ESCROW AND SECURITY
AGREEMENT
This ESCROW AND SECURITY AGREEMENT (this “
Agreement ”) is made and entered into as of September
4, 2009 (the “ Effective Date ”), by and
among DeWind Turbine, Co., a California corporation (“
DeWind Turbine ”), DeWind, Inc., a Nevada corporation
(“ Seller ”), and U.S. Bank National
Association, a national banking association, as Escrow Agent (the
“ Escrow Agent ”).
RECITALS
A. This
Agreement is entered into pursuant to that certain Asset Purchase
Agreement, dated as of August 10, 2009 (as amended, the “
Purchase Agreement ”) by and among Daewoo Shipbuilding
& Marine Engineering Co., Ltd. (“ DSME ”),
Seller and Composite Technology Corporation. Capitalized
terms used in this Agreement and not otherwise defined herein shall
have the meanings given to them in the Purchase
Agreement.
B. DeWind
Turbine, as an Affiliate of DSME, has assumed all of DSME’s
rights and benefits under the Purchase Agreement, pursuant to that
Assignment of Agreement between DSME and DeWind Turbine, dated
August 31, 2009.
C. Section
3.3(a) of the Purchase Agreement provides that DSME or its
Affiliates will be entitled to withhold from the amounts payable to
Seller at Closing cash in the amount of Seventeen Million One
Hundred Seventy-Five Thousand Dollars ($17,175,000) (the “
Escrow Funds ”). The Escrow Funds
are to be placed in an escrow account (the “ Escrow
Account ”) for the purpose of reimbursing DSME or its
Affiliates, at least in part, for any and all Losses DSME or its
Affiliates might incur related to the Purchase Agreement and the
transactions thereunder.
D. DeWind
Turbine and Seller are entering into this Agreement to consummate
the transactions contemplated in the Purchase Agreement and as a
condition precedent to consummation of the Closing, and the parties
desire to set forth in this Agreement the terms and conditions
pursuant to which the Escrow Funds shall be deposited, held in and
disbursed from the Escrow Account.
NOW, THEREFORE, the parties hereby agree as
follows:
1.
Escrow.
(i)
Escrow Funds . At the Closing, DeWind Turbine
shall deposit the Escrow Funds with the Escrow Agent in the manner
contemplated by Section 2(a) of this Agreement.
(ii)
Agreement to Hold Escrow Funds . The Escrow Agent
shall hold the Escrow Funds delivered to it pursuant to Section
1(a)(i) above in escrow for the purpose of paying, at least in
part, any Claims (defined below) which might be made against the
Escrow Funds by DeWind Turbine, until the Escrow Agent is required
to release such Escrow Funds in accordance with the terms of this
Agreement. The Escrow Agent agrees to accept delivery of
such Escrow Funds and to hold such Escrow Funds in escrow for the
benefit of DeWind Turbine and Seller subject to the terms and
conditions of this Agreement.
(b)
Notice of Claim . As used herein, the term
“ Claim ” means a claim for any Losses under
Section 10.2 of the Purchase Agreement. DeWind Turbine
shall deliver a written notice of the Claim (the “
Notice of Claim ”) to the Seller and the
Escrow Agent in compliance with Section 3 below. Except
as set forth in Section 2(c)(i), DeWind Turbine will make a Claim
against the Escrow Funds only as contemplated by Section 10 of the
Purchase Agreement. DeWind Turbine may give the Notice
of Claim after the determination of any Claims in accordance with
Section 10 of the Purchase Agreement.
(c)
Escrow Period . As used herein, the term “
Escrow Period ” means that time period
beginning on the Closing Date and ending on the third anniversary
thereafter at 5:00 p.m. (Pacific Standard Time), unless and to the
extent extended under Section 2(c)(ii) below.
2.
Deposit of Escrow Funds; Release from Escrow.
(a)
Delivery of Escrow Funds . On the Closing Date,
the Escrow Funds shall be delivered by DeWind Turbine to the Escrow
Agent by wire transfer.
