EXHIBIT 99.7
INTELLECTUAL PROPERTY SECURITY AGREEMENT
by and among
PACIFIC AEROSPACE & ELECTRONICS, INC.
AEROMET AMERICA, INC.
BALO PRECISION PARTS, INC.
CASHMERE MANUFACTURING CO., INC.
CERAMIC DEVICES, INC.
ELECTRONIC SPECIALTY CORPORATION
NORTHWEST TECHNICAL INDUSTRIES, INC.
PACIFIC COAST TECHNOLOGIES, INC.
SEISMIC SAFETY PRODUCTS, INC.
SKAGIT ENGINEERING & MANUFACTURING, INC.
PA&E INTERNATIONAL, INC.
and
DDJ Capital Management, LLC,
as Agent for the Lenders
Dated as of ▇▇▇▇▇ ▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇
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Schedule A - List of Grantors
Schedule B - List of Lenders
Schedule I - Patents
Schedule II - Trademarks
Schedule III - Licenses
Exhibit A - Form of Trademark Collateral Agreement and Notice
Exhibit B - Form of Patent Collateral Agreement and Notice
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT dated as of March 1, 2001 is
made by Pacific Aerospace & Electronics, Inc., a Washington corporation and each
of its subsidiaries listed on Schedule A attached hereto (each, a "Grantor" and
collectively, the "Grantors"), for the benefit of each of the lenders set forth
on Schedule B hereto (each a "Lender" and collectively the "Lenders") and DDJ
Capital Management LLC, as agent for the Lenders (the "Agent"). All capitalized
terms used herein, unless otherwise defined, are defined as provided in the Loan
Agreement (as defined below).
WHEREAS, Grantors, Lenders and the Agent are entering into the Loan
Agreement dated as of March 1, 2001 (collectively with the schedules and
exhibits thereto, the "Loan Agreement"); and
WHEREAS, it is a condition precedent to Lenders entering into the Loan
Agreement that Grantors shall have granted the security interests and made the
pledges and grants of the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the promises and in order to induce
Lenders to enter into the Loan Agreement, Grantors hereby agree with Lenders for
their benefit as follows:
SECTION 1. Grant of Security. Each of the Grantors, as applicable, hereby
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grant and pledge to the Agent, for the benefit of the Lenders a security
interest in the following, in each case, as to each type of property described
below, and in all Proceeds (as defined below) thereof (collectively, the
"Intellectual Property Collateral"):
(a) all patents, patent applications, and patentable inventions,
including, without limitation, each patent identified in Schedule I attached
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hereto and made a part hereof and each patent application identified in such
Schedule I, and including, without limitation, (i) all inventions and
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improvements described and claimed therein and the right to make, use, or sell
the same, (ii) the right to ▇▇▇ or otherwise recover for any misappropriations
thereof, (iii) all
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income, royalties, damages, and other payments and Proceeds now and hereafter
due and/or payable with respect thereto (including, without limitation, payments
under all licenses entered into in connection therewith, and damages and
payments for past and future infringements thereof), and (iv) all rights
corresponding thereto throughout the world and all reissues, divisions,
continuations, continuations-in-part, substitutes, renewals and extensions
thereof, all improvements thereon, and all other rights of any kind whatsoever
of Grantors accruing thereunder or pertaining thereto (the "Patents");
(b) all trademarks, service marks, trade names, trade dress or other
indicia of trade origin, trademark and service ▇▇▇▇ registrations, and
applications for trademark or service ▇▇▇▇ registrations, and any renewals
thereof, including, without limitation, each registration and application
identified in Schedule II attached hereto and made a part hereof, and including,
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without limitation, (i) the right to ▇▇▇ or otherwise recover for any and all
past, present, and future infringements and misappropriations thereof, (ii) all
income, royalties, damages and other payments and Proceeds now and hereafter due
and/or payable with respect thereto (including, without limitation, payments
under all licenses entered into in connection therewith, and damages and
payments for past or future infringements thereof), and (iii) all rights
corresponding thereto throughout the world and all other rights of any kind
whatsoever of Grantor accruing thereunder or pertaining thereto, together in
each case with the goodwill of the business connected with the use of, and
symbolized by, each such trademark, service ▇▇▇▇, trade name, trade dress, or
other indicia of trade origin (the "Trademarks"); and
(c) all license agreements with any other person or entity ("Person"
in connection with any of the Patents or Trademarks, or such other Person's
patents, trade names, trademarks, service marks, or other intellectual property,
whether such Grantors are a licensor or licensee under any such license
agreement, including, without limitation, the license agreements listed on
Schedule III attached hereto and made a part hereof, and any right to prepare
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for sale, sell and advertise for sale, all Inventory (as defined in the Loan
Agreement) now or hereafter owned by Grantors and now or hereafter covered by
any such licenses, and all proceeds thereto (the "Licenses" and each a
"License").
