FACTORING AGREEMENT
Effective
as of December 31, 2006 ("Effective
Date"),
Xxxxxxx Xxxxxx, an individual ("Factor")
and
Composite Technology corporation, a Nevada corporation ("Company")
agree
that Factor shall act as Company's factor upon the following terms and
conditions:
1.
COVERED
SALES; SECURITY INTEREST
(a)
Company
hereby assigns and sells to Factor, as absolute owner, and Factor hereby
purchases from Company, all of the receivables set forth in Schedule
A
attached
hereto (collectively referred to as the "Purchased
Accounts").
Factor's purchase of and acquisition of title to each Purchased Accounts is
effective as of the date of this Agreement.
(b)
Factor
acknowledges Company's intention to obtain financing from certain lenders based
upon a priority interest in certain collateral, including the Purchased
Accounts. In the event Factor obtains priority in the Purchased Accounts over
any such lenders, the Factor agrees to subordinate Factor's position in the
Purchased Accounts to such lenders' positions therein.
2.
PURCHASE
PRICE OF PURCHASED ACCOUNTS
The
purchase price of each of the Purchased Accounts is the amount set forth as
the
“Purchase Price” in Schedule
A
attached
hereto (the aggregate purchase price of all of the Purchased Accounts is
referred to as the “Purchase Price”). The Factor and Company hereby acknowledge
that the Factor has advanced the Purchase Price for the Purchased Accounts
as of
the Effective Date.
3.
INTEREST;
REPURCHASE OF PURCHASED ACCOUNTS; FEES
(a) Interest
shall accrue on the Purchase Price, less any amounts actually paid to the Factor
by the payees of the Purchased Accounts, at a rate of 10% per annum (calculated
on the basis of the actual number of days elapsed over a year of 360 days)
until
the earlier of: (i) the Purchase Price has been paid in full to the Factor
by
the payees of such Purchased Accounts; or (ii) the Company repurchases the
Purchased Accounts from the Factor.
(b) Upon
full
payment of the Purchase Price made by the payees of the Purchased Accounts,
the
Factor shall immediately assign and transfer to Company, as absolute owner,
the
Purchased Accounts.
(c) In
the
event the payees of the Purchased Accounts have not fully paid to the Factor
the
Purchase Price by March 31, 2007 (the “Forced
Repurchase Date”),
the
Company shall repurchase the Purchased Accounts for an amount equal to the
Purchase Price less any amounts actually paid to the Factor by the payees of
such Purchased Accounts. In addition, the Company may, from time to time prior
to the Forced Repurchase Date, repurchase the Purchased Accounts for an amount
equal to the Purchase Price less any amounts actually paid to the Factor by
the
payees of such Purchased Accounts.
(d) For
Factor’s services, the Company shall (i) pay to the Factor 2% of the Purchase
Price at the time of the Company’s repurchase of the Purchased Account; and (ii)
issue to the Factor a Warrant to purchase 900,000 shares of the Company’s common
stock at an exercise of $1.06 per share with a 2 year term, subject to the
approval of the Company’s Board of Directors (the “Warrant”);
and
(iii) another Warrant to purchase an additional 900,000 shares if the Purchase
Price is not repurchased by the Company by February 1, 2007. The form of Warrant
is set forth in Exhibit
A.
4.
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
(a) Due
Incorporation and Good Standing.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada, with full and adequate power to carry
on
and conduct its business as presently conducted, and is duly licensed or
qualified in all foreign jurisdictions wherein the failure to be so qualified
or
licensed would reasonably be expected to have a material adverse effect on
the
business of the Company.
(b) Due
Authorization.
This
Agreement is subject to the approval of the Board of Directors of the Company.
With such approvals in place, the Company will have full right, power and
authority to enter into this Agreement, to sell the Purchased Accounts
hereunder, to issue the Warrants, to execute and deliver this Agreement and
to
perform all of its duties and obligations under this Agreement. The execution
and delivery of this Agreement will not, nor will the observance or performance
of any of the matters and things herein or therein set forth, violate or
contravene any provision of law or the Company's bylaws or certificate of
incorporation. Following the Company’s Board approval of this Agreement, all
necessary and appropriate corporate action on the part of the Company has been
taken to authorize the execution and delivery of this Agreement. The Company
shall give notice promptly to the Factor as soon as Board approval has been
secured for the obligations under the present Agreement.
