1
EXHIBIT 10.20
PATENT SECURITY AGREEMENT
THIS PATENT SECURITY AGREEMENT ("AGREEMENT") made as of November 27,
1996, is executed by and between FRICTION PRODUCTS CO., an Ohio corporation (the
"GRANTOR"), and BT COMMERCIAL CORPORATION, a Delaware corporation, acting in its
capacity as agent (in such capacity, "AGENT") for itself and each of the other
"Lenders" (as such term is defined in the Credit Agreement referred to below).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement of even date
herewith (such Credit Agreement, as it may be amended, restated, supplemented or
otherwise modified from time to time, being hereinafter referred to as the
"CREDIT AGREEMENT"), among the Grantor and certain affiliates of the Grantor
(the Grantor and each of such affiliates being hereinafter referred to
collectively as the "BORROWERS"), Agent, Lenders and Hawk Corporation, a
Delaware corporation, in its capacity as borrowing agent for the Borrowers
thereunder, Lenders have severally agreed to make certain loans and other
extensions of credit to or for the account of the Borrowers upon the terms and
subject to the conditions set forth therein;
WHEREAS, Grantor and Agent are parties to that certain General Security
Agreement of even date herewith (as amended, restated, supplemented or otherwise
modified from time to time, the "SECURITY AGREEMENT"), pursuant to which Grantor
has granted a security interest in certain of its assets to Agent for its
benefit and the ratable benefit of Lenders; and
WHEREAS, Lenders have required, as a condition, among others, to the
making of any loans or other extensions of credit under the Credit Agreement,
that Grantor execute and deliver this Agreement to Agent for its benefit and for
the ratable benefit of Lenders;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
2
1. DEFINED TERMS.
(A) Unless otherwise defined herein, each capitalized term used herein
that is defined in the Credit Agreement shall have the meaning specified for
such term in the Credit Agreement. Unless otherwise defined herein or in the
Credit Agreement, each capitalized term used herein that is defined in the
Security Agreement shall have the meaning specified for such term in the
Security Agreement.
(B) The words "hereof," "herein" and "hereunder" and words of like
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section references are to
this Agreement unless otherwise specified.
(C) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
specified.
2. INCORPORATION OF PREMISES. The premises set forth above are
incorporated into this Agreement by this reference thereto and are made a part
hereof.
3. INCORPORATION OF THE SECURITY AGREEMENT. The Credit Agreement and
the terms and provisions thereof are hereby incorporated herein in their
entirety by this reference thereto.
4. SECURITY INTEREST IN PATENTS. To secure the prompt and complete
payment, performance and observance of all Obligations, Grantor hereby grants to
Agent for its benefit and the ratable benefit of Lenders a security interest in,
as and by way of a first mortgage and security interest having priority over all
other security interests, with power of sale to the extent permitted by
applicable law, all of Grantor's now owned or existing and hereafter acquired or
arising:
(A) patents, registered patents, patent applications,
including, without limitation, the patents, registered patents and
patent applications listed on SCHEDULE A attached hereto and made a
part hereof, and (i) all renewals thereof, (ii) all income, royalties,
damages and payments now and hereafter due and/or payable under and
with respect thereto, including, without limitation, payments under all
licenses entered into in connection therewith and damages and payments
for past or
-2-
3
future infringements or dilutions thereof, (iii) the right to ▇▇▇ for
past, present and future infringements and dilutions thereof, and (iv)
all of Grantor's rights corresponding thereto throughout the world (all
of the foregoing patents, registered patents and patent applications,
together with the items described in CLAUSES (i)-(iv) in this PARAGRAPH
4(a), are sometimes hereinafter individually and/or collectively
referred to as the "PATENTS"); and
(b) rights under or interests in any patent license agreements
with any other party, whether Grantor is a licensee or licensor under
any such license agreement, including, without limitation, those patent
license agreements listed on SCHEDULE B attached hereto and made a part
hereof, and the right to prepare for sale and sell any and all
Inventory now or hereafter owned by Grantor and now or hereafter
covered by such licenses (all of the foregoing are hereinafter referred
to collectively as the "LICENSES").
