CEO SHARE PLEDGE AGREEMENT
CEO SHARE PLEDGE AGREEMENT (this "AGREEMENT"), dated as of March __, 2006,
made by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, an individual with a principal place of residence at
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Pledgor"), in favor of ▇▇▇▇▇▇ Bay
Fund LP, a limited partnership organized under the laws of the State of
Delaware, in its capacity as collateral agent (in such capacity, the "COLLATERAL
AGENT") for the "Buyers" (as defined below) party to the Securities Purchase
Agreement, dated as of even date herewith (as amended, restated or otherwise
modified from time to time, the "SECURITIES PURCHASE AGREEMENT").
W I T N E S S E T H:
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WHEREAS, Composite Technology Corporation (the "COMPANY") and each party
listed as a "Buyer" on the Schedule of Buyers attached thereto (collectively,
the "BUYERS") are parties to a Securities Purchase Agreement, pursuant to which
the Company shall be required to sell, and the Buyers or shall purchase or have
the right to purchase, the "Notes" (as defined therein);
WHEREAS, the Pledgor has executed and delivered to the Buyers a Letter
Agreement dated the date hereof (the "LETTER AGREEMENT") requiring the Pledgor
to deliver to the Collateral Agent, 4,741,936 (as adjusted for stock splits,
stock dividends, reverse stock splits, reclassifications, recapitalizations and
similar events) shares of the common stock of the Company owned by the Pledgor
in the event of a payment default under the Notes (an "EVENT OF DEFAULT");
WHEREAS, it is a condition precedent to the Buyers entering into the
Securities Purchase Agreement that the Pledgor shall have executed and delivered
to the Collateral Agent for the benefit of itself and the Buyers this Agreement
to secure all of the Pledgor's obligations under the Letter Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements herein
and in order to induce the Collateral Agent to perform under the Securities
Purchase Agreement, the Pledgor agrees with the Collateral Agent as follows:
SECTION 1. Definitions and Rules of Interpretation.
(a) Definitions. Reference is made to the Securities Purchase
Agreement, and for a statement of terms thereof. All terms used in this
Agreement which are defined in the Securities Purchase Agreement or in Article 8
or Article 9 of the Uniform Commercial Code (the "CODE") as in effect from time
to time in the State of New York and which are not otherwise defined herein
shall have the same meanings herein as set forth therein; provided, that terms
used herein which are defined in the Code as in effect in the State of New York
on the date hereof shall continue to have the same meaning notwithstanding any
replacement or amendment of such statute except as the Collateral Agent may
otherwise determine. In the event that any such term is defined in both the
Securities Purchase Agreement and the Code, the definition of such term in the
Securities Purchase Agreement shall control.
(b) Rules of Interpretation. Except as otherwise expressly provided
in this Agreement, the following rules of interpretation apply to this
Agreement: (i) the singular includes the plural and the plural includes the
singular; (ii) "or" and "any" are not exclusive and "include" and "including"
are not limiting; (iii) a reference to any agreement or other contract includes
permitted supplements and amendments; (iv) a reference to a law includes any
amendment or modification to such law and any rules or regulations issued
thereunder; (v) a reference to a person includes its permitted successors and
assigns; and (vi) a reference in this Agreement to an Article, Section, Annex,
Exhibit or Schedule is to the Article, Section, Annex, Exhibit or Schedule of
this Agreement.
SECTION 2. Pledge and Grant of Security Interest. As collateral security
for all of the Obligations (as defined in Section 3 hereof), the Pledgor hereby
pledges and assigns and grants to the Collateral Agent a continuing security
interest in, and Lien on, all of his right, title and interest in and to the
following (collectively, the "PLEDGED COLLATERAL"):
(a) The Pledgor's shares of common stock of the Company as set forth
in Schedule I, and all future, issued and outstanding shares of capital stock,
or other equity or investment securities of, or partnership, membership, or
joint venture interests in, the Company, whether now owned or hereafter acquired
by the Pledgor and whether or not evidenced or represented by any stock
certificate, certificated security or other instrument, together with the
certificates representing such equity interests, all options and other rights,
contractual or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and any other property (including, but
not limited to, any stock dividend and any distribution in connection with a
stock split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the foregoing and all cash and
noncash proceeds thereof (collectively, the "PLEDGED SHARES");
(b) all present and future increases, profits, combinations,
reclassifications, and substitutes and replacements for all or part of the
foregoing Collateral heretofore described;
(c) all investment property, financial assets, securities, capital
stock, other equity interests, stock options and commodity contracts of the
Pledgor, all notes, debentures, bonds, promissory notes or other evidences of
indebtedness payable or owing to the Pledgor, and all other assets now or
hereafter received or receivable with respect to the foregoing;
(d) all securities entitlements of the Pledgor in any and all of the
foregoing; and
(e) all proceeds (including proceeds of proceeds) of any and all of
the foregoing;
in each case, whether now owned or hereafter acquired by the Pledgor and
howsoever his interest therein may arise or appear (whether by ownership,
security interest, Lien, claim or otherwise).
SECTION 3. Security for Obligations. The security interest created hereby
in the Pledged Collateral constitutes continuing collateral security for the due
performance and observance by the Pledgor of any and all of his obligations
under the Letter Agreement (the "OBLIGATIONS"):
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SECTION 4. Delivery of the Pledged Collateral.
(a) All other Pledged Collateral from time to time or required to be
pledged to the Collateral Agent pursuant to the terms of this Agreement or the
Securities Purchase Agreement (the "ADDITIONAL COLLATERAL") shall be delivered
to the Collateral Agent promptly upon receipt thereof by or on behalf of the
Pledgor. All such certificates and instruments shall be held by the Collateral
Agent pursuant hereto and shall be delivered in suitable form for transfer by
delivery or shall be accompanied by duly executed instruments of transfer or
assignment or undated stock powers executed in blank, all in form and substance
reasonably satisfactory to the Collateral Agent. If any Pledged Collateral
consists of uncertificated securities, unless the immediately following sentence
is applicable thereto, the Pledgor shall cause the Collateral Agent (or its
designated custodian, nominee or other designee) to become the registered holder
thereof, or cause each issuer of such securities to agree that it will comply
with instructions originated by the Collateral Agent (or its designated
custodian, nominee or other designee) with respect to such securities without
further consent by the Pledgor. If any Pledged Collateral consists of securities
entitlements, the Pledgor shall transfer such securities entitlements to the
Collateral Agent (or its designated custodian, nominee or other designee) or
cause the applicable securities intermediary to agree that it will comply with
entitlement orders by the Collateral Agent (or its designated custodian, nominee
or other designee) without further consent by the Pledgor.
(b) Promptly upon the receipt by the Pledgor of any Additional
Collateral, a Pledge Amendment, duly executed by the Pledgor, in substantially
the form of Annex I hereto (a "PLEDGE AMENDMENT"), shall be delivered to the
Collateral Agent, in respect of the Additional Collateral which is or are to be
pledged pursuant to this Agreement and the Securities Purchase Agreement, which
Pledge Amendment shall from and after delivery thereof constitute part of
Schedules I hereto. The Pledgor hereby authorizes the Collateral Agent to attach
each Pledge Amendment to this Agreement and agrees that all certificates listed
on any Pledge Amendment shall for all purposes hereunder constitute Pledged
Collateral and the Pledgor shall be deemed upon delivery thereof to have made
the representations and warranties set forth in Section 5 with respect to such
Additional Collateral.
(c) If the Pledgor shall receive, by virtue of the Pledgor's being
or having been an owner of any Pledged Collateral, any (i) stock certificate
(including, without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by the Pledgor pursuant to
Section 7 hereof) or in securities or other property or (iv) dividends,
distributions, cash, instruments, investment property and other property in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, the Pledgor
shall receive such stock certificate, promissory note, instrument, option,
right, payment or distribution in trust for the benefit of the Collateral Agent,
shall segregate it from the Pledgor's other property and shall deliver it
forthwith to the Collateral Agent in the exact form received, with any necessary
endorsement and/or appropriate stock powers duly executed in blank, to be held
by the Collateral Agent as Pledged Collateral and as further collateral security
for the Obligations.
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SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Pledged Shares have been duly authorized and validly issued,
are fully paid and nonassessable and the holders thereof are not entitled to any
preemptive first refusal or other similar rights. All other shares of stock
constituting Pledged Collateral will be, when issued, duly authorized and
validly issued, fully paid and nonassessable.
(b) The Pledgor is and will be at all times the legal and beneficial
owner of the Pledged Collateral free and clear of any Lien, security interest,
option or other charge or encumbrance except for the security interest and Lien
created by this Agreement or any Permitted Liens.
(c) The exercise by the Collateral Agent of any of its rights and
remedies hereunder will not contravene any law or any contractual restriction
binding on or affecting the Pledgor or any of the properties of the Pledgor and
will not result in or require the creation of any Lien, security interest or
other charge or encumbrance upon or with respect to any of the properties of the
Pledgor other than pursuant to this Agreement and the other Transaction
Documents, as defined in the Securities Purchase Agreement, the "TRANSACTION
DOCUMENTS").
(d) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority is required to be obtained or made
by the Pledgor for (i) the due execution, delivery and performance by the
Pledgor of this Agreement, (ii) the grant by the Pledgor, or the perfection, of
the security interest and Lien purported to be created hereby in the Pledged
Collateral or (iii) the exercise by the Collateral Agent of any of its rights
and remedies hereunder, except as may be required in connection with any sale of
any Pledged Collateral by laws affecting the offering and sale of securities
generally.
(e) This Agreement creates a valid security interest and Lien in
favor of the Collateral Agent in the Pledged Collateral, as security for the
Obligations. The Collateral Agent's having possession of the certificates
representing the Pledged Shares and all other certificates, instruments and cash
constituting Pledged Collateral from time to time results in the perfection of
such security interest and Lien. Such security interest and Lien is, or in the
case of Pledged Collateral in which the Pledgor obtains rights after the date
hereof, will be, a perfected Lien, subject only to the Permitted Liens. All
action necessary or desirable to perfect and protect such security interest and
Lien has been duly taken, except for the Collateral Agent's having possession of
certificates, instruments and cash constituting Pledged Collateral after the
date hereof.
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SECTION 6. Covenants as to the Pledged Collateral. So long as any
Obligations shall remain outstanding, the Pledgor will, unless the Collateral
Agent shall otherwise consent in writing:
(a) keep adequate records concerning the Pledged Collateral and
permit the Collateral Agent, or any designees or representatives thereof at any
time or from time to time to examine and make copies of and abstracts from such
records;
(b) at the Pledgor's expense, promptly deliver to the Collateral
Agent a copy of each material notice or other material communication received by
the Pledgor in respect of the Pledged Collateral;
(c) at the Pledgor's expense, defend the Collateral Agent's right,
title and security interest in and to the Pledged Collateral against the claims
of any Person;
(d) at the Pledgor's expense, at any time and from time to time,
promptly execute and deliver all further instruments and documents and take all
further action that may be necessary or desirable or that the Collateral Agent
may reasonably request in order to (i) perfect and protect, or maintain the
perfection of, the security interest and Lien purported to be created hereby,
(ii) enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder in respect of the Pledged Collateral or (iii) otherwise effect the
purposes of this Agreement, including, without limitation, delivering to the
Collateral Agent irrevocable proxies in respect of the Pledged Collateral;
(e) not sell, assign (by operation of law or otherwise), exchange or
otherwise dispose of any Pledged Collateral or any interest therein except as
expressly permitted by the Securities Purchase Agreement;
(f) not create or suffer to exist any Lien, upon or with respect to
any Pledged Collateral except for the Lien created hereby or for any Permitted
Lien;
(g) not make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral other
than pursuant to the terms hereof;
(h) except as expressly permitted by the Securities Purchase
Agreement, not permit the issuance of (i) any additional shares of any class of
capital stock, partnership interests, member interests or other equity of the
Company, (ii) any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such shares of capital stock or (iii) any
warrants, options, contracts or other commitments entitling any Person to
purchase or otherwise acquire any such shares of capital stock;
(i) not issue any stock certificate, certificated security or other
instrument to evidence or represent any shares of capital stock, any partnership
interest or membership interest described in Schedule I hereto; and
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(j) not take or fail to take any action which would in any manner
impair the validity or enforceability of the Collateral Agent's security
interest in and Lien on any Pledged Collateral.
SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Pledged
Collateral.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) the Pledgor may exercise any and all voting and other
consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent with the terms of this Agreement, the Securities Purchase Agreement
or the Notes;
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(ii) the Pledgor may receive and retain any and all dividends,
interest or other distributions paid in respect of the Pledged Collateral to the
extent permitted by the Securities Purchase Agreement; provided, however, that
any and all (A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for, any Pledged Collateral, (B)
dividends and other distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and (C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, together with any
dividend, distribution, interest or other payment which at the time of such
dividend, distribution, interest or other payment was not permitted by the
Securities Purchase Agreement, shall be, and shall forthwith be delivered to the
Collateral Agent to hold as, Pledged Collateral and shall, if received by the
Pledgor, be received in trust for the benefit of the Collateral Agent, shall be
segregated from the other property or funds of the Pledgor, and shall be
forthwith delivered to the Collateral Agent in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Collateral Agent as Pledged Collateral and as further collateral
security for the Obligations; and
(iii) the Collateral Agent will execute and deliver (or cause
to be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of enabling
the Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (i) of this Section 7(a) and to receive the
dividends, distributions, interest and other payments which it is authorized to
receive and retain pursuant to paragraph (ii) of this Section 7(a), in each
case, to the extent that the Collateral Agent has possession of such Pledged
Collateral.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) all rights of the Pledgor to exercise the voting and other
consensual rights which he would otherwise be entitled to exercise pursuant to
paragraph (i) of subsection (a) of this Section 7, and to receive the dividends,
distributions, interest and other payments which he would otherwise be
authorized to receive and retain pursuant to paragraph (ii) of subsection (a) of
this Section 7, shall cease, and all such rights shall thereupon become vested
in the Collateral Agent which shall thereupon have the sole right to exercise
such voting and other consensual rights and to receive and hold as Pledged
Collateral such dividends, distributions, interest and other payments;
(ii) without limiting the generality of the foregoing, the
Collateral Agent may at his option exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any of the Pledged Collateral as if it were the absolute owner thereof,
including, without limitation, the right to exchange, in its discretion, any and
all of the Pledged Collateral upon the merger, consolidation, reorganization,
recapitalization or other adjustment of any issuer of the Pledged Collateral or
upon the exercise by any issuer of the Pledged Collateral of any right,
privilege or option pertaining to any Pledged Collateral, and, in connection
therewith, to deposit and deliver any and all of the Pledged Collateral with any
committee, depository, transfer Collateral Agent, registrar or other designated
Collateral Agent upon such terms and conditions as it may determine; and
(iii) all dividends, distributions, interest and other
payments which are received by the Pledgor contrary to the provisions of
paragraph (i) of this Section 7(b) shall be received in trust for the benefit of
the Collateral Agent, shall be segregated from other funds of the Pledgor, and
shall be forthwith paid over to the Collateral Agent as Pledged Collateral in
the exact form received with any necessary indorsement and/or appropriate stock
powers duly executed in blank, to be held by the Collateral Agent as Pledged
Collateral and as further collateral security for the Obligations.
SECTION 8. Additional Provisions Concerning the Pledged Collateral.
(a) The Pledgor hereby (i) authorizes the Collateral Agent to file
one or more financing or continuation statements, and amendments thereto,
relating to the Pledged Collateral, without the signature of the Pledgor where
permitted by law, (ii) ratifies such authorization to the extent that the
Collateral Agent has filed any such financing or continuation statements, or
amendments thereto, without the signature of the Pledgor prior to the date
hereof and (iii) authorizes the Collateral Agent to execute any agreements,
instruments or other documents in the Pledgor's name and to file such
agreements, instruments or other documents that are related to the security
interest and Lien of the Collageral Agent in the Pledged Collateral or as
provided under Article 8 or Article 9 of the UCC in any appropriate filing
office.
(b) The Pledgor hereby irrevocably appoints the Collateral Agent as
his attorney-in-fact and proxy, with full authority in the place and ▇▇▇▇▇ and
in his name or otherwise, from time to time in the Collateral Agent's discretion
to take any action and to execute any instrument which the Collateral Agent may
deem necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of the Pledgor under Section 7(a) hereof), including,
without limitation, to receive, indorse and collect all instruments made payable
to the Pledgor representing any dividend, interest payment or other distribution
in respect of any Pledged Collateral and to give full discharge for the same.
This power is coupled with an interest and is irrevocable until the termination
of this Agreement in accordance with Section 13(e) hereof.
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(c) If the Pledgor fails to perform any agreement or obligation
contained herein, the Collateral Agent itself may perform, or cause performance
of, such agreement or obligation, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by the Pledgor pursuant to
Section 10 hereof and shall be secured by the Pledged Collateral.
(d) Other than the exercise of reasonable care to assure the safe
custody of the Pledged Collateral while held hereunder, the Collateral Agent
shall have no duty or liability to preserve rights pertaining thereto and shall
be relieved of all responsibility for the Pledged Collateral upon surrendering
it or tendering surrender of it to any of the Pledgor. The Collateral Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in its possession if the Pledged
Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own property, it being understood that the
Collateral Agent shall not have responsibility for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relating to any Pledged Collateral, whether or not the Collateral
Agent has or is deemed to have knowledge of such matters, or (ii) taking any
necessary steps to preserve rights against any parties with respect to any
Pledged Collateral.
(e) The powers conferred on the Collateral Agent hereunder are
solely to protect its interest in the Pledged Collateral and shall not impose
any duty upon it to exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for monies actually
received by it hereunder, the Collateral Agent shall have no duty as to any
Pledged Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Pledged Collateral.
(f) Upon the occurrence and during the continuation of any Default
or Event of Default, the Collateral Agent may at any time in its discretion (i)
without notice to the Pledgor, transfer or register in the name of the
Collateral Agent or any of its nominees any or all of the Pledged Collateral,
subject only to the revocable rights of the Pledgor under Section 7(a) hereof,
and (ii) exchange certificates or instruments constituting Pledged Collateral
for certificates or instruments of smaller or larger denominations.
SECTION 9. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the Code then in effect in the State of New York; and without
limiting the generality of the foregoing and without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Collateral Agent may deem
commercially reasonable. The Pledgor agrees that, to the extent notice of sale
shall be required by law, at least ten (10) days' notice to any of the Pledgor
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Collateral
Agent shall not be obligated to make any sale of Pledged Collateral regardless
of notice of sale having been given. The Collateral Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
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(b) The Pledgor recognizes that it may be impracticable to effect a
public sale of all or any part of the Pledged Shares or any other securities
constituting Pledged Collateral and that the Collateral Agent may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for its own account, for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges that
any such private sale may be at prices and on terms less favorable to the seller
than the prices and other terms which might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that such private sales shall be
deemed to have been made in a commercially reasonable manner and that the
Collateral Agent shall have no obligation to delay sale of any such securities
for the period of time necessary to permit the issuer of such securities to
register such securities for public sale under the Securities Act of 1933, as
amended (the "SECURITIES ACT"). The Pledgor further acknowledges and agrees that
any offer to sell such securities which has been (i) publicly advertised on a
bona fide basis in a newspaper or other publication of general circulation in
the financial community of New York, New York (to the extent that such an offer
may be so advertised without prior registration under the Securities Act) or
(ii) made privately in the manner described above to not less than fifteen (15)
bona fide offerees shall be deemed to involve a "public disposition" for the
purposes of Section 9-610 of the Code (or any successor or similar, applicable
statutory provision) as then in effect in the State of New York, notwithstanding
that such sale may not constitute a "public offering" under the Securities Act,
and that the Collateral Agent may, in such event, bid for the purchase of such
securities.
(c) Any cash held by the Collateral Agent as Pledged Collateral and
all cash proceeds received by the Collateral Agent in respect of any sale of,
collection from, or other realization upon, all or any part of the Pledged
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent pursuant
to Section 10 hereof) in whole or in part by the Collateral Agent against, all
or any part of the Obligations in such order as the Collateral Agent shall elect
consistent with the provisions of the Securities Purchase Agreement.
(d) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent is
legally entitled, the Pledgor shall be jointly and severally liable for the
deficiency, together with interest thereon at the highest rate specified in the
Securities Purchase Agreement for interest on overdue principal thereof or such
other rate as shall be fixed by applicable law, together with the costs of
collection and the reasonable fees, costs and expenses of any attorneys employed
by the Collateral Agent to collect such deficiency.
SECTION 10. Indemnity and Expenses.
(a) The Pledgor hereby agrees to indemnify and hold the Collateral
Agent (and all of its officers, directors, employees, attorneys, consultants)
harmless from and against any and all claims, damages, losses, liabilities,
obligations, penalties, fees, costs and expenses (including, without limitation,
reasonable legal fees and disbursements of counsel) to the extent that they
arise out of or otherwise result from this Agreement (including, without
limitation, enforcement of this Agreement), except claims, losses or liabilities
arising or resulting directly from such Person's gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
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(b) The Pledgor shall be obligated for, and will upon demand pay to
the Collateral Agent the reasonable amount of any and all out-of-pocket costs
and expenses, including the reasonable fees and disbursements of the Collateral
Agent's counsel and of any experts which the Collateral Agent may incur in
connection with (i) the preparation, negotiation, execution, delivery,
recordation, administration, amendment, waiver or other modification or
termination of this Agreement, (ii) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any Pledged
Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder, or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
SECTION 11. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed (by certified mail,
postage prepaid and return receipt requested), sent by Federal Express or other
recognized courier service (return receipt requested), telecopied or delivered,
if to the Pledgor, to him at the address specified in the preamble hereto or if
to the Collateral Agent, to it at the address specified in the Securities
Purchase Agreement; or as to either such Person at such other address as shall
be designated by such Person in a written notice to such other Person complying
as to delivery with the terms of this Section 11. All such notices and other
communications shall be effective (i) if sent by certified mail, postage
prepaid, return receipt requested, when received or three (3) Business Days
after mailing, whichever first occurs, (ii) if telecopied, when transmitted and
confirmation is received, provided same is on a Business Day and, if not, on the
next Business Day or (iii) if delivered or sent by Federal Express or other
recognized courier service (return receipt requested), upon delivery, provided
same is on a Business Day and, if not, on the next Business Day.
SECTION 12. Security Interest Absolute. All rights of the Collateral
Agent, all Liens and all obligations of the Pledgor hereunder shall be absolute
and unconditional irrespective of: (i) any lack of validity or enforceability of
the Letter Agreement, the Securites Purchase Agreement, the Notes or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or consent to any departure
from the Letter Agreement, the Securities Purchase Agreement, the Notes or any
other Transaction Document, (iii) any exchange or release of, or non-perfection
of any Lien on any Collateral, or any release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the Obligations, or
(iv) any other circumstance which might otherwise constitute a defense available
to, or a discharge of, the Pledgor in respect of the Obligations (other than the
payment in full of the Obligations). All authorizations and agencies contained
herein with respect to any of the Pledged Collateral are irrevocable and powers
coupled with an interest.
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SECTION 13. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Pledgor and the Collateral
Agent, and no waiver of any provision of this Agreement, and no consent to any
departure by the Pledgor therefrom, shall be effective unless it is in writing
and signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) No failure on the part of the Collateral Agent to exercise, and
no delay in exercising, any right hereunder or under any other Transaction
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of the Collateral Agent
provided herein and in the other Transaction Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law. The
rights of the Collateral Agent under any Transaction Document against any party
thereto are not conditional or contingent on any attempt by the Collateral Agent
to exercise any of its rights under any other Transaction Document against such
party or against any other Person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in
and Lien on the Pledged Collateral and shall (i) remain in full force and effect
until the termination of this Agreement in accordance with Section 13 (e) hereof
and (ii) be binding on the Pledgor and his heirs and assigns and shall inure,
together with all rights and remedies of the Collateral Agent, to the benefit of
the Collateral Agent and its successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
the Collateral Agent may assign or otherwise transfer its rights and obligations
under this Agreement and any other Transaction Document to any other Person
pursuant to the terms of the Securities Purchase Agreement, and such other
Person shall thereupon become vested with all of the benefits in respect thereof
granted to the Collateral Agent herein or otherwise. Upon any such assignment or
transfer, all references in this Agreement to the Collateral Agent shall mean
the assignee of the Collateral Agent. None of the rights or obligations of the
Pledgor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent, and any such assignment or transfer
shall be null and void.
(e) Notwithstanding anything to the contrary in this Agreement, (i)
this Agreement (along with all powers of attorney granted hereunder) and the
security interests and Lien created hereby shall terminate and all rights to the
Pledged Collateral shall revert to the Pledgor upon the repayment in full and/or
complete conversion to equity securities of the Company of all indebtedness
obligations owed by the Company to the Collateral Agent under the Notes
(including, without limitation, all principal, interest and fees related to the
Notes), and (ii) the Collateral Agent will, upon the Pledgor's request and at
the Pledgor's expense, (A) return to the Pledgor such of the Pledged Collateral
(to the extent delivered to the Collateral Agent) as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof, and (B) execute
and deliver to the Pledgor, without recourse, representation or warranty, such
documents as the Pledgor shall reasonably request to evidence such termination.
