BROADWIND ENERGY, INC. (Form: 10-Q, Received: 10/28/2016 13:44:41)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-34278

BROADWIND ENERGY, INC.

(Exact name of registrant as specified in its charter)

Delaware		88-0409160
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3240 S. Central Avenue, Cicero, IL 60804

(Address of principal executive offices)

(708) 780-4800

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☒
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of registrant’s common stock, par value $0.001, outstanding as of October 20, 2016: 15,172,245.

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

INDEX

		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		31

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PART I. FINANCIAL INFORMATIO N

Item 1. Financial Statement s

BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET S

(Unaudited)

(in thousands, except share and per share data)


	September 30,		December 31,
	2016		2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,091	$	6,436
Short-term investments		16,213		6,179
Restricted cash		39		83
Accounts receivable, net of allowance for doubtful accounts of $161 and $84 as of September 30, 2016 and December 31, 2015, respectively		14,926		9,784
Inventories, net		26,231		24,219
Prepaid expenses and other current assets		2,503		1,530
Current assets held for sale		866		4,403
Total current assets		68,869		52,634
LONG-TERM ASSETS:
Property and equipment, net		51,761		51,906
Intangible assets, net		4,683		5,016
Other assets		323		351
TOTAL ASSETS	$	125,636	$	109,907
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	—	$	2,799
Current portions of capital lease obligations		156		447
Accounts payable		21,062		13,822
Accrued liabilities		8,916		8,134
Customer deposits		21,493		9,940
Current liabilities held for sale		538		1,613
Total current liabilities		52,165		36,755
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities		2,600		2,600
Long-term capital lease obligations, net of current portions		416		—
Other		2,331		3,060
Total long-term liabilities		5,347		5,660
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding		—		—
Common stock, $0.001 par value; 30,000,000 shares authorized; 15,172,245 and 15,012,789 shares issued as of September 30, 2016, and December 31, 2015, respectively		15		15
Treasury stock, at cost, 273,937 shares as of September 30, 2016 and December 31, 2015, respectively		(1,842)		(1,842)
Additional paid-in capital		378,715		378,104
Accumulated deficit		(308,764)		(308,785)
Total stockholders’ equity		68,124		67,492
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	125,636	$	109,907

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION S

(UNAUDITED)

(in thousands, except per share data)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015		2016		2015
Revenues	$	42,552	$	49,791	$	132,689	$	161,583
Cost of sales		37,221		46,960		119,254		147,507
Gross profit		5,331		2,831		13,435		14,076
OPERATING EXPENSES:
Selling, general and administrative		3,860		3,981		11,785		13,752
Intangible amortization		111		111		333		333
Restructuring		—		874		—		874
Total operating expenses		3,971		4,966		12,118		14,959
Operating income (loss)		1,360		(2,135)		1,317		(883)
OTHER (EXPENSE) INCOME, net:
Interest expense, net		(125)		(210)		(431)		(611)
Other, net		10		(64)		27		(36)
Total other expense, net		(115)		(274)		(404)		(647)
Net income (loss) before benefit for income taxes		1,245		(2,409)		913		(1,530)
Benefit for income taxes		—		(26)		(16)		(11)
INCOME (LOSS) FROM CONTINUING OPERATIONS		1,245		(2,383)		929		(1,519)
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX		(373)		(5,230)		(908)		(9,494)
NET INCOME (LOSS)	$	872	$	(7,613)	$	21	$	(11,013)
NET INCOME (LOSS) PER COMMON SHARE—BASIC:
Income (loss) from continuing operations	$	0.08	$	(0.16)	$	0.06	$	(0.10)
Loss from discontinued operations		(0.03)		(0.36)		(0.06)		(0.65)
Net income (loss)	$	0.06	$	(0.52)	$	0.00	$	(0.75)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—Basic		14,876		14,708		14,824		14,656
NET INCOME (LOSS) PER COMMON SHARE—DILUTED:
Income (loss) from continuing operations	$	0.08	$	(0.16)	$	0.06	$	(0.10)
Loss from discontinued operations		(0.02)		(0.36)		(0.06)		(0.65)
Net income (loss)	$	0.06	$	(0.52)	$	0.00	$	(0.75)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—Diluted		15,121		14,708		15,038		14,656

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUIT Y

(UNAUDITED)

(in thousands, except share data)


	Common Stock			Treasury Stock			Additional
	Shares	Issued			Issued		Paid-in		Accumulated
	Issued	Amount		Shares	Amount		Capital		Deficit		Total
BALANCE, December 31, 2014	14,844,307	$	15	(273,937)	$	(1,842)	$	377,185	$	(286,978)	$	88,380
Stock issued for restricted stock	168,482		—	—		—		—		—		—
Share-based compensation	—		—	—		—		919		—		919
Net loss	—		—	—		—		—		(21,807)		(21,807)
BALANCE, December 31, 2015	15,012,789	$	15	(273,937)	$	(1,842)	$	378,104	$	(308,785)	$	67,492
Stock issued for restricted stock	153,809		—	—		—		—		—		—
Stock issued under stock option plans	5,647		—	—		—		19		—		19
Share-based compensation	—		—	—		—		592		—		592
Net income	—		—	—		—		—		21		21
BALANCE, September 30, 2016	15,172,245	$	15	(273,937)	$	(1,842)	$	378,715	$	(308,764)	$	68,124

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S

(UNAUDITED)

(in thousands)


	Nine Months Ended September 30,
	2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	21	$	(11,013)
Loss from discontinued operations		(908)		(9,494)
Income (loss) from continuing operations		929		(1,519)
Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization expense		5,138		6,860
Impairment charges		—		38
Stock-based compensation		592		900
Allowance for doubtful accounts		45		55
Gain on disposal of assets		(147)		(110)
Changes in operating assets and liabilities:
Accounts receivable		(5,187)		(129)
Inventories		(2,013)		(2,943)
Prepaid expenses and other current assets		(982)		10
Accounts payable		7,118		(655)
Accrued liabilities		777		(995)
Customer deposits		11,541		(15,772)
Other non-current assets and liabilities		(744)		(468)
Net cash provided by (used in) operating activities of continuing operations		17,067		(14,728)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities		(19,207)		(1,884)
Sales of available for sale securities		167		5,083
Maturities of available for sale securities		9,005		4,825
Purchases of property and equipment		(4,007)		(2,282)
Proceeds from disposals of property and equipment		479		1,156
Decrease in restricted cash		44		—
Net cash (used in) provided by investing activities of continuing operations		(13,519)		6,898
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock		19		—
Payments on lines of credit and notes payable		—		(118,212)
Proceeds from lines of credit and notes payable		—		118,212
Proceeds from long-term debt		—		5,000
Payments on long-term debt		(2,799)		(119)
Principal payments on capital leases		(500)		(598)
Net cash (used in) provided by financing activities of continuing operations		(3,280)		4,283
DISCONTINUED OPERATIONS:
Operating cash flows		786		(3,484)
Investing cash flows		615		(368)
Financing cash flows		(12)		(7)
Net cash provided by (used in) discontinued operations		1,389		(3,859)
Add: Cash balance of discontinued operations, beginning of period		—		93
Less: Cash balance of discontinued operations, end of period		2		1
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,655		(7,314)
CASH AND CASH EQUIVALENTS, beginning of the period		6,436		12,057
CASH AND CASH EQUIVALENTS, end of the period	$	8,091	$	4,743
Supplemental cash flow information:
Interest paid	$	376	$	647
Income taxes paid	$	22	$	35
Non-cash investing and financing activities:
Issuance of restricted stock grants	$	592	$	900

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

(UNAUDITED)

(In thousands, except share and per share data)

NOTE 1 — BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind Energy, Inc. (the “Company”) and its wholly-owned subsidiaries Broadwind Towers, Inc. (“Broadwind Towers”) and Brad Foote Gear Works, Inc. (“Brad Foote”). All intercompany transactions and balances have been eliminated.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2016. The December 31, 2015 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. This financial information should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

In September 2015, the Company’s Board of Directors (the “Board”) approved a plan to divest or otherwise exit the Company’s Services segment; consequently, this segment is now reported as a discontinued operation and the Company has revised its segment presentation to include two reportable operating segments: Towers and Weldments, and Gearing. All current and prior period financial results have been revised to reflect these changes. See Note 14, “Segment Reporting” of these condensed consolidated financial statements for further discussion of reportable segments.

There have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2016 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company changed an accounting estimate as of the beginning of 2016 to increase the salvage value of selected large machinery and equipment at Brad Foote to reflect the estimated sale value on the used machinery and equipment market. The impact of this change during the three and nine months ended September 30, 2016 was a reduction of depreciation expense of $576 and $1,838, respectively. A similar impact is expected to occur through October 2017.

Company Description

Through its subsidiaries, the Company provides technologically advanced high-value products to energy, mining and infrastructure sector customers, primarily in the United States (the “U.S.”). The Company’s most significant presence is within the U.S. wind energy industry, which accounted for 93% of the Company’s revenue during the first nine months of 2016.

Outside of the wind energy market, the Company provides precision gearing and specialty weldments to a broad range of customers for oil and gas, mining and other industrial applications.

Please refer to Note 17, “Restructuring” of these condensed consolidated financial statements for a discussion of the restructuring plan which the Company initiated in the third quarter of 2011. The Company has incurred a total of approximately $14,200 of net costs to implement this restructuring plan.

Liquidity

The Company meets its short term liquidity needs through cash generated from operations, its available cash balances and the Credit Facility (as defined below). The Credit Facility has been undrawn since September 2015; however, the Company uses the Credit Facility from time to time to fund temporary increases in working capital.

See Note 8, “Debt and Credit Agreement” of these consolidated condensed financial statements for a complete description of the Credit Facility and the Company’s other debt.

Total debt and capital lease obligations at September 30, 2016 totaled $3,172, and the Company is obligated to make principal payments under the outstanding debt totaling $156 over the next twelve months.

Since its inception, the Company has continuously incurred annual operating losses. The Company anticipates that current cash resources, amounts available under the Credit Facility, and cash to be generated from operations will be adequate

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to meet the Company’s liquidity needs for at least the next twelve months. If assumptions regarding the Company’s production, sales and subsequent collections from certain several of the Company’s large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash flow and liquidity issues. If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the Credit Facility. This could limit the Company’s operational flexibility or require a delay in making planned investments. Any additional equity financing, if available, may be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other restrictions on the Company. While the Company believes that it will continue to have sufficient cash available to operate its businesses and to meet its financial obligations and debt covenants, there can be no assurances that its operations will generate sufficient cash, or that credit facilities will be available in an amount sufficient to enable the Company to meet these financial obligations.

NOTE 2 — EARNINGS PER SHARE

The following table presents a reconciliation of basic and diluted earnings per share for the three and nine months ended September 30, 2016 and 2015, as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Basic earnings per share calculation:
Net income (loss)	$	872	$	(7,613)	$	21	$	(11,013)
Weighted average number of common shares outstanding		14,876,308		14,707,994		14,823,525		14,656,471
Basic net income (loss) per share	$	0.06	$	(0.52)	$	0.00	$	(0.75)
Diluted earnings per share calculation:
Net income (loss)	$	872	$	(7,613)	$	21	$	(11,013)
Weighted average number of common shares outstanding		14,876,308		14,707,994		14,823,525		14,656,471
Common stock equivalents:
Stock options and non-vested stock awards		244,663		—		214,136		—
Weighted average number of common shares outstanding		15,120,971		14,707,994		15,037,661		14,656,471
Diluted net income (loss) per share	$	0.06	$	(0.52)	$	0.00	$	(0.75)

NOTE 3 — DISCONTINUED OPERATIONS

The Company’s Services segment had substantial continued operating losses for several years, due to operating issues and an increasingly competitive environment due in part to increased in-sourcing of service functions by customers. In July 2015, the Board directed management to evaluate potential strategic alternatives with respect to the Services segment. In September 2015, the Board authorized management to sell substantially all of the assets of the Services segment to one or more third-party purchasers, and thereafter to liquidate or otherwise dispose of any such assets remaining unsold. The Company began negotiations to sell substantially all the assets of the Services segment in the third quarter of 2015. The exit of this business was a strategic shift that has had a major effect on the Company; therefore, the Company reclassified the related assets and liabilities of the Services segment as held for sale. In connection with the divestiture, which was substantially completed in December 2015, the Company sold $5,406 of net assets, resulting in a $2,096 loss. In addition, the Company has also recorded asset impairment charges to reduce the carrying value of the net assets held for sale to their estimated fair value. The impairment charge and loss on sale is included in “Loss before benefit for income taxes” in “Results of Discontinued Operations.”

Results of Discontinued Operations

Results of operations for the Services segment, which are reflected as discontinued operations in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015, were as follows:

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Revenues	$	51	$	3,011	$	108	$	7,634
Cost of sales		(100)		(3,385)		(864)		(11,280)
Selling, general and administrative		(1)		(405)		(83)		(1,502)
Interest expense, net		(6)		(1)		5		(36)
Other income and expense items		—		—		—		140
Impairment of held for sale assets and liabilities and gain on sale of assets		(317)		(4,450)		(74)		(4,450)
Loss from discontinued operations before and after benefit for income taxes	$	(373)	$	(5,230)	$	(908)	$	(9,494)

The Company was notified of two warranty claims, which resulted in an additional $427 of warranty expense recorded during the second quarter of 2016; the first of the warranty claims was resolved during the three months ended September 30, 2016. The Company also reviewed the status of remaining inventory, which resulted in $216 of impairment expense during the three months ended September 30, 2016.

Assets and Liabilities Held for Sale

Assets and liabilities classified as held for sale in the Company’s condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015 include the following:


	September 30,		December 31,
	2016		2015
Assets:
Accounts receivable, net	$	205	$	2,119
Inventories, net		842		2,118
Prepaid expenses and other current assets		73		606
Assets Held For Sale Related To Discontinued Operations		1,120		4,843
Impairment of discontinued assets held for sale		(607)		(1,500)
Total Assets Held For Sale Related To Discontinued Operations	$	513	$	3,343
Liabilities:
Accounts payable	$	22	$	367
Accrued liabilities		138		433
Customer deposits and other current obligations		4		49
Other long-term liabilities		4		17
Total Liabilities Held For Sale Related To Discontinued Operations	$	168	$	866

NOTE 4 — CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash and cash equivalents typically comprise cash balances and readily marketable investments with original maturities of three months or less, such as money market funds, short-term government bonds, Treasury bills, marketable securities and commercial paper. Marketable investments with original maturities between three and twelve months are recorded as short-term investments. The Company’s treasury policy is to invest excess cash in money market funds or other investments, which are generally of a short-term duration based upon operating requirements. Income earned on these investments is recorded as interest income in the Company’s condensed consolidated statements of operations. As of September 30, 2016 and December 31, 2015, cash and cash equivalents totaled $8,091 and $6,436, respectively, and short-term investments totaled $16,213 and $6,179, respectively. The components of cash and cash equivalents and short-term investments as of September 30, 2016 and December 31, 2015 are summarized as follows:



	September 30,		December 31,
	2016		2015
Cash and cash equivalents:
Cash	$	5,278	$	4,614
Money market funds		2,210		199
Corporate & municipal bonds		603		1,623
Total cash and cash equivalents		8,091		6,436
Short-term investments (available-for-sale):
Corporate & municipal bonds		16,213		6,179
Total cash and cash equivalents and short-term investments	$	24,304	$	12,615

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NOTE 5 — INVENTORIES

The components of inventories as of September 30, 2016 and December 31, 2015 are summarized as follows:


	September 30,		December 31,
	2016		2015
Raw materials	$	15,118	$	14,868
Work-in-process		6,384		8,540
Finished goods		6,687		2,661
		28,189		26,069
Less: Reserve for excess and obsolete inventory		(1,958)		(1,850)
Net inventories	$	26,231	$	24,219

NOTE 6 — INTANGIBLE ASSETS

Intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed during 2007. Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 15 to 20 years. The Company tests intangible assets for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable. During the third quarter of 2016, the Company continued to identify triggering events associated with Brad Foote’s current period operating loss combined with its history of continued operating losses. As a result, the Company evaluated the recoverability of certain of its identifiable intangible assets. Based upon the Company’s assessment, the undiscounted cash flows based upon the Company’s most recent projections were less than the carrying amount of the relevant asset groups within the Gearing segment, and a possible impairment to these assets was indicated under step one of Accounting Standards Codifications 360 (“ASC 360”). In step two of ASC 360 testing, the Company compared the asset group’s estimated fair values with the corresponding carrying amount of the asset group. Under step two, the Company assumed that the asset group would be exchanged in an orderly transaction between market participants and that such exchange would represent the highest and best use of this asset group. Based on the step two analysis, the Company determined that no impairment to this asset group was indicated as of September 30, 2016.

As of September 30, 2016 and December 31, 2015, the cost basis, accumulated amortization and net book value of intangible assets were as follows:


	September 30, 2016							December 31, 2015
							Weighted							Weighted
					Net		Average					Net		Average
	Cost		Accumulated		Book		Amortization	Cost		Accumulated		Book		Amortization
	Basis		Amortization		Value		Period	Basis		Amortization		Value		Period
Intangible assets:
Customer relationships	$	3,979	$	(3,715)	$	264	7.2	$	3,979	$	(3,682)	$	297	7.2
Trade names		7,999		(3,580)		4,419	20.0		7,999		(3,280)		4,719	20.0
Intangible assets	$	11,978	$	(7,295)	$	4,683	15.8	$	11,978	$	(6,962)	$	5,016	15.8

As of September 30, 2016, estimated future amortization expense is as follows:


2016	$	111
2017		444
2018		444
2019		444
2020		444
2021 and thereafter		2,796
Total	$	4,683

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NOTE 7 — ACCRUED LIABILITIES

Accrued liabilities as of September 30, 2016 and December 31, 2015 consisted of the following:


	September 30,		December 31,
	2016		2015
Accrued payroll and benefits	$	4,419	$	3,675
Accrued property taxes		498		128
Income taxes payable		118		155
Accrued professional fees		100		74
Accrued warranty liability		561		601
Accrued regulatory settlement		500		500
Accrued environmental reserve		1,252		1,300
Accrued self-insurance reserve		1,233		1,464
Accrued other		235		237
Total accrued liabilities	$	8,916	$	8,134

NOTE 8 — DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of September 30, 2016 and December 31, 2015 consisted of the following:


	September 30,		December 31,
	2016		2015
Term loans and notes payable	$	2,600	$	5,399
Less: Current portion		—		(2,799)
Long-term debt, net of current maturities	$	2,600	$	2,600

Credit Facilities

AloStar Credit Facility

On August 23, 2012, the Company established a $20,000 secured revolving line of credit (the “Credit Facility”) with AloStar Bank of Commerce (“AloStar”). On June 29, 2015, the Credit Facility was amended to extend the maturity date to August 31, 2016, modify the applicable interest rate and minimum quarterly interest charges and convert $5,000 of the original Credit Facility amount to a term loan (the “Term Loan”).

Under the Credit Facility, AloStar advanced funds when requested against a borrowing base consisting of approximately 85% of the face value of eligible accounts receivable of the Company and approximately 30% of the book value of eligible inventory of the Company. Borrowings under the Credit Facility bore interest at a per annum rate equal to the one-month London Interbank Offered Rate (“LIBOR”) plus a margin of 3.25%, subject to a minimum. The Company also paid an unused facility fee to AloStar equal to 0.50% per annum on the unused portion of the Credit Facility, along with other standard fees.

AloStar funded the full amount of the Term Loan on June 30, 2015. Borrowings under the Term Loan bore interest at a per annum rate equal to 3.50% plus the applicable daily weighted average LIBOR. The Term Loan payments were amortized at approximately $60 per month. In June 2016, the Company paid off the remaining $2,441 balance of the Term Loan.

In connection with the Credit Facility, the Company entered into a Loan and Security Agreement with AloStar dated August 23, 2012 (as amended, the “Loan Agreement”), which contained customary representations and warranties. The Loan Agreement also contained a requirement that the Company, on a consolidated basis, maintain a minimum monthly fixed charge coverage ratio (the “Fixed Charge Coverage Ratio Covenant”) and achieve minimum monthly earnings before interest, taxes, depreciation, amortization, restructuring and share-based payments (the “Adjusted EBITDA Covenant”), along with other customary restrictive covenants, certain of which were subject to materiality thresholds, baskets and customary exceptions and qualifications.

The obligations under the Loan Agreement were secured by, subject to certain exclusions, (i) a first priority security interest in all of the accounts receivable, inventory, chattel paper, payment intangibles, cash and cash equivalents and other working capital assets and stock or other equity interests in the Company’s subsidiaries, and (ii) a first priority security interest in all of Brad Foote’s equipment.

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On February 23, 2016, the Company and AloStar executed a Ninth Amendment to Loan and Security Agreement (the “Ninth Amendment”), which waived the Company’s non-compliance with the Adjusted EBITDA Covenant as of December 31, 2015, amended the Adjusted EBITDA Covenant going forward, provided that the Fixed Charge Coverage Ratio Covenant would be recalculated for future periods commencing with the quarter ending June 30, 2016, reduced the amount of the Credit Facility to $10,000 and extended the maturity date of the Credit Facility to February 28, 2017. The Ninth Amendment also contained a liquidity requirement of $3,500 and established a reserve against the borrowing base in an amount equal to the outstanding balance of the Term Loan at any given time.

On August 29, 2016, the Company and AloStar executed a Tenth Amendment to Loan and Security Agreement (the “Tenth Amendment”), which removed the liquidity requirement set forth in the Ninth Amendment and removed the exclusion of certain customer accounts receivables.

As of September 30, 2016, there was no outstanding indebtedness under the Credit Facility, the Company had the ability to borrow up to $3,281 thereunder, the per annum interest rate thereunder was 4.25%, and there was no outstanding indebtedness under the Term Loan which was repaid in full in June 2016.

On October 26, 2016, the Company established a $20,000 three-year secured revolving line of credit (the “New Credit Facility”) with The PrivateBank and Trust Company (“PrivateBank”) to replace the Credit Facility with AloStar. Under the New Credit Facility, PrivateBank will advance funds when requested against a borrowing base consisting of up to 85% of the face value of eligible accounts of the Company, up to 50% of the book value of eligible inventory of the Company and up to 50% of the appraised value of eligible machinery, equipment and certain real property up to $10,000. Upon the Company achieving at least $7,000 in EBITDA during the 2016 fiscal year, the Company can elect to increase the New Credit Facility by an additional $5,000. Borrowings under the New Credit Facility bear interest at a per annum rate equal to the applicable LIBOR plus a margin ranging from 2.25% to 3.00%, which is based on the Company’s trailing twelve-month EBITDA. The Company will also pay an unused facility fee to PrivateBank equal to 0.50% per annum on the unused portion of the New Credit Facility, along with other standard fees. The obligations under the New Credit Facility are be secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower facility.

Other

Included in Long Term Debt, Net of Current Maturities is $2,600 associated with the New Markets Tax Credit transaction described further in Note 16, “New Markets Tax Credit Transaction” of these condensed consolidated financial statements. The Company has no other term loans outstanding.

NOTE 9 — FAIR VALUE MEASUREMENTS

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and type of the observable inputs. The fair value hierarchy is defined as follows:

Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. For the Company’s corporate and municipal bonds, the Company notes that although quoted prices are available and used to value said assets, they are traded less frequently.

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date. The Company used market negotiations to value the Gearing segment’s assets. The Company used real estate appraisals to value the Clintonville, Wisconsin facility formerly owned by Broadwind Towers (the “Clintonville Facility”).

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The following tables represent the fair values of the Company’s financial assets as of September 30, 2016 and December 31, 2015:


	September 30, 2016
	Level 1		Level 2		Level 3		Total
Assets measured on a recurring basis:
Corporate & municipal bonds and money market funds	$	—	$	19,026	$	—	$	19,026
Assets measured on a nonrecurring basis:
Gearing equipment		—		—		353		353
Gearing Cicero Ave. facility		—		—		560		560
Services assets		—		—		513		513
Total assets at fair value	$	—	$	19,026	$	1,426	$	20,452


	December 31, 2015
	Level 1		Level 2		Level 3		Total
Assets measured on a recurring basis:
Corporate & municipal bonds and money market funds	$	—	$	8,001	$	—	$	8,001
Assets measured on a nonrecurring basis:
Gearing equipment		—		—		506		506
Clintonville, WI facility		—		—		554		554
Gearing Cicero Ave. facility		—		—		560		560
Services assets		—		—		3,343		3,343
Total assets at fair value	$	—	$	8,001	$	4,963	$	12,964

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and customer deposits, approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value.

Assets measured at fair value on a nonrecurring basis

The fair value measurement approach for long lived assets utilizes a number of significant unobservable inputs or Level 3 assumptions. These assumptions include, among others, projections of the Company’s future operating results, the implied fair value of these assets using an income approach by preparing an undiscounted cash flow analysis, a market based approach based on the Company’s market capitalization and market value third-party appraisals, and other subjective assumptions. To the extent assumptions used in the Company’s evaluations are not achieved, there may be a negative effect on the valuation of these assets.

Due to the Company’s continued operating losses within the Gearing segment in the nine month period ending September 30, 2016 combined with its history of continued operating losses, the Company continues to evaluate the recoverability of certain of its identifiable intangible assets and certain property and equipment assets. Based upon the Company’s September 30, 2016 assessment, the recoverable amount of undiscounted cash flows based upon the Company’s most recent projections were less than the carrying amount of the relevant asset groups within the Gearing segment and failed this step one of the impairment test. In step two, the Company compared the asset group’s estimated fair values with the corresponding carrying amount of the asset group. Under step two, the Company assumed that the asset group would be exchanged in an orderly transaction between market participants and that such exchange would represent the highest and best use of this asset group. Based on the step two analysis, the Company determined that no impairment to this asset group was indicated.

The Clintonville Facility was reclassified as an Asset Held for Sale in 2013 due to the decision to vacate the property and offer it for sale. At that time, the property was written down by $288 to adjust the carrying value of the Clintonville Facility property to fair value. The Company recorded an additional impairment of $186 in 2015 to value the Clintonville Facility property at its fair value. The Clintonville Facility was subsequently sold during the second quarter of 2016 at its fair value.

The investment in select Gearing equipment, shown as $506 at December 31, 2015, is associated with the Company’s activities to update and consolidate the Gearing segment asset base. The reduction in the carrying value to $353 at September 30, 2016, reflects the sale of a portion of the surplus assets.

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The carrying value of the land and building comprising one of Brad Foote’s facilities located in Cicero, Illinois (the “Cicero Avenue Facility”) of $560 reflects the expected proceeds associated with selling this facility after environment remediation is complete. As the Cicero Avenue Facility is not immediately available for sale, it has not been classified as Assets Held for Sale.

Following the Board’s approval of a plan to divest the Company’s Services segment, the Company has been able to evaluate the value of the segment’s assets on the open market; therefore, the Company has utilized this measurement to determine the fair value of the Services segment assets.

NOTE 10 — INCOME TAXES

Effective tax rates differ from federal statutory income tax rates primarily due to changes in the Company’s valuation allowance, permanent differences and provisions for state and local income taxes. As of September 30, 2016, the Company had no net deferred income taxes due to the full recorded valuation allowance. During the nine months ended September 30, 2016, the Company recorded a benefit for income taxes of ($16), compared to a benefit for income taxes of ($11) during the nine months ended September 30, 2015.

The Company files income tax returns in U.S. federal and state jurisdictions. As of September 30, 2016, open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust operating loss carryforwards. As of December 31, 2015, the Company had net operating loss (“NOL”) carryforwards of $202,107 expiring in various years through 2035.

It is reasonably possible that unrecognized tax benefits will decrease by up to approximately $77 as a result of the expiration of the applicable statutes of limitations within the next twelve months. In addition, Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated built-in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership. The Company’s ability to utilize NOL carryforwards and built-in losses may be limited, under this section or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership. Upon completion of the Company’s analysis of IRC Section 382, the Company has determined that aggregate changes in stock ownership have triggered an annual limitation on NOL carryforwards and built-in losses available for utilization. To the extent the Company’s use of NOL carryforwards and associated built-in losses is significantly limited in the future due to additional changes in stock ownership, the Company’s income could be subject to U.S. corporate income tax earlier than it would be if the Company were able to use NOL carryforwards and built-in losses without such limitation, which could result in lower profits and the loss of benefits from these attributes.

On February 13, 2013, the Board adopted a Stockholder Rights Plan (as amended, the “Rights Plan”) designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under IRC Section 382. The Rights Plan was subsequently ratified by the Company’s stockholders at the Company’s 2013 Annual Meeting of Stockholders. The Rights Plan was amended and extended for an additional three years on February 5, 2016, and such extension was subsequently ratified by the Company’s stockholders at the Company’s 2016 Annual Meeting of Stockholders.

