CONDITIONAL WAIVER AND MODIFICATION TO LOAN AND SECURITY AGREEMENT
CONDITIONAL
WAIVER AND MODIFICATION
This
Conditional Waiver and Modification to
Loan and Security Agreement (this
“Modification”)
is entered into as of December 13, 2010 and with an effective date of October
18, 2010 (the “Effective
Date”), by
and between PARTNERS FOR GROWTH II, L.P. ("PFG") and each of Composite
Technology Corporation, CTC Cable Corporation and CTC Renewables Corporation,
each with their principal business address at 0000 XxXxx Xxxxxx, Xxxxxx, XX
00000 (individually and collectively, jointly and severally,
"Borrower"). Capitalized terms used herein without definition shall
have the same meanings given them in the Loan Agreement and the Warrants (as
defined below).
Recitals
A. Borrower
and PFG have entered into that certain Loan and Security Agreement dated as of
April 12, 2010, as amended and modified from time to time (the “Loan
Agreement”), and together with such documents, instruments and security
agreements as were executed reasonably contemporaneously with or in connection
with the Loan Agreement, the “Loan
Documents”), pursuant to which PFG has extended and conditionally-agreed
to make available to Borrower certain advances of money.
B. On
April 12, 2010, Borrower, Composite Technology Corporation (“CTC”)
issued a warrant to purchase 5,000,000 shares of CTC’s common stock at an
Exchange Price of $0.29 per share (“Warrant
#1”) and a warrant to purchase 5,000,000 shares of CTC’s common stock at
an Exchange Price of $1.00 per share (“Warrant
#2” and, collectively with Warrant #1, the “Warrants”)
C. Borrower
has notified PFG that it is in breach of the Cumulative Operating Income
(Losses) financial covenant set forth in Section 5 of the Schedule to the Loan
Agreement for the period ended September 30, 2010 (the “Specified
Default”).
D. Subject
to the truth and accuracy of the representations and warranties of Borrower set
forth herein and subject to the other terms and conditions set forth in this
Modification, PFG is willing to waive the Specified Default, forbear from
exercising remedies under the Loan Agreement based on the Specified Default and
otherwise modify the Loan Documents as specified herein.
agreement
1. Conditional
Waiver; Warrant Restatement. Subject to each of the
following conditions: (a) satisfaction of the terms of Section 6 hereof; and (b)
there being no Default or Event of Default under the Loan Documents other than
the Specified Default, PFG hereby: (i) agrees to modify the Loan Agreement as
specified in Section 2.1, and (ii) waives the Specified Default. The
amendment and restatement of the Warrants is unconditional and effective on the
date hereof.
2.
Modification
of Loan Documents.
2.1 Modification of Loan
Agreement. To Section 8 of the Schedule is added a new
paragraph (c), as follows:
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(c)
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Security
Deposit. On a monthly basis within three (3) Business
Day after the Date of Determination, Borrower shall deposit with PFG as
additional security for the Obligations, an amount equal to the cumulative
shortfall between the required minimum Cumulative Operating Income
(Losses) specified in Section 5 of this Schedule and Borrower’s actual
Cumulative Operating Income (Losses) realized by Borrower during each such
monthly period (the “Security Deposit”). To
the extent that Borrower’s performance during any subsequent measurement
period would reduce the afore-specified cumulative shortfall, PFG shall
return to Borrower the amount that represents the excess of the Security
Deposit then held by PFG over the cumulative shortfall as at the last
Measurement Date. PFG shall return such excess Security Deposit within
three (3) Business Days of the date Borrower certifies its compliance with
the Cumulative Operating Income (Losses) financial covenant under Section
6(e) of the Schedule. For example only, Borrower is permitted a $5,000,000
Cumulative Operating Loss under Section 5 of the Schedule. If Borrower for
the month ending August 31, 2010 reported a Cumulative Operating Loss of
$5,500,000, Borrower would be required within one Business Day of the Date
of Determination to provide PFG a Security Deposit equal to $500,000. If
Borrower for the month ending September 30, 2010 reported a Cumulative
Operating Loss of $5,250,000, PFG would be required within three Business
Days of the Date of Determination to return $250,000 of the Security
Deposit to Borrower. If Borrower for the month ending October
31, 2010 reported a Cumulative Operating Loss of $4,800,000, PFG would be
required within three Business Days of the Date of Determination to return
the remaining $250,000 Security Deposit held by PFG to
Borrower. If Borrower for the month ending November 30, 2010
reported a Cumulative Operating Loss of $5,200,000, Borrower would be
required within three Business Days of the Date of Determination to
provide PFG a new Security Deposit equal to $200,000. PFG shall not be
required to pay over to Borrower the amount of any interest earned from
time to time on the Security Deposit and Borrower waives any claim to the
same. For the avoidance of doubt, Borrower may include the amount of the
Security Deposit in determining compliance with the financial
covenants set forth in Section 5 of the Schedule (such as, in determining
the “Cash” component of the Liquidity
Covenant).
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Definitions:
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“Date of Determination”
means the earlier of (i) the date on which Borrower’s Cumulative Operating
Income (Losses) under Section 5 of the Schedule is determinable, and (ii)
the date on which Borrower is required to certify its compliance with the
Cumulative Operating Income (Losses) financial covenant under Section 6(e)
of the Schedule.
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“Measurement Date” means
the last day of each calendar
month.
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2.2 Amendment of
Warrants. Warrant #1 and Warrant #2 are hereby amended and
restated in their entirety as appended to this Modification as Exhibit A and Exhibit B,
respectively (the “Restated
Warrants”).
2.3 Additional Reporting. Until
such time as PFG otherwise notifies Borrower to the contrary, Borrower shall
provide PFG, as an additional report required under Section 6 of the Loan
Agreement, a weekly cash flow report in such form as PFG shall advise to
Borrower.
3. Borrower’
Representations, Warranties and Covenants. Each Borrower
represents, warrants and covenants that:
(a) immediately
upon giving effect to this Modification (i) the representations and
warranties contained in the Loan Documents are true, accurate and complete in
all material respects as of the date hereof (except to the extent such
representations and warranties relate to an earlier date, in which case they are
true and correct as of such date), and (ii) no Event of Default has
occurred and is continuing;
(b) each
Borrower has the corporate power and authority to execute and deliver this
Modification and to perform its obligations under the Loan Agreement and the
Warrants, as amended by this Modification;
(c) the
articles of incorporation, bylaws and other organizational documents of each
Borrower delivered to PFG on or before the Effective Date remain true, accurate
and complete and have not been amended, supplemented or restated and are and
continue to be in full force and effect;
(d) the
execution and delivery by each Borrower of this Modification and the performance
by Borrower of its obligations under the Loan Agreement and Warrants has been
duly authorized by all necessary corporate action on the part of each entity
constituting Borrower;
(e) this
Modification has been duly authorized, executed and delivered by each Borrower
and constitutes a binding obligation of each Borrower, enforceable against each
Borrower, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws of
general application and equitable principles relating to or affecting creditors’
rights;
(f) this
Modification does not require the consent of any third party (including
stockholders) or such consent has been secured;
(g) this
Modification shall be binding upon all entities within the Borrower corporate
group, whether or not each such entity is party hereto and upon PFG’s request,
Borrower shall cause such other controlled entities to become party to the Loan
Documents, as additional Borrowers; and
(h) as
of the date hereof, it has no defenses against the obligations to pay any
amounts under the Obligations and it has no claims of any kind against
PFG. Borrower acknowledges that PFG has acted in good faith and has
conducted in a commercially reasonable manner its relationships with Borrower in
connection with this Modification and in connection with the Loan
Documents.
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Borrower
understands and acknowledges that PFG is entering into this Modification in
reliance upon, and in partial consideration for, the above representations and
warranties, and agrees that such reliance is reasonable and
appropriate.
4. Release. Each Borrower
hereby forever relieves, releases, and discharges PFG and each of its present or
former employees, officers, directors, agents, representatives, attorneys (the
“Indemnitees”),
from any and all possible claims, debts, liabilities, demands, obligations,
promises, acts, agreements, costs and expenses, actions and causes of action, of
every type, kind, nature, description or character, whether known or unknown,
suspected or unsuspected, absolute or contingent, arising out of or in any
manner connected with or related to facts, circumstances, issues, controversies
or claims existing since the beginning of time through and including (but not
after) the date of execution of this Modification, which any Borrower or any of
their respective partners, members, officers, agents or employees may now have
or may hereafter have (but only with respect to facts, circumstances, issues,
controversies or claims existing on or prior to the date of this Modification)
against the Indemnitees, if any, and irrespective of whether any of the
foregoing arise out of contract, tort, violation of laws or regulations or
otherwise, breach of fiduciary duty, breach of any duty of fair dealing, breach
of confidence, breach of funding commitment, undue influence, duress, economic
coercion, violation of any federal or state securities or Blue Sky laws or
regulations, conflict of interest, negligence, bad faith, malpractice,
violations of the racketeer Influenced and Corrupt Organizations Act,
intentional or negligent infliction of mental distress, tortuous interference
with contractual relations, tortuous interference with corporate governance or
prospective business advantage, deceptive trade practices, libel, slander,
conspiracy or any claim relating to the Loan Documents or the transactions
contemplated therein (collectively “Released
Claims”). Without limiting the
foregoing, the Released Claims shall include any and all liabilities or claims
arising out of or in any manner connected with or related to the Loan Documents,
the Recitals hereto, any instruments, agreements or documents executed in
connection with any of the foregoing or the origination, negotiation,
administration, servicing and/or enforcement of any of the
foregoing. In furtherance of this release, Borrower expressly
acknowledges and waives any and all rights under Section 1542 of the California
Civil Code, which provides as follows: “A general release does not
extend to claims which the creditor does not know or expect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.” By entering into this
release, Borrower recognizes that no facts or representations are ever
absolutely certain and it may hereafter discover facts in addition to or
different from those which it presently knows or believes to be true, but that
it is the intention of Borrower hereby to fully, finally and forever settle and
release all matters, disputes and differences, known or unknown, suspected or
unsuspected; accordingly, if any Borrower should subsequently discover that any
fact that it relied upon in entering into this release was untrue, or that any
understanding of the facts was incorrect, neither Borrower shall be entitled to
set aside this release by reason thereof, regardless of any claim of mistake of
fact or law or any other circumstances. Borrower acknowledges that it is not
relying upon and has not relied upon any representation or statement made by PFG
with respect to the facts underlying this release or with regard to any of such
party’s rights or asserted rights. This release may be pleaded as a full and
complete defense and/or as a cross-complaint or counterclaim against any action,
suit, or other proceeding that may be instituted, prosecuted or attempted in
breach of this release. Borrower acknowledges that the release contained herein
constitutes a material inducement to PFG to enter into this Modification, and
that PFG would not have done so but for PFG’s expectation that such release is
valid and enforceable in all events. Borrower hereby represents and
warrants to PFG, and PFG is relying thereon, as follows: (i) except as expressly
stated in this Modification, neither PFG nor any agent, employee or
representative of PFG has made any statement or representation to any Borrower
regarding any fact relied upon by any Borrower in entering into this
Modification; (ii) Borrower has made such investigation of the facts pertaining
to this Modification and all of the matters appertaining thereto, as it deems
necessary; (iii) the terms of this Modification are contractual and not a mere
recital; (iv) this Modification has been carefully read by Borrower, the
contents hereof are known and understood by Borrower, and this Modification is
signed freely, and without duress, by Borrower; (v) Borrower represents and
warrants that it is the sole and lawful owner of all right, title and interest
in and to every claim and every other matter which it releases herein, and that
it has not heretofore assigned or transferred, or purported to assign or
transfer, to any person, firm or entity any claims or other matters herein
released. Borrower shall indemnify PFG, defend and hold it harmless from and
against all claims based upon or arising in connection with prior assignments or
purported assignments or transfers of any claims or matters released
herein.