5. RESTRICTIONS ON FUTURE AGREEMENTS. Grantor will not, without Agent's
prior written consent, enter into any agreement, including, without limitation,
any license agreement, which is inconsistent with this Agreement, and Grantor
further agrees that it will not take any action, and will use its best efforts
not to permit any action to be taken by others, including, without limitation,
licensees, or fail to take any action, which would in any material respect
affect the validity or enforcement of the rights transferred to Agent under this
Agreement.
6. NEW PATENTS AND LICENSES. Grantor represents and warrants that, from
and after the Closing Date, (a) the Patents listed on SCHEDULE A include all of
the patents, registered patents and patent applications now owned or held by
Grantor, (b) the Licenses listed on SCHEDULE B include all of the patent license
agreements under which Grantor is the licensee or licensor and (c) other than
Permitted Liens, no liens, claims or security interests in such Patents and
Licenses have been granted by Grantor to any Person other than Agent. If, prior
to the termination of this Agreement, Grantor shall (i) obtain rights to any new
patentable inventions, registered patents or patent applications, (ii) become
entitled to the benefit of any patents, registered patents, patent applications,
patent licenses or patent license renewals, whether as licensee or licensor or
(iii) enter into any new patent license agreement, the provisions of PARAGRAPH 4
above shall automatically apply thereto. Grantor shall give to Agent written
notice of
-3-
4
events described in CLAUSES (i), (ii) and (iii) of the preceding sentence
promptly after the occurrence thereof, but in any event not less frequently than
on a quarterly basis. Grantor hereby undertakes to modify and update (i)
SCHEDULE A to include any future patents, registered patents and patent
applications, and (ii) SCHEDULE B to include any future patent license
agreements which are Patents or Licenses under PARAGRAPH 4 above or under this
PARAGRAPH 6. Grantor hereby authorizes Agent to file, in addition to and not in
substitution for this Agreement, a duplicate original of this Agreement
containing on Schedule A or B thereto, as the case may be, such future patents,
registered patents and patent applications, and patent license agreements.
7. ROYALTIES. Grantor hereby agrees that the use by Agent of the
Patents and Licenses as authorized hereunder in connection with Agent's exercise
of its rights and remedies under PARAGRAPH 15 or pursuant to SECTION 10 of the
Security Agreement shall be coextensive with Grantor's rights thereunder and
with respect thereto and without any liability for royalties or other related
charges from Agent or any Lender to Grantor.
8. RIGHT TO INSPECT; FURTHER ASSIGNMENTS AND SECURITY INTERESTS. Agent
may at all reasonable times (and at any time when an Event of Default exists)
have access to, examine, audit, make copies (at Grantor's expense) and extracts
from and inspect Grantor's premises and examine Grantor's books, records and
operations relating to the Patents and Licenses; PROVIDED, THAT in conducting
such inspections and examinations, Agent shall use reasonable efforts not to
disturb unnecessarily the conduct of Grantor's ordinary business operations.
From and after the occurrence of an Event of Default, Grantor agrees that Agent,
or a conservator appointed by Agent, shall have the right to establish such
reasonable additional product quality controls as Agent or such conservator, in
its sole and absolute judgment, may deem necessary to assure maintenance of the
quality of products sold by Grantor under the Patents and the Licenses or in
connection with which such Patents and Licenses are used. Grantor agrees (i) not
to sell or assign its respective interests in, or grant any license under, the
Patents or the Licenses without the prior and express written consent of Agent,
(ii) to maintain the quality of such products as of the date hereof, and (iii)
not to change the quality of such products in any material respect without
Agent's prior and express written consent.
-4-
5
9. NATURE AND CONTINUATION OF AGENT'S SECURITY INTEREST; TERMINATION OF
AGENT'S SECURITY INTEREST. This Agreement is made for collateral security
purposes only. This Agreement shall create a continuing security interest in the
Patents and Licenses and shall terminate only when the Obligations have been
paid and satisfied in full and the Credit Agreement, the Security Agreement and
all of the other Credit Documents have terminated pursuant to the respective
terms and provisions thereof. When this Agreement has terminated, Agent shall
promptly execute and deliver to Grantor, at Grantor's expense, all termination
statements and other instruments as may be necessary or proper to terminate
Agent's security interest in the Patents and the Licenses, subject to any
disposition thereof which may have been made by Agent pursuant to this Agreement
or the Security Agreement.