The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, being or becoming the beneficial owner of 4.9% or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards. In connection with the adoption of the Rights Plan, the Board declared a non‑taxable dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013. Each Right entitles its holder to purchase from the Company one one‑thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $9.81 (as amended) per Right, subject to adjustment. As a result of the Rights Plan, any person or group that acquires beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group. Stockholders who owned 4.9% or more of the outstanding shares of the Company’s common stock as of February 12, 2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date.

As of September 30, 2016, the Company had $87 of unrecognized tax benefits, all of which would have a favorable impact on income tax expense. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. The Company had accrued interest and penalties of $53 as of September 30, 2016. As of December 31, 2015, the Company had unrecognized tax benefits of $140, of which $84 represented accrued interest and penalties.

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NOTE 11 — SHARE-BASED COMPENSATION

Overview of Share-Based Compensation Plans

2007 Equity Incentive Plan

The Company has granted incentive stock options and other equity awards pursuant to the Amended and Restated Broadwind Energy, Inc. 2007 Equity Incentive Plan (the “2007 EIP”), which was approved by the Board in October 2007 and by the Company’s stockholders in June 2008. The 2007 EIP has been amended periodically since its original approval.

The 2007 EIP reserved 691,051 shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates depends to a large degree. As of September 30, 2016, the Company had reserved 35,483 shares for issuance upon the exercise of stock options outstanding and no shares for issuance upon the vesting of restricted stock unit (“RSU”) awards outstanding. As of September 30, 2016, 253,659 shares of common stock reserved for stock options and RSU awards under the 2007 EIP had been issued in the form of common stock.

2012 Equity Incentive Plan

The Company has granted incentive stock options and other equity awards pursuant to the Broadwind Energy, Inc. 2012 Equity Incentive Plan (the “2012 EIP”), which was approved by the Board in March 2012 and by the Company’s stockholders in May 2012.

The 2012 EIP reserved 1,200,000 shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates will depend to a large degree. As of September 30, 2016, the Company had reserved 37,205 shares for issuance upon the exercise of stock options outstanding and 65,459 shares for issuance upon the vesting of RSU awards outstanding. As of September 30, 2016, 583,435 shares of common stock reserved for stock options and RSU awards under the 2012 EIP had been issued in the form of common stock.

2015 Equity Incentive Plan

The Company has granted equity awards pursuant to the Broadwind Energy, Inc. 2015 Equity Incentive Plan (the “2015 EIP” together with the 2007 EIP and the 2012 EIP, the “Equity Incentive Plans”), which was approved by the Board in February 2015 and by the Company’s stockholders in April 2015. The purposes of the Equity Incentive Plans are to (i) align the interests of the Company’s stockholders and recipients of awards under the Equity Incentive Plans by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) advance the interests of the Company by attracting and retaining officers, other employees, non-employee directors and independent contractors; and (iii) motivate such persons to act in the long-term best interests of the Company and its stockholders. Under the Equity Incentive Plans, the Company may grant (i) non-qualified stock options; (ii) “incentive stock options” (within the meaning of IRC Section 422); (iii) stock appreciation rights; (iv) restricted stock and RSUs; and (v) performance awards.

The 2015 EIP reserves 1,100,000 shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates will depend to a large degree. As of September 30, 2016, the Company had reserved 442,706 shares for issuance upon the vesting of RSU awards outstanding. As of September 30, 2016, 44,606 shares of common stock reserved for RSU awards under the 2015 EIP had been issued in the form of common stock.

Stock Options. The exercise price of stock options granted under the Equity Incentive Plans is equal to the closing price of the Company’s common stock on the date of grant. Stock options generally become exercisable on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. Additionally, stock options expire ten years after the date of grant. The fair value of stock options granted is expensed ratably over their vesting term.

Restricted Stock Units (RSUs). The granting of RSUs is provided for under the Equity Incentive Plans. RSUs generally vest on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. The fair value of each RSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the vesting term of the RSU award.

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The following table summarizes stock option activity during the nine months ended September 30, 2016 under the Equity Incentive Plans, as follows:



		Weighted Average
	Options	Exercise Price
Outstanding as of December 31, 2015	144,197	$	17.98
Granted	—	$	—
Exercised	(5,647)	$	3.39
Forfeited	—	$	—
Expired	(65,862)	$	8.65
Outstanding as of September 30, 2016	72,688	$	27.56
Exercisable as of September 30, 2016	72,688	$	27.56

The following table summarizes RSU activity during the nine months ended September 30, 2016 under the Equity Incentive Plans, as follows:


		Weighted Average
	Number of	Grant-Date Fair Value
	Shares	Per Share
Unvested as of December 31, 2015	377,810	$	4.87
Granted	411,910	$	2.84
Vested	(193,509)	$	4.79
Forfeited	(88,046)	$	3.21
Unvested as of September 30, 2016	508,165	$	3.55

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected volatility of the price of the Company’s stock over the expected life of the awards and actual and projected stock option exercise behavior. There were no stock options granted during the nine months ended September 30, 2016.

The Company utilized a forfeiture rate of 25% during the nine months ended September 30, 2016 and 2015 for estimating the forfeitures of equity compensation granted.

The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2016 and 2015, as follows:



	Nine Months Ended September 30,
	2016		2015
Share-based compensation expense:
Cost of sales	$	63	$	105
Selling, general and administrative		529		795
Income tax benefit (1)		—		—
Net effect of share-based compensation expense on net loss	$	592	$	900
Reduction in earnings per share:
Basic earnings per share	$	0.04	$	0.06

Diluted earnings per share	$	0.04	$	0.06

(1)

Income tax benefit is not illustrated because the Company is currently in a full tax valuation allowance position and an actual income tax benefit was not realized for the nine months ended September 30, 2016 and 2015. The result of the income (loss) situation creates a timing difference, resulting in a deferred tax asset, which is fully reserved for in the Company’s valuation allowance.

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As of September 30, 2016, the Company estimates that pre-tax compensation expense for all unvested share-based awards, including both stock options and RSUs, in the amount of approximately $1,246 will be recognized through 2019. The Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of common stock.

NOTE 12 — LEGAL PROCEEDINGS

The Company is party to a variety of legal proceedings that arise in the normal course of its business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on the Company’s results of operations, financial condition or cash flows. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial condition or cash flows. It is possible that if one or more of such matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could also be material to the Company’s financial condition and cash flows in the periods the Company would be required to pay such liability.

NOTE 13 — RECENT ACCOUNTING PRONOUNCEMENTS

The Company reviews new accounting standards as issued. Although some of the accounting standards issued or effective in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on its condensed consolidated financial statements, except as discussed below. The Company is currently evaluating the impact of the new standards on its condensed consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which amends the guidance in former ASC Topic 605, Revenue Recognition, and provides a single, comprehensive revenue recognition model for all contracts with customers. This standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The entity will recognize revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This update permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirement in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date, which amends the previously issued ASU to provide for a one year deferral from the original effective date. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted for annual reporting periods beginning on or after December 15, 2016, including interim periods within that annual period. The Company will adopt the provisions of ASU 2014-09 for the fiscal year beginning January 1, 2018, and is currently evaluating the impact on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current guidance. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This update will be effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this update on its condensed consolidated financial statements.

NOTE 14 — SEGMENT REPORTING

The Company is organized into reporting segments based on the nature of the products offered and business activities from which it earns revenues and incurs expenses for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision maker. In September 2015, the Board approved a plan to divest or otherwise exit the Company’s Services segment; consequently, this segment is now reported as a discontinued operation and the Company has revised its segment presentation to include two reportable operating segments: Towers and Weldments, and Gearing. All current and prior period financial results have been revised to reflect these changes. The Company’s segments and their product and service offerings are summarized below:

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Towers and Weldments

The Company manufactures towers for wind turbines, specifically the large and heavier wind towers that are designed for multiple megawatt (“MW”) wind turbines, as well as other specialty welded structures for mining and other industrial customers. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a combined annual tower production capacity of up to approximately 500 towers, sufficient to support turbines generating more than 1,000 MW of power.

Gearing

The Company engineers, builds and remanufactures precision gears and gearing systems for oil and gas, wind, mining, steel and other industrial applications. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment processes in Neville Island, Pennsylvania.

Corporate and Other

“Corporate” includes the assets and selling, general and administrative expenses of the Company’s corporate office. “Eliminations” comprises adjustments to reconcile segment results to consolidated results.

Summary financial information by reportable segment for the three and nine months ended September 30, 2016 and 2015 is as follows:


	Towers and
	Weldments		Gearing		Corporate			Eliminations	Consolidated
For the Three Months Ended September 30, 2016
Revenues from external customers	$	37,970	$	4,582	$	—	$	—	$	42,552
Operating profit (loss)		4,050		(692)		(1,998)		—		1,360
Depreciation and amortization		1,007		638		50		—		1,695
Capital expenditures		1,984		39		17		—		2,040


	Towers and
	Weldments		Gearing		Corporate		Eliminations		Consolidated
For the Nine Months Ended September 30, 2016
Revenues from external customers	$	117,948	$	14,741	$	—	$	—	$	132,689
Intersegment revenues		—		18		—		(18)		—
Operating profit (loss)		10,016		(3,083)		(5,616)		—		1,317
Depreciation and amortization		3,066		1,918		154		—		5,138
Capital expenditures		3,593		368		45		—		4,006


	Towers and
	Weldments		Gearing		Corporate		Eliminations		Consolidated
For the Three Months Ended September 30, 2015
Revenues from external customers	$	42,865	$	6,926	$	—	$	—	$	49,791
Intersegment revenues		78		258		—		(336)		—
Operating profit (loss)		2,235		(2,646)		(1,724)		—		(2,135)
Depreciation and amortization		1,132		1,216		52		—		2,400
Capital expenditures		812		134		9		—		955


	Towers and
	Weldments		Gearing		Corporate		Eliminations		Consolidated
For the Nine Months Ended September 30, 2015
Revenues from external customers	$	138,657	$	22,926	$	—	$	—	$	161,583
Intersegment revenues		346		832		—		(1,178)		—
Operating profit (loss)		10,525		(5,380)		(6,033)		5		(883)
Depreciation and amortization		2,961		3,757		142		—		6,860
Capital expenditures		1,599		588		95		—		2,282

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	Total Assets as of
	September 30,		December 31,
Segments:	2016		2015
Towers and Weldments	$	46,500	$	38,068
Gearing		36,325		39,229
Assets held for sale		866		4,403
Corporate		244,736		252,895
Eliminations		(202,791)		(224,688)
	$	125,636	$	109,907

NOTE 15 — COMMITMENTS AND CONTINGENCIES

Environmental Compliance and Remediation Liabilities

The Company’s operations and products are subject to a variety of environmental laws and regulations in the jurisdictions in which the Company operates and sells products governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content, performance and packaging. Certain environmental laws may impose the entire cost or a portion of the cost of investigating and cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous owners or operators of the site. These environmental laws also impose liability on any person who arranges for the disposal or treatment of hazardous substances at a contaminated site. Third parties may also make claims against owners or operators of sites and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites.

In connection with the Company’s restructuring initiatives, during the third quarter of 2012, the Company identified a liability associated with the planned sale of the Cicero Avenue Facility. The liability is associated with environmental remediation costs that were identified while preparing the site for sale. During 2013, the Company applied for and was accepted into the Illinois Environmental Protection Agency (“IEPA”) voluntary site remediation program. In the first quarter of 2014, the Company completed a comprehensive review of remedial options for the Cicero Avenue Facility and selected a preferred remediation technology. As part of the voluntary site remediation program, the Company submitted a plan to the IEPA for approval to conduct a pilot study to test the effectiveness of the selected remediation technology. In the third quarter of 2015, the Company obtained additional information regarding potential remediation options and modified the remediation plan, which caused an increase in the estimated cost of remediation and resulted in the Company increasing its reserve associated with this matter by $874. The Company is currently reviewing these options and will continue to reevaluate its remediation activities and the reserve balance associated with this matter as additional information is obtained. As of September 30, 2016, the accrual balance associated with this matter totaled $1,252.

Warranty Liability

The Company provides warranty terms that range from one to five years for various products supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable recovery from third parties for amounts paid to customers under warranty provisions. As of September 30, 2016 and 2015, estimated product warranty liability was $561 and $623, respectively, and is recorded within accrued liabilities in the Company’s condensed consolidated balance sheets.

The changes in the carrying amount of the Company’s total product warranty liability for the nine months ended September 30, 2016 and 2015 were as follows:


	For the Nine Months Ended September 30,
	2016		2015
Balance, beginning of period	$	601	$	1,054
Addition to (reduction of) warranty reserve		(21)		(60)
Warranty claims		(19)		(371)
Balance, end of period	$	561	$	623

Allowance for Doubtful Accounts

Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to accounts receivable. The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections experience, the Company believes will have an impact on its credit risk and the collectability of its accounts

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receivable. These factors include individual customer circumstances, history with the Company, the length of the time period during which the account receivable has been past due and other relevant criteria.

The Company monitors its collections and write-off experience to assess whether or not adjustments to its allowance estimates are necessary. Changes in trends in any of the factors that the Company believes may impact the collectability of its accounts receivable, as noted above, or modifications to its credit standards, collection practices and other related policies may impact the Company’s allowance for doubtful accounts and its financial results. The activity in the accounts receivable allowance liability for the nine months ended September 30, 2016 and 2015 consisted of the following:



	For the Nine Months Ended September 30,
	2016		2015
Balance at beginning of period	$	84	$	81
Bad debt expense		82		76
Write-offs		(5)		(54)
Balance at end of period	$	161	$	103

Collateral

In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations.

Liquidated Damages

In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or production delays. These damages are typically limited to a specific percentage of the value of the product in question and/or are dependent on actual losses sustained by the customer. The Company does not believe that this potential exposure will have a material adverse effect on the Company’s consolidated financial position or results of operations. There was no reserve for liquidated damages as of September 30, 2016.

Workers’ Compensation Reserves

At the beginning of the third quarter of 2013, the Company began to self-insure for its workers’ compensation liabilities, including reserves for self-retained losses. Historical loss experience combined with actuarial evaluation methods and the application of risk transfer programs are used to determine required workers’ compensation reserves. The Company takes into account claims incurred but not reported when determining its workers’ compensation reserves. Although the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred, the Company does not believe that any additional potential exposure for such liabilities will have a material adverse effect on the Company’s consolidated financial position or results of operations. Although the Company entered into a guaranteed cost program at the beginning of the third quarter of 2016, the Company maintained a liability for the trailing claims from the self-insured policy. As of September 30, 2016, the Company had $1,233 accrued for self-insured workers’ compensation liabilities.

Other

As of December 31, 2015, approximately 14% of the Company’s employees were covered by two collective bargaining agreements with local unions at Brad Foote’s Cicero, Illinois and Neville Island, Pennsylvania locations. The current collective bargaining agreement with the Cicero union is expected to remain in effect through February 2018. The current collective bargaining agreement with the Neville Island union is expected to remain in effect through October 2017.

See Note 16, “New Markets Tax Credit Transaction” of these condensed consolidated financial statements for a discussion of a strategic financing transaction (the “NMTC Transaction”) which originally related to the Company’s drivetrain service center in Abilene, Texas (the “Abilene Gearbox Facility”), and was amended in August 2015 to also include the activities of the Company’s heavy industries business conducted at the same location in Abilene, Texas (the “Abilene Heavy Industries Facility”). The Abilene Gearbox Facility focused on servicing the growing installed base of MW wind turbines as they come off warranty and, to a limited extent, industrial gearboxes requiring precision repair and testing. The Abilene Heavy Industries Facility focuses on heavy weldment fabrication for industries including those related to compressed natural gas distribution. Pursuant to the NMTC Transaction, the gross loan and investment in the Abilene Heavy Industries Facility and the Abilene Gearbox Facility of $10,000 is expected to generate $3,900 in tax credits over a period of seven years, which the NMTC Transaction makes available to Capital One, National Association (“Capital One”). The Abilene Heavy Industries Facility and/or the Abilene Gearbox Facility must operate and remain in compliance with the terms and conditions of the NMTC Transaction during the seven-year compliance period, or the Company may be liable for the recapture of $3,900 in tax

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credits to which Capital One is otherwise entitled. The Company does not anticipate any credit recaptures will be required in connection with the NMTC Transaction.

NOTE 16 — NEW MARKETS TAX CREDIT TRANSACTION

On July 20, 2011, the Company executed the NMTC Transaction, which was amended on August 24, 2015, involving the following third parties: AMCREF Fund VII, LLC (“AMCREF”), a registered community development entity; COCRF Investor VIII, LLC (“COCRF”); and Capital One. The NMTC Transaction allows the Company to receive below market interest rate funds through the federal New Markets Tax Credit (“NMTC”) program. The Company received $2,280 in proceeds via the NMTC Transaction. The NMTC Transaction qualifies under the NMTC program and includes a gross loan from AMCREF to the Company’s wholly-owned subsidiary Broadwind Services, LLC in the principal amount of $10,000, with a term of fifteen years and interest payable at the rate of 1.4% per annum, largely offset by a gross loan in the principal amount of $7,720 from the Company to COCRF, with a term of fifteen years and interest payable at the rate of 2.5% per annum. The August 2015 amendment did not change the financial terms of the NMTC Transaction, but did add the activities and assets of the Abilene Heavy Industries Facility to the NMTC Transaction and allow for the possible sale of the Abilene Gearbox Facility assets, provided that the proceeds of such sale are re-invested in the Abilene Heavy Industries Facility.

The NMTC regulations permit taxpayers to claim credits against their federal income taxes for up to 39% of qualified investments in the equity of community development entities. The NMTC Transaction could generate $3,900 in tax credits, which the Company has made available under the structure by passing them through to Capital One. The proceeds have been applied to the Company’s investment in the Abilene Gearbox Facility assets and associated operating costs and in the assets of the Abilene Heavy Industries Facility, as permitted under the amended NMTC Transaction.

The Abilene Heavy Industries Facility and/or the Abilene Gearbox Facility must operate and remain in compliance with various regulations and restrictions through September 2018, the end of the seven year compliance period, to comply with the terms of the NMTC Transaction, or the Company may be liable under its indemnification agreement with Capital One for the recapture of tax credits. In the event the Company does not comply with these regulations and restrictions, the NMTC program tax credits may be subject to 100% recapture for a period of seven years as provided in the IRC. The Company does not anticipate that any tax credit recapture events will occur or that it will be required to make any payments to Capital One under the indemnification agreement.

The Capital One contribution, including a loan origination payment of $320, has been included as other assets in the Company’s condensed consolidated balance sheet as of September 30, 2016. The NMTC Transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase Capital One’s interest in the third quarter of 2018. Capital One may exercise an option to put its investment to the Company and receive $130 from the Company at that time. If Capital One does not exercise its put option, the Company can exercise a call option at the then fair market value of the call. The Company expects that Capital One will exercise the put option at the end of the tax credit recapture period. The Capital One contribution other than the amount allocated to the put obligation will be recognized as income only after the put/call is exercised and when Capital One has no ongoing interest. However, there is no legal obligation for Capital One to exercise the put, and the Company has attributed only an insignificant value to the put option included in this transaction structure.

The Company has determined that two pass‑through financing entities created under the NMTC Transaction structure are variable interest entities (“VIEs”). The ongoing activities of the VIEs—collecting and remitting interest and fees and complying with NMTC program requirements—were considered in the initial design of the NMTC Transaction and are not expected to significantly affect economic performance throughout the life of the VIEs. In making this determination, management also considered the contractual arrangements that obligate the Company to deliver tax benefits and provide various other guarantees under the NMTC Transaction structure, Capital One’s lack of a material interest in the underlying economics of the project, and the fact that the Company is obligated to absorb losses of the VIEs. The Company has concluded that it is required to consolidate the VIEs because the Company has both (i) the power to direct those matters that most significantly impact the activities of each VIE, and (ii) the obligation to absorb losses or the right to receive benefits of each VIE.

The $262 of issue costs paid to third parties in connection with the NMTC Transaction are recorded as prepaid expenses, and are being amortized over the expected seven year term of the NMTC arrangement. Capital One’s net contribution of $2,600 is included in Long Term Debt, Net of Current Maturities in the condensed consolidated balance sheet as of September 30, 2016. Incremental costs to maintain the transaction structure during the compliance period will be recognized as they are incurred.

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NOTE 17 — RESTRUCTURING

The Company’s total net restructuring charges incurred to date are detailed below:


	2011		2012		2013		2014		2015		Total
	Actual		Actual		Actual		Actual		Actual		Incurred
Restructuring charges:
Capital expenditures	$	5	$	2,596	$	2,352	$	674	$	—	$	5,627
Gain on sale of Brandon, SD Facility		—		—		(3,585)		—		—		(3,585)
Accelerated depreciation		—		819		898		—		—		1,717
Severance		430		—		435		—		—		865
Impairment charges		—		—		2,365		—		186		2,551
Moving and other exit-related costs		439		1,354		2,866		1,479		874		7,012
Total	$	874	$	4,769	$	5,331	$	2,153	$	1,060	$	14,187

During the third quarter of 2011, the Company conducted a review of its business strategies and product plans based on the business and industry outlook, and concluded that its manufacturing footprint and fixed cost base were excessive for its medium-term needs. A plan was developed to reduce the Company’s facility footprint by approximately 40% through the sale and/or closure of facilities comprising a total of approximately 600,000 square feet. To date, the Company has reduced its presence at eight facilities and achieved a reduction of approximately 500,000 square feet. In addition, the Cicero Avenue Facility has been vacated and will be marketed for sale. The Company believes its remaining facilities will be sufficient to support its current business activities, while allowing for growth for the next several years.

The Company recorded a liability associated with environmental remediation costs that were originally identified while preparing the Cicero Avenue Facility for sale. See the “Environmental Compliance and Remediation Liabilities” section of Note 15, “Commitments and Contingencies” of these consolidated financial statements. The Company further adjusted the liability by recording a $352 liability associated with the planned sale of the Cicero Avenue Facility. The Company further adjusted the liability by recording an additional $258 charge in the fourth quarter of 2013 and an additional $874 in the quarter ending September 30, 2015. The liability is associated with environmental remediation costs that were originally identified while preparing the site for sale. See the “Environmental Compliance and Remediation Liabilities” section of Note 15, “Commitments and Contingencies” of these consolidated financial statements. The expenses associated with this liability have been recorded as restructuring charges, and as of September 30, 2016, the accrual balance remaining is $1,252.

As of December 31, 2014, the Company had completed the expenditures relating to its restructuring plan, with the exception of the new information on the environmental remediation of the Cicero Avenue Facility that resulted in additional expense of $874 recorded during the third quarter of 2015 and new information on the fair value on the Clintonville Facility that resulted in additional impairment expense of $186 recorded during the fourth quarter of 2015 based on negotiations that resulted in an executed contract for the sale of the property that was completed during the second quarter of 2016. The Company incurred total costs of approximately $14,200, net of a $3,585 gain on the sale of an idle tower plant in Brandon, South Dakota. The Company’s restructuring charges generally include costs to close or exit facilities, costs to move equipment, the related costs of building infrastructure for moved equipment and employee related costs. Of the total restructuring costs incurred, a total of approximately $4,800 consists of non‑cash charges.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation s

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto in Item 1, “Financial Statements,” of this Quarterly Report and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2015. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances including, but not limited to, those identified in “Cautionary Note Regarding Forward-Looking Statements” at the end of Item 2. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties. As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and the “Company” refer to Broadwind Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its subsidiaries.

(Dollars are presented in thousands except per share data or unless otherwise stated)

OUR BUSINESS

Third Quarter Overview

We booked $27,500 in new orders in the third quarter of 2016, up from orders of $12,200 in the third quarter of 2015. The increase was due to the timing of receipt of tower orders, which vary considerably from quarter to quarter. The late 2015 extension of the federal Production Tax Credit subsidy is expected to provide support for the wind energy industry in general, and specifically for our wind tower production demand though 2023. We continue to see weakness in Gearing orders from oil and gas and mining customers.

We recognized sales of $42,552 in the third quarter of 2016, a 15% decrease compared to $49,791 in the third quarter of 2015. We reported net income of $872 or $.06 per share in the third quarter of 2016, compared to a net loss of $7,613 or $.52 per diluted share in the third quarter of 2015. The current quarter includes a $.04 per share benefit from a change in depreciation estimate in our Gearing segment. The $.58 per share increase was due a $.24 per share increase from continuing operations and a $.33 per share loss improvement from discontinued operations. The increase in earnings from continuing operations was due primarily to an increase in volume and better margins in the Towers and Weldments segment and the impact of cost reductions throughout the Company.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2016, Compared to Three Months Ended September 30, 2015

The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the three months ended September 30, 2016, compared to the three months ended September 30, 2015.


	Three Months Ended September 30,								2016 vs. 2015
			% of Total				% of Total
	2016		Revenue		2015		Revenue		$ Change		% Change
Revenues	$	42,552	100.0	%	$	49,791	100.0	%	$	(7,239)	(14.5)	%
Cost of sales		37,221	87.5	%		46,960	94.3	%		(9,739)	(20.7)	%
Gross profit		5,331	12.5	%		2,831	5.7	%		2,500	88.3	%
Operating expenses
Selling, general and administrative expenses		3,860	9.1	%		3,981	8.0	%		(121)	(3.0)	%
Intangible amortization		111	0.3	%		111	0.2	%		—	—	%
Restructuring costs		—	—	%		874	1.8	%		(874)	(100.0)	%
Total operating expenses		3,971	9.4	%		4,966	10.0	%		(995)	(20.0)	%
Operating income (loss)		1,360	3.1	%		(2,135)	(4.3)	%		3,495	163.7	%
Other expense
Interest expense, net		(125)	(0.3)	%		(210)	(0.4)	%		85	40.5	%
Other, net		10	—	%		(64)	(0.1)	%		74	115.6	%
Total other expense, net		(115)	(0.3)	%		(274)	(0.5)	%		159	58.0	%
Net income (loss) before benefit for income taxes		1,245	2.8	%		(2,409)	(4.8)	%		3,654	151.7	%
Benefit for income taxes		—	—	%		(26)	(0.1)	%		26	100.0	%
Income (loss) from continuing operations		1,245	2.8	%		(2,383)	(4.7)	%		3,628	152.2	%
Loss from discontinued operations, net of tax		(373)	(0.9)	%		(5,230)	(10.5)	%		4,857	92.9	%
Net income (loss)	$	872	1.9	%	$	(7,613)	(15.2)	%	$	8,485	111.5	%

Consolidated

Revenues decreased by $7,239 from $49,791 during the three months ended September 30, 2015, to $42,552 during the three months ended September 30, 2016. The decrease reflects a 12% decrease in Tower and Weldments revenue, and a 36% decrease in Gearing revenue. The Towers and Weldments segment revenue decrease was due to lower steel and other material costs, partially offset by a 1% increase in towers sold. Gearing revenues were down 36%, due to reduced sales to oil and gas and mining industry customers.

Gross profit increased by $2,500, from $2,831 during the three months ended September 30, 2015, to $5,331 during the three months ended September 30, 2016. The increase in gross profit was attributable to improved operating efficiencies in the Abilene, Texas tower plant (the “Abilene Tower Facility”), cost management initiatives and a depreciation estimate change in our Gearing segment. As a result, our total gross margin increased from 5.7% during the three months ended September 30, 2015, to 12.5% during the three months ended September 30, 2016.

Operating expenses improved from $4,966 during the three months ended September 30, 2015, to $3,971 during the three months ended September 30, 2016. The improvement was attributable to the absence of an $874 environmental charge incurred in the prior-year third quarter, reduced employee compensation of $419, and reduced legal and professional expense of $232, partially offset by an increase in incentive compensation due to the improvement in operating income. Operating expenses as a percentage of sales decreased from 10.0% in the prior-year quarter to 9.4% in the current-year quarter due to the aforementioned items.

Income (loss) from continuing operations increased from ($2,383) loss during the three months ended September 30, 2015, to $1,245 income during the three months ended September 30, 2016, as a result of the factors described above.

Net income increased from ($7,613) net loss during the three months ended September 30, 2015, to $872 net income during the three months ended September 30, 2016, as a result of the factors described above and the substantial divestiture of our Services business in late 2015, which resulted in a $4,857 reduced loss from discontinued operations.

