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Item 3. Legal Proceedings

2025-06-27 compared with 2024-09-27 · 47 added, 62 removed, 23 unchanged (83% of the section changed)

6 unchanged sentences

Turbine International, LLC.

Capstone Turbine Corporation v.

Turbine International, LLC;

20STCV04372 (“Capstone-Turbine Intl.

Litigation”).

The Company has alleged claims against Turbine Intl.

for breach of contract and for injunctive relief relating

to the parties’ prior distributor relationship, which terminated at the end of March 2018, and Turbine Intl.’s failure to satisfy its payment obligations under certain financial agreements, namely an accounts receivable agreement and promissory note in favor of Capstone.

As remedies for these claims, the Company is seeking compensatory and consequential damages, along with injunctive relief and attorney’s fees, interest, and costs.

On March 18, 2020, Turbine Intl.

filed its answer and cross-claims in the Capstone-Turbine Intl.

In its cross-claims, Turbine Intl.

asserted claims against Capstone, and individually against Mr.

James Crouse, Capstone’s Chief Revenue Officer, for breach of contract under the distributor agreement, accounts receivable agreement and promissory note, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment and constructive trust, negligent misrepresentation, violation of the California unfair practices act, violation of the racketeer influenced corrupt organizations act, and conspiracy to commit fraud.

As remedies for these alleged claims, Turbine Intl.

is seeking compensatory, consequential, and punitive damages along with attorney’s fees, interest, and costs.

Capstone answered the cross-claims on May 7, 2020.

On June 29, 2020, Capstone filed a motion to file a First Amended Complaint to add, among other things, a claim for enforcement of a guaranty signed by an entity related to Turbine Intl., Hispania Petroleum, S.A., and personal claims against the principals of Turbine Intl.

and Hispania.

That motion was granted on August 19, 2020, and the First Amended Complaint (“FAC”) was filed.

All of the additional defendants were served and have filed answers.

As of March 31, 2024, discovery had been served and answered on both sides.

On May 17, 2024, the trial was set for July 29, 2024;

and the court ordered the parties to mediate the matter by June 19, 2024.

On July 2, 2024, Turbine Intl.

petitioned the court for a continuance and to reopen discovery.

The court granted the continuance and set the trial date for December 2, 2024 and rejected the request to reopen discovery.

Mediation remains court ordered.

The Company has not recorded a liability as of March 31, 2024, as it is unable to estimate the possible loss or range of possible loss.

On February 3, 2020, Capstone Turbine Corporation filed suit against its former distributor, Turbine International, LLC (“Turbine Intl.”), in the Superior Court of California alleging breach of contract relating to the parties’ prior distributor relationship (which terminated at the end of March 2018) and Turbine Intl.’s failure to satisfy its payment obligations under certain financial agreements, namely an accounts receivable agreement and promissory note in favor of Capstone.

The Company subsequently modified its complaint to include Turbine Intl.

guarantors as defendants.

The Company was seeking approximately $4.8 million in compensatory damages, along with injunctive relief and attorney’s fees, interest, and costs.

In 2024, the Court ordered default judgments first against Turbine International and then against the other defendants.

The default judgement in the amount of approximately $7.3 million, which included pre-judgement interest and costs of the suite, was entered and placed on the docket in June 2025.

The Company has prevailed in this proceeding.

The ability of Capstone to collect on the judgement is unclear, as the defendants are overseas or without U.S.-based assets, therefor we have not recorded a receivable as of March 31, 2025.

SEC Investigation

2 unchanged sentences

The Audit Committee further self-reported its findings pursuant to an investigation into FPP related practices to the SEC.

The Company is cooperating with the SEC in connection with its investigation.

Investigations of this nature may be costly and require management to devote significant time and attention away from the ongoing operation of the business.

The Company has not recorded a liability as of March 31, 2024, as a loss cannot be reasonably estimated .

The Company cooperated with the SEC in connection with its investigation.

On June 10, 2025, the SEC Division of Enforcement notified the Company that it closed its investigation with no action taken against the Company.

Cal Microturbine Arbitration

On March 13, 2024, Cal Microturbine, a distributor of the Company, submitted a demand for arbitration before the American Arbitration Association seeking, among other things, approximately $24.5 million in damages and alleging that the Company breached its distributor agreement with Cal Microturbine and committed fraud in allowing another company, Capstone Engineered Solutions, to sell, rent and service turbines in Cal Microturbine’s exclusive territory under the distribution agreement.