10. DUTIES OF GRANTOR. Grantor shall have the duty, to the extent
desirable in the normal conduct of Grantor's business, to: (i) prosecute
diligently any patent application that is part of the Patents pending as of the
date hereof or hereafter until the termination of this Agreement, and (ii) make
application for patents that are necessary in the operation of Grantor's
business. Grantor further agrees (i) not to abandon any Patent or License
without the prior written consent of Agent, and (ii) to use its best efforts to
maintain in full force and effect the Patents and the Licenses that are or shall
be necessary or economically desirable in the operation of Grantor's business.
Any expenses incurred in connection with the foregoing shall be borne by
Grantor. Neither Agent nor any Lender shall have any duty with respect to the
Patents and Licenses. Without limiting the generality of the foregoing, neither
Agent nor any Lender shall be under any obligation to take any steps necessary
to preserve rights in the Patents or Licenses against any other parties, but may
do so at its option from and after the occurrence and during the continuance of
an Event of Default, and all expenses incurred in connection therewith shall be
for the sole account of Grantor and shall be added to the Obligations secured
hereby.
11. AGENT'S RIGHT TO ▇▇▇. From and after the occurrence and during the
continuance of an Event of Default, Agent shall have the right, but shall not be
obligated, to bring suit in its own name to enforce the Patents and the Licenses
and, if Agent shall commence any such suit, Grantor shall, at the request of
Agent, do any and all lawful acts and execute any and all proper documents
required by Agent in aid of such enforcement. Grantor shall, upon demand,
promptly reimburse Agent for all costs and expenses incurred by
-5-
6
Agent in the exercise of its rights under this PARAGRAPH 11 (including, without
limitation, reasonable fees and expenses of attorneys and paralegals for Agent).
12. WAIVERS. Agent's failure, at any time or times hereafter, to
require strict performance by Grantor of any provision of this Agreement shall
not waive, affect or diminish any right of Agent thereafter to demand strict
compliance and performance therewith nor shall any course of dealing between
Grantor and Agent have such effect. No single or partial exercise of any right
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right. None of the undertakings, agreements, warranties, covenants
and representations of Grantor contained in this Agreement shall be deemed to
have been suspended or waived by Agent unless such suspension or waiver is in
writing signed by an officer of Agent and directed to Grantor specifying such
suspension or waiver.
13. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but the provisions of this Agreement are severable, and if any
clause or provision shall be held invalid and unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part hereof, in such jurisdiction, and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.
14. MODIFICATION. This Agreement cannot be altered, amended or
modified in any way, except by a writing signed by the parties hereto.
15. CUMULATIVE REMEDIES; POWER OF ATTORNEY. Grantor hereby irrevocably
designates, constitutes and appoints Agent (and all Persons designated by Agent
in its sole and absolute discretion) as Grantor's true and lawful
attorney-in-fact, with full power of substitution, and authorizes Agent and any
of Agent's designees, in Grantor's or Agent's name, upon the occurrence and
during the continuance of an Event of Default, to take any action and execute
any instrument which Agent may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, and the giving by
Agent of notice to Grantor of Agent's intention to enforce its rights and claims
against Grantor, to (i) endorse Grantor's name on all applications, documents,
papers and
-6-
7
instruments necessary or desirable for Agent in the use of the Patents or the
Licenses, (ii) assign, pledge, convey or otherwise transfer title in or dispose
of the Patents or the Licenses to anyone on commercially reasonable terms, (iii)
grant or issue any exclusive or nonexclusive license under the Patents or, to
the extent permitted, under the Licenses, to anyone on commercially reasonable
terms, and (iv) take any other actions with respect to the Patents or the
Licenses as Agent deems in its best interest. Grantor hereby ratifies all that
such attorney shall lawfully do or cause to be done by virtue hereof. This power
of attorney is coupled with an interest and shall be irrevocable until all of
the Obligations shall have been paid and satisfied in full in cash and the
Security Agreement, the Credit Agreement and each of the other Credit Documents
shall have terminated pursuant to the respective terms and provisions thereof.
Grantor acknowledges and agrees that this Agreement is not intended to limit or
restrict in any way the rights and remedies of Agent under the Security
Agreement, but rather is intended to facilitate the exercise of such rights and
remedies.