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Towers and Weldments Segment

The following table summarizes the Towers and Weldments segment operating results for the three months ended September 30, 2016 and 2015:


	Three Months Ended
	September 30,
	2016			2015
Orders	$	25,329		$	3,167
Revenues		37,970			42,943
Operating income		4,050			2,235
Operating margin		10.7	%		5.2	%

The increase in orders is due to the timing of receipt of tower orders in the current year period. Towers and Weldments segment revenues decreased by $4,973, from $42,943 during the three months ended September 30, 2015, to $37,970 during the three months ended September 30, 2016. The decrease was due to $5,500 in lower steel and other material costs, which are generally passed through to the customer, offset by a 1% increase in towers sold.

Towers and Weldments segment operating income increased by $1,815, from $2,235 during the three months ended September 30, 2015, to $4,050 during the three months ended September 30, 2016. The increase was attributable to a significant improvement in operating efficiencies in the Abilene Texas Facility. Operating margin increased from 5.2% during the three months ended September 30, 2015, to 10.7% during the three months ended September 30, 2016.

Gearing Segment

The following table summarizes the Gearing segment operating results for the three months ended September 30, 2016 and 2015:


	Three Months Ended
	September 30,
	2016			2015
Orders	$	2,162		$	8,997
Revenues		4,582			7,184
Operating loss		(692)			(2,646)
Operating margin		(15.1)	%		(36.8)	%

Gearing segment orders decreased from the prior-year quarter due to continued weak demand from oil and gas and mining customers, and the absence of a large multi-year gearing buy received in the prior-year quarter from a wind gearing customer. Gearing segment revenues decreased by $2,602, from $7,184 during the three months ended September 30, 2015, to $4,582 during the three months ended September 30, 2016. Total revenues were down by 36% due to weak market demand from oil and gas and mining industry customers.

Gearing segment operating loss improved by $1,954, from $2,646 during the three months ended September 30, 2015, to $692 during the three months ended September 30, 2016. The improvement in the operating loss, despite the significant decline in revenue, was due to the absence of an $874 environmental charge incurred in the prior-year third quarter, reduced depreciation expense of $576, lower labor costs of $458, and a reduction in selling, general and administrative expenses. Operating margin improved based on the above items from (36.8%) during the three months ended September 30, 2015, to (15.1%) during the three months ended September 30, 2016.

Corporate and Other

Corporate and Other expenses increased by $274, from $1,724 during the three months ended September 30, 2015, to $1,998 during the three months ended September 30, 2016. The increase was attributable to $558 of increase incentive compensation and $210 of insurance costs, partially offset by lower employee compensation of $249 and lower legal and professional expenses of $262.

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Nine Months Ended September 30, 2016, Compared to Nine Months Ended September 30, 2015

The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015.


	Nine Months Ended September 30,								2016 vs. 2015
			% of Total				% of Total
	2016		Revenue		2015		Revenue		$ Change		% Change
Revenues	$	132,689	100.0	%	$	161,583	100.0	%	$	(28,894)	(17.9)	%
Cost of sales		119,254	89.9	%		147,507	91.3	%		(28,253)	(19.2)	%
Gross profit		13,435	10.1	%		14,076	8.7	%		(641)	(4.6)	%
Operating expenses
Selling, general and administrative expenses		11,785	8.9	%		13,752	8.5	%		(1,967)	(14.3)	%
Intangible amortization		333	0.3	%		333	0.2	%		—	—	%
Restructuring costs		—	—	%		874	0.5	%		(874)	(100.0)	%
Total operating expenses		12,118	9.2	%		14,959	9.2	%		(2,841)	(19.0)	%
Operating income (loss)		1,317	0.9	%		(883)	(0.5)	%		2,200	249.2	%
Other (expense) income
Interest expense, net		(431)	(0.3)	%		(611)	(0.4)	%		180	29.5	%
Other, net		27	—	%		(36)	—	%		63	175.0	%
Total other expense, net		(404)	(0.3)	%		(647)	(0.4)	%		243	37.6	%
Net income (loss) before benefit for income taxes		913	0.6	%		(1,530)	(0.9)	%		2,443	159.7	%
Benefit for income taxes		(16)	—	%		(11)	—	%		(5)	(45.5)	%
Income (loss) from continuing operations		929	0.6	%		(1,519)	(0.9)	%		2,448	161.2	%
Loss from discontinued operations, net of tax		(908)	(0.7)	%		(9,494)	(5.9)	%		8,586	90.4	%
Net income (loss)	$	21	(0.1)	%	$	(11,013)	(6.8)	%	$	11,034	100.2	%

Consolidated

Revenues decreased by $28,894 from $161,583 during the nine months ended September 30, 2015, to $132,689 during the nine months ended September 30, 2016. The decrease reflects a 15% decrease in Tower and Weldments revenue, and a 38% decrease in Gearing revenue. The Towers and Weldments segment revenue decrease was due to a 5% decrease in towers sold, a lower margin mix of towers built, and significantly lower steel and other material costs. Gearing revenues were down 38%, with the decline driven by reduced demand from oil and gas and mining industry customers.

Gross profit decreased by $641, from $14,076 during the nine months ended September 30, 2015, to $13,435 during the nine months ended September 30, 2016. The decrease in gross profit was attributable to lower revenues, partly offset by improved operating efficiencies in the Abilene Texas Facility and lower manufacturing overhead expenses. As a result, our total gross margin increased from 8.7% during the nine months ended September 30, 2015, to 10.1% during the nine months ended September 30, 2016.

Operating expenses decreased by $2,841, from $14,959 during the nine months ended September 30, 2015, to $12,118 during the nine months ended September 30, 2016. The improvement was attributable to reduced employee compensation of $1,061, reduced legal and professional expense of $597, the absence of an $874 environmental charge incurred in the prior-year and a $239 gain on sale of excess equipment, partially offset by a $348 increase in incentive compensation. Operating expenses as a percentage of sales were essentially flat, at 9.2% in the first three quarters of 2016, versus 9.2% in the prior-year period.

Income (loss) from continuing operations increased from ($1,519) loss during the nine months ended September 30, 2015, to $929 income during the nine months ended September 30, 2016, as a result of the factors described above.

Net income improved from a ($11,013) net loss during the nine months ended September 30, 2015, to $21 net income during the nine months ended September 30, 2016, as a result of the factors described above and an $8,586 reduced loss from discontinued operations.

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Towers and Weldments Segment

The following table summarizes the Towers and Weldments segment operating results for the nine months ended September 30, 2016 and 2015:


	Nine Months Ended
	September 30,
	2016			2015
Orders	$	231,401		$	66,330
Revenues		117,948			139,003
Operating income		10,016			10,525
Operating margin		8.5	%		7.6	%

The increase in orders is due to the timing of receipt of two tower orders in the current year period, as tower orders vary considerably from quarter to quarter. Towers and Weldments segment revenues decreased by $21,055, from $139,003 during the nine months ended September 30, 2015, to $117,948 during the nine months ended September 30, 2016. The Towers and Weldments segment revenues decrease was due to the $13,600 impact of lower steel and other material costs, which are generally passed through to the customer, and a 5% decrease in towers sold.

Towers and Weldments segment operating income decreased $509, from $10,525 during the nine months ended September 30, 2015, to $10,016 during the nine months ended September 30, 2016. The decrease in operating income was attributable to modestly lower volumes and a less favorable production mix, partially offset by a significant improvement in operating efficiencies in the Abilene Texas Facility. Operating margin increased from 7.6% during the nine months ended September 30, 2015, to 8.5% during the nine months ended September 30, 2016.

Gearing Segment

The following table summarizes the Gearing segment operating results for the nine months ended September 30, 2016 and 2015:


	Nine Months Ended
	September 30,
	2016			2015
Orders	$	11,307		$	22,792
Revenues		14,759			23,758
Operating loss		(3,083)			(5,380)
Operating margin		(20.9)	%		(22.6)	%

Gearing segment orders decreased from the prior-year period due to continued weak demand from oil and gas and mining customers, and the absence of a large multi-year gearing buy received in the prior-year period from a wind gearing customer. Gearing segment revenues decreased by $8,999, from $23,758 during the nine months ended September 30, 2015, to $14,759 during the nine months ended September 30, 2016. Total revenues were down by 38% due to decreased in sales to oil and gas and mining industry customers.

Gearing segment operating loss decreased by $2,297, from $5,380 during the nine months ended September 30, 2015, to $3,083 during the nine months ended September 30, 2016. The improvement in the operating loss, despite the significant decline in revenue, was due to reductions in depreciation and other fixed overhead of $3,490, the absence of a $874 environmental charge incurred in the prior-year period and a $977 reduction in selling, general and administrative expenses. Reduced depreciation expense of $1,838 was due to a change in the accounting estimate in the first quarter of 2016 to increase the equipment salvage value. We estimate that the change in depreciation will have a favorable impact on 2016 annual income from continuing operations and net income of $2,450 or $0.17 per share. Operating margin improved from (22.6%) during the nine months ended September 30, 2015, to (20.9%) during the nine months ended September 30, 2016.

Corporate and Other

Corporate and Other expenses decreased by $417, from $6,033 during the nine months ended September 30, 2015, to $5,616 during the nine months ended September 30, 2016. The decrease was attributable to lower employee compensation of $852 and lower legal and professional expenses of $417, partially offset by a $444 increase in incentive compensation.

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SUMMARY OF CRITICAL ACCOUNTING POLICIES

We have identified significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to our financial condition or results of operations under different conditions or using different assumptions. Our most critical accounting policies are related to the following areas: revenue recognition, warranty liability, inventories, intangible assets, long-lived assets, workers’ compensation reserves and income taxes. Details regarding our application of these policies and the related estimates are described fully in our Annual Report on Form 10-K for the year ended December 31, 2015.

Recent Accounting Pronouncements

We review new accounting standards as issued. Although some of the accounting standards issued or effective in the current fiscal year may be applicable to us, we have not identified any new standards that we believe merit further discussion, except as discussed below. We are currently evaluating the impact of the new standards on our condensed consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which amends the guidance in former Accounting Standard Codification Topic 605, Revenue Recognition, and provides a single, comprehensive revenue recognition model for all contracts with customers. This standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The entity will recognize revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. This update permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirement in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date, which amends the previously issued ASU to provide for a one year deferral from the original effective date. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted for annual reporting periods beginning on or after December 15, 2016, including interim periods within that annual period. We will adopt the provisions of ASU 2014 09 and ASU 2015-14 for the fiscal year beginning January 1, 2018, and are currently evaluating the impact on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current guidance. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This update will be effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this update on our condensed consolidated financial statements.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of September 30, 2016, cash and cash equivalents and short-term investments totaled $24,304, an increase of $11,689 from December 31, 2015. Total debt and capital lease obligations at September 30, 2016 totaled $3,172, and we had the ability to borrow up to $3,281 under the Credit Facility (as defined below). We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances and the Credit Facility.

On August 23, 2012, we established a $20,000 secured revolving line of credit (the “Credit Facility”) with AloStar Bank of Commerce (“AloStar”) pursuant to a Loan and Security Agreement dated August 23, 2012 (as amended, the “Loan Agreement”). On June 29, 2015, the Credit Facility was amended to extend the maturity date, modify the applicable interest rate and minimum quarterly interest charges and convert $5,000 of the original Credit Facility amount to a term loan (the “Term Loan”).

Under the Credit Facility, AloStar advanced funds when requested against a borrowing base consisting of approximately 85% of the face value of our eligible accounts receivable and approximately 30% of the book value of our eligible inventory. Borrowings under the Credit Facility bore interest at a per annum rate equal to the one-month London

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Interbank Offered Rate plus a margin of 3.25%, subject to a minimum. We also paid an unused facility fee to AloStar equal to 0.50% per annum on the unused portion of the Credit Facility, along with other standard fees.

The Loan Agreement contained customary representations and warranties. It also contained a requirement that we, on a consolidated basis, maintained a minimum monthly fixed charge coverage ratio (the “Fixed Charge Coverage Ratio Covenant”) and minimum monthly earnings before interest, taxes, depreciation, amortization, restructuring and share-based payments (“Adjusted EBITDA Covenant”), along with other customary restrictive covenants, certain of which were subject to materiality thresholds, baskets and customary exceptions and qualifications.

The obligations under the Loan Agreement were secured by, subject to certain exclusions, (i) a first priority security interest in all our accounts receivable, inventory, chattel paper, payment intangibles, cash and cash equivalents and other working capital assets and stock or other equity interests in our subsidiaries, and (ii) a first priority security interest in all of the equipment of our wholly-owned subsidiary Brad Foote Gear Works, Inc.

As of December 31, 2015, we were not in compliance with the Adjusted EBITDA Covenant. On February 23, 2016, we and AloStar executed a Ninth Amendment to Loan and Security Agreement and Waiver (the “Ninth Amendment”), which waived our compliance with the Adjusted EBITDA Covenant as of December 31, 2015, amended the Adjusted EBITDA Covenant going forward, provided that the Fixed Charge Coverage Ratio Covenant would be recalculated for future periods commencing with the quarter ending June 30, 2016, reduced the amount of the Credit Facility to $10,000, and extended the maturity date of the Credit Facility to February 28, 2017. The Ninth Amendment also contained a liquidity requirement of $3,500 and established a reserve against the borrowing base in an amount equal to the outstanding balance of the Term Loan at any given time. On August 29, 2016, we and AloStar executed a Tenth Amendment to Loan and Security Agreement (the “Tenth Amendment”), which removed the liquidity requirement set in the Ninth Amendment and removed the exclusion of certain customer accounts receivable. As of September 30, 2016, we were in compliance with all applicable covenants and the liquidity requirement.

As of September 30, 2016, there was no outstanding indebtedness under the Credit Facility, we had the ability to borrow up to $3,281 thereunder, the per annum interest rate thereunder was 4.25% and there was no outstanding indebtedness under the Term Loan which was repaid in full in June 2016.

On October 26, 2016, we established a $20,000 three-year secured revolving line of credit (the “New Credit Facility”) with The PrivateBank and Trust Company (“PrivateBank”) to replace the Credit Facility with AloStar. Under the New Credit Facility, PrivateBank will advance funds when requested against a borrowing base consisting of up to 85% of the face value of our eligible accounts, up to 50% of the book value of our eligible inventory and up to 50% of the appraised value of our eligible machinery, equipment and certain real property up to $10,000. Upon achieving at least $7,000 in EBITDA during fiscal year 2016, we can elect to increase the New Credit Facility by an additional $5,000. Borrowings under the New Credit Facility bear interest at a per annum rate equal to the applicable LIBOR plus a margin ranging from 2.25% to 3.00%, which is based on the our trailing twelve-month EBITDA. We will also pay an unused facility fee to PrivateBank equal to 0.50% per annum on the unused portion of the New Credit Facility, along with other standard fees. The obligations under the New Credit Facility are be secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower facility.

While we believe that we will continue to have sufficient cash available to operate our businesses and to meet our financial obligations and debt covenants, there can be no assurances that our operations will generate sufficient cash, that we will be able to comply with applicable loan covenants or that credit facilities will be available in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

Sources and Uses of Cash

Operating Cash Flows

During the nine months ended September 30, 2016, net cash provided by operating activities totaled $17,067 compared to net cash used in operating activities of $14,728 for the nine months ended September 30, 2015. The increase in net cash provided by operating activities was primarily attributable to an increase of $11,541 due to the timing of the receipt of customer deposits and a reduction of $2,013 of inventory balances in the Towers and Weldments segment since December 31, 2015. The increase in customer deposits was a result of obtaining new orders during 2016, with the customer providing deposits associated with these orders. In addition, accounts payable also increased during the current-year period by $7,118, partially offset by an increase within accounts receivable levels during the current-year period by $5,187. Comparatively, for the nine months ended September 30, 2015, the decrease in net cash provided by operating activities was driven by a $15,772

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reduction in customer deposits, as a result of our fulfillment of customers’ orders for which we had previously received deposits.

Investing Cash Flows

During the nine months ended September 30, 2016, net cash used in investing activities totaled $13,519 compared to net cash provided by investing activities of $6,898. The increase in net cash used in investing activities as compared to the prior-year period was primarily attributable to the purchases related to the available for sale securities activity in the current-year period due to the availability of cash to invest compared to utilizing the cash in the prior-year period for non-investment activity.

Financing Cash Flows

During the nine months ended September 30, 2016, net cash used in financing activities totaled $3,280, compared to net cash provided by financing activities of $4,283 for the nine months ended September 30, 2015. The increase in net cash used in financing activities as compared to the prior-year period was due to the current-year period monthly payments and the pay-off of the Term Loan.

Cautionary Note Regarding Forward-Looking Statements

The preceding discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2015. Portions of this Quarterly Report on Form 10-Q, including the discussion and analysis in this Item 2, contains “forward looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Forward looking statements include any statement that does not directly relate to a current or historical fact. Our forward-looking statements may include or relate to our beliefs, expectations, plans and/or assumptions with respect to the following: (i) state, local and federal regulatory frameworks affecting the industries in which we compete, including the wind energy industry, and the related extension, continuation or renewal of federal tax incentives and grants and state renewable portfolio standards; (ii) our customer relationships and efforts to diversify our customer base and sector focus and leverage customer relationships across business units; (iii) our ability to continue to grow our business organically; (iv) the sufficiency of our liquidity and alternate sources of funding, if necessary; (v) our restructuring efforts, including estimated costs and saving opportunities; (vi) our ability to realize revenue from customer orders and backlog; (vii) our ability to operate our business efficiently, manage capital expenditures and costs effectively, and generate cash flow; (viii) the economy and the potential impact it may have on our business, including our customers; (ix) the state of the wind energy market and other energy and industrial markets generally and the impact of competition and economic volatility in those markets; (x) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; and (xi) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended. These statements are based on information currently available to us and are subject to various risks, uncertainties and other factors that could cause our actual results to be materially different from the forward-looking statements including, but not limited to, those set forth under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. We are under no duty to update any of these statements. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or other factors that could cause our current beliefs, expectations, plans and/or assumptions to change.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act

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is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal quarter reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2016 because of the material weaknesses in internal control over financial reporting described below.

As more fully described in our Annual Report on Form 10-K for the year ended December 31, 2015, the following material weakness existed at December 31, 2015 and September 30, 2016:

We did not maintain effective controls over the completeness, accuracy and existence of inventory during 2015. Specifically, controls over completeness, accuracy and existence regarding one specific type of inventory in our Towers and Weldments segment were not properly designed to prevent or detect material misstatements on a timely basis and, therefore, constitute a material weakness.

Management’s Remediation Plan

As part of our commitment to strong internal controls over financial reporting, we (a) conducted an assessment of the root causes of the related control deficiencies, (b) began complete counts of related inventory in connection with our year-end closing, (c) made progress in remediating issues, and (d) will initiate other remedial actions under the oversight of the Board’s Audit Committee, including:

Reviewing and testing the revised design of controls with respect to the transaction processing of towers internal inventory components to enhance timely and accurate inventory reporting, and

Fully implementing the revised design of controls with respect to annual cycle counting of inventory items with a low individual value (“C items”) to ensure that transaction errors are detected, and that valuation of our inventory and related cost of goods sold are properly and timely reported.

Changes in Internal Control over Financial Reporting

We are taking actions to remediate the material weaknesses related to our internal controls over financial reporting controls, as described above. However, our remediation was not complete as of September 30, 2016. We can give no assurance that the measures we take will remediate the material weaknesses that we have identified or that any additional material weaknesses will not arise in the future. Other than the changes disclosed above, there were no changes in our internal control over financial reporting controls during the nine months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATIO N

Item 1. Legal Proceeding s

The information required by this item is incorporated herein by reference to Note 12, “Legal Proceedings” of these condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factor s

There are no material changes to our risk factors as previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceed s

None

Item 3. Defaults Upon Senior Securitie s

None

Item 4. Mine Safety Disclosure s

Not Applicable

Item 5. Other Informatio n

None

Item 6. Exhibit s

The exhibits listed on the Exhibit Index following the signature page are filed as part of this Quarterly Report on Form 10-Q.

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SIGNATURE S

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BROADWIND ENERGY, INC.


October 28, 2016	By:	/s/ Stephanie K. Kushner
		Stephanie K. Kushner
		President, Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial Officer)

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EXHIBIT INDEX

BROADWIND ENERGY, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2016

Exhibit Number		Exhibit
10.1		Tenth Amendment to Loan and Security Agreement and Waiver, dated August 29, 2016, among the Company, Broadwind Towers, Brad Foote, 1309 South Cicero Avenue, LLC, 5100 Neville Road, LLC and AloStar Bank of Commerce*
10.2		Loan and Security Agreement, dated October 26, 2016, among the Company, Broadwind Towers, Inc., Brad Foote Gear Works, Inc., Broadwind Services and The PrivateBank and Trust Company*
31		Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer*
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer and Chief Financial Officer*
101		The following financial information from this Form 10-Q of Broadwind Energy, Inc. for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

* Filed herewith.

EXHIBIT 10.1

TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER

This TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER (this “ Amendment ”) is entered into as of August 29, 2016, among BROADWIND ENERGY, INC., a Delaware corporation (“ Parent ”), BRAD FOOTE GEAR WORKS, INC., an Illinois corporation (“ Brad Foote ”), BROADWIND SERVICES, LLC, a Delaware limited liability company (“ Broadwind Services ”), BROADWIND TOWERS, INC., a Wisconsin corporation (“ Broadwind Towers ” and, together with Parent, Brad Foote and Broadwind Services, each a “ Borrower ” and collectively the “ Borrowers ”), 1309 South Cicero Avenue, LLC, a Delaware limited liability company (“ South Cicero ”), 5100 Neville Road, LLC, a Delaware limited liability company (“ Neville ” and, together with South Cicero, each a “ Guarantor ” and collectively the “ Guarantors ”), and ALOSTAR BANK OF COMMERCE, a state banking institution incorporated or otherwise organized under the laws of the State of Alabama (the “ Lender ”).

W I T N E S S E T H:

WHEREAS, the Borrowers and the Lender are parties to that certain Loan and Security Agreement dated August 23, 2012 (as amended, restated, supplemented or otherwise modified from time to time, the “ Loan Agreement ”; capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement), pursuant to which the Lender has agreed to make the Commitments available to the Borrowers from time to time pursuant to the terms and conditions thereof;

WHEREAS, the Borrowers have requested that the Lender agree to amend certain terms and conditions of the Loan Agreement; and

WHEREAS, subject to the satisfaction of the conditions set forth herein, the Lender is willing to amend the Loan Agreement as set forth herein.

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Amendments to the Loan Agreement . Subject to the satisfaction of the conditions to effectiveness set forth in Section 3 hereof, the Loan Agreement is hereby amended as follows:

1.1. Section 1.1 (Defined Terms) of the Loan Agreement is hereby amended by inserting the following new defined term “Investment Grade” therein in the appropriate alphabetical order:

““Investment Grade” means a rating of A- or higher per Standard & Poor’s, or A3 or higher per Moody’s.”

1.2. Section 1.1 (Defined Terms) of the Loan Agreement is hereby amended by replacing clause (e) of the defined term “Eligible Account” with the following:

“(e) the total unpaid Accounts of any Account Debtor exceed 20% of the aggregate amount of all Accounts, in each case, to the extent of such excess; provided, that Accounts of Siemens Energy, Inc. may be included as Eligible Accounts notwithstanding failure to comply with this clause (e) so long as Siemens Energy, Inc. retains a rating of Investment Grade and such Accounts are not ineligible under the other exclusionary criteria set forth under the definition of Eligible Accounts;”

1.3. Clause (d) of Item 16 (Financial Covenants) of the Terms Schedule is hereby amended and restated in its entirety as follows:

“(d) [Reserved] .”

2. No Other Amendments . The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Lender under the Loan Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Loan Agreement or any of the other Loan Documents. Except for the amendments set forth above, the text of the Loan Agreement and all other Loan Documents shall remain unchanged and in full force and effect and each Borrower and each Guarantor hereby ratifies and confirms its obligations thereunder. This Amendment shall not constitute a modification of the Loan Agreement or any of the other Loan Documents or a course of dealing with the Lender at variance with the Loan Agreement or the other Loan Documents such as to require further notice by the Lender to require strict compliance with the terms of the Loan Agreement and the other Loan Documents in the future, except as expressly set forth herein. Each Borrower and each Guarantor acknowledges and expressly agrees that the Lender reserves the right to, and does in fact, require strict compliance with all terms and provisions of the Loan Agreement and the other Loan Documents, as amended herein. No Borrower or Guarantor has knowledge of any challenge to the Lender’s claims arising under the Loan Documents, or to the effectiveness of the Loan Documents.

3. Conditions Precedent to Effectiveness . This Amendment shall be effective as of the date first written above upon the satisfaction of each of the following conditions precedent in a manner acceptable to the Lender in its sole and absolute discretion:

3.1. the Lender shall have received this Amendment, duly executed by each Borrower and each Guarantor, and the same shall be in full force and effect; and

3.2. no Default or Event of Default shall exist under the Loan Agreement or the other Loan Documents.

4. Counterparts . This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same agreement. In proving this Amendment in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission or by electronic mail transmission shall be deemed an original signature hereto.

5. Reference to and Effect on the Loan Documents . Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Loan Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to “the Loan Agreement”, “thereunder”, “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended hereby.

6. Entire Agreement . This Amendment and the other Loan Documents constitute the entire agreement and understanding between the parties hereto with respect to the transactions contemplated hereby and thereby and supersede all prior negotiations, understandings and agreements between such parties with respect to such transactions.

7. GOVERNING LAW . THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.

8. Loan Document . This Amendment shall be deemed to be a Loan Document for all purposes.

[remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year first written above.

BORROWERS: BROADWIND ENERGY, INC.

By: /s/ Stephanie K. Kushner

Name: Stephanie K. Kushner

Title: President and CEO

BRAD FOOTE GEAR WORKS, INC.

By: /s/ Stephanie K. Kushner

Name: Stephanie K. Kushner

Title: Authorized Signatory

BROADWIND SERVICES, LLC

By: /s/ Stephanie K. Kushner

Name: Stephanie K. Kushner

Title: Authorized Signatory

BROADWIND TOWERS, INC.

