Document:

exv10w17

 

Exhibit 10.17

EXECUTIVE EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”) is made as of January 9, 2006 (the “Effective
Date”), by and between BMC Software, Inc., a Delaware corporation (the “Employer”), and Michael A.
Vescuso (the “Executive”). The Employer and the Executive are each a “party” and are together
“parties” to this Agreement.

RECITALS

     WHEREAS, the Employer desires to employ the Executive, and the Executive wishes to accept such
employment, upon the terms and conditions set forth in this Agreement.

     WHEREAS, the Executive acknowledges that his employment duties will be undertaken in the state
of Texas at the corporate headquarters of Employer. In addition, Executive shall be principally
physically located and maintain residence in Texas and shall be deemed a Texas employee.

AGREEMENT

     NOW THEREFORE, in consideration of the employment compensation to be paid to the Executive and
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties, intending to be legally bound, agree as follows:

	1.	 	DEFINITIONS

     For the purposes of this Agreement, the following terms have the meanings specified or
referred to in this Section 1.

     “Agreement” refers to this Employment Agreement, including all Exhibits attached hereto, as
amended from time to time.

     “Benefits” as defined in Section 3.1(b).

     “Board of Directors” refers to the board of directors of the Employer.

     “Change of Control” refers to (i) the acquisition of at least 50% of Employer’s outstanding
voting stock; (ii) an unapproved change in the majority of the Employer’s board of directors; (iii)
a merger, consolidation, or similar corporate transaction in which the Company’s shareholders
immediately prior to the transaction do not own more than 60% of the voting stock of the surviving
corporation in the transaction; and (iv) shareholder approval of the company’s liquidation,
dissolution, or sale or substantially all of its assets.

     “Confidential Information” means any and all:

	 	a.	 	trade secrets (as defined herein) concerning the business and
affairs of the Employer, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current, and planned

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	 	 	 	research and development, current and planned manufacturing or distribution
methods and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer software
and programs (including object code and source code), computer software and
database technologies, systems, structures, and architectures (and related
formulae, compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and information),
and any other information, however documented, that is a trade secret;
	 
	 	b.	 	information concerning the business and affairs of the Employer
(which includes historical financial statements, financial projections and
budgets, historical and projected sales, capital spending budgets and plans,
the names and backgrounds of key personnel, personnel training and techniques
and materials), however documented; and
	 
	 	c.	 	notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing.

     “Disability” as defined in Section 6.2.

     “Effective Date” is the date stated in the first paragraph of the Agreement.

     “Employee Invention” shall mean any idea, invention, technique, modification, process, or
improvement (whether patentable or not), any industrial design (whether registerable or not), any
mask work, however fixed or encoded, that is suitable to be fixed, embedded or programmed in a
semiconductor product (whether recordable or not), and any work of authorship (whether or not
copyright protection may be obtained for it) created, conceived, or developed by the Executive,
either solely or in conjunction with others, during the Employment Period, or a period that
includes a portion of the Employment Period, that relates in any way to, or is useful in any manner
in, the business then being conducted or proposed to be conducted by the Employer, and any such
item created by the Executive, either solely or in conjunction with others, following termination
of the Executive’s employment with the Employer, that is based upon or uses Confidential
Information.

     “Employment Period” is the term of the Executive’s employment under this Agreement.

     “Fiscal Year” shall mean the Employer’s fiscal year, which shall end on March 31 of each year,
or as changed from time to time.

     “for cause” as defined in Section 6.3.

     “Good Reason” as defined in Section 6.3.

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     “person” is any individual, corporation (including any non-profit corporation), general or
limited partnership, limited liability company, joint venture, estate, trust, association,
organization, or governmental body.

     “Proprietary Items” as defined in Section 7.2(a)(iv).

     “Salary” as defined in Section 3.1(a).

     “trade secrets” shall mean the whole or any part of any scientific or technical information,
design, process, procedure, formula, or improvement that has value and that the owner has taken
measures to prevent from becoming available to persons other than those selected by the owner to
have access for limited purposes.

	2.	 	EMPLOYMENT TERMS AND DUTIES

	 	2.1	 	EMPLOYMENT

     The Employer hereby employs the Executive, and the Executive hereby accepts employment by the
Employer, upon the terms and conditions set forth in this Agreement.

	 	2.2	 	EMPLOYMENT PERIOD

     Subject to the provisions of Section 6, the term of the Executive’s employment under this
Agreement will commence upon the Effective Date and shall continue in effect through the third
anniversary of the Effective Date (the “Employment Period”); provided, however, that, subject to
the provisions of Section 6, commencing on the day after the Effective Date and on each day
thereafter, the Employment Period shall be automatically extended for one additional day unless the
Employer shall give written notice to Executive that the Employment Period shall cease to be so
extended, in which event the Employment Period shall terminate on the third anniversary of the date
such notice is given. The Employment Period may be further extended by mutual agreement of the
parties.

	 	2.3	 	DUTIES

     The Executive will have such duties as are assigned or delegated to the Executive by the Board
of Directors, and will initially serve as the Employer’s Senior Vice President of Administration.
The Executive will use good faith and reasonable efforts to devote his entire business time,
attention, skill, and energy exclusively to the business of the Employer, will use his best efforts
to promote the success of the Employer’s business, and will cooperate fully with the Board of
Directors in the advancement of the best interests of the Employer. The Executive’s employment
will be subject to the policies maintained and established by the Employer, from time to time.
Nothing in this Section 2.3, however, will prevent the Executive from engaging in additional
activities in connection with passive personal investments and community affairs that are not
inconsistent with the Executive’s duties under this Agreement. Additionally, nothing in this
Section 2.3 will prevent the Executive from serving on the Board of Directors and/or advisory
boards of other companies or organizations, or engaging in other

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activities, so long as such participation does not conflict with the interests or business of
Employer or require such involvement as to interfere with the performance of the Executive’s duties
hereunder and has been expressly approved by the Chief Executive Officer of Employer. If the
Executive is elected as a director of the Employer or as a director or officer of any of its
affiliates, the Executive will fulfill his duties as such director or officer without additional
compensation. The Executive acknowledges and agrees that he owes a fiduciary duty of loyalty,
fidelity and allegiance to act at all times in the best interests of the Employer.

	3.	 	COMPENSATION

	 	3.1	 	COMPENSATION

	 	a.	 	Salary. During the Employment Period, the Executive
will be paid an annual base salary of $375,000 (the “Salary”), which will be
payable in twenty-four (24) equal installments according to the Employer’s
customary payroll practices. Executive may be subject to such increases in
Salary as deemed appropriate in the sole discretion of the Compensation
Committee of the Board of Directors of Employer.
	 
	 	b.	 	Benefits. The Executive will, during the Employment
Period, be permitted to participate in such pension, profit sharing, life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
“Benefits”).
	 
	 	c.	 	Cash Bonus. Executive will be eligible for a cash
bonus as described in Attachment A incorporated herein by reference.

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	 	d.	 	Stock Options. Executive will receive the right and
option to purchase 75,000 shares of stock of the Employer. Such options will
be subject to the terms and conditions of the BMC Software, Inc. 1994 Employee
Incentive Plan and an Executive Stock Option Agreement.
	 
	 	e.	 	Long-Term Incentive Plan. Executive will be eligible
(beginning April 1, 2006) to participate in the BMC Long-Term Incentive Plan
providing a 3-year cash plan based on Employer’s total shareholder return
against a peer group of companies with the first plan for new members divided
into two payments: 18-month payment (target is at $100,000 payment) and
36-month payment (target is at $100,000 payment).

	4.	 	FACILITIES AND EXPENSES

	 	4.1	 	FACILITIES.

     The Employer will furnish the Executive office space, equipment, supplies, and such
other facilities and personnel as the Employer deems necessary or appropriate for the
performance of the Executive’s duties under this Agreement.

	 	4.2	 	EXPENSES.

     The Employer will pay on behalf of the Executive (or reimburse the Executive for)
reasonable expenses incurred by the Executive at the request of, or on behalf of, the
Employer in the performance of the Executive’s duties pursuant to this Agreement, and in
accordance with the Employer’s employment policies, including reasonable expenses incurred
by the Executive in attending business meetings, in appropriate business entertainment
activities, and for promotional expenses. The Executive must file expense reports with
respect to such expenses in accordance with the Employer’s policies then in effect.

	5.	 	VACATIONS AND HOLIDAYS

     The Executive will be entitled to paid vacation during the term of the Agreement in accordance
with the vacation policies of the Employer in effect for its employees from time to time. The
Executive will also be entitled to the paid holidays and other paid leave set forth in the
Employer’s policies.

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	6.	 	TERMINATION

	 	6.1	 	EVENTS OF TERMINATION

     The Employment Period, the Executive’s Salary and any and all other rights of the Executive
under this Agreement or otherwise as an employee of the Employer will terminate (except as
otherwise provided in this Section 6):

	 	a.	 	upon the death of the Executive;
	 
	 	b.	 	upon the Disability (as defined in Section 6.2) of the
Executive immediately upon notice from either party to the other;
	 
	 	c.	 	upon termination by the Employer for cause (as defined in
Section 6.3);
	 
	 	d.	 	upon the voluntary retirement from or voluntary resignation of
employment by the Executive for any reason other than those set forth in
Section 6.1(f) below;
	 
	 	e.	 	upon termination by the Employer for any reason other than
those set forth in Section 6.1(a) through 6.1(d) above; or
	 
	 	f.	 	upon voluntary resignation of employment by the Executive
within 60 days of the occurrence of an event that constitutes Good Reason, as
defined in Section 6.3 below.

     Upon termination of the Employment Period, as provided above or otherwise, Executive’s rights
respecting Benefits, Stock Options, and Cash Bonus will be determined under the applicable plan or
program providing the same.

	 	6.2	 	DEFINITION OF DISABILITY

     For purposes hereof, the term “Disability” shall mean an incapacity by accident, illness or
other circumstance which renders the Executive mentally or physically incapable of performing the
duties and services required of the Executive hereunder on a full-time basis for a period of at
least 180 consecutive days.