The parties have completed selection of an arbitration panel;

and the arbitration panel has provided two possible dates in June and October 2025 for a hearing date.

On August 18, 2024, Cal Microturbine amended its complaint and reduced its damage claim to $18.8 million.

The Company has not recorded a liability as of March 31, 2024, as it is unable to estimate the possible loss or range of possible loss.

On March 13, 2024, Cal Microturbine, a current distributor of the Company, filed a complaint before the American Arbitration Association, seeking approximately $24.5 million in damages and alleging that the Company breached the Distributor Agreement between the parties and committed fraud by allowing another company, to sell, rent and service turbines in Cal Microturbine’s exclusive territory.

On August 18, 2024, Cal Microturbine amended its complaint and reduced its damages claim to $18.8 million.

On September 9, 2024, the Company filed a counterclaim against Cal Microturbine for $20.0 million, alleging various violations of the Distributor Agreement.

On September 27, 2024, Cal Microturbine provided the second amendment to its complaint and increased its damages to $25.0 million.

The parties have completed selection of a three-person arbitration panel and a hearing date is scheduled for September 2025.

The parties engaged in mediation in November and December 2024, and they are currently in settlement discussions.

Discovery was scheduled to begin in November 2024 but has been stayed due to ongoing settlement discussions.

On December 8, 2024, the Company issued a notice of intent to terminate the Distributor Agreement with Cal Microturbine due to the alleged violations by Cal Microturbine.

In February 2025, Cal Microturbine filed an action in California state court seeking a temporary restraining order (“TRO”) to preclude the Company from terminating the Distributor Agreement.

Due to ongoing settlement discussions and extensions of the termination date during those discussions, the

court has refrained from scheduling a TRO hearing.

The Company has not recorded a liability as of March 31, 2025, as a loss is neither probable nor estimable.

Flexon, Jamison, Juric, Robinson, and Hencken

3 unchanged sentences

2:23-cv-08659, naming certain of the Company’s current and former directors and officers as defendants.

The suit alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder based on allegedly false and misleading

statements regarding, and allegedly inadequate disclosure surrounding, the Company’s business, operations and prospects and the circumstances leading up to the restatement of the Company’s quarterly and annual financial statements.

The suit alleges various claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 based on allegedly false and misleading statements and allegedly inadequate disclosure regarding the Company’s business, operations and prospects and the circumstances leading up to the restatement of the Company’s quarterly and annual financial statements.

The suit is purportedly brought on behalf of persons and entities that purchased or otherwise acquired the Company’s securities between June 14, 2021, and September 22, 2023, and seeks to recover unspecified compensatory damages and other relief, including attorney’s fees.

The Company may incur significant legal expenses in defending the legal matters described above during the pendency of these matters, and in connection with any other potential legal matters, including expenses for the potential reimbursement of legal fees of officers and directors under indemnification obligations.

The Company anticipates these legal fees to not exceed the insurance deductible of $1.2 million and has not recorded a liability as of March 31, 2024, as a loss cannot be reasonably estimated and the outcome of this matter is uncertain .

The Company incurred legal fees of $0.1 million as of March 31, 2024.

Capstone Green Energy Corporation

On June 18, 2024, a complaint for damages was filed in the Superior Court of the State of California, County of Los Angeles captioned Mark Rouse v.

Capstone Green Energy Corporation alleging violations of the California labor code, breach of contract, conversion, breach of covenant of good faith and fair dealing and wrongful termination.

The complaint seeks damages, medical expenses, attorneys’ fees, interest and costs related to the termination of Mr.

Rouse’s employment and alleged non-payment of sales commissions in excess of $300,000.

The Company resolved the dispute entering into a settlement agreement on September 15, 2024 for a non-material amount.

The Company is not a named respondent in this matter and has not engaged legal counsel.

The parties reached agreement on a settlement amount and on April 4, 2025, the parties filed an unopposed motion for the court to approve settlement and notice procedures.

A preliminary hearing date was held on June 5, 2025, and a final settlement hearing date has been set for November 13, 2025.

Expenses up to the $1.3 million insurance deductible amount have either been incurred or accrued.

Mark Estrada and Ricardo Montalvo, vs.