By: /s/ Stephanie K. Kushner

Name: Stephanie K. Kushner

Title: Authorized Signatory

GUARANTORS: 1309 SOUTH CICERO AVENUE, LLC

By: /s/ Stephanie K. Kushner

Name: Stephanie K. Kushner

Title: Authorized Signatory

5100 NEVILLE ROAD, LLC

By: /s/ Stephanie K. Kushner

Name: Stephanie K. Kushner

Title: Authorized Signatory

LENDER :	ALOSTAR BANK OF COMMERCE
	By: /s/ Megan E. Enlow Name: Megan E. Enlow Title: Director

EXHIBIT 10.2

_____________________________________________________________________________________

Loan And Security Agreement

Dated as of October 26, 2016

Between

THE PRIVATEBANK AND TRUST COMPANY

as Lender,

And

BROADWIND ENERGY, INC.,

BRAD FOOTE GEAR WORKS, INC.,

BROADWIND TOWERS, INC. and

BROADWIND SERVICES, LLC

as Borrowers

_____________________________________________________________________________________

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SECTION 1 DEFINITIONS. 1

1.1. Definitions. 1

SECTION 2 LOANS. 13

2.1. Revolving Loans. 13

2.2. Loan Procedures. 13

2.3. Repayments. 15

2.4. Notes. 15

2.5. Recordkeeping. 15

SECTION 3 LETTERS OF CREDIT. 15

3.1. General Terms. 15

3.2. Letter of Credit Procedures. 16

3.3. Expiration Dates of Letters of Credit. 16

SECTION 4 INTEREST, FEES AND CHARGES. 17

4.1. Interest Rate. 17

4.2. Increased Costs; Special Provisions For Libor Loans. 17

4.3. Fees And Charges. 19

4.4. Taxes. 20

4.5. Maximum Interest. 20

SECTION 5 COLLATERAL. 21

5.1. Grant of Security Interest to Lender. 21

5.2. Other Security. 21

5.3. Possessory Collateral. 21

5.4. Electronic Chattel Paper. 22

SECTION 6 PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN. 22

SECTION 7 POSSESSION OF COLLATERAL AND RELATED MATTERS. 22

SECTION 8 COLLECTIONS. 23

8.1. Lockbox and Lockbox Account. 23

8.2. Lender’s Rights. 24

8.3. Application of Proceeds. 24

8.4. Account Statements. 24

SECTION 9 COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS

AND SCHEDULES. 24

9.1. Weekly Reports. 24

9.2. Monthly Reports. 25

9.3. Financial Statements. 25

9.4. Annual Projections. 25

9.5. Explanation of Budgets and Projections. 25

9.6. Public Reporting. 25

9.7. Other Information. 26

SECTION 10 TERMINATION. 26

SECTION 11 REPRESENTATIONS AND WARRANTIES. 26

11.1. Financial Statements and Other Information. 26

11.2. Locations. 27

11.3. Loans by Borrowers. 27

11.4. Accounts and Inventory. 27

11.5. Liens. 27

11.6. Organization, Authority and No Conflict. 27

11.7. Litigation. 28

11.8. Compliance with Laws and Maintenance of Permits. 28

11.9. Affiliate Transactions. 28

11.10. Names and Trade Names. 28

11.11. Equipment. 28

11.12. Enforceability. 28

11.13. Solvency. 28

11.14. Indebtedness. 29

11.15. Margin Security and Use of Proceeds. 29

11.16. Parent, Subsidiaries and Affiliates. 29

11.17. No Defaults. 29

11.18. Employee Matters. 29

11.19. Intellectual Property. 29

11.20. Environmental Matters. 29

11.21. ERISA Matters. 30

11.22. Investment Company Act. 30

11.23. Anti-Terrorism Laws. 30

SECTION 12 AFFIRMATIVE COVENANTS. 30

12.1. Maintenance of Records. 30

12.2. Notices. 31

12.3. Compliance with Laws and Maintenance of Permits. 32

12.4. Inspection and Audits. 32

12.5. Insurance. 32

12.6. Collateral. 33

12.7. Use of Proceeds. 34

12.8. Taxes. 34

12.9. Intellectual Property. 34

12.10. Checking Accounts and Cash Management Services. 34

12.11. USA Patriot Act, Bank Secrecy Act and Office of

Foreign Asset Control. 34

SECTION 13 NEGATIVE COVENANTS. 35

13.1. Guaranties. 35

13.2. Indebtedness. 35

13.3. Liens. 35

13.4. Mergers, Sales, Acquisitions, Subsidiaries and Other Transactions

Outside the Ordinary Course of Business. 35

13.5. Dividends and Distributions. 36

13.6. Investments; Loans. 36

13.7. Fundamental Changes, Line of Business. 36

13.8. Equipment. 36

13.9. Affiliate Transactions. 36

13.10. Settling of Accounts. 36

13.11. Management Fees; Compensation. 37

SECTION 14 FINANCIAL COVENANTS. 37

14.1. Fixed Charge Coverage. 37

SECTION 15 DEFAULT. 37

15.1. Payment. 37

15.2. Breach of this Agreement and the other Loan Documents. 37

15.3. Breaches of Other Obligations. 37

15.4. Breach of Representations and Warranties. 38

15.5. Loss of Collateral. 38

15.6. Levy, Seizure or Attachment. 38

15.7. Bankruptcy or Similar Proceedings. 38

15.8. Appointment of Receiver. 38

15.9. Judgment. 38

15.10. Death or Dissolution of Loan Party. 38

15.11. Default or Revocation of Guaranty. 39

15.12. Criminal Proceedings. 39

15.13. Change of Control. 39

SECTION 16 REMEDIES UPON AN EVENT OF DEFAULT. 39

16.1. Acceleration 39

16.2. Other Remedies. 39

SECTION 17 CONDITIONS PRECEDENT. 40

17.1. Conditions to Initial Loans. 40

17.2. Conditions to All Loans. 40

SECTION 18 MISCELLANEOUS. 41

18.1. Assignments; Participations. 41

18.2. Customer Identification - USA Patriot Act Notice. 42

18.3. Indemnification by Borrowers: 42

18.4. Notice. 43

18.5. Modification and Benefit of Agreement. 43

18.6. Headings of Subdivisions. 43

18.7. Power of Attorney. 43

18.8. Confidentiality. 43

18.9. Counterparts. 43

18.10. Electronic Submissions. 44

18.11. Waiver of Jury Trial: Other Waivers. 44

18.12. Choice of Governing Laws; Construction; Forum Selection. 45

SECTION 19 NONLIABILITY OF LENDER 46

EXHIBIT A – COMPLIANCE CERTIFICATE

EXHIBIT B – NOTICE OF BORROWING

EXHIBIT C – NOTICE OF CONVERSION/CONTINUATION

SCHEDULE 1 – PERMITTED LIENS

SCHEDULE 11.2 – BUSINESS AND COLLATERAL LOCATIONS

SCHEDULE 11.7 – LITIGATION

SCHEDULE 11.9 – AFFILIATE TRANSACTIONS

SCHEDULE 11.10 – NAMES & TRADE NAMES

SCHEDULE 11.16 – PARENT AND SUBSIDIARIES

SCHEDULE 13.2 – INDEBTEDNESS

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (as amended, modified or supplemented from time to time, this “ Agreement ”) made this 26 th day of October, 2016 by and among THE PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (“ Lender ”), BROADWIND ENERGY, INC., a Delaware corporation (“ Parent ”), BRAD FOOTE GEAR WORKS, INC., an Illinois corporation (“ Brad Foote ”), BROADWIND TOWERS, INC., a Wisconsin corporation (“ Towers ”), and BROADWIND SERVICES, LLC, a Delaware limited liability company (“ Services ,” and collectively with Parent, Brad Foote and Towers, “ Borrowers ,” and each, a “ Borrower ”).

W I T N E S S E T H :

WHEREAS, Borrowers may, from time to time, request Loans from Lender, and the parties wish to provide for the terms and conditions upon which such Loans or other financial accommodations, if made by Lender, shall be made;

NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal or extension) hereafter made to Borrowers by Lender, or any Letter of Credit issued for the account of Borrowers, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Borrowers, the parties agree as follows:

SECTION 1 DEFINITIONS.

1.1. Definitions.

When used herein the following terms shall have the following meanings:

Account shall have the meaning ascribed to such term in the UCC.

Account Debtor shall have the meaning ascribed to such term in the UCC.

Accordion shall have the meaning set forth in Section 2.7.

Affiliate of any Person shall mean (i) any other Person which directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such Person, (ii) any other Person which beneficially owns or holds ten percent (10%) or more of the voting control or equity interests of such Person, (iii) any other Person of which ten percent (10%) or more of the voting control or equity interest of which is beneficially owned or held by such Person or (iv) any officer or director of such Person. Unless expressly stated otherwise herein, Lender shall not be deemed an Affiliate of any Loan Party.

Applicable Margin shall mean the margin set forth below with respect to Base Rate Loans, LIBOR Loans and Letter of Credit Fee as in effect from time to time, as applicable; provided, that the initial Applicable Margin shall be set at Level IV until five (5) Business Days after receipt of Borrowers’ audited financial statements for Fiscal Year 2016, and upon such receipt the Applicable Margin shall be adjusted based on Borrowers’ EBITDA for the 12 month period ending on the date of calculation as shown on such financial statements. Thereafter, the Applicable Margin shall be adjusted five (5) Business Days after receipt of Borrowers’ quarterly financial statements based on Borrowers’ EBITDA for the 12 month period ending on the date of calculation as shown on such financial statements (provided that, if Borrowers fails to deliver such financial statements within the time period required by this Agreement, the Applicable Margin shall conclusively be presumed to be equal to the highest level set forth on the chart below from the date such financial statements were required to be delivered until five (5) Business Days after receipt of such financial statements), as set forth on the following chart:

Level	EBITDA	Base Rate Loan Applicable Margin	LIBOR Loan Applicable Margin	Letter of Credit Fee Applicable Margin
I	> $10,500,000	0.00%	2.25%	2.25%
II	> $9,000,000 < $10,500,000	0.50%	2.50%	2.50%
III	> $7,500,000 < $9,000,000	0.75%	2.75%	2.75%
IV	< $7,500,000	1.00%	3.00%	3.00%

If, as a result of any restatement of or other adjustment to the financial statements of Borrowers or for any other reason, the Lender determines that (a) EBITDA as calculated by Borrowers as of any applicable date was inaccurate and (b) a proper calculation of EBITDA would have resulted in different pricing for any period, then (i) if the proper calculation of EBITDA would have resulted in higher pricing for such period, Borrowers shall automatically and retroactively be obligated to pay to Lender promptly on demand by Lender, an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period; and (ii) if the proper calculation of EBITDA would have resulted in lower pricing for such period, Lender shall have no obligation to repay any interest or fees to Borrowers; provided that if, as a result of any restatement or other event a proper calculation of EBITDA would have resulted in higher pricing for one or more periods and lower pricing for one or more other periods (due to the shifting of income or expenses from one period to another period or any similar reason), then the amount payable by Borrowers pursuant to clause (i) above shall be based upon the excess, if any, of the amount of interest and fees that should have been paid for all applicable periods over the amount of interest and fees paid for all such periods.

Bank Product Agreements shall mean those certain agreements pursuant to which Lender or its Affiliates provide any of the Bank Products to any Loan Party including, without limitation, Hedging Agreements.

Bank Product Obligations shall mean all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Loan Parties to Lender or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that a Loan Party is obligated to reimburse to Lender as a result of Lender purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to the Loan Parties pursuant to the Bank Product Agreements.

Bank Products shall mean any service provided to, facility extended to, or transaction entered into with, any Loan Party by Lender or its Affiliates, including, without limitation, (a) deposit accounts, (b) cash management services, including, without limitation, controlled disbursement, lockbox, electronic funds transfers (including, without limitation, book transfers, fedwire transfers, ACH transfers), online reporting and other services relating to accounts maintained with Lender or its Affiliates, (c) debit cards and credit cards and (d) Hedging Agreements.

Base Rate shall mean at any time the greater of (a) the Federal Funds Rate plus 0.5%, and (b) the Prime Rate.

Base Rate Loan shall mean any Loan which bears interest at or by reference to the Base Rate.

BSA shall have the meaning set forth in Section 12.11 .

Business Day shall mean any day on which Lender is open for commercial banking business in Chicago, Illinois and, in the case of a Business Day which relates to a LIBOR Loan, any day on which dealings are carried on in the London Interbank eurodollar market.

Capital Expenditures shall mean with respect to any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including expenditures for capitalized lease obligations) by Borrowers during such period that are required by GAAP, consistently applied, to be included in or reflected by the property, plant and equipment or similar fixed asset accounts (or intangible accounts subject to amortization) on the balance sheet of Borrowers.

Cash Collateralize shall mean to deliver cash collateral to Lender, to be held as cash collateral for outstanding Letters of Credit, pursuant to documentation reasonably satisfactory to Lender. Derivatives of such term have corresponding meanings.

Chattel Paper shall have the meaning ascribed to such term in the UCC.

Closing Date shall have the meaning set forth in Section 17.1 .

Collateral shall mean all of the property of each Borrower described in Section 5.1 hereof, together with all other real or personal property of any Loan Party or any other Person now or hereafter pledged to Lender to secure, either directly or indirectly, repayment of any of the Obligations.

Commercial Tort Claims shall have the meaning ascribed to such term in the UCC.

Department of Justice Lien shall mean that certain judgment lien, filing number 1409444018, dated April 4, 2014, filed by the United States Department of Justice in Cook County, Illinois, pursuant to which Brad Foote was required to pay a judgment in the amount of $1,500,000.

Deposit Accounts shall have the meaning ascribed to such term in the UCC.

Documents shall have the meaning ascribed to such term in the UCC.

EBITDA shall mean, with respect to any period, Borrowers’ net income after taxes for such period (excluding any after-tax gains or losses on the sale of assets (other than the sale of Inventory in the ordinary course of business) and excluding other after-tax extraordinary gains or losses) plus interest expense, income tax expense, depreciation and amortization for such period, plus or minus non-cash stock compensation and any other non-cash charges or gains which have been subtracted or added in calculating net income after taxes for such period, plus one-time expenses for discontinued operations, in an amount not to exceed $750,000 in the aggregate to be calculated solely with respect to Fiscal Year 2016, all on a consolidated basis.

Electronic Chattel Paper shall have the meaning ascribed to such term in the UCC.

Eligible Account shall mean an Account owing to any Borrower which is acceptable to Lender in its Permitted Discretion determined in good faith for lending purposes. Without limiting Lender’s Permitted Discretion, Lender shall, in general, consider an Account to be an Eligible Account if it meets, and so long as it continues to meet, the following requirements:

(i) it is genuine and in all respects what it purports to be;

(ii) it is owned by such Borrower, such Borrower has the right to subject it to a security interest in favor of Lender or assign it to Lender and it is subject to a first priority perfected security interest in favor of Lender and to no other claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens;

(iii) it arises from (A) the performance of services by such Borrower in the ordinary course of such Borrower’s business, and such services have been fully performed and acknowledged and accepted by the Account Debtor thereunder; or (B) the sale or lease of Goods by such Borrower in the ordinary course of such Borrower’s business, and (x) such Goods have been completed in accordance with the Account Debtor’s specifications (if any) and delivered to the Account Debtor, (y) such Account Debtor has not refused to accept, returned or offered to return, any of the Goods which are the subject of such Account, and (z) such Borrower has possession of, or such Borrower has delivered to Lender (at Lender’s request) shipping and delivery receipts evidencing delivery of such Goods;

(iv) it is evidenced by an invoice rendered to the Account Debtor thereunder, and does not remain unpaid 90 days past the invoice date thereof; provided, however, that during any time that more than 25% of the aggregate dollar amount of invoices owing by a particular Account Debtor remain unpaid 90 or more days after the respective invoice dates thereof, then all Accounts owing by that Account Debtor shall be deemed ineligible;

(v) it is a valid, legally enforceable and unconditional obligation of the Account Debtor thereunder, and it shall not be an Eligible Account to the extent of any setoff, counterclaim, credit, allowance or adjustment by such Account Debtor, or if it is subject to any claim by such Account Debtor denying liability thereunder in whole or in part;

(vi) it does not arise out of a contract or order which fails in any material respect to comply with the requirements of applicable law;

(vii) the Account Debtor thereunder is not a director, officer, employee or agent of such Borrower, or a Subsidiary, Parent or Affiliate;

(viii) it is not an Account with respect to which the Account Debtor is the United States of America or any state or local government, or any department, agency or instrumentality thereof, unless such Borrower assigns its right to payment of such Account to Lender pursuant to, and in full compliance with, the Assignment of Claims Act of 1940, as amended, or any comparable state or local law, as applicable;

(ix) it is not an Account with respect to which the Account Debtor is located in a state which requires such Borrower, as a precondition to commencing or maintaining an action in the courts of that state, either to (A) receive a certificate of authority to do business and be in good standing in such state; or (B) file a notice of business activities report or similar report with such state’s taxing authority, unless (x) such Borrower has taken one of the actions described in clauses (A) or (B); (y) the failure to take one of the actions described in either clause (A) or (B) may be cured retroactively by such Borrower at its election; or (z) such Borrower has proven, to Lender’s satisfaction, that it is exempt from any such requirements under any such state’s laws;

(x) the Account Debtor is located within the United States of America or Canada;

(xi) it is not an Account with respect to which the Account Debtor’s obligation to pay is subject to any repurchase obligation or return right, as with sales made on a guaranteed sale, sale on approval, sale or return or consignment basis;

(xii) it is not an Account (A) with respect to which any representation or warranty contained in this Agreement is untrue; or (B) which violates any of the covenants of such Borrower contained in this Agreement;

(xiii) it is not an Account with respect to which the Account Debtor thereunder has prepaid a deposit towards any portion owed under such Account; provided, however, that such Account shall be excluded from Eligible Accounts solely to the extent of such prepaid deposit amount);

(xiv) it is not an Account which, with respect to Account Debtors other than Siemens Energy, Inc. and its Affiliates, when added to such Account Debtor’s other indebtedness to such Borrower, exceeds 20% of all Accounts of such Borrower or a credit limit determined by Lender in its sole discretion determined in good faith for such Account Debtor (except that Accounts excluded from Eligible Accounts solely by reason of this clause (xiii) shall be Eligible Accounts to the extent of such credit limit), provided that Lender shall give such Borrower written notice of any such credit limit; and

(xv) it is not an Account with respect to which the prospect of payment or performance by the Account Debtor is or will be impaired, as determined by Lender in its sole discretion determined in good faith.

Eligible Inventory shall mean Inventory of each Borrower which is acceptable to Lender in its Permitted Discretion determined in good faith for lending purposes. Without limiting Lender’s Permitted Discretion, Lender shall, in general, consider Inventory to be Eligible Inventory if it meets, and so long as it continues to meet, the following requirements:

(i) it is owned by such Borrower, such Borrower has the right to subject it to a security interest in favor of Lender and it is subject to a first priority perfected security interest in favor of Lender and to no other claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens;

(ii) it is located on or in transit to one of the premises listed on Schedule 11.2 (or other locations of which Lender has been advised in writing pursuant to Section 12.2.1 hereof), such locations are within the United States;

(iii) if held for sale or lease or furnishing under contracts of service, it is (except as Lender may otherwise consent in writing) new and unused and free from defects which would, in Lender’s sole determination determined in good faith, affect its market value;

(iv) it is not stored with a bailee, consignee, warehouseman, processor or similar party unless Lender has given its prior written approval and such Borrower has caused any such bailee, consignee, warehouseman, processor or similar party to issue and deliver to Lender, in form and substance acceptable to Lender, such Uniform Commercial Code financing statements, warehouse receipts, waivers and other documents as Lender shall require;

(v) it constitutes either raw materials or finished goods;

(vi) it constitutes work-in-progress in an aggregate amount not to exceed $1,000,000;

(vii) it is produced in compliance with the Fair Labor Standards Act and is not subject to the “hot goods” provisions contained in 29 USC 215(a)(i), and otherwise complies in all material respects with all standards imposed by any applicable governmental entity having authority over the disposition, manufacture or use of that Inventory.

(viii) Lender has determined in good faith, in accordance with Lender’s customary business practices, that it is not unacceptable due to age, type, category or quantity; and

(ix) it is not Inventory (A) with respect to which any of the representations and warranties contained in this Agreement are untrue; or (B) which violates any of the covenants of such Borrower contained in this Agreement.

Eligible M&E shall mean certain Equipment which is acceptable to Lender in its Permitted Discretion determined in good faith for lending purposes. Without limiting Lender’s Permitted Discretion, Eligible M&E shall be owned by each Borrower and located at (i) 101 S. 16 th Street, Manitowoc, Wisconsin, (ii) 3250 S. Central Avenue, Cicero, Illinois, (iii) 5100 Neville Road, Pittsburgh, Pennsylvania, or (iv) the Mortgage Property.

Environmental Indemnity shall mean that certain Environmental Indemnity Agreement, dated the date hereof, by Borrowers in favor of Lender, as the same may be amended, restated, modified or supplemented from time to time.

Environmental Laws shall mean all federal, state, district, local and foreign laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to any Borrower’s business or facilities owned or operated by such Borrower, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.

Equipment shall have the meaning ascribed to such term in the UCC.

ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, modified or restated from time to time.

Event of Default shall have the meaning specified in Section 15 hereof.

Excluded Property shall mean any (a) any rights or interests of a Loan Party in or under any license, contract, permit, Instrument, Investment Property or franchise to which such Loan Party is a party or any of its rights or interests thereunder to the extent, but only to the extent, that a grant of a security interest to Lender therein would, under the terms of such license, contract, permit, Instrument, Investment Property or franchise, result in a breach of the terms of, or constitute a default under, such license, contract, permit, Instrument, Investment Property or franchise (other than to the extent that any such term would be rendered ineffective pursuant to the UCC or any other applicable law (including the United States Bankruptcy Code) or principles of equity); provided, that immediately upon the ineffectiveness, lapse or termination of any such provision the Collateral shall include, and such Loan Party shall be deemed to have granted a security interest to Lender in, all such rights and interests as if such provision had never been in effect; (b) stock of any Subsidiary organized outside of the United States of America; (c) (x) Deposit Account the balance of which consists exclusively of withheld income taxes, employment taxes or amounts required to be paid over to certain employee benefit plans, and (y) segregated Deposit Accounts constituting tax, payroll and trust accounts; (d) any United States intent-to-use trademark application to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark application under applicable federal law, provided that upon submission and acceptance by the United States Patent and Trademark Office of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such intent-to-use trademark application shall be considered Collateral; or (e) Collateral (as such term is defined in the New Markets Tax Credit Security Agreement).

Excluded Taxes shall mean taxes based upon, or measured by, Lender’s (or a branch of Lender’s) overall net income, overall net receipts, or overall net profits (including franchise taxes

imposed in lieu of such taxes), but only to the extent such taxes are imposed by a taxing authority (a) in a jurisdiction in which Lender is organized, (b) in a jurisdiction which Lender’s principal office is located, or (c) in a jurisdiction in which Lender’s lending office (or branch) in respect of which payments under this Agreement are made is located.

Federal Funds Rate shall mean for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Lender from three Federal funds brokers of recognized standing selected by Lender. Lender’s determination of such rate shall be binding and conclusive absent manifest error.

Fiscal Year shall mean each twelve (12) month accounting period of Borrowers, which ends on December of each year.

Fixed Charges shall mean for any period, without duplication, scheduled payments of principal during the applicable period with respect to all indebtedness of any Borrower, on a consolidated basis, for borrowed money, plus scheduled payments of principal during the applicable period with respect to all capitalized lease obligations of any Borrower, on a consolidated basis, plus scheduled payments of cash interest during the applicable period with respect to all indebtedness of any Borrower, on a consolidated basis, for borrowed money including capital lease obligations, plus unfinanced Capital Expenditures of any Borrower, on a consolidated basis, during the applicable period, plus all dividends or other distributions by any Borrower to equityholders of any Borrower during the applicable period, plus payments during the applicable period in respect of income taxes of any Borrower, on a consolidated basis.

Fixtures shall have the meaning ascribed to such term in the UCC.

FRB shall mean the Board of Governors of the Federal Reserve System or any successor thereto.

GAAP shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) and the Securities and Exchange Commission, which are applicable to the circumstances as of the date of determination.

General Intangibles shall have the meaning ascribed to such term in the UCC.

Goods shall have the meaning ascribed to such term in the UCC.

Group shall have the meaning set forth in Section 2.2.1 .

Hazardous Materials shall mean any hazardous, toxic or dangerous substance, materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated

under any Environmental Law (including, without limitation any that are or become classified as hazardous or toxic under any Environmental Law).

Hedging Agreement shall mean any agreement with respect to any swap, collar, cap, future, forward or derivative transaction, whether exchange‑traded, over‑the‑counter or otherwise, including any involving, or settled by reference to, one or more interest rates, currencies, commodities, equity or debt instruments, any economic, financial or pricing index or basis, or any similar transaction, including any option with respect to any of these transactions and any combinations of these transactions.

Hedging Obligation shall mean, with respect to any Person, any liability of such Person under any Hedging Agreement, including any and all cancellations, buy backs, reversals, terminations or assignments under any Hedging Agreement.

Instruments shall have the meaning ascribed to such term in the UCC.

Interest Period shall mean, as to any LIBOR Loan, the period commencing on the date such Loan is borrowed or continued as, or converted into, a LIBOR Loan and ending on the date one month, two months or three months thereafter as selected by Borrowers pursuant to Sections 2.2.2 or 2.2.3 , as the case may be; provided that:

(a) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day;

(b) any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(c) Borrowers may not select any Interest Period for a Revolving Loan which would extend beyond the scheduled Maturity Date.

Inventory shall have the meaning ascribed to such term in the UCC.

Investment Property shall have the meaning ascribed to such term in the UCC.

L/C Application shall mean with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the L/C Issuer at the time of such request for the type of Letter of Credit requested.

L/C Issuer shall mean Lender, in its capacity as the issuer of Letters of Credit hereunder, any Affiliate of Lender that may issue Letters of Credit hereunder, or any other financial institution that Lender may cause to issue Letters of Credit hereunder, and each of their successors and assigns.

Lender Party shall have the meaning set forth in Section 18.3 hereof.

Letter of Credit shall mean any Letter of Credit issued on behalf of Borrowers in accordance with this Agreement.

Letter of Credit Obligations shall mean, as of any date of determination, the sum of (i) the aggregate undrawn face amount of all Letters of Credit, and (ii) the aggregate unreimbursed amount of all drawn Letters of Credit not already converted to Loans hereunder.

Letter-of-Credit Right shall have the meaning ascribed to such term in the UCC.

LIBOR Office shall mean the office or offices of Lender which shall be making or maintaining the LIBOR Loans of Lender hereunder. A LIBOR Office of Lender may be, at the option of Lender, either a domestic or foreign office.

LIBOR Loans shall mean the Loans bearing interest with reference to the LIBOR Rate.

LIBOR Rate shall mean a rate of interest equal to (i) the per annum rate of interest at which United States dollar deposits for a period equal to the relevant Interest Period are offered in the London Interbank Eurodollar market at 11:00 A.M. (London time) two (2) Business Days prior to the commencement of such Interest Period (or three (3) Business Days prior to the commencement of such Interest Period if banks in London, England were not open and dealing in offshore United States dollars on such second preceding Business Day) , as displayed in the Bloomberg Financial Markets system (or other authoritative source selected by Lender in its sole discretion), divided by (ii) a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), or as LIBOR is otherwise determined by Lender in its Permitted Discretion. Lender’s determination of the LIBOR Rate shall be conclusive, absent manifest error and shall remain fixed during such Interest Period. Notwithstanding the foregoing, in no event shall the LIBOR Rate be deemed to be less than 0.00%.

Loan Documents shall mean all agreements, instruments and documents, including, without limitation, the Pledge Agreement, the Mortgage, the Environmental Indemnity and any guaranties, mortgages, trust deeds, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements, Hedging Agreements, Bank Product Agreements and all other writings heretofore, now or from time to time hereafter executed by or on behalf of any Borrower or any other Person and delivered to Lender or to any parent, Affiliate or Subsidiary of Lender in connection with the Obligations or the transactions contemplated hereby, as each of the same may be amended, modified or supplemented from time to time.

Loan Party shall mean each Borrower, each of its Subsidiaries and each other Person who is or shall become primarily or secondarily liable for any of the Obligations.

Loans shall mean all loans and advances made by Lender to or on behalf of any Borrower hereunder.

Lockbox and Lockbox Account shall have the meanings specified in Section 8.1 hereof.

Master Letter of Credit Agreement shall mean, at any time, with respect to the issuance of Letters of Credit, a master letter of credit agreement or reimbursement agreement in the form being used by Lender at such time.

Material Adverse Effect shall mean (i) a material adverse effect on the business, property, assets or operations of the Loan Parties, taken as a whole, (ii) a material impairment of the ability of the Loan Parties, taken as a whole, to perform any of their obligations under this Agreement and the other Loan Documents, (iii) a material adverse effect upon the Collateral or its value, as a whole, or (iv) a material impairment of the enforceability or priority of Lender’s liens upon the Collateral or the legality, validity, binding effect or enforceability of this Agreement and the other Loan Documents .

Maturity Date shall mean October 26, 2019.

Maximum Loan Amount shall mean $20,000,000 (subject to increase pursuant to the Accordion).

Mortgage shall mean that certain Deed of Trust, Assignment of Leases and Rents and Security Agreement, dated the date hereof, by Towers in favor of Lender, as the same may be amended, restated, modified or supplemented from time to time.

Mortgaged Property shall mean that certain real property located at 1126 N. Arnold Boulevard, Abilene, Texas.

“ New Markets Tax Credit Security Agreement ” means that certain Security Agreement dated as of July 20, 2011 by and between Broadwind Services, LLC, a Delaware limited liability company and AMCREF Fund VII, LLC, a Louisiana limited liability company, as the same may be amended, modified, supplemented, replaced, renewed or refinanced from time to time.

Notice of Borrowing shall have the meaning set forth in Section 2.2.2 .

Notice of Conversion/Continuation shall have the meaning set forth in Section 2.2.3 hereof.

Obligations shall mean any and all obligations, liabilities and indebtedness of each Borrower to Lender or to any Affiliate of Lender of any and every kind and nature, howsoever created, arising or evidenced and howsoever owned, held or acquired, whether now or hereafter existing, whether now due or to become due, whether primary, secondary, direct, indirect, absolute, contingent or otherwise (including, without limitation, obligations of performance and Bank Product Obligations), whether several, joint or joint and several, and whether arising or existing under written or oral agreement or by operation of law.

OFAC shall have the meaning set forth in Section 12.11 hereof.

PBGC shall have the meaning specified in Section 12.2.5 hereof.

