-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KPvnsaccRMEWoT15Zlh9ZVAAb2KdKirUFEg+sD1QNdog61qkM5dfl4oLoXgeeKQj FwEyBAmdo9H+NA1AUGqa5A== 0000898430-01-000867.txt : 20010308 0000898430-01-000867.hdr.sgml : 20010308 ACCESSION NUMBER: 0000898430-01-000867 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20010301 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC AEROSPACE & ELECTRONICS INC CENTRAL INDEX KEY: 0000790023 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 911744587 STATE OF INCORPORATION: WA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-26088 FILM NUMBER: 1562451 BUSINESS ADDRESS: STREET 1: 430 OLDS STATION RD CITY: WENATCHEE STATE: WA ZIP: 98801 BUSINESS PHONE: 5096679600 MAIL ADDRESS: STREET 1: 430 OLDS STATION ROAD CITY: WENATCHEE STATE: WA ZIP: 98801 FORMER COMPANY: FORMER CONFORMED NAME: PCT HOLDINGS INC /NV/ DATE OF NAME CHANGE: 19950223 FORMER COMPANY: FORMER CONFORMED NAME: VERAZZANA VENTURES LTD DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VERAZZANA VENTURES SYSTEMS LTD DATE OF NAME CHANGE: 19890618 8-K 1 0001.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 1, 2001 PACIFIC AEROSPACE & ELECTRONICS, INC. (Exact name of registrant as specified in its charter) Washington 0-26088 91-1744587 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation or organization) 430 Olds Station Road, Third Floor, Wenatchee, WA 98801 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (509) 667-9600 Item 5. Other Events - --------------------- On March 1, 2001, the Company entered into a loan transaction under which the Company borrowed an aggregate original principal amount of $13,841,488 from four institutional lenders. The Company used approximately $9.5 million of the proceeds to repay in full its existing line of credit in the U.S. and to pay an interest payment on its outstanding senior subordinated notes that was due on February 1, 2001. The remainder of the proceeds will be used to replace with cash the Company's line of credit in the U.K., to pay transaction costs, and to provide working capital to the Company. The term of the loan is two years. The loan bears interest at 18% per annum, payable quarterly. The Company has the option to defer and accrue a portion of the interest, up to 5% per annum, for up to a year at the time of any interest payment. The loan is secured by substantially all of the assets of the Company and its U.S. subsidiaries. The Company may repay the notes at any time without penalty, and the Company will be required to repay $7.5 million of the notes upon the sale of its U.K. subsidiary, Aeromet International PLC. The Company also issued to the lenders warrants to purchase an aggregate of 4,036,978 shares of the Company's common stock, at an exercise price of $.001 per share. The Company is required to file a registration statement to register the resale of the shares issuable upon exercise of the warrants. Upon effectiveness of the registration statement and the exercise of the warrants, the holders of the warrants will be able to make public resales of those shares. Item 7. Financial Statements and Exhibits - ------------------------------------------ (a) Financial Statements -------------------- None required. (b) Pro Forma Financial Information ------------------------------- Not applicable. (c) Exhibits -------- The following are filed as exhibits to this current report: 99.1 Loan 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. and PA&E International, Inc., as Borrowers, Pacific A&E Limited, Pacific Aerospace & Electronics (UK) Limited, 2 Aeromet International PLC, the Foreign Subsidiaries, and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 99.2 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of B III Capital Partners, L.P., dated March 1, 2001, in the amount of $6,459,361.00 99.3 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of B III-A Capital Partners, L.P., dated March 1, 2001, in the amount of $2,768,298.00 99.4 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of DDJ Canadian High Yield Fund, dated March 1, 2001, in the amount of $1,845,531.00 99.5 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of State Street Bank & Trust, as Custodian for General Motors Employees Global Group Pension Trust, dated March 1, 2001, in the amount of $2,768,298.00 99.6 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. and PA&E International, Inc. and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 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, 3 Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., Skagit Engineering & Manufacturing, Inc. and PA&E International, Inc. and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 99.8 Pledge 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., Pacific A&E Limited, Pacific Aerospace & Electronics (UK) Limited, Aeromet International PLC, and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 99.9 Warrant Agreement, by and among Pacific Aerospace & Electronics, Inc. and Holders, dated March 1, 2001 99.10 Warrant Certificate, dated March 1, 2001, issued to B III Capital Partners, L.P., exercisable for 1,883,923 shares of Common Stock 99.11 Warrant Certificate, dated March 1, 2001, issued to B III-A Capital Partners, L.P., exercisable for 807,396 shares of Common Stock 99.12 Warrant Certificate, dated March 1, 2001, issued to DDJ Canadian High Yield Fund, exercisable for 538,263 shares of Common Stock 99.13 Warrant Certificate, dated March 1, 2001, issued to State Street Bank & Trust, as Custodian for General Motors Employees Global Group Pension Trust, exercisable for 807,396 shares of Common Stock 99.14 Equity Registration Rights Agreement, by and among Pacific Aerospace & Electronics, Inc. and Holders, dated March 1, 2001 99.15 Press Release, dated March 5, 2001 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Sheryl A. Symonds ------------------------------------------------ Sheryl A. Symonds V.P. Administration & General Counsel, Secretary Dated: March 6, 2001 5 EXHIBIT INDEX Exhibit Number Description 99.1 Loan 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. and PA&E International, Inc., as Borrowers, Pacific A&E Limited, Pacific Aerospace & Electronics (UK) Limited, Aeromet International PLC, the Foreign Subsidiaries, and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 99.2 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of B III Capital Partners, L.P., dated March 1, 2001, in the amount of $6,459,361.00 99.3 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of B III-A Capital Partners, L.P., dated March 1, 2001, in the amount of $2,768,298.00 99.4 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of DDJ Canadian High Yield Fund, dated March 1, 2001, in the amount of $1,845,531.00 99.5 Term Loan Note, executed by 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. and PA&E International, Inc. in favor of State Street Bank & Trust, as Custodian for General Motors Employees Global Group Pension Trust, dated March 1, 2001, in the amount of $2,768,298.00 6 99.6 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. and PA&E International, Inc. and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 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. and PA&E International, Inc. and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 99.8 Pledge 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., Pacific A&E Limited, Pacific Aerospace & Electronics (UK) Limited, Aeromet International PLC, and DDJ Capital Management, LLC, as Agent for the Lenders, dated March 1, 2001 99.9 Warrant Agreement, by and among Pacific Aerospace & Electronics, Inc. and Holders, dated March 1, 2001 99.10 Warrant Certificate, dated March 1, 2001, issued to B III Capital Partners, L.P., exercisable for 1,883,923 shares of Common Stock 99.11 Warrant Certificate, dated March 1, 2001, issued to B III-A Capital Partners, L.P., exercisable for 807,396 shares of Common Stock 99.12 Warrant Certificate, dated March 1, 2001, issued to DDJ Canadian High Yield Fund, exercisable for 538,263 shares of Common Stock 99.13 Warrant Certificate, dated March 1, 2001, issued to State Street Bank & Trust, as Custodian for General Motors Employees Global Group Pension Trust, exercisable for 807,396 shares of Common Stock 99.14 Equity Registration Rights Agreement, by and among Pacific Aerospace & Electronics, Inc. and Holders, dated March 1, 2001 99.15 Press Release, dated March 5, 2001 7 EX-99.1 2 0002.txt LOAN AGREEMENT EXHIBIT 99.1 ============ --------------------------------------------- LOAN AGREEMENT --------------------------------------------- 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. As Borrowers, PACIFIC A&E LIMITED PACIFIC AEROSPACE & ELECTRONICS (UK) LIMITED AEROMET INTERNATIONAL PLC., Foreign Subsidiaries, THE LENDERS PARTY THERETO and DDJ CAPITAL MANAGEMENT, LLC, As Agent for the Lenders Dated as of March 1, 2001 TABLE OF CONTENTS
Page ---- 1. THE TERM LOAN......................................................................................... 1 1.1 The Term Loans............................................................................... 1 1.2 Interest on the Term Loan.................................................................... 1 1.3 Commitment Fee............................................................................... 2 2. CLOSING............................................................................................... 2 3. CONDITIONS TO CLOSING................................................................................. 3 3.1 Representations and Warranties............................................................... 3 3.2 Performance; No Default...................................................................... 3 3.3 Documents Required........................................................................... 3 3.4 Purchase Permitted by Applicable Law, etc.................................................... 4 3.5 No Litigation or Other Proceedings........................................................... 4 3.6 No Material Adverse Change................................................................... 5 3.7 Fees and Expenses............................................................................ 5 3.8 Ancillary Documents and Perfection of Security Interest...................................... 5 3.9 Proceedings and Documents.................................................................... 5 3.10 Blocked Accounts Agreement................................................................... 5 3.11 Warrant Agreement and the Warrants........................................................... 6 3.12 Registration Rights Agreement................................................................ 6 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES....................................................... 6 4.1 Corporate Existence; Qualification; Power; Licenses and Permits.............................. 6 4.2 Corporate and Governmental Authorization; Contravention...................................... 6 4.3 Binding Effect............................................................................... 7 4.4 Information.................................................................................. 7 4.5 Litigation and Judgments..................................................................... 7 4.6 Compliance with ERISA........................................................................ 7 4.7 Taxes........................................................................................ 8 4.8 Subsidiaries................................................................................. 9 4.9 Not Investment Companies..................................................................... 9 4.10 No Conflicting Requirements.................................................................. 10 4.11 Debt......................................................................................... 10 4.12 Title to Properties and Assets............................................................... 10 4.13 Compliance with Law.......................................................................... 12 4.14 Compliance with Environmental Laws........................................................... 12 4.15 Security Interests and Liens; Inventory and Equipment........................................ 13 4.16 Labor Relations.............................................................................. 13 4.17 UCC Filing Information....................................................................... 14 4.18 Solvency..................................................................................... 14 4.19 Fictitious Business Names.................................................................... 15 4.20 Use of Proceeds.............................................................................. 15
(i) 4.21 Margin Stock................................................................................. 15 4.22 Survival of Representations.................................................................. 15 4.23 Affiliate Transactions....................................................................... 15 4.24 Accuracy and Completeness of Information..................................................... 15 4.25 Status of Accounts........................................................................... 16 4.26 Party in Interest............................................................................ 16 4.27 Stock........................................................................................ 16 5. REPRESENTATIONS AND WARRANTIES OF THE LENDERS......................................................... 16 5.1 Authorization................................................................................ 17 5.2 No Plan Assets............................................................................... 17 5.3 Accredited Investor.......................................................................... 17 6. PREPAYMENT OF THE TERM LOANS.......................................................................... 17 6.1 Voluntary Prepayments........................................................................ 17 6.2 Mandatory Prepayments........................................................................ 17 6.3 Method and Timing of Payments................................................................ 18 7. AFFIRMATIVE COVENANTS................................................................................. 18 7.1 Information.................................................................................. 19 7.2 Payment of Obligations....................................................................... 21 7.3 Maintenance of Property; Insurance........................................................... 21 7.4 Compliance with Laws......................................................................... 22 7.5 Inspection of Property, Books and Records; Change of Name, Principal Place of Business, Location of Collateral, Etc........................................................ 23 7.6 Compliance with Transaction Documents........................................................ 23 7.7 Corporate Existence.......................................................................... 23 7.8 ERISA........................................................................................ 24 7.9 Environmental Matters........................................................................ 25 7.10 Collateral Records........................................................................... 26 7.11 Security Interests........................................................................... 26 7.12 Taxes........................................................................................ 27 7.13 Collection of Accounts....................................................................... 28 7.14 Change of Control............................................................................ 28 7.15 Trademarks................................................................................... 28 7.16 Patents...................................................................................... 28 8. NEGATIVE COVENANTS.................................................................................... 28 8.1 Debt and Guarantees.......................................................................... 29 8.2 Restricted Payments.......................................................................... 29 8.3 Investments.................................................................................. 30 8.4 Negative Pledge.............................................................................. 30 8.5 Consolidations, Mergers and Sales of Assets.................................................. 31 8.6 Capital Expenditures......................................................................... 31 8.7 Minimum EBITDA............................................................................... 32 8.8 EBITDA/Covenant Interest..................................................................... 33 8.9 Covenant Debt/EBITDA......................................................................... 33
(ii) 8.10 Minimum Accounts Receivable and Inventory.................................................... 34 8.11 Transactions with Affiliates................................................................. 34 8.12 Restrictions on Foreign Subsidiary Support................................................... 35 8.13 Environmental Matters........................................................................ 35 8.14 Amendments to Certificates of Incorporation and By-Laws...................................... 35 8.15 No Prohibited Transactions Under ERISA....................................................... 35 8.16 No Additional Bank Accounts.................................................................. 36 8.17 No Additional Subsidiaries................................................................... 36 9. EVENTS OF DEFAULT..................................................................................... 36 9.1 Events of Default............................................................................ 36 9.2 Acceleration................................................................................. 38 9.3 Remedies on Default.......................................................................... 39 10. SUCCESSORS AND ASSIGNS................................................................................ 40 10.1 General...................................................................................... 40 10.2 Assignments.................................................................................. 41 10.3 Assignment Procedures........................................................................ 41 10.4 Register..................................................................................... 41 10.5 Further Assurances........................................................................... 41 11. THE AGENT............................................................................................. 42 11.1 Authorization and Action..................................................................... 42 11.2 Agent's Reliance, Etc........................................................................ 42 11.3 Agent as a Lender............................................................................ 43 11.4 Lender Credit Decision....................................................................... 43 11.5 Indemnification of Agent..................................................................... 43 11.6 Successor Agent.............................................................................. 44 11.7 Amendment of Article 11...................................................................... 44 12. EXPENSES AND INDEMNIFICATION.......................................................................... 44 12.1 Transaction Expenses......................................................................... 44 12.2 Indemnification.............................................................................. 45 12.3 Survival..................................................................................... 46 13. ENTIRE AGREEMENT...................................................................................... 46 14. AMENDMENT AND WAIVER.................................................................................. 47 14.1 Actions by Lenders........................................................................... 47 14.2 Actions by Companies......................................................................... 47
(iii) 15. NOTICES............................................................................................... 48 16. REPRODUCTION OF DOCUMENTS............................................................................. 48 17. CONFIDENTIAL INFORMATION.............................................................................. 49 18. MISCELLANEOUS......................................................................................... 50 18.1 Payments Due on Non-Business Days............................................................ 50 18.2 Satisfaction Requirement..................................................................... 50 18.3 Severability................................................................................. 50 18.4 Construction................................................................................. 51 18.5 Counterparts................................................................................. 51 18.6 Governing Law................................................................................ 51 18.7 Consent to Jurisdiction...................................................................... 51 18.8 Waiver of Jury Trial......................................................................... 52
(iv) SCHEDULES Schedule I -- Information Relating to the Lenders Schedule II -- Defined Terms Schedule 4.5 -- Litigation and Judgments Schedule 4.6 -- Compliance with ERISA Schedule 4.7 -- Taxes Schedule 4.8 -- Subsidiaries Schedule 4.12(a) -- Real Property Owned and Leased Schedule 4.12(b) -- Patents and Trademarks Schedule 4.14 -- Compliance with Environmental Laws Schedule 4.15 -- Security Interests and Liens; Inventory and Equipment Schedule 4.17 -- UCC Filing Information Schedule 4.19 -- Fictitious Business Names Schedule 4.20 -- Use of Proceeds Schedule 4.23 -- Affiliate Transactions Schedule 4.27 -- Capital Stock Schedule 5.2 Employee Benefit Plans Schedule 8.1 -- Debt and Guarantees Schedule 8.3 -- Investments Schedule 8.17 -- Bank Accounts EXHIBITS -------- Exhibit A -- Form of Term Loan Note Exhibit B -- Form of Security Agreement Exhibit C -- Form of Intellectual Property Agreement Exhibit D -- [Intentionally Omitted] Exhibit E -- Form of Pledge Agreement Exhibit F -- [Intentionally Omitted] Exhibit G -- Form of Compliance Certificate Exhibit H -- Form of Deeds of Trust Exhibit I -- Form of Warrant Agreement Exhibit J -- Form of Assignment and Acceptance Agreement Exhibit K -- Form of Blocked Account Agreement (v) Pacific Aerospace & Electronics, Inc. 430 Olds Station Road, 3/rd/ Floor Wenatchee, WA 98020 Loan Agreement This loan agreement is entered into as of March 1, 2001 by and among Pacific Aerospace & Electronics, Inc., a Washington corporation ("Pacific Aerospace"), 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., and PA&E International, Inc. (each a "Borrower" and together with Pacific Aerospace, the "Borrowers"), and Pacific A&E Limited, Pacific Aerospace & Electronics (UK) Limited and Aeromet International PLC (each a "Foreign Subsidiary" and together with the Borrowers, the "Companies" or, individually, a "Company") each of the lenders set forth on Schedule I hereto (each a "Lender" and collectively, the "Lenders") and DDJ Capital Management, LLC, as agent for the Lenders (the "Agent"). 1. THE TERM LOAN. 1.1 The Term Loans. (a) Subject to the terms and conditions of this Agreement, including satisfaction of the conditions set forth in Section 3 on the Closing Date, each Lender, severally and not jointly, shall make a Term Loan to the Borrowers in an amount equal to such Lender's respective Commitment Percentage as set forth on Schedule I attached hereto in an aggregate amount of $13,841,488 (the "Term Loans"). On the Closing Date, the Borrowers shall execute and deliver to each Lender a Term Loan Note to evidence the Term Loan made by such Lender to the Borrowers hereunder. (b) The Term Loans shall mature on the Term Loan Maturity Date and shall be repaid on that date, together with all outstanding principal, accrued interest and other fees and charges hereunder. 1.2 Interest on the Term Loan. Interest shall accrue on the unpaid principal balance of the Term Loans at a rate of 18% per annum (the "Interest Rate"), payable in arrears quarterly on March 31, June 30, September 30 and December 31 of each year beginning on the first such date after the date of this Agreement and on the Maturity Date (each date on which payment of interest is due shall be referred to as an "Interest Payment Date"), provided that so long as no Event of Default has occurred and is -------- continuing, a portion of the interest totaling no more than 1.25% of the aggregate principal amount outstanding under the Term Loans may be deferred on any Interest Payment Date and paid on the earlier of (i) the first anniversary date of the relevant Interest Payment Date upon which such interest was deferred or (ii) the Term Loan Maturity Date, provided however that the amount of -------- ------- interest so deferred shall accrue interest at the Interest Rate on a compound basis calculated quarterly and shall be payable at the same time as the interest so deferred; and provided further that upon the occurrence and during the continuance of any Event of Default, interest shall accrue on the unpaid principal amount of the Term Loans, plus any interest (including deferred interest), fees and other amounts due under the Term Loans at a rate equal to the Interest Rate plus 3% per annum and shall be payable from time to time in cash, on such quarterly dates or, at the option of the Agent, on demand. Interest on the Term Loans shall be computed on the basis of a 360-day year for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Notwithstanding anything to the contrary set forth in this Section 1.2, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the "Maximum Lawful Rate'), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate. 1.3 Commitment Fee. The Borrowers shall pay to the Lenders on the Closing Date the Commitment Fee which shall be $375,000; of which $150,000 (the "Initial Commitment Fee Payment") has been paid to the Borrowers. Each Lenders shall be entitled to the amount set forth opposite such Lender's name on the attached Schedule I. The Commitment Fee shall be payable and fully earned as of the Closing Date. In the event that: (i) the Closing does not occur as a result of the failure of the Borrowers to satisfy the conditions set forth in Section 3 hereof, and any Borrower determines to proceed, or takes any steps towards proceeding, with a transaction of any kind as an alternative to the Term Loans by November 1, 2001 or (ii) the Closing does not occur and any Borrower has failed to proceed in good faith with the closing of the Term Loans, then in any such case, the Borrowers shall pay the Commitment Fee to the Lenders on demand. In the event that all of the Borrowers conditions set forth in Section 3 have been satisfied and the Closing does not occur as a result of the Lenders' determination not to proceed with the Term Loans, the Agent shall return the Initial Commitment Fee Payment previously paid to the Agent as part of the "Commitment Fee" set forth in Exhibit A to the Commitment Letter (less any unreimbursed out-of-pocket, legal or other expenses). 2. CLOSING. 2 The closing of the Term Loans pursuant to this Agreement shall occur at the offices of Goodwin Procter LLP, Exchange Place, Boston, Massachusetts 02109 at 10:00 a.m., Boston time, at a closing (the "Closing") on March 1, 2001 or on such other Business Day thereafter on or prior to February 28, 2001 as may be agreed upon by the Borrowers and the Lenders (the "Closing Date"). If at the Closing any of the conditions specified in Section 3 shall not have been fulfilled to Lenders' satisfaction, Lenders shall, at Lenders' election, be relieved of all further obligations under this Agreement, without thereby waiving any rights Lenders may have by reason of such failure or such nonfulfillment. 3. CONDITIONS TO CLOSING. Lenders' obligations to make the Term Loans available to Borrowers is subject to the fulfillment to Lenders' satisfaction, prior to or at the Closing, of the following conditions, provided that any or all or the following -------- conditions may be waived, in whole or in part, by the Lenders with respect to this Agreement in their sole and absolute discretion: 3.1 Representations and Warranties. The representations and warranties of the Companies contained in this Agreement and in each of the other Transaction Documents shall be correct when made and at the time of the Closing, except that any representations and warranties that relate to a particular date or period shall be correct in all material respects only as of such date or for such period. 