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5. Limitation. PFG’s
waiver set forth in this Modification shall be limited precisely as written and
shall not be deemed (a) to be a forbearance, waiver or modification of any other
term or condition of the Loan Documents or of any other instrument or agreement
referred to therein or to prejudice any right or remedy which PFG may now have
or may have in the future under or in connection with the Loan Documents or any
instrument or agreement referred to therein; (b) to constitute a modification or
waiver of any rate of interest applicable to outstanding monetary Obligations,
(c) to be a consent to any future amendment or modification, forbearance or
waiver to any instrument or agreement the execution and delivery of which is
consented to hereby, or to any waiver of any of the provisions thereof; or
(d) to limit or impair PFG’s right to demand strict performance of all terms and
covenants of any of the Loan Documents as of any date. Except as
expressly amended hereby, the Loan Documents and each of them shall continue in
full force and effect.
6. Effectiveness. Subject
to the satisfaction of the conditions precedent set forth below, this
Modification shall become effective on the date hereof, but shall continue to be
subject to the satisfaction of all the following conditions:
6.1 Execution and
Delivery. Each Borrower shall have duly executed and delivered
this Modification and the Restated Warrants to PFG on or before October 18,
2010.
6.2 Update to Representations.
Borrower shall update the Representations to the extent required to make the
Representations true and correct as of the date of this
Modification: (i) in all respects as to matters addressed in Part A
of the Representations (except for the Collateral values set forth in Part A,
Section 3(g), which must be true and correct in all Non-trivial respects) and
Part B, Section 11, and (ii) in all Non-trivial respects with respect to all
other sections of the Representations Letter.
6.3 Evidence of
Authorization/Consent. Each Borrower shall have provided PFG
with certified copies of any and all of each Borrower’s required authorizations
or consents (Board, stockholder or other required authorization or consent) to
the execution, delivery and performance of this Modification.
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6.4 Payment of Security
Deposit. Borrower shall have deposited with PFG the Security
Deposit due based upon the application of Section 2.1 of this Modification to
Borrower’s currently-reported and certified Cumulative Net Income
(Losses) which, for the avoidance of doubt, is a Security Deposit equal to $0 as
of October 18, 2010.
6.5 Payment of PFG
Expenses. Borrower shall pay promptly upon invoice all PFG
costs and expenses (including all reasonable attorneys’ fees and reasonable
expenses) incurred in connection with this Modification.
7. Counterparts. This
Modification may be signed in any number of counterparts, and by different
parties hereto in separate counterparts, with the same effect as if the
signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this
Modification.
8. Integration;
Construction. This Modification, the Restated Warrants and the
other Loan Documents and any documents executed in connection herewith or
therewith or pursuant hereto or thereto contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements, understandings, offers and negotiations, oral or written, with
respect thereto and no extrinsic evidence whatsoever may be introduced in any
judicial or arbitration proceeding, if any, involving this Modification; except
that any financing statements or other agreements or instruments filed by PFG
with respect to Borrower shall remain in full force and effect. The title of
this Agreement, section headings and quotation marks around amended provisions
are for the readers’ convenience only and shall be ignored for purposes of
integration into the Loan Agreement. The term “Schedule” means the Schedule to
the Loan Agreement. The “General Provisions” of the Loan Agreement are
incorporated by reference herein. This Modification shall be deemed effective as
against any and all Borrower parties that execute and deliver this Modification,
and the failure of any such Borrower to so execute and deliver shall not affect
the enforceability of this Modification against each Borrower party that
does.
9. Governing
Law; Venue. THIS MODIFICATION
SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA. Borrower and PFG each submit to the
exclusive jurisdiction of the State and Federal courts in San Francisco County,
California.
[SIGNATURE
PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto
have caused this Modification to be executed as of the date first written
above.
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Borrower:
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PFG:
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COMPOSITE
TECHNOLOGY CORPORATION
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PARTNERS
FOR GROWTH II, L.P.
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By
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By
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President
or Vice President
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Name:
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By
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Secretary
or Ass't Secretary
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Title:
Manager, Partners for Growth II, LLC
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Its General
Partner
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Borrower:
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Borrower:
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CTC
CABLE CORPORATION
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CTC
RENEWABLES CORPORATION
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By
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By
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President
or Vice President
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President
or Vice President
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By
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By
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Secretary
or Ass't Secretary
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Secretary
or Ass't
Secretary
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Exhibit A - Amended and
Restated Warrant #1
Exhibit A - Amended and
Restated Warrant #2