Permitted Acquisition shall mean any acquisition by a Borrower of a business or entity which satisfies each of the following conditions:

(a) such Borrower has given Lender at least fifteen (15) calendar days’ prior written notice of such acquisition (or such lesser notice as Lender may agree to in writing) and has provided Lender with such historical financial information concerning such acquisition as Lender may reasonably request;

(b) the business or assets being acquired are located in the United States of America and/or Canada;

(c) (i) the aggregate cash consideration paid at closing for all such acquisitions occurring during the term of this Agreement shall not exceed $21,000,000; (ii) the sum of the aggregate cash consideration and non cash consideration (including assumed indebtedness, the good faith estimate by such Borrower of the maximum amount of any deferred purchase price obligations (including any earn-out payments) and equity interests) for all such acquisitions occurring during the term of this Agreement shall not exceed $32,000,000; and (iii) cash consideration under clause (i) hereof for any acquisition may be made from available cash on hand plus proceeds from Revolving Loans in an amount not to exceed $5,000,000;

(d) on a pro forma basis (as demonstrated by Borrowers to Lender pursuant to such financial and other information and certificates concerning such acquisition as Lender may reasonably request) Borrowers would have been in compliance with all of the financial covenants set forth in Section 14.1;

(e) both immediately before and immediately after giving effect to such acquisition, no Event of Default shall exist;

(f) Borrowers shall have executed such other Loan Documents as Lender may reasonably require in order for Lender to obtain a perfected security interest in all assets acquired by such Borrower in connection with any such acquisition to the extent required by this Agreement;

(g) such acquisition is not prohibited under the terms of any other agreement executed by such Borrower; and

(h) immediately after giving effect to such acquisition, Borrowers have Revolving Loan Availability of at least $3,000,000.

Permitted Discretion shall mean a determination made in the exercise of a reasonable (from the perspective of an asset-based secured lender) business judgment.

Permitted Liens shall mean (i) statutory liens of landlords, carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred in the ordinary course of business and securing amounts not yet due or declared to be due by the claimant thereunder or amounts which are being contested in good faith and by appropriate proceedings and for which the applicable Borrower has maintained adequate reserves; (ii) liens or security interests in favor of Lender; (iii) liens for taxes, assessments and governmental charges not yet due and payable or which are being contested in good faith and by appropriate proceedings and each Borrower is in compliance with clauses (i) and (iii) of Section 12.8 hereof; (iv) zoning restrictions and easements, licenses, covenants and other restrictions affecting the use of real property that do not individually or in the aggregate have a material adverse effect on any Borrower’s ability to use such real property for its intended purpose in connection with any Borrower’s business; (v) liens in connection with purchase money indebtedness and capitalized leases otherwise permitted pursuant to this Agreement, provided, that such liens attach only to the assets the purchase of which was financed by such purchase money indebtedness or which are the subject of such capitalized leases; (vi) liens set forth on Schedule 1 ; (vii) liens specifically permitted by Lender in writing; and (viii) attachments, appeal bonds, judgments and other similar liens, for sums not exceeding $250,000 arising in connection with court proceedings, provided the execution or other enforcement of such liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings.

Person shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, entity, party or foreign or United States government (whether federal, state, county, city, municipal or otherwise), including, without limitation, any instrumentality, division, agency, body or department thereof.

Plan shall have the meaning specified in Section 12.2.5 hereof.

Pledge Agreement shall mean that certain Pledge Agreement, dated the date hereof, by Parent in favor of Lender, as the same may be amended, restated, modified or supplemented from time to time.

Prime Rate shall mean, for any day, the rate of interest in effect for such day as publicly announced from time to time by Lender as its prime rate (whether or not such rate is actually charged by Lender), which is not intended to be Lender’s lowest or most favorable rate of interest at any one time. Any change in the Prime Rate announced by Lender shall take effect at the opening of business on the day specified in the public announcement of such change; provided that Lender shall not be obligated to give notice of any change in the Prime Rate.

Proceeds shall have the meaning ascribed to such term in the UCC.

Remote Scanning shall have the meaning set forth in Section 8.1 hereof.

Responsible Officer shall mean, as to any Person, the chief executive officer, president, chief financial officer, controller, treasurer or assistant treasurer of such Person.

Revolving Loan Availability shall mean an amount up to the sum of the following sublimits: (i) 85% of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith in the ordinary course of Borrowers’ business) of Borrowers’ Eligible Accounts; plus (ii) the lesser of (a) 50% of the lower of cost or market value of Borrowers’ Eligible Inventory, (b) 85% of the appraised net orderly liquidation value (as determined by an appraiser acceptable to Lender) of Borrowers’ Eligible Inventory, and (c) $10,000,000 (or $12,500,000 if the Accordion is exercised in full); plus (iii) the lessor of (a) the sum of (I) 50% of the appraised net orderly liquidation value (as determined by an appraiser acceptable to Lender) of Borrowers’ Eligible M&E, plus (II) 50% of the fair market value (as determined by an appraiser acceptable to Lender) of the Mortgaged Property, and (b) an amount equal to $10,000,000, reduced by $119,047.62 per month commencing on the one-year anniversary of the Closing Date and continuing each month thereafter; minus (iv) $165,000 until such time as Lender receives an executed landlord access agreement, in form and substance reasonably acceptable to Lender, for the leased premises located at 300 Wall Street, Abilene, Texas 79603; minus (v) (a) $4,250,000 until such time as Lender receives a completed Phase I environmental report with results satisfactory to Lender in its Permitted Discretion, or (b) to the extent remediation is required pursuant to such Phase I environmental report, such lesser amount equal to the estimated costs of such remediation until such remediation has been completed in a manner satisfactory to Lender in its Permitted Discretion; minus (vi) such reserves as Lender elects, in its Permitted Discretion, determined in good faith, to establish from time to time, including, without limitation, reserves with respect to Bank Products Obligations and Hedging Obligations.

Revolving Loan Commitment shall mean an amount equal to $20,000,000, except as such amount may be increased by the Accordion or increased or, following the occurrence and during the continuance of an Event of Default, decreased by Lender in its sole discretion.

Revolving Loans shall have the meaning specified in Section 2.1 hereof.

Subsidiary shall mean with respect to any Person, a corporation of which such Person owns, directly or indirectly, more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time stock of any other class of such corporation shall have or might have voting power by reason of the happening of any contingency) and any partnership, joint venture or limited liability company of which more than fifty percent (50%) of the outstanding equity interests are at the time, directly or indirectly, owned by such Person or any partnership of which such Person is a general partner. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of any Borrower.

Supporting Obligations shall have the meaning set forth in the UCC.

Tangible Chattel Paper shall have the meaning ascribed to such term in the UCC.

Tangible Net Worth shall have the meaning specified in Section 14.1 hereof.

Taxes shall mean any and all present and future taxes, duties, levies, imposts, deductions, assessments, charges or withholdings and any and all liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing, but excluding the Excluded Taxes.

UCC shall mean the Uniform Commercial Code as in effect in the State of Illinois.

USA Patriot Act shall have the meaning set forth in Section 18.2 hereof.

1.2 Accounting Terms and Determinations . Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be on a consolidated basis, prepared in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for changes concurred in by Parent’s independent public accountants) with the most recent audited consolidated financial statements of Parent and its Consolidated Subsidiaries delivered to Lender. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrowers or Lender shall so request, Lender and Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) Borrowers shall provide to Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

SECTION 2 LOANS.

2.1. Revolving Loans.

Subject to the terms and conditions of this Agreement and the other Loan Documents, prior to the Maturity Date, Lender agrees to make to Borrowers revolving loans and advances (the “ Revolving Loans ”) in an aggregate amount up to the lesser of Revolving Loan Availability at such time and the Revolving Loan Commitment.

The aggregate unpaid principal balance of the Revolving Loans shall not at any time exceed the lesser of (i) Revolving Loan Availability minus the Letter of Credit Obligations and (ii) the Revolving Loan Commitment minus the Letter of Credit Obligations. If at any time the outstanding Revolving Loans exceeds either Revolving Loan Availability or the Revolving Loan Commitment, in each case minus the Letter of Credit Obligations, or any portion of the Revolving Loans and Letter of Credit Obligations exceeds any applicable sublimit within Revolving Loan Availability, Borrowers shall immediately, and without the necessity of demand by Lender, pay to Lender such amount as may be necessary to eliminate such excess and Lender shall apply such payment to the Revolving Loans to eliminate such excess.

2.2. Loan Procedures.

2.2.1. Various Types of Loans. Each Revolving Loan shall be divided into tranches which are, either Base Rate Loans or LIBOR Loans (each a “ type ” of Loan), as Borrowers shall specify in the related notice of borrowing or conversion pursuant to Sections 2.2.2 or 2.2.3. LIBOR Loans having the same Interest Period which expire on the same day are sometimes called a “ Group ” or collectively “ Groups .” Base Rate Loans and LIBOR Loans may be outstanding at the same time, provided that not more than five different Groups of LIBOR Loans shall be outstanding at any one time.

2.2.2. Borrowing Procedures .

(a) Borrowers shall give written notice (each such written notice, a “ Notice of Borrowing ”) substantially in the form of Exhibit B or telephonic notice (followed immediately by a Notice of Borrowing) to Lender of each proposed Base Rate or LIBOR borrowing not later than (a) in the case of a Base Rate borrowing, 11:00 A.M., Chicago time, on the proposed date of such borrowing , and (b) in the case of a LIBOR borrowing, 11:00 A.M., Chicago time, at least three (3) Business Days prior to the proposed date of such borrowing . Each such notice shall be effective upon receipt by Lender, shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a LIBOR

borrowing, the initial Interest Period therefor. Each borrowing shall be on a Business Day. Each LIBOR borrowing shall be in an aggregate amount of at least $1,000,000 and an integral multiple of at least $500,000 .

(b) Each Borrower hereby authorizes Lender in its Permitted Discretion, to advance Revolving Loans as Base Rate Loans to pay any Obligations (whether principal, interest, fees or other charges) when due, and any such Obligations becoming due shall be deemed a request for a Base Rate borrowing of a Revolving Loan on the due date, in the amount of such Obligations. The proceeds of such Revolving Loans shall be disbursed as direct payment of the relevant Obligation. In addition, Lender may, at its option, charge such Obligations against any operating, investment or other account of each Borrower maintained with Lender or any of its Affiliates.

2.2.3. Conversion and Continuation Procedures .

(a) Subject to Section 2.2.1 , Borrowers may, upon irrevocable written notice to Lender in accordance with clause (b) below:

(i) elect, as of any Business Day, to convert any Loans (or any part thereof in an aggregate amount not less than $1,000,000 and a higher integral multiple of $500,000 ) into Loans of the other type; or

(ii) elect, as of the last day of the applicable Interest Period, to continue any LIBOR Loans having Interest Periods expiring on such day (or any part thereof in an aggregate amount not less than $1,000,000 or a higher integral multiple of $500,000 ) for a new Interest Period;

provided that after giving effect to any prepayment, conversion or continuation, the aggregate principal amount of each Group of LIBOR Loans shall be at least $1,000,000 and an integral multiple of $500,000.

(b) Borrowers shall give written notice (each such written notice, a " Notice of Conversion/Continuation ") substantially in the form of Exhibit C or telephonic notice (followed immediately by a Notice of Conversion/Continuation) to Lender of each proposed conversion or continuation not later than (i) in the case of conversion into Base Rate Loans, 11:00 A.M., Chicago time, on the proposed date of such conversion, and (ii) in the case of conversion into or continuation of LIBOR Loans, 11:00 A.M., Chicago time, at least three (3) Business Days prior to the proposed date of such conversion or continuation , specifying in each case:

(iii) the proposed date of conversion or continuation;

(iv) the aggregate amount of Loans to be converted or continued;

(v) the type of Loans resulting from the proposed conversion or continuation; and

(vi) in the case of conversion into, or continuation of, LIBOR Loans, the duration of the requested Interest Period therefor.

(c) If upon the expiration of any Interest Period applicable to LIBOR Loans, Borrowers have failed to select timely a new Interest Period to be applicable to such LIBOR Loans, Borrowers shall be deemed to have elected to continue such LIBOR Loans as LIBOR Loans having the same Interest Period effective on the last day of such Interest Period.

Any conversion of a LIBOR Loan on a day other than the last day of an Interest Period therefor shall be subject to Section 4.2.4 .

2.3. Repayments.

The Revolving Loans and all other Obligations shall be repaid on the Maturity Date.

2.4. Notes.

The Loans shall, in Lender’s Permitted Discretion, be evidenced by one or more promissory notes in form and substance satisfactory to Lender. However, if such Loans are not so evidenced, such Loans may be evidenced solely by entries upon the books and records maintained by Lender.

2.5. Recordkeeping .

Lender shall record in its records, the date and amount of each Loan made by Lender, each repayment or conversion thereof and, in the case of each LIBOR Loan, the dates on which each Interest Period for such Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be rebuttably presumptive evidence of the principal amount of the Loans owing and unpaid. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the Obligations of Borrowers hereunder or under any note to repay the principal amount of the Loans hereunder, together with all interest accruing thereon.

2.6. Temporary Reductions of Commitment .

Borrowers may, from time to time, upon notice to Lender, elect to reduce the Revolving Loan Commitment for up to six (6) consecutive months in each calendar year by up to $10,000,000. At any time during any such reduction, Borrowers may, by notice to Lender, reinstate in part or in full the Revolving Loan Commitment; provided however, Borrowers may not thereafter during such calendar year again reduce the Revolving Loan Commitment.

2.7. Increased Commitment .

So long as no Event of Default shall have occurred and be continuing, Borrowers shall have the right from time to time, upon request, after Lender’s receipt of Parent’s audited fiscal year-end 2016 consolidated financial statements showing trailing twelve-month EBITDA exceeding $7,000,000, to increase the Revolving Loan Commitment by an aggregate amount not to exceed $5,000,000 (any such increases, collectively referred to as the “Accordion”). Notwithstanding the foregoing, nothing contained herein shall be construed as a commitment by Lender to lend, syndicate, arrange or otherwise provide such additional commitments or loans.

SECTION 3 LETTERS OF CREDIT.

3.1. General Terms.

Subject to the terms and conditions of this Agreement and the other Loan Documents prior to the Maturity Date, Lender agrees to from time to time cause to be issued and co-sign for or otherwise guarantee, upon Borrowers’ request, commercial and/or standby Letters of Credit; provided, that the aggregate undrawn face amount of all such Letters of Credit shall at no time exceed $3,000,000. Payments made by the L/C Issuer to any Person on account of any Letter of Credit shall be immediately payable by Borrowers without notice, presentment or demand and each Borrower agrees that each payment made by the L/C Issuer in respect of a Letter of Credit shall constitute a request by Borrowers for a Loan to reimburse L/C Issuer. In the event such Loan is not advanced by Lender for any reason, such reimbursement obligations (whether owing to the issuer of the Letter of Credit or Lender if Lender is not the issuer) shall become part of the Obligations hereunder and shall bear interest at the rate then applicable to Revolving Loans until repaid. Borrowers shall remit to Lender a Letter of Credit fee equal

to the Letter of Credit Fee Applicable Margin on the aggregate undrawn face amount of all Letters of Credit outstanding, which fee shall be payable in advance for the term of the Letter of Credit. Upon the occurrence of an Event of Default and during the continuance thereof, the Letter of Credit fee shall be increased to an amount equal to 2.0% per annum in excess of the Letter of Credit fee otherwise payable thereon, which fee shall be payable on demand. Said fee shall be calculated on the basis of a 360 day year. Borrowers shall also pay on demand the normal and customary administrative charges of L/C Issuer for issuance, amendment, negotiation, renewal or extension of any Letter of Credit.

3.2. Letter of Credit Procedures.

3.2.1. L/C Applications .

Each Borrower shall execute and deliver to the L/C Issuer the Master Letter of Credit Agreement from time to time in effect. Each Borrower shall give notice to Lender and the L/C Issuer of the proposed issuance of each Letter of Credit on a Business Day which is at least three Business Days (or such lesser number of days as the L/C Issuer and Lender shall agree in any particular instance in their sole discretion) prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by an L/C Application, duly executed by Borrower and in all respects satisfactory to the L/C Issuer, together with such other documentation as the L/C Issuer may request in support thereof, it being understood that each L/C Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, the expiration date of such Letter of Credit (which shall not be later than the scheduled Maturity Date (unless such Letter of Credit is Cash Collateralized)) and whether such Letter of Credit is to be transferable in whole or in part. Any Letter of Credit outstanding after the scheduled Maturity Date which is Cash Collateralized for the benefit of the L/C Issuer shall be the sole responsibility of the L/C Issuer. In the event of any inconsistency between the terms of the Master Letter of Credit Agreement, any L/C Application and the terms of this Agreement, the terms of this Agreement shall control.

3.2.2. Reimbursement Obligations Unconditional .

Each Borrower’s reimbursement obligations hereunder shall be irrevocable and unconditional under all circumstances, including (a) any lack of validity or enforceability of any Letter of Credit, this Agreement or any other Loan Document, (b) the existence of any claim, set-off, defense or other right which any Loan Party may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with any Letter of Credit, this Agreement, any other Loan Document, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between any Loan Party and the beneficiary named in any Letter of Credit), (c) the validity, sufficiency or genuineness of any document which the L/C Issuer has determined complies on its face with the terms of the applicable Letter of Credit, even if such document should later prove to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein shall have been untrue or inaccurate in any respect, or (d) the surrender or impairment of any security for the performance or observance of any of the terms hereof. Without limiting the foregoing, no action or omission whatsoever by Lender under or in connection with any Letter of Credit or any related matters shall result in any liability of Lender to any Borrower, or relieve Borrower of any of its obligations hereunder to any such Person.

3.3. Expiration Dates of Letters of Credit.

The expiration date of each Letter of Credit shall be no later than the earlier of (i) one (1) year from the date of issuance and (ii) the thirtieth (30th) day prior to the Maturity Date. Notwithstanding the foregoing, a Letter of Credit may provide for automatic extensions of its expiration date for one or more one (1) year periods, so long as the issuer thereof has the right to terminate the Letter of Credit at

the end of each one (1) year period and no extension period extends past the thirtieth (30th) day prior to the Maturity Date.

SECTION 4 INTEREST, FEES AND CHARGES.

4.1. Interest Rate.

Subject to the terms and conditions set forth below, the Loans shall bear interest at the per annum rate of interest set forth below:

(a) For Base Rate Loans, the Base Rate plus the Applicable Margin for Base Rate Loans in effect from time to time, payable on the first Business Day of each month in arrears for interest through the last day of the prior month. Said rate of interest shall increase or decrease by an amount equal to each increase or decrease in the Base Rate effective on the effective date of each such change in the Base Rate.

(b) For LIBOR Rate Loans, the LIBOR Rate for the applicable Interest Period, such rate to remain fixed for such Interest Period, plus the Applicable Margin for LIBOR Rate Loans. Interest shall be payable on the last Business Day of such Interest Period.

(c) (i) Upon the occurrence and during the continuance of an Event of Default, the Loans shall bear interest at the rate of 2.0% per annum plus the interest rate otherwise payable thereon (the “Default Rate”), which interest shall be payable on demand; provided, however, that, other than with respect to Events of Default arising under Sections 15.1, 15.7 or 15.8, Borrowers shall not be required to pay interest at the Default Rate for any periods in excess of 90 days prior to the date on which Lender provided written notice to Borrowers regarding the applicable Event of Default. All interest shall be computed for the actual number of days elapsed on the basis of a 360 day year.

(d) The applicable LIBOR Rate for each Interest Period shall be determined by Lender, and notice thereof shall be given by Lender promptly to Borrowers. Each determination of the applicable LIBOR Rate by Lender shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. Lender shall, upon written request of Borrowers, deliver to Borrowers a statement showing the computations used by Lender in determining any applicable LIBOR Rate hereunder.

4.2. INCREASED COSTS; SPECIAL PROVISIONS FOR LIBOR LOANS.

4.2.1. Increased Costs .

(a) If, after the Closing Date, the adoption of, or any change in, any applicable law, rule or regulation, or any change in the interpretation or administration of any applicable law, rule or regulation by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall impose, modify or deem applicable any reserve (including any reserve imposed by the FRB, but excluding any reserve included in the determination of the LIBOR Rate pursuant to Section 4), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by Lender; or (ii) shall impose on Lender any other condition affecting its LIBOR Loans, its note or its obligation to make LIBOR Loans; and the result of anything described in clauses (i) and (ii) above is to increase the cost to (or to impose a cost on) Lender (or any LIBOR Office of Lender) of making or maintaining any LIBOR Loan, or to reduce the amount of any sum received or receivable by Lender (or its LIBOR Office) under this Agreement or under its note with respect thereto, then upon demand by Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail), Borrowers shall pay directly to Lender such additional amount as will compensate Lender for such increased cost or such reduction.

(b) If Lender shall reasonably determine that, after the Closing Date, any change in, or the adoption or phase-in of, any applicable law, rule or regulation regarding capital adequacy, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or the compliance by Lender or any Person controlling Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Lender’s or such controlling Person’s capital as a consequence of Lender’s obligations hereunder or under any Letter of Credit to a level below that which Lender or such controlling Person could have achieved but for such change, adoption, phase-in or compliance (taking into consideration Lender’s or such controlling Person’s policies with respect to capital adequacy) by an amount deemed by Lender or such controlling Person to be material, then from time to time, upon demand by Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail), Borrowers shall pay to Lender such additional amount as will compensate Lender or such controlling Person for such reduction.

4.2.2. Basis for Determining Interest Rate Inadequate or Unfair . If:

(a) Lender reasonably determines (which determination shall be binding and conclusive on Borrowers) that by reason of circumstances affecting the interbank LIBOR market adequate and reasonable means do not exist for ascertaining the applicable LIBOR Rate; or

(b) the LIBOR Rate as determined by Lender will not adequately and fairly reflect the cost to Lender of maintaining or funding LIBOR Loans for such Interest Period or that the making or funding of LIBOR Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of Lender materially affects such Loans;

then Lender shall promptly notify Borrowers and, so long as such circumstances shall continue, (i) Lender shall not be under any obligation to make or convert any Base Rate Loans into LIBOR Loans and (ii) on the last day of the current Interest Period for each LIBOR Loan, such Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan.

4.2.3. Changes in Law Rendering LIBOR Loans Unlawful . If any change in, or the adoption of any new, law or regulation, or any change in the interpretation of any applicable law or regulation by any governmental or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of Lender cause a substantial question as to whether it is) unlawful for Lender to make, maintain or fund LIBOR Loans, then Lender shall promptly notify each of the other parties hereto and, so long as such circumstances shall continue, (a) Lender shall have no obligation to make or convert any Base Rate Loan into a LIBOR Loan (but shall make Base Rate Loans concurrently with the making of or conversion of Base Rate Loans into LIBOR Loans by Lender which are not so affected, in each case in an amount equal to the amount of LIBOR Loans which would be made or converted into by Lender at such time in the absence of such circumstances) and (b) on the last day of the current Interest Period for each LIBOR Loan of Lender (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such LIBOR Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan. Each Base Rate Loan made by Lender which, but for the circumstances described in the foregoing sentence, would be a LIBOR Loan (an “ Affected Loan ”) shall remain outstanding for the period corresponding to the Group of LIBOR Loans of which such Affected Loan would be a part absent such circumstances.

4.2.4. Funding Losses . Each Borrower hereby agrees that upon demand by Lender (which demand shall be accompanied by a statement setting forth the basis for the amount being claimed, Each Borrower will indemnify Lender against any net loss or expense which Lender may sustain or incur (including any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Lender to fund or maintain any LIBOR Loan), as reasonably determined by Lender, as a result of (a) any payment, prepayment or conversion of any LIBOR Loan of Lender on a date

other than the last day of an Interest Period for such Loan (including any conversion pursuant to Section 2.2.3 ) or (b) any failure of Such Borrower to borrow, prepay, convert or continue any Loan on a date specified therefor in a notice of borrowing, prepayment, conversion or continuation pursuant to this Agreement. For this purpose, all notices to Lender pursuant to this Agreement shall be deemed to be irrevocable.

4.2.5. Right of Lender to Fund through Other Offices . Lender may, if it so elects, fulfill its commitment as to any LIBOR Loan by causing a foreign branch or Affiliate of Lender to make such Loan; provided that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by Lender and the obligation of Such Borrower to repay such Loan shall nevertheless be to Lender and shall be deemed held by it, to the extent of such Loan, for the account of such branch or Affiliate.

4.2.6. Discretion of Lender as to Manner of Funding . Notwithstanding any provision of this Agreement to the contrary, Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if Lender had actually funded and maintained each LIBOR Loan during each Interest Period for such Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBOR Rate for such Interest Period.

4.2.7. Mitigation of Circumstances . Lender shall promptly notify each Borrower of any event of which it has knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in Lender’s sole judgment, otherwise disadvantageous to Lender) to mitigate or avoid, (i) any obligation by any Borrower to pay any amount pursuant to Sections 4.2.1 or 4.4 or (ii) the occurrence of any circumstances described in Sections 4.2.2 or 4.2.3 (and, if Lender has given notice of any such event described in clause (i) or (ii) above and thereafter such event ceases to exist, Lender shall promptly so notify such Borrower). Without limiting the foregoing, Lender will designate a different funding office if such designation will avoid (or reduce the cost to such Borrower of) any event described in clause (i) or (ii) above and such designation will not, in Lender’s sole judgment, be otherwise disadvantageous to Lender..

4.2.8. Conclusiveness of Statements; Survival of Provisions . Determinations and statements of Lender pursuant to Sections 4.2.1 , 4.2.2 , 4.2.3 or 4.2.4 shall be conclusive absent demonstrable error. Lender may use reasonable averaging and attribution methods in determining compensation under Sections 4.2.1 and 4.2.4 , and the provisions of such Sections shall survive repayment of the Obligations, cancellation of any notes, expiration or termination of the Letters of Credit and termination of this Agreement.

4.3. Fees And Charges.

4.3.1. Closing Fee : Borrowers shall pay to Lender a closing fee of $100,000, which fee shall be fully earned on the date of disbursement of the initial Loans hereunder, and shall be payable as follows: (a) $50,000 shall be due and payable on the Closing Date; and (b) $50,000 shall be due and payable on the one-year anniversary of the Closing Date.

4.3.2. Unused Line Fee : Borrowers shall pay to Lender an unused line fee at a rate per annum of (i) at any time that (A) average deposits maintained with Lender exceed $5,000,000 for the previous calendar quarter-and (B) the most recent fiscal quarter end trailing twelve-month EBITDA of Parent is at Level I, II or III as set forth in the chart in the definition of Applicable Margin, 0.375% and (ii) at all other times, 0.50%, of the difference between the Revolving Loan Commitment and the average daily balance of the Revolving Loans plus the Letter of Credit Obligations for each month, which fee shall be fully earned by Lender on the last day of each month and payable monthly in arrears on the first Business

Day of each month with respect to all activity through the last day of the prior month. Said fee shall be calculated on the basis of a 360 day year.

4.3.3. Collateral Monitoring Fee : Borrowers shall pay to Lender an annual Collateral Monitoring Fee of $15,000, which fee shall be fully earned by Lender and payable in advance on the Closing Date and on each anniversary of the Closing Date prior to the Maturity Date.

4.3.4. Costs and Expenses : Borrowers shall reimburse Lender for all reasonable and customary costs and expenses, including, without limitation, legal expenses and reasonable attorneys’ fees, incurred by Lender in connection with the (i) documentation and consummation of the transactions contemplated by this Agreement, including, without limitation, Uniform Commercial Code and other public record searches and filings, overnight courier or other express or messenger delivery, appraisal costs, surveys, title insurance and environmental audit or review costs; (ii) collection, protection or enforcement of any rights in or to the Collateral; (iii) collection of any Obligations; and (iv) administration and enforcement of any of Lender’s rights under this Agreement or any other Loan Document (including, without limitation, any costs and expenses of any third party provider engaged by Lender for such purposes). Borrowers shall also pay all normal service charges with respect to all accounts maintained by each Borrower with Lender and any additional services requested by any Borrower from Lender.

4.4. Taxes.

(a) All payments made by Borrowers hereunder or under any Loan Documents shall be made without setoff, counterclaim, or other defense. To the extent permitted by applicable law, all payments hereunder or under the Loan Documents (including any payment of principal, interest, or fees) to, or for the benefit, of any person shall be made by Borrowers free and clear of and without deduction or withholding for, or account of, any Taxes now or hereinafter imposed by any taxing authority.

(b) If Borrowers make any payment hereunder or under any Loan Document in respect of which it is required by applicable law to deduct or withhold any Taxes, Borrowers shall increase the payment hereunder or under any such Loan Document such that after the reduction for the amount of Taxes withheld (and any taxes withheld or imposed with respect to the additional payments required under this Section 4.4(b) ), the amount paid to Lender equals the amount that was payable hereunder or under any such Loan Document without regard to this Section 4.4(b) . To the extent any Borrower withholds any Taxes on payments hereunder or under any Loan Document, such Borrower shall pay the full amount deducted to the relevant taxing authority within the time allowed for payment under applicable law and shall deliver to Lender within 30 days after it has made payment to such authority a receipt issued by such authority (or other evidence satisfactory to Lender) evidencing the payment of all amounts so required to be deducted or withheld from such payment.

If Lender is required by law to make any payments of any Taxes on or in relation to any amounts received or receivable hereunder or under any other Loan Document, or any Tax is assessed against Lender with respect to amounts received or receivable hereunder or under any other Loan Document, each Borrower will indemnify such person against (i) such Tax (and any reasonable counsel fees and expenses associated with such Tax) and (ii) any taxes imposed as a result of the receipt of the payment under this Section 4.4. A certificate prepared in good faith as to the amount of such payment by Lender shall, absent manifest error, be final, conclusive, and binding on all parties.

4.5. Maximum Interest.

It is the intent of the parties that the rate of interest and other charges to each Borrower under this Agreement and the other Loan Documents shall be lawful; therefore, if for any reason the interest or other charges payable under this Agreement are found by a court of competent jurisdiction, in a final determination, to exceed the limit which Lender may lawfully charge such Borrower, then the obligation to pay interest and other charges shall automatically be reduced to such limit and, if any

amount in excess of such limit shall have been paid, then such amount shall be refunded to such Borrower.

SECTION 5 COLLATERAL.

5.1. Grant of Security Interest to Lender.

As security for the payment of all Loans now or in the future made by Lender to Borrowers hereunder and for the payment, performance or other satisfaction of all other Obligations, each Borrower hereby assigns to Lender and its Affiliates and grants to Lender and its Affiliates a continuing security interest in the following property of such Borrower, whether now or hereafter owned, existing, acquired or arising and wherever now or hereafter located: (a) all Accounts (whether or not Eligible Accounts) and all Goods whose sale, lease or other disposition by each Borrower has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, each Borrower; (b) all Chattel Paper, Instruments, Documents and General Intangibles (including, without limitation, all patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, copyright applications, registrations, licenses, software, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, contract rights, payment intangibles, security interests, security deposits and rights to indemnification); (c) all Inventory (whether or not Eligible Inventory); (d) all Goods (other than Inventory), including, without limitation, Equipment, vehicles and Fixtures; (e) all Investment Property; (f) all Deposit Accounts, bank accounts, deposits and cash; (g) all Letter-of-Credit Rights; (h) Commercial Tort Claims; (i) all Supporting Obligations; (j) any other property of each Borrower now or hereafter in the possession, custody or control of Lender or any agent or any parent, affiliate or subsidiary of Lender or any participant with Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise); and (k) all additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, including, without limitation, proceeds of all insurance policies insuring the foregoing property, and all of each Borrower’s books and records relating to any of the foregoing and to each Borrower’s business. Notwithstanding the foregoing, the security interest created by this Agreement shall not extend to, and the term “Collateral” shall not include, any Excluded Property. Notwithstanding the foregoing, Lender hereby agrees that Lender is not seeking to perfect its security interest in any Borrower’s motor vehicles and other assets subject to certificates of title (excluding, for the avoidance of doubt, any such assets constituting Inventory) (“ Titled Collateral ”) by noting its lien on the title; provided, however, that: (x) Borrowers shall promptly notify Lender in writing when the aggregate value of Borrowers’ Titled Collateral exceeds $100,000; and (y) in such event, to the extent requested by Lender, Borrowers shall execute all such documents and instruments reasonably necessary to perfect Lender’s security interest in such Titled Collateral.

5.2. Other Security.

Lender, in its Permitted Discretion, without waiving or releasing (i) any obligation, liability or duty of any Borrower under this Agreement or the other Loan Documents or (ii) any Event of Default, may at any time or times hereafter, but shall not be obligated to, pay, acquire or accept an assignment of any security interest, lien, encumbrance or claim asserted by any Person in, upon or against the Collateral, provided, that Lender may take such actions with respect to Permitted Liens only after the occurrence and during the continuance of an Event of Default. All sums paid by Lender in respect thereof and all costs, fees and expenses including, without limitation, reasonable attorney fees, all court costs and all other charges relating thereto incurred by Lender shall constitute Obligations, payable by Borrowers to Lender on demand and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder.

5.3. Possessory Collateral.

Promptly upon any Borrower’s receipt of any Investment Property consisting of certificated securities of any domestic Subsidiary, each Borrower shall deliver the original thereof to Lender together with an appropriate endorsement or other specific evidence of assignment thereof to Lender (in form and substance acceptable to Lender). If an endorsement or assignment of any such items shall not be made for any reason, Lender is hereby irrevocably authorized, as each Borrower’s attorney and agent-in-fact, to endorse or assign the same on each Borrower’s behalf.

5.4. Electronic Chattel Paper.

To the extent that any Borrower obtains or maintains any Electronic Chattel Paper, such Borrower shall create, store and assign the record or records comprising the Electronic Chattel Paper in such a manner that (i) a single authoritative copy of the record or records exists which is unique, identifiable and except as otherwise provided in clauses (iv), (v) and (vi) below, unalterable, (ii) the authoritative copy identifies Lender as the assignee of the record or records, (iii) the authoritative copy is communicated to and maintained by Lender or its designated custodian, (iv) copies or revisions that add or change an identified assignee of the authoritative copy can only be made with the participation of Lender, (v) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy and (vi) any revision of the authoritative copy is readily identifiable as an authorized or unauthorized revision.

SECTION 6 PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN.

Each Borrower shall, at Lender’s request, at any time and from time to time, authenticate, execute and deliver to Lender such financing statements, documents and other agreements and instruments (and pay the cost of filing or recording the same in all public offices deemed necessary or desirable by Lender) and do such other acts and things or cause third parties to do such other acts and things as Lender may deem necessary or desirable in its sole discretion in order to establish and maintain a valid, attached and perfected security interest in the Collateral in favor of Lender (free and clear of all other liens, claims, encumbrances and rights of third parties whatsoever, whether voluntarily or involuntarily created, except Permitted Liens) to secure payment of the Obligations, and in order to facilitate the collection of the Collateral. Each Borrower irrevocably hereby makes, constitutes and appoints Lender (and all Persons designated by Lender for that purpose) as such Borrower’s true and lawful attorney and agent-in-fact to execute and file such financing statements, documents and other agreements and instruments and do such other acts and things as may be necessary to preserve and perfect Lender’s security interest in the Collateral. Each Borrower further ratifies and confirms the prior filing by Lender of any and all financing statements which identify such Borrower as debtor, Lender as secured party and any or all Collateral as collateral.

SECTION 7 POSSESSION OF COLLATERAL AND RELATED MATTERS.

Until otherwise notified by Lender following the occurrence of an Event of Default, each Borrower shall have the right, except as otherwise provided in this Agreement, in the ordinary course of such Borrower’s business, to (a) sell, lease or furnish under contracts of service any Inventory normally held by such Borrower for any such purpose; (b) use and consume any raw materials, work in process or other materials normally held by such Borrower for such purpose; and (c) dispose of obsolete or unuseful Equipment so long as all of the net cash proceeds of any disposition under this clause (c) in excess of $500,000 per annum in the aggregate and not reinvested in the business of Parent or its domestic Subsidiaries within 180 days thereafter are paid to Lender for application to the Obligations (except for such proceeds which are required to be delivered to the holder of a Permitted Lien which is prior in right of payment); provided, however, that a sale in the ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owed by any Borrower.

SECTION 8 COLLECTIONS.

8.1. Lockbox and Lockbox Account.

Each Borrower shall direct all of its Account Debtors to make all payments on the Accounts directly to a mailing address designated by, and under the exclusive control of, Lender, at a financial institution reasonably acceptable to Lender (the “ Lockbox ”); provided, that with the consent of Lender, any Borrower may collect payments and remotely scan such checks to Lender in a manner satisfactory to Lender (“ Remote Scanning ”) on a daily basis as such checks are received. Each Borrower shall establish an account (the “ Lockbox Account ” ) in such Borrower’s name, for the benefit of Lender, with a financial institution acceptable to Lender, into which all payments received in the Lockbox shall be deposited, and into which such Borrower will immediately deposit all payments received by such Borrower on Accounts in the identical form in which such payments were received, whether by cash or check. If any Borrower, any Affiliate or Subsidiary, any shareholder, officer, director, employee or agent of such Borrower or any Affiliate or Subsidiary, or any other Person acting for or in concert with such Borrower shall receive any monies, checks, notes, drafts or other payments relating to or as Proceeds of Accounts or other Collateral, such Borrower and each such Person shall receive all such items in trust for, and as the sole and exclusive property of, Lender and, immediately upon receipt thereof, shall remit the same (or cause the same to be remitted) in kind to the Lockbox Account in a manner satisfactory to Lender including by Remote Scanning. The financial institution with which the Lockbox Account is established shall acknowledge and agree, in a manner satisfactory to Lender, that the checks, instruments, and other property in such Lockbox and Lockbox Account are the sole and exclusive property of Lender, that such financial institution will follow the instructions of Lender with respect to disposition of funds in the Lockbox and Lockbox Account without further consent from any Borrower, the financial institution will not accept instructions of any Borrower with respect to the Lockbox Account, that such financial institution has no right to setoff against the Lockbox or Lockbox Account or against any other account maintained by such financial institution into which the contents of the Lockbox or Lockbox Account are transferred, and that such financial institution shall wire, or otherwise transfer in immediately available funds to Lender in a manner satisfactory to Lender, funds deposited in the Lockbox Account on a daily basis as such funds are collected; provided that if the Lockbox Account is at Lender, the daily ledger balance of such accounts as of the beginning of each Business Day shall be transferred to Lender each Business Day for application in accordance with Section 8.3 . Each Borrower agrees that all payments made to such Lockbox Account or otherwise received by Lender, whether in respect of the Accounts or as Proceeds of other Collateral or otherwise (except for proceeds of Collateral which are required to be delivered to the holder of a Permitted Lien which is prior in right of payment), will be applied on account of the Obligations in accordance with the terms of this Agreement. Each Borrower agrees to pay all customary fees, costs and expenses in connection with opening and maintaining the Lockbox and Lockbox Account. All of such fees, costs and expenses if not paid by any Borrower, may be paid by Lender (if at a financial institution other than Lender) or otherwise charged to any Borrower and in such event all amounts paid by Lender or charged by Lender shall constitute Obligations hereunder, shall be payable to Lender by Borrowers upon demand, and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder. All checks, drafts, instruments and other items of payment or Proceeds of Collateral shall be endorsed by Borrowers to Lender, and, if that endorsement of any such item shall not be made for any reason, Lender is hereby irrevocably authorized to endorse the same on such Borrower’s behalf. For the purpose of this section, each Borrower irrevocably hereby makes, constitutes and appoints Lender (and all Persons designated by Lender for that purpose) as such Borrower’s true and lawful attorney and agent-in-fact (i) to endorse such Borrower’s name upon said items of payment and/or Proceeds of Collateral and upon any Chattel Paper, Document, Instrument, invoice or similar document or agreement relating to any Account of any Borrower or Goods pertaining thereto; (ii) to take control in any manner of any item of payment or Proceeds thereof and (iii) to have access to any lockbox or postal box into which any payments on Accounts of Borrowers are deposited, and open and process all mail addressed to Borrowers and deposited therein.

8.2. Lender’s Rights.

Lender may, at any time and from time to time after the occurrence and during the continuance of an Event of Default, whether before or after notification to any Account Debtor and whether before or after the maturity of any of the Obligations, (i) enforce collection of any Borrower’s Accounts or other amounts owed to such Borrower by suit or otherwise; (ii) exercise all of such Borrower’s rights and remedies with respect to proceedings brought to collect any Accounts or other amounts owed to such Borrower; (iii) surrender, release or exchange all or any part of any Accounts or other amounts owed to such Borrower, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder; (iv) sell or assign any Account of such Borrower or other amount owed to such Borrower upon such terms, for such amount and at such time or times as Lender deems advisable; (v) prepare, file and sign such Borrower’s name on any proof of claim in bankruptcy or other similar document against any Account Debtor or other Person obligated to such Borrower; and (vi) do all other acts and things which are necessary, in Lender’s Permitted Discretion, to fulfill such Borrower’s obligations under this Agreement and the other Loan Documents and to allow Lender to collect the Accounts or other amounts owed to such Borrower. In addition to any other provision hereof, Lender may at any time, after the occurrence and during the continuance of an Event of Default, at Borrowers’ expense, notify any parties obligated on any of the Accounts to make payment directly to Lender of any amounts due or to become due thereunder.

8.3. Application of Proceeds .

For purposes of calculating interest and fees, Lender shall, within one Business Day after application of the opening daily ledger balance to the Obligations as set forth in the immediately following sentence, apply the whole or any part of such collections or Proceeds against the Obligations in such order as Lender shall determine in its Permitted Discretion; provided that so long as no Event of Default shall then exist, Lender will not apply any such collections or Proceeds against LIBOR Loans except at the end of an Interest Period. For purposes of determining the amount of Loans available for borrowing purposes, Lender shall apply the opening daily ledger balance in the Lockbox Account as of the beginning of each Business Day in whole or in part against the Obligations, in such order as Lender shall determine in its Permitted Discretion, subject to actual collection.

8.4. Account Statements .

On a monthly basis, Lender shall deliver to Borrowers an account statement showing all Loans, charges and payments, which, absent manifest error, shall be deemed final, binding and conclusive upon Borrowers unless Borrowers notify Lender in writing, specifying any error therein, within thirty (30) days of the date such account statement is sent to Borrowers and any such notice shall only constitute an objection to the items specifically identified.

SECTION 9 COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.

9.1. Loan Reports.

Borrowers shall deliver to Lender an executed loan report and certificate in Lender’s then current form (i) if Revolving Loan Availability is less than $5,000,000, at least once each week, and (ii) if Revolving Loan Availability is greater than $5,000,000, at least once each month by the 5 th Business Day of such month, in each case which shall be accompanied by copies of each Borrower’s sales journal, cash receipts journal and credit memo journal for the relevant period. Such report shall reflect the activity of each Borrower with respect to Accounts for the immediately preceding week or month, as applicable, and shall be in a form and with such specificity as is reasonably satisfactory to Lender and shall contain such additional information concerning Accounts and Inventory as may be requested by Lender including,

without limitation, calculations of the Revolving Loan Availability and, if specifically requested by Lender, copies of all invoices prepared in connection with such Accounts.

9.2. Monthly Reports.

Borrowers shall deliver to Lender, in addition to any other reports, as soon as practicable and in any event: (i) within 20 days after the end of each month, (A) a detailed trial balance of each Borrower’s Accounts aged per invoice date, in form and substance reasonably satisfactory to Lender including, without limitation, the names and addresses of all Account Debtors of each Borrower, and (B) a summary and detail of accounts payable (such Accounts and accounts payable divided into such time intervals as Lender may require in its sole discretion), including a listing of any held checks; and (ii) within 10 days after the end of each month, the general ledger inventory account balance, a perpetual inventory report and Lender’s standard form of Inventory report then in effect or the form most recently requested from each Borrower by Lender, for each Borrower by each category of Inventory, together with a description of the monthly change in each category of Inventory.

9.3. Financial Statements.

Each Borrower shall deliver to Lender the following financial information, all of which shall be prepared in accordance with GAAP consistently applied, and shall be accompanied by a compliance certificate in the form of Exhibit A hereto, which compliance certificate shall include a calculation of all financial covenants contained in this Agreement: (i) no later than 30 days after each calendar month, copies of internally prepared balance sheets and statements of income of Borrowers, and, if such month-end is also the end of a calendar quarter, such financial statements shall also include retained earnings and cash flow of Borrowers, in each case certified by the Chief Financial Officer of Borrowers; and (ii) no later than 120 days after the end of Borrowers’ Fiscal Years, audited annual financial statements with an opinion by independent certified public accountants selected by Borrowers and reasonably satisfactory to Lender prepared in accordance with generally accepted auditing standards that is not subject to any “going concern” or similar qualification or exception or any qualification as to the scope of such audit or with respect to accounting principles followed by Parent or any of its Subsidiaries not in accordance with GAAP, which financial statements shall be accompanied by copies of any management letters sent to the Borrowers by such accountants.

9.4. Annual Projections.

As soon as practicable and in any event 30 days after the beginning of each Fiscal Year, Borrowers shall deliver to Lender projected balance sheets, statements of income and cash flow for Borrowers, for each of the 12 months during such Fiscal Year, which shall include the assumptions used therein, together with appropriate supporting details as reasonably requested by Lender.

9.5. Explanation of Budgets and Projections.

In conjunction with the delivery of the annual presentation of projections or budgets referred to in Section 9.4 above, Responsible Officers of Borrowers shall be reasonably available to discuss with Lender, all changes and developments between the anticipated financial results included in such projections or budgets and the historical financial statements of Borrowers.

9.6. Public Reporting.

Promptly upon the filing thereof, Borrowers shall deliver to Lender copies of all registration statements and annual, quarterly, monthly or other regular reports which Borrowers or any of its Subsidiaries files with the Securities and Exchange Commission (the “SEC”)), as well as promptly providing to Lender copies of any reports and proxy statements delivered to its shareholders.

Documents required to be delivered pursuant to Section 9.3, 9.6 or 9.7 (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which Parent posts such documents, or provides a link thereto on Parent’s website; provided that Parent shall notify Lender (by facsimile or electronic mail) of the posting of any such documents.

9.7. Other Information.

Promptly following request therefor by Lender, such other business or financial data, reports, appraisals and projections as Lender may reasonably request.

SECTION 10 TERMINATION.

Lender’s obligations under this Agreement shall be in effect from the Closing Date until the Maturity Date or such earlier date that the Obligations are accelerated pursuant to Section 16 hereof. Upon the Maturity Date or the earlier acceleration of the Obligations as set forth above, Lender shall not be obligated to make any additional Loans on or after the date identified as the date on which the Obligations are to be repaid; and (ii) this Agreement shall terminate on the date thereafter that the Obligations are paid in full (except for such provisions that by their terms survive the termination of this Agreement) and all Letters of Credit are returned to the L/C Issuer for cancellation. At such time as Borrowers have repaid all of the Obligations and all Letters of Credit are returned to L/C Issuer for cancellation and this Agreement has terminated, Borrowers shall deliver to Lender a release, in form and substance satisfactory to Lender, of all obligations and liabilities of Lender and its officers, directors, employees, agents, parent corporation, Subsidiaries and Affiliates to any Borrower, and if any Borrower is obtaining new financing from another lender, such Borrower shall deliver such lender’s indemnification of Lender, in form and substance satisfactory to Lender, for checks or other amounts which Lender has credited to Borrowers’ account, but which subsequently are dishonored, returned or reversed for any reason or for automatic clearinghouse or wire transfers not yet posted to Borrowers’ account. If, during the term of this Agreement, Borrowers prepay all of the Obligations, return all Letters of Credit for cancellation and this Agreement is terminated, each Borrower agrees to pay to Lender as a prepayment fee, in addition to the payment of all other Obligations, an amount equal to: (i) 2.0% of the Maximum Loan Amount if such prepayment occurs prior to the first anniversary of the Closing Date; (ii) 0.5% of the Maximum Loan Amount if such prepayment occurs on or after the first anniversary of the Closing Date, but prior to the second anniversary of the Closing Date; and (iii) no prepayment fee if such prepayment occurs any time on or after the third anniversary of the Closing Date.

SECTION 11 REPRESENTATIONS AND WARRANTIES.

Each Borrower hereby represents and warrants the following to Lender, which representations and warranties shall be true at the time of Borrowers’ execution hereof and the closing of the transactions described herein or related hereto, and shall be remade by each Borrower at the time each Loan is made pursuant to this Agreement, provided, that representations and warranties made as of a particular date shall be true and correct as of such date.

11.1. Financial Statements and Other Information.

The financial statements delivered or to be delivered by Borrowers to Lender at or prior to the date of this Agreement fairly present in all material respects the financial condition of Borrowers, and there has been no material adverse change in the financial condition, the operations or any other status of Borrowers since the date of the financial statements delivered to Lender most recently prior to the date of this Agreement. All written information now or heretofore furnished by Borrowers to Lender in connection with the transactions contemplated by this Agreement is true and correct in all material respects as of the date with respect to which such information was furnished.

11.2. Locations.

The office where each Borrower keeps its books, records and accounts (or copies thereof) concerning the Collateral, each Borrower’s principal place of business and all of each Borrower’s other places of business, locations of Collateral and post office boxes and locations of bank accounts are as set forth in Schedule 11.2 and at other locations within the continental United States of which Lender has been advised by Borrowers in accordance with Section 12.2.1 . The Collateral, including, without limitation, the Equipment (except any part thereof which Borrowers shall have advised Lender in writing consists of Collateral normally used in more than one state) is kept, or, in the case of vehicles, based, only at the addresses set forth on Schedule 11.2 , and at other locations within the continental United States of which Lender has been advised by Borrowers in writing in accordance with Section 12.2.1 hereof.

11.3. Loans by Borrowers.

No Borrower has made any loans or advances to any Affiliate or other Person except for advances authorized hereunder to employees, officers and directors of any Borrower for travel and other expenses arising in the ordinary course of any Borrower’s business.

11.4. Accounts and Inventory.

Each Account or item of Inventory which any Borrower shall, expressly or by implication, request Lender to classify as an Eligible Account or as Eligible Inventory, respectively, shall, as of the time when such request is made, conform in all respects to the requirements of such classification as set forth in the respective definitions of Eligible Account and Eligible Inventory as set forth herein.

11.5. Liens.

Each Borrower is the lawful owner of all Collateral now purportedly owned or hereafter purportedly acquired by such Borrower, free from all liens, claims, security interests and encumbrances whatsoever, whether voluntarily or involuntarily created and whether or not perfected, other than the Permitted Liens.

11.6. Organization, Authority and No Conflict.

Each Borrower is a corporation or limited liability company, duly organized, validly existing and in good standing in its state of incorporation or organization, and each Borrower is duly qualified and in good standing in all states where the nature and extent of the business transacted by it or the ownership of its assets makes such qualification necessary or, if such Borrower is not so qualified, such Borrower may cure any such failure without losing any of its rights, incurring any liens or material penalties, or otherwise affecting Lender’s rights. Each Borrower has the right and power and is duly authorized and empowered to enter into, execute and deliver this Agreement and the other Loan Documents and perform its obligations hereunder and thereunder. Each Borrower’s execution, delivery and performance of this Agreement and the other Loan Documents does not conflict with the provisions of the organizational documents of any Borrower, any statute, regulation, ordinance or rule of law, or any agreement, contract or other document which may now or hereafter be binding on Borrowers, except for conflicts with agreements, contracts or other documents which would not reasonably be expected to have a Material Adverse Effect, and each Borrower’s execution, delivery and performance of this Agreement and the other Loan Documents shall not result in the imposition of any lien or other encumbrance upon any Borrower’s property (other than Permitted Liens) under any existing indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument by which any Borrower or any of its property may be bound or affected.

11.7. Litigation.

Except as disclosed to Lender on Schedule 11.7 hereto, there are no actions or proceedings which are pending or, to the best of any Responsible Officer’s knowledge, threatened against any Borrower which is reasonably likely to have a Material Adverse Effect on any Borrower, and each Borrower shall, promptly upon becoming aware of any such pending or threatened action or proceeding, give written notice thereof to Lender. No Borrower has any Commercial Tort Claims pending.

11.8. Compliance with Laws and Maintenance of Permits.

Each Borrower has obtained all governmental consents, franchises, certificates, licenses, authorizations, approvals and permits, the lack of which would reasonably be expected to have a Material Adverse Effect. Each Borrower is in compliance in all material respects with all applicable federal, state, local and foreign statutes, orders, regulations, rules and ordinances (including, without limitation, Environmental Laws and statutes, orders, regulations, rules and ordinances relating to taxes, employer and employee contributions and similar items, securities, ERISA or employee health and safety) the failure to comply with which would reasonably be expected to have a Material Adverse Effect.

11.9. Affiliate Transactions.

Except as set forth on Schedule 11.9 hereto or as permitted pursuant to Section 11.3 hereof, no Borrower is conducting, permitting or suffering to be conducted, transactions with any Affiliate other than transactions with Affiliates for the purchase or sale of Inventory or services in the ordinary course of business pursuant to terms that are no less favorable to such Borrower than the terms upon which such transactions would have been made had they been made to or with a Person that is not an Affiliate.

11.10. Names and Trade Names.

Each Borrower’s name has for the past five (5) years always been as set forth on the first page of this Agreement and such Borrower uses no trade names, assumed names, fictitious names or division names in the operation of its business, except as set forth on Schedule 11.10 hereto.

11.11. Equipment.

Except for Permitted Liens, each Borrower has good and indefeasible and merchantable title to and ownership of all Equipment it purports to own. No Equipment is a Fixture to real estate unless such real estate is owned by the applicable Borrower and is subject to a mortgage in favor of Lender, or if such real estate is leased, is subject to a landlord’s agreement in favor of Lender on terms acceptable to Lender, or an accession to other personal property unless such personal property is subject to a first priority lien in favor of Lender.

11.12. Enforceability.

This Agreement and the other Loan Documents to which each Borrower is a party are the legal, valid and binding obligations of such Borrower and are enforceable against such Borrower in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal laws from time to time in effect which affect the enforcement of creditors’ rights in general and the availability of equitable remedies.

11.13. Solvency.

Borrowers, taken as a whole, after giving effect to the transactions contemplated hereby, are solvent, able to pay their debts as they become due, have capital sufficient to carry on their business,

now own property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay their debts, and will not be rendered insolvent by the execution and delivery of this Agreement or any of the other Loan Documents or by completion of the transactions contemplated hereunder or thereunder.

11.14. Indebtedness.

Other than indebtedness not prohibited by this Agreement, no Borrower is obligated (directly or indirectly), for any loans or other indebtedness for borrowed money other than the Loans.

11.15. Margin Security and Use of Proceeds.

No Borrower owns any margin securities, and none of the proceeds of the Loans hereunder shall be used for the purpose of purchasing or carrying any margin securities or reducing or retiring any indebtedness which was originally incurred to purchase any margin securities in violation of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose not permitted by Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.

11.16. Parent, Subsidiaries and Affiliates.

Except as set forth on Schedule 11.16 hereto, no Borrower has any parent corporation or Subsidiary, nor is such Borrower engaged in any joint venture or partnership with any other Person.

11.17. No Defaults.

No Borrower is in default under any material contract, lease or commitment to which it is a party or by which it is bound, nor does such Borrower know of any dispute regarding any contract, lease or commitment which, in any case, would reasonably be expected to have a Material Adverse Effect.

11.18. Employee Matters.

There are no controversies pending or threatened between any Borrower and any of its employees, agents or independent contractors other than employee grievances arising in the ordinary course of business which would not, in the aggregate, reasonably be expected to have a Material Adverse Effect, and each Borrower is in compliance with all federal and state laws respecting employment and employment terms, conditions and practices except for such non-compliance which would not reasonably be expected to have a Material Adverse Effect.

11.19. Intellectual Property.

Each Borrower possesses adequate licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, tradestyles and trade names to continue to conduct its business as heretofore conducted by it except to the extent that the failure to possess such items would not reasonably be expected to have a Material Adverse Effect.

11.20. Environmental Matters.

No Borrower has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any material respect any Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of any Borrower comply in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder, except to the extent any such violation, individually or in

the aggregate, would not reasonably be expected to have a Material Adverse Effect. There has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other Person, nor is any pending, or to the best of any Responsible Officer’s knowledge threatened, with respect to any non-compliance with or violation of the requirements of any Environmental Law by such Borrower or the release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects such Borrower or its business, operations or assets or any properties at which such Borrower has transported, stored or disposed of any Hazardous Materials that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. No Borrower has material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials which liability would reasonably be expected to have a Material Adverse Effect.

11.21. ERISA Matters.

Each Borrower has paid and discharged all obligations and liabilities arising under ERISA of a character which, if unpaid or unperformed, would reasonably be expected to result in the imposition of a lien against any material portion of its properties or assets.

11.22. Investment Company Act .

No Loan Party is an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company” within the meaning of the Investment Company Act of 1940.

11.23. Anti-Terrorism Laws.

(a) No Loan Party (and, to the knowledge of each Loan Party, no joint venture or subsidiary thereof) is in violation in any material respects of any United States Requirements of Law relating to terrorism, sanctions or money laundering (the “ Anti-Terrorism Laws ”), including the United States Executive Order No. 13224 on Terrorist Financing (the “ Anti-Terrorism Order ”) and the USA Patriot Act.

(b) No Loan Party (and, to the knowledge of each Loan Party, no joint venture or Subsidiary thereof) (i) is listed in the annex to, or is otherwise subject to the provisions of, the Anti-Terrorism Order, (ii) is owned or controlled by, or acting for or on behalf of, any person listed in the annex to, or is otherwise subject to the provision of, the Anti-Terrorism Order, (iii) commits, threatens or conspires to commit or supports “terrorism” as defined in the Anti-Terrorism Order or (iv) is named as a “specially designated national and blocked person” in the most current list published by OFAC.

(c) No Loan Party (and, to the knowledge of each Loan Party, no joint venture or Affiliate thereof) (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in clauses (b)(i) through (b)9iv) above, (ii) deals in, or otherwise engages in any transactions relating to, any property or interests in property blocked pursuant to the Anti-Terrorism Order or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

SECTION 12 AFFIRMATIVE COVENANTS.

Until payment and satisfaction in full of all Obligations and termination of this Agreement, unless Borrowers obtain Lender’s prior written consent waiving or modifying any Borrower’s covenants hereunder in any specific instance, each Borrower covenants and agrees as follows:

12.1. Maintenance of Records.

Each Borrower shall at all times keep accurate and complete books, records and accounts with respect to all of such Borrower’s business activities, in accordance with sound accounting practices and GAAP consistently applied, and shall keep such books, records and accounts, and any copies thereof, only at the addresses indicated for such purpose on Schedule 11.2 .

12.2. Notices.

Each Borrower shall:

12.2.1. Locations . Promptly (but in no event less than ten (10) days prior to the occurrence thereof) notify Lender of the proposed opening of any new place of business or new location of Collateral, the closing of any existing place of business or location of Collateral, any change in the location of any Borrower’s books, records and accounts (or copies thereof), the opening or closing of any post office box, the opening or closing of any bank account or, if any of the Collateral consists of Goods of a type normally used in more than one state, the use of any such Goods in any state other than a state in which such Borrower has previously advised Lender that such Goods will be used.

12.2.2. Eligible Accounts and Inventory . Promptly upon becoming aware thereof, notify Lender if any Account or Inventory identified by such Borrower to Lender as an Eligible Account or Eligible Inventory becomes ineligible for any reason.

12.2.3. Litigation and Proceedings . Promptly upon becoming aware thereof, notify Lender of any actions or proceedings which are pending or threatened against such Borrower which would not reasonably be expected to have a Material Adverse Effect and of any Commercial Tort Claims of such Borrower which may arise.

12.2.4. Names and Trade Names . Notify Lender within ten (10) days of the change of its name or the use of any trade name, assumed name, fictitious name or division name not previously disclosed to Lender in writing.

12.2.5. ERISA Matters . Promptly notify Lender of (x) the occurrence of any “reportable event” (as defined in ERISA) which would not reasonably be expected to result in the termination by the Pension Benefit Guaranty Corporation (the “ PBGC ”) of any employee benefit plan (“ Plan ”) covering any officers or employees of such Borrower, any benefits of which are, or are required to be, guaranteed by the PBGC, (y) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor or (z) its intention to terminate or withdraw from any Plan.

12.2.6 Environmental Matters . Immediately notify Lender upon becoming aware of any investigation, proceeding, complaint, order, directive, claim, citation or notice with respect to any non-compliance with or violation of the requirements of any Environmental Law by such Borrower or the generation, use, storage, treatment, transportation, manufacture handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter which affects such Borrower or its business operations or assets or any properties at which such Borrower has transported, stored or disposed of any Hazardous Materials unless the foregoing would not reasonably be expected to have a Material Adverse Effect.

12.2.7. Default; Material Adverse Change .

Promptly advise Lender of the occurrence of any event having or causing a Material Adverse Effect , the occurrence of any insured or uninsured loss in excess of $5,000,000 , the occurrence of any Event of Default hereunder or the occurrence of any event which, if uncured, will become an Event of Default after notice or lapse of time (or both).

12.2.8. Ownership Threshold .

Promptly notify Lender upon determining the identity of any shareholder of Parent who owns 10% or more of the outstanding equity interests in Parent.

All of the foregoing notices shall be provided by such Borrower to Lender in writing.

12.3. Compliance with Laws and Maintenance of Permits.

Each Borrower shall maintain all governmental consents, franchises, certificates, licenses, authorizations, approvals and permits, the lack of which would have a Material Adverse Effect and such Borrower shall remain in compliance with all applicable federal, state, local and foreign statutes, orders, regulations, rules and ordinances (including, without limitation, Environmental Laws and statutes, orders, regulations, rules and ordinances relating to taxes, employer and employee contributions and similar items, securities, ERISA or employee health and safety) the failure with which to comply would have a Material Adverse Effect. In the event that any Borrower or any of such Borrower’s respective officers or directors receives written notice from any local, state or federal governmental authority that there is non-compliance, or any condition which requires any action by or on behalf of such Borrower in order to avoid non-compliance, with any Environmental Law, then (a) Borrowers shall provide written notice to Lender regarding any such non-compliance or condition, with such reasonable details as Lender may reasonably request; (b) Borrowers shall have a period of 60 days from the date of such notice, or such longer period as may be required, so long as Borrowers promptly commence and diligently pursue such remediation, to remedy any such non-compliance or condition; and (c) to the extent such non-compliance or condition is not remedied within such 60-day period, or if remediation requires a longer period time and Borrowers are not then diligently pursuing such remediation, then, at Borrowers’ expense, Lender may cause an independent environmental engineer acceptable to Lender to conduct such tests of the relevant site(s) as are appropriate and prepare and deliver a report setting forth the results of such tests, a proposed plan for remediation and an estimate of the costs thereof.

12.4. Inspection and Audits.

Each Borrower shall permit Lender, or any Persons designated by it, to call at any Borrower’s places of business at any reasonable times, and, without hindrance or delay, to inspect the Collateral and to inspect, audit, check and make extracts from such Borrower’s books, records, journals, orders, receipts and any correspondence and other data relating to such Borrower’s business, the Collateral or any transactions between the parties hereto, and shall have the right to make such verification concerning such Borrower’s business as Lender may consider reasonable under the circumstances. Each Borrower shall furnish to Lender such information relevant to Lender’s rights under this Agreement and the other Loan Documents as Lender shall at any time and from time to time request. Lender, through its officers, employees or agents shall have the right, at any time and from time to time, to verify the validity, amount or any other matter relating to any Borrower’s Accounts, by mail, telephone, telecopy, electronic mail, or otherwise. Each Borrower authorizes Lender and its agents to discuss the affairs, finances and business of such Borrower with any Responsible Officer of such Borrower, and with reasonable prior notice to Borrowers in each instance, to discuss the financial condition of such Borrower with each Borrower’s independent public accountants. Any such discussions shall be without liability to Lender or to any Borrower’s independent public accountants. Each Borrower shall pay to Lender all customary fees and all reasonable costs and out-of-pocket expenses incurred by

Lender in the exercise of its rights hereunder, and all of such fees, costs and expenses shall constitute Obligations hereunder, shall be payable on demand and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder; provided that, excluding any such exercise of rights during the continuation of an Event of Default, Lender shall not exercise such rights more often than two (2) times during any calendar year at Borrowers’ expense.

12.5. Insurance.

Each Borrower shall:

12.5.1. Casualty Insurance; Business Interruption Insurance . Keep the Collateral properly housed and insured for the full insurable value thereof against loss or damage by fire, theft, explosion, sprinklers, collision (in the case of motor vehicles) and such other risks as are customarily insured against by Persons engaged in businesses similar to that of such Borrower, with such companies, in such amounts, with such deductibles, and under policies in such form, as shall be reasonably satisfactory to Lender. Original (or certified) copies of such policies of insurance have been or shall be, within ninety (90) days of the Closing Date, delivered to Lender, together with evidence of payment of all premiums therefor, and shall contain an endorsement, in form and substance acceptable to Lender, showing loss under such insurance policies payable to Lender. Such endorsement, or an independent instrument furnished to Lender, shall provide that the insurance company shall give Lender at least thirty (30) (ten (10) in the case of non-payment) days written notice before any such policy of insurance is altered or canceled and that no act, whether willful or negligent, or default of such Borrower or any other Person shall affect the right of Lender to recover under such policy of insurance in case of loss or damage. Each Borrower irrevocably makes, constitutes and appoints Lender (and all officers, employees or agents designated by Lender) as each Borrower’s true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance (except as provided in the proviso below), endorsing the name of such Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and making all determinations and decisions with respect to such policies of insurance, provided however, that such Borrower may make, settle and adjust claims involving less than $250,000 for any individual claim and $500,000 in the aggregate without Lender’s consent to the extent that: (a) no Event of Default exists at the time any such proceeds are received; (b) upon Lender’s request, Borrowers provide Lender with evidence of Borrowers’ plans to reinvest such proceeds into Borrowers’ businesses, in form and substance reasonably acceptable to Lender; and (c) such proceeds are actually reinvested into Borrower’s business in accordance with such plans within 180 days of Borrowers’ receipt of such proceeds.

12.5.2. Liability Insurance . Maintain, at its expense, such public liability and third party property damage insurance as is customary for Persons engaged in businesses similar to that of such Borrower with such companies and in such amounts, with such deductibles and under policies in such form as shall be reasonably satisfactory to Lender and original (or certified) copies of such policies have been or shall be, within ninety (90) days after the Closing Date, delivered to Lender, together with evidence of payment of all premiums therefor; each such policy shall contain an endorsement showing Lender as additional insured thereunder and providing that the insurance company shall give Lender at least thirty (30) (ten (10) in the case of non-payment) days written notice before any such policy shall be altered or canceled.

12.5.3. Lender May Purchase Insurance . If any Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above (and provide evidence thereof to Lender) or to pay any premium relating thereto, then Lender, without waiving or releasing any obligation or default by any Borrower hereunder, may (but shall be under no obligation to) obtain and maintain such policies of insurance and pay such premiums and take such other actions with respect thereto as Lender deems advisable upon notice to Borrowers. Such insurance, if obtained by Lender, may, but need not, protect Borrowers’ interests or pay any claim made by or against any Borrower with respect to the Collateral. Such insurance may be more expensive than the cost of insurance any Borrower may be able

to obtain on its own and may be cancelled only upon Borrowers providing evidence that it has obtained the insurance as required above. All sums disbursed by Lender in connection with any such actions, including, without limitation, court costs, expenses, other charges relating thereto and reasonable attorneys’ fees, shall constitute Loans hereunder, shall be payable on demand by Borrowers to Lender and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder. This provision shall constitute the notice to Borrowers required pursuant to paragraph (3) of section 180/10 of Chapter 815 of the Illinois Compiled Statutes (2004).

12.6 Collateral.

Each Borrower shall keep the Collateral in good condition, repair and order and shall make all necessary repairs to the Equipment and replacements thereof so that the operating efficiency and the value thereof shall at all times be preserved and maintained in all material respects. Each Borrower shall permit Lender to examine any of the Collateral at any time and wherever the Collateral may be located and, such Borrower shall, immediately upon request therefor by Lender, deliver to Lender any and all evidence of ownership of any of the Equipment including, without limitation, certificates of title and applications of title. Each Borrower shall, at the request of Lender, indicate on its records concerning the Collateral a notation, in form satisfactory to Lender, of the security interest of Lender hereunder.

12.7. Use of Proceeds.

All monies and other property obtained by Borrowers from Lender pursuant to this Agreement shall be used solely for working capital purposes, to refinance the debt of Borrowers and its Subsidiaries and for other business purposes of Borrowers.

12.8 Taxes.

Each Borrower shall file all required tax returns and pay all of its taxes when due, subject to any extensions granted by the applicable taxing authority, including, without limitation, taxes imposed by federal, state or municipal agencies, and shall cause any liens for taxes to be released prior to execution thereof; provided, that Borrowers shall have the right to contest the payment of such taxes in good faith by appropriate proceedings so long as adequate reserves are maintained with respect thereto in accordance with GAAP. If such Borrower fails to pay any such taxes and in the absence of any such contest by such Borrower, Lender may (but shall be under no obligation to) advance and pay any sums required to pay any such taxes and/or to secure the release of any lien therefor, and any sums so advanced by Lender shall constitute Loans hereunder, shall be payable by such Borrower to Lender on demand, and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder.

12.9. Intellectual Property.

Each Borrower shall maintain adequate licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, tradestyles and trade names to continue its business as heretofore conducted by it or as hereafter conducted by it unless the failure to maintain any of the foregoing could not reasonably be expected to have a Material Adverse Effect on Borrowers.

12.10. Checking Accounts and Cash Management Services.

Unless Lender otherwise consents in writing, in order to facilitate Lender’s maintenance and monitoring of the Collateral, each Borrower shall maintain its general checking/controlled disbursement account and its other deposit accounts with Lender. Each Borrower shall be responsible for all normal charges assessed thereon. Each Borrower shall notify Lender in writing 30 days prior to opening any new Deposit Account and shall enter into a control agreement satisfactory to Lender for each such Deposit Account of such Borrower on or before the opening of such Deposit Account.

12.11. USA Patriot Act, Bank Secrecy Act and Office of Foreign Asset Control .

Ensure, and cause each other Loan Party to ensure, that no Person who owns a controlling interest in or otherwise controls a Loan Party is or shall be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“ OFAC ”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a Person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, and (b) comply, and cause each other Loan Party to comply, with all applicable Bank Secrecy Act (“ BSA ”) and anti-money laundering laws and regulations.

12.12. Department of Justice Lien .

Pay all amounts due in respect of the Department of Justice Lien, on or before January 31, 2017, and cause the Department of Justice Lien to be released promptly thereafter.

SECTION 13 NEGATIVE COVENANTS.

13.1. Guaranties.

Such Borrower shall not, and shall not permit any other Loan Party to assume, guarantee or endorse, or otherwise become liable in connection with, the obligations of any Person, except by endorsement of instruments for deposit or collection or similar transactions in the ordinary course of business.

13.2. Indebtedness.

Such Borrower shall not, and shall not permit any other Loan Party to create, incur, assume or become obligated (directly or indirectly), for any loans or other indebtedness for borrowed money other than the Loans, except that such Borrower and the Loan Parties may (i) borrow money from a Person other than Lender on an unsecured and subordinated basis if a subordination agreement in favor of Lender and in form and substance satisfactory to Lender is executed and delivered to Lender relative thereto; (ii) maintain their present indebtedness listed on Schedule 13.2 hereto; (iii) incur unsecured indebtedness to trade creditors in the ordinary course of business; (iv) incur purchase money indebtedness or capitalized lease obligations in connection with Capital Expenditures permitted hereunder; (v) incur operating lease obligations requiring payments not to exceed $250,000 in the aggregate during any Fiscal Year of such Borrower; (vi) Hedging Obligations approved by, and incurred in favor of, Lender or an Affiliate thereof for bona fide hedging purposes and not for speculation; (vii) Subordinated Seller Notes and Earnouts; (viii) unsecured indebtedness of such Borrower incurred solely to finance Borrowers’ insurance premiums under insurance policies maintained by such Borrower in the ordinary course of business for insurance required under this Agreement; and (ix) unsecured indebtedness incurred in respect of deferred payment of the purchase price in connection with a Permitted Acquisition, so long as, after incurring such indebtedness, such acquisition continues to satisfy all of the eligibility criteria of a Permitted Acquisition required under this Agreement.

13.3. Liens.

No Borrower shall, and shall not permit any other Loan Party to grant or permit to exist (voluntarily or involuntarily) any lien, claim, security interest or other encumbrance whatsoever on any of its assets, other than Permitted Liens.

13.4. Mergers, Sales, Acquisitions, Subsidiaries and Other Transactions Outside the Ordinary Course of Business.

No Borrower shall, and shall not permit any other Loan Party to (i) enter into any merger or consolidation; (ii) change the state of any Borrower’s organization or enter into any transaction which has the effect of changing any Borrower’s state of organization; (iii) sell, lease or otherwise dispose of any of its assets other than in the ordinary course of business; (iv) purchase the stock, other equity interests or all or a material portion of the assets of any Person or division of such Person; or (v) enter into any other transaction outside the ordinary course of Borrowers’ business, including, without limitation, any purchase, redemption or retirement of any shares of any class of its stock or any other equity interest, and any issuance of any shares of, or warrants or other rights to receive or purchase any shares of, any class of its stock or any other equity interest, except that any Borrower and any of its Subsidiaries may enter into any Permitted Acquisition and sell, lease or dispose of any of its assets as permitted in Section 7 of this Agreement and Parent may repurchase its stock pursuant to any stock repurchase program approved by its Board Directors. No Borrower shall enter into any joint ventures or partnerships with any other Person.

13.5. Dividends and Distributions.

No Borrower shall declare or pay any dividend or other distribution (whether in cash or in kind) on any class of its stock (if such Borrower is a corporation) or on account of any equity interest in such Borrower (if such Borrower is a partnership, limited liability company or other type of entity).

13.6. Investments; Loans.

No Borrower shall and shall not permit any other Loan Party to purchase or otherwise acquire, or contract to purchase or otherwise acquire, the obligations or stock of any Person, other than in connection with a Permitted Acquisition and other than direct obligations of the United States, obligations insured by the Federal Deposit Insurance Corporation and obligations unconditionally guaranteed by the United States; nor shall any Borrower lend or otherwise advance funds to any Person except for advances made to employees, officers and directors for travel and other expenses arising in the ordinary course of business.

13.7. Fundamental Changes, Line of Business.

No Borrower shall, and shall not permit any other Loan Party to (i) amend its organizational documents or change its Fiscal Year unless (w) such actions would not have a Material Adverse Effect; (x) such actions would not adversely affect the obligations of such Borrower or any Loan Party to Lender; (y) such actions would not adversely affect the interpretation of any of the terms of this Agreement or the other Loan Documents and (z) Lender has received ten (10) days prior written notice of such amendment or change or (ii) enter into a new line of business materially different from Borrowers’ current business.

13.8. Equipment.

No Borrower shall, and shall not permit any other Loan Party to (i) permit any Equipment to become a Fixture to real property unless such real property is owned by such Borrower or such Loan Party and is subject to a mortgage in favor of Lender, or if such real estate is leased, is subject to a landlord’s agreement in favor of Lender on terms acceptable to Lender, or (ii) permit any Equipment to become an accession to any other personal property unless such personal property is subject to a first priority lien in favor of Lender.

13.9. Affiliate Transactions.

Except as set forth on Schedule 11.9 hereto or as permitted pursuant to Section 11.3 hereof, no Borrower shall conduct, permit or suffer to be conducted, transactions with Affiliates other than transactions for the purchase or sale of Inventory or services in the ordinary course of business pursuant to terms that are no less favorable to such Borrower than the terms upon which such transactions would have been made had they been made to or with a Person that is not an Affiliate.

13.10. Settling of Accounts .

No Borrower shall settle or adjust any Account identified by such Borrower as an Eligible Account or with respect to which the Account Debtor is an Affiliate without the consent of Lender, provided, that following the occurrence and during the continuance of an Event of Default, no Borrower shall settle or adjust any Account without the consent of Lender.

13.11. Management Fees.

No Borrower shall, and shall not permit any other Loan Party, to pay any management or consulting fees to any Persons other than an independent, unrelated third party.

SECTION 14 FINANCIAL COVENANTS.

Borrowers shall maintain and keep in full force and effect each of the financial covenants set forth below:

14.1. Fixed Charge Coverage.

Borrowers shall not permit the ratio of (i) EBITDA, less unfinanced Capital Expenditures, less dividends or distribution made by Borrowers to its shareholders, less payments made by Borrowers in respect of income or franchise taxes, less management fees paid by Borrowers to any Person, to (ii) Fixed Charges, to be less than 1.10 to 1.00: (a) as of October 31, 2016 for the trailing 10-month period; (b) as of November 31, 2016 for the trailing 11-month period; and (c) as of December 31, 2016 and the end of each calendar month thereafter for the trailing 12-month period. For purposes of calculating unfinanced Capital Expenditures, during the 12-month period after the Closing Date, all Capital Expenditures up to $6,000,000 in the aggregate shall be deemed financed Capital Expenditures during such 12-month period.

SECTION 15 DEFAULT.

The occurrence of any one or more of the following events shall constitute an “ Event of Default ” by Borrowers hereunder:

15.1. Payment.

The failure of any Loan Party to pay when due, declared due, or demanded by Lender, any of the Obligations.

15.2. Breach of this Agreement and the other Loan Documents.

The failure of any Loan Party to perform, keep or observe any of the covenants, conditions, promises, agreements or obligations of such Loan Party under this Agreement or any of the other Loan Documents; provided that any such failure by any Borrower under subsections 12.2.1, 12.2.4, 12.2.5, 12.2.6, 12.3 and 12.8 of this Agreement or by any Loan Party under any of the other Loan

Documents shall not constitute an Event of Default hereunder unless such failure continues past the thirtieth (30th) day following any Responsible Officer obtaining knowledge of the occurrence thereof.

15.3. Breaches of Other Obligations.

The failure of any Loan Party to perform, keep or observe (after any applicable notice and cure period) any of the covenants, conditions, promises, agreements or obligations of such Loan Party under any other agreement with any Person if such failure would reasonably be expected to have a Material Adverse Effect.

15.4. Breach of Representations and Warranties.

The making or furnishing by any Loan Party to Lender of any representation, warranty, certificate, schedule, report or other communication within or in connection with this Agreement or the other Loan Documents, which is untrue or misleading in any material respect as of the date made.

15.5. Loss of Collateral.

The uninsured loss, theft, damage or destruction of any of the Collateral in an amount in excess of $250,000 for any single instance or $500,000 in the aggregate, during any Fiscal Year.

15.6. Levy, Seizure or Attachment.

The making or any threat in writing by any Person to make any levy, seizure or attachment upon any of the Collateral in excess of $250,000.

15.7. Bankruptcy or Similar Proceedings.

The commencement of any proceedings in bankruptcy by or against any Loan Party or for the liquidation or reorganization of any Loan Party, or alleging that such Loan Party is insolvent or unable to pay its debts as they mature, or for the readjustment or arrangement of any Loan Party’s debts, whether under the United States Bankruptcy Code or under any other law, whether state or federal, now or hereafter existing, for the relief of debtors, or the commencement of any analogous statutory or non-statutory proceedings involving any Loan Party; provided, however, that if such commencement of proceedings against such Loan Party is involuntary, such action shall not constitute an Event of Default unless such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings , though Lender shall have no obligation to make Loans to or issue, or cause to be issued, Letters of Credit on behalf of any Borrower during such forty-five (45) day period or, if earlier, until such proceedings are dismissed.

15.8. Appointment of Receiver.

The appointment of a receiver or trustee for any Loan Party, for any of the Collateral or for any substantial part of any Loan Party ‘s assets or the institution of any proceedings for the dissolution, or the full or partial liquidation, or the merger or consolidation, of any Loan Party which is a corporation, limited liability company or a partnership; provided, however, that if such appointment or commencement of proceedings against such Loan Party is involuntary, such action shall not constitute an Event of Default unless such appointment is not revoked or such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings, though Lender shall have no obligation to make Loans to or issue, or cause to be issued, Letters of Credit on behalf of any Borrower during such forty-five (45) day period or, if earlier, until such appointment is revoked or such proceedings are dismissed.

15.9. Judgment.

The entry of any final, nonappealable judgments or orders for the payment of money aggregating in excess of $250,000 against any Loan Party which remains unsatisfied or undischarged and in effect for 45 days after such entry without a stay of enforcement or execution.

15.10 Death or Dissolution of Loan Party.

The death of any Loan Party who is a natural Person, or of any general partner who is a natural Person of any Loan Party which is a partnership, or any member who is a natural Person of any Loan Party which is a limited liability company or the dissolution of any Loan Party which is a partnership, limited liability company, corporation or other entity.

15.11. Revocation of Guaranty.

The revocation or termination of, any agreement, instrument or document executed and delivered by any Person to Lender pursuant to which such Person has guaranteed to Lender the payment of all or any of the Obligations or has granted Lender a security interest in or lien upon some or all of such Person’s real and/or personal property to secure the payment of all or any of the Obligations.

15.12. Criminal Proceedings.

The institution in any court of a criminal proceeding against any Loan Party which would have a Material Adverse Effect, or the indictment of any Loan Party for any crime which would have a Material Adverse Effect.

15.13. Change of Control.

The failure of Parent to own and have voting control of at least 100% of the issued and outstanding voting equity interests of each other Borrower.

SECTION 16 REMEDIES UPON AN EVENT OF DEFAULT.

16.1. Acceleration

Upon the occurrence and during the continuance of an Event of Default described in Sections 15.7 or 15.8 hereof, all of the Obligations shall immediately and automatically become due and payable, without notice of any kind ( provided , however , that notwithstanding the foregoing, Hedging Obligations shall only terminate in accordance with the terms of the relevant Hedging Agreement). Upon the occurrence and during the continuance of any other Event of Default, the Obligations may, at the option of Lender, in whole or in part at Lender’s sole discretion, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable.

16.2. Other Remedies .

Upon the occurrence and during the continuance of an Event of Default, Lender may exercise from time to time any rights and remedies available to it under the Uniform Commercial Code and any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement or in any of the other Loan Documents and all of Lender’s rights and remedies shall be cumulative and non-exclusive to the extent permitted by law. In particular, but not by way of limitation of the foregoing, Lender may, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral of which it already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter onto any Borrower’s premises where any of the Collateral may be, and search for, take possession of, remove, keep

and store any of the Collateral until the same shall be sold or otherwise disposed of, and Lender shall have the right to store the same at any Borrower’s premises without cost to Lender. At Lender’s request, Borrowers shall, at Borrowers’ expense, assemble the Collateral and make it available to Lender at one or more places to be designated by Lender and reasonably convenient to Lender and Borrowers. Each Borrower recognizes that if such Borrower fails to perform, observe or discharge any of its Obligations under this Agreement or the other Loan Documents, no remedy at law will provide adequate relief to Lender, and agrees that Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. Any notification of intended disposition of any of the Collateral required by law will be deemed to be a reasonable authenticated notification of disposition if given at least ten (10) days prior to such disposition and such notice shall (i) describe Lender and Borrowers, (ii) describe the Collateral that is the subject of the intended disposition, (iii) state the method of the intended disposition, (iv) state that Borrowers are entitled to an accounting of the Obligations and state the charge, if any, for an accounting and (v) state the time and place of any public disposition or the time after which any private sale is to be made. Lender may disclaim any warranties that might arise in connection with the sale, lease or other disposition of the Collateral and has no obligation to provide any warranties at such time. Any Proceeds of any disposition by Lender of any of the Collateral may be applied by Lender to the payment of expenses in connection with the Collateral, including, without limitation, legal expenses and reasonable attorneys’ fees, and any balance of such Proceeds and all other payments received by Lender during the continuance of an Event of Default shall be applied by Lender toward the payment of such of the Obligations, and in such order of application, as Lender may from time to time elect.

SECTION 17 CONDITIONS PRECEDENT.

17.1. Conditions to Initial Loans.

The obligation of Lender to fund the initial Revolving Loan, and to issue or cause to be issued the initial Letter of Credit, is subject to the satisfaction or waiver of the following conditions precedent (and the date on which all such conditions precedent have been satisfied and the initial Loans are advanced by Lender is called the “Closing Date”):

(a) Lender shall have received each of the agreements, opinions, reports, approvals, consents, certificates and other documents reasonably requested by Lender, in each case in form and substance reasonably satisfactory to Lender;

(b) Since January 1, 2016, no event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect, as determined by Lender in its sole discretion, determined in good faith;

(c) Lender shall have received payment in full of all fees and expenses payable to it by Borrowers or any other Person in connection herewith, on or before disbursement of the initial Loans hereunder;

(d) Lender shall have determined that immediately after giving effect to (A) the making of the initial Loans, including without limitation the Revolving Loans, if any, requested to be made on the Closing Date, (B) the issuance of the initial Letter of Credit, if any, requested to be made on such date, (C) the payment of all fees due upon such date and (D) the payment or reimbursement by Borrowers of Lender for all closing costs and expenses incurred in connection with the transactions contemplated hereby, Revolving Loan Availability is at least $5,000,000; and

(e) The Loan Parties shall have executed and delivered to Lender all such other documents, instruments and agreements which Lender determines are reasonably necessary to consummate the transactions contemplated hereby.

17.2. Conditions to All Loans .

Lender shall not be obligated to fund any Loans, arrange for the issuance of any Letters of Credit or grant any other accommodation for the benefit of any Borrower, unless the following conditions are satisfied:

(a) No Event of Default shall exist at the time of or result from such funding, issuance or grant; and

(b) The representations and warranties of each Loan Party in this Agreement and the other Loan Documents shall be true and correct in all material respects as of the date of, and immediately after giving effect to, such funding, issuance or grant (except for representations and warranties that expressly relate to an earlier date which must be true and correct as of such earlier date).

(c) No event shall have occurred or circumstances exist that has or would reasonably be expected to have a Material Adverse Effect.

Each request (or deemed request) by any Borrower for funding of a Loan, issuance of a Letter of Credit or grant of an accommodation shall constitute a representation by such Borrower that the foregoing conditions are satisfied on the date of such request and on the date of such funding, issuance or grant. As an additional condition to any funding, issuance or grant, Lender shall have received such other information, documents, instruments and agreements as it reasonably deems appropriate in connection therewith.

SECTION 18 MISCELLANEOUS.

18.1. Assignments; Participations.

18.1.1. Assignments . (a) Lender may at any time assign to any Person that is a financial institution (any such Person, an “ Assignee ”) all but not less than all of its Loans and Revolving Loan Commitment and its interest in each of the Loan Documents; provided that the consent of Borrowers (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment, (y) such assignment is to an Affiliate of Lender, or (z) such assignment is to an Eligible Assignee (as hereinafter defined). For the purposes of this Section, the term “ Eligible Assignee ” shall mean any of the following so long as such Person provides Bank Products the same or substantially similar to those then provided to Borrowers by Lender: (i) a commercial bank, trust company, insurance company, investment bank or pension fund organized under the laws of the United States of America, or any state thereof and having total assets in excess of $250,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States of America, or any state thereof, and having a tangible net worth of at least $250,000,000; or (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having total assets in excess of $250,000,000, provided that such bank is acting through a branch or agency located in the United States of America. Notwithstanding the foregoing, any banking association or corporation into which Lender may be merged, converted or with which Lender may be consolidated, or any banking association or corporation resulting from any merger, conversion or consolidation to which Lender shall be a party, shall succeed to all of Lender’s rights and obligations hereunder without any requirement to obtain the prior written consent of any Borrower.

(b) Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release

Lender from any of its obligations hereunder or substitute any such pledgee or assignee for Lender as a party hereto.

18.1.2. Participations . Lender may at any time upon written notice to Borrowers sell to one or more Persons participating interests in its Loans, Revolving Loan Commitment or other interests hereunder (any such Person, a “ Participant ”). In the event of a sale by Lender of a participating interest to a Participant, (a) Lender’s obligations hereunder shall remain unchanged for all purposes, (b) Borrowers shall continue to deal solely and directly with Lender in connection with Lender’s rights and obligations hereunder and (c) all amounts payable by Borrowers shall be determined as if Lender had not sold such participation and shall be paid directly to Lender. Each Borrower agrees that if amounts outstanding under this Agreement are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and with respect to any Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as Lender under this Agreement; provided that such right of set-off shall be subject to the obligation of each Participant to share with Lender, and Lender agrees to share with each Participant, on a pro rata basis. Each Borrower also agrees that each Participant shall be entitled to the benefits of Section 4.2 or 4.4 as if it were Lender ( provided that on the date of the participation no Participant shall be entitled to any greater compensation pursuant to Section 4.2 or 4.4 than would have been paid to Lender on such date if no participation had been sold.

18.2. Customer Identification - USA Patriot Act Notice.

Lender (for itself and not on behalf of any other party) hereby notifies the Loan Parties that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56, signed into law October 26, 2001 (the “ USA Patriot Act ”), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of the Loan Parties and other information that will allow Lender, as applicable, to identify the Loan Parties in accordance with the Act.

18.3. Indemnification by Borrowers:

IN CONSIDERATION OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT LENDER AND THE AGREEMENT TO EXTEND THE COMMITMENTS PROVIDED HEREUNDER, BORROWER HEREBY AGREES TO INDEMNIFY, EXONERATE AND HOLD LENDER AND EACH OF THE OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES AND AGENTS OF LENDER (EACH A “ LENDER PARTY ”) FREE AND HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, LOSSES, LIABILITIES, DAMAGES AND EXPENSES, INCLUDING REASONABLE ATTORNEY COSTS (COLLECTIVELY, THE “ INDEMNIFIED LIABILITIES ”), INCURRED BY LENDER PARTIES OR ANY OF THEM AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO (A) ANY TENDER OFFER, MERGER, PURCHASE OF CAPITAL SECURITIES, PURCHASE OF ASSETS OR OTHER SIMILAR TRANSACTION FINANCED OR PROPOSED TO BE FINANCED IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, WITH THE PROCEEDS OF ANY OF THE LOANS, (B) THE USE, HANDLING, RELEASE, EMISSION, DISCHARGE, TRANSPORTATION, STORAGE, TREATMENT OR DISPOSAL OF ANY HAZARDOUS MATERIAL AT ANY PROPERTY OWNED OR LEASED BY ANY LOAN PARTY, (C) ANY VIOLATION OF ANY ENVIRONMENTAL LAWS WITH RESPECT TO CONDITIONS AT ANY PROPERTY OWNED OR LEASED BY ANY LOAN PARTY OR THE OPERATIONS CONDUCTED THEREON, (D) THE INVESTIGATION, CLEANUP OR REMEDIATION OF OFFSITE LOCATIONS AT WHICH ANY LOAN PARTY OR THEIR RESPECTIVE PREDECESSORS ARE ALLEGED TO HAVE DIRECTLY OR INDIRECTLY DISPOSED OF HAZARDOUS MATERIALS OR (E) THE EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY ANY OF LENDER PARTIES, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF THE APPLICABLE LENDER PARTY’S GROSS

NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A FINAL, NONAPPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, BORROWER HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION 18.3 SHALL SURVIVE REPAYMENT OF THE LOANS, CANCELLATION OF THE NOTES, EXPIRATION OR TERMINATION OF THE LETTERS OF CREDIT, ANY FORECLOSURE UNDER, OR ANY MODIFICATION, RELEASE OR DISCHARGE OF, ANY OR ALL OF THE COLLATERAL DOCUMENTS AND TERMINATION OF THIS AGREEMENT.

18.4. Notice.

All written notices and other written communications with respect to this Agreement shall be sent by ordinary, certified or overnight mail, by telecopy or delivered in person, and (i) in the case of Lender shall be sent to it at 120 South LaSalle Street, Suite 200, Chicago, Illinois 60603, Attention: Susan Lanz, with a copy to Horwood Marcus & Berk Chartered, 500 West Madison, Suite 3700, Chicago, Illinois 60661, Attention: Ati P. Khatri, and (ii) in the case of Borrowers shall be sent to them at c/o Broadwind Energy, Inc., 3240 South Central Avenue, Cicero, Illinois 60804, Attention: Stephanie K. Kushner, with a copy to Thompson Coburn LLP, One US Bank Plaza, St. Louis, Missouri 63101, Attention: Ruthanne C. Hammett or as otherwise directed by Borrowers in writing. All notices shall be deemed received upon actual receipt thereof or refusal of delivery.

18.5. Modification and Benefit of Agreement.

This Agreement and the other Loan Documents may not be modified, altered or amended except by an agreement in writing signed by Borrowers or such other Person who is a party to such other Loan Document and Lender.

18.6. Headings of Subdivisions .

The headings of subdivisions in this Agreement are for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Agreement.

18.7. Power of Attorney.

Each Borrower acknowledges and agrees that its appointment of Lender as its attorney and agent-in-fact for the purposes specified in this Agreement is an appointment coupled with an interest and shall be irrevocable until all of the Obligations are satisfied and paid in full and this Agreement is terminated.

18.8. Confidentiality.

Lender hereby agrees to use commercially reasonable efforts to assure that any and all information relating to Borrowers which is (i) furnished by Borrowers to Lender (or to any Affiliate of Lender); and (ii) non-public, confidential or proprietary in nature, shall be kept confidential by Lender or such Affiliate in accordance with applicable law; provided, however, that such information and other credit information relating to Borrowers may be distributed by Lender or such Affiliate to Lender’s or such Affiliate’s directors, managers, officers, employees, attorneys, Affiliates, assignees, participants, auditors, agents and regulators (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such Information confidential), and upon the order of a court or other governmental agency having jurisdiction over Lender or such Affiliate, to any other party. In addition such information and other credit information may be distributed by Lender to potential participants or assignees of any portion of the Obligations, provided,

that such potential participant or assignee agrees in writing to follow the confidentiality requirements set forth herein. Borrowers and Lender further agree that this provision shall survive the termination of this Agreement. Notwithstanding the foregoing, each Borrower hereby consents to Lender publishing a tombstone or similar advertising material relating to the financing transaction contemplated by this Agreement, the content and timing of publication of which has been approved by Parent in its Permitted Discretion.

18.9. Counterparts.

This Agreement, any of the other Loan Documents, and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when so executed and delivered, shall be deemed an original, but all of which counterparts together shall constitute but one agreement.

18.10. Electronic Submissions.

Lender may permit or require that any of the documents, certificates, forms, deliveries or other communications, authorized, required or contemplated by this Agreement or the other Loan Documents, be submitted to Lender in “Approved Electronic Form” (as hereafter defined), subject to any reasonable terms, conditions and requirements in the applicable Approved Electronic Forms Notice. For purposes hereof “ Electronic Form ” means e-mail, e-mail attachments, data submitted on web-based forms or any other communication method that delivers machine readable data or information to Lender, “ Approved Electronic Form ” means an Electronic Form that has been approved by Lender (which approval has not been revoked or modified by Lender) and “ Approved Electronic Communication ” means each notice, demand, communication, information, document and other material transmitted, posted or otherwise made or communicated by e-mail, internet portal or other electronic platform. Except as otherwise specifically provided in the applicable Approved Electronic Form Notice, any submissions made in an applicable Approved Electronic Form shall have the same force and effect that the same submissions would have had if they had been submitted in any other applicable form authorized, required or contemplated by this Agreement or the other Loan Documents. Approved Electronic Communications that do not bear or are not readily capable of bearing either a signature or a reproduction of a signature shall be deemed signed, by attaching to, or logically associating with such Approved Electronic Communication an electronic symbol, encryption, digital signature or process (including the name or an abbreviation of the name of the party or the company transmitting the Approved Electronic Communication), and Lender is entitled to rely on such Approved Electronic Communications as signed. Each of the Loan Parties and Lender hereby acknowledge and agree that the use of Approved Electronic Communications is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each assumes and accepts such risks by hereby authorizing each of the Lender and its Affiliates to accept and transmit Approved Electronic Communications.

18.11. Waiver of Jury Trial: Other Waivers .

(a) BORROWERS AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER OR WHICH, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWERS AND LENDER UNDER THIS AGREEMENT. IN NO EVENT SHALL ANY PARTY BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.

(b) Each Borrower hereby waives demand, presentment, protest and notice of nonpayment, and further waives the benefit of all valuation, appraisal and exemption laws.

(c) Each Borrower hereby waives the benefit of any law that would otherwise restrict or limit Lender or any Affiliate of Lender in the exercise of its right, which is hereby acknowledged and agreed to, to set-off against the Obligations, without notice at any time hereafter, any indebtedness, matured or unmatured, owing by Lender or such Affiliate of Lender to such Borrower, including, without limitation any Deposit Account at Lender or such Affiliate.

(d) EACH BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF SUCH BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH COLLATERAL, PROVIDED THAT IN THE EVENT THAT LENDER SEEKS TO ENFORCE ITS RIGHTS HEREUNDER BY JUDICIAL PROCESS OR SELF HELP, LENDER SHALL PROVIDE BORROWERS WITH SUCH NOTICES AS ARE REQUIRED BY LAW.

Lender’s failure, at any time or times hereafter, to require strict performance by any Borrower of any provision of this Agreement or any of the other Loan Documents shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of an Event of Default under this Agreement or any default under any of the other Loan Documents shall not suspend, waive or affect any other Event of Default under this Agreement or any other default under any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. No delay on the part of Lender in the exercise of any right or remedy under this Agreement or any other Loan Document shall preclude other or further exercise thereof or the exercise of any right or remedy. None of the undertakings, agreements, warranties, covenants and representations of any Borrower contained in this Agreement or any of the other Loan Documents and no Event of Default under this Agreement or default under any of the other Loan Documents shall be deemed to have been suspended or waived by Lender unless such suspension or waiver is in writing, signed by a duly authorized officer of Lender and directed to Borrowers specifying such suspension or waiver.

18.12. Choice of Governing Laws; Construction; Forum Selection .

This Agreement and the other Loan Documents are submitted by each Borrower to Lender for Lender’s acceptance or rejection at Lender’s principal place of business as an offer by such Borrower to borrow monies from Lender now and from time to time hereafter, and shall not be binding upon Lender or become effective until accepted by Lender, in writing, at said place of business. If so accepted by Lender, this Agreement and the other Loan Documents shall be deemed to have been made at said place of business. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or remaining provisions of this Agreement.

Each Borrower and by its acceptance hereof, Lender, irrevocably agrees that, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWERS AND LENDER HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL

COURTS LOCATED WITHIN SAID CITY AND STATE . BORROWERS AND LENDER HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWERS OR LENDER, AS THE CASE MAY BE, BY CERTIFIED, OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWERS OR LENDER, AS THE CASE MAY BE, AT THE ADDRESS SET FORTH FOR NOTICE IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED . Failure of a party to provide a copy of such process shall not impair such party’s rights hereunder, create a cause of action against such party or create any claim or right on behalf of any Borrower or any third party. BORROWERS AND LENDER HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST EITHER PARTY BY THE OTHER IN ACCORDANCE WITH THIS SECTION.

SECTION 19 NONLIABILITY OF LENDER

The relationship between Borrowers on the one hand and Lender on the other hand shall be solely that of borrower and lender. Lender has no fiduciary relationship with or duty to any Loan Party arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Loan Parties, on the one hand, and Lender, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. Lender undertakes no responsibility to any Loan Party to review or inform any Loan Party of any matter in connection with any phase of any Loan Party’s business or operations. Each Borrower agrees, on behalf of itself and each other Loan Party, that Lender shall have no liability to any Loan Party (whether sounding in tort, contract or otherwise) for losses suffered by any Loan Party in connection with, arising out of, or in any way related to the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. NO LENDER PARTY SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS OF ANY INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT, NOR SHALL ANY LENDER PARTY HAVE ANY LIABILITY WITH RESPECT TO, AND BORROWER ON BEHALF OF ITSELF AND EACH OTHER LOAN PARTY, HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE FOR ANY SPECIAL, PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR AFTER THE CLOSING DATE) . Each Borrower acknowledges that it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party. No joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Loan Parties and Lender.

[ Signature Page Follows .]

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

By:___________________________________
Name:

_____________________________________________________

By:___________________________________
Name:

_____________________________________________________

BORROWERS :

BROADWIND ENERGY, INC.

By: /s/ Stephanie K. Kushner
Name: Stephanie K. Kushner

Title: President, Chief Executive Officer

LENDER :

THE PRIVATEBANK AND TRUST COMPANY

By: /s/ Tom Hunt
Name: Tom Hunt

Title: Managing Director

BRAD FOOTE GEAR WORKS, INC.

By: /s/ Stephanie K. Kushner
Name: Stephanie K. Kushner

Title: Authorized Signatory

BROADWIND TOWERS, INC.

By: /s/ Stephanie K. Kushner
Name: Stephanie K. Kushner

Title: Authorized Signatory

BROADWIND SERVICES, LLC

By: /s/ Stephanie K. Kushner
Name: Stephanie K. Kushner

Title: Authorized Signatory

EXHIBIT A – COMPLIANCE CERTIFICATE

Attached to and made a part of that certain Loan and Security Agreement, dated October 26, 2016 (as the same may be amended or restated from time to time, the “ Agreement ”), by and among BROADWIND ENERGY, INC., a Delaware corporation (“ Parent ”), BRAD FOOTE GEAR WORKS, INC., an Illinois corporation (“ Brad Foote ”), BROADWIND TOWERS, INC., a Wisconsin corporation (“ Towers ”), BROADWIND SERVICES, LLC, a Delaware limited liability company (“ Services ,” and collectively with Parent, Brad Foote and Towers, “ Borrowers ,” and each, a “ Borrower ”), and THE PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (“ Lender ”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.

This Certificate is submitted pursuant to Section 9.3 of the Agreement.

The undersigned hereby certifies to Lender that as of the date of this Certificate:

1. The undersigned is the _____________________ of Borrowers.

2. There exists no event or circumstance which is or which with the passage of time, the giving of notice, or both would constitute an Event of Default, as that term is defined in the Agreement, or, if such an event of circumstance exists, a writing attached hereto specifies the nature thereof, the period of existence thereof and the action that each Borrower has taken or proposes to take with respect thereto.

3. No material adverse change in the condition, financial or otherwise, business, property, or results of operations of any Borrower has occurred since [ date of last Compliance Certificate/last financial statements delivered prior to closing ], or, if such a change has occurred, a writing attached hereto specifies the nature thereof and the action that each Borrower has taken or proposes to take with respect thereto.

4. The representations and warranties in the Agreement are true and correct in all material respects, or, if not, a writing attached hereto specifies the nature thereof, the period of existence thereof and the action that such Borrower has taken or proposes to take with respect thereto.

5. The financial statements of Borrowers being concurrently delivered herewith have been prepared in accordance with GAAP consistently applied and there have been no material changes in accounting policies or financial reporting practices of Borrowers since [ date of the last Compliance Certificate/date of last financial statements delivered prior to closing ] or, if any such change has occurred, such changes are set forth in a writing attached hereto.

6. Attached hereto is a true and correct calculation of the financial covenants contained in the Agreement.

Dated: __________, 20__

By:_____________________________________________
Name:

Title:

EXHIBIT B

FORM OF NOTICE OF BORROWING

To: The PrivateBank and Trust Company, as Lender

Reference is made to that certain Loan and Security Agreement, dated October 26, 2016 (as the same may be amended or restated from time to time, the “ Loan Agreement ”), by and among BROADWIND ENERGY, INC., a Delaware corporation (“ Parent ”), BRAD FOOTE GEAR WORKS, INC., an Illinois corporation (“ Brad Foote ”), BROADWIND TOWERS, INC., a Wisconsin corporation (“ Towers ”), BROADWIND SERVICES, LLC, a Delaware limited liability company (“ Services ,” and collectively with Parent, Brad Foote and Towers, “ Borrowers ,” and each, a “ Borrower ”), and THE PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (“ Lender ”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

The undersigned hereby gives irrevocable notice, pursuant to Section 2.2.2 of the Loan Agreement, of a request hereby for a borrowing as follows:

(i) The requested borrowing date for the proposed borrowing (which is a Business Day) is ______________, ____.

(ii) The aggregate amount of the proposed borrowing is $______________.

(iii) The type of Revolving Loans comprising the proposed borrowing are [Base Rate] [LIBOR] Loans.

(iv) The duration of the Interest Period for each LIBOR Loan made as part of the proposed borrowing, if applicable, is ___________ months (which shall be 1, 2 or 3).

The undersigned hereby certifies that on the date hereof and on the date of borrowing set forth above, and immediately after giving effect to the borrowing requested hereby: (i) there exists and there shall exist no Event of Default under the Loan Agreement; (ii) the representations and warranties of each Loan Party in the Loan Agreement and the other Loan Documents are true and correct in all material respects as of the date hereof, and after giving effect to such borrowing (except for representations and warranties that expressly relate to an earlier date which must be true and correct as of such earlier date) and (iii) no event has occurred or circumstances exist that has or would reasonably be expected to have a Material Adverse Effect.

Each Borrower has caused this Notice of Borrowing to be executed and delivered by its officer thereunto duly authorized on ___________, ______.

By:_____________________________________________
Name:

Title:

EXHIBIT C

FORM OF NOTICE OF CONVERSION/CONTINUATION

To: The PrivateBank and Trust Company, as Lender

The undersigned hereby gives irrevocable notice, pursuant to Section 2.2.3 of the Loan Agreement, of its request to:

(a) on [ date ] convert $[________]of the aggregate outstanding principal amount of the [_______] Loan, bearing interest at the [________] Rate, into a(n) [________] Loan [and, in the case of a LIBOR Loan, having an Interest Period of [_____] month(s)];

[(b) on [ date ] continue $[________]of the aggregate outstanding principal amount of the [_______] Loan, bearing interest at the LIBOR Rate, as a LIBOR Loan having an Interest Period of [_____] month(s)].

The undersigned hereby represents and warrants that all of the conditions contained in Section 17.2 of the Loan Agreement have been satisfied on and as of the date hereof, and will continue to be satisfied on and as of the date of the conversion/continuation requested hereby, before and after giving effect thereto.

Each Borrower has caused this Notice of Conversion/Continuation to be executed and delivered by its officer thereunto duly authorized on ___________, ______.

By:_____________________________________________
Name:

Title:

SCHEDULE 1 – PERMITTED LIENS

(See Attached)

SCHEDULE 11.2 – BUSINESS AND COLLATERAL LOCATIONS

Attached to and made a part of that certain Loan and Security Agreement of even date herewith by and among BROADWIND ENERGY, INC., a Delaware corporation (“ Parent ”), BRAD FOOTE GEAR WORKS, INC., an Illinois corporation (“ Brad Foote ”), BROADWIND TOWERS, INC., a Wisconsin corporation (“ Towers ”), BROADWIND SERVICES, LLC, a Delaware limited liability company (“ Services ,” and collectively with Parent, Brad Foote and Towers, “ Borrowers ,” and each, a “ Borrower ”), and THE PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (“ Lender ”).

A. Each Borrower’s business locations (please indicate by an asterisk (*) which location is the principal place of business and at which locations originals and all copies of each Borrower’s books, records and accounts are kept).

Owned Locations :

Borrower	Property Address
Towers	1126 N. Arnold Blvd., Abilene, TX 79603
Brad Foote	1310 S. 47 th Ave., Cicero, IL 60804 (vacant)
Brad Foote (via 1309 South Cicero Avenue, LLC)	1309 S. Cicero Ave., Cicero, IL 60804 (vacant)
Brad Foote (via 5100 Neville Road, LLC)	5100 Neville Road, Pittsburgh, PA 15225

Leased Locations :

Borrower	Property Address
Parent (subleased from Brad Foote)	3240 S. Central Ave., Cicero, IL 60804*
Brad Foote	3250 S. Central Ave., Cicero, IL 60804*
Services/Towers	300 Wall St., Abilene, TX 79603*
Towers	100 S. 16 th St., Manitowoc, WI 54221*
Towers	101 S. 16 th St., Manitowoc, WI 54221
Towers	500 S. 16 th St., Manitowoc, WI 54221
Towers	CTH Q, Manitowoc County, WI

B. Other locations of Collateral (including, without limitation, warehouse locations, processing locations, consignment locations) and all post office boxes of each Borrower. Please indicate the relationship of such location to each Borrower (i.e. public warehouse, processor, etc.).

Towers: PO Box 1957, Manitowoc, WI 54221.

C. Bank Accounts of each Borrower (other than those at Lender):

Bank (with address)

Account Number

Type of Account

Capital One Bank

505 Main Street

Suite 300

Fort Worth, TX 76102

00003620880069

Operating – used for New Markets Tax Credit Security Agreement only

Capital One Bank

505 Main Street

Suite 300

Fort Worth, TX 76102

00003620880050

Operating – used for New Markets Tax Credit Security Agreement only

Wells Fargo Bank

10 S. Wacker Drive

16th Floor

Chicago, IL 60606

3643553245

CD- Collateral for P-Card Program

Oppenheimer & Co.

200 Park Ave.

24 th Floor

New York, NY 10166

G241633101

Investment Account

SCHEDULE 11.7 – LITIGATION

None.

SCHEDULE 11.9– AFFILIATE TRANSACTIONS

Unwritten (accounting entry only) sublease of the real property located at 3240 S. Central Ave., Cicero, IL 60804 by Brad Foote Gear Works, Inc. to Broadwind Energy, Inc.

SCHEDULE 11.10 – NAMES & TRADE NAMES

Borrower	Former Name(s) within Past 5 Years	Assumed Name(s)
Parent	N/A	N/A
Brad Foote	N/A	Brad Foote Gearing (IL, PA)
Services	N/A	N/A
Towers	N/A	Broadwind Heavy Industries

SCHEDULE 11.16 – PARENT AND SUBSIDIARIES

Borrower	Parent Corporation	Subsidiaries
Broadwind Energy, Inc.	N/A – publicly traded (NASDAQ: BWEN)	Brad Foote Gear Works, Inc. Broadwind Towers, Inc. Broadwind Services, LLC 1309 South Cicero Avenue, LLC 5100 Neville Road, LLC
Brad Foote Gear Works, Inc.	Broadwind Energy, Inc.	1309 South Cicero Avenue, LLC 5100 Neville Road, LLC
Broadwind Towers, Inc.	Broadwind Energy, Inc.	None
Broadwind Services, LLC	Broadwind Energy, Inc.	None

SCHEDULE 13.2 – INDEBTEDNESS

New Markets Tax Credit Financing

Loan Agreement dated July 20, 2011 by and between Broadwind Services, LLC (as Borrower), and AMCREF Fund VII, LLC (as Lender), as amended , restated, modified or supplemented from time to time.

Development Corporation of Abilene

Agreement for Financial Assistance effective August 24, 2016 between Development Corporation of Abilene, Inc. (“DCOA”) and Broadwind Towers, Inc. and related Promissory Note of Broadwind Towers, Inc. payable to DCOA in the principal amount of $605,000 and Corporate Guaranty of Broadwind Energy, Inc. in favor of DCOA.

Material Personal Property Leases:

Operating leases:
Operating lease description	Lessee	Lessor	Inception Date	Maturity Date	Monthly Payment Amount
Komatsu Forklifts (4)	Brad Foote	Wells Fargo	12/13/12	12/31/17	$1,400
Komatsu Forklifts (1)	Brad Foote	Wells Fargo	12/01/12	12/01/17	$350
BOOM 30-33' ARTICULATING DC	Towers	Toyota	04/01/16	03/31/20	$686
BOOM 30-33' ARTICULATING DC	Towers	Toyota	04/01/16	03/31/20	$686
BOOM 30-33' ARTICULATING DC	Towers	Toyota	04/01/16	03/31/20	$86
FORKLIFT WHSE 5000# DIESEL	Towers	Toyota	04/01/16	03/31/20	$364
FORKLIFT WHSE 5000# DIESEL	Towers	Toyota	04/01/16	03/31/20	$364
FORKLIFT WHSE 5000# PNEUMATIC	Towers	Toyota	04/01/16	03/31/20	$364
Total					$4,300

Capital leases:
Asset description	Lessee	Inception Date	Maturity Date	Interest Rate	Monthly Payment Amount
BOOM 37-44' TELESCOPIC	Towers	04/01/16	03/01/20	3.58%	$1,641
BOOM 40-50' ARTICULATING	Towers	04/01/16	03/01/20	3.58%	$1,653
BOOM 60-64' TELESCOPIC	Towers	04/01/16	03/01/20	3.58%	$2,089
FORKLIFT VARIABLE REACH 5000# 16-20'	Towers	04/01/16	03/01/20	3.58%	$1,278
FORKLIFT VARIABLE REACH 8000# 40-49'	Towers	04/01/16	03/01/20	3.58%	$2,059
FORKLIFT VARIABLE REACH 9000# 30-45'	Towers	04/01/16	03/01/20	3.58%	$2,700
FORKLIFT VARIABLE REACH 9000# 30-45'	Towers	04/01/16	03/01/20	3.58%	$2,700
SCISSOR LIFT 19' ELECTRIC	Towers	04/01/16	03/01/20	3.58%	$251
Total					$14,371

EXHIBIT 31

CERTIFICATION

I, Stephanie K. Kushner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Broadwind Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


October 28, 2016

	/s/ STEPHANIE K. KUSHNER
	Stephanie K. Kushner
	President, Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer and Principal Financial Officer)

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Broadwind Energy, Inc. (the “Company”) for the period ended Setpember 30, 2016, as filed with the Securities and Exchange Commission (the “Commission”) on the date hereof (the “Report”), I, Stephanie K. Kushner, President, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

(i) the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


October 28, 2016

	/s/ STEPHANIE K. KUSHNER
	Stephanie K. Kushner
	President, Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer and Principal Financial Officer)

This certification accompanies the Report pursuant to Section 906 and shall not be deemed filed by the Company for purposes of Section 18 of the Exchange Act.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Commission or its staff upon request.