(b)
Investment of Escrow Funds . The Escrow Funds
shall be placed by the Escrow Agent into a U.S. Bank Money Market
Account as described in Exhibit A attached
hereto. All interest or appreciation accrued on the
Escrow Funds (the “ Additional Escrow
Funds ”) shall be deemed to be Escrow Funds for the
purposes contemplated in this Agreement.
(d)
Release of Escrow Funds . The Escrow Funds shall
be held by the Escrow Agent for the benefit of DeWind Turbine and
Seller until such Escrow Funds are required to be released pursuant
to either: (i) Section 2(c) above; or (ii) when
required under applicable provisions of Section 4
below. The Escrow Agent shall deliver to Seller or to
DeWind Turbine, as applicable hereunder, the requisite amount of
Escrow Funds to be released on such applicable date(s) by wire
transfer to such account(s) as have been designed in writing to the
Escrow Agent by Seller or DeWind Turbine, respectively.
(e)
Nature of Interest in Escrow Funds . The parties
acknowledge and agree that DeWind Turbine’s and
Seller’s payment interests in the Escrow Funds are contingent
rights to payment from the Escrow Funds, and that neither a
voluntary or involuntary case under any applicable bankruptcy,
insolvency or similar law, nor the appointment of a receiver,
trustee, custodian or similar official in respect of DeWind Turbine
or Seller shall increase its respective payment interest in the
Escrow Funds or affect, modify, convert or otherwise change any
right it may have to the Escrow Funds.
(f)
No Transfer or Encumbrance of Escrow Funds . Both
parties have not, and agree that they will not, subject the Escrow
Funds to a Lien or otherwise encumber the Escrow Funds, except as
permitted by this Agreement.
*** This material has been omitted pursuant to a
request for confidential treatment and filed separately with the
Securities and Exchange Commission.
(g)
Grant of Security Interest to DeWind Turbine . In
order to secure Seller’s obligations and enhance DeWind
Turbine’s rights and remedies under this Agreement and under
the Purchase Agreement, Seller hereby grants to DeWind Turbine,
effective as of the date hereof, a security interest in all of
Seller’s right, title and interest in and to the Escrow
Account and the Escrow Funds, including, without limitation, all
accounts, certificates of deposit, cash, funds and investments
established or made with the Escrow Funds and any replacements or
proceeds thereof. The Escrow Agent acknowledges that
DeWind Turbine has a security interest in the Escrow Account, the
Escrow Funds and Additional Escrow Funds, and all assets and
investments which may be held in the Escrow Account from time to
time, and shall maintain and preserve such assets subject to this
security interest. The parties hereto agree that this
Agreement including Section 2(g) shall establish
“control,” as defined in Sections 9-104 and 8-106
of the Uniform Commercial Code, as enacted in the State of
California, and as amended from time to time (the “
UCC ”), of the Escrow Funds, which control is
effective to perfect DeWind Turbine’s security interest in
the Escrow Funds. The Escrow Agent and Seller shall take
all actions as may be reasonably requested in writing by DeWind
Turbine to perfect or maintain the security interest created by
Seller hereunder in the Escrow Funds. DeWind Turbine is
authorized by the other parties hereto to file UCC financing
statements naming Seller as “Debtor” and DeWind Turbine
as “Secured Party” and take such other and further
actions as DeWind Turbine may reasonably determine to perfect
DeWind Turbine’s security interest granted herein, with or
without execution by the other parties hereto, to the extent
permitted by applicable law. Such security interest
shall automatically be released solely with respect to any funds
properly distributed from the Escrow Funds pursuant to the terms of
this Agreement. DeWind Turbine agrees to promptly
execute such instruments of release and termination of the security
interest granted hereunder with respect to any Escrow Funds
properly received by or distributable to Seller pursuant to the
terms of this Agreement, and as may be reasonably requested in
writing by Seller. Seller hereby represents and warrants
to DeWind Turbine that (1) its exact legal name is as set
forth in the Preamble hereto, (2) it is a Nevada corporation, (3)
its organizational identification number issued by the state of
Nevada is E0851042006-3 and (4) its principal place of business is
2026 McGaw Ave., Irvine, California 93614
(h)
Power to Transfer Escrow Funds . The Escrow Agent
is hereby granted the power to effect any transfer of Escrow Funds
contemplated by this Agreement.