3.2 Performance; No Default. The Companies shall have performed and complied with all agreements and conditions in this Agreement and the other Transaction Documents required to be performed or complied with by it prior to or at the Closing. 3.3 Documents Required. Lenders shall have received the following documents, each dated as of the Closing Date (except as otherwise specified below) and in the form of the respective Exhibit attached hereto, if any, or otherwise in form and substance satisfactory to Lenders: (a) Corporate Approvals. Certified copies of (i) the resolutions of ------------------- the Board of Directors of each Borrower approving this Agreement and each other Transaction Document to which it is or is to be a party and the transactions contemplated hereby and thereby and (ii) all documents evidencing other necessary corporate action with respect to this Agreement and each such other document and the transactions contemplated hereby and thereby. (b) Officers' Certificates. A certificate from each Borrower, signed ---------------------- on behalf of the Borrower by such corporation's president or a vice president and the secretary or assistant secretary, certifying the following: (i) true and complete copies of the charter and by-laws of each of the Borrowers as in effect on the date the resolutions specified in clause (a) of this Section 3.3 were adopted and the absence of any amendments to the charter or by-laws since 3 such dates; (ii) the due formation and valid existence of each of the Borrowers in such corporation's state of incorporation and the absence of any proceeding for the dissolution or liquidation of any of the Borrowers; (iii) the accuracy of the representations and warranties made by each Borrower in the Transaction Documents; (iv) the absence of any event occurring and continuing, or resulting from the consummation of the transactions contemplated hereby, that constitutes a Default or an Event of Default; and (v) the satisfaction of all conditions precedent by each of the Borrowers set forth in Section 3 hereof. (c) Incumbency Certificates. A signed copy of a certificate of the ----------------------- secretary or an assistant secretary of each of the Companies certifying that each Person who is an officer or director of the Companies was, at the respective time of such execution and delivery, duly elected or appointed and authorized to sign this Agreement and the Transaction Documents to which it is or is to be a party, and the other documents to be delivered hereunder and thereunder and the signatures of such Persons are their genuine signatures or true facsimiles thereof. (d) Solvency Certificate. A certificate from the chief financial -------------------- officer of Pacific Aerospace attesting to the Solvency of the Companies on a consolidated basis after giving effect to the transactions contemplated hereby. (e) Opinion of Counsel. An opinion of Milbank, Tweed, Hadley & ------------------ McCloy, LLP, counsel to Pacific Aerospace, together with its Subsidiaries, and Stoel Rives LLP as to matters of Washington State law, addressed to the Lenders, dated the Closing Date and otherwise satisfactory to the Lenders. 3.4 Purchase Permitted by Applicable Law, etc. (a) Legal Investment. On the date of the Closing, the Term Loans and ---------------- the issuance of the Warrants pursuant to the Warrant Agreement (a) shall be permitted by the laws and regulations of each jurisdiction to which Lenders are subject, without recourse to provisions permitting limited investments by insurance Borrowers without restriction as to the character of the particular investment, (b) shall not violate any applicable law or regulation (including, without limitation, Section 5 of the Securities Act and Regulations T, U or X of the Board of Governors of the Federal Reserve System) and (c) shall not subject any Lender to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by the Agent or any Lender, the Agent or such Lender shall have received an Officer's Certificate certifying as to such matters of fact as Lenders may reasonably specify to enable Lenders to determine whether such purchase and payment are so permitted. 3.5 No Litigation or Other Proceedings. There shall exist no action, suit, investigation, litigation or proceeding pending or threatened before any Governmental Authority (i) challenging the consummation of the transactions contemplated hereby or by the Transaction Documents or (ii) seeking to obtain, or having resulted in the entry of, any judgment, order or injunction that (A) would restrain, prohibit or impose materially adverse conditions on Lenders' ability to make the Term Loans 4 available to the Borrowers on the Closing Date, (B) could be reasonably expected to have a Material Adverse Effect, or (C) purports to affect the legality, validity or enforceability of any material provision of this Agreement, any other Transaction Document, any related agreement or the consummation of the transactions contemplated hereby. 3.6 No Material Adverse Change. There shall not have occurred a Material Adverse Change (in Lenders' sole opinion) in the businesses, assets, operations, conditions (financial or otherwise) or prospects of the Companies since December 31, 2000; provided, however that the failure of Pacific Aerospace to pay the regularly scheduled interest payment to holders of the Subordinated Notes due on February 1, 2001 shall not be considered a Material Adverse Change. 3.7 Fees and Expenses. Without limiting the generality of Section 11, the Borrowers shall have paid, or caused to have been paid, all accrued fees and reasonable expenses incurred in connection with the transactions contemplated by the Commitment Letter, this Agreement and the other Transaction Documents as of the Closing, including, without limitation, the Commitment Fee and the Due Diligence Fee. 3.8 Ancillary Documents and Perfection of Security Interest. The Borrowers shall have executed and delivered the Security Agreement, the Intellectual Property Security Agreement, the Pledge Agreement, and the Deeds of Trust on the Borrowers' property located at 430 Olds Station Road, Wenatchee, Washington (the "Olds Station Property") and the other Real Property owned by the Borrowers (in the form satisfactory to Lenders), and shall have taken all actions requested by the Lenders necessary or desirable to perfect the security interests contemplated by each such agreement and instrument, including without limitation the delivery to the Lenders or their counsel for filing of Uniform Commercial Code financing statements and the appropriate filings with the United States Patent and Trademark Office. 3.9 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to Lenders and Lenders' special counsel, and Lenders and Lenders' special counsel shall have received all such counterpart originals or certified or other copies of such documents as Lenders or Lenders' special counsel may reasonably request. 3.10 Blocked Accounts Agreement. The Borrowers shall have executed and delivered the Blocked Accounts Agreement to the Lenders and such agreement shall be in full force and effect. 5 3.11 Warrant Agreement and the Warrants. Pacific Aerospace shall have executed and delivered the Warrant Agreement and such agreement shall be in full force and effect. 3.12 Registration Rights Agreement Pacific Aerospace shall have executed and delivered the Registration Rights Agreement. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES. The Companies represent and warrant to Lenders that as of the date hereof and the Closing Date (before and after giving effect to the transactions contemplated hereby): 4.1 Corporate Existence; Qualification; Power; Licenses and Permits. Each of the Borrowers (i) is a corporation duly incorporated and validly existing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and is authorized to do business in every jurisdiction in which the failure to be so qualified could reasonably be expected to have a Material Adverse Effect. Each of the Companies has all corporate power and authority required to own its properties and assets and to carry on its business as now conducted and has all licenses, authorizations, consents, approvals, franchises, leases, permits, certificates, qualifications, easements, rights of way and other rights required to carry on its business as now conducted which the failure to so have could reasonably be expected to have a Material Adverse Effect. The Companies are not in violation of the terms of any such license, authorization, consent, approval, franchise, lease, permit, certificate, qualification, easement, right of way or other right in any such case which would have a Material Adverse Effect. 4.2 Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by the Companies of this Agreement and the other Transaction Documents executed in connection herewith and therewith and the consummation by Companies of the transactions contemplated hereby and thereby, (i) are within each of the Companies' corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) except as provided herein or in the Ancillary Documents, require no action by or in respect of, or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of any applicable law, statute, ordinance, regulation, rule, order or other governmental restriction or of the Articles of Incorporation or By-Laws or other organizational documents of any of the Companies, (v) do not contravene, or constitute a default under, any agreement, judgment, injunction, order, decree, indenture, contract, lease, instrument or other commitment to which the any of the Companies is a party or by which the Companies or any of their assets are bound which could reasonably be expected to have a Material Adverse Effect, and (vi) will not result in the creation or imposition of any material Lien upon any asset of any of the Companies under any existing indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which any of the Companies is a party or by which the or any of their assets may be bound or affected (except as contemplated herein). In particular and without limiting the representations set forth above, the 6 Term Loans constitute "Senior Indebtedness" and "Bank Indebtedness" as such terms are defined in the Subordinated Note Indenture and the incurrence of the Term Loans pursuant to the terms of this Agreement and the granting of first priority liens (or in the case of the Real Property located at 209 Mission Street, Cashmere, Washington and 14351 Shamel Street, Entiat, Washington and the Olds Station Property only, the second priority liens) granted to the Lenders pursuant to the Transaction Documents do not contravene or constitute a default under the Subordinated Note Indenture. 4.3 Binding Effect. This Agreement is and each of the other Transaction Documents has been duly executed and delivered by each of the Companies and is a valid and binding agreement of each of the Companies, and is or will be enforceable against each of the Companies in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratium or similar laws affecting creditors' rights generally and general principles of equity, and except to the extent that the indemnification provisions of Sections 11 and 12 hereof may be limited by federal and/or state securities laws and public policy considerations. 4.4 Information. The Companies have furnished to Lenders as of the date of this Agreement the following financial statements (the "Financials") of the Companies: (i) consolidated balance sheets as of, and consolidated statements of earnings, changes in consolidated shareholders' equity and changes in consolidated cash flow for the fiscal year ended May 31, 2000 audited by independent certified public accountants, and (ii) unaudited consolidated balance sheets as of the end of the most recent fiscal quarter ending prior to the Closing Date and the related unaudited consolidated statements of earnings, changes in shareholders' equity and changes in consolidated cash flow for the three months then ended. The Financials fairly present the financial condition of the Companies at the dates thereof and the results of operations for the periods indicated (subject, in the case of unaudited financial statements, to normal year-end adjustments), and such financial statements have been and will be prepared in conformity with GAAP consistently applied throughout the periods involved (except for omission of notes to the unaudited financials). 4.5 Litigation and Judgments. Except as set forth on Schedule 4.5, there is no (i) injunction, stay, decree, judgment, writ or order issued and outstanding by any court or arbitrator or any governmental body, agency or official against any of the Companies or (ii) action, suit, proceeding, litigation, contested claim, investigation or arbitration pending, or threatened, against or affecting any of the Companies, in each case, which could reasonably be expected to have a Material Adverse Effect, or which in any manner impairs the validity of this Agreement or any of the other Transaction Documents. 4.6 Compliance with ERISA. As of the date of this Agreement, and except as set forth on Schedule 4.6, (i) none of the Companies nor any ERISA Affiliate maintains or contributes to any Benefit Plan, (ii) each Plan 7 is maintained and is funded in all material respects in accordance with its terms and in compliance with all provisions of ERISA and the Code applicable thereto, (iii) each of the Companies and each ERISA Affiliate has fulfilled in all material respects its obligations related to the minimum funding standards of ERISA and the Code for each Plan, is in compliance in all material respects with the currently applicable provisions of ERISA and of the Code relating to the qualification with respect to each Plan intended to be so qualified and has not incurred any material liability (other than routine liability for premiums) under Title IV of ERISA, (iv) no Termination Event has occurred which has resulted in liability which either has not been satisfied or is not reflected on the Companies financial statements nor has any other event occurred that is likely to result in a Termination Event which could reasonably be expected to have a Material Adverse Effect, (v) no event or events have occurred in connection with which any of the Companies, any ERISA Affiliate, or any Plan, directly or indirectly, is likely to be subject to any liability under ERISA, the Code or any other law, regulation or governmental order or under any agreement, instrument, statute, rule of law or regulation pursuant to or under which any such entity has agreed to indemnify or is required to indemnify any person against liability incurred under, or for a violation or failure to satisfy the requirements of, any such statute, regulation or order which could reasonably be expected to have a Material Adverse Effect, and (vi) true, correct and complete copies of the following documents have been made available to Lenders as of the date of this Agreement: each Plan and all amendments thereto, all written interpretations thereof and written descriptions thereof that have been distributed to employees or former employees of each of the Companies or the ERISA Affiliates, the most recent determination letter issued by the Internal Revenue Service with respect to each Plan, for the three most recent plan years, Annual Reports on Form 5500 Series required to be filed with any governmental agency for each Plan, all actuarial reports prepared for the last three plan years for each Benefit Plan, a listing of all Multiemployer Plans, with the aggregate amount of the most recent annual contributions required to be made by any of the Companies or any ERISA Affiliate to each such plan and copies of the collective bargaining agreements requiring such contributions, any information that has been provided to any of the Companies or any ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan and (vii) the aggregate amount of the most recent annual payments made to former employees of any of the Companies or any ERISA Affiliate under any Retiree Health Plan. 4.7. Taxes. (a) Except as set forth on Schedule 4.7, each of the Companies has timely filed (inclusive of any permitted extensions) with the appropriate taxing authorities all United States Federal income tax returns and except as set forth on Schedule 4.7, all other material tax returns (including, without limitation, information returns and other material information) in respect of Taxes required to be filed through the date hereof. The information filed is complete and accurate in all material respects. To the Companies' knowledge, all material deductions taken by any of the Companies as reflected in such income tax returns have been taken in accordance with applicable laws and regulations. (b) Except as set forth on Schedule 4.7, all Taxes, in respect of periods beginning prior to the date hereof, have been timely paid when due, except where the same are being contested in good faith by appropriate proceedings and appropriate reserves therefor have 8 been established and maintained in accordance with GAAP for the accrual thereof as reflected on the audited financial statements for the Companies' fiscal year ended May 31, 2000, and, to the extent such reserves are maintained for periods after May 31, 2000, consistent with the Companies' past practice. (c) Except as set forth in Schedule 4.7, (i) no material deficiencies for Taxes have been claimed, proposed or assessed by any taxing or other governmental authority against any of the Companies other than such deficiencies of which Lenders have been notified in writing and which are being contested in good faith by appropriate proceedings, and appropriate reserves therefor have been established and maintained as reflected on the audited financial statements for the Companies' fiscal year ended May 31, 2000 and in accordance with GAAP, and, to the extent such reserves are maintained for periods after May 31, 2000, consistent with the Companies' past practice and (ii) no material tax liens have been filed against any of the Collateral. Except as set forth in Schedule 4.7 or as otherwise disclosed to Lenders in writing, there are no pending or threatened audits, investigations or claims for or relating to any material liability in respect of Taxes, and there are no matters under discussion with any governmental authorities with respect to Taxes which are likely to result in a material additional liability for Taxes. Except as set forth on Schedule 4.7, for all years up to and including the fiscal year ended May 31, 1997, either the period during which any assessments may be made by the Internal Revenue Service have expired without waiver or extension or the federal income tax returns of each of the Companies has been audited by the Internal Revenue Service and such audits have been closed. 4.8 Subsidiaries. The only respective direct or indirect Subsidiaries of the Companies as of the date of this Agreement are those listed on Schedule 4.8 attached hereto. Except as set forth on such Schedule, Pacific Aerospace is the record and beneficial owner, either directly or indirectly, of all of the shares of capital stock of each of its Subsidiaries listed on such schedule as being owned by Pacific Aerospace, there are no proxies, irrevocable or otherwise, with respect to such shares, and no equity securities of any of the Subsidiaries are or may become required to be issued by reason of any options, warrants, scripts, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of any capital stock of any Subsidiary, and there are no contracts, commitments, understandings or arrangements by which any Subsidiary is or may become bound to issue additional shares of its capital stock or securities convertible or exchangeable for such shares. All of such respective shares so owned (whether directly or indirectly) by Pacific Aerospace are owned by it free and clear of any Liens, and all such shares are validly issued, fully paid and non- assessable. 4.9 Not Investment Companies. None of the Companies is (i) an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding company" or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to 9 any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or the other Transaction Documents or to perform its obligations hereunder or thereunder. 4.10 No Conflicting Requirements. Except as listed on Schedule 4.10 attached hereto, none of the Companies are in default under any term or provision of any charter, by-law, mortgage, indenture, agreement, instrument, statute, rule, regulation, judgment, decree, order, writ, injunction, contract, lease or other commitment to which any of them is a party or by which any of them is bound such that such violations or defaults in the aggregate could reasonably be expected to have a Material Adverse Effect. None of the Companies know of any dispute regarding any indenture, contract, lease, agreement, instrument or other commitment which would individually, or when aggregated with other such disputes, be reasonably likely to have a Material Adverse Effect. 4.11 Debt. Schedule 4.11 attached hereto sets forth as of the date of this Agreement all of the Debt of the Companies and any Subsidiaries and a pro forma schedule of such Debt following the application of the proceeds of the Term Loans. After application of the proceeds of the Term Loans as set forth herein, the Companies will have no Debt that is senior, pari passu or subordinated in right of payment to their Obligations under the Term Loan or under this Agreement, except for Debt permitted pursuant to Section 8.1 of this Agreement (including, without limitation, the deeds of trust in favor of KeyBank.). 4.12 Title to Properties and Assets. (a) After application of the proceeds of the Term Loans as set forth herein, and except for (i) Liens permitted pursuant to Section 7.4 hereof or as set forth on Schedule 4.12 to this Agreement and (ii) such imperfections of title that represent imperfections of title or easements of record, if any, which do not materially detract from the value or interfere with the use of the properties subject thereto or affected thereby, or otherwise materially impair business operations, the Companies have (a) good and marketable fee simple title to the Owned Real Property material to their businesses and the Owned Real Property on which a Lien has been granted to the Lenders and valid leasehold interests in all of its Leased Real Property material to their businesses and (b) good and marketable title to all of the other material property and assets owned by the Companies at any time (including, without limitation, all of their Accounts and Inventory), other than properties disposed of in any manner permitted under this Agreement. Schedule 4.12(a) attached hereto sets forth as of the date of this Agreement the Owned Real Property and the Leased Real Property held by any Company. The Companies enjoy peaceful and undisturbed possession of all their material Real Estate and there is no pending or threatened condemnation proceeding relating to any Real Estate which could reasonably be expected to have a Material Adverse Effect. The leases with respect to the Leased Real Property, are referred to collectively as the "Leases." No default exists under any Lease which could reasonably be expected to have a Material Adverse Effect. All of the Structures and other tangible assets owned, leased or used by the Companies in the conduct of their businesses are (a) insured as required by the terms of this Agreement and the other Transaction Documents, (b) sufficient for 10 the operation of the businesses of each of the Companies as presently conducted and (c) in conformity with all applicable laws, ordinances, orders, regulations and other requirements (including applicable zoning, environmental, motor vehicle safety, occupational safety and health laws and regulations) relating thereto, except where the failure to conform could not reasonably be expected to have a Material Adverse Effect. (b) The Companies possess adequate assets, licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications and tradenames to continue to conduct their businesses as presently conducted. Schedule 4.12(b) attached hereto sets forth as of the date of this Agreement (i) all of the federal, state and foreign registrations of the registered trademarks of the Companies and all pending applications for any such registrations and (ii) all of the patents of the Companies and all pending applications therefor (collectively, together with all service marks and other marks and all applications therefor, tradenames and other trade rights of the Companies, the "Proprietary Rights"). As of the date of this Agreement, the Companies are the owners of each of the trademarks and patents listed on Schedule 4.12(b) as indicated on such schedule and except as set forth on such Schedule and, except pursuant to licenses granted in the ordinary course of business, no other Person has the right to exploit such patents or use any of such marks in commerce either in the identical form or in such near resemblance thereto as may be likely to cause confusion or to cause mistake or to deceive. As of the date of this Agreement each of the trademarks listed on Schedule 4.12(b) is a valid and subsisting federally registered trademark of the Borrowers having the registration number and issue date set forth on Schedule 4.12(b) and each of the patents listed on Schedule 4.12(b) is a valid and subsisting patent of the Companies having the patent number and issue date set forth on Schedule 4.12(b). As of the date of this Agreement except as disclosed on Schedule 4.12(b), no Person has a right to receive any material royalty or similar payment from the Companies in respect of any such registered Propriety Rights. As of the date of this Agreement the Companies have not granted any material license except as disclosed on Schedule 4.12(b) hereto or such licenses as were granted in the ordinary course of the Companies' businesses, or sold or otherwise transferred any interest in any of the Proprietary Rights to any other person. The Companies are not aware that the use of any of the material Proprietary Rights by the Companies is infringing upon or otherwise violating the rights of any third party in or to such Proprietary Rights which violation or infringement could reasonably be expected to result in a material liability to the Companies, and no proceeding has been instituted against or notice received by any of the Companies that are presently outstanding alleging that the use of any of the material Proprietary Rights infringes upon or otherwise violates the rights of any third party in or to any of the material Proprietary Rights which, if successful, could reasonably be expected to materially adversely affect the fair market value of any such material Proprietary Rights or the rights granted therein to Lenders including, without limitation, the validity, priority or perfection of the security interest granted therein to Lenders under the Ancillary Documents or Lenders' remedies therein or in this Agreement. All of the material Proprietary Rights of the Companies are valid and enforceable rights of the Companies and will not cease to be valid and in full force and effect by reason of the execution and delivery of this Agreement or the Transaction Documents or the consummation of the transactions contemplated hereby or thereby. (c) The capital stock of each Subsidiary (including, without limitation, each Foreign Subsidiary, provided that for any Foreign Subsidiary which constitutes a "Controlled 11 Foreign Corporation" within the meaning of Section 951 of the Code, the Companies shall not be required to pledge hereunder or under the other Transaction Documents more than 65% of the combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, in each case which is owned directly or indirectly by the Companies), has been delivered and pledged to the Lenders under the Pledge Agreements; excluding, however, the capital stock of any Subsidiary owned directly or indirectly by a Subsidiary of Pacific Aerospace one hundred percent (100%) of which is not owned directly or indirectly by Pacific Aerospace. The owners of all such capital stock are parties as pledgors under the Pledge Agreements. 