CONDITIONAL WAIVER AND MODIFICATION NO. 2 TO LOAN AND SECURITY AGREEMENT
CONDITIONAL
WAIVER AND MODIFICATION NO. 2
This
Conditional Waiver and Modification No. 2 to
Loan and Security Agreement (this
“Second
Modification”)
is entered into as of December 13, 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
October 18, 2010, Borrower entered into that certain Conditional Waiver and
Modification to Loan and Security Agreement (the “Original
Modification”) under which, inter alia, PFG waived a Specified Default
(as defined therein), modified certain terms of the Loan Agreement and amended
the Warrants issued by Borrower, Composite Technology Corporation.
C. Borrower
has indicated to PFG its inability to meet the Liquidity Financial Covenant for
the September 30 reporting period and its possible inability to meet the
Liquidity and Cumulative Operating Income Financial Covenant set forth in
Section 5 of the Schedule (the “Specified
Covenants”) for current reporting periods (the “Possible
Defaults”).
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
Second Modification, PFG is willing to waive Borrower’s compliance with the
Specified Covenants, forbear from exercising remedies under the Loan Agreement
based solely on the Possible Defaults and otherwise modify the Loan Documents as
specified herein.
agreement
1. Conditional
Waiver; Payment Deferral. 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 Possible Defaults, PFG hereby: (i) agrees to modify the Loan Agreement as
specified in Section 2; (ii) waives the Possible Defaults through the Waiver
Period End Date (as defined in Section 6.4); and (3) defers further payment of
the Security Deposit (added as a new term to the Loan Agreement under the
Original Modification in Section 8(c) of the Schedule) until the Waiver Period
End Date.
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2. Modifications
of Loan Agreement.
2.1 Payment of Escrow
Funds. Borrower, Composite Technology Corporation, is party to
that certain Asset Purchase Agreement dated as of August 10, 2009 by and among
Daewoo Shipbuilding & Marine Engineering Co., Ltd., XxXxxx, Inc. and
Borrower (as amended, the “Purchase
Agreement”). Borrower is due monies from time to time under the Escrow
Agreement (as defined in Section 6.5) (such monies due from time to time, “Escrow
Proceeds”). Until such time as PFG may otherwise instruct, Borrower shall
promptly (and in no event later than one (1) Business Day after Borrower’s
receipt of cleared funds) cause monies paid to it under the Escrow Agreement to
be directly paid over to PFG. For the avoidance of doubt, Escrow
Proceeds shall exclude monies nominally paid to Borrower but required under the
terms of the Purchase Agreement and/or the Escrow Agreement to be immediately
paid to third party claimants under the Purchase Agreement. Such Escrow Proceeds
paid to PFG shall be credited against any fees (including the Waiver Fee
specified in Section 6.4 hereof) and expenses payable to PFG under the Loan
Documents, to interest due on outstanding Obligations, to the Security Deposit
(to the extent then required) and finally to principal. PFG may, in its sole and
absolute discretion, from time to time, remit back to Borrower all or any
portion of Escrow Proceeds received and creditable to principal and, so long as
such amounts are remitted back to Borrower within three (3) Business Days after
the Business Day on which PFG has received such amounts, payment of that portion
of such Escrow Proceeds shall not be deemed to constitute a repayment in part of
the principal balance of the Loan.
2.2 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 report detailing any proceeds paid or payable to Borrower or any
Affiliate under the Escrow Agreement (as defined in Section 6.5).
3. Borrower’
Representations, Warranties and Covenants. Each Borrower
represents, warrants and covenants that:
(a) immediately
upon giving effect to this Second 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 (other than
the Possible Defaults) has occurred and is continuing;
(b) each
Borrower has the corporate power and authority to execute and deliver this
Second Modification and to perform its obligations under the Loan Agreement, as
amended by this Second 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 Second Modification and the
performance by Borrower of its obligations under the Loan Agreement has been
duly authorized by all necessary corporate action on the part of each entity
constituting Borrower;
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(e) this
Second 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
Second Modification does not require the consent of any third party (including
stockholders) or such consent has been secured;
(g) this
Second 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 Second Modification and in connection with the Loan
Documents.
Borrower
understands and acknowledges that PFG is entering into this Second Modification
in reliance upon, and in partial consideration for, the above representations
and warranties, and agrees that such reliance is reasonable and
appropriate.
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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 Second 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 Second
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 Second 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 Second 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 Second Modification; (ii) Borrower has made such investigation of the facts
pertaining to this Second Modification and all of the matters appertaining
thereto, as it deems necessary; (iii) the terms of this Second Modification are
contractual and not a mere recital; (iv) this Second Modification has been
carefully read by Borrower, the contents hereof are known and understood by
Borrower, and this Second 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.
5. Limitation. PFG’s
waiver set forth in this Second 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.
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6. Effectiveness. Subject
to the satisfaction of the conditions precedent set forth below, this Second
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 Second Modification and the Restated Warrants to PFG on or before December
13, 2010.
6.2 Update to Representations.
Within three (3) Business Days from the date hereof, Borrower shall update the
Representations to the extent required to make the Representations true and
correct as of the date of this Second 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 Second
Modification.
6.4 Payment of Waiver
Fee. Borrower shall pay PFG a fee equal to $160,000 (the
“Waiver
Fee”). The Waiver Fee shall be paid to PFG upon the earliest
to occur (the “Waiver Period End
Date”) of (i) January 14, 2011; (ii) repayment of the Loan; (iii)
Borrower’s certification of its compliance with the Liquidity Covenant (on a
post Waiver Fee payment basis); and (iv) the occurrence of a Default, other than
failure to satisfy the Specified Covenants.
6.5 Instruction of Escrow
Agent. Borrower shall, upon the request of
PFG, deliver written instructions (with a true and correct copy
delivered to PFG) to the “Escrow Agent” under that certain Escrow and Security
Agreement dated as of September 4, 2009 by and among XxXxxx Turbine, Co.,
XxXxxx, Inc. and U.S. Bank, N.A. (as amended, the “Escrow
Agreement”), to pay any and all amounts payable to Borrower or any
Borrower Affiliate from the Escrow Funds, other than funds nominally paid to
Borrower or its Affiliates but required to be immediately paid out by Borrower
to satisfy claims arising under the Escrow Agreement.
6.6 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 Second Modification.
6.7 No Defaults. No
Default or Event of Default shall have occurred and be continuing, other than
the Possible Defaults.
For the
avoidance of doubt, the failure of any of the foregoing conditions shall be
deemed a breach of this Second Modification and an immediate Event of Default
under the Loan Agreement.
7. Counterparts. This
Second 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
Second Modification.
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8. Integration;
Construction. This Second Modification, the Original
Modification 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
Second 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 Second Modification shall
be deemed effective as against any and all Borrower parties that execute and
deliver this Second Modification, and the failure of any such Borrower to so
execute and deliver shall not affect the enforceability of this Second
Modification against each Borrower party that does.
9. Governing
Law; Venue. THIS SECOND
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 Second 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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