Person other than Company owns or has been granted
any right in the Owned Intellectual Property, (C) all Owned Intellectual
Property is valid, subsisting and enforceable, and (D) Company has taken all
commercially reasonable action necessary to maintain and protect the Owned
Intellectual Property.


 


D-5

















 


(i)                                     Agreements with
Employees and Contractors. Company has entered into a
legally enforceable agreement with each Person that is an employee or
subcontractor obligating that Person to assign to Company, without additional
compensation, any Intellectual Property Rights created, discovered or invented
by that Person in the course of that Person’s employment or engagement with
Company (except to the extent prohibited by law), and further obligating that
Person to cooperate with Company, without additional compensation, to secure
and enforce the Intellectual Property Rights on behalf of Company, unless the job
description of the Person is such that it is not reasonably foreseeable that
the employee or subcontractor will create, discover, or invent Intellectual
Property Rights.


 


(ii)                                  Intellectual
Property Rights Licensed from Others. Set forth below
is a complete list of all agreements under which Company has licensed
Intellectual Property Rights from another Person (“Licensed Intellectual
Property”) other than readily available, non-negotiated licenses of computer
software and other intellectual property used solely for performing accounting,
word processing and similar administrative tasks (“Off-the-shelf Software”) and
a summary of any ongoing payments Company is obligated to make with respect
thereto. Except as set forth below or in any other Record, copies of which have
been given to Wells Fargo, Company’s licenses to use the Licensed Intellectual
Property are free and clear of all restrictions, Liens, court orders,
injunctions, decrees, or writs, whether by agreed to in a Record Authenticated
by Company or otherwise. Except as disclosed below, Company is not
contractually obligated to make royalty payments of a material nature, or pay
fees to any owner of, licensor of, or other claimant to, any Licensed
Intellectual Property Rights (excluding Off-the-shelf Software”).


 


(iii)                               Other
Intellectual Property Needed for Business. Except for
Off-the-shelf Software and as disclosed below, the Owned Intellectual Property
and the Licensed Intellectual Property constitute all Intellectual Property
Rights used or necessary to conduct Company’s business as it is presently
conducted or as Company reasonably foresees conducting it.


 


(iv)                              Infringement. Except as
disclosed below, Company has no knowledge of, and has not received notice
either orally or in a Record alleging, any Infringement of another Person’s
Intellectual Property Rights (including any claim set forth in a Record that
Company must license or refrain from using the Intellectual Property Rights of
any Person) nor, to Company’s knowledge, is there any threatened claim or any
reasonable basis for any such claim.


 


D-6














 


PATENTS AND PATENT APPLICATIONS


 


I.                                                Capstone
Issued U. S. Patents


 


	
  No

  	
   

  	
  Issue No.

  	
   

  	
  Description

  	
   

  	
  App. Ser. No.

  	
   

  	
  Filing Date

  	
   

  	
  Issue Date

  
	
  1.

  	
   

  	
  D433,997

  	
   

  	
  Turbogenerator

  	
   

  	
  29/111,104

  	
   

  	
  9/20/99

  	
   

  	
  11/21/00

  
	
  2.

  	
   

  	
  5,427,455

  	
   

  	
  Compliant Foil Hydrodynamic Fluid Film Radial Bearing

  	
   

  	
  229,205

  	
   

  	
  4/18/94

  	
   

  	
  6/27/95

  
	
  3.

  	
   

  	
  5,497,615

  	
   

  	
  Gas Turbine Generator Set

  	
   

  	
  180,881

  	
   

  	
  3/21/94

  	
   

  	
  3/12/96

  
	
  4.

  	
   

  	
  5,529,398

  	
   

  	
  Compliant Foil Hydrodynamic Fluid Film Thrust Bearing

  	
   

  	
  08/363,540

  	
   

  	
  12/23/94

  	
   

  	
  6/25/96

  
	
  5.

  	
   

  	
  5,685,156

  	
   

  	
  Catalytic Combustion System

  	
   

  	
  650,625

  	
   

  	
  5/20/96

  	
   

  	
  11/11/97

  
	
  6.

  	
   

  	
  5,697,848

  	
   

  	
  Compound Shaft with Flexible Disk Coupling

  	
   

  	
  440,541

  	
   

  	
  5/12/95

  	
   

  	
  12/16/97

  
	
  7.

  	
   

  	
  5,752,380

  	
   

  	
  Liquid Fuel Pressurization and Control System

  	
   

  	
  730,941

  	
   

  	
  10/16/96

  	
   

  	
  5/19/98

  
	
  8.

  	
   

  	
  5,791,868

  	
   

  	
  Thrust Load Compensating System for a Compliant Foil
  Hydrodynamic Fluid
  Film Thrust Bearing

  	
   

  	
  663,732

  	
   

  	
  6/14/96

  	
   

  	
  8/11/98

  
	
  9.

  	
   

  	
  5,819,524

  	
   

  	
  Gaseous Fuel Compression and Control S&M

  	
   

  	
  730,945

  	
   

  	
  10/16/96

  	
   

  	
  10/13/98

  
	
  10.

  	
   

  	
  5,827,040

  	
   

  	
  Hydrostatic Augmentation
  of a Compliant
  Foil Hydrodynamic Fluid Film
  Thrust Bearing

  	
   

  	
  662,250

  	
   

  	
  6/14/96

  	
   

  	
  10/27/98

  
	
  11.

  	
   

  	
  5,850,732

  	
   

  	
  Low Emissions Combustion System for a Gas Turbine Engine

  	
   

  	
  855,210

  	
   

  	
  5/13/97

  	
   

  	
  12/22/98

  
	
  12.

  	
   

  	
  5,850,733

  	
   

  	
  Gaseous Fuel Compression and Control S&M

  	
   

  	
  85,817

  	
   

  	
  5/27/98

  	
   

  	
  12/22/98

  
	
  13.

  	
   

  	
  5,873,235

  	
   

  	
  Liquid Fuel Pressurization and Control Method

  	
   

  	
  990,467

  	
   

  	
  12/15/97

  	
   

  	
  2/23/99

  
	
  14.

  	
   

  	
  5,894,720

  	
   

  	
  Low Emissions Combination System For A Gas Turbine
  Engine Employing Flame Stabilization Within The Injector Tube

  	
   

  	
  09/168,299

  	
   

  	
  10/7/98

  	
   

  	
  4/20/99

  
	
  15.

  	
   

  	
  5,899,673

  	
   

  	
  Helical Flow Compressor/Turbine
  Permanent
  Magnet Motor/Generator

  	
   

  	
  08/730,946

  	
   

  	
  10/16/96

  	
   

  	
  5/4/99

  
	
  16.

  	
   

  	
  5,903,116

  	
   

  	
  Turbogenerator/Motor Controller

  	
   

  	
  08/924,966

  	
   

  	
  9/8/97

  	
   

  	
  5/11/99

  
	
  17.

  	
   

  	
  5,915,841 See Re39190

  	
   

  	
  Compliant Foil Fluid Film Radial Bearing

  	
   

  	
  09/002,690

  	
   

  	
  1/5/98

  	
   

  	
  6/29/99

  
	
  18.

  	
   

  	
  5,918,985 See Re38373

  	
   

  	
  Compliant Foil Fluid Thrust Film Bearing With a Tilting Pad Underspring

  	
   

  	
  08/933,695

  	
   

  	
  9/19/97

  	
   

  	
  7/6/99

  
	
  19.

  	
   

  	
  5,964,663

  	
   

  	
  Double Diaphragm Compound Shaft

  	
   

  	
  08/934,430

  	
   

  	
  9/19/97

  	
   

  	
  10/12/99

  
	
  20.

  	
   

  	
  5,966,926

  	
   

  	
  Liquid Fuel Injector Purge System

  	
   

  	
  08/864,279

  	
   

  	
  5/28/97

  	
   

  	
  10/19/99

  
	
  21.

  	
   

  	
  6,016,658

  	
   

  	
  Low Emissions Combustion System

  	
   

  	
  09/182,966

  	
   

  	
  10/8/98

  	
   

  	
  1/25/00

  
	
  22.

  	
   

  	
  6,020,713

  	
   

  	
  Turbogenerator/Motor Pulse Width Modulated Controller

  	
   

  	
  09/002,890

  	
   

  	
  1/5/98

  	
   

  	
  2/1/00

  
	
  23.

  	
   

  	
  6,023,135

  	
   

  	
  Turbogenerator/Motor Control System

  	
   

  	
  09/080,892

  	
   

  	
  5/18/98

  	
   

  	
  2/8/00

  
	
  24.

  	
   

  	
  6,031,294

  	
   

  	
  Turbogenerator/Motor Controller With Ancillary Energy Storage/Discharge

  	
   

  	
  09/003,078

  	
   

  	
  1/5/98

  	
   

  	
  2/29/00

  
	
  25.

  	
   

  	
  6,037,687

  	
   

  	
  Double Diaphragm Compound Shaft

  	
   

  	
  09/224,208

  	
   

  	
  12/30/98

  	
   

  	
  3/14/00

  



 


D-7

















 


	
  No

  	
   

  	
  Issue
  No.

  	
   

  	
  Description

  	
   

  	
  App.
  Ser. No.

  	
   

  	
  Filing
  Date

  	
   

  	
  Issue
  Date

  
	
  26.

  	
   

  	
  6,049,195

  	
   

  	
  Split Generator Winding Inverter

  	
   

  	
  09/356,065

  	
   

  	
  7/19/99

  	
   

  	
  4/11/00

  
	
  27.

  	
   

  	
  6,062,016

  	
   

  	
  Gas Turbine Engine Fixed Speed Light-Off

  	
   

  	
  08/837,600

  	
   

  	
  4/21/97

  	
   

  	
  5/16/00

  
	
  28.

  	
   

  	
  6,065,281

  	
   

  	
  Liquid Fuel Injector and Injector System

  	
   

  	
  09/357,523

  	
   

  	
  7/19/99

  	
   

  	
  5/23/00

  
	
  29.

  	
   

  	
  6,070,404

  	
   

  	
  Gaseous Fuel Compression and Control Method

  	
   

  	
  09/086,615

  	
   

  	
  5/27/98

  	
   

  	
  7/6/00

  
	
  30.

  	
   

  	
  6,082,112

  	
   

  	
  Liquid Fuel Injector

  	
   

  	
  09/357,519

  	
   

  	
  7/19/99

  	
   

  	
  7/4/00

  
	
  31.

  	
   

  	
  6,093,975

  	
   

  	
  Turbogenerator/Motor Control

  	
   

  	
  09/181,388

  	
   

  	
  10/27/98

  	
   

  	
  7/25/00

  
	
  32.

  	
   

  	
  6,094,799

  	
   

  	
  Method of Making Double Diaphragm Compound Shaft

  	
   

  	
  09/224,206

  	
   

  	
  12/30/98

  	
   

  	
  8/1/00

  
	
  33.

  	
   

  	
  6,155,780

  	
   

  	
  Ceramic Radial Flow Turbine Heat Shield

  	
   

  	
  09/374,916

  	
   

  	
  8/13/99

  	
   

  	
  12/5/00

  
	
  34.

  	
   

  	
  6,158,892

  	
   

  	
  Fluid Film Thrust Bearing Having Integral Compliant Foils

  	
   

  	
  09/383,067

  	
   

  	
  8/25/99

  	
   

  	
  12/12/00

  
	
  35.

  	
   

  	
  6,169,334

  	
   

  	
  Command and Control S&M for Multiple Turbogenerators

  	
   

  	
  09/181,389

  	
   

  	
  10/27/98

  	
   

  	
  1/2/01

  
	
  36.

  	
   

  	
  6,178,751

  	
   

  	
  Liquid Fuel Injector System

  	
   

  	
  09/356,479

  	
   

  	
  7/19/99

  	
   

  	
  1/30/01

  
	
  37.

  	
   

  	
  6,190,048

  	
   

  	
  Compliant Foil Fluid Film Radial Bearing

  	
   

  	
  09/195,354

  	
   

  	
  11/18/98

  	
   

  	
  2/20/01

  
	
  38.

  	
   

  	
  6,192,668

  	
   

  	
  M&A for Compressing Gaseous Fuel In a Turbine Engine

  	
   

  	
  09/420,494

  	
   

  	
  10/19/99

  	
   

  	
  2/27/01

  
	
  39.

  	
   

  	
  6,194,794

  	
   

  	
  Integrated Reciprocating
  Engine Generator
  Set and Turbogenerator System
  and Method

  	
   

  	
  09/359,815

  	
   

  	
  7/23/99

  	
   

  	
  2/27/01

  
	
  40.

  	
   

  	
  6,213,234

  	
   

  	
  Vehicle Powered by a Fuel Cell/Gas

  	
   

  	
  09/202,968

  	
   

  	
  —

  	
   

  	
  4/10/01

  
	
  41.

  	
   

  	
  6,239,520

  	
   

  	
  Permanent Magnet Rotor Cooling S&M

  	
   

  	
  09/558,406

  	
   

  	
  4/24/00

  	
   

  	
  5/29/01

  
	
  42.

  	
   

  	
  6,265,786

  	
   

  	
  Turbogenerator Power Control System

  	
   

  	
  09/181,213

  	
   

  	
  10/27/98

  	
   

  	
  7/24/01

  
	
  43.

  	
   

  	
  6,274,945

  	
   

  	
  Combustion Control Method and System

  	
   

  	
  09/459,719

  	
   

  	
  12/13/99

  	
   

  	
  8/14/01

  
	
  44.

  	
   

  	
  6,281,596

  	
   

  	
  Automatic Turbogenerator Restarting M&S

  	
   

  	
  09/444,487

  	
   

  	
  11/19/99

  	
   

  	
  8/28/01

  
	
  45.

  	
   

  	
  6,281,601

  	
   

  	
  Turbogenerator Power Control S&M

  	
   

  	
  09/360,043

  	
   

  	
  7/23/99

  	
   

  	
  8/28/01

  
	
  46.

  	
   

  	
  6,325,142

  	
   

  	
  Turbogenerator Power Control System

  	
   

  	
  09/316,896

  	
   

  	
  5/22/99

  	
   

  	
  12/4/01

  
	
  47.

  	
   

  	
  6,361,271

  	
   

  	
  Crossing Spiral Compressor/Pump

  	
   

  	
  09/444,014

  	
   

  	
  11/19/99

  	
   

  	
  3/26/02

  
	
  48.

  	
   

  	
  6,381,944

  	
   

  	
  M&A for Compressing Gaseous Fuel in a Turbine Engine

  	
   

  	
  09/772,537

  	
   

  	
  1/29/01

  	
   

  	
  5/7/02

  
	
  49.

  	
   

  	
  6,405,522

  	
   

  	
  S&M for Modular Control of a Multi-Fuel Low Emissions Turbogenerator

  	
   

  	
  09/453,825

  	
   

  	
  12/1/99

  	
   

  	
  6/18/02

  
	
  50.

  	
   

  	
  6,410,992

  	
   

  	
  S&M for Dual Mode Control of a Turbogenerator/Motor

  	
   

  	
  09/644,527

  	
   

  	
  8/23/00

  	
   

  	
  6/25/02

  
	
  51.

  	
   

  	
  6,425,732

  	
   

  	
  Shrouded Rotary Compressor

  	
   

  	
  09/643,625

  	
   

  	
  8/22/00

  	
   

  	
  7/30/02

  
	
  52.

  	
   

  	
  6,437,468

  	
   

  	
  Permanent Magnet Rotor Cooling System and Method

  	
   

  	
  09/829,778

  	
   

  	
  4/10/01

  	
   

  	
  8/20/02

  



 


D-8

















 


	
  No

  	
   

  	
  Issue No.

  	
   

  	
  Description

  	
   

  	
  App. Ser. No.

  	
   

  	
  Filing Date

  	
   

  	
  Issue Date

  
	
  53.

  	
   

  	
  6,438,937

  	
   

  	
  S&M for Modular Control of a Multi-Fuel Low Emissions Turbogenerator

  	
   

  	
  09/972,672

  	
   

  	
  10/5/01

  	
   

  	
  8/27/02

  
	
  54.

  	
   

  	
  6,453,658

  	
   

  	
  Multi-Stage Multi-Plane Combustion System for a Gas Turbine Engine

  	
   

  	
  09/512,986

  	
   

  	
  2/24/00

  	
   

  	
  9/24/02

  
	
  55.

  	
   

  	
  6,468,051

  	
   

  	
  Helical Flow
  Compressor/Turbine Permanent Magnet Motor/ Generator

  	
   

  	
  09/800,900

  	
   

  	
  3/7/01

  	
   

  	
  10/22/02

  
	
  56.

  	
   

  	
  6,487,096

  	
   

  	
  Power Controller

  	
   

  	
  09/207,817

  	
   

  	
  12/8/98

  	
   

  	
  11/26/02

  
	
  57.

  	
   

  	
  6,489,692

  	
   

  	
  Method and Apparatus for Controlling Rotation of A Magnetic Rotor

  	
   

  	
  09/459,426

  	
   

  	
  12/13/99

  	
   

  	
  12/3/02

  
	
  58.

  	
   

  	
  6,495,929

  	
   

  	
  Turbogenerator Power Control System

  	
   

  	
  09/829,035

  	
   

  	
  4/9/01

  	
   

  	
  12/17/02

  
	
  59.

  	
   

  	
  6,522,030

  	
   

  	
  Multiple Power Generator Connection Method and System

  	
   

  	
  09/624,315

  	
   

  	
  7/24/00

  	
   

  	
  2/18/03

  
	
  60.

  	
   

  	
  6,539,720

  	
   

  	
  Generated System Bottoming Cycle

  	
   

  	
  09/985,789

  	
   

  	
  11/6/01

  	
   

  	
  4/1/03

  
	
  61.

  	
   

  	
  6,552,440

  	
   

  	
  Automatic Turbogenerator Restarting Method & System

  	
   

  	
  09/900,246

  	
   

  	
  7/6/01

  	
   

  	
  4/22/03

  
	
  62.

  	
   

  	
  6,612,112

  	
   

  	
  Transient Turbine Exhaust Temperature Control For A Turbogenerator

  	
   

  	
  10/012,770

  	
   

  	
  11/5/01

  	
   

  	
  9/2/03

  
	
  63.

  	
   

  	
  6,629,064

  	
   

  	
  Apparatus and Method for Distortion Compensation

  	
   

  	
  09/265,729

  	
   

  	
  3/9/99

  	
   

  	
  9/30/03

  
	
  64.

  	
   

  	
  6,634,176

  	
   

  	
  Turbine Exhaust Vortex Disrupter

  	
   

  	
  09/977,445

  	
   

  	
  10/15/01

  	
   

  	
  10/21/03

  
	
  65.

  	
   

  	
  6,639,328

  	
   

  	
  Microturbine/Capacitor Power Distribution System

  	
   

  	
  10/033,826

  	
   

  	
  12/19/01

  	
   

  	
  10/28/03

  
	
  66.

  	
   

  	
  6,657,332

  	
   

  	
  Turbogenerator Cooling System

  	
   

  	
  09/984,501

  	
   

  	
  10/30/01

  	
   

  	
  12/2/03

  
	
  67.

  	
   

  	
  6,657,348

  	
   

  	
  Rotor Shield For Magnetic Rotary Machine

  	
   

  	
  09/985,439

  	
   

  	
  11/2/01

  	
   

  	
  12/2/03

  
	
  68.

  	
   

  	
  6,664,653

  	
   

  	
  Command and Control System and Method for
  Controlling Operational Sequencing
  of Multiple Turbogenerators Using a Selected Control Mode

  	
   

  	
  09/689,577

  	
   

  	
  10/12/00

  	
   

  	
  12/16/03

  
	
  69.

  	
   

  	
  6,664,654

  	
   

  	
  System and Method for Dual Mode Control of a
  Turbogenerator/Motor

  	
   

  	
  10/158,095

  	
   

  	
  5/29/02

  	
   

  	
  12/16/03

  
	
  70.

  	
   

  	
  6,675,583

  	
   

  	
  Combustion Method

  	
   

  	
  09/969,491

  	
   

  	
  11/2/01

  	
   

  	
  1/13/04

  
	
  71.

  	
   

  	
  6,683,389

  	
   

  	
  Hybrid Electric Vehicle DC Power Generation System

  	
   

  	
  09/938,101

  	
   

  	
  8/23/01

  	
   

  	
  1/27/04

  
	
  72.

  	
   

  	
  6,684,642

  	
   

  	
  Gas Turbine Engine Having a Multi-Stage Multi-Plane
  Combustion System

  	
   

  	
  10/171,684

  	
   

  	
  6/17/02

  	
   

  	
  2/3/04

  
	
  73.

  	
   

  	
  6,702,463

  	
   

  	
  Compliant Foil Thrust Bearing

  	
   

  	
  09/714,349

  	
   

  	
  11/15/00

  	
   

  	
  3/9/04

  
	
  74.

  	
   

  	
  6,709,243

  	
   

  	
  Rotary Machine With Reduced Axial Thrust Loads

  	
   

  	
  09/696,316

  	
   

  	
  10/25/00

  	
   

  	
  3/23/04

  
	
  75.

  	
   

  	
  6,713,892

  	
   

  	
  Automatic Turbogenerator Restarting Method and System

  	
   

  	
  09/900,635

  	
   

  	
  7/6/01

  	
   

  	
  3/30/04

  
	
  76.

  	
   

  	
  6,720,685

  	
   

  	
  Turbogenerator Cooling System (Div Of 09/984,501)

  	
   

  	
  10/339,247

  	
   

  	
  1/9/03

  	
   

  	
  4/13/04

  



 


D-9

















 


	
  No

  	
   

  	
  Issue No.

  	
   

  	
  Description

  	
   

  	
  App. Ser. No.

  	
   

  	
  Filing Date

  	
   

  	
  Issue Date

  	
   

  
	
  77.

  	
   

  	
  6,732,531

  	
   

  	
  Combustion System for a Gas Turbine Engine With Variable Airflow Pressure Actuated Premix Injector

  	
   

  	
  10/101,032

  	
   

  	
  3/18/02

  	
   

  	
  5/11/04

  	
   

  
	
  78.

  	
   

  	
  6,747,372

  	
   

  	
  Distributed Control
  Method for Multiple Connected Generators

  	
   

  	
  10/007,219

  	
   

  	
  11/2/01

  	
   

  	
  6/8/04

  	
   

  
	
  79.

  	
   

  	
  6,748,742

  	
   

  	
  Power Offsetting
  Compressor System

  	
   

  	
  10/008,047

  	
   

  	
  11/7/01

  	
   

  	
  6/15/04

  	
   

  
	
  80.

  	
   

  	
  6,751,941

  	
   

  	
  Foil Bearing Rotary Flow Compressor With Control Valve

  	
   

  	
  10/080,179

  	
   

  	
  2/19/02

  	
   

  	
  6/22/04

  	
   

  
	
  81.

  	
   

  	
  6,784,565

  	
   

  	
  Turbogenerator With
  Electrical Brake

  	
   

  	
  10/077,121

  	
   

  	
  2/15/02

  	
   

  	
  8/31/04

  	
   

  
	
  82.

  	
   

  	
  6,787,933

  	
   

  	
  Power Generation System
  Having Transient
  Ride-Through/Load-Leveling Capabilities

  	
   

  	
  10/043,694

  	
   

  	
  1/10/2002

  	
   

  	
  9/7/2004

  	
   

  
	
  83.

  	
   

  	
  6,804,946

  	
   

  	
  Combustion System With
  Shutdown Fuel
  Purge

  	
   

  	
  10/720,145

  	
   

  	
  11/25/03

  	
   

  	
  10/19/04

  	
   

  
	
  84.

  	
   

  	
  6,812,586

  	
   

  	
  Distributed Power
  System

  	
   

  	
  10/066,349

  	
   

  	
  1/30/02

  	
   

  	
  11/2/04

  	
   

  
	
  85.

  	
   

  	
  6,812,587

  	
   

  	
  Continuous Power Supply
  With Back-Up Generation

  	
   

  	
  10/300,936

  	
   

  	
  11/21/02

  	
   

  	
  11/2/04

  	
   

  
	
  86.

  	
   

  	
  6,815,932

  	
   

  	
  Detection of Islanded
  Behavior and Anti-Islanding
  Protection of a Generator in Grid-Connected Mode

  	
   

  	
  09/975,148

  	
   

  	
  10/12/01

  	
   

  	
  11/9/04

  	
   

  
	
  87.

  	
   

  	
  6,864,595

  	
   

  	
  Detection of Islanded
  Behavior and Anti-Islanding
  Protection of a Generator in Grid-Connected Mode

  	
   

  	
  10/812,979

  	
   

  	
  3/31/04

  	
   

  	
  3/8/05

  	
   

  
	
  88.

  	
   

  	
  6,870,279

  	
   

  	
  Method And System For
  Control Of Turbogenerator
  Power And Temperature

  	
   

  	
  10/037,916

  	
   

  	
  1/2//02

  	
   

  	
  3/22/05

  	
   

  
	
  89.

  	
   

  	
  6,951,110

  	
   

  	
  Annular Recuperator
  Design

  	
   

  	
  09/966,514

  	
   

  	
  9/27/01

  	
   

  	
  10/4/05

  	
   

  
	
  90.

  	
   

  	
  6,958,550

  	
   

  	
  Method and System For
  Control of Turbogenerator
  Power and Temperature

  	
   

  	
  10/887,297

  	
   

  	
  7/9/04

  	
   

  	
  10/25/05

  	
   

  
	
  91.

  	
   

  	
  6,960,840

  	
   

  	
  Integrated Turbine
  Power Generation System
  With Catalytic Reactor

  	
   

  	
  10/706,070

  	
   

  	
  11/13/03

  	
   

  	
  11/1/05

  	
   

  
	
  92.

  	
   

  	
  7,065,873

  	
   

  	
  Recuperator Assembly
  and Procedures

  	
   

  	
  10/917,118

  	
   

  	
  8/12/04

  	
   

  	
  6/27/06

  	
   

  
	
  93.

  	
   

  	
  7,092,262

  	
   

  	
  Pre-charge Circuit and Method

  	
   

  	
  10/813,550

  	
   

  	
  3/31/04

  	
   

  	
  8/15/06

  	
   

  
	
  94.

  	
   

  	
  7,112,036

  	
   

  	
  Rotor and Bearing
  System For A Turbomachine

  	
   

  	
  10/862,136

  	
   

  	
  6/4/04

  	
   

  	
  9/26/06

  	
   

  
	
  95.

  	
   

  	
  7,147,050

  	
   

  	
  Recuperator
  Construction For a Gas Turbine
  Engine

  	
   

  	
  10/917,107

  	
   

  	
  8/12/04

  	
   

  	
  12/12/06

  	
   

  
	
  96.

  	
   

  	
  7,415,764

  	
   

  	
  Recuperator Assembly
  And Procedures

  	
   

  	
  11/336,718

  	
   

  	
  1/20/06

  	
   

  	
  8/26/08

  	
   

  
	
  97.

  	
   

  	
  RE38,373

  	
   

  	
  Compliant Foil Fluid Thrust Film Bearing With a Tilting Pad Underspring (Reissue of 5,918,985)

  	
   

  	
  09/900,775

  	
   

  	
  7/6/01

  	
   

  	
  12/30/03

  	
   

  
	
  98.

  	
   

  	
  RE39,190

  	
   

  	
  Compliant Foil Fluid
  Film Radial Bearing
  (Reissue of 5,915,841.)

  	
   

  	
  09/895,568

  	
   

  	
  —

  	
   

  	
  7/18/06

  	
   

  



 


D-10














 


II.                CAPSTONE PENDING U.S. PATENT
APPLICATIONS


 


	
  Description

  	
   

  	
  App.
  Ser. No.

  	
   

  	
  Filing
  Date

  	
   

  
	
  Turbgenerator/Motor
  Controller (Reissue)

  	
   

  	
  09/853,852

  	
   

  	
  5/11/01

  	
   

  
	
  Emergency
  Elevator System Interface Package

  	
   

  	
  11/517,957

  	
   

  	
  9/8/06

  	
   

  
	
  Compliant
  Foil Fluid Film Radial Bearing Or Seal

  	
   

  	
  11/740,798

  	
   

  	
  4/26/2007

  	
   

  



 


III.              CAPSTONE ISSUED FOREIGN PATENTS


 


	
  Issue No.

  	
   

  	
  Description

  	
   

  	
  Country

  	
   

  	
  App.
  Ser. No.

  
	
  0746680

  69527283.7 in DE

  	
   

  	
  Gas Turbine Engine
  Generator Set

  (U.S. 5,497,615)

  	
   

  	
  Europe

  	
   

  	
  95909213.1

  
	
  0 799 388

  69519684.7 in DE

  	
   

  	
  Compliant Foil Hydrodynamic
  Fluid Film Thrust Bearing

  (U.S. 5,529,398)

  	
   

  	
  Europe

  	
   

  	
  95937420.8

  
	
  0 756 672

  69522683.5 in DE

  	
   

  	
  Compliant Foil
  Hydrodynamic Fluid Radial Bearing

  (U.S. 5,427,455)

  	
   

  	
  Europe

  	
   

  	
  95914005.4

  
	
  1001180

  69532538.8 in DE

  	
   

  	
  Compliant Foil
  Hydrodynamic Fluid Film Thrust Bearing (divisional)

  (U.S. 5,529,398)

  	
   

  	
  Europe

  	
   

  	
  00200446.3

  
	
  3725548

  	
   

  	
  Compliant Foil
  Hydrodynamic Fluid Film Thrust Bearing

  (U.S. 5,529,398)

  	
   

  	
  Japan

  	
   

  	
  0520429/96

  
	
  0903466

  69824801.5 in DE

  	
   

  	
  Double Diaphragm Compound
  Shaft

  (U.S. 5,964,663)

  	
   

  	
  Europe

  	
   

  	
  98307606.8

  
	
  0878665

  	
   

  	
  Low Emissions
  Combustion System For a Gas Turbine

  Engine (U.S. 5,850,732)

  	
   

  	
  Europe

  	
   

  	
  98303693.0

  
	
  122912

  	
   

  	
  Low Emissions
  Combustion System For A Gas Turbine Engine

  (U.S. 5,850,732)

  	
   

  	
  Israel

  	
   

  	
  122912

  
	
  112275 

  	
   

  	
  Gas Turbine Engine
  Generator Set

  (U.S. 5,497,615) 

  	
   

  	
  Israel 

  	
   

  	
  112275 

  
	
  117546

  	
   

  	
  Compliant Foil
  Hydrodynamic Fluid Film Thrust Bearing

  (U.S. 5,529,398)

  	
   

  	
  Israel

  	
   

  	
  117546

  
	
  113289

  	
   

  	
  Compliant Foil
  Hydrodynamic Fluid Radial Bearing

  (U.S. 5,427,455)

  	
   

  	
  Israel

  	
   

  	
  113289

  
	
  118216

  	
   

  	
  Compound Shaft

  (U.S. 5,697,848)

  	
   

  	
  Israel

  	
   

  	
  118216

  



 


D-11

















 


	
  Issue No.

  	
   

  	
  Description

  	
   

  	
  Country

  	
   

  	
  App.
  Ser. No.

  
	
  121531

  	
   

  	
  Gaseous Fuel
  Compression And Control System

  (U.S. 5,819,524)

  	
   

  	
  Israel

  	
   

  	
  121531

  
	
  124664

  	
   

  	
  Compliant Foil Fluid Film
  Thrust Bearing

  (U.S. 5,918,985)

  	
   

  	
  Israel

  	
   

  	
  124664

  
	
  125679

  	
   

  	
  Double Diaphragm
  Compound Shaft

  (U.S. 5,964,663)

  	
   

  	
  Israel

  	
   

  	
  125679

  
	
  127021

  	
   

  	
  Compliant Foil Film
  Radial Bearing

  (U.S. 5,915,841)

  	
   

  	
  Israel

  	
   

  	
  127021

  
	
  125905

  	
   

  	
  Turbogenerator/motor
  Controller With ancillary Energy Storage/Discharge (B2)

  (U.S. 6,031,294)

  	
   

  	
  Israel

  	
   

  	
  125905

  
	
  137542

  	
   

  	
  Turbogenerator/motor
  Controller (B1)

  (U.S. 5,903,116)

  	
   

  	
  Israel

  	
   

  	
  137542

  
	
  121532

  	
   

  	
  Helical Flow
  Compression Turbine With Permanent Magnet Motor/Generator

  (U.S. 5,899,673)

  	
   

  	
  Israel

  	
   

  	
  121532

  
	
  3598437

  	
   

  	
  Compliant Foil
  Hydrodynamic Fluid Film Radial Bearing

  (U.S. 5,427,455)

  	
   

  	
  Japan

  	
   

  	
  7-526958

  
	
  1075724

  	
   

  	
  Power Controller (B3)

  (U.S. 6,487,096)

  	
   

  	
  Europe

  	
   

  	
  98962993.6

  
	
  0903510 GB and Fr.;
  69830961.8-08 Germ.

  	
   

  	
  Compliant Foil Fluid
  Film Thrust Bearing with Tilting Pad Underspring

  (U.S. 5,918,985)

  	
   

  	
  Europe

  	
   

  	
  98307596.1

  
	
  0927831 GB and Fr.;
  69832579.6-08 Germ.

  	
   

  	
  Compliant Foil Fluid
  Film Radial Bearing

  (U.S. 5,915,841)

  	
   

  	
  Europe

  	
   

  	
  98310805.1

  
	
  0901218 GB and Fr.;
  69832860.4-08 Germ.

  	
   

  	
  Turbogenerator/Motor
  Controller (B1)

  (U.S. 5,903,116)

  	
   

  	
  Europe

  	
   

  	
  98307247.1

  
	
  1130322 GB and FR; 60125441.4
  Germany

  	
   

  	
  Multi-Stage Multi-Plane
  Combustion System for a Gas Turbine Engine

  (U.S. 6,453,658)

  	
   

  	
  Europe

  	
   

  	
  01301676.1

  
	
  1337761 in GB, FR and
  IT; 60125583.6 in Germany

  	
   

  	
  Compliant Foil Thrust
  Bearing

  (U.S. 6,702,463)

  	
   

  	
  Europe

  	
   

  	
  01996693.6

  
	
  2,242,947

  	
   

  	
  Double Diaphragm
  Compound Shaft

  (U.S. 5,964,663)

  	
   

  	
  Canada

  	
   

  	
  2,242,947

  



 


D-12

















 


	
  Issue No.

  	
   

  	
  Description

  	
   

  	
  Country

  	
   

  	
  App.
  Ser. No.

  
	
  2,254,034

  	
   

  	
  Compliant Foil Fluid
  Film Radial Bearing

  (U.S. 5,915,841)

  	
   

  	
  Canada

  	
   

  	
  2,254,034

  
	
  0963035 Germany 69936424.8

  	
   

  	
  Turbogenerator/Motor
  Control System

  (U.S. 6,023,135)

  	
   

  	
  Europe

  	
   

  	
  99303642.5

  
	
  2,238,356

  	
   

  	
  Compliant Foil Fluid
  Film Thrust Bearing with Tilting Pad Underspring

  (U.S. 5,918,985)

  	
   

  	
  Canada

  	
   

  	
  2,238,356

  



 


IV.                        CAPSTONE PENDING
FOREIGN PATENT APPLICATIONS


 


	
  Description

  	
   

  	
  Country

  	
   

  	
  App.
  Ser. No.

  	
   

  	
  Filing
  Date

  
	
  Command and Control
  System and Method For Multiple Turbogenerators

  (U.S. 6,169,334)

  	
   

  	
  Canada

  	
   

  	
  2,279,047

  	
   

  	
  7/29/99

  
	
  Helical Flow Compressor/Turbine
  Permanent Magnet Motor/Generator

  (U.S. 6,468,051)

  	
   

  	
  Japan

  	
   

  	
  2000-117024

  	
   

  	
  4/19/99

  
	
  Turbogenerator/Motor
  Controller (B1)

  (U.S. 5,903,116)

  	
   

  	
  Canada

  	
   

  	
  2,246,769

  	
   

  	
  9/8/98

  
	
  Compliant Foil Fluid
  Film Thrust Bearing With a Tilting Pad Underspring

  (U.S. 5,918,985)

  	
   

  	
  Japan

  	
   

  	
  10-250675

  	
   

  	
  9/4/98

  
	
  Compliant Foil Fluid
  Film Radial Bearing

  (U.S. 5,915,841)

  	
   

  	
  Japan

  	
   

  	
  10-347079

  	
   

  	
  12/7/98

  
	
  Multi-Stage Multi-Plane
  Combustion System For a Gas Turbine Engine

  (U.S. 6,453,658)

  	
   

  	
  Japan

  	
   

  	
  2001-45027

  	
   

  	
  2/21/01

  
	
  Multiple Power Generator
  Connection Method and System

  (U.S. 6,522,030)

  	
   

  	
  Europe

  	
   

  	
  01923202.4

  	
   

  	
  4/6/01

  
	
  Power Controller (B3)
  (Div. of #131)

  (U.S. 6,487,096)

  	
   

  	
  Europe

  	
   

  	
  05025283.2

  	
   

  	
  11/18/05

  
	
  Compliant Foil Fluid
  Film Radial Bearing Or Seal

  	
   

  	
  PCT

  	
   

  	
  PCT/US08/57716

  	
   

  	
  3/20/2008

  



 


D-13

















 


TRADEMARK
APPLICATIONS AND REGISTRATIONS BY COUNTRY


 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  
	
  CAPSTONE

  	
   

  	
  Australia

  	
   

  	
  —

  	
   

  	
  755,739

  	
   

  	
  Registered

  	
   

  	
  February 23, 2018

  
	
  

  	
   

  	
  Australia

  	
   

  	
  —

  	
   

  	
  755,737

  	
   

  	
  Registered

  	
   

  	
  February 23, 2018

  
	
  CAPSTONE

  	
   

  	
  Brazil

  	
   

  	
  824/638,859

  	
   

  	
  824/638,859

  	
   

  	
  Registered

  	
   

  	
  November 20, 2017

  
	
  CAPSTONE

  	
   

  	
  Bulgaria 

  	
   

  	
  41,473 

  	
   

  	
  37,397

  	
   

  	
  Registered

  	
   

  	
  July 28, 2008(1)

  
	
  CAPSTONE

  	
   

  	
  Bulgaria

  	
   

  	
  42,775

  	
   

  	
  34,967

  	
   

  	
  Registered

  	
   

  	
  July 28, 2008

  
	
  

  	
   

  	
  Bulgaria

  	
   

  	
  42,776

  	
   

  	
  34,968

  	
   

  	
  Registered

  	
   

  	
  July 28, 2008

  
	
  CAPSTONE

  	
   

  	
  Canada

  	
   

  	
  870,563

  	
   

  	
  TMA

  563,894

  	
   

  	
  Registered

  	
   

  	
  June 21, 2017

  
	
  

  	
   

  	
  Canada

  	
   

  	
  870,564

  	
   

  	
  TMA

  504,764

  	
   

  	
  Registered

  	
   

  	
  November 30, 2013

  
	
  CAPSTONE

  	
   

  	
  China (PRC)

  	
   

  	
  9,800,017,341

  	
   

  	
  1,291,874

  	
   

  	
  Registered

  	
   

  	
  July 06, 2009

  
	
  CAPSTONE

  	
   

  	
  China (PRC)

  	
   

  	
  9,800,017,342

  	
   

  	
  1,284,494

  	
   

  	
  Registered

  	
   

  	
  June 13, 2009

  
	
  CAPSTONE

  	
   

  	
  China (PRC)

  	
   

  	
  9,800,017,343

  	
   

  	
  1,299,981

  	
   

  	
  Registered

  	
   

  	
  July 27, 2009

  
	
  CAPSTONE

  	
   

  	
  China (PRC)

  	
   

  	
  9,800,017,344

  	
   

  	
  1,301,274

  	
   

  	
  Registered

  	
   

  	
  August 06, 2009

  
	
  

  	
   

  	
  China (PRC)

  	
   

  	
  9,800,017,340

  	
   

  	
  1,284,495

  	
   

  	
  Registered

  	
   

  	
  June 13, 2009

  
	
  CAPSTONE

  	
   

  	
  CTM

  	
   

  	
  637,082

  	
   

  	
  637,082

  	
   

  	
  Registered

  	
   

  	
  September 23, 2017

  



 






(1)      Bulgaria
— Renewals have been issued for these registrations.


 


D-14

















 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  
	
  CAPSTONE

  	
   

  	
  CTM

  	
   

  	
  745,109

  	
   

  	
  745,109

  	
   

  	
  Registered

  	
   

  	
  February 13,
  2018

  
	
  

  	
   

  	
  CTM

  	
   

  	
  524,306

  	
   

  	
  524,306

  	
   

  	
  Registered

  	
   

  	
  April 29,
  2017

  
	
  CAPSTONE

  	
   

  	
  Czech Republic

  	
   

  	
  128,183

  	
   

  	
  212,315

  	
   

  	
  Registered

  	
   

  	
  December 05,
  2017

  
	
  CAPSTONE

  	
   

  	
  Czech Republic

  	
   

  	
  128,352

  	
   

  	
  218,818

  	
   

  	
  Registered

  	
   

  	
  December 11,
  2017

  
	
  CAPSTONE

  	
   

  	
  Czech Republic

  	
   

  	
  128,353

  	
   

  	
  218,819

  	
   

  	
  Registered

  	
   

  	
  December 11,
  2017

  
	
  CAPSTONE

  	
   

  	
  Czech Republic

  	
   

  	
  130,446

  	
   

  	
  228,042

  	
   

  	
  Registered

  	
   

  	
  February 25,
  2018

  
	
  

  	
   

  	
  Czech Republic

  	
   

  	
  130,447

  	
   

  	
  228,043

  	
   

  	
  Registered

  	
   

  	
  February 25,
  2018

  
	
  CAPSTONE

  	
   

  	
  Estonia

  	
   

  	
  9,800,433

  	
   

  	
  29,393

  	
   

  	
  Registered

  	
   

  	
  September 03,
  2009

  
	
  CAPSTONE

  	
   

  	
  Estonia

  	
   

  	
  EE9,702,761

  	
   

  	
  28,852

  	
   

  	
  Registered

  	
   

  	
  May 26,
  2009

  
	
  CAPSTONE

  	
   

  	
  Estonia

  	
   

  	
  EE9,702,762

  	
   

  	
  28,853

  	
   

  	
  Registered

  	
   

  	
  May 26,
  2009

  
	
  

  	
   

  	
  Estonia

  	
   

  	
  9,800,434

  	
   

  	
  29,394

  	
   

  	
  Registered

  	
   

  	
  September 03,
  2009

  
	
  CAPSTONE

  	
   

  	
  Hungary

  	
   

  	
  M9,704,089

  	
   

  	
  157,005

  	
   

  	
  Registered

  	
   

  	
  November 06,
  2017

  
	
  CAPSTONE

  	
   

  	
  Hungary

  	
   

  	
  M9,800,530

  	
   

  	
  155,108

  	
   

  	
  Registered

  	
   

  	
  February 16,
  2018

  
	
  

  	
   

  	
  Hungary

  	
   

  	
  M9,800,529

  	
   

  	
  155,107

  	
   

  	
  Registered

  	
   

  	
  February 16,
  2018

  
	
  CAPSTONE

  	
   

  	
  India

  	
   

  	
  769,311

  	
   

  	
  769,311

  	
   

  	
  Registered

  	
   

  	
  September 23,
  2017

  
	
  

  	
   

  	
  India

  	
   

  	
  769,314

  	
   

  	
  769,314

  	
   

  	
  Registered

  	
   

  	
  September 23,
  2017

  
	
  CAPSTONE

  	
   

  	
  Indonesia

  	
   

  	
  D00.2002.142

  59.14414

  	
   

  	
  543,704

  	
   

  	
  Registered

  	
   

  	
  July 04,
  2012

  
	
  CAPSTONE

  	
   

  	
  Israel

  	
   

  	
  115,027

  	
   

  	
  115,027

  	
   

  	
  Registered

  	
   

  	
  September 23,
  2018

  



 


D-15

















 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  
	
  CAPSTONE

  	
   

  	
  Israel

  	
   

  	
  115,028

  	
   

  	
  115,028

  	
   

  	
  Registered

  	
   

  	
  September 23,
  2018

  
	
  CAPSTONE

  	
   

  	
  Israel

  	
   

  	
  115,029

  	
   

  	
  115,029

  	
   

  	
  Registered

  	
   

  	
  September 23,
  2018

  
	
  CAPSTONE

  	
   

  	
  Israel

  	
   

  	
  117,832

  	
   

  	
  117,832

  	
   

  	
  Registered

  	
   

  	
  February 15,
  2019

  
	
  

  	
   

  	
  Israel

  	
   

  	
  112,062

  	
   

  	
  112,062

  	
   

  	
  Registered

  	
   

  	
  April 30,
  2018

  
	
  

  	
   

  	
  Israel

  	
   

  	
  112,063

  	
   

  	
  112,063

  	
   

  	
  Registered

  	
   

  	
  April 30,
  2018

  
	
  CAPSTONE

  	
   

  	
  Japan

  	
   

  	
  05-077077

  	
   

  	
  3,179,900

  	
   

  	
  Registered

  	
   

  	
  July 31,
  2016

  
	
  CAPSTONE

  	
   

  	
  Japan

  	
   

  	
  10-017382

  	
   

  	
  4,414,046

  	
   

  	
  Registered

  	
   

  	
  September 01,
  2010

  
	
  CAPSTONE

  	
   

  	
  Japan

  	
   

  	
  9-174425

  	
   

  	
  4,413,826

  	
   

  	
  Registered

  	
   

  	
  September 01,
  2010

  
	
  CAPSTONE (in Katakana)

  

  	
   

  	
  Japan

  	
   

  	
  62-4732

  	
   

  	
  2,221,178

  	
   

  	
  Registered

  	
   

  	
  April 23,
  2010

  
	
  

  	
   

  	
  Japan

  	
   

  	
  9-112736

  	
   

  	
  4,378,971

  	
   

  	
  Registered

  	
   

  	
  April 21,
  2010

  
	
  CAPSTONE

  	
   

  	
  Malaysia

  	
   

  	
  98/02655

  	
   

  	
  9,802,655

  	
   

  	
  Registered

  	
   

  	
  September 16,
  2017

  
	
  CAPSTONE

  	
   

  	
  Malaysia

  	
   

  	
  98/02658

  	
   

  	
  9,802,658

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2018

  
	
  CAPSTONE

  	
   

  	
  Malaysia

  	
   

  	
  98/02659

  	
   

  	
  9,802,659

  	
   

  	
  Registered

  	
   

  	
  September 04,
  2017

  
	
  CAPSTONE

  	
   

  	
  Malaysia

  	
   

  	
  98/02660

  	
   

  	
  9,802,660

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2018

  
	
  

  	
   

  	
  Malaysia

  	
   

  	
  98/02656

  	
   

  	
  9,802,656

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2018

  



 


D-16














 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  
	
  

  	
   

  	
  Malaysia

  	
   

  	
  98/02657

  	
   

  	
  9,802,657

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2018

  
	
  CAPSTONE

  	
   

  	
  Mexico

  	
   

  	
  324,506

  	
   

  	
  576,585

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2008(2)

  
	
  CAPSTONE

  	
   

  	
  Mexico

  	
   

  	
  324,507

  	
   

  	
  579,612

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2008

  
	
  CAPSTONE

  	
   

  	
  Mexico

  	
   

  	
  324,508

  	
   

  	
  577,332

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2008

  
	
  CAPSTONE

  	
   

  	
  Mexico

  	
   

  	
  324,509

  	
   

  	
  582,024

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2008

  
	
  

  	
   

  	
  Mexico

  	
   

  	
  324,510

  	
   

  	
  578,232

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2008

  
	
  

  	
   

  	
  Mexico

  	
   

  	
  324,512

  	
   

  	
  582,025

  	
   

  	
  Registered

  	
   

  	
  March 04,
  2008

  
	
  CAPSTONE

  	
   

  	
  New Zealand

  	
   

  	
  289,011

  	
   

  	
  289,011

  	
   

  	
  Registered

  	
   

  	
  February 26,
  2015

  
	
  CAPSTONE

  	
   

  	
  New Zealand

  	
   

  	
  289,012

  	
   

  	
  289,012

  	
   

  	
  Registered

  	
   

  	
  February 26,
  2015

  
	
  CAPSTONE

  	
   

  	
  New Zealand

  	
   

  	
  289,013

  	
   

  	
  289,013

  	
   

  	
  Registered

  	
   

  	
  September 04,
  2014

  
	
  CAPSTONE

  	
   

  	
  New Zealand

  	
   

  	
  289,014

  	
   

  	
  289,014

  	
   

  	
  Registered

  	
   

  	
  September 16,
  2014

  
	
  CAPSTONE

  	
   

  	
  New Zealand

  	
   

  	
  311,548

  	
   

  	
  311,548

  	
   

  	
  Registered

  	
   

  	
  June 24,
  2016

  
	
  

  	
   

  	
  New Zealand

  	
   

  	
  289,015

  	
   

  	
  289,015

  	
   

  	
  Registered

  	
   

  	
  February 26,
  2015

  
	
  

  	
   

  	
  New Zealand

  	
   

  	
  289,016

  	
   

  	
  289,016

  	
   

  	
  Registered

  	
   

  	
  February 26,
  2015

  
	
  CAPSTONE

  	
   

  	
  Nigeria

  	
   

  	
  84672/04

  	
   

  	
  RTM 66760

  	
   

  	
  Registered

  	
   

  	
  February 04,
  2011

  
	
  CAPSTONE

  	
   

  	
  Nigeria

  	
   

  	
  84673/04

  	
   

  	
  RTM 66750

  	
   

  	
  Registered

  	
   

  	
  February 04,
  2011

  



 






(2)   Mexico — Renewal petitions and change of legal
address have been filed with the Mexican Intellectual Property Office.


 


D-17

















 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  
	
  

  	
   

  	
  Nigeria

  	
   

  	
  84670/04

  	
   

  	
  RTM 66752

  	
   

  	
  Registered

  	
   

  	
  February 04,
  2011

  
	
  

  	
   

  	
  Nigeria

  	
   

  	
  84671/04

  	
   

  	
  RTM 66761

  	
   

  	
  Registered

  	
   

  	
  February 04,
  2011

  
	
  CAPSTONE

  	
   

  	
  Poland

  	
   

  	
  Z-180,350

  	
   

  	
  125,456

  	
   

  	
  Registered

  	
   

  	
  November 20,
  2017

  
	
  CAPSTONE

  	
   

  	
  Poland

  	
   

  	
  Z-184,099

  	
   

  	
  128,663

  	
   

  	
  Registered

  	
   

  	
  March 02,
  2018

  
	
  

  	
   

  	
  Poland

  	
   

  	
  Z-183,816

  	
   

  	
  130,098

  	
   

  	
  Registered

  	
   

  	
  February 24,
  2018

  
	
  CAPSTONE

  	
   

  	
  Republic of
  Korea

  	
   

  	
  97/52389

  	
   

  	
  430,990

  	
   

  	
  Registered

  	
   

  	
  November 25,
  2008(3)

  
	
  CAPSTONE

  	
   

  	
  Republic of
  Korea

  	
   

  	
  97/52390

  	
   

  	
  438,925

  	
   

  	
  Registered

  	
   

  	
  January 22,
  2009

  
	
  CAPSTONE

  	
   

  	
  Republic of
  Korea

  	
   

  	
  98/1917

  	
   

  	
  54,995

  	
   

  	
  Registered

  	
   

  	
  May 17,
  2009

  
	
  CAPSTONE

  	
   

  	
  Republic of
  Korea

  	
   

  	
  98/9567

  	
   

  	
  59,573

  	
   

  	
  Registered

  	
   

  	
  February 15,
  2010

  
	
  

  	
   

  	
  Republic of
  Korea

  	
   

  	
  97/45930

  	
   

  	
  427,401

  	
   

  	
  Registered

  	
   

  	
  October 28,
  2008

  
	
  

  	
   

  	
  Republic of
  Korea

  	
   

  	
  97/45931

  	
   

  	
  430,962

  	
   

  	
  Registered

  	
   

  	
  November 25,
  2008

  
	
  CAPSTONE

  	
   

  	
  Romania

  	
   

  	
  47,388

  	
   

  	
  34,319

  	
   

  	
  Registered

  	
   

  	
  December 09,
  2017

  
	
  CAPSTONE

  	
   

  	
  Romania

  	
   

  	
  50,051

  	
   

  	
  35,291

  	
   

  	
  Registered

  	
   

  	
  March 16,
  2018

  



 






(3)          Republic of Korea — Renewal applications have been filed for
the two pertinent registrations in the Republicof Korea. Delay has been caused
due to Korea’s change of classification of goods into a separate international
class number. Waller Lansden Dortch & Davis is awaiting renewal
certificates and next renewal deadlines from local counsel.


 


D-18

















 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  
	
  

  	
   

  	
  Romania

  	
   

  	
  50,052

  	
   

  	
  35,292

  	
   

  	
  Registered

  	
   

  	
  March 16,
  2018

  
	
  CAPSTONE

  	
   

  	
  Russian
  Federation

  	
   

  	
  97,718,654

  	
   

  	
  174,403

  	
   

  	
  Registered

  	
   

  	
  December 05,
  2017

  
	
  CAPSTONE

  	
   

  	
  Russian
  Federation

  	
   

  	
  97,718,655

  	
   

  	
  173,434

  	
   

  	
  Registered

  	
   

  	
  December 05,
  2017

  
	
  CAPSTONE

  	
   

  	
  Russian
  Federation

  	
   

  	
  97,718,656

  	
   

  	
  173,435

  	
   

  	
  Registered

  	
   

  	
  December 05,
  2017

  
	
  CAPSTONE

  	
   

  	
  Russian
  Federation

  	
   

  	
  98,702,564

  	
   

  	
  176,654

  	
   

  	
  Registered

  	
   

  	
  February 18,
  2018

  
	
  

  	
   

  	
  Russian
  Federation

  	
   

  	
  98,702,573

  	
   

  	
  176,655

  	
   

  	
  Registered

  	
   

  	
  February 18,
  2018

  
	
  CAPSTONE

  	
   

  	
  Slovak Republic

  	
   

  	
  0499-98

  	
   

  	
  191,841

  	
   

  	
  Registered

  	
   

  	
  February 27,
  2018

  
	
  CAPSTONE

  	
   

  	
  Slovak Republic

  	
   

  	
  3643-97

  	
   

  	
  189,134

  	
   

  	
  Registered

  	
   

  	
  December 11,
  2017

  
	
  CAPSTONE

  	
   

  	
  Slovak Republic

  	
   

  	
  3655-97

  	
   

  	
  188,650

  	
   

  	
  Registered

  	
   

  	
  December 11,
  2017

  
	
  CAPSTONE

  	
   

  	
  Slovak Republic

  	
   

  	
  3656-97

  	
   

  	
  188,651

  	
   

  	
  Registered

  	
   

  	
  December 11,
  2017

  
	
  

  	
   

  	
  Slovak Republic

  	
   

  	
  0500-98

  	
   

  	
  191,068

  	
   

  	
  Registered

  	
   

  	
  February 27,
  2018

  
	
  CAPSTONE

  	
   

  	
  Slovenia

  	
   

  	
  Z-9771850

  	
   

  	
  9,771,850

  	
   

  	
  Registered

  	
   

  	
  December 11,
  2017

  
	
  CAPSTONE

  	
   

  	
  Slovenia

  	
   

  	
  Z-9870250

  	
   

  	
  9,870,250

  	
   

  	
  Registered

  	
   

  	
  February 26,
  2018

  
	
  

  	
   

  	
  Slovenia

  	
   

  	
  Z-9870249

  	
   

  	
  9,870,249

  	
   

  	
  Registered

  	
   

  	
  February 26,
  2018

  
	
  CAPSTONE

  	
   

  	
  South Africa

  	
   

  	
  98/02522

  	
   

  	
  98/02522

  	
   

  	
  Registered

  	
   

  	
  February 20,
  2018

  
	
  CAPSTONE

  	
   

  	
  South Africa

  	
   

  	
  98/02523

  	
   

  	
  98/02523

  	
   

  	
  Registered

  	
   

  	
  February 20,
  2018

  
	
  CAPSTONE

  	
   

  	
  South Africa

  	
   

  	
  98/02524

  	
   

  	
  98/02524

  	
   

  	
  Registered

  	
   

  	
  February 20,
  2018

  
	
  CAPSTONE

  	
   

  	
  South Africa

  	
   

  	
  98/02525

  	
   

  	
  98/02525

  	
   

  	
  Registered

  	
   

  	
  February 20,
  2018

  



 


D-19

















 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  
	
  

  	
   

  	
  South Africa

  	
   

  	
  2004/03561

  	
   

  	
  2004/03561

  	
   

  	
  Registered

  	
   

  	
  March 08,
  2014

  
	
  

  	
   

  	
  South Africa

  	
   

  	
  98/02526

  	
   

  	
  98/02526

  	
   

  	
  Registered

  	
   

  	
  February 20,
  2018

  
	
  

  	
   

  	
  South Africa

  	
   

  	
  98/02527

  	
   

  	
  98/02527

  	
   

  	
  Registered

  	
   

  	
  February 20,
  2018

  
	
  CAPSTONE

  	
   

  	
  Switzerland

  	
   

  	
  04728/2002

  	
   

  	
  502,265

  	
   

  	
  Registered

  	
   

  	
  May 27,
  2012

  
	
  CAPSTONE

  	
   

  	
  Ukraine

  	
   

  	
  98/020713

  	
   

  	
  20,994

  	
   

  	
  Registered

  	
   

  	
  February 23,
  2018

  
	
  

  	
   

  	
  Ukraine

  	
   

  	
  98/020714

  	
   

  	
  20,655

  	
   

  	
  Registered

  	
   

  	
  February 23,
  2018

  
	
  CAPSTONE

  	
   

  	
  USA

  	
   

  	
  74/732,798

  	
   

  	
  2,058,307

  	
   

  	
  Registered

  	
   

  	
  April 29,
  2017

  
	
  CAPSTONE

  	
   