(d) "Proceeds" shall have the meaning assigned to such term under the
Uniform Commercial Code and, in any event, shall also include without limitation
(i) any and all proceeds of any guarantee, insurance, or indemnity payable to
Lenders from time to time with respect to any of the Intellectual Property
Collateral; (ii) any and all payments (in any form whatsoever) made or due and
payable to the Lenders from time to time as consideration for any confiscation,
condemnation, seizure, or forfeiture of all or any part of the Intellectual
Property Collateral by any governmental authority; (iii) all proceeds of any
sale, lease, license, or other disposition of any of the Intellectual Property
Collateral or rights therein whether or not the lien therein purportedly granted
hereunder is valid or attaches or is perfected; and (iv) any and all other
amounts from time to time paid or payable with respect to or in connection with
any of the Intellectual Property Collateral.
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SECTION 2. Future Intellectual Property Grants.
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Should any Grantor obtain an ownership interest in, adopt, use, acquire
or apply for registration of any patent, patent application, patentable
invention, trademark, service ▇▇▇▇, trade name, trade dress, other indicia of
trade origin, trademark or service ▇▇▇▇ registration, trademark or service ▇▇▇▇
application, or License, which is not now a part of the Intellectual Property
Collateral,
(a) the provisions of Section 1 will automatically apply thereto,
(b) any such patent, patent application, patentable invention,
trademark, service ▇▇▇▇, trade name, trade dress, indicia of trade origin,
trademark or service ▇▇▇▇ registration, or trademark or service ▇▇▇▇ application
(together with the goodwill of the business connected with the use of same and
symbolized by same), or License will automatically become part of the
Intellectual Property Collateral, and
(c) Grantors will give the Agent reasonably prompt notice thereof in
writing.
SECTION 3. Notice. Grantors agree that simultaneously with the
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execution of this Agreement, and thereafter upon any amendment of Schedule I or
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II, the Grantors shall execute notices in the form appended hereto as Exhibit A
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or B (each, a "Notice"), as appropriate, with respect to all of the Intellectual
Property Collateral, now owned or hereafter acquired, and shall deliver each
Notice to the Agent for the purpose of recordation under the Uniform Commercial
Code and at the U.S. Patent and Trademark Office or its foreign counterpart, as
appropriate.
SECTION 4. Security for Grantors' Obligations. This Agreement secures
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the full and timely payment and performance of all obligations of Grantors now
or hereafter existing under the Loan Agreement (the "Obligations"), whether for
principal, interest, fees, expenses, or otherwise.
SECTION 5. Grantors Remain Liable. Anything herein to the contrary
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notwithstanding, (a) Grantors shall remain liable under the contracts and
agreements included in the Intellectual Property Collateral to which they are a
party to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, and (b) the exercise by the Agent, at the direction of a majority of
the Lenders, of any of the rights or remedies hereunder shall not release
Grantors from any of their duties or obligations under the Loan Agreement or
otherwise with respect to the Intellectual Property Collateral.
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SECTION 6. Representations and Warranties. Grantors represent and
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warrant, as of the Effective Date and thereafter automatically upon each
amendment of a Schedule, as follows:
(a) Each Grantor is the legal and beneficial owner of the Intellectual
Property Collateral pledged by such Grantor free and clear of any lien, claim,
option, or right of others, except as disclosed in the Loan Agreement and for
the liens and security interests created under this Agreement or permitted under
the Loan Agreement. No effective financing statement or other instrument similar
in effect covering all or any part of the Intellectual Property Collateral or
listing such Grantor, or any of its subsidiaries, or any trade name of such
Grantor or any of its subsidiaries, as debtor is on file in any recording office
(including, without limitation, the United States Patent and Trademark Office),
except as has been disclosed to the Lenders in the Loan Agreement, that will be
terminated at or immediately following the Closing after application of the
proceeds from the Term Loans in accordance with the Loan Agreement, as permitted
under the Loan Agreement or as may have been filed in favor of Lenders relating
to this Agreement or the Loan Agreement.
(b) Set forth in Schedule I is a complete and accurate list of all
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Patents owned by Grantors and applied for or registered with the U.S. Patent and
Trademark Office or any foreign patent office. Set forth in Schedule II is a
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complete and accurate list of all Trademarks owned by Grantors and applied for
or registered with the U.S. Patent and Trademark Office or any foreign trademark
offices. Set forth in Schedule III is a complete and accurate list of all
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Licenses in which Grantors is (i) a licensor with respect to any of the Patents
or Trademarks, or (ii) a licensee of any other Person's patents, trade names,
trademarks, or service marks. Grantors have made all necessary filings and
recordations to protect and maintain their interests in the Patents, Trademarks,
and Licenses except as disclosed.