4.13 Compliance with Law. None of the Companies have violated or failed to comply with any statute, law, ordinance, regulation, rule or order of any foreign, federal, state or local government or any other governmental department or agency or any self regulatory organization, or any judgment, decree or order of any court, applicable to its business or operations except where the aggregate of all such violations or failures to comply would not have a Material Adverse Effect. The conduct of the businesses of each of the Companies is in conformity with all securities, commodities, energy, public utility, zoning, building code, health, OSHA and environmental requirements and all other foreign, federal, state and local governmental and regulatory requirements and requirements of any self regulatory organizations, except where the aggregate of all such non- conformities could not reasonably be expected to have a Material Adverse Effect. None of the Companies have received any notice to the effect that, or otherwise been advised that, they are not in compliance with, and none of the Companies have any reason to anticipate that any presently existing circumstances are likely to result in the violation of, any such statute, law, ordinance, regulation, rule, judgment, decree or order which failure or violation could reasonably be expected to have a Material Adverse Effect. 4.14 Compliance with Environmental Laws. (a) Each of the Companies has complied with and are currently in compliance with any Environmental Laws, except where noncompliance could not reasonably be expected to have a Material Adverse Effect. (b) No solid or hazardous or toxic wastes or hazardous substances (as defined in the Comprehensive Environmental Response Compensation and Liability Act, the Resources Conservation and Recovery Act and the Superfund Amendments and Reauthorization Act of 1986, as amended or under any successor or similar law or any applicable state or local law), are processed, discharged, stored, treated, disposed of, or managed at any facility owned, leased or operated by any of the Companies or, at the request or behest of any of the Companies, at any adjoining site, so as to require a license, permit or authorization of any type from any governmental authority, other than licenses, permits and authorizations which have been obtained and are in full force and effect or where the failure to obtain such a license, permit or authorization could not reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4.14 hereto, as of the date of this Agreement no governmental or private actions to enforce environmental or pollution control laws are pending against any of the Companies or against or with respect to any facility owned, operated or leased by any of the Companies. Except as disclosed on Schedule 4.14 and except where any of the following, 12 individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (i) none of Companies have received any complaint, notice of violation, alleged violation, investigation or advisory action or of potential liability or of potential responsibility regarding environmental protection matters or permit compliance, and (ii) none of the Companies have any contingent liability of which the Companies has knowledge in connection with any release of any hazardous or toxic waste, substance or constituent, or other substance into the environment, nor have the Companies received any notice, letter or other indication of potential liability arising from the disposal of any hazardous or toxic waste, substance or constituent or other substance into the environment. (c) Except as disclosed on Schedule 4.14 and other than any pending workers' compensation claims which individually and in the aggregate are not significant to the Companies, no action, suit or proceeding brought by any employee of any of the Borrowers or any other Person involving (i) a claim for damages in excess of $100,000 or (ii) claims for damages under $100,000 and which in the aggregate could reasonably be expected to have a Material Adverse Effect, in each case based on alleged damage to health caused by any such hazardous or toxic substance or by any waste or by-product thereof, is pending before any court or arbitrator or any governmental body, agency or official. 4.15 Security Interests and Liens; Inventory and Equipment. After the application of the proceeds of the Term Loans as set forth herein, there will be no Liens in favor of third parties with respect to any of the Collateral, including, without limitation, with respect to the Inventory, wherever located, other than Liens permitted pursuant to Section 7.4 hereof or disclosed on Schedule 4.15 hereof. No lessor, warehouseman, filler, processor or packer of any of the Companies (other than Foreign Subsidiaries) has granted any Lien with respect to the Inventory maintained by any of the Companies (other than Foreign Subsidiaries) at the property of any such lessor, warehousemen, filler, processor or packer. Upon the proper filing of financing statements and the proper recordation of other applicable documents with the appropriate filing or recordation offices in each of the necessary jurisdictions, the security interests granted pursuant to the Transaction Documents on the Filing Assets and the Real Estate with respect to which Deeds of Trust have been filed constitute and shall at all times constitute the valid and enforceable perfected Liens on such Collateral, subject only to prior Liens existing on the Closing Date and set forth on Schedule 4.15 hereto and Liens permitted pursuant to Section 7.4 hereof. The Borrowers are or will be at the time additional Collateral is acquired by them, the absolute owners of the Collateral with full right to pledge, sell, consign, transfer and create a Lien therein, free and clear of any and all Liens in favor of third parties, except for Liens permitted pursuant to Section 7.4 hereof. No consents, filings or recordings are required in order to perfect the security interests created by the Pledge Agreements. 4.16 Labor Relations. None of the Companies are engaged in any material unfair labor practices which could reasonably be expected to result in a material liability to any of the Companies, materially increase the costs of operations or materially decrease the revenue generated from any of the Companies' operations or which could otherwise reasonably be expected to have a Material 13 Adverse Effect. There is (i) no unfair labor practice complaint pending against any of the Borrowers or, to the best knowledge of the Companies, threatened against, before the National Labor Relations Board, and no material grievance or significant arbitration proceeding arising out of or under collective bargaining agreements is so pending against the Companies or, threatened against them, (ii) no strike, labor dispute, slowdown or stoppage pending against any of the Companies threatened against it which, in the case of the items described in the preceding clauses (i) and (ii) could reasonably be expected to result in a material liability to the Companies, materially increase the costs of any of the Companies' operations or materially decrease the revenue generated from any of the Companies' operations or which could otherwise reasonably be expected to have a Material Adverse Effect, and (iii) no union representation question with respect to the employees of any of the Borrowers and to the knowledge of the Borrowers no union organizing activities which representation question or organizing activity could reasonably be expected to have a Material Adverse Effect. There are no controversies pending or threatened between any of the Companies and any of their employees, other than (i) employee grievances and other controversies arising in the ordinary course of business which could not, in the aggregate, be reasonably expected to have a Material Adverse Effect and (ii) employee grievances and other controversies arising outside the ordinary course of business of which Lenders have received written notice and could not reasonably be expected to have a Material Adverse Effect. 4.17 UCC Filing Information. As of the date of this Agreement the chief executive office and principal place of business of each Borrower is as set forth on Schedule 4.17, which office is the place where such Borrower is "located" for the purposes of Section 9-103(3)(d) of the UCC. As of the date of this Agreement the places where the Borrowers keep their books, chattel paper and records concerning its respective Accounts or regularly keeps any Inventory are also identified on Schedule 4.17. As of the date of this Agreement there is no jurisdiction located in the United States in which Pacific Aerospace or any of the other Borrowers have any assets, equipment or Inventory (except for vehicles, Inventory in transit for processing in the ordinary course of business, or immaterial items) other than those jurisdictions listed on Schedule 4.17. Schedule 4.17 is a true, correct and complete list as of the date of this Agreement of (i) the address of all offices where records and books of account each Borrower is kept, and (ii) the legal names and addresses of each warehouseman, filler, processor and packer at which Inventory is stored as of the date of this Agreement. None of the receipts received by the Borrowers from any warehouseman, filler, processor or packer states that the goods covered thereby are to be delivered to bearer or to the order of a named person or to a named person and such named person's assignees. 4.18 Solvency. (a) The fair saleable value of the Companies' assets exceeds all probable liabilities, including those to be incurred pursuant to this Agreement. On and at all times after the Closing Date, the Companies, taken as a whole (i) do not have unreasonably small capital in relation to the business in which they are or propose to be engaged and (ii) have not incurred, and do not believe that they will incur after giving effect to the transactions contemplated by this Agreement, debts beyond their ability to pay such debts as they become due. 14 (b) The fair saleable value of the Borrowers assets exceeds all probable liabilities, including those to be incurred pursuant to this Agreement. On and at all times after the Closing Date, the Borrowers taken as a whole (i) do not have unreasonably small capital in relation to the business in which they are or propose to be engaged and (ii) have not incurred, and do not believe that they will incur after giving effect to the transactions contemplated by this Agreement, debts beyond their ability to pay such debts as they become due. 4.19 Fictitious Business Names. None of the Companies have conducted any material amount of business on or after August 1, 1993 under any corporate or fictitious name other than the corporate name shown on any of the Companies' Articles or organizational documents, as disclosed on Schedule 4.19 or as disclosed to Lenders in writing from time to time. 4.20 Use of Proceeds. The proceeds of the Term Loans will be used only to (i) repay the outstanding borrowings under the KeyBank Loan Agreement (ii) make certain required payments under the Subordinated Notes, (iii) to pay transaction costs and fees associated with the Term Loans and (iv) for general corporate purposes, all as more fully set forth on the attached Schedule 4.20. 4.21 Margin Stock. No Borrower nor any Subsidiary owns any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder, nor is any Borrower or any Subsidiary engaged principally or as one of its important activities in extending credit which is used for the purpose of purchasing or carrying margin stock. 4.22 Survival of Representations. All representations made by the Companies in this Agreement and in any other Transaction Document executed and delivered in connection herewith shall survive the execution and delivery hereof and thereof for so long as the Term Loans have not been repaid in full. 4.23 Affiliate Transactions. Except as set forth on Schedule 4.23 hereto, none of the Companies is a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate of the Company or any Subsidiary is a party. 4.24 Accuracy and Completeness of Information. All factual information heretofore, contemporaneously or hereafter furnished by or on behalf of the Companies in writing to Lenders or the Auditors for purposes of or in connection with this Agreement or any Transaction Documents, or any transaction contemplated hereby or 15 thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time. There is no fact now known to any officer of the Companies which has, or would have, a Material Adverse Effect, which fact has not been set forth herein, in the Financial Statements, or some certificate, opinion or other written statement made or furnished by the Companies to Lenders. 4.25 Status of Accounts. The Companies confirm to the Lenders that any or all taxes or fees relating to its business, its sales, the Accounts or the goods relating thereto as of the date hereof, are their sole responsibilities and that all such material taxes will be paid by the Companies when due (unless duly contested and adequately reserved for) and that none of such taxes or fees (including any immaterial taxes or fees) is or will become a Lien (other than a Permitted Lien) on or claim against the Accounts. Each of the Companies' books and records is marked to reflect the Lenders' interest in the Accounts. 4.26 Party in Interest. None of the Companies is a "party in interest" as that term is defined in ERISA, with respect to any employee benefit plan having an interest in the General Motors Employees Domestic Group Pension Fund. 4.27 Stock. There are presently issued by each Company and its Subsidiaries and outstanding the shares of capital stock indicated on Schedule 4.27. All of the issued and outstanding capital stock of each Subsidiary listed is owned of record and beneficially by the entity set forth on such Schedule. The Companies and their Subsidiaries have received at least the consideration for which such stock was authorized to be issued and have otherwise complied in all material respects with all legal requirements relating to the authorization and issuance of shares of stock and all such shares are validly issued, fully paid and non- assessable. The Companies and their Subsidiaries have no other capital stock of any class outstanding other than as set forth on Schedule 4.27 hereto. Except as set forth on Schedule 4.27, none of the Companies or any Subsidiary has outstanding any securities convertible into or exchangeable for its Capital Stock or any other equity interest nor does any Company or any Subsidiary have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its Capital Stock or other obligations or commitments of any kind whatsoever to issue, sell or otherwise dispose of, any shares of or other equity interest in any Company or any of their Subsidiaries. Except as contemplated by the Transaction Documents, none of the Companies or any of their Subsidiaries are subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of their Capital Stock. There are no voting trusts or other agreement or understandings to which any of the Companies or any of their Subsidiaries is a party with respect to the voting of its Capital Stock. 5. REPRESENTATIONS AND WARRANTIES OF THE LENDERS 16 Each Lender hereby represents, warrants and covenants that as to itself only that: 5.1 Authorization. (a) Each Lender has full power and authority to enter into this Loan Agreement and each of the Transaction Documents, and each such agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms. (b) The execution, delivery and performance by such Lender and the other Transaction Documents executed in connection therewith and herewith and the consummation by such Lender of the transactions contemplated hereby and thereby do not contravene the organizational documents of such Lender. 5.2 No Plan Assets. Except as provided in Schedule 5.2, each Lender is not and will not become an "employee benefit plan" as defined in Section 3(3) of ERISA, whether or not subject to ERISA, a plan described in Section 4975(e)(1) of the Code or an entity whose underlying assets include plan assets by reason of an employee benefit plan's or plan's investment in the entity or otherwise. 5.3 Accredited Investor. Each Lender (i) is purchasing the Term Loans and the Warrants for Lender's own account or for one or more separate accounts maintained by Lender or for the account of one or more pension trust funds and not with a view to the distribution thereof in violation of the securities laws of the United States or any state thereof, provided that the disposition of the Lender's property shall at all times be within Lenders' control and (ii) is an "accredited investor" as defined in Rule 501(a) of the Securities Act and able to evaluate the merits and risks of the investment. Lender understands that the Warrants have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such exemption is required by law. 6. PREPAYMENT OF THE TERM LOANS. 6.1 Voluntary Prepayments. The Borrowers may, upon not less than three (3) Business Days' notice to the Agent, for the ratable benefit of the Lenders, prepay the Term Loans outstanding, in whole or in part, together with accrued interest thereon to the date of such prepayment on the principal amount prepaid; provided that each partial prepayment shall be in an aggregate principal amount of not less than $250,000. 6.2 Mandatory Prepayments. (a) If the Aeromet Sale is consummated, the Borrowers shall repay the Term Loans outstanding, for the ratable benefit of the Lenders, in an amount equal to at least $7,500,000 principal amount of the Term Loans, plus all accrued and unpaid interest thereon (including deferred interest), and all other fees, expenses and other payments due to the Lenders under this Agreement and the Transaction Documents, if any. 17 (b) In the event a Company has made an Asset Disposition, the Borrowers shall apply 50% of the Net Cash Proceeds from such Asset Disposition first to any accrued and unpaid interest (including any deferred interest) on the Term Loans, secondly, to any other unpaid fees, expenses and obligations (other than principal) outstanding on the Term Loans, if any, and third to the principal amount outstanding on the Term Loans. Notwithstanding the foregoing, in the event that a Company desires to use any or all of the Net Cash Proceeds to purchase assets to replace the assets sold and the functionality of the assets sold, Pacific Aerospace, on behalf of such Company shall promptly certify to the Lenders as to such intention and such Company may within 45 days of the asset sale use any or all of the Net Cash Proceeds to purchase replacement assets (and shall certify to the Lender as to the purchase), provided that the Company may use Net Cash Proceeds to purchase replacement assets as set forth above only if the Net Proceeds from the asset sale was less than $250,000 individually and, less than $1,000,000 when added to the Net Proceeds from all asset sales where replacement assets were purchased by any Company pursuant to this provision. In the event that replacement assets are not purchased within 45 days, the Borrowers shall on the day following such forty-fifth day apply the Net Cash Proceeds as provided in the first sentence of this clause (b). In the event that some but not all of the Net Cash Proceeds are used to pay for replacement assets then the Borrowers shall on the day following such forty- fifth day apply an amount as provided in the first sentence of this clause (b) equal to the lesser of (i) 50% of the Net Cash Proceeds and (ii) the remaining Net Cash Proceeds after payment of replacement assets, as provided in the first sentence above. "Net Proceeds" shall mean all cash and all other non-cash consideration received by the Companies (including cash payments received in respect of deferred payment pursuant to any note or installment receivable or otherwise and state or federal income tax refunds attributable to such sale or disposition, but in each case only as and when received) in respect of such sale or disposition. All non-cash proceeds shall be valued by the Board of Directors of the relevant Company in good faith. 6.3 Method and Timing of Payments The Borrowers shall make each payment to be made by them hereunder not later than 3:00 p.m. (Boston time) on the day when due in lawful money of the United States to the Lenders in accordance with the wire transfer instructions in immediately available funds. The Lenders will be entitled to receive their ratable share of the payment of principal, interest or any other amounts in accordance with their respective Commitment Percentages. Any payment made by the Borrower to the Lenders under this Agreement or under the Term Loan Notes in the manner provided in this Agreement shall be deemed to be a payment to each of the respective Lenders, unless the provisions of this Agreement expressly provide that any such payment shall be solely for the account of any specific Lender. 7. AFFIRMATIVE COVENANTS. In order to induce the Agent and the Lenders to enter into this Agreement and to induce the Lenders to make the Term Loans as contemplated hereby, the Companies covenant and agree that the Companies shall, and shall cause all of their Subsidiaries to, perform all covenants in this Section 6 until the payment in full of all obligations under the Term Loans. 18 7.1 Information. (a) The Companies will deliver to Lenders: (i) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto unless the securities covered thereby are held or distributed by Pacific Aerospace, other than any registration statement on Form S-3 to the extent that it relates to a secondary offering, and other than any registration statement on Form S-8 or its equivalent) and reports on Form 10-K, 10-Q and 8-K (or their equivalents) which Pacific Aerospace shall have filed with the SEC, and promptly upon the mailing thereof to the shareholders of Pacific Aerospace generally, copies of all financial statements, reports and proxy statements so mailed; (ii) no later than 45 days after the end of the first three quarters of each fiscal year and no later than 90 days after the end of each fiscal year, (A) a certificate of the chief financial officer or client accounting officer of the Companies setting forth in reasonable detail any calculations required to establish whether the Companies were in compliance with the requirements of Sections 8.6, 8.7, 8.8, 8.9 and 8.10 hereof as of the end of such quarter or year, as the case may be, and (B) a compliance certificate in the form of Exhibit G attached hereto (the "Compliance Certificate"); (iii) within one Business Day of any executive officer of any of the Companies obtaining knowledge of any Event of Default or any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer setting forth the details thereof and the action which is being taken or being proposed with respect thereto; (iv) within one Business Day notice, in reasonable detail, of any material change relating to the type, quality or quantity of any material portion of the Collateral, or any event which could have a material adverse effect on the value of the Collateral or any event affecting the validity or priority of the security interests granted to the Lenders in the Collateral; and (v) within one Business Days of the chief executive officer, chief financial officer, chief accounting officer, controller or other senior financial officer of any of the Companies obtaining knowledge of any Material Adverse Effect, a certificate of the chief financial officer or accounting officer setting forth details thereof and the action which is being taken or being proposed with respect thereto. (b) In addition, at the written request of the Lenders, the Companies will deliver: (i) as soon as available and in any event within 90 days after the end of each fiscal year of the Companies, consolidated and consolidating balance sheets of the Companies as of the end of such fiscal year and the related consolidated and consolidating statements of earnings, changes in consolidated shareholders equity and 19 changes in consolidated cash flow for such fiscal year, setting forth in the case of each consolidated financial statement in comparative form the figures for the previous fiscal year, including the previous fiscal year budget (if such budget was prepared); all (except for the consolidating statements) accompanied by an opinion of the Auditors unqualified as to scope of audit and stating that such financial statements present fairly in all material respects the financial position of the Companies and the results of their operations and cash flows for such fiscal year in conformity with generally accepted accounting principles and otherwise reported on in a manner acceptable to the Securities and Exchange Commission; (ii) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Companies, consolidated and consolidating balance sheets of the Companies as of the end of such quarter and the related consolidated and consolidating statements of earnings, changes in consolidated shareholders equity and changes in consolidated cash flow for such quarter and for the portion of the Companies' fiscal year ended at the end of such quarter, setting forth in the case of each consolidated financial statement in comparative form the figures for the corresponding quarter and the corresponding portion of the Companies' previous fiscal year, including the previous fiscal year budget (if such budget was prepared), all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Companies; (iii) as soon as available and in any event no later than 60 days after the last day of each fiscal year of the Companies, copies of annual budgets and other similar materials prepared by or for the Companies, which budgets and other information shall be presented on a monthly basis for the then current fiscal year and on an annual basis for each subsequent fiscal year; (c) as soon as available and in any event within 30 days after the end of each of the first two months of each fiscal quarter (45 days in the case of the last month of each fiscal year of the Companies), statements of earnings and consolidated and consolidating balance sheets of the Borrowers as of the end of such month, and related changes in consolidated cash flow for such month and for the portion of the Companies' fiscal year ended at the end of such month, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or chief accounting officer of the Companies; (d) the Companies will deliver to the Lenders if and when any ERISA Affiliate (i) gives or is required to give notice to the PBGC of any Reportable Event with respect to any Benefit Plan which could reasonably be expected to constitute grounds for a termination of such Benefit Plan under Title IV of ERISA, or knows that the plan administrator of any Benefit Plan has given or is required to give notice of any such Reportable Event, a copy of the notice of such Reportable Event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or 20 (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Benefit Plan, a copy of such notice; (e) promptly following, and in no event more than three Business Days of any executive officer of any of the Companies obtaining knowledge of (i) any litigation or proceeding affecting any of the Companies or any Subsidiary in which the amount involved is $250,000 or more and is not covered by insurance or in which injunctive or similar relief is sought, or (ii) any order, judgment or decree in excess of $250,000 which shall have been entered against any of the Companies or any of their respective properties or assets, a certificate of the chief financial officer or accounting officer setting forth details thereof and the action which is being taken or being proposed with respect thereto; (f) prompt notice of any notification of a violation of any law or regulation received by any of the Companies from any local, state, federal or foreign governmental authority or agency which violation could reasonably be expected to have a Material Adverse Effect; and (g) from time to time such additional information or analyses regarding the financial position or business of any of the Companies and/or their Subsidiaries as Lenders may reasonably request. 7.2 Payment of Obligations. The Borrowers will pay and discharge at or before maturity, all of their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. 7.3 Maintenance of Property; Insurance. (a) The Companies will keep, all material property useful and necessary in their businesses in good working order and condition (ordinary wear and tear, casualty and condemnation excepted) and not commit or suffer any material waste with respect to any of their material properties. (b) The Borrowers agree to maintain public liability insurance, third party property damage and replacement cost insurance on the Collateral under such policies of insurance, and the Companies agree to maintain insurance on their material assets in such amounts and covering such risks as is customary for similarly situated corporations. Such insurance may include levels of self insurance comparable to those in place on the date of this Agreement or as shall be customary for corporations similarly situated in the industry. All policies covering the Collateral are to name the Lenders as additional insureds and loss payees in case of loss, as their interests may appear, and are to contain such other provisions as the Lenders may reasonably require to fully protect the Lenders' interest in the Collateral and to any payments to be made under such policies. Certificates of all insurance policies are to be delivered to the Lenders (with true copies of such policies to be made available to Lenders) on or within ten (10) days of the Closing Date, and such policies shall have all premiums with respect thereto 21 currently paid and contain loss payable endorsements in the Lenders' favor, and shall provide for not less than ten (10) days prior written notice to the Lenders, of the exercise of any right of cancellation. In the event any of the Borrowers fail to respond in a timely and appropriate manner (as determined by the Agent in their reasonable discretion) with respect to collecting under any insurance policies required to be maintained under this Section 7.3, the Lenders shall have the right, in the name of any of the Borrowers, to file claims under such insurance policies, to receive and give acquaintance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. The Borrowers shall provide written notice to the Lenders of the occurrence of any of the following events within five (5) Business Days after the occurrence of such event: any material asset or property owned or used by any of the Borrowers (i) is damaged or destroyed, or suffers any other loss, or (ii) is, or the Borrowers receive notice of the institution of any proceeding pursuant to which any such asset or property could reasonably be expected to be, condemned, confiscated or otherwise taken, in whole or in part, or the use thereof is otherwise diminished so as to render impracticable or unreasonable the use of such asset or property for the purposes to which such asset or property were used immediately prior to such condemnation, confiscation or taking, by exercise of the powers of condemnation or eminent domain or otherwise, and in either case the amount of the damage, destruction, loss or diminution in value is in excess of $250,000 (collectively, a "Casualty Loss"). The Borrowers shall diligently file and prosecute its claim or claims for any award or payment in connection with a Casualty Loss. In the event of a Casualty Loss with respect to any of the Collateral, if directed by the Agent, the Borrowers shall pay to the Lenders, promptly upon receipt thereof, any and all insurance proceeds and payments received by the Borrowers on account of damage, destruction, loss, condemnation or eminent domain proceedings (excluding, however, business interruption insurance and the proceeds thereof). So long as no Default or Event of Default shall have occurred and be continuing, the Borrowers may use such proceeds and payments to repair, replace or rebuild the asset or property or portion thereof that was the subject of the Casualty Loss or, if such asset or property is not material to the operations of Borrowers, may use such proceeds and payments as otherwise permitted pursuant to the terms of this Agreement. After the occurrence and during the continuance of any Default or Event of Default the Agent may, at its election in its sole discretion either (a) apply ratably the proceeds realized from Casualty Losses to payment of accrued and unpaid interest or outstanding principal under the Term Loans or (b) direct the insurance compan(ies) to pay such proceeds to the Borrowers to be used to repair, replace or rebuild the asset or property or portion thereof that was the subject of the Casualty Loss. After the occurrence and during the continuance of an Event of Default, (i) no settlement on account of any such Casualty Loss shall be made without the Lenders' consent and (ii) the Lenders may participate in any such proceedings and the Borrowers shall deliver to the Lenders such documents as may be requested by the Lenders to permit such participation and shall consult with the Lenders, the Lenders' attorneys and agents in the making and prosecution of such claim or claims. 7.4 Compliance with Laws. The Companies will comply with all acts, regulations, orders, directions and ordinances of any legislative, administrative or judicial body or official, applicable to the Collateral or any part thereof, or to the operation of their business (including, without limitation ERISA and the 22 rules and regulations thereunder) except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. 7.5 Inspection of Property, Books and Records; Change of Name, Principal Place of Business, Location of Collateral, Etc. The Companies will keep proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to their businesses and activities; the Companies shall make no significant change in their accounting practices except as permitted or required by GAAP. The Companies agree that each Lender or its agents may enter upon the premises of the Companies at any time and from time to time, during normal business hours and upon reasonable prior notice, and at any time during normal business hours and without notice on and after the occurrence and during the continuance of an Event of Default, for the purpose of (i) inspecting the Collateral, (ii) inspecting and/or copying (at Companies' expense) any and all records pertaining thereto, and (iii) discussing the affairs, finances, business operations, properties and financial and other conditions of the Borrowers with any officers, employees and directors of the Companies or with the Auditors. Each Lender shall have the right to (A) discuss the affairs, finances, business operations, properties and conditions of the Companies with management and make suggestions to the Companies' management and management will discuss such proposals or suggestions made by such Lender within a reasonable period after such submission, (B) tour the Companies' business premises and other properties, (C) receive financial statements, operating reports, budgets or other financial reports, (D) request information at reasonable times and intervals concerning the general status of the Companies' financial conditions and operations. The Companies agree to afford the Lenders ten (10) Business Days prior written notice of (a) any new or additional location of any Collateral at which location Collateral having an aggregate value in excess of $250,000 will be located, (b) any change in the location of its chief executive office or any new or additional places of business from the locations specified in Schedule 4.17, and (c) any change in any corporate name and, in each such case, the Companies further agree to execute in advance of such addition or change and cause to be filed and/or delivered to the Lenders or counsel to the Lenders any financing statements or other documents required by the Lenders. 7.6 Compliance with Transaction Documents. The Companies will comply with the terms of each of the Transaction Documents. 7.7 Corporate Existence. The Companies (i) except as otherwise permitted pursuant to Section 8.5, shall maintain their corporate existence, shall maintain in full force and effect all material licenses, bonds, franchise, leases, qualifications to do business, trademarks, patents, contracts and other rights necessary for the conduct of their businesses, (ii) shall continue in, and limit their operations to, the same general lines of business as that presently conducted by them and reasonable extensions thereof and (iii) shall comply with all applicable laws and regulations of any federal, state or local governmental authority, except in each case when noncompliance with the foregoing would not, in the aggregate, have a Material Adverse Effect. 23 7.8 ERISA. The Companies shall deliver to the Lenders, at the Companies' expense, the following information at the times specified below: (a) within twenty (20) Business Days after any of the Companies or any ERISA Affiliate knows that a Termination Event has occurred which could reasonably be expected to result in a liability to the Borrowers of $300,000 or more, a written statement of the chief financial officer describing such Termination Event and the action, if any, which the Companies or any other entities have taken, are taking or propose to take with respect thereto, and when known, any action taken or threatened by the Internal Revenue Service, DOL or PBGC with respect thereto; (b) within sixty (60) Business Days after any of the Companies or any ERISA Affiliate knows that a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has occurred which could reasonably be expected to result in a liability to the Companies of $300,000 or more, a statement of the chief financial officer describing such transaction and the action which the Companies or other such entities have taken, are taking or propose to take with respect thereto; (c) at any time that the Lenders may reasonably request, copies of each annual report (form 5500 series), including Schedule 8.9 thereto, filed with respect to each Benefit Plan; (d) at any time that the Lenders may reasonably request, copies of each actuarial report for any Benefit Plan or Multiemployer Plan and each annual report for any Multiemployer Plan; (e) within three (3) Business Days after the filing thereof with the Internal Revenue Service, a copy of each funding waiver request filed with respect to any Benefit Plan with respect to any funding of $300,000 or more and all communications received by any of the Companies or any ERISA Affiliate with respect to such request; (f) within twenty (20) Business Days upon the occurrence thereof, notification of any increase in the benefits of any existing Plan or the establishment of any new Benefit Plan or the commencement of contributions to any Benefit Plan to which any of the Companies or any ERISA Affiliate was not previously contributing, in either case, which could reasonably be expected to result in an increase in the annual contributions necessary to satisfy the minimum funding requirements of ERISA or the terms of such Benefit Plan to any of the Companies of $300,000 or more; (g) within three (3) Business Days after receipt by any of the Companies or any ERISA Affiliate of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, in either case which could reasonably be expected to result in a liability to the Companies of $300,000 or more, copies of each such notice; 24 (h) within ten (10) Business Days after receipt by any of the Companies or any ERISA Affiliate of any unfavorable determination letter from the Internal Revenue Service regarding the qualification of a Benefit Plan under Section 401(a) of the Code which could reasonably be expected to result in a liability to the Companies of $300,000 or more, copies of each such letter; (i) within ten (10) Business Days after receipt by any of the Companies or any ERISA Affiliate of a notice regarding the imposition of withdrawal liability of $300,000 or more under Section 4203, 4204 or 4205 of ERISA, copies of each such notice; (j) within ten (10) Business Days after any of the Companies or any ERISA Affiliate fails to make a required installment or any other required payment of $300,000 or more under Section 412 of the Code on or before the due date for such installment or payment, a notification of such failure; and (k) within ten (10) Business Days after any of the Companies or any ERISA Affiliate knows (a) a Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan, in any such case, which could reasonably be expected to result in a liability to the Companies of $300,000 or more, a written statement setting forth any such event or information. For purposes of this Section 7.8, each of the Companies and any ERISA Affiliate shall be deemed to know all facts known by the administrator of any Benefit Plan of which such entity is the plan sponsor. The Companies shall establish, maintain and operate all Plans to comply with the applicable provisions of ERISA, Code, and all other applicable laws, other than to the extent that the Companies are in good faith contesting by appropriate proceedings the validity or application of any such provision or law, except to the extent failure to so comply could not reasonably be expected to result in the Companies incurring a liability, individually or in the aggregate equal to or in excess of $500,000. 7.9 Environmental Matters. (a) The Companies will use their best efforts to conduct their businesses so as to comply with all Environmental Laws in all jurisdictions in which any of them is or may at any time be doing business, except to the extent that the Companies are contesting, in good faith by appropriate legal proceedings, any such Environmental Law or interpretation thereof or application thereof and except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect; provided, further, that the -------- ------- Companies shall comply with the order of any court or other governmental body or applicable jurisdiction relating to such Environmental Laws unless the Companies shall currently be prosecuting an appeal or proceedings for review and shall have secured a stay of enforcement or execution or other arrangement postponing enforcement or execution pending such appeal or proceedings for review. If the Companies shall (a) receive notice that any material violation of any 25 Environmental Law may have been committed or is about to be committed by any of the Companies or any such Subsidiary, (b) receive notice that any administrative or judicial complaint or order has been filed or is about to be filed against any of the Companies alleging material violations of any Environmental Law or requiring any of the Companies to take any action in connection with the release of Hazardous Substances into the environment or (c) receive any notice from a federal, state, or local governmental agency or private party alleging that any of the Companies may be liable or responsible for material costs associated with a response to or cleanup of a release of a Hazardous Substance into the environment or any damages caused thereby, the Companies shall provide the Lenders with a copy of such notice within thirty (30) days after the receipt thereof by any of the Companies. The Companies shall promptly take all actions necessary to prevent the imposition of any Liens on any of their properties arising out of or related to any environmental matters. (b) In the event that any investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (the "Remedial Work") with respect to any real property owned, operated or leased by the Companies is required to be performed by the Companies under any applicable local, state or federal law or regulation, any judicial order, or by any governmental or nongovernmental entity or Person because of, or in connection with, the current or future presence, suspected presence, release or suspected release of a Hazardous Substance in or into the air, soil, groundwater, surface water or soil vapor on, about, under or within the property (or any portion thereof), the Companies shall within 30 days after written demand for performance thereof by Lenders (or such shorter period of time as may be required under any applicable law, regulation, order or agreement), commence during and after such 30-day period diligently prosecute to completion, all such Remedial Work unless the requirement to perform such Remedial Work is being contested in good faith by the Companies. 7.10 Collateral Records. The Borrowers agree to promptly execute and deliver to the Lenders, from time to time, solely for the Lenders' convenience in maintaining a record of the Collateral, such written statements and schedules as the Lenders may reasonably require, including without limitation those described in Section 7.1 of this Agreement, designating, identifying or describing the Collateral pledged to the Lenders. If any of the Borrowers fail, however, to promptly give the Lenders such statements or schedules, such failure shall not affect, diminish, modify or otherwise limit the Lenders' security interests in the Collateral. In addition, upon the Lenders' reasonable request, the Borrowers will make available to the Lenders copies of agreements with, or purchase orders from, the customers of the Borrowers, and copies of invoices to customers, proof of shipment or delivery and such other documentation and information relating to said Collateral as the Lenders may reasonably require. Failure to provide the Lenders with any of the foregoing shall in no way affect, diminish, modify or otherwise limit the security interests granted herein. The Borrowers hereby authorizes the Lenders to regard their printed names or rubber stamps signatures on assignment schedules or invoices as the equivalent of a manual signature by such Person's authorized officers or agents. 7.11 Security Interests. 26 The Borrowers will defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein which claims or demands are in excess of $150,000 or otherwise affect a material portion of the Collateral provided, however, that the failure to be successful in such defense shall only be an Event of Default hereunder to the extent set forth in Section 9.1(g) below). The Borrowers agree to comply with the requirements of all state and federal laws in order to grant to the Lenders valid and perfected security interests in the Collateral (other than Collateral located outside the United States), subject only to prior Liens permitted pursuant to Section 8.4 hereof and Permitted Liens prior to Lenders' security interest by operation of law, and except to the extent the Lenders' Lien in cash held by the Borrowers as petty cash or till cash in the ordinary course of their businesses consistent with past practices shall not remain perfected. Without limiting the generality of the foregoing, the Borrowers shall promptly, upon the request of the Lenders, at the Borrowers' expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Ancillary Documents or otherwise deemed by the Lenders necessary or reasonably desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby to the extent required by the immediately preceding sentence. The Lenders are hereby authorized by the Borrowers to file any financing statements covering the Collateral whether or not the Borrowers' signatures appear thereon. The Borrowers agree to do whatever the Lenders may reasonably request, from time to time, by way of: filing notices of liens, financing statements, fixture filings and amendments, renewals and continuations thereof; cooperating with the Lenders' custodians; keeping stock records; using best efforts to obtain waivers from landlords and mortgagees and from warehousemen, fillers, processors and packers and their respective landlords and mortgagees; paying claims, which might if unpaid, become a Lien on the Collateral; and performing such further acts as the Lenders may reasonably require in order to effect the purposes of this Agreement and the other Transaction Documents. Any and all fees, costs and expenses, of whatever kind and nature (including any Taxes, attorneys' fees or costs for insurance of any kind), which Lenders may incur with respect to the Collateral or the Obligations under the Transaction Documents; in filing public notices; in preparing or filing documents; making title examinations or rendering opinions; in protecting, maintaining, or preserving the Collateral or its interest therein; in enforcing or foreclosing the Liens hereunder, whether through judicial procedures or otherwise; or in defending or prosecuting any actions or proceedings arising out of or relating to its transactions with the Borrowers under this Agreement or any other Transaction Document, shall be borne and paid by the Borrowers. If same are not promptly paid by the Borrowers, the Lenders may pay same on the Borrowers' behalf, and the amount thereof shall be an Obligation secured under the Ancillary Documents and due to the Lenders on demand. The Borrowers will cause to be delivered to the Lenders title insurance policies, in a form satisfactory to the Lenders, with respect to the Deeds of Trust delivered hereunder at the Closing or as soon as practicable after the Closing. 7.12 Taxes. The Companies agree to pay, when due, all Taxes lawfully levied or assessed against any of the Borrowers or any of the Collateral; provided, -------- however, that, unless such Taxes have become a federal tax Lien or ERISA Lien on - ------- any of the assets of such Person, no such Tax need 27 be paid if the same is being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted and if an adequate reserve or other appropriate provision shall have been made therefor as reflected on the audited financial statements for the relevant fiscal year in accordance with GAAP, and, to the extent such reserves shall be taken thereafter, consistent with the Companies' past practices. 7.13 Collection of Accounts. Unless an Event of Default has occurred and shall not have been waived, the Companies may and will enforce and collect in accordance with its credit and collection policy, all amounts owing on the Accounts, for the Lenders' benefit and on the Lenders' behalf, but at the Companies' expense in accordance with the provisions of Section 12.1 hereof; such privilege shall terminate automatically, however, upon the occurrence and during the continuance of any Event of Default after notice from the Lenders. No checks, drafts or other instruments received by the Lenders shall constitute final payment unless and until such instruments have actually been collected. 7.14 Change of Control. Upon the occurrence of a Change of Control (such date being the "Change of Control Trigger Date"), each Lender will have the right to require the Borrowers to immediately prepay, in whole or in part, the Term Loans, plus accrued and unpaid interest to the date fixed for such prepayment (including, without limitation, any deferred interest), together with any other fees, costs or expenses accrued or incurred to such date. 7.15 Trademarks. The Companies shall do and cause to be done all things necessary to preserve and keep in full force and effect all registrations of trademarks, service marks and other marks, trade names or other trade rights unless any of the foregoing is no longer in use or is of immaterial value. Promptly after obtaining any federal registration of any trademark, trade name or other trade right or the filing of any application therefor, the Borrowers shall deliver to the Lenders an undated Trademark Security Agreement, executed in blank, with respect to each such registration and application. 7.16 Patents. The Companies shall do and cause to be done all things necessary to preserve and keep in full force and effect all patents and patent applications unless any instrument evidencing any of the foregoing is no longer in use or of immaterial value. Promptly after obtaining any federal registration of any patent or the filing of any application therefor, the Borrowers shall deliver to the Lenders an undated Patent Security Agreement, executed in blank, with respect to each such registration or application. 8. NEGATIVE COVENANTS. 28 In order to induce the Agent and the Lenders to enter into this Agreement and to induce Lender to make the Term Loan as contemplated hereby, the Companies covenant and agree that the Companies shall perform all covenants in this Section 8 and shall cause all its Subsidiaries to perform all covenants in this Section 8. 8.1 Debt and Guarantees. The Companies shall not create, incur, assume or permit to be outstanding and shall not allow any Subsidiary to create, incur, assume or permit to be outstanding, any Debt other than: (a) Debt incurred pursuant to this Agreement; (b) Debt outstanding on the Closing Date and identified on Schedule 8.1; (c) Debt incurred under the 11 1/4% Senior Subordinated Notes; (d) Refinancing of Debt with respect to Debt that was incurred prior to the date hereof and identified on Schedule 8.1; provided, however, that -------- ------- (i) the principal amount of the Debt refinanced (plus the amount of fees, costs, and expenses incurred and the amount of any premium, penalties, breaking costs and other similar amounts required to be paid, in connection with such refinancing pursuant to the terms of the instrument governing the Debt being refinanced) shall (i) not be greater than the amount of the Debt being refinanced, (ii) not extend the maturity date of the Debt being refinanced, (iii) have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Debt being refinanced (iv) rank no more senior than the Debt being refinanced, and (v) contain terms and conditions at least as favorable to the Companies as the terms and conditions of the Debt being refinanced; (e) Old Trade Payables provided that the amount of Old Trade Payables outstanding at any time does not exceed $100,000. (f) The New Intercompany Note permitted by Section 8.12 of this Agreement. Companies will not, and will not permit any Subsidiary to refinance, amend, restructure, reconstitute, replace or otherwise alter any term, covenant, condition or provision of any instrument evidencing any Debt outstanding on the Closing Date (including, without limitation, any Intercompany Note) other than to refinance such Debt as permitted pursuant to Section 8.1(d) above. 8.2 Restricted Payments. The Companies will not, and will not permit any Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on their capital stock or to the holders of their capital stock (other than dividends or distributions payable in their capital stock or dividends or distributions (or series of dividends of distributions) made by a Company to a Borrower) or (ii) redeem, repurchase or otherwise acquire or retire for value, or permit any Subsidiary to, directly or indirectly, redeem, purchase or otherwise acquire or retire for value, any such capital stock (except shares acquired upon the conversion thereof into other shares of 29 capital stock or rights to acquire such capital stock, odd lot shares, and except for the repurchase or acquisition of such capital stock held by directors, officers or employees of any of the Borrowers upon death, disability, retirement or termination of employment not to exceed $100,000 in the aggregate in any fiscal year) or rights to acquire such capital stock, or (iii) directly or indirectly redeem, repurchase, defease or otherwise acquire or retire for value, prior to any scheduled or mandatory maturity, scheduled or mandatory repayment or scheduled sinking fund payment (after giving effect to the exercise of any and all unconditional (other than as to the giving of notice) options to extend the maturity), Debt of the Companies (other than Term Loans pursuant to this Agreement or as set forth in the Section 4.20 (Use of Proceeds) of this Agreement and the schedule related thereto). 8.3 Investments. The Companies will not make or acquire any Investment in any Person and will not permit any Subsidiary to make or acquire any Investment in any Person other than: (a) Investments by one Borrower in another Borrower; (b) Permitted Investments; (c) Investments consisting of purchase money notes received in connection with the sale or disposition of any asset, provided that such sale or disposition was made in accordance with the terms of this Agreement; and (d) Investments in Foreign Subsidiaries which Investments are either existing on the Closing Date and disclosed on Schedule 8.3 or permitted pursuant to Section 8.12 hereof and evidenced by the New Intercompany Note (which New Intercompany Note shall be pledged to the Lenders under the Transaction Documents). 8.4 Negative Pledge. The Borrowers will not and will not permit any Subsidiary to create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it and will not permit any Subsidiary to create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the Closing Date and listed in Schedule 4.15 hereto securing Debt outstanding on the Closing Date; (b) any Lien arising pursuant to any order of attachment, distain or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP have been set aside; (c) Liens created by and existing under the Ancillary Documents; (d) any Permitted Liens; and 30 (e) any extension, renewal or substitution of or for any of the foregoing Liens described in clauses (a) and (d) above or this clause (e); provided in each case that (i) the Debt or other obligation or liability secured by the applicable Lien shall not exceed the Debt or other obligation or liability existing immediately prior to such extension, renewal, or substitution and (ii) the Lien securing such Debt or other obligation or liability shall be limited to the property which, immediately prior to such extension, renewal or substitution, secured such Debt or other obligation or liability, and improvements on or additions to such property. 8.5 Consolidations, Mergers and Sales of Assets. (a) The Companies may not and will not permit any Subsidiary to complete (or agree to complete) an Asset Disposition unless (i) prior to such Asset Disposition, Borrowers have received the written consent of the Agent and (ii) Borrowers apply the Net Cash Proceeds from such Asset Disposition in accordance with Section 6.2 of this Agreement. (b) The Companies shall continue to maintain the operating integrity of their businesses and shall continue to operate only in the same general types of businesses as now conducted thereby and reasonable extensions thereof, and shall continue to preserve, renew and keep in full force and effect, their corporate existences and all material rights, privileges and franchises necessary or desirable in the normal conduct of their businesses. (c) The Companies will not and will not permit any Subsidiary to merge with or into any other Person. 8.6 Capital Expenditures. Consolidated Capital Expenditures shall not, for each of the periods ending on the dates set forth below, exceed: Prior to Aeromet Sale Period Ended Capital Expenditure ------------ ------------------- 3 months ended 8/31/01 $1,100,000 6 months ended 11/30/01 2,200,000 9 months ended 2/28/02 3,300,000 12 months ended 5/31/02 4,400,000 12 months ended 8/31/02 4,800,000 12 months ended 11/30/02 5,200,000 12 months ended 2/28/03 5,200,000 After the Aeromet Sale Period Ended Capital Expenditure ------------ ------------------- 3 months ended 8/31/01 $ 600,000 6 months ended 11/30/01 1,100,000 9 months ended 2/28/02 1,700,000 12 months ended 5/31/02 2,200,000 12 months ended 8/31/02 2,600,000 31 12 months ended 11/30/02 3,000,000 12 months ended 2/28/03 3,000,000 ; provided, however, that to the extent the actual Consolidated Capital -------- ------- Expenditures in any period are less than the maximum permitted amount of Consolidated Capital Expenditures set forth above for such period (such difference shall hereinafter be referred to as the "Unused Capital Expenditures"), the Companies may make additional Consolidated Capital Expenditures in the immediately succeeding period (the "Immediately Succeeding Period") equal to the lesser of: (i) the Unused Capital Expenditures and (ii) 50% of the maximum permitted amount of Consolidated Capital Expenditures for the period during which the excess occurred (such lesser amount referred to herein as the "Additionally Permitted Expenditure"), provided that the Additionally Permitted Expenditure may be made only if the Companies have made Consolidated Capital Expenditures in the Immediately Succeeding Period equal to the maximum amount of Consolidated Capital Expenditures permitted in such Immediately Succeeding Period. In addition, five (5) days prior to the consummation of the Aeromet Sale, the Companies shall certify to the Lenders that the Companies (other than Aeromet) would have satisfied the Consolidated Capital Expenditures test set forth in the "After Aeromet Sale" column, for the immediately preceding period or if such sale occurs on or prior to August 31, 2001, shall satisfy the Consolidated Capital Expenditures test for the 3 months ended 8/31/01. 8.7 Minimum EBITDA. The Companies shall not permit EBITDA for each of the periods ending on the dates set forth below to be less than the amount set forth for such period: Prior to Aeromet Sale Period Ended Minimum EBITDA ------------ -------------- 3 months ended 8/31/01 $ 1,900,000 6 months ended 11/30/01 4,300,000 9 months ended 2/28/02 7,100,000 12 months ended 5/31/02 10,200,000 12 months ended 8/31/02 10,400,000 12 months ended 11/30/02 10,500,000 12 months ended 2/28/03 10,600,000 After Aeromet Sale Period Ended Minimum EBITDA ------------ -------------- Any month ended on or prior to 5/31/01 $ 0 2 months ended 6/30/01 250,000 3 months ended 7/31/01 500,000 3 months ended 8/31/01 800,000 6 months ended 11/30/01 2,200,000 9 months ended 2/28/02 3,900,000 12 months ended 5/31/02 5,900,000 12 months ended 8/31/02 6,000,000 32 12 months ended 2/28/03 6,000,000 In addition, five (5) days prior to the consummation of the Aeromet Sale, the Companies shall certify to the Lenders that the Companies (other than Aeromet) would have satisfied the Minimum EBITDA Covenant set forth in the "After Aeromet Sale" column, for the immediately preceding period. 8.8 EBITDA/Covenant Interest. The Companies shall not permit the ratio of EBITDA to Covenant Interest for each of the periods ending on the dates set forth below to be less then the following: Prior to Aeromet Sale Period Ended EBITDA/Covenant Interest ------------ ------------------------ 3 months ended 8/31/01 2.4:1 6 months ended 11/30/01 2.7:1 9 months ended 2/28/02 3.0:1 12 months ended 5/31/02 3.2:1 12 months ended 8/31/02 3.2:1 12 months ended 11/30/02 3.3:1 12 months ended 2/28/03 3.3:1 After the Aeromet Sale Period Ended EBITDA/Covenant Interest ------------ ------------------------ 3 months ended 8/31/01 1.0:1 6 months ended 11/30/01 1.4:1 9 months ended 2/28/02 1.6:1 12 months ended 5/31/02 1.9:1 12 months ended 8/31/02 1.9:1 12 months ended 11/30/02 1.9:1 12 months ended 2/28/03 1.9:1 In addition, five (5) days prior to the consummation of the Aeromet Sale, the Companies shall certify to the Lenders that the Companies (other than Aeromet) would have satisfied the EBITDA/Covenant Interest ratio set forth in the "After Aeromet Sale" column, for the immediately preceding period or if the Aeromet Sale occurs on or prior to August 31, 2001, shall satisfy the EBITDA/Covenant Interest ratio for the 3 months ended August 31, 2001. 8.9 Covenant Debt/EBITDA. The Borrowers shall not permit the ratio of Covenant Debt to EBITDA to be less then the following: 33
Prior to Aeromet Sale Period Ended Ratio ------------ ----- 3 months ended 8/31/01 11.1:1 6 months ended 11/30/01 4.9:1 9 months ended 2/28/02 3.0:1 12 months ended 5/31/02 2.1:1 12 months ended 8/31/02 2.0:1 12 months ended 11/30/02 2.0:1 12 months ended 2/28/03 2.0:1 After Aeromet Sale Period Ended Ratio ------------ ----- 3 months ended 8/31/01 16.3:1 6 months ended 11/30/01 6.2:1 9 months ended 2/28/02 3.5:1 12 months ended 5/31/02 2.3:1 12 months ended 8/31/02 2.3:1 12 months ended 11/30/02 2.3:1 12 months ended 2/28/03 2.3:1
In addition, five (5) days prior to the consummation of the Aeromet Sale, the Companies shall certify to the Lenders that the Companies (other than Aeromet) would have satisfied the Covenant Debt/EBITDA ratio set forth in the "After Aeromet Sale" column, for the immediately preceding period or if the Aeromet Sale occurs on or prior to August 31, 2001, shall satisfy the Covenant Debt/EBITDA ratio for the 3 months ended August 31, 2001. 8.10 Minimum Accounts Receivable and Inventory The Companies shall not permit their Consolidated Working Assets to be less than $36,700,000 at any time prior to the Aeromet Sale and after the Aeromet Sale shall not permit Consolidated Working Assets to be less than $20,000,000 at any time. 8.11 Transactions with Affiliates. Other than the payments permitted pursuant to Section 8.12 and transactions between or among Borrowers the Companies will not directly or indirectly, and will not permit any Subsidiary, directly or indirectly to, pay any funds to or for the account of, make any Investment (whether by acquisition of stock or indebtedness, by contributions of capital, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any other transaction with, or render to or receive any service from, any Affiliate other than as set forth on Schedule 4.23 hereof. The foregoing restrictions shall not apply to reasonable fees paid to and indemnity provided on behalf of the Directors and officers of the Borrowers in the ordinary course of business and consistent with past practices. 34 8.12 Restrictions on Foreign Subsidiary Support. The Borrowers will not permit to exist any open account sales, transfers by the Borrowers of goods of any kind, loans, capital contributions or any other financial support, and will not permit any of their United States Subsidiaries to do any of the foregoing, to any Foreign Subsidiary other than a one-time payment of up to $2,300,000 to Aeromet International PLC, to be made within 90 days of the Closing Date and evidenced by the New Intercompany Note which shall be pledged to the Lenders. 8.13 Environmental Matters. Except in the ordinary course and in material compliance with applicable law, the Companies will not use, generate, manufacture, produce, store, release, discharge or dispose of, on, under or about any real property owned, operated or leased by the Companies or transport to or from any such property, any Hazardous Substance, or (to the extent within the Companies' control) permit any other person to do so, where such could reasonably be expected to have a Material Adverse Effect. 8.14 Amendments to Certificates of Incorporation and By-Laws. The Companies shall not alter or modify their respective Articles or Certificate of Incorporation or By-Laws or other organizational documents in any manner which could reasonably be expected to have a Material Adverse Effect. The Companies shall not change any of their corporate names, mailing addresses, principal places of business or structures, unless they shall have complied with the requirements of Section 7.5 hereof. 8.15 No Prohibited Transactions Under ERISA. The Companies shall not do any of the following if such action could reasonably be expected to result in the Companies incurring a liability, individually or in the aggregate equal to or in excess of $300,000: (a) Engage, or permit any ERISA Affiliate to engage, in any prohibited transaction which could result in a civil penalty or excise tax described in Sections 502(i) of ERISA or 4975 of the Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL; (b) permit to exist with respect to any Benefit Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Code), whether or not waived; (c) fail, or permit any ERISA Affiliate to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (d) terminate, or permit any ERISA Affiliate to terminate, any Benefit Plan; 35 (e) fail, or permit any ERISA Affiliate to fail, to make any required contribution or payment to any Multiemployer Plan; (f) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Code on or before the due date for such installment or other payment; (g) amend, or permit any ERISA Affiliate to amend, a Benefit Plan resulting in an increase in current liability for the plan year such that any Borrowers or any ERISA Affiliate is required to provide security to such Benefit Plan under Section 401(a)(29) of the Code; or (h) withdraw, or permit any ERISA Affiliate to withdraw, from any Multiemployer Plan. 8.16 No Additional Bank Accounts. The Borrowers will not directly or indirectly, open, maintain or otherwise have any checking, savings or other accounts at any bank or other financial institution, or any other account where money is or may be deposited or maintained with any Person, other than the accounts set forth on Schedule 8.16, except to the extent the Borrowers shall give Lenders prior written notice thereof and such account is subject to a Blocked Account Agreement. 8.17 No Additional Subsidiaries. The Companies will not, directly or indirectly, form or acquire any new Subsidiaries or purchase or otherwise acquire all or substantially all of the assets of any Person. 9. EVENTS OF DEFAULT. 9.1 Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" hereunder: (a) failure of the Borrowers to pay any principal when due, whether at stated maturity, by acceleration or otherwise; (b) failure of the Borrowers to pay any interest, fees or expenses or other Obligations when due, whether at stated maturity, by acceleration or otherwise and such failure shall continue for a period of five (5) days; (c) (i) failure of the Companies to perform, comply with or observe any term, covenant or agreement applicable to it contained in Sections 4.20, 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12 and 8.16; 36 (ii) failure of the Companies to perform, comply with or observe any term, covenant or agreement applicable to it in Section 7.1(f) or (g) and the failure shall continue unremedied until two (2) Business Days after a senior officer of any of the Companies knowledgeable of the requirements of this Agreement (including, without limitation, the chief financial officer or controller or chief accounting officer of Pacific Aerospace) knows of such failure; (iii) failure of the Companies to perform, comply with or observe any term, covenant or agreement applicable to it in Sections 7 or 8 hereof (other than a provision covered by subparagraphs (i) or (ii) above) and the failure shall continue unremedied for five (5) Business Days after the delivery by the Agent of notice to Pacific Aerospace of such failure; (d) breach by the Companies of any representation or warranty contained in this Agreement (other than under a provision covered by subsection (a) or (b) above), the other Transaction Documents or any other agreement, document, instrument or certificate among the Companies and the Lenders or executed by the Companies in favor of Lenders, which breach or failure shall continue unremedied more than ten (10) Business Days after the Agent' delivery of notice to Pacific Aerospace of such breach (such grace period to apply only to the extent such breach or failure is curable within such ten (10) Business Day period); (e) (i) the Companies shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or any of the Companies shall make a general assignment for the benefit of creditors; or (ii) there shall be commenced against any of the Companies any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for 60 days after the entry thereof; or (iii) there shall be commenced against the Companies or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distain or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal for 60 days; (f) a default shall have occurred under any Transaction Document; (g) the Companies shall (i) default in any payment of principal of or interest on any Debt or in the payment of any Guarantee the aggregate principal amount of the series of Debt under which such Debt is issued and the aggregate principal amount of the obligation guaranteed by such Guarantee equals or exceeds $200,000; or (ii) default in the observance or performance of any other agreement or condition relating to any such Debt or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other 37 event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Debt or beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Debt to become due prior to its stated maturity or such Guarantee to become due prior to its stated maturity or such Guarantee to become payable; (h) (i) any material covenant, agreement or obligation of any party contained in or evidenced by any of the Transaction Documents shall cease to be enforceable in accordance with its terms, or any of the Companies (other than Lenders) shall deny or disaffirm its obligations under any of the Transaction Documents, or Transaction Document shall be cancelled, terminated, revoked or rescinded without the express prior written consent of Lenders, (ii) any of the Transaction Documents shall cease for any reason to be in full force and effect (other than in accordance with the terms hereof or thereof) or any action or proceeding shall have been commenced by any Person (other than other than Lenders) seeking to cancel, revoke, rescind or disaffirm the obligations of any party to any Transaction Document, (iii) any court or other governmental authority shall issue a final judgment, order, decree or ruling for the payment of money (a "Judgment") and such Judgment is in an amount (determined after an allowance for the application of any insurance proceeds to such Judgment) in excess of $200,000 and enforcement proceedings shall have been commenced upon any such Judgment or any such Judgment shall remain unpaid after a period of ten (10) consecutive days during which a stay of such enforcement of any such Judgment, including, without limitation, by reason of a pending appeal or otherwise, shall not be in effect, or (iv) any security interest or lien purported to be created by the Ancillary Documents shall cease to be valid and (to the extent required by the Ancillary Documents) perfected or the Borrowers shall so have asserted, except that the failure of any security interest or lien purported to be created by the Ancillary Documents to be valid and perfected shall not in itself constitute a default hereunder if the value of the Collateral purported to be covered thereby is, in the aggregate, not in excess of $200,000; (i) Pacific Aerospace shall have failed to file with the SEC the registration statement relating to the Underlying Common Stock within 30 days of the Closing Date, or such registration statement shall have failed to have been declared effective by the SEC, in either case, on or prior to the 150/th/ day after the Closing Date; and (j) the holders of all or any part of the Subordinated Debt shall accelerate the maturity of all or any part of the Subordinated Debt or the Subordinated Debt shall be prepaid, redeemed or repurchased in whole or part. 9.2 Acceleration. Upon the occurrence of an Event of Default which has not been waived by the Lenders, by delivery of written notice to the Borrowers, the Agent, may, take any or all of the following actions, without prejudice to the rights of the Lenders to enforce their claims against the Borrowers: declare all or any part of the Obligations hereunder to be immediately due and payable (except with respect to any Event of Default set forth in Section 9.1(d) hereof, in which case all such Obligations shall automatically become immediately due and payable without the 38 necessity of any notice or other demand) without presentment, demand, protest or any other action or obligation of Majority Lenders or the Agent. If at any time after acceleration of the Obligations hereunder, the Borrowers shall pay all arrears of interest and all payments on account of principal of such Term Loan Notes which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Defaults (other than nonpayment of principal of and accrued interest on such Term Loan Notes and other Obligations hereunder due and payable solely by virtue of acceleration) shall be remedied or waived, then by written notice to the Borrowers, the Agent may elect, in its sole discretion, to rescind and annul the acceleration and its consequences; but such action shall not affect any subsequent Default or Event of Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are not intended to benefit the Borrowers and do not give the Borrowers the right to require the Majority Lenders or the Agent to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. 9.3 Remedies on Default. Immediately upon the occurrence of any Event of Default which has not been waived by the Majority Lenders, the Agent or any agent designated by the Agent may: (a) remove from any premises where same may be located any and all documents, instruments, files and records (including the copying of any computer records), and any receptacles or cabinets containing same, relating to the Accounts, or the Agent may use (at the expense of the Borrowers) such of the supplies or space of the Borrowers at the Borrowers' place of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (b) bring suit, in the name of the Borrowers or the Lenders and generally shall have all other rights respecting said Accounts, including without limitation the right to: accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the Borrowers or Lenders; (c) sell, assign and deliver the Accounts and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at the Agent's sole option and discretion, and Agent may, on behalf of the Lenders bid at any such sale, free from any right of redemption, which right is hereby expressly waived by the Borrowers; (d) foreclose the security interests created pursuant to the Transaction Documents by any available judicial procedure, or to take possession of any or all of the Inventory and equipment without judicial process and enter any premises where any Inventory and equipment may be located for the purpose of taking possession of or removing the same; (e) revise, update, amend and otherwise complete the Trademark Security Agreement as the Agent may determine to be necessary or desirable to, and file, record and register any or all of the Trademark Security Agreement and Patent Security Agreement with the 39 United States Patent and Trademark Office in order to assign and transfer the trademarks and patents covered thereby to any Person, including, without limitation, the Lenders; and (f) direct the Borrowers not to make any payment to the holders of the Subordinated Notes, whether such payment is in respect of principal, premium or interest that would otherwise be due and payable to the holders of the Subordinated Notes. The Agent shall have the right, without notice of advertisement, to sell, lease, or otherwise dispose of all or any part of the Inventory and equipment, whether in its then condition or after further preparation or processing, in the name of the Borrowers or Lenders, or in the name of such other party as the Lenders may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as the Agent in its sole discretion may deem advisable, and Agent or any Lender shall have the right to purchase at any such sale. If any Inventory and equipment shall require rebuilding, repairing, maintenance or preparation, the Agent shall have the right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting the Inventory and equipment in such saleable form as Agent shall deem appropriate. The Borrowers agree, at the request of the Agent, to assemble the Inventory and equipment and to make it available to the Agent at places which the Agent shall select, whether at the premises of the Borrowers or elsewhere, and to make available to the Agent the premises and facilities of any of the Borrowers for the purpose of the Agent taking possession of, removing or putting the Inventory and equipment in saleable form. However, if notice of intended disposition of any Collateral is required by law, it is agreed that five (5) days notice shall constitute reasonable notification and full compliance with the law. The Agent shall be entitled to use all Proprietary Rights and computer software programs and databases used by the Borrowers in connection with their respective businesses or in connection with the Collateral. The net cash proceeds resulting from the Agent's exercise of any of the foregoing rights (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied ratably to the payment of the Lender Obligations, whether due or to become due, in such order as the Agent may elect. The Borrowers shall remain liable to Lenders for any deficiencies, and Lenders in turn agree to remit to the Borrowers or its successors or assigns, any surplus resulting therefrom to the extent any such surplus is paid to the Lenders and they have the legal right to retain it. The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. 10. SUCCESSORS AND ASSIGNS. 10.1 General. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors (which shall include in the case of the Agent or any Lender any entity resulting from a merger or consolidation) and assigns, except that (a) the Companies may 40 not assign their rights or obligations under this Agreement, and (b) each Lender may assign its rights in this Agreement only as set forth below in this Article 10. 10.2 Assignments. In compliance with applicable laws with respect to such assignment, a Lender may assign to one or more Persons (each a "Successor Lender") a proportionate part of its rights and obligations in connection with this Agreement and its Term Loan Note and the related Transaction Documents and each such Successor Lender shall assume such rights and obligations pursuant to an Assignment and Acceptance Agreement ("Assignment and Acceptance Agreement") duly executed by such Successor Lender and such assigning Lender substantially in the form of Exhibit J attached hereto. In addition, any Lender may at any time grant --------- or offer to grant to one or more Person ("Credit Participants") participating interests in such Lender's rights and obligations in this Agreement, its Term Loan Note and the related Transaction Documents. In the case of a participation, Borrowers shall be entitled to only deal with the Lenders. 10.3 Assignment Procedures In the event of an assignment in accordance with Section 10.2 such Successor Lender shall become party to this Agreement as a signatory hereto and shall have all the rights and obligations of a Lender under this Agreement and the other Transaction Documents with an interest therein as set forth in such assignment, and such assignor making such assignment shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any such assignment, the assigning Lender, the Successor Lender and the Borrowers shall make appropriate arrangements so that, if required, a new Term Loan Note is issued to the Successor Lender and a replacement Term Loan Note is issued to the assigning Lender in principal amounts reflecting their respective revised interests. 10.4 Register. The Agent shall maintain a register (the "Register") for the recordation of (i) the names and addresses of all Successor Lenders that enter into Assignment and Acceptance Agreements, (ii) the interests of each Lender, and (iii) the amounts of the Term Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrowers, the Agent and the Lenders may treat each Person whose name is registered therein for all purposes as a party to this Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. 10.5 Further Assurances. The Companies shall sign such documents and take such other actions from time to time reasonably requested by the Agent or a Lender to enable any Successor Lender to share in the benefits and rights created by the Lender Agreements. 41 11. THE AGENT. 11.1 Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Transaction Documents (including, without limitation, enforcement or collection of the Term Loan Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; provided, however, that the Agent shall not be -------- ------- required to take any action which exposes the Agent to liability or which is contrary to this Agreement or the other Transaction Documents or applicable law. Subject to the foregoing provisions and to the other provisions of this Article 11, the Agent shall, on behalf of the Lenders: (a) execute any documents on behalf of the Lenders providing collateral for or guarantees of the Lender Obligations; (b) hold (or designate a custodian to hold) and apply any collateral for the Lender Obligations, and the proceeds thereof, at any time received by it, in accordance with the provisions of this Agreement and the other Transaction Documents; (c) exercise any and all rights, powers and remedies of the Lenders under this Agreement or any of the other Transaction Documents, including the giving of any consent or waiver or the entering into of any amendment, subject to the provisions of Section 14.1; (d) at the direction of the Lenders, execute, deliver and file UCC financing statements, mortgages, deeds of trust, lease assignments and such other agreements in respect of any collateral for the Lender Obligations, and possess instruments included in the collateral on behalf of the Lenders; and (e) in the event of acceleration of the Borrowers' Indebtedness hereunder, act at the direction of the Majority Lenders to exercise the rights of the Lenders hereunder and under the other Transaction Documents. 11.2 Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents, partners, advisers or employees shall be liable to the Lenders for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (a) may treat the payee of any Term Loan Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form required under Article 10 hereof; (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representations to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or the other Lender Agreements; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Lender Agreements on the part of the Borrowers or any other Person or to inspect the property (including the books and records) of the Borrowers or any other Person; 42 (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto; (f) shall incur no liability for its failure to perfect or adequately protect the collateral granted to the Lenders pursuant to this Agreement and the other Transaction Documents and (g) shall incur no liability under or in respect of this Agreement or the other Transaction Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy or telegram) believed by the Agent to be genuine and signed or sent by the proper party or parties. 11.3 Agent as a Lender. With respect to its interest in the Term Loans hereunder, if any, DDJ Capital Management, LLC shall have the same rights and powers under this Agreement and the other Transaction Documents as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lender(s)" shall, unless otherwise expressly indicated, include DDJ Capital Management, LLC in its individual capacity. DDJ Capital Management, LLC and its affiliates may lend money to, and generally engage in any kind of business with, the Borrowers, any of the Borrowers' Affiliates and any Person who may do business with or own securities of the Borrower or any such Affiliate of the Borrowers, all as if DDJ Capital Management, LLC were not the Agent and without any duty to account therefor to the Lenders. 11.4 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.4 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. 11.5 Indemnification of Agent. Each Lender agrees to indemnify the Agent and its directors, officers, employees and agents (to the extent that the Agent is not reimbursed by the Borrowers), ratably according to each Lender's Commitment Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent or its directors, officers, partners, members, advisers, employees or agents in any way relating to or arising out of this Agreement or any other Transaction Document or any action taken or omitted by the Agent in such capacity under this Agreement; provided that no Lender shall be liable for any -------- portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal 43 proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Transaction Document, to the extent that the Agent is not reimbursed for such expenses by the Borrowers. 11.6 Successor Agent. Except as provided below, the Agent may resign at any time by giving written notice thereof to the Lenders and the Borrowers. Upon any such resignation, the Lenders shall have the right to appoint a successor Agent which shall be reasonably acceptable to the Borrowers. If no successor Agent shall have been so appointed by the Lenders (other than the resigning Agent), and shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Lender Agreements. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Lender Agreements. 11.7 Amendment of Article 11. The Borrowers hereby agree that the foregoing provisions of this Article 11 constitute an agreement among the Agent and the Lenders (and the Agent and the Lenders acknowledge that except for the provisions of Section 11.6, the Borrowers are not a party to or bound by such foregoing provisions) and that any and all of the provisions of this Article 11 may be amended at any time by the Lenders without the consent or approval of, or notice to, the Borrowers (other than the requirement of notice to the Borrower of the resignation of the Agent and the appointment of a successor Agent). 12. EXPENSES AND INDEMNIFICATION. 12.1 Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Borrowers will pay all reasonable costs and expenses of Goodwin Procter LLP, special counsel to the Lenders, in connection with the preparation, execution and delivery of the Transaction Documents and the perfection of the Liens under the Ancillary Documents and all costs and expenses (including reasonable attorney's fees of a special counsel and, if reasonably required, local or other counsel) incurred by the Lenders or the Agent in connection with the administration of the Transaction Documents and the Ancillary Documents, including (a) the costs and expenses of any amendments, waivers or consents under or in respect of this Agreement or the other Transaction Documents (whether or not such amendment, waiver or consent becomes effective), (b) the reasonable costs and expenses incurred in enforcing, exercising any remedies against any Collateral or defending (or determining whether or how to enforce or defend) any rights under this Agreement, or any of the other Transaction Documents or in responding to any subpoena or other legal process or informal investigative demand issued 44 in connection with this Agreement, or any of the other Transaction Documents, and (c) the reasonable costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Borrowers or in connection with any work-out, renegotiation or restructuring of the transactions contemplated hereby, and by the other Transaction Documents. The Borrowers will pay, and will save Lenders harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by Lenders). 12.2 Indemnification. (a) In the event that the Agent or any Lender becomes involved in any capacity in any action, proceeding or investigation in connection with any matter contemplated by this Agreement or any other Transaction Document, the Borrowers will reimburse Lenders and the Agent for legal and other expenses (including the cost of any investigation and preparation) as they are incurred by Lenders and the Agent whether or not such investigation, litigation, or proceeding is brought by the Borrowers, its directors, shareholders or creditors or an Indemnified Party (as defined below), or an Indemnified Party is otherwise a party thereto. The Borrowers also agree to indemnify and hold harmless each Lender and their respective affiliates and their respective directors, officers, members, partners, advisers, members, employees and agents of such parties (the "Indemnified Parties") from and against any and all losses, claims, damages and liabilities, joint or several, related to or arising out of any matters contemplated by this Agreement, unless and only to the extent that it shall be finally judicially determined by a court of competent jurisdiction that such losses, claims, damages or liabilities resulted primarily from Lenders' gross negligence or willful misconduct and, in the event Lenders are found in any action, proceeding or investigation to have acted with gross negligence or willful misconduct, the Indemnified Parties shall repay to the Borrowers any portion of the amounts paid by the Borrowers pursuant to this paragraph that is attributable to such action which is the subject of such finding. The Indemnified Parties will promptly notify the Borrowers upon receipt of written notice of any claim or threat to institute a claim; provided that any failure by the Indemnified Parties to give such notice shall not relieve the Borrowers from the obligation to indemnify, the Indemnified Parties. (b) If any action, claim, investigation or other proceeding is instituted or threatened against any Indemnified Parties in respect of which indemnity may be sought hereunder, the Borrowers shall be entitled to assume the defense thereof with counsel selected by the Borrowers (which counsel shall be reasonably satisfactory to such Indemnified Parties) and after notice from the Borrowers to such Indemnified Parties of its election so to assume the defense thereof, the Borrowers will not be liable to such Indemnified Parties hereunder for any legal or other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof other than reasonable costs of investigation; provided that (i) if counsel for such Indemnified Parties determines in good faith that there is a conflict which requires separate representation for the Borrowers and such Indemnified Parties, or (ii) the Borrowers fail to assume or proceed in a timely and reasonable manner with the defense of such action or fails to employ counsel reasonably satisfactory to such Indemnified Parties in any such action, then in either such event such Indemnified Parties shall be entitled to select one primary counsel and, if necessary, one local counsel, of their own choice to represent such Indemnified Parties and the Borrowers shall not, or no longer, be entitled to assume the defense thereof on behalf of such 45 Indemnified Parties and such Indemnified Parties shall be entitled to indemnification for the reasonable expenses (including reasonable fees and expenses of such counsel) to the extent provided in the preceding paragraph. Such counsel shall, to the fullest extent consistent with its professional responsibilities, cooperate with the Borrowers and any counsel designated by the Borrowers. Nothing contained herein shall preclude parties, at their own expense, from retaining additional counsel to represent such Indemnified Parties in any action with respect to which indemnity may be sought from the Borrowers hereunder. The Borrowers shall not be liable under this agreement for any settlement made by any Indemnified Parties without the Borrowers' prior written consent, which consent shall not be unreasonably withheld, and the Borrowers agree to indemnify and hold harmless any Indemnified Parties from and against any loss or liability by reason of the settlement of any claim or action with the consent of the Borrowers. The Borrowers shall not settle any such claim or action without the prior written consent of the Indemnified Parties unless such settlement provides for a full release of claims against the Indemnified Parties. (c) If the indemnification provided for herein is unavailable to an Indemnified Party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then the Borrowers, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Borrowers on the one hand and Lenders on the other from this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Borrowers on the one hand and Lenders on the other in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. (d) Notwithstanding any of the other provisions of this Section 12, the Borrowers shall not be required to indemnify any of the Indemnified Parties with respect to any losses, claims, damages and/or liabilities, joint or several, arising out of a breach by the Lenders (or by any Affiliate acting as a substitute pursuant to Section 9 herein) of the representations and warranties set forth in Section 5 herein. 12.3 Survival. The obligations of the Borrowers under this Section 12 will survive the payment or transfer of any Term Loan, the enforcement, amendment or waiver of any provision of this Agreement, or any other Transaction Document, and the termination of this Agreement. 13. ENTIRE AGREEMENT. All statements contained in any certificate or other instrument delivered by or on behalf of the Companies pursuant to this Agreement shall be deemed representations and warranties of the Companies under this Agreement. Subject to the preceding sentence, this Agreement, and the other Transaction Documents embody the entire agreement and understanding between the Lenders and the Companies and supersede all prior agreements and understandings relating to the subject matter hereof. 46 14. AMENDMENT AND WAIVER. 14.1 Actions by Lenders. Except as otherwise expressly set forth in any particular provision of this Agreement, any consent or approval required or permitted by this Agreement to be given by the Lenders, including without limitation under Section 14.2, may be given, and any term of this Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrowers of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrowers and the Majority Lenders; provided, however, that without the written consent of all Lenders: (a) no reduction in the interest rates on or any fees relating to the Term Loans shall be made; (b) no extension or postponement shall be made of the stated time of payment of the principal amount of, interest on, or fees payable to the Lenders relating to the Term Loans; (c) no extension of the Term Loan Maturity Date shall be made; (d) no release of all or substantially all of the collateral security for, or any guarantor of, the Lender Obligations shall be made; (e) no change in the definition of the term "Majority Lenders" shall be made; and (f) no change in the provisions of this Section 14.1 shall be made. 14.2 Actions by Companies. No delay or omission on the Agent's or the Lenders' part in exercising their rights and remedies against the Companies or any other interested party shall constitute a waiver. A breach by the Companies of their obligations under this Agreement may be waived only by a written waiver executed by the Agent and the Lenders in accordance with Section 14.1. The Agent's and the Lenders' waiver of the Companies' breach in one or more instances shall not constitute or otherwise be an implicit waiver of subsequent breaches. To the extent permitted by applicable law, the Companies hereby agree to waive, and do hereby absolutely and irrevocably waive (a) all presentments, demands for performance, notices of protest and notices of dishonor in connection with any of the Indebtedness evidenced by the Term Notes, (b) any requirement of diligence or promptness on the Agent's or the Lenders' part in the enforcement of its rights under the provisions of this Agreement or any Transaction Document, and (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law with respect to its liability (i) under this Agreement or in respect of the Indebtedness evidenced by the Term Notes or any other Lender Obligation or (ii) under any other Transaction Document. No course of dealing between the Companies and the Agent or the Lenders shall operate as a waiver of any of the Agent's or the Lenders' rights under this Agreement or any Transaction Document 47 or with respect to any of the Lender Obligations. This Agreement shall be amended only by a written instrument executed by the Agent and the Lenders in accordance with Section 14.1 making explicit reference to this Agreement. The Agent's and the Lenders' rights and remedies under this Agreement and under all subsequent agreements between the Agent, the Lenders and the Companies shall be cumulative and any rights and remedies expressly set forth herein shall be in addition to, and not in limitation of, any other rights and remedies which may be applicable to the Agent and the Lenders in law or at equity. 15. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by facsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to Agent, at 141 Linden Street, Wellesley, MA, 02482, Telecopier No. (781) 283-8555, Attention: Robert Hockett, Jackson Craig and Wendy Schnipper Clayton, Esq., with a copy to Goodwin Procter LLP, Exchange Place, Boston, MA 02109, Telecopier No. (617) 523-1231, Attention Laura Hodges Taylor, P.C., or at such other address(es) or to the attention of such other Person(s) as the Agent shall from time to time designate in writing to the Borrowers and the Lenders, (ii) if to any Lender, at the address set forth on Schedule I hereto (or in the case of a Successor Lender, at the address specified in the Assignment and Acceptance Agreement executed by such Success Lender) or at such address(es) as such Lender shall have specified to the Agent and Borrowers in writing, or (iii) if to the Borrowers, to the Borrowers c/o Pacific Aerospace & Electronics, Inc., at its address at 430 Olds Station Road, Wenatchee, WA 98801, Attention: President, Facsimile No. (509) 667-9696, or at such other address as the Borrowers shall have specified to the Agent in writing with a copy to: Sheryl A. Symonds, Pacific Aerospace & Electronics, Inc., 110 Main Street, Suite 100, Edmonds, WA 98020, Facsimile No. (425) 774-0103. All notices and other communications provided for under this Section 14 will be deemed given and effective only when actually received. 16. REPRODUCTION OF DOCUMENTS. This Agreement, each of the other Transaction Documents and all documents relating thereto, including, without limitation, (a) amendments, waivers and consents of this Agreement that may hereafter be executed, (b) documents received by Lenders at the Closing (except the Term Loan Notes themselves) and (c) financial statements, certificates and other information previously or hereafter furnished to Lenders, may be reproduced by Lenders by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and Lenders may destroy any original document so reproduced. The Companies agree and stipulate that, to the extent permitted by applicable law, any such reproduction shall be 48 admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by Lenders in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 16 shall not prohibit the Companies, the Agent or any Lender from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 17. CONFIDENTIAL INFORMATION. For the purposes of this Section 17, "Confidential Information" means materials, documents and other information delivered to Lenders by or on behalf of the Companies in connection with the transactions contemplated by or otherwise pursuant to this Agreement, whether before or after the Closing, that is proprietary in nature and that was, prior to the Closing clearly marked or orally represented, and, after the Closing, is clearly marked or labeled or otherwise adequately identified when received by Lenders as being confidential information of the Companies, provided that such term does not include information that (a) was publicly known or otherwise known to Lenders prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by Lenders or any person acting on Lenders' behalf in violation of this Section 17, (c) otherwise becomes known to Lenders other than through disclosure by the Companies or (d) constitutes financial statements delivered to Lenders under Section 4.4 that are otherwise publicly available. Lenders will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by Lenders in good faith to protect confidential information of third parties delivered to Lenders, provided that Lenders may deliver or disclose Confidential Information to (i) Lenders' directors, officers, members, partners, advisors, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by Lenders' Notes) who agree to keep such information confidential or are otherwise bound by a duty of confidentiality with respect to the disclosure of such information, (ii) Lenders' financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 17, (iii) any other Lender, (iv) any Institutional Investor to which Lenders sells or offers to sell such Term Loan Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 17), (v) any Person from which Lenders offer to purchase any security of the Companies (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 17), (vi) any federal or state regulatory authority having jurisdiction over Lenders or their advisors, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about Lenders' investment portfolio or any other regulatory authority, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (A) to effect compliance with any law, rule, regulation or order applicable to Lenders, (B) in response to any subpoena or other legal process provided, however that the Lenders shall cooperate with the Companies if the Companies seek to have such information requested pursuant to such subpoena or other legal process subject to a protective order, (C) in connection with any litigation to which Lenders are a party or (D) if an Event of Default shall have occurred and be continuing, to the extent Lenders may reasonably determine such delivery and disclosure to be necessary or 49 appropriate in the enforcement or for the protection of the rights and remedies under the Term Loan Notes, this Agreement and the other Transaction Documents. Each Lender, by its acceptance of a Term Loan Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 17 as though it were an original party to this Agreement. On the reasonable request of the Companies in connection with the delivery to any Lender of information required to be delivered to such Lender under this Agreement or requested by such lender (other than a lender that is a party to this Agreement or its nominee), such lender will enter into an agreement with the Companies embodying the provisions of this Section 17. The Companies hereby agree that in the event the Confidential Information received prior to the Closing Date does not become generally available prior to the date that is 90 days from the Closing Date (the "Release Date"), then, at the request in writing signed by the Lender, the Companies agree to make, within 3 days of such request (but in no event prior to the Release Date) the required public disclosure of the minimum amount of such Confidential Information reasonably believed by the Companies to be necessary to entitle a Lender to purchase and sell the Companies' debt and equity securities. Notwithstanding the foregoing, the Companies shall not be obligated to publicly disclose (i) any Confidential Information obtained by Lenders from a third person who is bound by a confidentiality agreement with, or other obligation of secrecy to, the Companies, or (ii) any information that is proprietary in nature. If the Companies fail to make the public disclosure required by this paragraph, the Lenders are authorized to publicly disclose the Confidential Information; provided, however, that at least two business days prior to such public disclosure, the Lenders' counsel shall submit a draft thereof to the Companies' counsel and will accept any comments to the draft that the Companies' counsel and financial advisors may reasonably believe are required within one business day after receipt of the same, it being understood and agreed that such public disclosure will contain the minimum amount of any such Confidential Information reasonably believed by the Lenders' counsel to be necessary to entitle a Lender to buy and sell the Companies' debt and equity securities and will not include any information that is proprietary in nature. 18. MISCELLANEOUS 18.1 Payments Due on Non-Business Days. Anything in this Agreement to the contrary notwithstanding, any payment of principal of, or interest on, any that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 18.2 Satisfaction Requirement. Except as otherwise provided herein, if any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to Lenders or to the Agent, the determination of such satisfaction shall be made by Lenders or the Agent, as the case may be, in the sole and exclusive judgment (exercised reasonably and in good faith) of the Person or Persons making such determination. 18.3 Severability. 50 Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 18.4 Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 18.5 Counterparts. This Agreement may be executed in any number of 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 instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 18.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 18.7 Consent to Jurisdiction. (a) The Companies hereby irrevocably submit to the jurisdiction of any Commonwealth of Massachusetts or Federal court sitting in Boston, Massachusetts, Suffolk County, in any action or proceeding arising out of or relating to this Agreement and the Companies hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Commonwealth of Massachusetts court or such Federal court. The Companies hereby irrevocably waive, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Companies hereby irrevocably consent to the service of copies of any summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivering a copy of such process to the Companies, at its address specified in Section 15 or by any other method permitted by law. The Companies agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or by any other manner provided by law. (b) Nothing in this Section 17.7 shall affect the right of any Lenders to serve legal process in any other manner permitted by law or affect the right of any such lender to bring any action or proceeding against the Companies or its property in the courts of other jurisdictions. 51 18.8 Waiver of Jury Trial. EACH OF THE COMPANIES, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE TRANSACTION DOCUMENTS, ANY DOCUMENT DELIVERED UNDER THE TRANSACTION DOCUMENTS OR THE ACTIONS OF ANY LENDER OR THE AGENT IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. 52 IN WITNESS WHEREOF, the Borrowers, the Agent and the Lenders have caused this Agreement to be duly executed by their duly authorized officers ad of the date set forth above. BORROWERS: PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer AEROMET AMERICA, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Executive Vice President ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Executive Vice President NORTHWEST TECHNICAL INDUSTRIES, INC. By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Executive Vice President PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Executive Vice President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING, INC. By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Executive Vice President PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: President FOREIGN SUBSIDIARIES: PACIFIC A&E LIMITED By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Director PACIFIC AEROSPACE & ELECTRONICS (UK) LIMITED. By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Director AEROMET INTERNATIONAL, PLC By: /s/ Donald A. Wright -------------------------------- Name: Donald A. Wright Title: Director LENDERS: B III CAPITAL PARTNERS, L.P. By: DDJ Capital III, LLC, its General Partner By: DDJ Capital Management, LLC, Manager By: /s/ Wendy Schnipper Clayton By: /s/ Wendy Landon -------------------------------- -------------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon Title: Authorized Signatory Title: Authorized Signatory B IIIA CAPITAL PARTNERS, L.P. By: GP III-A, LLC its General Partner By: DDJ Capital Management, LLC, Manager By: /s/ Wendy Schnipper Clayton By: /s/ Wendy Landon -------------------------------- -------------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon Title: Authorized Signatory Title: Authorized Signatory DDJ CANADIAN HIGH YIELD FUND By: DDJ Capital Management, LLC, its attorney-in-fact By: /s/ Wendy Schnipper Clayton By: /s/ Wendy Landon -------------------------------- -------------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon 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/ Andrew Blood -------------------------------- Name: Andrew Blood Title: Assistant Secretary SCHEDULE I COMMITMENT PERCENTAGES ----------------------
- ------------------------------------------------------------------------------------ Commitment Maximum Amount ---------- -------------- Lender Percentage of Term Loans ------ ---------- ------------- - ------------------------------------------------------------------------------------ BIII Capital Partners, L.P. 46.66% $6,459,361.00 - ------------------------------------------------------------------------------------ BIII A Capital Partners, L.P. 20.00% $2,768,298.00 - ------------------------------------------------------------------------------------ DDJ Canadian High Yield Fund 13.34% $1,845,531.00 - ------------------------------------------------------------------------------------ General Motors Employees Global Group Pension Trust 20.00% $2,768,298.00 - ------------------------------------------------------------------------------------ TOTALS 100.00% $13,841,488.00 - ------------------------------------------------------------------------------------
SCHEDULE II ----------- DEFINED TERMS ------------- As used in the Agreement, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "Account" or "Accounts" means all of the Borrowers' accounts, whether now existing or existing in the future, including, without limitation, all (i) accounts receivable (whether or not specifically listed on schedules furnished to the Agent), including, without limitation, all accounts created by or arising from all of the Borrowers' sales of goods or rendition of services made under any of the Borrowers' trade names or styles, or through any of the Borrowers' divisions; (ii) unpaid or unexercised seller's rights (including any right of rescission, replevin, reclamation and stopping in transit) relating to the foregoing or arising therefrom; (iii) rights to any goods represented by any of the foregoing, including returned or repossessed goods; (iv) reserves and credit balances held by the Borrowers with respect to any such accounts receivable or account debtors; (v) guarantees or collateral for any of the foregoing; (vi) insurance policies; or (vii) rights relating to any of the foregoing. "Acknowledgment Agreement" means any acknowledgment agreement required to be delivered by the Borrowers to the Lenders pursuant to which any mortgagee or lessor of property on which Collateral is stored or otherwise located, or pursuant to which any warehouseman, filler, processor or packer of any Inventory acknowledges the Liens and security interests of the Lenders and, in the case of any real property leased by the Borrowers or subject to a mortgage executed by the Borrowers, provides the Agent access to such real property for a reasonable period of time to assemble, complete and sell any Collateral located thereon. "Aeromet Sale" means the sale, transfer or conveyance of all or substantially all of the assets or stock of Aeromet International PLC, provided that in respect of such transaction, Pacific Aerospace shall (i) receive a written opinion from its Financial Advisor, to the effect that (x) the transaction is fair from a financial point of view and (y) represents an arms length transaction by Aeromet International PLC and such unrelated person and (ii) receive no less that 75% of the purchase price in cash on the date of closing of such transaction. "Affiliate" or "Affiliates" means (i) a Controlling Person or any Person which is controlled by or is under common control with a Controlling Person and (ii) any other Person who is a director, officer or member of management of the Borrowers, any of its Subsidiaries or any Controlling Person. For purposes of the Agreement, control of a Person means the power, direct or indirect, (a) to vote 20% or more of the outstanding stock or other ownership interests having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" means DDJ Capital Management, LLC, in its capacity as agent for the Lenders, and its successors in that capacity. "Agreement" means this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Ancillary Documents" means any Proprietary Rights Collateral Documents, any Security Agreements, any Pledge Agreements, and any. "Asset Disposition" means any sale, transfer, lease, assignment or other disposition of any asset by any of the Companies, excluding, however, (i) the Aeromet Sale, (ii) any sale or disposition by the Companies of Inventory in the ordinary course of business, and (iii) any sale or disposition of the Companies of assets, not in the ordinary course of business in instances where the proceeds of such dispositions do not exceed $50,000 for any individual transaction or $250,000 in the aggregate following the Closing Date. "Auditors" means a nationally-recognized firm of independent public accountants selected by the Companies and satisfactory to the Lenders in its reasonable discretion. "Benefit Plan" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) that is subject to Title IV of ERISA and in respect of which the Companies or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "Business Day" means any day other than a Saturday, Sunday or any other day on which commercial banks are required by law or authorized to close in Boston, Massachusetts. "Blocked Accounts Agreement" means the Blocked Accounts Agreement executed by the Borrowers in favor of the Lenders in the form attached to this Agreement as Exhibit K. "Capital Lease" means any lease of property, real or personal, the obligation of the lessee in respect of which is required in accordance with GAAP to be capitalized on the balance sheet of the lessee. "Cash Equivalents" means: (a) marketable obligations issued or unconditionally guaranteed by the United States government, in each case maturing within 360 days after the date of acquisition thereof; (b) marketable direct obligations issued by any state of the Unites States of any political subdivision of any such state or any public instrumentality thereof maturing within 360 days after the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (c) commercial paper maturing no more than 360 days after the date of acquisition thereof, issued by a corporation organized under the laws of any state of the United States or of the District of Columbia and, at the time of acquisition having a rating in one of the two highest rating categories obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (d) money market funds whose investments are made solely in securities described in clause (a) maturing within 360 days after the date of acquisition thereof; (e) certificates of deposit maturing within 360 days after the date of acquisition thereof, issued by any commercial bank that is a member of the Federal Reserve System that has capital, surplus and undivided profits (as shown on its most recent statement of condition) aggregating not less than $100,000,000 and is rated A or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation; and (f) repurchase agreements entered into with any commercial bank of the mature referred to in clause (e), secured by a fully perfected Lien in any obligation of the type described in any of clauses (a) through (e), having a fair market value at the time such repurchases agreement is entered into of not less than 100% of the repurchase obligation thereunder of such commercial bank. "Casualty Loss" shall have the meaning given to such term in Section 6.3 hereof. "Change of Control" means any transaction or series of transactions in which any of the following occurs: (a) any Person or group (within the meaning of Rule 13d-3 under the Exchange Act and Sections 13(d) and 14(d) of the Exchange Act) becomes the direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of 30% or more of the issued and outstanding shares of Capital Stock entitled to vote in the election of directors of the Borrowers or the Surviving Person (if other than the Borrowers); or (b) individuals who at the Closing constituted the Board of Directors of the Borrowers (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Borrowers was approved by a vote of at least a majority of the directors of the Borrowers then still in office who were either directors at the Closing or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrowers then in office. "Closing" has the meaning specified in Section 2. "Closing Date" has the meaning specified in Section 2. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time, and any successor statute. "Collateral" means any and all assets and rights and interests in or to property of the Borrowers pledged from time to time as security for the Obligations pursuant to the Ancillary Documents whether now owned or hereafter acquired, including, without limitation, all of the Accounts, Inventory, Equipment, Intellectual Property, Intangibles and Real Estate of the Borrowers, as defined in any Security Agreement, any Mortgage, any Pledge Agreement or any Proprietary Rights Collateral Document. "Commitment Fee" shall mean the fee payable to the Lenders as set forth in Section 1.3 hereof. "Commitment Letter" shall mean the letter agreement by and among the Companies and the Agent, dated as of February 3, 2001. "Commitment Percentage" shall mean as to each Lender, its percentage interest in the Term Loans as set forth on Schedule I hereto. "Common Stock" means the Common Stock, stated value $1.00 per share, of the Companies and any other capital stock of the Borrowers into which such common stock may be converted or reclassified or that may be issued in respect of, in exchange for, or in substitution of, such common stock by reason of any stock splits, stock dividends, distributions, mergers, consolidations or other like events. "Compliance Certificate" shall have the meaning given to such term in Section 7.1(c) hereof. "Confidential Information" has the meaning specified in Section 17. "Consolidated Capital Expenditures" means, for any period, the additions to property, plant and equipment and other capital expenditures of the Companies for such period, as the same are (or, in accordance with GAAP, would be) set forth in the consolidated statement of cash flows of the Companies for such period. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Companies for such period, excluding (i) gains or losses from dispositions of assets, (ii) any extraordinary items, and (iii) other non-recurring items not related to operations. "Consolidated Subsidiary" of any Person means at any date any Subsidiary or other entity the accounts of which in accordance with GAAP would be consolidated with those of such Person in its consolidated financial statements as of such date. "Consolidated Working Assets" means (i) notes held by a Company relating to the debt owed by an unaffiliated third party and accounts receivable, which shall be included only if and to the extent the same are good and collectible as determined by the Companies in accordance with established practice consistently applied and, (A) with respect to such notes, only if payable on demand or within one (1) year from the date as of which Consolidated Working Assets are to be determined and if not directly or indirectly renewable or extendible at the option of the debtors, by their terms, or by the terms of any instrument or agreement relating thereto, beyond such year, and, (B) with respect to such accounts receivable, only if prior to the Aeromet Sale such accounts are payable and outstanding not more than one hundred and twenty days and after the Aeromet Sale such accounts are payable and outstanding not more than ninety (90) days, in each case, after the date of the shipment of goods or other transaction out of which any such account receivable arose; and such notes and accounts receivable shall be taken at their face value less reserves determined to be sufficient in accordance with generally accepted accounting principles; (ii) inventory, which shall be included only if and to the extent that the same shall consist of (A) saleable finished goods ready and available for shipment to customers thereof and (B) raw materials only if and to the extent that the same shall be useable by the Borrowers and shall not be obsolete, defective or otherwise not capable of being converted into Inventory of the nature described in the immediately preceding clause of this definition within 90 days of receipt of such raw materials and (C) work in process which shall be included only if and to the extent the same shall be useable by the Borrowers and shall not be obsolete, defective or otherwise not capable of being converted into Inventory of the nature described in the immediately preceding clause of this definition within 60 days of conversion of such materials into work in process, in each case only to the extent that items (ii)(A), (ii)(B) and (ii)(C) are consistent with GAAP. "Contractual Obligation" means, with respect to any Person, any term or provision of any securities issued by such Person, or any indenture, mortgage, deed of trust, contract, undertaking, document, instrument or other agreement to which such Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Controlling Person" means any Person that is in control of any of the Companies (such control being the power to direct or cause the direction of the management and policies of any of the Companies, whether through the ownership of voting stock, by contract or otherwise). "Covenant Debt" means all the Debt of the Companies other than the Debt incurred pursuant to the Subordinated Notes. "Covenant Interest" means the interest and expenses incurred by the Companies on the Covenant Debt. "Credit Participant" shall have the meaning given to such term in Section 10.7. "Currency Agreement" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangements. "Debt" means of any Person at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, (d) all obligations of such Person under Capital Leases, (e) all contingent or non-contingent obligations of such Person to reimburse any Person in respect of amounts paid or payable (currently or in the future, on a contingent or non-contingent basis) under a letter of credit or similar instrument, (f) all Debt of others secured by a Lien on any asset of such Person, (g) all Debt of others Guaranteed by such Person and (h) all Old Trade Payables owed by such Person. "Default" means an event, condition or default which with the giving of notice, the passage of time or both would be an Event of Default. "Deeds of Trust" means the mortgages or deeds of trust, deeds to secured debt, assignment or rent or other similar documents, as the case may be, substantially in the form of Exhibit H. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Due Diligence Fee" means the fees payable to the Agent as set forth on Exhibit A to the Commitment Letter. "DOL" means the United States Department of Labor and any successor department or agency. "EBITDA" with respect to any period, means Consolidated Net Income for such period before payment or provision of taxes measured by income plus, without duplication, all interest charges (to the extent deducted in computing Consolidated Net Income), all fees payable in connection with this Agreement, amortization and depreciation expense (including any amortization and depreciation associated with "fresh start accounting") and other non-cash items reducing Consolidated Net Income for such period, in each case determined on a consolidated basis for the Companies. "Employee Benefit Plan" means an "employee benefit plan" as defined in Section 3(3) of ERISA, maintained or contributed by the Companies or with respect to which the Companies may incur liability. "Environmental Law" means any federal, state or local law, statute, ordinance, or regulation pertaining to health, industrial hygiene, or the environmental conditions on, under or about any real property owned, operated or leased by any of the Companies. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute thereto and all final or temporary regulations promulgated thereunder, and all published, generally applicable rulings entitled to precedential effect. "ERISA Affiliate" means any (i) corporation which is or was at any time during the immediately preceding six years a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Companies; (ii) partnership or other trade or business (whether or not incorporated) at any time during the immediately preceding six years under common control (within the meaning of Section 414(c) of the Code) with the Companies; and (iii) member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Companies, any corporation described in clause (i) above, or any partnership or trade or business described in clause (ii) above. "Event of Default" or "Events of Default" shall have the meaning provided for in Section 9 of this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Filing Assets" means all property and assets comprising Collateral which constitute Inventory, Accounts, equipment (excluding motor vehicles and other equipment covered by a certificate of title or similar statute), general intangibles or chattel paper other than any of the foregoing located outside of the United States. "Financial Statements" means the consolidated and consolidating balance sheets, consolidated and consolidating statements of operations, consolidated statements of changes in cash flows and consolidated statements of changes in stockholders' equity of the Companies and its Consolidated Subsidiaries for the period specified prepared in accordance with GAAP and consistent with prior practices. "Financial Advisor" means a reputable accounting appraisal or nationally recognized investment banking firm that is, in the reasonable judgment of the Board of Directors of Pacific Aerospace, qualified to perform the task for which such firm has been engaged and is independent with respect to the Companies. "Financials" has the meaning specified in Section 4.4 hereof. "Foreign Subsidiary" means any Subsidiary of a Person not incorporated in or having material assets or operations in the United States. "GAAP" means generally accepted accounting principles in the United States of America, as in effect from time to time and with respect to the Foreign Subsidiaries, accounting principles used in the United Kingdom as in effect from time to time. "Governmental Authority" means any government or political subdivision or any agency, authority, board, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substance" means those substances included within the definitions of "hazardous substances", "hazardous materials", "toxic substances", or "solid waste" under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.ss. 6901 et seq. And the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1801 et seq., and in the regulations promulgated pursuant to said laws, and such other substances, materials and wastes which are or become regulated under applicable local, state or federal law, or which are classified as hazardous or toxic under federal, state or local laws or regulations. "Indemnified Parties" has the meaning specified in Section 12.2. "Institutional Investor" means (a) any Lender or (b) any bank, trust company, savings and loan association, investment account, investment fund, any pension plan, any investment company, any insurance company, any broker or dealer or any other similar financial institution or entity, regardless of legal form. "Insurance Proceeds" means the proceeds of any insurance or any judgments or settlements made in lieu thereof resulting from a casualty with respect to the Collateral or any part thereof. "Intellectual Property" means the Intellectual Property Security Agreement executed by the Borrowers in favor of the Lenders in the form attached as Exhibit C to the Agreement. "Intercompany Notes" means, collectively, the New Intercompany Note and the PA&E Intercompany Note. "Internal Revenue Service" means the Internal Revenue Service and any successor agency. "Inventory" means all of the Borrowers' inventory as defined by GAAP, including without limitation: (i) all raw materials, work in process, parts, components, assemblies, supplies and materials used or consumed in the Borrowers' businesses; (ii) all goods, wares and merchandise, finished or unfinished, held for sale or lease or leased or furnished or to be furnished under contracts of service; and (iii) all goods returned or repossessed by the Borrowers net of any reserves required by GAAP. "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, advance, time deposit or otherwise. "KeyBank Loan Agreement" means that certain Loan Agreement between Pacific Aerospace & Electronics, Inc. and KeyBank National Association, dated as of September 7, 1999. "Leased Real Property" means all of the real property leased by the Borrowers at any time, including, without limitation, all of the material real property leased by the Borrowers as of the date of this Agreement as set forth on Schedule 4.12 hereto. "Leases" shall have the meaning given to such term in Section 4.12 hereof. "Lender Obligations" shall mean all present and future Obligations and indebtedness of the Borrowers or any Subsidiary owing to the Agent or the Lender under this Agreement or any other Transaction Document, including, without limitation, the obligation to pay the indebtedness from time to time evidenced by the Term Loan Notes, and obligations to pay interest, commitment fees, charges, expenses and indemnification from time to time owed under any Transaction Document. "Lenders" means the Lenders from time to time a party to this Agreement. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of the Agreement, each of the Borrowers shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Majority Lenders" shall mean, at any time, the Lenders having more than 50% of the outstanding principal amount of the Term Loans hereunder, or if no Term Loans are outstanding, the Lenders having aggregate Commitment Percentages of more than 50%. "Material Adverse Change" means a material adverse change (i) in the business, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Companies taken as a whole, or (ii) in the value of the Collateral taken as a whole or the amount which the Lenders would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral. "Material Adverse Effect" means a material adverse effect on (i) the businesses, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Companies taken as a whole, (ii) the value of the Collateral taken as a whole or the amount which the Lenders would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral, (iii) the Companies' ability to perform its obligations under the Transaction Documents, or (iv) the rights and remedies of the Lenders under the Transaction Documents. "Maximum Lawful Rate" shall have the meaning given to such term in Section 1.2 hereof. "Mortgage" means, with respect to real property owned by the Borrowers, each mortgage or deed of trust executed and delivered on the date hereof or hereafter delivered from time to time pursuant to the terms hereof, and with respect to real property leased by the Borrowers, each leasehold mortgage or leasehold deed of trust, if any, executed and delivered on the date hereof or hereafter delivered from time to time pursuant to the terms hereof, as any of the same may be amended, modified, supplemented, extended or renewed from time to time. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA and (i) which is, or within the immediately preceding six (6) years was, contributed to by the Borrowers or any ERISA Affiliate or (ii) with respect to which the Borrowers or any ERISA Affiliate may incur any liability. "Net Cash Proceeds" means, with respect to the sale or disposition of any asset, the aggregate amount of cash received by the Companies (including cash payments received in respect of deferred payment pursuant to any note or installment receivable or otherwise and state or federal income tax refunds attributable to such sale or disposition, but in each case only as and when received) in respect of such sale or disposition minus all fees, commissions, expenses and taxes incurred in connection with such sale or disposition. For purposes of this definition, if taxes or other expenses payable in connection with the sale or disposition of any asset are not known as of the date of such sale or disposition, then such fees, commissions, expenses or taxes shall be estimated by the Companies, in good faith, and such estimated amounts shall be deducted therefrom. "Net Proceeds" shall have the meaning given to such term in Section 6.2 hereof. "New Intercompany Note" means the note or series of notes evidencing the obligations in favor of PA&E International, Inc. in an amount up to $2,300,000, to be made within 90 days of the Closing Date, which shall be pledged to the Lenders. "Obligation" means, with respect to any Person, any obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 8.1(g). Without limiting the generality of the foregoing, the Obligations of the Companies under the Transaction Documents include the obligation to pay principal, interest, charges, expenses, fees, attorneys' fees and disbursements, indemnities. And other amounts payable by the Companies under this Agreement. "Old Trade Payables" means Debt of the Companies incurred in the ordinary course of business for raw materials, supplies and equipment, and services or other accounts which would constitute Accounts Payable in accordance with GAAP payment for which has been due and owing for more than 120 days prior to the Aeromet Sale, and after the Aeromet Sale payment for which has been due and owing for more than 90 days. "OSHA" means the Occupational Safety and Health Act, as amended from time to time, and any successor statute thereto and all final or temporary regulations promulgated thereunder, and all published, generally applicable rulings entitled to precedential effect. "Owned Real Property" means the real property owned by the Borrowers at any time, including, without limitation, all of the material real property owned by the Borrowers as of the date of the Agreement as set forth on Schedule 4.12(a). "PA&E Intercompany Note" means the note in the principal amount of (pound) 23,700,000 issued in favor of PA&E International, Inc., which note has been pledged to the Lenders. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Permitted Investments" means (i) Cash Equivalents, (ii) interest-bearing demand or time deposits (including certificates of deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar federal insurance program; (iii) securities distributed in connection with the confirmation of a plan of reorganization following the bankruptcy of any Person indebted to the distributee at the time such bankruptcy is filed and (iv) such other investments as the Agent may approve in its sole discretion. "Permitted Liens" means, without duplication: (a) Liens for taxes, assessments, governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Borrowers, as the case may be, in accordance with GAAP; (b) statutory Liens of landlords and carriers', or other warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith and by appropriate proceedings in a manner which will not jeopardize or diminish the interest of the Lenders in any of the Collateral subject to the Ancillary Documents or interfere with the ordinary conduct of the businesses of the Borrowers; (c) pledges or deposits and Liens (other than any Lien imposed by ERISA) under bonds required in connection with workers compensation, unemployment insurance and other social security legislation; (d) Liens (other than any Lien imposed by ERISA or by Environmental Laws) incurred on deposits to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds and other obligations of alike nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which do not substantially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrowers or any Subsidiary; (f) Liens affecting assets existing at the time such assets are acquired provided that such Liens are not created in contemplation of such acquisition; "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (including any division, agency or department thereof), and, as applicable, the successors, heirs and assigns of each, "Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA, maintained or contributed to by the Companies or with respect to which the Companies may incur liability. "Pledge Agreement" means, collectively, the Pledge Agreements executed by the Borrowers in favor of the Lenders, in the form attached to the Agreement as Exhibit E. "Proprietary Rights" shall have the meaning given to such term in Section 6.12 of this Agreement. "Proprietary Rights Collateral Documents" means the Trademark Security Agreement and the Patent Security Agreement. "Real Estate" means, collectively, the Owned Real Property and the Leased Real Property. "Release Date" shall have the meaning given to such term in Section 17 of this Agreement. "Rentals" of any Person shall mean at any date, without duplication, (i) all obligations of such Person under any lease (excluding any Capital Lease) having, as of such date, an unexpired term (including any renewals at the option of the lessor) of one year or more, plus (ii) all Rentals of others Guaranteed by, or secured by a Lien on any asset of, such Person. "Register" shall have the meaning given to such term in Section 10.4. "Reportable Event" means any of the events described in Section 4043 of ERISA and the regulations thereunder. "Retiree Health Plan" means an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA that provides health care benefits to persons after termination of employment, other than as required by Section 601 of ERISA. "SEC" means the Securities and Exchange Commission. "Security Agreement" means the Security Agreement between the Lenders and the Borrowers, in the form attached to the Agreement as Exhibit B. "Securities Act" means the Securities Act of 1933, as amended. "Solvent" and "Solvency" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts and liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's property would constitute an unreasonably small capital. "Structures" means all plants, offices, manufacturing facilities, warehouses, administration buildings and related facilities of the Borrowers located at the Owned Real Property. "Subordinated Note Indenture" means that certain Indenture dated July 30, 1998 by and between the Company and IBJ Schroder Bank & Trust Companies, as trustee, governing the issuance of the Subordinated Notes, as the same may be amended, supplemented, restated or otherwise modified from time to time. "Subordinated Notes" means those certain 11 1/4% Senior Subordinated Notes in the aggregate principal amount of up to $75,000,000, due 2005, issued by the Company pursuant to the Subordinated Note Indenture, the principal amount outstanding as of the Closing Date shall be no more than $63,700,000. "Subsidiary" means, with respect to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other persons performing similar functions are at the time, directly or indirectly through one or more intermediaries, or both, owned or controlled, by such Person. Unless otherwise expressly indicated to the contrary herein, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to any direct or indirect Subsidiary or Subsidiaries of any Borrower and shall include the Foreign Subsidiaries. "Successor Lender" shall have the meaning given to such term in Section 9.2. "Tax" or "Taxes" means all present and future taxes, surtaxes, duties, levies, imposts, rates, fees assessments, withholdings and other charges of any nature (including income, corporate capital, net worth, sales, consumption, use, transfer, goods and service, value-added, stamp, registration, franchise, withholding payroll, employment, health education, excise, business, school, property, occupation, customs, anti-dumping and surtaxes, duties, levies, imports, rates, fees, assessments, withholding and other charges) imposed by a governmental entity, together with any fines, interest penalties or other additions in lieu for non-collection of or in respect of those taxes, surtaxes, duties, levies, imposts, rates, fees, assessments, withholding and other charges. "Termination Event" means (i) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan which is likely to constitute grounds for termination of such Benefit Plan or Multiemployer Plan; (ii) the withdrawal (within the meaning of Section 4063 of ERISA) of the Companies or any ERISA Affiliate from a Benefit Plan during a plan year in which such entity was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041 (c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan; (v) any event or condition (a) described in Section 4042(a) of ERISA and which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (b) described in Section 4041A(a) of ERISA and that could reasonably be expected to result in termination of a Multiemployer Plan pursuant to Section 4041 A of ERISA; or (vi) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of any Companies or any ERISA Affiliate from a Multiemployer Plan. "Term