Agent shall have, in addition to all other rights and remedies given it
by the terms of this 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 Patents or the Licenses may be located
or deemed located. Upon the occurrence of an Event of Default and the election
by Agent to exercise any of its remedies under Section 9-504 or Section 9-505 of
the Uniform Commercial Code with respect to the Patents and Licenses, Grantor
agrees to assign, convey and otherwise transfer title in and to the Patents and
the Licenses to Agent or any transferee of Agent and to execute and deliver to
Agent or any such transferee all such agreements, documents and instruments as
may be necessary, in Agent's sole discretion, to effect such assignment,
conveyance and transfer. All of Agent's rights and remedies with respect to the
Patents and the Licenses, whether established hereby, by the Security Agreement,
by any other agreements or by law, shall be cumulative and may be exercised
separately or concurrently. Notwithstanding anything set forth herein to the
contrary, it is hereby expressly agreed that upon the occurrence and during the
continuance of an Event of Default, Agent may exercise any of the rights and
remedies provided in this Agreement, the Security Agreement and any of the other
Credit Documents. Grantor agrees that any notification of intended disposition
of any of the Patents and Licenses required by law shall be deemed reasonably
and properly given if given at least ten (10) Business
-7-
8
Days before such disposition; PROVIDED, THAT Agent may give any shorter notice
that is commercially reasonable under the circumstances.
16. SUCCESSORS AND ASSIGNS. This Agreement and all obligations
hereunder shall be binding upon the successors and assigns of Grantor and shall
together with the rights and remedies of Agent and each of the Lenders
hereunder, inure to the benefit of Agent and the Lenders and their respective
successors and assigns.
17. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be given (and deemed to have been given) in the
manner and to the respective addresses set forth in SECTION 11.7 of the Credit
Agreement. Failure or delay in delivering copies of any such notice, demand,
request, consent, approval, declaration or other communication to any Persons
designated in the Credit Agreement to receive copies shall in no way adversely
affect the effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.
18. CHOICE OF LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS PATENT SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD
TO CONFLICT OF LAWS PROVISIONS.
19. SECTION TITLES. The section titles herein are for convenience of
reference only, and shall not affect in any way the interpretation of any of the
provisions hereof.
20. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by 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.
21. MERGER. This Agreement and the Credit Documents represent the
final agreement of Grantor and Agent with respect to the matters contained
herein and may not be contradicted by
-8-
9
evidence of prior or contemporaneous agreements, or subsequent oral agreements,
between Grantor and Agent or between Grantor and Lenders.
[SIGNATURE PAGE FOLLOWS]
-9-
10
IN WITNESS WHEREOF, Agent and Grantor have each caused this Agreement
to be executed and delivered by its duly authorized officer as of the date first
set forth above.
FRICTION PRODUCTS CO., an Ohio corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
Title: Vice President-Finance
----------------------------
ACCEPTED AND AGREED TO AS OF
THE 27TH DAY OF NOVEMBER, 1996
BT COMMERCIAL CORPORATION, as Agent
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President
Patent Security Agreement
11
SCHEDULE A
TO
PATENT SECURITY AGREEMENT
DATED AS OF NOVEMBER 27, 1996
PATENTS
-------
Patent Registration Date Registration No.
------ ----------------- ----------------
Rivetless Friction Pad
for Aircraft Brakes 1/16/73 3,710,914
PATENT APPLICATIONS
-------------------
Patent Application Date Serial No.
------ ---------------- ----------
NONE
12
SCHEDULE B
TO
PATENT SECURITY AGREEMENT
DATED AS OF NOVEMBER 27, 1996
LICENSE AGREEMENTS
NONE
13
STATE OF Ohio )
--------------------
) SS
COUNTY OF Cuyahoga )
--------------------
The foregoing Patent Security Agreement was acknowledged before me this
27TH day of November, 1996, by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, a Vice President-Finance of
FRICTION PRODUCTS CO., an Ohio corporation, on behalf of such corporation.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
Notary Public
------, ----------------------
My commission expires:_______
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Notary Public, State of Ohio, Cuy. Cty.
My Commission Expires June 27, 1999
Patent Security Agreement
14
STATE OF )
--------------------
) SS
COUNTY OF )
--------------------
The foregoing Patent Security Agreement was acknowledged before me this
27TH day of November, 1996, by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, a Senior Vice President of BT
COMMERCIAL CORPORATION, a Delaware corporation, on behalf of such corporation.
-----------------------------
Notary Public
-----------, ----------------
My commission expires:_______
Patent Security Agreement