(c) Each Patent and Trademark is subsisting and has not been adjudged
invalid, unregistrable, or unenforceable, in whole or in part, and to the
knowledge of Grantors is valid, registrable, and enforceable. Each License is
subsisting and has not been adjudged invalid or unenforceable, in whole or in
part, and is valid and enforceable. Grantors are not aware of any uses of any
item of Intellectual Property Collateral which would be expected to lead to such
item becoming invalid or unenforceable, including unauthorized uses by third
parties and uses which were not supported by the goodwill of the business
connected with such Intellectual Property Collateral.
(d) Except as permitted under or disclosed in the Loan Agreement,
Grantors have not made any previous assignment, transfer, or agreement
constituting a present or future assignment, transfer, or encumbrance of any of
the Intellectual Property Collateral. Grantors have not granted any license
(other than those listed on Schedule III hereto), release, covenant not to ▇▇▇,
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or non-assertion assurance to any Person with respect to any part of the
Intellectual Property Collateral.
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(e) Grantors have made reasonable efforts to provide proper statutory
notice in connection with their use of each Patent, Trademark, and License.
(f) This Agreement, upon execution and filing of each Notice (as
defined above), creates in favor of the Lenders a valid and perfected security
interest in the Intellectual Property Collateral of the Grantors, securing the
payment of the Obligations.
(g) No consent of any Person and no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body or other Person is required (i) for the grant by Grantors of the
security interest granted hereby, for the pledge by Grantors of the Intellectual
Property Collateral pursuant hereto, or for the execution, delivery, or
performance of this Agreement by Grantors, (ii) for the perfection or
maintenance of the pledge and security interest created hereby (including the
first and only priority nature of such pledge and security interest), except as
disclosed in the Loan Agreement and for the filing of financing and continuation
statements under the Uniform Commercial Code, which financing statements are in
proper form and are duly executed, and the filing and recording of the Notices
in the applicable state filing office and the United States Patent and Trademark
Office against each Patent and Trademark, or (iii) for the exercise by the of
its rights provided for in this Agreement or the remedies in respect of the
Intellectual Property Collateral pursuant to this Agreement.
(h) To the Grantor's knowledge, there are no claims by any third party
relating to any item of Intellectual Property Collateral.
(i) No claim has been made and is continuing or threatened that any
item of Intellectual Property Collateral is invalid or unenforceable or that the
use by Grantors of any Intellectual Property Collateral does or may violate the
rights of any Person. To the best of the Grantors' knowledge, there is currently
no infringement or unauthorized use of any item of Intellectual Property
Collateral.
(j) Grantors have taken all reasonably necessary steps to use
consistent standards of quality in the manufacture, distribution and sale of all
products sold and the provision of all services provided under or in connection
with any of the Intellectual Property Collateral and have taken all necessary
steps to ensure that all licensed users of any of the Intellectual Property
Collateral use such consistent standards of quality.
(k) Grantors shall continue to use proper statutory notice in
connection with their use of each of the Patents and Trademarks.
(l) Grantors shall take all reasonable steps which they, the Agent or a
majority of the Lenders deem appropriate under the circumstances to preserve and
protect the
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Intellectual Property Collateral, including, without limitation, maintaining the
quality of any and all products or services used or provided in connection with
any of the Intellectual Property Collateral, consistent with the quality of the
products and services as of the date hereof, and taking all reasonable steps
necessary to ensure that all licensed users of any of the Intellectual Property
Collateral use at least such standards of quality.
(m) To the best of the Grantors' knowledge, there are no other users of
any of the Trademarks or variations thereof that are similar enough to a
Trademark, with due regard to goods and services with which the respective
Trademarks are used, as to be likely to cause confusion or mistake among
consumers.
(n) To the best of the Grantors' knowledge, the Intellectual Property
Collateral does not infringe any third-party patent, trademark, copyright, or
any other third-party intellectual property or other proprietary right, and the
pledge of such Intellectual Property Collateral does not and will not create or
cause an unlawful disclosure, use, or misappropriation of a trade secret or
similar proprietary right.
SECTION 7. Lender's Rights and Further Assurances.