(i)
Tax Reporting . The parties hereto agree that,
for tax reporting purposes, all interest or other income, if any,
attributable to the Escrow Funds or any other amount held in escrow
by the Escrow Agent pursuant to this Agreement shall be allocable
to Seller.
(j)
Certification of Tax Identification Numbers
. DeWind Turbine and Seller agree to provide the Escrow
Agent with certified tax identification numbers for each of them by
signing and returning Forms W-8 or W-9 to the Escrow Agent at
signing of this Agreement. The parties hereto understand
that, if such tax identification numbers are not so certified to
the Escrow Agent, the Escrow Agent may be required by the Internal
Revenue Code, as it may be amended from time to time, to withhold a
portion of any interest or other income earned on the investment of
monies or other property held by the Escrow Agent pursuant to this
Agreement.
3. Notice
of Claim.
(a)
Contents of Notice . The Notice of Claim given by
DeWind Turbine pursuant to Section 1(b) above shall be set forth in
writing and shall contain the following information to the extent
it is reasonably available to DeWind Turbine:
(i) The
amount, if known, or if not known, of an estimate of the
foreseeable maximum amount of claimed Losses (which estimate shall
not be conclusive of the final amount of such Losses) (the “
Loss Amount ”); and
(ii) A
detailed description of the basis for such Claim, including the
facts and circumstances justifying DeWind Turbine’s
entitlement to indemnification pursuant to Section 10.2 of the
Purchase Agreement with reference to the specific breach alleged or
other basis for such entitlement, and the application (or
inapplicability) of the threshold for a De Minimis Claim, the
Deductible and the Cap.
(b)
No Release Until Resolved Under Section 4 . The
Escrow Agent shall not transfer any of the Escrow Funds held in the
Escrow Account to DeWind Turbine pursuant to a Notice of Claim
until such Notice of Claim has been resolved in accordance with
Section 4. Notwithstanding the foregoing and for the purpose of
clarification, this Section 3(b) shall not be applicable to any
amount of Escrow Funds released to Seller pursuant to Section 2(c)
above.
4.
Resolution of Claims and Transfers of Escrow
Funds. The Notice of Claim received by Seller and
the Escrow Agent pursuant to Section 1(b) and Section 3 above shall
be resolved as follows: After the Notice of Claim has
been delivered by DeWind Turbine to Seller and the Escrow Agent
pursuant to Section 6(e), Seller will have 15 Business Days from
receipt of such Notice of Claim to dispute the Claim and shall
reasonably cooperate and assist DeWind Turbine in determining the
validity of the Claim for indemnity. If Seller does not
give notice to DeWind Turbine that it disputes the Claim within 15
Business Days after receipt of the Notice of Claim, the Claim shall
be deemed to be a Loss subject to indemnification under Section 10
of the Purchase Agreement, and the Escrow Agent
shall: (a) as soon as is reasonably practical release
from escrow and transfer to DeWind Turbine an amount of the Escrow
Funds equal to (i) the amount of the Loss Amount specified in the
Notice of Claim if the Loss Amount is less than the amount of the
Escrow Funds, or (ii) the amount of the Escrow Funds if the Loss
Amount exceeds the amount of the Escrow Funds; and (b) notify
Seller in writing of such transfer of Escrow Funds as promptly
thereafter. Notwithstanding the foregoing, if Seller
gives notice to DeWind Turbine, with a copy to the Escrow Agent,
that it disputes the Claim, then the Escrow Agent shall not release
any of the Escrow Funds in favor of DeWind Turbine until such
dispute is resolved pursuant to Section 5(b).
5.
Limitation of Escrow Agent’s Liability.
(a)
Limita