	 	6.3	 	DEFINITION OF “FOR CAUSE” AND “GOOD REASON”

	 	a.	 	For purposes of Section 6.1, the phrase “for cause” means: (i)
the Executive’s continued and material failure to perform his obligations under
this Agreement; (ii) the Executive’s material failure to adhere to any Employer
policy or code of conduct; (iii) the appropriation (or attempted appropriation)
of a material business opportunity of the Employer, including attempting to
secure or securing any personal profit in

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	 	 	 	connection with any transaction entered into on behalf of the Employer; (iv)
the Executive’s engaging in conduct that is materially injurious to the
Employer, (v) the misappropriation (or attempted misappropriation) of any of
the Employer’s funds or property; (vi) the conviction of or the entering of
a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime with respect to which imprisonment is
a punishment; or (vii) the conviction of the Executive by a court of
competent jurisdiction of a crime involving moral turpitude. The
determination of whether the Executive’s employment is terminated for cause
shall be made solely by the Employer, which shall act in good faith in
making such determination.
	 
	 	b.	 	“Good Reason” means:

	 	i.	 	The occurrence, prior to a Change of Control or
after the date which is 12 months after a Change of Control occurs, of
any one or more of the following events without the Executive’s express
written consent: (i) a significant change in the Executive’s titles or
offices from those previously applicable to the Executive (but not an
alteration in Executive’s reporting responsibilities); (ii) a reduction
in the Executive’s Salary or target bonus amount from that provided to
him immediately on the Effective Date of this Agreement (or the
effective date of any extension of this Agreement pursuant to Paragraph
7(a)) or as the same may be increased from time to time; or (iii) a
diminution in employee benefits (including but not limited to medical,
dental, life insurance and long-term disability plans) and perquisites
applicable to the Executive from those substantially similar to the
employee benefits and perquisites provided by the Employer (including
subsidiaries) to executives with comparable duties; or
	 
	 	ii.	 	The occurrence, within 12 months after the date
upon which a Change of Control occurs, of any one or more of the
following events without Executive’s express written consent: (i) a
change in Executive’s reporting responsibilities, titles or offices as
in effect immediately prior to the Change of Control or any removal of
Executive from, or any failure to re-elect Executive to, any of such
positions which has the effect of diminishing Executive’s
responsibility or authority; (ii) a reduction by the Employer or a
subsidiary thereof in Executive’s Salary or target bonus amount as in
effect immediately prior to the Change of Control or as the same may be
increased from time to time or a change in the eligibility requirements
or performance criteria under any bonus, incentive or compensation
plan, program or arrangement under which Executive is covered
immediately prior to the Change of Control which adversely affects
Executive; (iii)

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	 	 	 	the Employer or a subsidiary thereof requiring Executive to be
permanently based anywhere other than within 50 miles of Executive’s
job location at the time of the Change of Control; (iv) without
replacement by a plan providing benefits to Executive equal to or
greater than those discontinued, the failure by the Employer or a
subsidiary thereof to continue in effect, within its maximum stated
term, any pension, bonus, incentive, stock ownership, purchase,
option, life insurance, health, accident, disability, or any other
employee benefit plan, program or arrangement in which Executive is
participating at the time of the Change of Control, or the taking of
any action by the Employer or a subsidiary thereof that would
adversely affect Executive’s participation or materially reduce
Executive’s benefits under any of such plans; (v) the taking of any
action by the Employer or a subsidiary thereof that would materially
adversely affect the physical conditions existing at the time of the
Change of Control in or under which Executive performs his employment
duties; (vi) if Executive’s primary employment duties are with a
subsidiary of the Employer, the sale, merger, contribution, transfer
or any other transaction in conjunction with which the Employer’s
ownership interest in the subsidiary decreases below a majority
interest; or (vii) any material variance from the terms of
this Agreement by the Employer or a subsidiary thereof.

	 	6.4	 	SEVERANCE

     Should the Executive’s employment with the Employer be terminated during the Employment Period
pursuant to Section 6.1(e) or Section 6.1(f) above, the Executive shall be entitled to:

	 	a.	 	a payment equal to two years of his then current Salary; and
	 
	 	b.	 	a payment equal to two times his then current cash bonus target
amount.

     Such payments under this section will be made no later than 30 days following the termination
from employment. Severance payments do not constitute continued employment beyond the termination
date.

	 	6.5	 	CHANGE OF CONTROL

     If, within 12 months of a Change of Control, the Executive’s position is eliminated or the
Executive is terminated pursuant to Section 6.1(e) or 6.1(f) above, regardless of whether such
termination event occurs during or after the Employment Period, the Executive shall be entitled to
the following in lieu of the amounts set forth in Section 6.4:

	 	a.	 	a payment equal to two years of his then current Salary;

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	 	b.	 	a payment equal to two times his then current cash bonus target
amount;
	 
	 	c.	 	vesting of Executive’s stock option awards, subject to the
terms and conditions of the respective stock option agreements; and
	 
	 	d.	 	continued medical and life insurance benefits at no cost to the
Executive, for the Executive and his dependents (including his spouse) who were
covered as of such termination event under the medical and life insurance
benefit plan as in effect for employees of the Employer during the coverage
period, or the substantial equivalence, for 18 months or until such time that
he is re-employed and is provided medical and life insurance benefits (which
coverage shall be promptly reported to the Employer by the Executive) whichever
is sooner.

     Severance payments do not constitute continued employment beyond the termination date.

     Notwithstanding anything to the contrary in this Agreement, if the Executive is a
“disqualified individual” (as defined in Section 280G(c) of the Internal Revenue Code of 1986, as
amended (the “Code”)), and the severance benefits provided for in this Section 6.5, together with
any other payments and benefits which the Executive has the right to receive from the Employer and
its affiliates, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the
Code), then the severance benefits provided hereunder (beginning with any benefit to be paid in
cash hereunder) shall be either (1) reduced (but not below zero) so that the present value of such
total amounts and benefits received by the Executive will be one dollar ($1.00) less than three
times the Executive’s “base amount” (as defined in Section 280G of the Code) and so that no portion
of such amounts and benefits received by the Executive shall be subject to the excise tax imposed
by Section 4999 of the Code or (2) paid in full, whichever produces the better net after-tax
position to the Executive (taking into account any applicable excise tax under Section 4999 of the
Code and any other applicable taxes). The determination as to whether any such reduction in the
amount of the severance benefit is necessary shall be made initially by the Employer in good faith.
If a reduced severance benefit is paid hereunder in accordance with clause (1) of the first
sentence of this paragraph and through error or otherwise that payment, when aggregated with other
payments and benefits from the Employer (or its affiliates) used in determining if a “parachute
payment” exists, exceeds one dollar ($1.00) less than three times the Executive’s base amount, then
the Executive shall immediately repay such excess to the Employer upon notification that an
overpayment has been made.

	 	6.6	 	NO MITIGATION

Any remuneration received by the Executive from a third party following the Employment Period shall
not apply to reduce the Employer’s obligations to make payments hereunder.

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	 	6.7	 	LIQUIDATED DAMAGES

Due to the difficulties in estimating damages for an early termination of the Employment Period,
the Employer and the Executive agree that the payments, if any, to be received by the Executive
hereunder shall be received as liquidated damages.

	7.	 	NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS

	 	7.1	 	ACKNOWLEDGMENTS BY THE EXECUTIVE

     The Executive acknowledges that (a) prior to and during the Employment Period and as a part of
his employment, the Executive has been and will be afforded access to Confidential Information; (b)
public disclosure of such Confidential Information could have an adverse effect on the Employer and
its business; (c) because the Executive possesses substantial technical expertise and skill with
respect to the Employer’s business, the Employer desires to obtain exclusive ownership of each
Employee Invention, and the Employer will be at a substantial competitive disadvantage if it fails
to acquire exclusive ownership of each Employee Invention; and (d) the provisions of this Section 7
are reasonable and necessary to prevent the improper use or disclosure of Confidential Information
and to provide the Employer with exclusive ownership of all Employee Inventions.

	 	7.2	 	AGREEMENTS OF THE EXECUTIVE

     In consideration of the compensation and benefits to be paid or provided to the Executive by
the Employer under this Agreement, the Executive covenants the following:

	 	a.	 	Confidentiality.

	 	i.	 	The Executive will hold in confidence the
Confidential Information and will not disclose it to any person except
with the specific prior written consent of the Employer or except as
otherwise expressly permitted by the terms of this Agreement.
	 
	 	ii.	 	Any trade secrets of the Employer will be
entitled to all of the protections and benefits under any applicable
law. If any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret
for purposes of this Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this Agreement.
The Executive hereby waives any requirement that the Employer submit
proof of the economic value of any trade secret or post a bond or other
security.
	 
	 	iii.	 	None of the foregoing obligations and
restrictions applies to any part of the Confidential Information that
the Executive

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	 	 	 	demonstrates was or became generally available to the public other
than as a result of a disclosure by the Executive.
	 
	 	iv.	 	The Executive will not remove from the
Employer’s premises (except to the extent such removal is for purposes
of the performance of the Executive’s duties at home or while
traveling, or except as otherwise specifically authorized by the
Employer) any document, record, notebook, plan, model, component,
device, or computer software or code, whether embodied in a disk or in
any other form (collectively, the “Proprietary Items”). The Executive
recognizes that, as between the Employer and the Executive, all of the
Proprietary Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this Agreement
by either party, or upon the request of the Employer during the
Employment Period, the Executive will return to the Employer all of the
Proprietary Items in the Executive’s possession or subject to the
Executive’s control, and the Executive shall not retain any copies,
abstracts, sketches, or other physical embodiment of any of the
Proprietary Items.

	 	b.	 	Employee Inventions. Each Employee Invention will
belong exclusively to the Employer. The Executive acknowledges that all of the
Executive’s writing, works of authorship, and other Employee Inventions are
works made for hire and the property of the Employer, including any copyrights,
patents, or other intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire, the Executive
hereby assigns to the Employer all of the Executive’s right, title, and
interest, including all rights of copyright, patent, and other intellectual
property rights, to or in such Employee Inventions. The Executive covenants
that he will promptly:

	 	i.	 	disclose to the Employer in writing any
Employee Invention;
	 
	 	ii.	 	assign to the Employer or to a party designated
by the Employer, at the Employer’s request and without additional
compensation, all of the Executive’s right to the Employee Invention
for the United States and all foreign jurisdictions;
	 
	 	iii.	 	execute and deliver to the Employer such
applications, assignments, and other documents as the Employer may
request in order to apply for and obtain patents or other registrations
with respect to any Employee Invention in the United States and any
foreign jurisdictions;
	 
	 	iv.	 	sign all other papers necessary to carry out
the above obligations; and

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	 	v.	 	give testimony and render any other assistance
in support of the Employer’s rights to any Employee Invention.

	 	c.	 	Notice of Intent to Resign. Except in the event of a
resignation for Good Reason, Executive agrees to provide Employer with 90 days
advance notice of his intention to resign (“Notice Period”). During the Notice
Period, Executive shall continue in the diligent fulfillment of all duties of
his position and this Agreement. Should Executive fail to provide Employer
with the full Notice Period, Executive shall forfeit that portion of his earned
pro-rata yearly cash bonus as follows:
	 
	 	 	 	(90 – (number of full days of advance notice) / 90) X(times) pro-rata
earned yearly cash bonus = amount forfeited by Executive.
	 