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(a) Enforcement of Rights. Grantors agree that from time to time and
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at their expense Grantors shall promptly execute and deliver all further
instruments and documents, and take all further action, that the Agent believes
may be reasonably necessary or reasonably desirable, or that the Agent may
reasonably request, in order to perfect and protect any pledge or security
interest granted or purported to be granted hereby or to enable the Lenders to
exercise and enforce their rights and remedies hereunder with respect to any
part of the Intellectual Property Collateral. Without limiting the generality of
the foregoing, a Grantor will, upon the reasonable request of the Agent or a
majority of the Lenders, with respect to the Intellectual Property Collateral
owned by Grantor, execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices as may be reasonably
necessary or desirable, or as the Agent or a majority of the Lenders may
reasonably request, in order to perfect and preserve the pledge and security
interest granted or purported to be granted hereby.
(b) Continuation Statements. Grantors hereby authorize the Agent to
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file one or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Intellectual Property Collateral without the
signature of Grantors where permitted by law. A photocopy or other reproduction
of this Agreement or any financing statement covering the Intellectual Property
Collateral or any part thereof will be sufficient as a financing statement where
permitted by law.
(c) Lender's Information. Grantors will furnish to the Agent from time
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to time statements and schedules further identifying and describing the
Intellectual Property
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Collateral and such other reports in connection with the Intellectual Property
Collateral as the Agent may reasonably request, all in reasonable detail.
(d) Prosecution and Maintenance. With respect to each Patent and
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Trademark, Grantors shall take all necessary or desirable steps, including,
without limitation, in the United States Patent and Trademark Office, in any
applicable state filing office, or in any court, to (i) maintain each such
Patent or Trademark registration, and (ii) pursue diligently each such Patent or
Trademark application now or hereafter included in the Intellectual Property
Collateral, including, without limitation, the filing of responses to office
actions issued by the United States Patent and Trademark Office, the filing of
affidavits under Sections 8 and 15 of the United States Trademark Act, the
filing of divisional, continuation, continuation-in-part and substitute
applications, the filing of applications for re-issue, renewal, or extensions,
the payment of maintenance fees, and the participation in interference,
reexamination, opposition, cancellation, infringement, and misappropriation
proceedings. Grantors agree to take corresponding steps with respect to each new
or acquired Patent and Trademark registration or application to which they now
or later become entitled. Any and all expenses incurred in connection with such
activities will be borne by Grantors. Grantors shall not discontinue use of or
otherwise abandon any Patent or Trademark now or hereafter included in the
Intellectual Property Collateral, unless Grantors shall have first determined in
their reasonable business judgment that such use, pursuit, or maintenance of
same is no longer desirable in the conduct of Grantors' business, in which case
Grantors shall give prompt written notice of any such abandonment or
discontinuance to Agent.
(e) Abandonment; Notice of Proceeding. Grantors shall notify the Agent
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and each Lender promptly and in writing if it learns (i) that any item of the
Intellectual Property Collateral has been determined to have become abandoned or
dedicated to the public, (ii) of the institution of any proceeding (including,
without limitation, the institution of any proceeding in the United States
Patent and Trademark Office or any court) regarding any item of the Intellectual
Property Collateral, or (iii) of any adverse determination.
(f) Infringement Actions. Grantors shall have the duty to take any and
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all actions which reasonably may be necessary or desirable to protect the
Intellectual Property Collateral, including without limitation the prosecution
and defense of infringement actions involving the Intellectual Property
Collateral. In the event that Grantors make a determination in their reasonable
business judgment that any item of the Intellectual Property Collateral is
infringed or misappropriated by a third party, or that any item of the
Intellectual Property Collateral infringes or may infringe the rights of a third
party, then Grantors shall promptly notify the Agent and each Lender and will
take such actions as Grantors, the Agent or a majority of Lenders deem
appropriate under the circumstances to protect and/or defend such Intellectual
Property Collateral. Such actions may include, but are not limited to (i) suing
for infringement or misappropriation and for an injunction against such
infringement or misappropriation, and (ii) defending against any claim, suit, or
proceeding brought against a Grantor or a Lender with
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respect to the Intellectual Property Collateral. During the continuance of any
Event of Default, the Agent, at the direction of the majority of Lenders shall
have the right, but shall in no way be obligated, to bring suit in their own
name or in Grantors' names to enforce and protect rights in the Intellectual
Property Collateral. Any expense in connection with such activities will be
borne by the Grantors.
SECTION 8. Transfers and Other Liens. Grantors agree that they shall
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not (i) sell, assign (by operation of law or otherwise), otherwise dispose of
(except as provided in Section 7(d)), or grant any option with respect to any of
the Intellectual Property Collateral, or (ii) create or suffer to exist any lien
upon or with respect to any of the Intellectual Property Collateral except for
the pledge and security interest created by this Agreement.