(c) Enforceability.
Upon
the Company’s Board approval of this Agreement, this Agreement will be validly
executed and delivered by the Company and will constitute the legal, valid
and
binding obligations of the Company enforceable against it in accordance with
its
respective terms, subject to applicable bankruptcy, insolvency, reorganization
or similar laws relating to or affecting the enforcement of creditors’ right and
to the availability of the remedy of specific performance.
(d) Compliance
with Laws.
The
nature and transaction of the Company's business and operations and the use
of
its properties and assets do not, and during the term of this Agreement shall
not, violate or conflict with in any material respect any applicable law,
statute, ordinance, rule, regulation or order of any kind or
nature.
(e) Absence
of Conflicts.
The
execution, delivery and performance by the Company of this Agreement, and the
transactions contemplated hereby, do not constitute a breach or default, or
require consents under, any agreement, permit, contract or other instrument
to
which the Company is a party, or by which the Company is bound or to which
any
of the assets of the Company is subject, or any judgment, order, writ, decree,
authorization, license, rule, regulation, or statute to which the Company is
subject.
5.
REPRESENTATIONS
AND WARRANTIES OF THE FACTOR
(a)
Due
Authorization.
The
Factor has full power and authority and has taken all action necessary to
authorize the Factor to execute, deliver and perform the Factor’s obligations
under this Agreement. This Agreement is the legal, valid and binding obligation
of the Factor in accordance with its terms.
(b)Accredited
Investor.
The
Factor is an Accredited Investor as that term is defined in Regulation D
promulgated under the Securities Act of 1933, as amended (the “Securities
Act”).
(c)Investment
Experience.
The
Factor has not authorized any Person to act as the Factor’s Purchaser
Representative (as that term is defined in Regulation D of the General Rules
and
Regulations under the Securities Act) in connection with this transaction.
The
Factor has such knowledge and experience in financial, investment and business
matters that the Factor is capable of evaluating the merits and risks of the
prospective investment in the securities of the Company. The Factor has
consulted with such independent legal counsel or other advisers as the Factor
has deemed appropriate to assist the Factor in evaluating the proposed
investment in the Company.
(d)Adequate
Means.
The
Factor (i) has adequate means of providing for the Factor’s current financial
needs and possible contingencies; and (ii) can afford (a) to hold unregistered
securities for an indefinite period of time as required; and (b) sustain a
complete loss of the entire amount of the subscription.
(e)Access
to Information.
The
Factor has been afforded the opportunity to ask questions of, and receive
answers from the officers and/or directors of the Company acting on its behalf
concerning the terms and conditions of this transaction and to obtain any
additional information, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or expense, necessary
to verify the accuracy of the information furnished; and has had such
opportunity to the extent the Factor considers it appropriate in order to permit
the Factor to evaluate the merits and risks of an investment in the Company.
It
is understood that all documents, records and books pertaining to this
investment have been made available for inspection, and that the books and
records of the Company will be available upon reasonable notice for inspection
by investors during reasonable business hours at its principal place of
business. The foregoing shall in no way be deemed to limit the ability of the
Factor to rely on the representations and warranties set forth herein or
incorporated herein by reference.
(f)No
Resale.
The
Warrants (“Securities”)
are
being acquired solely for the account of the Factor for the Factor’s investment
and not with a view to, or for resale in connection with, any distribution
in
any jurisdiction where such sale or distribution would be precluded.
(g)Legend.
The
Factor hereby acknowledges and agrees that the Company may insert the following
or similar legend on the face of the certificates evidencing the Common Stock
(including Common Stock underlying the Warrants) purchased by the Factor if
required in compliance with the Securities Act or state securities
laws:
“These
securities have not been registered under the Securities Act of 1933, as amended
(the “Securities Act”), or any state securities laws and may not be sold or
otherwise transferred or disposed of except pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws, or an opinion of counsel satisfactory to counsel to the issuer
that an exemption from registration under the Securities Act and any applicable
state securities laws is available.”
(h) General
Solicitation.
The
Factor is not acquiring the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
6.COVENANTS:
REGISTRATION RIGHTS
(a) If
the
Company prepares and files a Registration Statement under Act or otherwise
registers securities under the Act as to any of its securities (other than
under
a Registration Statement pursuant to Form S-8 or Form S-4) (each such filing,
a
"Registration
Statement"),
it
will give written notice by registered mail, at least 20 days prior to the
filing of such Registration Statement to the Factor of its intention to do
so.