  	
  USA

  	
   

  	
  75/306,958

  	
   

  	
  2,248,687

  	
   

  	
  Registered

  	
   

  	
  June 01,
  2009

  
	
  CAPSTONE

  	
   

  	
  USA

  	
   

  	
  75/351,980

  	
   

  	
  2,201,317

  	
   

  	
  Registered

  	
   

  	
  November 03,
  2018

  
	
  CAPSTONE

  	
   

  	
  USA

  	
   

  	
  75/357,665

  	
   

  	
  2,487,869

  	
   

  	
  Registered

  	
   

  	
  September 11,
  2011

  
	
  

  	
   

  	
  USA

  	
   

  	
  78/166,520

  	
   

  	
  2,993,044

  	
   

  	
  Registered

  	
   

  	
  September 06,
  2015

  
	
  

  	
   

  	
  USA

  	
   

  	
  78/975,666

  	
   

  	
  2,940,243

  	
   

  	
  Registered

  	
   

  	
  April 12,
  2015

  
	
  CAPSTONE
  MICROTURBINE

  	
   

  	
  USA

  	
   

  	
  78/166,522

  	
   

  	
  2,956,871

  	
   

  	
  Registered

  	
   

  	
  May 31,
  2015

  
	
  

  	
   

  	
  USA

  	
   

  	
  78/970,583

  	
   

  	
  —

  	
   

  	
  Pending

  	
   

  	
  —

  
	
  

  	
   

  	
  USA

  	
   

  	
  75/191,384

  	
   

  	
  2,144,240

  	
   

  	
  Registered

  	
   

  	
  March 17,
  2018

  



 


D-20














 


	
  Trademark

  	
   

  	
  Jurisdiction

  	
   

  	
  Application

  Number

  	
   

  	
  Reg.

  Number

  	
   

  	
  Status

  	
   

  	
  Renewal
  Deadline

  	
   

  
	
  SAFE RETURN SYSTEM

  	
   

  	
  USA

  	
   

  	
  78/947,172

  	
   

  	
  —

  	
   

  	
  Pending

  	
   

  	
  —

  	
   

  
	
  SRS

  	
   

  	
  USA

  	
   

  	
  78/947,412

  	
   

  	
  —

  	
   

  	
  Pending

  	
   

  	
  —

  	
   

  



 


INTELLECTUAL
PROPERTY RIGHTS LICENSED FROM THIRD PARTIES


 


1.                    Licensing
Agreement, dated as of April 14, 2008, between the Company and United
Technologies Corporation, Pratt & Whitney, which grants the Company a
non-exclusive, non-transferable license, without the right to sub-license, to
use the patents and/or technical information related to material and material
properties listed on Exhibit A attached thereto and the related Technical
Support (as defined therein) for the design of the C200, as agreed upon in that
certain Development and License Agreement, dated as of September 7, 2007,
between the parties thereto. All fees for such license have been paid in full
in advance.


 


2.                    Amended and
Restated License Agreement, dated as of August 2, 2000 (“Solar License
Agreement”), between the Company and Solar Turbines Incorporated (“Solar”),
which grants the Company a non-exclusive, non-transferable license, without the
right to sub-license to use the Solar Intellectual Property (as defined
therein) as set forth therein. The Company pays to Solar a royalty for each
Licensed Product (as defined in the Solar License Agreement) manufactured by
the Company in accordance with the Solar License Agreement
pursuant to the following schedule:


 


	
  -

  	
   

  	
  0-100kW:

  	
   

  	
  $

  	
  100.00

  	
   

  
	
  -

  	
   

  	
  101kW-200kW:

  	
   

  	
  $

  	
  200.00

  	
   

  
	
  -

  	
   

  	
  201kW-300kW:

  	
   

  	
  $

  	
  300.00

  	
   

  
	
  -

  	
   

  	
  301kW-400kW:

  	
   

  	
  $

  	
  400.00

  	
   

  
	
  -

  	
   

  	
  401kW-500kW:

  	
   

  	
  $

  	
  500.00

  	
   

  



 


i                                             Bulgaria — Renewals have been issued
for these registrations.


ii                                          Mexico — Renewal petitions and change
of legal address have been filed with the Mexican Intellectual Property Office.


iii                                       Republic of Korea — Renewal applications have
been filed for the two pertinent registrations in the Republic of Korea. Delay
has been caused due to Korea’s change of classification of goods into a
separate international class number. Waller Lansden Dortch & Davis is
awaiting renewal certificates and next renewal deadlines from local counsel.


 


(j)                                     Taxes. Company and its
Affiliates have paid or caused to be paid to the proper authorities when due
all federal, state and local taxes required to be withheld by


 


D-21

















 


each of them except for those taxes being contested
in good faith by appropriate proceedings and for which appropriate reserves
have been maintained under GAAP. Company and its Affiliates have filed all
federal, state and local tax returns which to the knowledge of the Officers of
Company or any Affiliate, as the case may be, are required to be filed, and
Company and its Affiliates have paid or caused to be paid to the respective
taxing authorities all taxes as shown on these returns or on any assessment
received by any of them to the extent such taxes have become due except for
those taxes being contested in good faith by appropriate proceedings and for
which appropriate reserves have been maintained under GAAP.


 


(k)                                  Titles and Liens. Company has good and
absolute title to all Collateral free and clear of all Liens other than
Permitted Liens. No financing statement naming Company as debtor is on file in
any office except to perfect only Permitted Liens.


 


(l)                                     No Defaults. Company is in compliance with
all provisions of all agreements,instruments, decrees and orders to which it is
a party or by which it or its property is bound or affected, the breach or
default of which could have a Material Adverse Effect.


 


(m)                               Submissions to Wells Fargo. All
financial and other information provided to Wells Fargo by or on behalf of
Company in connection with Company’s request for the credit facilities
contemplated hereby is (i) true and correct in all material respects,
(ii) does not omit any material fact that would cause such information to
be misleading, and (iii) as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.


 


(n)                                 Financing Statements. Company
has previously authorized the filing of financing statements sufficient when
filed to perfect the Security Interest and other Liens created by the Security
Documents. When such financing statements are filed, Wells Fargo will have a
valid and perfected security interest in all Collateral capable of being
perfected by the filing of financing statements. None of the Collateral is or
will become a fixture on real estate, unless a sufficient fixture filing has
been filed with respect to such Collateral.


 


(o)                                 Rights to Payment. Each right to payment
and each instrument, document, chattel paper and other agreement constituting
or evidencing Collateral is (or, in the case of all future Collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim of the account debtor or other
obligor named in that instrument.


 


(p)                                 Employee Benefit Plans.


 


(i)                           Maintenance and Contributions to Plans. Except
as disclosed below, neither Company nor any ERISA Affiliate (A) maintains
or has maintained any Pension Plan, (B) contributes or has contributed to
any


 


D-22

















 


                                      Multiemployer Plan, or (C)
provides or has provided post-retirement medical or insurance benefits to
employees or former employees (other than benefits required under Section 601
of ERISA, Section 4980B of the IRC, or applicable state law).


 


(ii)                        Knowledge of
Plan Noncompliance with Applicable Law. Except as disclosed below,
neither Company nor any ERISA Affiliate has (A) knowledge that Company or
the ERISA Affiliate is not in full compliance with the requirements of ERISA,
the IRC, or applicable state law with respect to any Plan, (B) knowledge
that a Reportable Event occurred or continues to exist in connection with any
Pension Plan, or (C) sponsored a Plan that it intends to maintain as
qualified under the IRC that is not so qualified, and no fact or circumstance
exists which may have a material adverse effect on such Plan’s tax-qualified status.


 


(iii)                     Funding
Deficiencies and Other Liabilities. Neither Company nor any
ERISA Affiliate has liability for any (A) accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the IRC) under
any Plan, whether or not waived, (B) withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan under Section 4201
or 4243 of ERISA, or (C) event or circumstance which could result in
financial obligation to the Pension Benefit Guaranty Corporation, the Internal
Revenue Service, the Department of Labor or any participant in connection with
any Plan (other than routine claims for benefits under the Plan).


 


Employee
Benefit Plans


 


None.


 


(q)                                 Environmental
Matters.


 


(i)                           Hazardous
Substances on Premises. Except as disclosed below, there are not
present in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any material liability or obligation for either Company
or Wells Fargo under the common law of any jurisdiction or under any
Environmental Law, and no Hazardous Substances have ever been stored, buried,
spilled, leaked, discharged, emitted or released in, on or under the Premises
in such a way as to create a liability which would have a Material Adverse
Effect.


 


(ii)                        Disposal of
Hazardous Substances. Except as disclosed below, Company has not
disposed of Hazardous Substances in such a manner as to create any liability
under any Environmental Law which would have a Material Adverse Effect.


 


D-23

















 


(iii)                     Claims and
Proceedings with Respect to Environmental Law Compliance. Except as
disclosed below, there have not existed in the past, nor are there any
threatened or impending requests, claims, notices, investigations, demands, administrative
proceedings, hearings or litigation relating in any way to the Premises or
Company, alleging material liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization issued
pursuant thereto.


 


(iv)                    Compliance with
Environmental Law; Permits and Authorizations. Except as disclosed below, Company (A) conducts its business at all
times in compliance with applicable Environmental Law where the failure to be
so in compliance could reasonably be expected to have a Material Adverse
Effect, (B) possesses valid licenses, permits and other authorizations
required under applicable Environmental Law for the lawful and efficient
operation of its business, none of which are scheduled to expire, or withdrawal,
or material limitation within the next 12 months, and (C) has not been
denied insurance on grounds related to potential environmental liability.


 


(v)                       Status of Premises. Except as disclosed below, the Premises are not and never have been
listed on the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.


 


(vi)                    Environmental
Audits, Reports, Permits and Licenses. Company has delivered to Wells Fargo all environmental assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the Premises or Company’s
businesses.