SECTION 9. Lender Appointed Attorney-in-Fact. Grantors hereby
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irrevocably appoint the Agent as attorney-in-fact, with full authority in the
place and stead of Grantors and in the name of Grantors or otherwise, upon the
occurrence and during the continuance of an Event of Default (as defined in the
Loan Agreement) and, upon notice to Grantors, to take any action and to execute
any instrument that Lender may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation:
(a) to ask for, demand, collect, ▇▇▇ for, recover, compromise, receive,
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Intellectual Property Collateral;
(b) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above; and
(c) to file any claims or take any action or institute any proceedings
that Lender may deem necessary or desirable to enforce the rights of the Lender
with respect to any of the Intellectual Property Collateral.
SECTION 10. Lender May Perform. If Grantors fail to perform any
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agreement contained herein, the Agent may itself, upon five (5) days' notice to
Grantors, perform, or cause performance of, such agreement, and all expenses of
Lender incurred in connection therewith shall be promptly paid by Grantors in
accordance with Section 14 herein.
SECTION 11. Lender's Duties. The powers conferred on the Agent and
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each Lender hereunder are solely to protect interest in the Intellectual
Property Collateral and shall not impose any duty upon the Agent or any Lender
to exercise any such powers. Except for the safe custody
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of any Intellectual Property Collateral in its possession and the accounting for
moneys actually received by it hereunder, Agent shall have no duty as to any
Intellectual Property Collateral, whether or not the Agent has or is deemed to
have knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any parties or any other rights pertaining to any
Intellectual Property Collateral. The Agent shall exercise reasonable care in
the custody and preservation of any Intellectual Property Collateral in its
possession and shall accord such Intellectual Property Collateral treatment
equal to that which the Agent accords its own property.
SECTION 12. Remedies. If any Event of Default has occurred and is
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continuing:
(a) The Agent, at the direction of the majority of the Lenders may exercise in
respect of the Intellectual Property Collateral, in addition to other rights and
remedies provided for herein, in the Loan Agreement, or otherwise available to
it, all the rights and remedies of a secured party upon default under the
Uniform Commercial Code in effect in the State of New York at such time (the
"New York Uniform Commercial Code") (whether or not the New York Uniform
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Commercial Code applies to the affected Intellectual Property Collateral) and
also may (i) require Grantors to, and Grantors hereby agree that they will at
their expense and upon request of Lender forthwith, assemble all or part of the
documents and things embodying any part of the Intellectual Property Collateral
as directed by Lender and make them available to Lender at a place and time to
be designated by Lender; (ii) without notice except as specified below and as
required by law, sell the Intellectual Property Collateral or any part thereof
in one or more parcels at public or private sale, at any of the Lender's offices
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as such Lender may deem commercially reasonable; and (iii) occupy any
premises owned or leased by Grantors where documents and things embodying the
Intellectual Property Collateral or any part thereof are assembled or located
for a reasonable period in order to effectuate its rights and remedies hereunder
or under law, without obligation to Grantors in respect of such occupation. In
the event of any sale, assignment, or other disposition of any of the
Intellectual Property Collateral, the goodwill of the business connected with
and symbolized by any of the Intellectual Property Collateral subject to such
disposition will be included, and Grantors will supply to Agent or its designee
Grantors' know-how and expertise, and documents and things embodying the same,
relating to the manufacture, distribution, advertising, and sale of products or
the provision of services relating to any Intellectual Property Collateral
subject to such disposition and, including, but not limited to, Grantors'
customer lists and other records and documents relating to such Intellectual
Property Collateral and to the manufacture, distribution, advertising, and sale
of such products and services. Grantors agree that, to the extent notice of sale
is required by law, at least ten (10) days' notice to Grantors of the time and
place of any public sale or the time after which any private sale is to be made
will constitute reasonable notification. The Agent is not obligated to make any
sale of Intellectual Property Collateral regardless of any notice of sale given.
The 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 except as required by law, be made at the time and place to which
it was so adjourned.
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(b) All cash proceeds received by the Agent, on behalf of the Lenders
in respect of any sale of, collection from, or other realization upon, all or
any part of the Intellectual Property Collateral may be held by the Agent as
collateral for, and/or then or at any time thereafter applied (after payment of
any amounts payable pursuant to Section 14, in whole or in part) by Agent, for
the benefit of the Lenders against all or any part of the Obligations in such
order as the Loan Agreement may require. Any surplus of such cash or cash
proceeds held by the Agent and remaining after payment in full of all of the
Obligations shall be paid over to the Grantors or to whomever may be lawfully
entitled to receive such surplus.