	 	 	 	Pro-rata earned yearly cash bonus is: (unconditional portion of yearly cash
bonus, if any, targeted for Executive in the current Fiscal Year) / (number
of full months worked in the current Fiscal Year / 12).
	 
	 	d.	 	NonDisparagement. Executive shall not disparage the
Employer or any of its shareholders, directors, officers, employees, or agents.
	 
	 	e.	 	Creative Works. Executive shall not create, assist
with or consult on any creative works which discuss, describe or reference
Employer or any executive of Employer. Creative works includes but is not
limited to novels, nonfiction writings, any authored work, plays, screenplays,
musicals or the like.

	 	7.3	 	DISPUTES OR CONTROVERSIES

     The Executive recognizes that should a dispute or controversy arising from or relating to this
Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All pleadings,
documents, testimony, and records relating to any such adjudication will be maintained in secrecy
and will be available for inspection by the Employer, the Executive, and their respective attorneys
and experts, who will agree, in advance and in writing, to receive and maintain all such
information in secrecy, except as may be limited by them in writing.

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	8.	 	NON-COMPETITION AND NON-INTERFERENCE

	 	8.1	 	ACKNOWLEDGMENTS BY THE EXECUTIVE

     The Executive acknowledges that: (a) the services to be performed by him under this Agreement
are of a special, unique, unusual, extraordinary, and intellectual character; (b) the Employer’s
business is international in scope and its products are marketed throughout the United States and
the world; (c) the Employer competes with other businesses that are or could be located in any part
of the United States or the world; (d) the provisions of this Section 8 are reasonable and
necessary to protect the Employer’s business; and (e) in connection with the fulfillment of his
duties hereunder and as an employee of the Employer, the Employer will provide Executive with
Confidential Information necessitating the execution of the covenants contained in this Section 8.

	 	8.2	 	COVENANTS OF THE EXECUTIVE

     In consideration of the acknowledgments by the Executive, and in consideration of the
compensation and benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that during and for two (2) years following the Employment Period he will not, directly
or indirectly:

	 	a.	 	except in the course of his employment hereunder, engage or
invest in, own, manage, operate, finance, control, or participate in the
ownership, management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend the Executive’s name or
any similar name to, lend Executive’s credit to or render services or advice
to, any business whose products or activities compete in whole or in part with
the products or activities of the Employer anywhere in the world, provided,
however, that the Executive may purchase or otherwise acquire up to (but not
more than) five percent (5%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended;
	 
	 	b.	 	whether for the Executive’s own account or for the account of
any other person, solicit business of the same or similar type being carried on
by the Employer, from any person known by the Executive to be a customer or a
potential customer of the Employer, whether or not the Executive had personal
contact with such person during and by reason of the Executive’s employment
with the Employer;
	 
	 	c.	 	whether for the Executive’s own account or the account of any
other person, (i) solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is an employee (or

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	 	 	 	was an employee within two (2) years of the date in question) of the
Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment
with the Employer; or (ii) interfere with the Employer’s relationship with
any person, including any person who at any time during the Employment
Period was an employee, contractor, supplier, or customer of the Employer;
or

     If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or against public
policy, such covenant will be considered to be divisible with respect to scope, time, and
geographic area, and such lesser scope, time, or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary, and not against public
policy, will be effective, binding, and enforceable against the Executive.

     The period of time applicable to any covenant in this Section 8.2 will be extended by the
duration of any violation by the Executive of such covenant.

	9.	 	GENERAL PROVISIONS

	 	9.1	 	INJUNCTIVE RELIEF AND ADDITIONAL REMEDY

     The Executive acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of Sections 7 and 8) would
be irreparable and that an award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition to any other rights
it may have, to obtain injunctive relief to restrain any breach or threatened breach or otherwise
to specifically enforce any provision of this Agreement, and the Employer will not be obligated to
post bond or other security in seeking such relief.

	 	9.2	 	COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS

     The covenants by the Executive in Sections 7 and 8 are essential elements of this Agreement,
and without the Executive’s agreement to comply with such covenants, the Employer would not have
entered into this Agreement or employed the Executive. The Employer and the Executive have
independently consulted with their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific regard to the nature
of the business conducted by the Employer.

     If the Executive’s employment hereunder expires or is terminated, this Agreement will continue
in full force and effect as is necessary or appropriate to enforce the covenants and agreements of
the Executive in Sections 7 and 8.

14

 

	 	9.3	 	REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE

     The Executive represents and warrants to the Employer that the execution and delivery by the
Executive of this Agreement do not, and the performance by the Executive of the Executive’s
obligations hereunder will not, with or without the giving of notice or the passage of time, or
both: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any agreement to which the
Executive is a party or by which the Executive is or may be bound. The Executive further
specifically represents and warrants that he is not subject to, nor will he violate, any agreement
not to compete upon the execution and delivery by him of this Agreement.

     The Executive represents and warrants that he will not utilize or divulge any proprietary
materials or information from his previous employers and acknowledges that Employer has prohibited
Executive from bringing any such materials on to Employer’s premises and has advised Executive that
Executive’s failure to adhere to these prohibitions will subject Executive to immediate
termination.

	 	9.4	 	OBLIGATIONS CONTINGENT ON PERFORMANCE

     The obligations of the Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive’s performance of the Executive’s obligations
hereunder.

	 	9.5	 	WAIVER

     The rights and remedies of the parties to this Agreement are cumulative and not alternative.
Neither the failure nor any delay by either party in exercising any right, power, or privilege
under this Agreement will operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can
be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or demand as provided in
this Agreement.

15

 

	 	9.6	 	BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED

     This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto
and their respective successors, assigns, heirs, and legal representatives, including any entity
with which the Employer may merge or consolidate or to which all or substantially all of its assets
may be transferred. The duties and covenants of the Executive under this Agreement, being
personal, may not be delegated or assigned.

	 	9.7	 	NOTICES

     All notices, consents, waivers, and other communications under this Agreement must be in
writing and will be deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested and signed for by the party
required to receive notice, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to the appropriate
addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers
as a party may designate by notice to the other parties):

If to Employer:

BMC Software, Inc.

2101 CityWest Blvd

Houston, Texas 77042

Telephone No.: (713) 918-8800

Facsimile No.:713-918-1110

Attn: General Counsel

If to the Executive:

Michael A. Vescuso

                                                            

                                                            

Telephone No:                                         

E-mail Address:                                         

	 	9.8	 	ENTIRE AGREEMENT; AMENDMENTS

     Except as provided in (a) plans and programs of the Employer referred to in Sections 3.1(b)
through (d), and (b) any signed written agreement contemporaneously or hereafter executed by the
Employer and the Executive, this Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and understandings, oral
or written, between the parties hereto with respect to the subject matter hereof. Notwithstanding
the foregoing, this Agreement shall not be construed to supersede any stock option agreements or
restricted stock agreements entered into between Executive and Employer at any time prior to the
execution of this Agreement. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.

16

 

	 	9.9	 	GOVERNING LAW

     This Agreement will be governed by the laws of the State of Texas without regard to conflicts
of laws principles.

	 	9.10	 	ARBITRATION

     In the event that there shall be any dispute arising out of or in any way relating to this
Agreement, the contemplated transactions, any document referred to or incorporated herein by
reference or centrally related to the subject matter hereof, or the subject matter of any of the
same, the parties covenant and agree as follows:

	 	a.	 	The parties shall first use their reasonable best efforts to
resolve such dispute among themselves, with or without mediation.
	 
	 	b.	 	If the parties are unable to resolve such dispute among
themselves, such dispute shall be submitted to binding arbitration in Houston,
Texas, under the auspices of, and pursuant to the rules of, the American
Arbitration Association’s Commercial Arbitration Rules as then in effect, or
such other procedures as the parties may agree to at the time, before a
tribunal of three (3) arbitrators, one of which shall be selected by the
Executive, one of which shall be selected by the Employer, and the third of
which shall be selected by the two (2) arbitrators so selected. Any award
issued as a result of such arbitration shall be final and binding between the
parties, and shall be enforceable by any court having jurisdiction over the
party against whom enforcement is sought. A ruling by the arbitrators shall be
non-appealable. The parties agree to abide by and perform any award rendered
by the arbitrators. If either the Executive or Employer seeks enforcement of
the terms of this Agreement or seeks enforcement of any award rendered by the
arbitrators, then the prevailing party (designated by the arbitrators) to such
proceeding(s) shall be entitled to recover its costs and expenses (including
applicable travel expenses) from the non-prevailing party, in addition to any
other relief to which it may be entitled. If a dispute arises and one party
fails or refuses to designate an arbitrator within thirty (30) days after
receipt of a written notice that an arbitration proceeding is to be held, then
the dispute shall be resolved solely by the arbitrator designated by the other
party and such arbitration award shall be as binding as if three (3)
arbitrators had participated in the arbitration proceeding. Either the
Executive or the Employer may cause an arbitration proceeding to commence by
giving the other party notice in writing of such arbitration. Executive and
the Employer covenant and agree to act as expeditiously as practicable in order
to resolve all disputes by arbitration. Notwithstanding anything in this
section to the contrary, neither Executive nor the Employer shall be precluded
from seeking court action in the event the action sought is either injunctive
action, a

17

 

	 	 	 	restraining order or other equitable relief. The arbitration proceeding
shall be held in English.
	 
	 	c.	 	Legal process in any action or proceeding referred to in the
preceding section may be served on any party anywhere in the world.
	 
	 	d.	 	Except as expressly provided herein and except for injunctions
and other equitable remedies that are required in order to enforce this
Agreement, no action may be brought in any court of law and EACH OF THE PARTIES
WAIVES ANY RIGHTS THAT IT MAY HAVE TO BRING A CAUSE OF ACTION IN ANY COURT OR
IN ANY PROCEEDING INVOLVING A JURY TO THE MAXIMUM EXTENT PERMITTED BY LAW.
Each party acknowledges that it has been represented by legal counsel of its
own choosing and has been advised of the intent, scope and effect of this
Section 9.10 and has voluntarily entered into this Agreement and this Section
9.10.
	 
	 	e.	 	Excluded from this Section 9.10 are any claims for temporary
injunctive relief to enforce Sections 7 and 8 of this Agreement.

	 	9.11	 	SECTION HEADINGS, CONSTRUCTION

     The headings of Sections in this Agreement are provided for convenience only and will not
affect its construction or interpretation. All references to “Section” or “Sections” refer to the
corresponding Section or Sections of this Agreement unless otherwise specified. All words used in
this Agreement will be construed to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word “including” does not limit the preceding words or
terms.

	 	9.12	 	SEVERABILITY

     If any provision of this Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.

	 	9.13	 	COUNTERPARTS

     This Agreement may be executed in one or more counterparts, each of which will be deemed to be
an original copy of this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.

	 	9.14	 	WAIVER OF JURY TRIAL

     THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT.

18

 

	 	9.15	 	WITHHOLDING OF TAXES AND OTHER EMPLOYEE DEDUCTIONS

The Employer may withhold from any payments and benefits made pursuant to this Agreement all
federal, state, city, and other taxes as may be required pursuant to any law or governmental
regulation or ruling and all other normal deductions made with respect to the Employer’s employees
generally.

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date
above first written above.

	 	 	 	 	 	 	 
	 	 	EMPLOYER:	 	 
	 
	 	 	 	 	 	 
	 	 	BMC Software, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	   /s/ ROBERT E. BEAUCHAMP	 	 
	 

	 	Name:
	 	 

Robert E. Beauchamp
	 	 
	 

	 	Title:
	 	President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ MICHAEL A. VESCUSO	 	 
	 	 	 	 	 
	 	 	Michael A. Vescuso	 	 

19

 

			
	Michael A. Vescuso
	 	Attachment A

BMC SOFTWARE, INC.

Executive Employment Agreement

Cash Bonus Description

     The Executive will, during the Employment Period, be permitted to participate in the BMC
Annual Executive Incentive Plan that may be in effect from time to time. During the employment
period, the Executive will be eligible to receive a target incentive, which is 100% of base
salary. The actual amount received is not guaranteed and is dependent on the performance of the
Company and the Executive in accordance with the Annual Incentive Plan established for each fiscal
year during the employment period.

     Each fiscal year, the Executive will receive a detailed description of the Annual Incentive
Plan and the targeted measures and objectives for that year.

20exv10w2

 

EXHIBIT 10.2

Capstone Turbine Corporation

Shares of Common Stock, par value $0.001

SUBSCRIPTION AGREEMENT

     THIS SUBSCRIPTION AGREEMENT (the “AGREEMENT”) by and between Monarch Pointe Fund, Ltd., a
corporation organized under the laws of the British Virgin Islands (the “INVESTOR”), and CAPSTONE
TURBINE CORPORATION, a corporation organized and existing under the laws of the State of Delaware
(the “COMPANY”) is dated the 7th day of October, 2005 and effective as of the execution of the
Escrow Agreement by and between the Company, the Investor and Mellon Investor Services, LLC (the
“COMMENCEMENT DATE”).

     WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company shares of the Company’s common stock, par value $0.001
per share (the “COMMON STOCK”), with an aggregate purchase price of up to Twenty Million Dollars
($20,000,000.00); and

     WHEREAS, the shares of Common Stock will be issued pursuant to a registration statement filed
with the Securities and Exchange Commission (the “SEC”) on Form S-3 (SEC File No. 333-128164) (the
“SHELF REGISTRATION STATEMENT”) with respect to, among other securities, the Company’s Common Stock
(such shares of Common Stock covered by the Shelf Registration Statement are referred to herein as
the “REGISTERED STOCK”).

     NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

     Section 1.1 “ADVANCE” shall mean the portion of the Commitment Amount advanced by or on behalf
of the Investor to or for the benefit of the Company on any Advance Date for the purchase of shares
of Registered Stock.

     Section 1.2 “ADVANCE DATE” shall mean each Trading Day during the Offering Period (other than
October 13, 2005) on which the Investor purchases, and the Company sells, Registered Stock during
the Offering Period in connection with an Advance.

     Section 1.3 “ADVANCE NOTICE” shall mean a written (including by electronic transmission)
notice in the form attached hereto as Exhibit A to the Investor setting forth the Daily
Advance Amount that the Company is requesting with respect to the Advance Date.

     Section 1.4 “AGREEMENT” shall have the meaning set forth in the preamble to this Agreement.

     Section 1.5 “BID PRICE” shall mean, on any Trading Day, the closing bid price (as reported by
Bloomberg, L.P.) of the Common Stock on the Principal Market.

-1-

 

     Section 1.6 “COMMENCEMENT DATE” shall have the meaning set forth in the preamble to this
Agreement.

     Section 1.7 “COMMITMENT AMOUNT” shall mean the aggregate amount of up to Twenty Million
Dollars ($20,000,000.00) which the Investor has agreed to provide to the Company during the
Offering Period in order to purchase the Company’s Registered Stock pursuant to the terms and
conditions of this Agreement.

     Section 1.8 “COMMON STOCK” shall have the meaning set forth in the recitals to this Agreement.

     Section 1.9 “COMPANY” shall have the meaning set forth in the preamble to this Agreement.

     Section 1.10 “DAILY ADVANCE AMOUNT” shall mean, on the first Advance Date, $3,703,703.70, and
on each subsequent Advance Date $1,810,699.59, or such other amount advanced to or for the benefit
of the Company for the purchase of shares of Registered Stock as determined by the Company in
accordance with this Agreement (subject to the Maximum Daily Advance Amount).

     Section 1.11 “ESCROW AGENT” shall mean Mellon Investor Services LLC, and its successors and
assigns under the Escrow Agreement.

     Section 1.12 “ESCROW AGREEMENT” shall mean the escrow agreement among the Company, the
Investor, and Escrow Agent dated the date hereof.

     Section 1.13 “EXCHANGE ACT” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

     Section 1.14 “INVESTOR” shall have the meaning set forth in the preamble to this Agreement.

     Section 1.15 “MARKET PRICE” shall mean the VWAP of each share of Common Stock on the Trading
Date with respect to which an Advance Notice has been delivered.

     Section 1.16 “MAXIMUM DAILY ADVANCE AMOUNT” shall be $2,777,777.78 per any Advance Date (other
than the first Advance Date).

     Section 1.17 “NASD” shall mean the National Association of Securities Dealers, Inc.

     Section 1.18 “OFFERING PERIOD” shall mean the period commencing on the Trading Day immediately
following the Commencement Date and expiring on the tenth (10th) Trading Day after the
Commencement Date; provided, however, that the Offering Period shall not include October 13, 2005
as a Trading Day, and that the Offering Period shall be extended automatically by one Trading Day
for each Trading Day on which no Advance is made, up to a maximum of ten (10) additional Trading
Days; and further provided that the Offering Period shall automatically expire upon the first to
occur of, in the aggregate, the purchase and sale of 17,000,000 shares of Common Stock or the
purchase and sale of shares of Common Stock with

-2-

 

an aggregate purchase price of $54,000,000 pursuant to this Agreement and the Subscription
Agreement by and between the Company and Asset Managers International Ltd, dated October 7, 2005.

     Section 1.19 “PERSON” shall mean an individual, a corporation, a partnership, an association,
a trust or other entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.

     Section 1.20 “PRINCIPAL MARKET” shall mean the Nasdaq National Market.

     Section 1.21 “PURCHASE PRICE” shall be ninety-six percent (96%) of the Market Price, computed
to three decimal places, on the applicable Advance Date; provided however, that if the Company
offers Common Stock to one or more third parties during the Offering Period at a price lower than
the Purchase Price calculated in accordance with the foregoing, the Purchase Price shall be the
lowest price at which the Company offers such shares of Common Stock.

     Section 1.22 “REGISTERED STOCK” shall have the meaning set forth in the recitals to this
Agreement.

     Section 1.23 “SHELF REGISTRATION STATEMENT” shall have the meaning set forth in the recitals
to this Agreement.

     Section 1.24 “SEC” shall have the meaning set forth in the recitals to this Agreement.

     Section 1.25 “SECURITIES ACT” shall mean the Securities Act of 1933, as amended.

     Section 1.26 “TRADING DAY” shall mean any day during which the Principal Market shall be open
for business.

     Section 1.27 “VWAP” shall mean the volume weighted average price of the Company’s Common Stock
as quoted by Bloomberg, LP on the applicable Trading Day.

     Section 1.28 “WRITTEN DIRECTION TO DISBURSE” shall mean the written notice from the Investor
and the Company to the Escrow Agent in the form attached hereto as Exhibit B, which written
notice may be executed in two or more identical counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been signed by each party
and delivered to the other party.

ARTICLE II

ADVANCES

     Section 2.1 ADVANCES; SHARES TRANSFERS

          2.1.1 ADVANCES. On the first Trading Day after the Commencement Date (i.e., the first
“Advance Date”), the Company shall receive the Daily Advance Amount of $3,703,703.70, and on each
of the nine (9) Trading Days (subject to the following proviso and sentence) thereafter during the
Offering Period the Company shall, unless the Company delivers an Advance Notice to the Investor
requesting a different Daily Advance Amount from zero to the

-3-

 

Maximum Daily Advance Amount in accordance with Section 2.3, receive a Daily Advance Amount of
$1,810,699.59; provided, however, that no Advance will be made, and no shares of Registered Stock
will be purchased, on October 13, 2005. Notwithstanding anything to the contrary contained herein,
no Advance will be made on any of such nine (9) Trading Days, and the Investor shall not direct the
Escrow Agent to disburse any funds, on any such Trading Day on which between 6:30 a.m. (Pacific
Time) and 11:00 a.m. (Pacific Time) the VWAP of the Company’s Common Stock is below ninety percent
(90%) of the closing VWAP for the immediately preceding Trading Day; provided, however, that the
Company may elect to sell the previously designated number of shares of Registered Stock and the
Investor shall direct the Escrow Agent to disburse the Daily Advance Amount on such a day if the
Company delivers written notice (including by electronic transmission) to that effect to the
Investor before 11:00 a.m. (Pacific Time) on such date. All Advances shall be made on the Advance
Date after the determination of the Purchase Price and the number of shares of Registered Stock to
be purchased with respect to such Advance.

          2.1.2 REGISTERED STOCK TRANSFERS. With respect to each Advance, the Investor shall receive
via DTC transfer to the Investor’s brokerage account on the next Trading Day after the Advance
Date, the number of shares of Registered Stock equal to the quotient obtained by dividing the Daily
Advance Amount disbursed to the Company with respect to such Advance by the per share Purchase
Price. No fractional shares shall be issued. Fractional shares shall be rounded to the next
higher whole number of shares. The maximum aggregate number of shares of Common Stock which the
Investor shall have the right or obligation to acquire hereunder shall not exceed the lesser of:
(i) 6,296,296 shares; and (ii) the number of shares of Common Stock that has an aggregate Purchase
Price equal to the Commitment Amount.

     Section 2.2 CLOSING. On the Commencement Date, (i) the Company shall give its transfer agent
instructions providing for the transfer to the account designated by the Escrow Agent of 6,296,296
shares of Registered Stock in accordance with the Escrow Agreement and (ii) the Investor shall
deliver to the Escrow Agent $15,000,000, and by 6:30 a.m. (Pacific Time) on October 11, 2005 the
Investor shall deliver an additional $5,000,000 of the Commitment Amount, by wire transfer of
immediately available funds to the account designated by the Escrow Agent in accordance with the
Escrow Agreement. The maximum aggregate number of shares of Common Stock which the Company shall
be required to sell hereunder shall not exceed the lesser of: (i) 6,296,296 shares; and (ii) the
number of shares of Common Stock that has an aggregate purchase price equal to the Commitment
Amount. Each of the Company and the Investor shall deliver to the other all documents, instruments
and writings required to be delivered by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein. Disbursement of Advances to the Company
and transfer of the shares of the Company’s Registered Stock to the Investor shall occur in
accordance with the conditions set herein above and in the Escrow Agreement.

     Section 2.3 ADVANCE NOTICE; WRITTEN DIRECTION TO DISBURSE. On or before 6:00 a.m. (Pacific
Time) on each Trading Day after the first Trading Day during the Offering Period, subject to all
other terms and provisions herein, the Company shall deliver to the Investor an Advance Notice
setting forth the requested Daily Advance Amount (but not more than the Maximum Daily Advance
Amount) requested on such Advance Date. Subject to all

-4-

 

other terms and provisions herein, the Investor and the Company shall, after the close of the
Principal Market on each Trading Day including the first Trading Day during the Offering Period,
deliver to the Escrow Agent a Written Direction to Disburse, specifying the Daily Advance Amount to
be disbursed to the Company, the VWAP for the Common Stock on such Advance Date, the Purchase Price
for the shares of Registered Stock, and the number of shares of Registered Stock to be transferred
to the account of Investor. If the Company does not deliver an Advance Notice on or before 6:00
a.m. (Pacific Time) with respect to an Advance Date other than the first Trading Day during the
Offering Period, the Daily Advance Amount for such Advance Date shall be $1,810,699.59.

     Section 2.4 TERMINATION OF INVESTMENT. The obligation of the Investor to make an Advance to
the Company pursuant to this Agreement shall terminate permanently (including with respect to each
Advance Date that has not yet occurred) in the event that (i) there shall occur any stop order or
suspension of the effectiveness of the Shelf Registration Statement or (ii) the Company shall at
any time fail materially to comply with the requirements of Article VI. The obligation of the
Company to transfer shares of Registered Stock to the Investor pursuant to this Agreement shall
terminate permanently (including with respect to each Advance Date that has not yet occurred) in
the event that the Investor shall at any time materially fail to comply with the requirements of
Article III.

     Section 2.5 AGREEMENT TO ADVANCE FUNDS. The Investor agrees to advance the Commitment Amount
to the Escrow Agent after the completion of each of the following conditions and the other
conditions set forth in this Agreement required to be completed prior to advancement of the
Commitment Amount:

          (a) the execution and delivery by the Company, and the Investor, of this Agreement and the
Exhibits and Schedules hereto;

          (b) the Company’s transfer agent shall have set aside in reserve the number of shares of
Registered Stock required by Section 2.2(b) for the benefit of the Investor;

          (c) there shall not have been any stop order or suspension of the effectiveness of the Shelf
Registration Statement;

          (d) the Company shall have obtained all material permits and qualifications required by any
applicable state for the offer and sale of the Registered Stock, and the sale and issuance of the
Registered Stock shall be legally permitted by all laws and regulations to which the Company is
subject;

          (e) the Company shall file with the Commission in a timely manner a prospectus supplement
under Securities Act Rule 424(b) describing the specific plan of distribution (the “PROSPECTUS
SUPPLEMENT”) and all reports, notices and other documents required of a “reporting company” under
the Exchange Act and applicable SEC regulations; and

          (f) the conditions set forth in Section 7.2 shall have been satisfied as of the time of the
advancement of the Commitment Amount.

-5-

 

     Section 2.6 DAMAGES. In the event the Investor sells shares of the Company’s Common Stock
after receipt of an Advance Notice and the Company fails to perform its obligations as mandated in
Article II, and specifically the Company fails to effect through the Escrow Agent the transfer of
the shares of Registered Stock to the Investor, the Company acknowledges that the Investor shall
suffer financial loss and therefore shall be liable for any and all direct losses, commissions or
fees incurred by the Investor.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF INVESTOR

     Investor hereby represents to the Company that the following are true and correct as of the
date hereof:

     Section 3.1 ORGANIZATION AND AUTHORIZATION. The Investor is duly incorporated or organized
and validly existing in the jurisdiction of its incorporation or organization and has all requisite
power and authority to purchase and hold the securities issuable hereunder. The decision to invest
and the execution and delivery of this Agreement by such Investor, the performance by such Investor
of its obligations hereunder and the consummation by such Investor of the transactions contemplated
hereby have been duly authorized and requires no other proceedings on the part of the Investor.
The undersigned has the right, power and authority to execute and deliver this Agreement and all
other instruments, on behalf of the Investor. This Agreement has been duly executed and delivered
by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligations of the Investor, enforceable
against the Investor in accordance with its terms.

     Section 3.2 NO UNDERWRITER. The Investor is not acting and will not act as an “underwriter”
(as that term is defined in the Securities Act) with respect to the Company’s Common Stock.

     Section 3.3 NO STABILIZATION. Neither the Investor nor any of its directors, officers,
employees, agents, partners, members, controlling persons or shareholders holding 5% or more of the
Common Stock, has taken or will take, directly or indirectly, any actions designed, or that might
reasonably be expected to cause or result in the stabilization or manipulation of the price of the
Common Stock.

     Section 3.4 NO SHORTING. Neither the Investor nor any of its affiliates has, directly or
indirectly, offered to “short sell”, contracted to “short sell,” otherwise engaged in any “short
selling” or encouraged others to “short sell” the securities of the Company, including, without
limitation, shares of Common Stock that will be received as a result of the transactions
contemplated by this Agreement, and neither the Company nor any of its affiliates will engage in
any of the foregoing at any time any of them own shares of Common Stock acquired under this
Agreement. For purposes of this Agreement, “short selling” shall include any short sale and any
similar hedging or derivative securities transaction; provided, however, that nothing contained
herein shall prohibit the Investor from selling any shares of Common Stock that will be received as
a result of the transactions contemplated by this Agreement “against the box.”

-6-

 

     Section 3.5 RESTRICTIONS ON RESALE. Investor shall not sell any shares of Common Stock
directly to any shareholder of the Company who owns of record or beneficially fifteen percent (15%)
or more, or any offeror for shares of Common Stock which is seeking to acquire fifteen percent
(15%) or more, of the Common Stock the Company; provided, however, that nothing herein shall
prevent the Investor from selling its Common Stock in an open-market transaction through a
registered broker or dealer (as such terms are defined in the Exchange Act).

     Section 3.6 INVESTOR OWNERSHIP OF COMMON STOCK. Immediately prior to the Commencement Date,
neither the Investor nor any of its affiliates owns (either directly or indirectly) any shares of
Common Stock of the Company. Neither the Investor nor any of its affiliates has, directly or
indirectly, entered into any agreement with any third party to sell shares, or offered to sell, any
shares of Common Stock to be acquired pursuant to this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to the Investor as follows:

     Section 4.1 In connection with the sale of the Registered Stock, the Company has made
available, as requested (including electronically via the SEC’s EDGAR system) to Investor its
periodic and current reports, forms, schedules, proxy statements and other documents (including
exhibits and all other information incorporated by reference) filed with the SEC under the Exchange
Act. The Company’s Annual Report on Form 10-K for the year ended March 31, 2005 and all subsequent
reports, forms, schedules, statements, documents, filings and amendments filed by the Company with
the SEC under the Exchange Act, are collectively referred to as the “DISCLOSURE DOCUMENTS.” All
references in this Agreement to financial statements and schedules and other information which is
“contained,” “included” or “stated” in the Disclosure Documents (or other references of like
import) shall be deemed to mean and include all such financial statements and schedules, documents,
exhibits and other information which is incorporated by reference in the Disclosure Documents. The
Disclosure Documents as of their respective dates did not, and will not as of the Commencement Date
or any Advance Date, contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Disclosure Documents and the documents incorporated or deemed to be
incorporated by reference therein, at the time they were filed or hereafter are filed with the SEC,
complied and will comply, at the time of filing, in all material respects with the requirements of
the Securities Act and/or the Exchange Act, as the case may be, as applicable.

     Section 4.2 Schedule 4.2(A) attached hereto sets forth a complete list of the
subsidiaries of the Company (the “SUBSIDIARIES”). Each of the Company and its Subsidiaries has
been duly incorporated and each of the Company and the Subsidiaries is validly existing in good
standing as a corporation under the laws of its jurisdiction of incorporation, with the requisite
corporate power and authority to own its properties and conduct its business as now conducted as
described in the Disclosure Documents and is duly qualified to do business as a foreign corporation
in good standing in all other jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect on

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the business, condition (financial or other), properties or results of operations of the
Company and the Subsidiaries, taken as a whole (any such event, a “MATERIAL ADVERSE EFFECT”); as of
the Commencement Date, the Company will have the authorized, issued and outstanding capitalization
set forth in the Disclosure Documents (the “COMPANY CAPITALIZATION”); the Company does not have any
Subsidiaries or own directly or indirectly any of the capital stock or other equity or long-term
debt securities of or have any equity interest in any other person; all of the outstanding shares
of capital stock of the Company and the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and were not issued in violation of any preemptive or similar
rights and are owned free and clear of all liens, encumbrances, equities, and restrictions on
transferability (other than those imposed by the Securities Act and the state securities or “Blue
Sky” laws) or voting; except as set forth in the Disclosure Documents, all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly, by the Company;
except as set forth in the Disclosure Documents, no options, warrants or other rights to purchase
from the Company or any Subsidiary, agreements or other obligations of the Company or any
Subsidiary to issue or other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any Subsidiary are outstanding;
and except as included in the Company’s public filings on file with the Securities and Exchange
Commission, there is no agreement, understanding or arrangement among the Company or any Subsidiary
and each of their respective stockholders or any other person relating to the ownership or
disposition of any capital stock of the Company or any Subsidiary or the election of directors of
the Company or any Subsidiary or the governance of the Company’s or any Subsidiary’s affairs, and,
if any, such agreements, understandings and arrangements will not be breached or violated as a
result of the execution and delivery of, or the consummation of the transactions contemplated by,
this Agreement.

     Section 4.3 The Company has the requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement. This Agreement has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will constitute a valid
and legally binding agreement of the Company, enforceable against the Company in accordance with
its terms except as the enforcement thereof may be limited by (A) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors’ rights generally or (B) general principles of equity and the
discretion of the court before which any proceeding therefore may be brought (regardless of whether
such enforcement is considered in a proceeding at law or in equity) (collectively, the
“ENFORCEABILITY EXCEPTIONS”).

     Section 4.4 The Common Stock of the Company conforms to the description thereof contained in
the Disclosure Documents. The stockholders of the Company have no preemptive or similar rights
with respect to the Common Stock.

     Section 4.5 No consent, approval, authorization, license, qualification, exemption or order of
any court or governmental agency or body or third party is required for the performance of this
Agreement by the Company or for the consummation by the Company of any of the transactions
contemplated thereby, or the application of the proceeds of the issuance of the Registered Stock as
described in this Agreement, except for such consents, approvals, authorizations, licenses,
qualifications, exemptions or orders (i) as have been obtained on or prior

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to the Commencement Date, (ii) as are not required to be obtained on or prior to the
Commencement Date that will be obtained when required, or (iii) the failure to obtain which would
not, individually or in the aggregate, have a Material Adverse Effect.

     Section 4.6 None of the Company or the Subsidiaries is (i) in material violation of its
articles of incorporation or bylaws (or similar organizational document), (ii) in breach or
violation of any statute, judgment, decree, order, rule or regulation applicable to it or any of
its properties or assets, which breach or violation would, individually or in the aggregate, have a
Material Adverse Effect, or (iii) except as described in the Disclosure Documents, in default (nor
has any event occurred which with notice or passage of time, or both, would constitute a default)
in the performance or observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate or agreement or instrument to which it is a party or to which it is
subject, which default would, individually or in the aggregate, have a Material Adverse Effect.

     Section 4.7 The execution, delivery and performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated thereby and the fulfillment of the
terms thereof will not (a) violate, conflict with or constitute or result in a breach of or a
default under (or an event that, with notice or lapse of time, or both, would constitute a breach
of or a default under) any of (i) the terms or provisions of any contract, indenture, mortgage,
deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or
agreement or instrument to which any of the Company or the Subsidiaries is a party or to which any
of their respective properties or assets are subject, (ii) the Certificate of Incorporation or
bylaws of any of the Company or the Subsidiaries (or similar organizational document) or (iii) any
statute, judgment, decree, order, rule or regulation of any court or governmental agency or other
body applicable to the Company or the Subsidiaries or any of their respective properties or assets
or (b) result in the imposition of any lien upon or with respect to any of the properties or assets
now owned or hereafter acquired by the Company or any of the Subsidiaries; which violation,
conflict, breach, default or lien would, individually or in the aggregate, have a Material Adverse
Effect.

     Section 4.8 The audited consolidated financial statements included in the Disclosure Documents
present fairly the consolidated financial position, results of operations, cash flows and changes
in shareholders’ equity of the entities, at the dates and for the periods to which they relate and
have been prepared in all material respects in accordance with generally accepted accounting
principles applied on a consistent basis; the interim unaudited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial position, results of
operations and cash flows of the entities, at the dates and for the periods to which they relate
subject to year-end audit adjustments and have been prepared in all material respects in accordance
with generally accepted accounting principles applied on a consistent basis with the audited
consolidated financial statements included therein; the selected financial data included in the
Disclosure Documents present fairly the information shown therein and have been prepared and
compiled in all material respects on a basis consistent with the audited financial statements
included therein, except as otherwise stated therein; and each of the auditors previously engaged
by the Company or to be engaged in the future by the Company is an independent certified public
accountant as required by the Securities Act for an offering registered thereunder.

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     Section 4.9 Except as described in the Disclosure Documents, there is not pending or, to the
knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation,
governmental or otherwise, to which any of the Company or the Subsidiaries is a party, or to which
their respective properties or assets are subject, before or brought by any court, arbitrator or
governmental agency or body, that, if determined adversely to the Company or any such Subsidiary,
would, individually or in the aggregate, have a Material Adverse Effect or that seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities
to be sold hereunder or the application of the proceeds therefrom or the other transactions
described in the Disclosure Documents.

     Section 4.10 The Company and the Subsidiaries own or possess adequate licenses or other rights
to use all patents, trademarks, service marks, trade names, copyrights and know-how that are
necessary to conduct their businesses as described in the Disclosure Documents. None of the
Company or the Subsidiaries has received any written notice of infringement of (or knows of any
such infringement of) asserted rights of others with respect to any patents, trademarks, service
marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were
sustained, would, individually or in the aggregate, have a Material Adverse Effect.

     Section 4.11 Each of the Company and the Subsidiaries possesses all licenses, permits,
certificates, consents, orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals presently required or necessary to
own or lease, as the case may be, and to operate its respective properties and to carry on its
respective businesses as now or proposed to be conducted as set forth in the Disclosure Documents
(“PERMITS”), except where the failure to obtain such Permits would not, individually or in the
aggregate, have a Material Adverse Effect and none of the Company or the Subsidiaries has received
any notice of any proceeding relating to revocation or modification of any such Permit, except as
described in the Disclosure Documents and except where such revocation or modification would not,
individually or in the aggregate, have a Material Adverse Effect.

     Section 4.12 Subsequent to June 30, 2005 and except as described in the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2005 or in the Company’s Annual Report on Form
10-K for the year ended March 31, 2005, (i) the Company and the Subsidiaries have not incurred any
material liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business or (ii) the Company and the Subsidiaries have
not purchased any of their respective outstanding capital stock, or declared, paid or otherwise
made any dividend or distribution of any kind on any of their respective capital stock or otherwise
(other than, with respect to any of such Subsidiaries, the purchase of capital stock by the
Company), (iii) there has not been any material increase in the long-term indebtedness of the
Company or any of the Subsidiaries, (iv) there has not occurred any event or condition,
individually or in the aggregate, that has a Material Adverse Effect, and (v) the Company and the
Subsidiaries have not sustained any material loss or interference with respect to their respective
businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any legal or governmental
proceeding.

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     Section 4.13 There are no material legal or governmental proceedings nor are there any
material contracts or other documents required by the Securities Act to be described in a
prospectus that are not described in the Disclosure Documents. Except as described in the
Disclosure Documents, none of the Company or the Subsidiaries is in default under any of the
contracts described in the Disclosure Documents, has received a notice or claim of any such default
or has knowledge of any breach of such contracts by the other party or parties thereto, except for
such defaults or breaches as would not, individually or in the aggregate, have a Material Adverse
Effect.

     Section 4.14 The Company and the Subsidiaries own no real property, and each has good and
marketable title to the leasehold estate in the real property described in the Disclosure Documents
as being leased by it, free and clear of all liens, charges, encumbrances or restrictions, except,
in each case, as described in the Disclosure Documents or such as would not, individually or in the
aggregate, have a Material Adverse Effect. All material leases, contracts and agreements to which
the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and
enforceable against the Company or any such Subsidiary, are, to the knowledge of the Company, valid
and enforceable against the other party or parties thereto and are in full force and effect, in
each case subject to the Enforceability Exceptions.

     Section 4.15 Each of the Company and the Subsidiaries has filed all necessary federal, state
and foreign income and franchise tax returns, except where the failure to so file such returns
would not, individually or in the aggregate, have a Material Adverse Effect, and has paid all taxes
shown as due thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in accordance with
generally accepted accounting principles, there is no tax deficiency that has been asserted against
the Company or any Subsidiary that would, individually or in the aggregate, have a Material Adverse
Effect.

     Section 4.16 None of the Company or the Subsidiaries is, or immediately after any Advance Date
will be, required to register as an “investment company” or a company “controlled by” an
“investment company” within the meaning of the Investment Company Act of 1940, as amended (the
“INVESTMENT COMPANY ACT”).

     Section 4.17 None of the Company or the Subsidiaries or, to the knowledge of any of such
entities’ directors, officers, employees, agents or controlling persons, has taken, directly or
indirectly, any action for the purpose of causing the stabilization or manipulation of the price of
the Common Stock.

     Section 4.18 There is no strike, labor dispute, slowdown or work stoppage with the employees
of the Company or any of the Subsidiaries which is pending or, to the knowledge of the Company or
any of the Subsidiaries, threatened.

     Section 4.19 Each of the Company and the Subsidiaries carries general liability insurance
coverage comparable to other companies of its size and similar business.

     Section 4.20 Except as disclosed in the Disclosure Documents, each of the Company and the
Subsidiaries maintains internal accounting controls which provide reasonable assurance

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that (A) transactions are executed in accordance with management’s authorization, (B)
transactions are recorded as necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its material assets is permitted only in
accordance with management’s authorization and (D) the values and amounts reported for its material
assets are compared with its existing assets at reasonable intervals.

     Section 4.21 Other than the fee to Credit Suisse First Boston set forth in the Prospectus
Supplement, the Company does not know of any claims for services, either in the nature of a
finder’s fee or financial advisory fee, with respect to the offering of the Registered Stock and
the transactions contemplated by this Agreement.

     Section 4.22 The Common Stock is traded on the Principal Market. Except as described in the
Disclosure Documents, the Company currently is not in violation of, and the consummation of the
transactions contemplated by this Agreement will not violate, any rule of the Principal Market.

     Section 4.23 Set forth in the Prospectus Supplement is the Company’s intended use of the
proceeds from this transaction.

     Section 4.24 To the Company’s knowledge, none of the officers or directors of the Company (i)
has been convicted of any crime (other than traffic violations or misdemeanors not involving
fraud) or is currently under investigation or indictment for any such crime, (ii) has been found by
a court or governmental agency to have violated any securities or commodities law or to have
committed fraud or is currently a party to any legal proceeding in which either is alleged, (iii)
has been the subject of a proceeding under the bankruptcy laws or any similar state laws, or (iv)
has been an officer, director, general partner, or managing member of an entity which has been the
subject of such a proceeding.

ARTICLE V

INDEMNIFICATION

     Section 5.1 INDEMNIFICATION.

          (a) In consideration of the Investor’s execution and delivery of this Agreement, and in
addition to all of the Company’s other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners,
employees and agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “INVESTOR INDEMNITEES”) from and
against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of whether any such
Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys’ fees and disbursements (the “INDEMNIFIED LIABILITIES”), incurred by
the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (i) any
misrepresentation or breach of any representation or warranty made by the Company in this Agreement
or any other certificate, instrument or document contemplated hereby or thereby, or (ii) any breach
of any covenant, agreement or obligation of the Company contained in this Agreement or any other
certificate, instrument or

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document contemplated hereby or thereby. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.

          (b) In consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Investor’s other obligations under this Agreement, the Investor shall
defend, protect, indemnify and hold harmless the Company and all of its officers, directors,
shareholders, employees and agents (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “COMPANY INDEMNITEES”)
from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of
them as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Investor in this Agreement or the Prospectus Supplement, or
(ii) any breach of any covenant, agreement or obligation of the Investor contained in this
Agreement or any other certificate, instrument or document contemplated hereby or thereby. To the
extent that the foregoing undertaking by the Investor may be unenforceable for any reason, the
Investor shall make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.

          (c) The obligations of the parties to indemnify or make contribution under this Section 5.1
shall survive termination.

ARTICLE VI

COVENANTS OF THE COMPANY

     Section 6.1 LISTING OF COMMON STOCK. The Company shall maintain the Common Stock’s
authorization for quotation on the Principal Market.

     Section 6.2 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock to continue to
be registered under Section 12(g) of the Exchange Act, will file in a timely manner all reports and
other documents required of it as a reporting company under the Exchange Act and will not take any
action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting and filing
obligations under said Exchange Act.

     Section 6.3 TRANSFER AGENT INSTRUCTIONS. The Company shall deliver or cause the Escrow Agent
to deliver instructions to the Company’s transfer agent to transfer shares of Registered Stock
equal to the Daily Advance Amount divided by the per share Purchase Price to the Investor on each
Advance Date.

     Section 6.4 CORPORATE EXISTENCE. The Company will take all steps necessary to preserve and
continue the corporate existence of the Company.

     Section 6.5 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE AN
ADVANCE. The Company will immediately notify the Investor upon its becoming aware of the
occurrence of any of the following events in respect of a registration statement or related
prospectus relating to an offering of Registrable Securities:

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(i) receipt of any request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the registration statement for
amendments or supplements to the registration statement or related prospectus; (ii) the issuance by
the SEC or any other federal or state governmental authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the qualification or exemption
from qualification of any of the registrable securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that
makes any statement made in the registration statement or related prospectus of any document
incorporated or deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the registration statement, related prospectus or
documents so that, in the case of the registration statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and (v) the Company’s
reasonable determination that a post-effective amendment to the registration statement would be
appropriate; and the Company will promptly make available to the Investor any such supplement or
amendment to the related prospectus. The Company shall not deliver to the Investor any Advance
Notice during the continuation of any of the foregoing events.

     Section 6.6 RESTRICTION ON SALE OF CAPITAL STOCK. During the Offering Period, the Company
shall not, without the prior written consent of the Investor, (i) issue or sell any Common Stock or
preferred stock without consideration or for a consideration per share less than the Bid Price of
the Common Stock determined immediately prior to its issuance, (ii) issue or sell any preferred
stock, warrant, option, right, contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock without consideration or for a consideration per share
less than such Common Stock’s Bid Price determined immediately prior to its issuance, or (iii) file
any registration statement on Form S-8.

     Section 6.7 CONSOLIDATION; MERGER. The Company shall not, at any time after the date hereof,
effect any merger or consolidation of the Company with or into, or a transfer of all or
substantially all the assets of the Company to another entity (a “CONSOLIDATION EVENT”) unless the
resulting successor or acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as the Investor is
entitled to receive pursuant to this Agreement.

ARTICLE VII

CONDITIONS FOR ADVANCE AND CONDITIONS TO ADVANCES

     Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligation hereunder
of the Company to issue and sell the shares of Common Stock to the Investor incident to each
Advance is subject to the satisfaction, or waiver by the Company, at or before each Advance Date,
of each of the conditions set forth below.

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          (a) ACCURACY OF THE INVESTOR’S REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained herein shall be true and correct in all material respects.

          (b) PERFORMANCE BY THE INVESTOR. The Investor shall have performed, satisfied and complied in
all respects with all covenants, agreements and conditions required by this Agreement the
Commencement Date to be performed, satisfied or complied with by the Investor at or prior to the
Commencement Date.

     Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO SELL REGISTERED STOCK AND THE
OBLIGATION OF THE INVESTOR TO PURCHASE REGISTERED STOCK. The right of the Company to receive an
Advance and the obligation of the Investor hereunder to acquire and pay for shares of the Company’s
Common Stock incident to an Advance is subject to the fulfillment by the Company, of each of the
following conditions on each Advance Date:

          (a) ACCURACY OF COMPANY’S REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained herein shall be true and correct in all material respects.

          (b) REGISTRATION OF THE COMMON STOCK WITH THE SEC. The Shelf Registration Statement shall
have previously become effective and shall remain effective on each Advance Date and (i) neither
the Company nor the Investor shall have received notice that the SEC has issued or intends to issue
a stop order with respect to the Shelf Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Shelf Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC’s concerns have been addressed
and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take
such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of the
Shelf Registration Statement or related prospectus shall exist. The Prospectus Supplement must
have been filed with the SEC on or prior to the Commencement Date.

          (c) AUTHORITY. The Company shall have obtained all permits and qualifications required by any
applicable state for the offer and sale of the shares of Common Stock, or shall have the
availability of exemptions therefrom. The sale and issuance of the shares of Common Stock shall be
legally permitted by all laws and regulations to which the Company is subject.

          (d) FUNDAMENTAL CHANGES. There shall not exist any fundamental changes to the information set
forth in the Shelf Registration Statement which would require the Company to file a post-effective
amendment to the Shelf Registration Statement.

          (e) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by the Company at or prior to each Advance Date.

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          (f) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been commenced that may
have the effect of prohibiting or adversely affecting any of the transactions contemplated by this
Agreement.

          (g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the Common Stock
is not suspended by the SEC or the Principal Market. The issuance of shares of Common Stock with
respect to the applicable Advance, if any, shall not violate the shareholder approval requirements
of the Principal Market. The Company shall not have received any notice threatening the continued
listing of the Common Stock on the Principal Market.