 


Environmental Matters


 


Environmental Reports


 


Review of Site Conditions, dated February 11, 2005
for 16640 Stagg Street, Van Nuys, California, by TRC


 


Environmental Site Assessment Report, dated February 27,
2006 for 16640 Stagg Street, Van Nuys, California, by TRC


 


Indoor Air Quality Investigation, dated April 17,
2006 for 16640 Stagg Street, Van Nuys, California, by Environmics Southwest,
LLC


 


Personal Breathing Zone Sampling, dated July 25, 2006
for 16640 Stagg Street, Van Nuys, California, by Environmics Southwest, LLC


 


D-24

















 


Exhibit E to Credit and
Security Agreement


 


COMPLIANCE CERTIFICATE


 


	
  To:

  	
   

  	
  Wells
  Fargo Bank, National Association

  
	
  Date:

  	
   

  	
  [                        ,
  200  ]

  
	
  Subject:

  	
   

  	
  Financial
  Statements

  



 


In accordance with our Credit and Security Agreement dated February 9,
2009 (as amended from time to time, the “Credit Agreement”), attached are the
financial statements of Capstone Turbine Corporation (the “Company”) dated [                  , 200  ]
(the “Reporting Date”) and the year-to-date period then ended (the “Current
Financials”). All terms used in this certificate have the meanings given in the
Credit Agreement.


 


A.                                         Preparation and Accuracy of Financial Statements. I certify that
the Current Financials have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and fairly present Company’s financial condition as
of the Reporting Date.


 


B.                                        Name of
Company; Merger and Consolidation. I certify that:


 


(Check one)


 


o                                         Company has not, since the
date of the Credit Agreement, changed its name or jurisdiction of organization,
nor has it consolidated or merged with another Person.


 


o                                        Company has, since the date
of the Credit Agreement, either changed its name or jurisdiction of
organization, or both, or has consolidated or merged with another Person, which
change, consolidation or merger: o  was consented
to in advance by Wells Fargo in an Authenticated Record, and/or o is more fully
described in the statement of facts attached to this Certificate.


 


C.                                         Events of Default. I certify that:


 


(Check one)


 


o                                         I have no
knowledge of the occurrence of an Event of Default under the Credit Agreement,
except as previously reported to Wells Fargo in a Record.


 


o                                         I have
knowledge of an Event of Default under the Credit Agreement not previously
reported to Wells Fargo in a Record, as more fully described in the statement
of facts attached to this Certificate, and further, I acknowledge that Wells
Fargo may under the terms of the Credit Agreement impose the Default Rate at
any time during the resulting Default Period.


 


D.                                         Litigation Matters. I certify that:


 


(Check one)


 


E-1

















 


o                                         I have no
knowledge of any material adverse change to the litigation exposure of Company
or any of its Affiliates or of any Guarantor.


 


o                                         I have
knowledge of material adverse changes to the litigation exposure of Company or
any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D,
as more fully described in the statement of facts attached to this Certificate.


 


E.                                           Financial Covenants. I further certify that:


 


(Check
and complete each of the following)


 


1.                                       Minimum Book Net Worth. Pursuant to Section 5.2
(a) of the Credit Agreement, as of the Reporting Date,
Company’s Book Net Worth was $[                    ],
which o satisfies o does not
satisfy the requirement that such amount be not less than the applicable amount
set forth in the table below (numbers appearing between “< >” are
negative) on the Reporting Date:


 


	
  Test Date

  	
   

  	
  Minimum
  Book Net Worth

  	
   

  
	
  December 31, 2008

  	
   

  	
  $

  	
  61,000,000

  	
   

  
	
  January 31, 2009

  	
   

  	
  $

  	
  57,000,000

  	
   

  
	
  February 28, 2009

  	
   

  	
  $

  	
  52,700,000

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  51,000,000

  	
   

  
	
  April 30, 2009

  	
   

  	
  $

  	
  48,150,000

  	
   

  
	
  May 31, 2009

  	
   

  	
  $

  	
  45,300,000

  	
   

  
	
  June 30, 2009

  	
   

  	
  $

  	
  46,500,000

  	
   

  
	
  July 31, 2009

  	
   

  	
  $

  	
  43,900,000

  	
   

  
	
  August 31, 2009

  	
   

  	
  $

  	
  41,300,000

  	
   

  
	
  September 30, 2009

  	
   

  	
  $

  	
  44,450,000

  	
   

  
	
  October 31, 2009

  	
   

  	
  $

  	
  42,100,000

  	
   

  
	
  November 30, 2009

  	
   

  	
  $

  	
  39,850,000

  	
   

  
	
  December 31, 2009

  	
   

  	
  $

  	
  44,600,000

  	
   

  
	
  January 31, 2010

  	
   

  	
  $

  	
  42,250,000

  	
   

  
	
  February 28, 2010

  	
   

  	
  $

  	
  40,000,000

  	
   

  
	
  March 31, 2010

  	
   

  	
  $

  	
  45,150,000

  	
   

  



 


2.                                       Minimum Net Income. Pursuant to Section 5.2
(b) of the Credit Agreement, as of the Reporting Date,
Company’s Net Income was [$              ], which o satisfies o does not
satisfy the requirement that Net Income be not less than the amount set forth
in the table below (numbers appearing between “< >” are negative) on the
Reporting Date:


 


	
  Test Date

  	
   

  	
  Minimum
  Net Income

  	
   

  
	
  December 31, 2008

  	
   

  	
  $

  	
  <10,800,000

  	
  > 

  
	
  March 31, 2009

  	
   

  	
  $

  	
  <11,000,000

  	
  > 

  
	
  June 30, 2009

  	
   

  	
  $

  	
  <5,750,000

  	
  > 

  



 


E-2

















 


	
  Test Date

  	
   

  	
  Minimum
  Net Income

  	
   

  
	
  September 30, 2009

  	
   

  	
  $

  	
  <3,200,000

  	
  > 

  
	
  December 31, 2009

  	
   

  	
  $

  	
  <1,000,000

  	
  > 

  
	
  March 31, 2010

  	
   

  	
  $

  	
  <500,000

  	
  > 

  



 


3.                                       Minimum Cash to Unreimbursed Line of Credit Advances Coverage Ratio. Pursuant to Section 5.2(c) of
the Credit Agreement, as of the Reporting Date, at all times, Company has o  has not o  been in
compliance with the requirement that the percentage of the unreimbursed Line of
Credit Advances under the Revolving Note plus the L/C Amount plus outstanding
“Advances” under the Ex-Im Credit Agreement to the amount of cash plus Cash
Equivalents of Company in which Wells Fargo has a perfected first priority
security interest be not greater than 80%.


 


4.                                       Capital Expenditures. Pursuant to Section 5.2
(d) of the Credit Agreement, for the year-to-date period ending on the
Reporting Date, Companies have expended or contracted to expend during the
fiscal year ended                      ,
200    , for Capital Expenditures, $                           in
the aggregate, which o  satisfies o  does not satisfy the requirement that such expenditures not exceed
$7,500,000 in the aggregate during the fiscal year ended March 31, 2009,
$10,000,000 in the aggregate during the fiscal year ended March 31, 2010,
and zero for each subsequent fiscal year.


 


Attached are statements of all relevant facts and
computations in reasonable detail sufficient to evidence Company’s compliance
with the financial covenants referred to above, which computations were made in
accordance with GAAP.


 


	
   

  	
  Capstone
  Turbine Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Its:
  Chief Financial Officer

  



 


E-3

















 


Exhibit F to Credit and Security Agreement


 


PERMITTED LIENS


 


	
  Creditor

  	
   

  	
  Collateral

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing
  Date

  	
   

  	
  Filing
  No.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GE Business Credit  Corporation

  	
   

  	
  Various
  equipment

  	
   

  	
  Delaware

  	
   

  	
  Original  Filing Date:  8/13/01

  Continuation Filing Date:  2/15/06

  	
   

  	
  10826789

  	
   

  
	
  GE Business Credit  Corporation

  	
   

  	
  Various
  equipment

  	
   

  	
  Delaware

  	
   

  	
  Original  Filing Date:  8/13/01

  Continuation Filing Date:  2/15/06

  	
   

  	
  10826805

  	
   

  
	
  GE Business Credit  Corporation

  	
   

  	
  Various
  equipment

  	
   

  	
  Delaware

  	
   

  	
  Original  Filing Date:  8/13/01

  Continuation Filing Date:  2/15/06

  	
   

  	
  10826953

  	
   

  
	
  GE Business Credit  Corporation

  	
   

  	
  Various
  equipment

  	
   

  	
  Delaware

  	
   

  	
  Original  Filing Date:  8/13/01

  Continuation Filing Date:  2/15/06

  	
   

  	
  10826979

  	
   

  
	
  GE Business Credit  Corporation

  	
   

  	
  Various
  equipment

  	
   

  	
  Delaware

  	
   

  	
  Original  Filing Date:  8/13/01

  Continuation Filing Date:  2/15/06

  	
   

  	
  10827001

  	
   

  
	
  GE Business Credit  Corporation

  	
   

  	
  Various
  equipment

  	
   

  	
  Delaware

  	
   

  	
  Original  Filing Date:  8/13/01

  Continuation Filing Date:  2/15/06

  	
   

  	
  10827035

  	
   

  
	
  Crown Credit Company

  	
   

  	
  Daewoo
  Lift Truck, G25P-186, SN: DZ-00140

  	
   

  	
  Delaware

  	
   

  	
  7/28/03

  	
   

  	
  31940421

  	
   

  



 


F-1

















 


	
  Creditor

  	
   

  	
  Collateral

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing
  Date

  	
   

  	
  Filing
  No.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  General
  Electric Capital Corporation

  	
   

  	
  Various
  equipment

  	
   

  	
  Delaware

  	
   

  	
  1/11/06

  	
   

  	
  60109413

  	
   

  



 


INDEBTEDNESS


 


None.




GUARANTIES


 


None.


 


F-2