The Company shall include all shares of common stock underlying the Warrants
(the “Registrable
Securities”)
in
such Registration Statement with respect to which the Company has received
written requests for inclusion therein within 15 days of actual receipt of
the
Company's notice.
(b) In
the
event of an underwritten registered offering the managing underwriter(s) advise
the Company in writing that in their opinion the number of Registrable
Securities exceeds the number of Registrable Securities which can be sold
therein without adversely affecting the marketability of the offering, the
Company will cause the Company to include in such registration the number of
Registrable Securities requested to be included which in the opinion of such
underwriter(s) can be sold without adversely affecting the marketability of
the
offering, pro rata among the respective holders thereof on the basis of the
amount of Registrable Securities owned by each such holder.
7. MISCELLANEOUS
(a)Successors
and Assigns.
Subject
to the exceptions specifically set forth in this Agreement, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective executors, administrators, heirs, successors and assigns of
the
parties. This Agreement may be assigned solely by the Factor.
(b)Titles
and Subtitles.
The
titles and subtitles of the Sections of this Agreement are used for convenience
only and shall not be considered in construing or interpreting this
agreement.
(c)Notices.
Any
notice, request or other communication required or permitted hereunder shall
be
in writing and shall be delivered personally or by facsimile (receipt confirmed
electronically) or shall be sent by a reputable express delivery service or
by
certified mail, postage prepaid with return receipt requested, addressed as
follows:
if
to the Company, to:
|
if
to the Factor, to:
|
||
Composite
Technology Corporation
0000
XxXxx Xxxxxx
Xxxxxx,
Xxxxxxxxxx 00000
Attn: Chief
Executive Officer
Fax: (000)
000-0000
|
Xxxxxxx
Xxxxxx
000
Xxxxxxx Xxx., Xxxxx 0
Xxx
Xxxxxxxxx, XX 00000
|
Either
party hereto may change the above specified recipient or mailing address by
notice to the other party given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above
(if
delivered personally or by facsimile, provided that any such facsimile is
received during regular business hours at the recipient's location) or on the
day shown on the return receipt (if delivered by mail or delivery
service).
(d)Governing
Law.
This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of California without giving effect to any choice of law
or
conflict of law provision or rule (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California. The parties hereto hereby
agree
that any suit or proceeding arising under this Agreement, or in connection
with
the consummation of the transactions contemplated hereby, shall be brought
solely in a federal or state court located in the County of Orange and State
of
California.
(e)Waiver
and Amendment.
Any
term of this Agreement may be amended, waived or modified with the written
consent of the Company and the Factor.
(f)Remedies.
The
rights and remedies of the Factor described herein shall be cumulative and
not
restrictive of any other rights or remedies available under any other
instrument, at law or in equity.
IN
WITNESS WHEREOF, the undersigned caused this Agreement to be
signed.
FACTOR:
______________________________
Xxxxxxx
Xxxxxx
000
Xxxxxxx Xxx., Xxx. 0
Xxx
Xxxxxxxxx, Xx. 00000
Company:
COMPOSITE
TECHNOLOGY CORPORATION
By:
___________________________________________
Name: Xxxxxx
Xxxxxxxx
Title: Chief
Executive Officer
SCHEDULE
A
PURCHASED
ACCOUNTS
Purchase
Accounts Description
|
Balance
Due
|
Purchase
Price
|
CTC
Sales Order No. 06-100073-SO-GEN; Date 9/25/06 (General Cable Purchase
Order 59-140756)
|
$
539,124.43
|
$
328,645.42
|
CTC
Sales Order No. 06-100069-SO-MOH; 11/24/06; (Mohave Electric Order
80720)
|
$
925,372.78
|
$
564,098.96
|
CTC
Sales Order No. 06-100038-SO-JIA; Date 9/2/06; $1,497,014 with balance
of
remaining of $642,557.95 (Jiangsu New Far East Cable Co.)
|
$
642,557.95
|
$
391,697.57
|
CTC
Sales Order No. 06-100074-SO-GEN; Date 9/6/06; (General Cable PO
59-137261)
|
$
845,744.14
|
$
515,558.05
|
Total
|
$2,952,799.30
|
$1,800,000.00
|