Capstone Green Energy LLC and Erick Kim.

August 19, 2024, a Class Action, pursuant to Code of Civil Procedure section 382 was filed in the Superior Court of the State of California for the County of Los Angeles, Case No.

24STCV21118, on behalf of Plaintiffs and all other current and former non-exempt California employees employed by or formerly employed by Defendants claiming failure to pay overtime wages, failure to pay minimum wages, failure to provide meal periods, failure to provide rest periods, waiting time penalties, wage statement violations, failure to timely pay wages, failure to indemnify, violation of Labor Code 227.3, and unfair competition.

The Court has not ruled to certify the Class.

The Company has not recorded a liability as of March 31, 2024, as the Company is unable to estimate the possible loss or range of possible loss.

The Company intends to fight the claims vigorously.

In August 2024 , two filings were made by lawyers on behalf of current and former non-exempt Capstone employees against Capstone and one supervisory employee.

Both filings allege various pay violations.

The first action filed with the Superior Court of the State of California, requested that the Court certify the employees as a Class.

Capstone has arbitration agreements in place with those current and former employees, agreements which include a class action waiver.

Accordingly, Capstone moved that the Court compel arbitration, which Plaintiffs opposed.

At a hearing in January 2025, the Court determined that the arbitration agreements were enforceable.

Then in April 2025, the Court determined that the employees were not entitled to exemption from the enforcement of the arbitration agreements under the Federal Arbitration Act.

The second filing was made with the Labor Development Workforce Agency.

While Plaintiffs are positioned to pursue that claim privately under the Private Attorney General Act, they have not yet filed suit.

The Company has not recorded a liability as of March 31, 2025, as a loss is neither probable nor estimable .

DV Energy, LLC vs Capstone Green Energy Holdings, Inc, Capstone Turbine Corporation, Capstone Green Energy Corporation, and Capstone Green Energy, LLC.

On August 26, 2024, DV Energy, LLC (“DV Energy”), a distributor of the Company, filed a lawsuit in the Superior Court of California, County of Los Angeles claiming breach of contract, restitution, breach of implied covenant of good faith and fair dealing, account stated, money had and received, open book account, unfair business practices, accounting, and conversion, all related to DV Energy’s deposit for parts ordered.

DV Energy has asserted $715,552 in damages plus interest, attorney’s fees and costs.

The complaint relates to a deposit for product order that the Company is restricted from delivering due to U.S.

sanctions laws.

The Company intends to meet its obligation to deliver the product once it can do so in accordance with U.S.

Sanctions laws.

The Company’s Distributor Agreement defines deposits as non-refundable.

The value of the DV Energy deposit is recorded in the Company’s financial statements as current liability.

The Company is unable to estimate the possible loss or range of possible loss and intends to fight the claims vigorously.

On August 26, 2024, DV Energy, LLC (“DV Energy”), a Capstone distributor in Russia, filed a lawsuit in the Superior Court of California, County of Los Angeles to recover a $0.7 million parts deposit, along with interest and legal fees.

Among other things, DV Energy alleges breach of contract associated with a product order that Capstone was unable to deliver due to the imposition of U.S.

sanctions following Russia’s invasion of Ukraine.

The Company disputes DV Energy’s claim.

DV Energy is also an unsecured creditor in the Chapter 11 Cases of the Company’s predecessors but opted to file the complaint in the state court as well.

The Bankruptcy Court placed pre-conditions on closure of the Chapter 11 Cases.

In April 2025, the Company filed motions with the Bankruptcy Court to deposit funds with the Registry of the Court pending the outcome of the state court litigation and to close the Chapter 11 Cases.

At a hearing on June 5, 2025, the Bankruptcy Court granted the Company’s motion to deposit funds with the Registry of the Court in the amount of $0.8 million as a security pending the outcome of the state court litigation.

The Company is in the process of depositing funds with the Registry of the Court, and on June 13, 2025, the Bankruptcy Court issued its Final Decree and Order Closing Debtors’ Chapter 11 Cases and Terminating Services of Kroll Restructuring Administration LLC as Claims and Noticing Agent which amount other things, closed the Chapter 11 Cases for the Debtors with immediate effect.

The value of the DV Energy deposit is recorded in the Company’s financial statements as a current liability as of March 31, 2025.

Mine Safety Disclosures.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings