Stipulation and Order Resolving Claim of John Nunley (Claim No. 83) Against Composite Technology Corporation

Summary

Composite Technology Corporation and John Nunley have agreed to settle a disputed bankruptcy claim. Nunley originally claimed over $2.8 million for unpaid wages, severance, and stock under an employment agreement. The parties have resolved the dispute by allowing Nunley a general unsecured claim of $165,000, to be satisfied by issuing 87,302 shares of the company's common stock if the bankruptcy reorganization plan is confirmed. Nunley waives all other claims against the company. This agreement avoids further litigation and finalizes Nunley’s claim in the bankruptcy case.

EX-10.9 43 v030496_ex10-9.txt Leonard M. Shulman - Bar No. 126349 Mark Bradshaw - Bar No. 192540 SHULMAN HODGES & BASTIAN LLP 26632 Towne Centre Drive, Suite 300 Foothill Ranch, California ###-###-#### Telephone: (949) 340-3400 Facsimile: (949) 340-3000 General Counsel for the Debtor and Debtor in Possession Composite Technology Corporation, a Nevada corporation UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA, SANTA ANA DIVISION In re Case No. SA 05-13107 JR COMPOSITE TECHNOLOGY CORPORATION, a Nevada corporation, Chapter 11 STIPULATION RESOLVING CLAIM ASSERTED BY JOHN NUNLEY(CLAIM NO. 83); AND ORDER THEREON Debtor. [No Hearing Set] - ---------------------------------------- TO THE HONORABLE JOHN E. RYAN, UNITED STATES BANKRUPTCY JUDGE: Composite Technology Corporation, a Nevada corporation ("Debtor") and John Nunley, hereby agree and stipulate based on the following recitals. RECITALS A. The Debtor filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code on May 5, 2005 (the "Petition Date"). The Debtor is continuing in the operation and management of its business pursuant to Bankruptcy Code Sections 1107 and 1108. 1 B. The Debtor's Stock is traded on the Over-The-Counter Bulletin Board under the symbol "CPTCQ." C. The Debtor provides engineering, product design, manufactured products and other services related to full commercial design, production and installation of Debtor's products for the global electrical utility industry, all of which are designed to improve the performance and capacity of transmission and distribution power lines. D. On July 18, 2005, the Court entered an order approving the Debtor's Fourth Amended Disclosure Statement Describing Third Amended Chapter 11 Plan of Reorganization. E. The hearing on confirmation of the Debtor's Third Amended Chapter 11 Plan of Reorganization Plan ("Plan") is currently scheduled for October 12, 2005 at 10:30 A.M. F. On or about August 2, 2005, Nunley filed a general unsecured claim against the Debtor's bankruptcy estate ("Estate") in the amount of $2,836,138.16 ("Nunley Claim"), which was assigned Claim No. 83 by the Court. A true and correct copy of the Nunley Claim is attached hereto as Exhibit A. G. The Nunley Claim amount is based on the alleged amounts due under an Employment Agreement dated September 15, 2003, a copy of which is attached to the Nunley Claim. H. Nunley asserts that under the Employment Agreement his monthly compensation was set at $20,833.33 (for an annual compensation of $250,000.) The following chart sets forth the alleged amounts. Nunley asserts that he was owed for wages in 2003, 2004 and 2005, the amounts that were paid and that the amounts that are still due total $191,138.16: - -------------------------------------------------------------------------------- Description Alleged Wages Alleged Wages Alleged Wage Accrued Paid Amounts Due - -------------------------------------------------------------------------------- 2003 $62,500.00 $30,000.00 $32,500.00 - -------------------------------------------------------------------------------- 2004 $250,000.00 $144,615.53 $105,384.47 - -------------------------------------------------------------------------------- January 2005 $11,424.73 $5,076.72 $6,348.01 - -------------------------------------------------------------------------------- Unused Vacation $10,096.15 $4,857.13 $5,239.02 (84.19 Hours) - -------------------------------------------------------------------------------- 60 Days Notice $41,666.66 $.00 $41,666.66 - -------------------------------------------------------------------------------- Total Wages $375,687.54 $184,549.38 $191,138.16 - -------------------------------------------------------------------------------- 2 I. Nunley asserts that under the Employment Agreement he is owed additional monthly compensation totaling $125,000 representing six months of his monthly compensation that would be remaining in an alleged escrow account upon termination of the Employment Agreement. Nunley asserts that the Employment Agreement provided that an escrow account was to be set up containing two years worth of salary ($500,000). Nunley further asserts that the Employment Agreement provides that if he was terminated any time between the first anniversary and second anniversary of the effective date of the Employment Agreement, he would be entitled to receive whatever remained in the escrow account up to a maximum of six months salary ($125,000). The alleged effective date of the Employment Agreement was October 1, 2003 and Nunley was terminated on January 18, 2005. Nunley asserts that he was employed for 15 and 1/2/ months plus 2 months severance (or notice) and therefore there was 6 and 1/2 months remaining in the two year period of the Employment Agreement. Nunley asserts he is owed $125,000 under this provision of the Employment Agreement. J. Nunley asserts that under the Employment Agreement he is entitled to at least 400,000 shares of the Debtor's common stock. Nunley further asserts he is entitled to the cash value of the stock at the time he alleges he should have had the shares in his possession for a total of $2,520,000. K. The Debtor disputes that Mr. Nunley's monthly compensation was set at $20,833.33, disputes that Mr. Nunly is owed for unpaid wages totaling $191,138.16, disputes that Mr. Nunley is entitled to $125,000 from the alleged escrow account and disputes that Mr. Nunley is entitled to 400,000 shares of the Debtor's common stock or its cash value. L. In order to eliminate the need for costly litigation of the Nunley Claim, the Debtor and Nunley desire to settle and resolve any and all disputes, claims, actions, causes of action, demands and damages regarding the Nunley Claim. 3 AGREEMENT WHEREFORE, the Debtor and Nunley (collectively the "Parties") agree that it is in their mutual best interests to resolve any and all potential disputes regarding the Nunley Claim, in consideration of the promises, the mutual obligations and undertakings set forth hereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, the Parties hereto agree as follows: 1. Recitals. The recitals set forth above are incorporated herein to describe the context in which this Agreement is made, and to provide information respecting the Parties' disputes and transactions and litigation, including by an illustrative but not complete description of events and allegations that reflect the divergent positions of the Parties hereto in the foregoing matters. Neither the recitals, nor any other provisions of this Agreement, are or should be construed or interpreted to be concessions, admissions, or used as evidence for any purpose either for or against the interest of any of the Parties hereto, consistent with Evidence Code Section 1152 2. Allowance of the Nunley Claim. The Nunley Claim shall be allowed as a nonpriority general unsecured claim in the amount of One Hundred Sixty-Five Thousand Dollars ($165,000) ("Allowed Claim") which shall be satisfied in full as follows: Eighty-Seven Thousand Three Hundred and Two (87,302) shares of the Debtor's common stock shall be issued to Nunley on the Plan Effective Date pursuant to Bankruptcy Code Section 1145 in a single certificate, which certificate shall not contain any transfer restrictions. Issuance of the shares as part of the Allowed Claim is conditioned upon confirmation of the Plan. 3. Representations or Warranties Relating to the Nunley Claim. Nunley represents that it he is the owner of the Nunley Claim and has not previously assigned or transferred to any other person his rights in the Nunley Claim. 4. Waiver of Claims Against the Estate. Except for as provided by this Agreement, Nunley waives any and all claims against the Estate, including the Nunley Claim, any other filed proofs of claim or informal claims, and agrees that he is not entitled to share in any distribution from the Estate other than as provided by this Agreement. 4 5. Reliance. Except as set forth herein, the Parties hereto acknowledge that they have relied solely upon their own judgment, belief and knowledge of the existence, nature and extent of each claim, demand, or cause of action that each party may have against the other, and that each such party has not been influenced to any extent in entering into this Agreement by any representation or statement regarding any such claim, demand or cause of action made by any other party hereto. 