-11-
(f) The internal laws, and not the laws of conflicts, of the State
of Delaware shall govern the enforceability and validity of this agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties, except as required by mandatory provisions of law and except to the
extent that the validity and perfection or the perfection and the effect of
perfection or non-perfection of the security interest and Lien created hereby,
or remedies hereunder, in respect of any particular Pledged Collateral are
governed by the law of a jurisdiction other than the State of New York.
(g) Each party to this Agreement hereby irrevocably and
unconditionally submits, for itself and its property, to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York sitting in Manhattan or the commercial division, civil branch of the
supreme court of the State of New York sitting in New York county in connection
with any suit, action or proceeding directly or indirectly arising out of, under
or in connection with the Letter Agreement or the transactions contemplated
thereby. No party to this Agreement may move to (i) transfer any such suit,
action or proceeding brought in such New York court or federal court to another
jurisdiction, (ii) consolidate any such suit, action or proceeding brought in
such New York court or federal court with a suit, action or proceeding in
another jurisdiction or (iii) dismiss any such suit, action or proceeding
brought in such New York court or federal court for the purpose of bringing the
same in another jurisdiction. Each party to this Agreement agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in any other jurisdiction by suit on the judgment or in any other
manner provided by law. Each party to this Agreement hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to the Letter
Agreement, the shares or the conversion shares in any New York court sitting in
the county of New York or any federal court sitting in the southern district of
New York. Each party to this agreement hereby consents to the service of process
in any such suit, action or proceeding by notice in the manner specified in
Section 11.
(h) The Pledgor irrevocably consents to the service of process of
any of the aforesaid courts in any such action, suit or proceeding by the
mailing of copies thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to the Pledgor at his address provided
herein, such service to become effective when received or 10 days after such
mailing, whichever first occurs.
(i) Nothing contained herein shall affect the right of the
Collateral Agent to serve process in any other manner permitted by law or
commence legal proceedings or otherwise proceed against the Pledgor or any
property of the Pledgor in any other jurisdiction.
(j) The Pledgor irrevocably and unconditionally waives any right he
may have to claim or recover in any legal action, suit or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
-12-
(k) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, THE LETTER AGREEMENT OR OTHER TRANSACTION
DOCUMENTS.
(l) The headings herein are for convenience only, do not constitute
a part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
(m) This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.
[Signature Page Follows]
-13-
IN WITNESS WHEREOF, the Pledgor has executed and delivered this Agreement
as of the date first above written.
By:
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
ACCEPTED BY:
-----------
▇▇▇▇▇▇ BAY FUND LP,
as Collateral Agent
By: __________________________
Name:
Title:
SCHEDULE I TO PLEDGE AGREEMENT
Pledged Shares
--------------
NUMBER OF CERTIFICATE
PLEDGOR NAME OF ISSUER SHARES % OF SHARES CLASS NO.(S)
------- -------------- ------ ----------- ----- ------
Composite Technology
Corporation
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 4,741,936
ANNEX I
TO
PLEDGE AGREEMENT
PLEDGE AMENDMENT
This Pledge Amendment, dated ?, 20?, is delivered pursuant to Section 4 of
the Pledge Agreement referred to below. The undersigned hereby agrees that this
Pledge Amendment may be attached to the Pledge Agreement, dated as of ?, 2006,
made by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in favor of ▇▇▇▇▇▇ Bay Fund LP, as Collateral Agent for
the Buyers, (the "COLLATERAL AGENT") as it may heretofore have been or hereafter
may be amended or otherwise modified or supplemented from time to time and that
the promissory notes [and/or] shares or other equity interests listed on this
Pledge Amendment shall be hereby pledged and assigned to the Collateral Agent
and become part of the Pledged Collateral referred to in such Pledge Agreement
and shall secure all of the obligations referred to in such Pledge Agreement.
PLEDGED SHARES
--------------
PLEDGOR NAME OF ISSUER NUMBER OF SHARES OR OTHER CLASS CERTIFICATE NO(S)
------- -------------- ------------------- ------ ----- -----------------
EQUITY INTERESTS
----------------
Brain ▇. ▇▇▇▇▇▇▇▇ Composite Technology 5,000,000 Common 4559
Corporation
[PLEDGOR]
By:
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