(c) The Agent or a majority of the Lenders may exercise any and all
rights and remedies of Grantors in respect of the Intellectual Property
Collateral.
(d) All payments received by Grantors in respect of the Intellectual
Property Collateral shall be received in trust for the benefit of the Lenders,
shall be segregated from other funds of Grantors and shall be forthwith paid
over to the Lenders in the same form as so received (with any necessary or
desirable endorsement or assignment).
SECTION 13. Indemnity. Grantors agree to indemnify, defend, and hold
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harmless the Agent and each Lender and each of its directors, members, officers,
employees and agents, on demand, from and against any and all claims, losses,
obligations, damages, fees, costs, expenses, disbursements, and liabilities, of
any kind and nature whatsoever, including the reasonable fees and expenses of
its counsel and of any experts and agents, interest, penalties, and amounts paid
in settlement, arising out of or resulting from this Agreement (including,
without limitation, the assignment of the Intellectual Property Collateral, the
use of the Intellectual Property Collateral, any infringement action or other
claim relating to the Intellectual Property Collateral, or the enforcement of
this Agreement), except claims, losses, or liabilities resulting from Lender's
gross negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction.
SECTION 14. Expenses. All expenses incurred in connection with the
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performance of this Agreement and all obligations set forth herein shall be
borne by Grantors. All fees, costs and expenses, of whatever kind or nature,
including reasonable attorneys' and paralegals' fees and legal expenses,
incurred by the Agent or the Lenders in connection with the filing or recording
of any documents (including all taxes in connection therewith) in public
offices, the payment or discharge of any taxes, counsel fees, maintenance fees,
encumbrances or otherwise in protecting, maintaining or preserving the Patents,
Trademarks, and Licenses, or in defending or prosecuting any actions or
proceedings arising out of or related to the Patents, Trademarks, and Licenses,
shall be borne by and paid by Grantors on demand by Lender and until so paid
shall be
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added to the principal amount of Secured Notes (as defined in the Security
Agreement) and shall bear interest at the rate for such Secured Notes.
SECTION 15. Security Interest Absolute. All rights of the Agent and the
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Lenders and the pledge and security interest created hereunder, and all
obligations of Grantors hereunder, are absolute and unconditional, irrespective
of:
(a) any lack of validity or enforceability of this Agreement, the Loan
Agreement, or any other agreement, instrument, or document relating to the
Obligations or to the Intellectual Property Collateral;
(b) any change in the time, manner, or place of payment of, or change
in any other term of, all or any of the Obligations or any other amendment,
restatement, or other modification or waiver of, or any consent to, any
departure from the terms of this Agreement or of the Loan Agreement;
(c) any taking, exchange, release, or non-perfection of any other
collateral, or any taking, release, amendment, restatement, other modification,
or waiver of or consent to any departure from any guaranty, for all or any of
the Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Obligations, or any manner of sale or other disposition of any
collateral for all or any of the Obligations or any other assets of the
Grantors, or any of their subsidiaries;
(e) any change, restructuring or termination of the corporate structure
or existence of Grantors or any of their subsidiaries; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, Grantors or a third party Grantor of a security
interest.
SECTION 16. Amendments, Waivers, Supplements, Etc.
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(a) No amendment or waiver of any provision of this Agreement, and no
consent to any departure by a Grantor herefrom, shall be effective unless the
same shall be in writing and signed by the Agent and a majority of the Lenders,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it is given.
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(b) No failure on the part of the Agent or any Lender to
exercise, and no delay in exercising, any right, power, or privilege hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right.
SECTION 17. Addresses for Notices. All notices and other
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communications provided for hereunder shall be as set forth in the Loan
Agreement.
SECTION 18. Continuing Security Interest, Assignments. This Agreement
-----------------------------------------
shall create a continuing security interest in the Intellectual Property
Collateral and shall (a) remain in full force and effect until the latest of (i)
the indefeasible payment or performance in full of all of the Secured Notes, and
(ii) the date of termination in whole of all the rights and obligations of
Lender under the Loan Agreement, (b) be binding upon Grantors, and their
respective successors and assigns, and (c) inure, together with the rights and
remedies of the Agent and the Lenders hereunder, to the benefit of Lenders and
their respective successors, transferees, and assigns. Without limiting the
generality of the foregoing clause (c), any Lender may assign or otherwise
transfer all or any portion of its rights and obligations under the Loan
Agreement (including, without limitation, all or any portion of the Secured
Notes held by it) to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Lender
herein or otherwise.
SECTION 19. Release and Termination.