6. Attorneys' Fees and Costs. All Parties hereto shall bear their own attorneys' fees, expenses, and costs incurred in connection with the disputes between the Parties hereto and in the preparation of this Agreement. In the event of any action or proceeding brought by either party against the other under this Agreement, the prevailing party shall be entitled to recover for the fees of its attorneys in such action or proceeding, including costs of appeal, if any, in such amount as the court may adjudge reasonable as attorneys' fees. 7. Execution of Additional Documents. The Parties agree that they will execute any and all additional documents and take all additional steps which may be necessary or convenient to consummate this settlement and accomplish the purposes thereof. 8. Integration of Entire Agreement. This Agreement contains the entire agreement of the Parties, and no representations, warranties, inducements or promises not included herein by express provision or contained in a document or instrument identified herein and executed contemporaneously herewith shall be binding on any party hereto. 9. Provisions Severable. It is the belief of the parties that this Agreement does not contain any provision contrary to law. However, if any provision of this Agreement, or portion thereof, shall be determined to be illegal, invalid, or unenforceable, that provision (or portion thereof) shall be severed and the remaining parts shall be valid and enforceable, so long as the remaining parts continue to fulfill the original intent of the parties and there is no material failure of consideration. 5 10. Authority to Sign. Each individual executing this Agreement on behalf of a corporation, partnership or other entity represents that he or she is duly authorized to execute and deliver this Agreement on behalf of the corporation, partnership or entity and agrees to deliver evidence of his or her authority and power if requested by the other party. 11. Bankruptcy Court Approval. This Agreement is subject to approval by the United States Bankruptcy Court, Central District of California, Santa Ana Division and entry of a Final Order and termination of any appeals related thereto in the Debtor's bankruptcy case. In the event the Bankruptcy Court does not approve this Agreement, all claims will be restored as originally asserted by and between the Parties, subject to any and all defenses and counter-claims held by the Parties. 12. Counterparts. This Agreement may be executed in any number of original, fax or copied counterparts, and all counterparts shall be considered together as one agreement. A faxed or copied counterpart shall have the same force and effect as an original signed counterpart. Each of the Parties hereby expressly forever waives any and all rights to raise the use of a fax machine to deliver a signature, or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a fax machine, as a defense to the formation of a contract. 13. Binding. This Stipulation shall be binding on the Parties hereto when each such Party has executed at least one counterpart. 14. Ownership of Claims. Each of the Parties to this agreement expressly warrants and represents that it is the sole and lawful owner of all right, title and interest in and to every claim and other matter which it purports to release herein, and it has not assigned or transferred, or purported to assign or transfer to any person or entity any claims or other matters herein released. 15. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective Parties and their heirs, executors, administrators, agents, representatives, successors and assigns. 6 16. Governing Law. This Agreement is to be governed by and construed in accordance with federal bankruptcy law, to the extent applicable, and where state law is implicated, the laws of the State of California shall govern. 17. Jurisdiction of the Bankruptcy Court. Should any dispute arise regarding this Agreement, the United States Bankruptcy Court for the Central District of California, Santa Ana Division shall have exclusive jurisdiction to determine the same. 18. Headings. The headings of all sections of this Agreement are inserted solely for the convenience of reference and are not a part of and are not intended to govern, limit or aid in the construction or interpretation of any term or provision hereof. Dated: September _____ , 2005 ------------------------------------------- John Nunley Dated: September _____ , 2005 COMPOSITE TECHNOLOGY CORPORATION, a Nevada corporation ------------------------------------------- Benton H Wilcoxon, Chief Executive Officer APPROVED AS TO FORM. Dated: September _____ , 2005 SHULMAN HODGES & BASTIAN LLP ------------------------------------------- Leonard M. Shulman Mark Bradshaw Attorneys for the Debtor and Debtor in Possession Composite Technology Corporation ORDER IT IS SO ORDERED. Dated: ------------------------------------------- JOHN E. RYAN UNITED STATES BANKRUPTCY JUDGE 7 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF ORANGE I am employed in the City of Foothill Ranch, County of Orange, State of California. I am over the age of 18 years and not a party to the within action. My business address is 26632 Towne Centre, Suite 300, Foothill Ranch, California 92610. On September ____, 2005, I served the documents named below on the parties as follows: DOCUMENT(S) SERVED: STIPULATION RESOLVING CLAIM ASSERTED BY JOHN NUNLEY (CLAIM NO. 83); AND ORDER THEREON SERVED UPON: SEE THE ATTACHED SERVICE LIST |X| (BY MAIL) I caused each such envelope, with postage thereon fully prepaid, to be placed in the United States mail at Foothill Ranch, California. I am readily familiar with the practice of Shulman Hodges & Bastian LLP for collection and processing of correspondence for mailing, said practice being that in the ordinary course of business, mail is deposited in the United States Postal Service the same day as it is placed for collection. I am aware that on motion of party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit. |_| (BY FACSIMILE) Pursuant to C.R.C. 2009(i), I either caused, or had someone cause, the transmitting machine to properly transmit the attached documents to the facsimile numbers shown on the service list. The above-referenced document was transmitted by facsimile transmission and the transmission was reported as completed and without error. |_| (BY FEDERAL EXPRESS OR OVERNITE EXPRESS) I am readily familiar with the practice of Shulman Hodges & Bastian LLP for collection and processing of documents for overnight delivery and know that the document(s) described herein will be deposited in a box or other facility regularly maintained by such overnight delivery company for overnight delivery. |_| (BY PERSONAL SERVICE) I delivered to an authorized courier or driver authorized by ASAP Corporate Service to receive documents to be delivered on the same date. A proof of service signed by the authorized courier will be filed forthwith. |_| (STATE) I declare under penalty of perjury under the laws of the State of California that the above is true and correct. |X| (FEDERAL) I declare that I am employed in the office of a member of the bar of this court, at whose direction this service was made. Executed on September ____, 2005, at Foothill Ranch, California. ------------------------------------------- Lorre E. Clapp SERVICE LIST ------------ Interested Party - ---------------- Michael Hauser, Esq. Office of the United States Trustee Ronald Reagan Federal Building and United States Courthouse 411 West Fourth Street Suite 9041 Santa Ana, CA ###-###-#### Debtor - ------ Composite Technology Corporation Attn C William Arrington, St VP 2026 McGaw Ave Irvine, CA 92614 Attorneys for the Unsecured Creditors Committee - ----------------------------------------------- Mike D. Neue, Esq. Irell & Manella LLP 840 Newport Center Drive, Suite 400 Newport Beach, CA ###-###-#### Claimant - -------- John Nunley 2508 Sagebrush Ave Cheyenne, WY 82009-4426 - -------------------------------------------------------------------------------- In re (SHORT TITLE) CHAPTER 11 CASE NUMBER: COMPOSITE TECHNOLOGY CORPORATION, SA 05-13107 JR a Nevada corporation, Debtor. - -------------------------------------------------------------------------------- NOTICE OF ENTRY OF JUDGMENT OR ORDER AND CERTIFICATE OF MAILING TO ALL PARTIES IN INTEREST ON THE ATTACHED SERVICE LIST: 1. You are hereby notified, pursuant to Local Bankruptcy Rule 9021-1(a)(1)(E), that a judgment or order entitled (specify): STIPULATION RESOLVING CLAIM ASSERTED BY JOHN NUNLEY(CLAIM NO. 83); AND ORDER THEREON was entered on (specify date): __________________________. 2. I hereby certify that I mailed a copy of this notice and a true copy of the order or judgment to the persons and entities on the attached service list on (specify date): __________________________. Dated: JON D. CERETTO CLERK OF THE BANKRUPTCY COURT By: ---------------------------------------- Deputy Clerk - -------------------------------------------------------------------------------- SERVICE LIST ------------ Interested Party - ---------------- Michael Hauser, Esq. Office of the United States Trustee Ronald Reagan Federal Building and United States Courthouse 411 West Fourth Street Suite 9041 Santa Ana, CA ###-###-#### Debtor - ------ Composite Technology Corporation Attn C William Arrington, St VP 2026 McGaw Ave Irvine, CA 92614 Attorneys for the Debtor - ------------------------ Mark Bradshaw, Esq. Shulman Hodges & Bastian LLP 26632 Towne Center Drive Suite 300 Foothill Ranch, CA 92610 Counsel for the Committee of Unsecured Creditors - ------------------------------------------------ Alan J Friedman Esq Mike D. Neue Esq Irell & Manella LLP 840 Newport Center Drive Suite 400 Newport Beach, CA ###-###-#### Claimant - -------- John Nunley 2508 Sagebrush Ave Cheyenne, WY 82009-4426