          (h) MAXIMUM DAILY ADVANCE AMOUNT. The amount of an Advance requested by the Company shall not
exceed the Maximum Daily Advance Amount. In addition, notwithstanding anything to the contrary
contained herein, in no event shall the number of shares the Investor is required or permitted to
purchase pursuant to an Advance equal or exceed the number of shares that would cause the aggregate
number of shares of Common Stock that are acquired as a result of the transactions contemplated
hereby and beneficially owned by the Investor and its affiliates to exceed nine and 99/100 percent
(9.99%) of the then outstanding Common Stock of the Company. Shares owned by any other investor
pursuant to a Subscription Agreement referenced in this Agreement will not be aggregated with
shares owned by the Investor for purposes of determining beneficial ownership. For the purposes of
this Section beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act.

          (i) NO KNOWLEDGE. The Company has no knowledge of any event which would be more likely than
not to have the effect of causing the Shelf Registration Statement to be suspended or otherwise
ineffective.

ARTICLE VIII

NON-DISCLOSURE OF NON-PUBLIC INFORMATION

     Section 8.1 NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

          Nothing herein shall require the Company to disclose non-public information to the Investor or
its advisors or representatives, and the Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or generally during
the course of due diligence by such persons or entities), which, if not disclosed in the prospectus
included in the Shelf Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order to make the
statements, therein, in light of the

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circumstances in which they were made, not misleading. Nothing contained in this Section 8.1
shall be construed to mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from notifying the Company
of their opinion that based on such due diligence by such persons or entities, that the Shelf
Registration Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Shelf Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not misleading.

ARTICLE IX

CHOICE OF LAW/JURISDICTION

     Section 9.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
PARTIES FURTHER AGREE THAT ANY ACTION BETWEEN THEM SHALL BE HEARD IN AND EXPRESSLY CONSENT TO THE
JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS LOCATED IN THE CITY OF LOS ANGELES,
CALIFORNIA FOR THE ADJUDICATION OF ANY CIVIL ACTION ASSERTED PURSUANT TO THIS PARAGRAPH.

ARTICLE X

ASSIGNMENT; TERMINATION

     Section 10.1 ASSIGNMENT. Neither this Agreement nor any rights of the Company hereunder may
be assigned to any other Person.

     Section 10.2 TERMINATION. Except for provisions which expressly survive termination, this
Agreement shall terminate upon the earliest to occur of the following:

          (i) The expiration of the Offering Period;

          (ii) Investor provides written notice to the Company that Investor is terminating the
Agreement due to a material inaccuracy of any representation or warranty of the Company or its
failure to comply with any covenant or obligation hereunder, or the Company provides written notice
to the Investor that the Company is terminating the Agreement due to a material inaccuracy of any
representation or warranty of the Investor or its failure to comply with any covenant or obligation
hereunder;

          (iii) immediately without further action by either party if the sale of Common Stock hereunder
is prohibited or enjoined by applicable law or governmental or self-regulatory body; and

          (iv) by written agreement of the parties.

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ARTICLE XI

NOTICES

     Section 11.1 NOTICES. Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile or by other electronic transmission (including email); (iii) three (3) days after being
sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications shall be:

	 	 	 
	If to the Company, to:

	 	Capstone Turbine Corporation
	 

	 	21211 Nordhoff Street
	 

	 	Chatsworth, CA 91311
	 

	 	Attention: John R. Tucker
	 

	 	Telephone: 818-407-3611
	 

	 	Facsimile: 818-734-5321
	 

	 	Email: jtucker@capstoneturbine.com
	 
	 	 
	With a copy to:

	 	Waller Lansden Dortch & Davis, PLLC
	 

	 	511 Union Street, Suite 2700
	 

	 	Nashville, TN 37219
	 

	 	Attention: J. Chase Cole, Esq.
	 

	 	Telephone: (615) 850-8476
	 

	 	Facsimile: (615) 244-6804
	 

	 	Email: chase.cole@wallerlaw.com
	 
	 	 
	If to the Investor(s):

	 	M.A.G. Capital, LLC
	 

	 	555 South Flower Street
	 

	 	Suite 4200
	 

	 	Los Angeles, CA 90071
	 

	 	Attention: Todd Bomberg, Bill Fitzhugh, H. Harry Aharonian, and Bill
Jose
	 

	 	Telephone: 213-533-8288
	 

	 	Facsimile: 213-533-8285
	 

	 	Email: todd@magcapital.net; bill@magcapital.net;
	 

	 	harry@magcapital.net; and bjose@magcapital.net
	 
	 	 
	With a Copy to:

	 	Sheppard Mullin Richter & Hampton LLP
	 

	 	333 S. Hope Street, 48th Floor
	 

	 	Los Angeles, CA 90071
	 

	 	Attention: David C. Ulich, Esq.
	 

	 	Telephone: 213-830-2020
	 

	 	Facsimile: 213-620-1398
	 

	 	Email: Dulich@sheppardmullin.com

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Each party shall provide two (2) days’ prior written notice to the other party of any change in
address or facsimile number.

ARTICLE XII

MISCELLANEOUS

     Section 12.1 COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to be physically
delivered to the other party within five (5) days of the execution and delivery hereof, though
failure to deliver such copies shall not affect the validity of this Agreement.

     Section 12.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or
written agreements between the Investor, the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or therein, neither the
Company nor the Investor makes any representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.

     Section 12.3 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the
determination of the trading price or trading volume of the Common Stock on any given Trading Day
for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any other reporting
entity.

     Section 12.4 SURVIVAL. The representations and warranties of the Company set forth in this
agreement shall survive until the first (1st) anniversary of the Commencement Date.

     Section 12.5 BROKERAGE. Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand payment of any fee or
commission from the other party except as indicated in the Disclosure Documents. The Company on
the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold
the other harmless from any and all liabilities to any person claiming brokerage commissions or
finder’s fees on account of services purported to have been rendered on behalf of the indemnifying
party in connection with this Agreement or the transactions contemplated hereby.

     Section 12.6 CONFIDENTIALITY. If for any reason the transactions contemplated by this
Agreement are not consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in such party’s domain
prior to the date hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other written

-19-

 

information without retaining copies thereof, previously furnished by it as a result of this
Agreement or in connection herein.

     Section 12.7 ATTORNEYS’ FEES. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party or parties shall be entitled to receive
from the other party or parties reasonable attorneys’ fees, costs and necessary disbursements in
addition to any other relief to which the prevailing party or parties may be entitled.

     Section 12.8 SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon
Investor and the Company and their respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to give any other person
any legal or equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained; this Agreement and all conditions and provisions hereof being intended
to be and being for the sole and exclusive benefit of such persons and for the benefit of no other
person.

     Section 12.9 NO WAIVER. No failure or delay on the part of the Company or Investor in
exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be available to the Company or
Investor at law or in equity or otherwise. No waiver of or consent to any departure by the Company
or Investor from any provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof, provided that notice of any such waiver shall be given to
each party hereto as set forth below.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

-20-

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.

	 	 	 	 	 
	 	COMPANY:

CAPSTONE TURBINE CORPORATION

 	 
	 	By:  	/s/ John R. Tucker
 	 
	 	Name:  	John R. Tucker 	 
	 	Title:  	President and Chief Executive Officer 	 
	 
	 	INVESTOR:

MONARCH POINTE FUND, LTD.	 
	 	By:  	M.A.G. Capital, LLC
 	 
	 
	 	 	 
	 	By:  	/s/ David Firestone
 	 
	 	Name:  	David Firestone 	 
	 	Title:  	Managing Partner 	 
	 

 

 

EXHIBIT A

ADVANCE NOTICE

     The undersigned,                      hereby certifies, with respect to the sale of shares of
Common Stock of CAPSTONE TURBINE CORPORATION (the “COMPANY”), issuable in connection with this
Advance Notice dated                      (the “NOTICE”), delivered pursuant to the Subscription
Agreement (the “AGREEMENT”), as follows:

     1. The undersigned is the duly elected                      of the Company.

     2. The representations and warranties of the Company contained in the Agreement are true and
correct in all material respects and the Company is in compliance with each of its obligations
under such Agreement as of the date hereof.

     3. The Daily Advance Amount requested on                     , 2005, is $                    .

     The undersigned has executed this Notice this ___day of                     , 2005.

	 	 	 	 	 
	 	COMPANY:

CAPSTONE TURBINE CORPORATION

 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 

 

 

	 	 	 	 	 

EXHIBIT B

WRITTEN DIRECTION TO DISBURSE

     The undersigned,                      , hereby certifies as follows, each on behalf of Monarch
Pointe Fund, Ltd. (“INVESTOR”), pursuant to the Subscription Agreement dated as of even date
herewith (the “AGREEMENT”).

     1. The undersigned is the duly elected                      of the Investor.

     2. The Investor received an Advance Notice from Capstone Turbine Corporation (the “Company”)
on                      , 2005, requesting a Daily Advance Amount of $                      .

     3. The VWAP of the shares of Common Stock is $                    , and the Purchase Price per share for
such shares is $                    .

     4. Pursuant to the Agreement, the Investor shall acquire the number of shares of Registered
Stock equal to $                     [amount from 2 above] divided by the per share Purchase Price.

     5. The Escrow Agent is directed to disburse immediately $                     to the account
designated by the Company in the Escrow Agreement.

     6. The
Escrow Agent is directed to effect immediately the transfer of                      shares of
Registered Stock to the Investor’s account set forth in the Escrow Agreement.

     The undersigned has executed this Written Direction this ___day of                     , 2005.

[Signature page follows.]

 

 

	 	 	 	 	 
	 	INVESTOR:

MONARCH POINTE FUND, LTD.	 
	 	By: M.A.G. Capital, LLC	 	 
	 
	 	 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 

The signature below manifests the Company’s

agreement as to numbers 3, 4, 5 and 6 set

forth above.

CAPSTONE TURBINE CORPORATION

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 
	 
	Name:
	 	 	 	 
	 

	 
	 	 
	Title:
	 	 	 	 
	 

	 
	 	 

 

 

Schedule 4.2(A)

Capstone Turbine International, Inc.

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