-----------------------
(a) Upon any sale, lease, transfer, or other disposition of any
item of Intellectual Property Collateral in accordance with the terms of the
Loan Agreement, the Agent will, at Grantors' expense, execute and deliver to
Grantors such documents as Grantors shall reasonably request to evidence the
release of such item of Intellectual Property Collateral from the security
interest granted hereby; provided, however, that (i) at the time of such request
-------- -------
and such release, no Default shall have occurred and be continuing, (ii)
Grantors shall have delivered to the Agent, at least ten (10) Business Days
prior to the date of the proposed release, a written request for release
describing the item of Intellectual Property Collateral and the terms of the
sale, lease, transfer, or other disposition in reasonable detail, including the
price thereof and any expenses in connection therewith, together with a form of
release for execution by the Agent and a certification by Grantors to the effect
that the transaction is in compliance with the Loan Agreement and as to such
other matters as Agent may request, and (iii) the proceeds of any such sale,
lease, transfer, or other disposition required to be applied in accordance with
the Loan Agreement, and (iv) the Agent at the direction of a majority of the
Lenders shall have approved such sale, lease, transfer, or other disposition in
writing.
12
(b) Upon the later of (i) the indefeasible payment or performance
in full of the Obligations, or (ii) the date of termination in whole of all
rights and obligations of the Lenders under the Loan Agreement, the pledge and
security interest granted by the Grantors hereby shall terminate and all rights
to the Intellectual Property Collateral shall revert to the appropriate Grantor.
Upon any such termination, the Agent will, upon receipt of a written request and
at the Grantors' expense, execute and deliver to Grantors such documents as
Grantors shall reasonably request to evidence such termination.
SECTION 20. Remedies Cumulative. All of the Agent's and each Lender's
--------------------
rights and remedies with respect to the Intellectual Property Collateral,
whether established hereby or by the Loan Agreement, or by any other agreements
or by law, shall be cumulative and may be exercised singularly or concurrently.
Grantors acknowledge and agree that this Agreement is not intended to limit or
restrict in any way the rights and remedies of the Agent or any Lender under the
Loan Agreement but rather is intended to facilitate the exercise of such rights
and remedies. The Agent and the Lender shall have, in addition to all other
rights and remedies given it by the terms of this Agreement and the Loan
Agreement, all rights and remedies allowed by law and the rights and remedies of
a secured party under the Uniform Commercial Code as enacted in any jurisdiction
in which the Intellectual Property Collateral may be located.
SECTION 21. Execution in Counterparts. This Agreement may be executed
-------------------------
in any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be as effective as delivery of a manually executed counterpart
of this Agreement.
SECTION 22. Governing Law; Terms. This Agreement shall be governed by
--------------------
and construed in accordance with the laws of the State of New York (without
giving effect to its conflicts of law principles), except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of the Intellectual Property Collateral are governed by
the laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Loan Agreement, terms used in Article 9 of the New York
Uniform Commercial Code are used herein as therein defined.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS]
13
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its respective officer, thereunto duly authorized, as
of the date first above written.
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
AEROMET AMERICA, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
BALO PRECISION PARTS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
CASHMERE MANUFACTURING CO., INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
CERAMIC DEVICES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
14
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
ELECTRONIC SPECIALTY CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
NORTHWEST TECHNICAL INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
SEISMIC SAFETY PRODUCTS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
SKAGIT ENGINEERING &
MANUFACTURING, INC.
15
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
PA&E INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
ACCEPTED:
LENDERS:
B III CAPITAL PARTNERS, L.P.
By: DDJ Capital III, LLC, its General
Partner
By: DDJ Capital Management, LLC, Manager
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------- -----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Authorized Signatory Title: Authorized Signatory
16
B IIIA CAPITAL PARTNERS, L.P.
By: GP III-A, LLC its General Partner
By: DDJ Capital Management, LLC, Manager
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------ -----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Authorized Signatory Title: Authorized Signatory
DDJ CANADIAN HIGH YIELD FUND
By: DDJ Capital Management, LLC, its
attorney-in-fact
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------ ----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Authorized Signatory Title: Authorized Signatory
State Street Bank & Trust, solely in its
capacity as Custodian for General Motors
Employees Global Group Pension Trust as
directed by DDJ Capital Management, LLC,
and not in its individual capacity
By: /s/ ▇▇▇▇▇▇ Blood
-----------------------------
Name: ▇▇▇▇▇▇ Blood
Title: Assistant Secretary
DDJ CAPITAL MANAGEMENT, LLC, as Agent
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------ -----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Authorized Signatory Title: Authorized Signatory
17
Schedule A: List of Grantors
----------------------------
Name Jurisdiction of Organization
---- ----------------------------
Pacific Aerospace & Electronics, Inc. Washington
Aeromet America, Inc. Washington
Balo Precision Parts, Inc. Washington
Cashmere Manufacturing Co., Inc. Washington
Ceramic Devices, Inc. Washington
Electronic Specialty Corporation Washington
Northwest Technical Industries, Inc. Washington
Pacific Coast Technologies, Inc. Washington
Seismic Safety Products, Inc. Washington
Skagit Engineering & Manufacturing, Inc. Washington
PA&E International, Inc. Washington
18
Schedule B: List of Lenders
Name Jurisdiction of Organization
---- ----------------------------
B III Capital Partners, L.P. Massachusetts
B III-A Capital Partners, L.P. Massachusetts
DDJ Canadian High Yield Fund
By DDJ Capital Management LLC Massachusetts
State Street Bank & Trust
As Custodian for General Motors
Employees Global Group Pension Trust Massachusetts
19
Schedule I: Patents
-------------------
[Intentionally omitted; available upon request by the Company]
20
Schedule II: Trademarks
-----------------------
[Intentionally omitted; available upon request by the Company]
21
Schedule III: License Agreement
-------------------------------
[Omitted and available upon request to the Company]
22
EXHIBIT A
---------
FORM OF
TRADEMARK COLLATERAL AGREEMENT AND NOTICE
-----------------------------------------
This TRADEMARK COLLATERAL AGREEMENT AND NOTICE dated as of _________,
is among [Company Name], a ________ corporation with its principal place of
business at ______________ ("Assignor"), and [Client Name], a ________
-
corporation with offices at _______________ ("Assignee") pursuant to a [Loan
--------
Agreement] dated ____________, by and [between][among] Assignor and Assignee and
pursuant to certain other loan documents referenced therein (collectively, the
"Loan Documents").
WHEREAS, Assignor is the owner of certain trademarks, including all
federal applications and/or registrations therefor, together with the goodwill
of the business connected with the use of and symbolized thereby, as listed on
Exhibit 1 hereto (the "Marks"); and
---------
WHEREAS, Assignee has agreed to extend certain credit to Assignor on
condition that the Assignor pledge and grant to Assignee as collateral for the
Liabilities (as defined in the Loan Documents) a security interest and lien in
and to the Marks and all Proceeds thereof and all other related claims and
rights as more fully described in a certain Intellectual Property Security
Agreement (the "Collateral Agreement") in favor of the Assignee dated _________,
by and [between][among] Assignor and Assignee;
NOW THEREFORE, for good and valuable consideration, as security for the due
and timely payment and performance of the Secured Obligations, Assignor hereby
pledges and grants to Assignee a security interest and lien in and to the Marks
and all Proceeds thereof and gives notice of such security interest and the
existence of such Collateral Agreement providing therefor.
23
Executed as of the date first above written.
[Assignor]
[Assignee]
24
EXHIBIT 1
To Trademark Collateral Agreement and Notice
--------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Country Word ▇▇▇▇ Registration No. Registration Date
(State) (Serial No.) (Filing Date)
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25
EXHIBIT B
---------
FORM OF
PATENT COLLATERAL AGREEMENT AND NOTICE
--------------------------------------
This PATENT COLLATERAL AGREEMENT AND NOTICE dated as of ____________, is
[between][among] [Company Name], a _______ corporation with its principal place
of business at _______________ ("Assignor") and [Lender], a ________ with
--------
offices at ____________ ("Assignee") pursuant to a [Loan Agreement] dated
--------
________, by and [between][among]among Assignor and Assignee and pursuant to
certain other loan documents referenced therein (collectively, the "Loan
Documents").
WHEREAS, Assignor is the owner of certain United States patents and/or
patent applications as listed on Exhibit 1 hereto (the "Patents"); and
---------
WHEREAS, Assignee has agreed to extend certain credit to Assignor on
condition that the Assignor pledge and grant to Assignee as collateral for the
Liabilities (as defined in the Loan Documents) a security interest and lien in
and to the Patents and all Proceeds thereof and all other related claims and
rights as more fully described in a certain Intellectual Property Security
Agreement (the "Collateral Agreement") in favor of the Assignee dated ________,
by and [between][among] Assignor and Assignee;
NOW THEREFORE, for good and valuable consideration, as security for the
due and timely payment and performance of the Secured Obligations, Assignor
hereby pledges and grants to Assignee a security interest and lien in and to the
Patents and all Proceeds thereof and gives notice of such security interest and
the existence of such Collateral Agreement providing therefor.
Executed as of the date first above written.
26
[Lender]
[Grantors]
27
EXHIBIT 1
To Patent Collateral Agreement and Notice
-----------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Patent Owner/
Number Issue Date Assignee Title
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
28