Loan Maturity Date" shall mean March 1, 2003. "Term Loan Notes" shall mean the Term Loan Notes, substantially in the form of Exhibit A hereto executed by the Borrowers in favor of each Lender to evidence the Term Loans made by the Lenders hereunder. "Term Loans" shall mean, collectively, the Term Loans made by the Lenders to the Borrowers under Section 1 hereof. "Total Cash Proceeds" means, with respect to the sale or disposition of any asset, the aggregate amount of cash received by the Companies (including cash payments received in respect of deferred payment pursuant to any note or installment receivable or otherwise and state or federal income tax refunds attributable to such sale or disposition, but in each case only as and when received) in respect of such sale or disposition. "Transaction Documents" means this Agreement, the Term Loan Notes, the Warrant Agreement, each of the Ancillary Documents and all other documents, agreements, instruments, opinions and certificates executed in connection therewith, as the same may be modified, amended, extended, restated or supplemented from time to time. "Underlying Common Stock" means the shares of Common Stock issuable or issued upon the exercise of the Warrants. "Voting Stock" means stock of a Companies of the class or classes having general voting power under ordinary circumstances to elect at least a majority of the board of directors of such Companies (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Warrant Agreement" means the Warrant Agreement, dated as of the date hereof, between the Borrowers and the Lenders in the form attached as Exhibit I. "Warrants" means the warrants to acquire shares of Common Stock issued pursuant to the Warrant Agreement. "Weighted Average Life to Maturity" means, when applied to any Debt at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payment of principal including payment at final maturity in respect thereof, and (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding aggregate principal amount of such Indebtedness. DISCLOSURE SCHEDULES -------------------- [Omitted and available upon request to the Company] EXHIBITS -------- [Omitted and available upon request to the Company] EX-99.2 3 0003.txt TERM LOAN NOTE ($6,459,361.00) EXHIBIT 99.2 ------------ TERM LOAN NOTE -------------- $6,459,361.00 March 1, 2001 Boston, Massachusetts FOR VALUE RECEIVED, 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., and PA&E International, Inc., (collectively, the "Borrowers"), jointly and severally, HEREBY PROMISE TO PAY to the order of B III Capital Partners, L.P. (the "Lender") the principal sum of Six Million Four Hundred Fifty Nine Thousand Three Hundred Sixty One DOLLARS ($6,459,361.00), together with interest on the unpaid principal amount from time to time outstanding at the rate or rates and computed and payable at the times as described in the Loan Agreement (as hereinafter defined). Payments of the principal hereof shall be made as provided in the Loan Agreement. Notwithstanding any other provision of this note, the entire balance of principal and accrued and unpaid interest shall be paid in full on the Term Loan Maturity Date (as defined in the Loan Agreement). This note is one of the Term Loan Notes referred to in the Loan Agreement dated as of March 1, 2001 (as the same may be amended, modified or supplemented from time to time the "Loan Agreement") by and among the Borrowers, the Lenders from time to time parties thereto, and DDJ Capital Management, LLC, a Delaware limited liability company, as Agent for the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement. The Borrowers shall have the right to voluntarily prepay all or any part of the outstanding principal amount of this note subject to the provisions of the Loan Agreement. The holder of this note is entitled to all the benefits and rights of a Lender under the Loan Agreement to which reference is hereby made for a statement of the terms and conditions under which the entire unpaid balance of this note, or any portion thereof, shall become immediately due and payable. The Borrowers hereby waive presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this note. No delay or omission on the part of the holder of this note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. The Borrowers hereby agree to pay on demand all reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and legal expenses, incurred or paid by the holder of this note in enforcing this note on default. THE LENDER AND THE BORROWERS AGREE THAT NEITHER OF THEM NOR ANY OF THEIR ASSIGNEES OR SUCCESSORS SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON OR ARISING OUT OF, THIS NOTE, THE LOAN AGREEMENT, ANY TRANSACTION DOCUMENT, ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION WITH ANY OF THE FOREGOING, ANY COLLATERAL SECURING ALL OR ANY PART OF THE LENDER OBLIGATIONS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY EACH LENDER AND EACH BORROWER WITH THEIR RESPECTIVE COUNSEL, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR THE BORROWERS HAVE AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. 2 This note shall be deemed to be under seal, and all rights and obligations hereunder shall be governed by the laws of the State of New York (without giving effect to any conflicts of law provisions contained therein). PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: President and Chief Executive Officer AEROMET AMERICA, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President ELECTRONIC SPECIALITY CORPORATION By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President 3 PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: President 4 EX-99.3 4 0004.txt TERM LOAN NOTE ($2,768,298.00) EXHIBIT 99.3 ------------ TERM LOAN NOTE -------------- $2,768,298.00 March 1, 2001 Boston, Massachusetts FOR VALUE RECEIVED, 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., and PA&E International, Inc., (collectively, the "Borrowers"), jointly and severally, HEREBY PROMISE TO PAY to the order of B III-A Capital Partners, L.P. (the "Lender") the principal sum of Two Million Seven Hundred Sixty Eight Thousand Two Hundred Ninety Eight DOLLARS ($2,768,298.00), together with interest on the unpaid principal amount from time to time outstanding at the rate or rates and computed and payable at the times as described in the Loan Agreement (as hereinafter defined). Payments of the principal hereof shall be made as provided in the Loan Agreement. Notwithstanding any other provision of this note, the entire balance of principal and accrued and unpaid interest shall be paid in full on the Term Loan Maturity Date (as defined in the Loan Agreement). This note is one of the Term Loan Notes referred to in the Loan Agreement dated as of March 1, 2001 (as the same may be amended, modified or supplemented from time to time the "Loan Agreement") by and among the Borrowers, the Lenders from time to time parties thereto, and DDJ Capital Management, LLC, a Delaware limited liability company, as Agent for the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement. The Borrowers shall have the right to voluntarily prepay all or any part of the outstanding principal amount of this note subject to the provisions of the Loan Agreement. The holder of this note is entitled to all the benefits and rights of a Lender under the Loan Agreement to which reference is hereby made for a statement of the terms and conditions under which the entire unpaid balance of this note, or any portion thereof, shall become immediately due and payable. The Borrowers hereby waive presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this note. No delay or omission on the part of the holder of this note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. The Borrowers hereby agree to pay on demand all reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and legal expenses, incurred or paid by the holder of this note in enforcing this note on default. THE LENDER AND THE BORROWERS AGREE THAT NEITHER OF THEM NOR ANY OF THEIR ASSIGNEES OR SUCCESSORS SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON OR ARISING OUT OF, THIS NOTE, THE LOAN AGREEMENT, ANY TRANSACTION DOCUMENT, ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION WITH ANY OF THE FOREGOING, ANY COLLATERAL SECURING ALL OR ANY PART OF THE LENDER OBLIGATIONS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY EACH LENDER AND EACH BORROWER WITH THEIR RESPECTIVE COUNSEL, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR THE BORROWERS HAVE AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. This note shall be deemed to be under seal, and all rights and obligations hereunder shall be governed by the laws of the State of New York (without giving effect to any conflicts of law provisions contained therein). PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: President and Chief Executive Officer AEROMET AMERICA, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: Executive Vice President PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: President EX-99.4 5 0005.txt TERM LOAN NOTE ($1,845,531.00) EXHIBIT 99.4 ------------ TERM LOAN NOTE -------------- $1,845,531.00 March 1, 2001 Boston, Massachusetts FOR VALUE RECEIVED, 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., and PA&E International, Inc., (collectively, the "Borrowers"), jointly and severally, HEREBY PROMISE TO PAY to the order of DDJ Canadian High Yield Fund (the "Lender") the principal sum of One Million Eight Hundred Forty Five Thousand Five Hundred Thirty One DOLLARS ($1,845,531.00), together with interest on the unpaid principal amount from time to time outstanding at the rate or rates and computed and payable at the times as described in the Loan Agreement (as hereinafter defined). Payments of the principal hereof shall be made as provided in the Loan Agreement. Notwithstanding any other provision of this note, the entire balance of principal and accrued and unpaid interest shall be paid in full on the Term Loan Maturity Date (as defined in the Loan Agreement). This note is one of the Term Loan Notes referred to in the Loan Agreement dated as of March 1, 2001 (as the same may be amended, modified or supplemented from time to time the "Loan Agreement") by and among the Borrowers, the Lenders from time to time parties thereto, and DDJ Capital Management, LLC, a Delaware limited liability company, as Agent for the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement. The Borrowers shall have the right to voluntarily prepay all or any part of the outstanding principal amount of this note subject to the provisions of the Loan Agreement. The holder of this note is entitled to all the benefits and rights of a Lender under the Loan Agreement to which reference is hereby made for a statement of the terms and conditions under which the entire unpaid balance of this note, or any portion thereof, shall become immediately due and payable. The Borrowers hereby waive presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this note. No delay or omission on the part of the holder of this note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. The Borrowers hereby agree to pay on demand all reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and legal expenses, incurred or paid by the holder of this note in enforcing this note on default. THE LENDER AND THE BORROWERS AGREE THAT NEITHER OF THEM NOR ANY OF THEIR ASSIGNEES OR SUCCESSORS SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON OR ARISING OUT OF, THIS NOTE, THE LOAN AGREEMENT, ANY TRANSACTION DOCUMENT, ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION WITH ANY OF THE FOREGOING, ANY COLLATERAL SECURING ALL OR ANY PART OF THE LENDER OBLIGATIONS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY EACH LENDER AND EACH BORROWER WITH THEIR RESPECTIVE COUNSEL, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR THE BORROWERS HAVE AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. This note shall be deemed to be under seal, and all rights and obligations hereunder shall be governed by the laws of the State of New York (without giving effect to any conflicts of law provisions contained therein). PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer AEROMET AMERICA, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: Executive Vice President PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright ---------------------------------------- Name: Donald A. Wright Title: President EX-99.5 6 0006.txt TERM LOAN NOTE ($2,768,298.00) EXHIBIT 99.5 ------------ TERM LOAN NOTE -------------- $2,768,298.00 March 1, 2001 Boston, Massachusetts FOR VALUE RECEIVED, 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., and PA&E International, Inc., (collectively, the "Borrowers"), jointly and severally, HEREBY PROMISE TO PAY to the order of State Street Bank & Trust, as Custodian for General Motors Employees Global Group Pension Trust (the "Lender") the principal sum of Two Million Seven Hundred Sixty Eight Thousand Two Hundred Ninety Eight DOLLARS ($2,768,298.00), together with interest on the unpaid principal amount from time to time outstanding at the rate or rates and computed and payable at the times as described in the Loan Agreement (as hereinafter defined). Payments of the principal hereof shall be made as provided in the Loan Agreement. Notwithstanding any other provision of this note, the entire balance of principal and accrued and unpaid interest shall be paid in full on the Term Loan Maturity Date (as defined in the Loan Agreement). This note is one of the Term Loan Notes referred to in the Loan Agreement dated as of March 1, 2001 (as the same may be amended, modified or supplemented from time to time the "Loan Agreement") by and among the Borrowers, the Lenders from time to time parties thereto, and DDJ Capital Management, LLC, a Delaware limited liability company, as Agent for the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement. The Borrowers shall have the right to voluntarily prepay all or any part of the outstanding principal amount of this note subject to the provisions of the Loan Agreement. The holder of this note is entitled to all the benefits and rights of a Lender under the Loan Agreement to which reference is hereby made for a statement of the terms and conditions under which the entire unpaid balance of this note, or any portion thereof, shall become immediately due and payable. The Borrowers hereby waive presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this note. No delay or omission on the part of the holder of this note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. The Borrowers hereby agree to pay on demand all reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and legal expenses, incurred or paid by the holder of this note in enforcing this note on default. THE LENDER AND THE BORROWERS AGREE THAT NEITHER OF THEM NOR ANY OF THEIR ASSIGNEES OR SUCCESSORS SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON OR ARISING OUT OF, THIS NOTE, THE LOAN AGREEMENT, ANY TRANSACTION DOCUMENT, ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION WITH ANY OF THE FOREGOING, ANY COLLATERAL SECURING ALL OR ANY PART OF THE LENDER OBLIGATIONS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY EACH LENDER AND EACH BORROWER WITH THEIR RESPECTIVE COUNSEL, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR THE BORROWERS HAVE AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. This note shall be deemed to be under seal, and all rights and obligations hereunder shall be governed by the laws of the State of New York (without giving effect to any conflicts of law provisions contained therein). PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer AEROMET AMERICA, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: Executive Vice President PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright --------------------------------------- Name: Donald A. Wright Title: President EX-99.6 7 0007.txt SECURITY AGREEMENT EXHIBIT 99.6 SECURITY AGREEMENT SECURITY AGREEMENT, made this 1/st/ day of March, 2001, by Pacific Aerospace and 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., and PA&E International, Inc. (collectively, the "Grantors"), in favor of each of the lenders (collectively, the "Lenders") from time to time a party to the Loan Agreement by and among the Grantors, the Lenders and DDJ Capital Management, LLC, as agent (the "Agent") to the Lenders (collectively with the schedules and exhibits thereto, the "Loan Agreement"). All capitalized terms used herein, unless otherwise defined, shall be defined as provided in the Loan Agreement. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Grantors and the Lenders have entered into that certain Loan Agreement; WHEREAS, as security for all of the obligations of the Grantors and their Subsidiaries under the Loan Agreement, the Lenders are requiring the Grantors to execute and deliver this Security Agreement and grant the security interest contemplated hereby. NOW, THEREFORE, in consideration of the promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby enter into this Security Agreement and agree as follows: Section 1. Defined Terms. The following terms shall have the following meanings: "Account Debtor" shall mean any "account debtor," as such term is -------------- defined in section 9-105(1)(a) of the UCC. "Accounts Receivable" shall mean any "account," as such term is ------------------- defined in section 9-106 of the UCC, now owned or hereafter acquired by Grantors and, in any event, shall include, without limitation, all accounts, accounts receivable, leases and lease receivables, including but not limited to rights to rentals thereunder, the Grantors' reversionary interest in property leased thereunder and any equity rights in leases sold to third parties, other receivables, contract rights, chattel paper, instruments, documents, notes, and other forms of obligations now owned or hereafter received or acquired by or belonging or owing to Grantors whether arising out of goods sold or services rendered by Grantors, including without limitation under installation agreements, or from any other transaction, whether or not the same involves the sale of goods or services by Grantors and all of Grantors' rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Grantors' rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all moneys due or to become due to Grantors under all contracts for the sale of goods or the performance of services or both by Grantors (whether or not yet earned by performance on the part of Grantors or in connection with any other transaction), and all security agreements, leases and other contracts securing or otherwise relating to any of the foregoing, now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. "Agent" shall mean have the meaning set forth in the preamble of this ----- Agreement. "Chattel Paper" shall mean any "chattel paper," as such term is ------------- defined in section 9-105(1)(b) of the UCC, now owned or hereafter acquired by Grantors. "Collateral" shall have the meaning assigned to such term in Section 2 ---------- --------- of this Security Agreement. "Contracts" shall mean all contracts, undertakings, or other --------- agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Grantors may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account Receivable, any agreement relating to the terms of payment or the terms of performance thereof. "Documents" shall mean any "documents," as such term is defined in --------- section 9-105(1)(f) of the UCC, now owned or hereafter acquired by Grantors. "Equipment" shall mean any "equipment," as such term is defined in --------- section 9-109(2) of the UCC, now owned or hereafter acquired by Grantors and, in any event, shall include, without limitation, all machinery, equipment, including without limitation, copiers and related equipment, furnishings, fixtures, vehicles and computers and other electronic data processing and other office equipment now owned or hereafter acquired by Grantors and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Instruments" shall mean any "instrument," as such term is defined in ----------- section 9-105(1)(i) of the UCC, now owned or hereafter acquired by Grantors, including, without limitation, the Intercompany Notes, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intangible Assets" shall mean any "general intangibles," as such term ----------------- is defined in section 9-106 of the UCC, now owned or hereafter acquired by Grantors and, in any event, shall include, without limitation, all right, title and interest which Grantors may now or hereafter have in or under any Contract, all customer lists, Trademarks, Patents, rights in intellectual property, Licenses, permits, copyrights, trade secrets, proprietary or confidential information, 2 inventions (whether patented or patentable or not), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records now owned or hereafter acquired by Grantors, goodwill and rights of indemnification. "Inventory" shall mean any "inventory," as such term is defined in --------- section 9-109(4) of the UCC, now owned or hereafter acquired by Grantors and, in any event, shall include, without limitation, all inventory, merchandise, goods and other personal property now owned or hereafter acquired by Grantors which are held for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Grantors' business, or the processing, packaging, delivery or shipping of the same, and all finished goods. "License" shall mean all license agreements with any other Person, and ------- any right to prepare 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. "Obligations" shall mean any and all indebtedness, obligations, ----------- agreements and liabilities of Grantors to the Lenders including, without limitation, all indebtedness and obligations of Grantors and their Subsidiaries under the Loan Agreement, the Term Loan Notes executed pursuant thereto, any other Transaction Document and any other indebtedness, obligations, agreements and liabilities of Grantors and their Subsidiaries to the Lenders of every kind and description, direct or indirect, absolute or contingent, due or to become due, regardless of how they arose or were acquired, now existing or hereafter arising. "Patent License" shall mean any written agreement granting any right -------------- to practice any invention on which a Patent is in existence. "Patents" shall mean all patents, patent applications, and patentable ------- inventions, including, without limitation (i) all inventions and improvements described and claimed therein and the right to make, use, or sell the same, (ii) the right to sue or otherwise recover for any misappropriations thereof, (iii) 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 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. "Person" shall mean an individual, a partnership, a corporation ------ (including a business trust), a joint stock company, a trust, an unincorporated association, a joint venture or other entity or a government or any agency, instrumentality or political subdivision thereof. "Proceeds" shall mean "proceeds," as such term is defined in section -------- 9-306(1) of the UCC and, in any event, shall include, without limitation, (i) any and all proceeds of any 3 insurance, indemnity, warranty or guaranty payable to Grantors from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to Grantors from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Trademark License" shall mean any written agreement granting any ----------------- right to use any Trademark or Trademark registration. "Trademarks" shall mean all trademarks, service marks, trade names, ---------- trade dress or other indicia of trade original, trademark and service mark registrations, and applications for trademark or service mark registrations, and any renewals thereof, including, without limitation, (i) the right to sue 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, payment 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 Grantors accruing thereunder or pertaining thereto, together in each case with the goodwill of the business connected with the use of, an symbolized by, each such trademark, service mark, trade name, trade dress, or other indicia of trade origin. "UCC" shall mean the Uniform Commercial Code as the same may, from --- time to time, be in effect in the State of Delaware; provided, however, in the -------- ------- event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or the Lenders' security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Delaware, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. Section 2. Grant of Security Interest. (a) As collateral security for the prompt and complete payment and performance of the Obligations and to induce the Lenders to enter into the Loan Agreement, Grantors hereby assign, convey, mortgage, pledge, hypothecate and transfer to the Lenders, and hereby grant to the Lenders a security interest in all of Grantors' right, title and interest in, to and under the following (all of which being hereinafter collectively called the "Collateral"): (i) all Accounts Receivable; (ii) all Chattel Paper; (iii) all Contracts; 4 (iv) all Documents; (v) all Equipment; (vi) all Intangible Assets; (vii) all Instruments; (viii) all Inventory; (ix) all money, cash, bank accounts, other goods and personal property of Grantors whether tangible or intangible or whether now owned or hereafter acquired by Grantors and wherever located; (x) all Investment Property (as defined in the UCC); and (xi) all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing and, to the extent not otherwise included, all payments under insurance (whether or not the Agent, on behalf of the Lenders, is the loss payee thereof), or any indemnity, warranty or guaranty, payable by any reason of loss damage to or otherwise with respect to any of the foregoing Collateral. (b) In addition, as collateral security for the prompt and complete payment of the Obligations and to induce the Lenders as aforesaid, the Lenders are hereby granted a lien and security interest in all property of Grantors held by the Lenders, including, without limitation, all property of every description, now or hereafter in the possession or custody of or in transit to the Lenders for any purpose, including safekeeping, collection or pledge, for the account of Grantors, or as to which Grantors may have any right or power. Section 3. Rights of the Lenders; Limitations on the Lenders' Obligations. (a) It is expressly agreed by Grantors that, anything herein to the contrary notwithstanding, Grantors shall remain liable under each of their Contracts and each of their Licenses, shall observe and perform all the conditions and obligations to be observed and performed by them thereunder and shall perform all of their duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract or License, in a manner consistent with industry and good business practice. The Lenders shall not have any obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting to the Lenders of a security interest therein or the receipt by the Lenders of any payment relating to any Contract or License pursuant hereto, nor shall the Lenders be required or obligated in any manner to perform or fulfill any of the obligations of Grantors under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claim, or to 5 take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Grantors hereby authorize the Agent, at the direction of the Majority Lenders, following the occurrence of an Event of Default, to notify any or all Account Debtors that the Accounts Receivable have been assigned to the Lenders and that the Lenders have a security interest therein. The Agent shall promptly furnish Grantors with a copy of any such notice sent. (c) The Agent, on behalf of the Lenders, shall have the right, at all reasonable times prior to the occurrence of an Event of Default, as defined in Section 8, (and during normal business hours and without notice during the - --------- continuance of an Event of Default), to make on site test verifications of the Accounts Receivable and physical verifications of the Inventory in any manner and through any commercially reasonable medium that it considers advisable, and Grantors agree to furnish all such assistance and information as the Agent may require in connection therewith. Grantors will deliver to the Agent promptly upon request a summary of all reserves for uncollectible accounts, discounts, credits, returns, and allowances reflected on Grantors' books. Section 4. Representations and Warranties. Grantors hereby represent and warrant that: (a) Except as set forth on Schedule 4.15 of the Loan Agreement or as set forth in the Intellectual Property Security Agreement dated as of the date hereof among the parties hereto, and the security interest granted to the Lenders pursuant to this Security Agreement, Grantors are the sole owners of each item of the Collateral in which they purport to grant a security interest hereunder, having good and marketable title thereto, free and clear of any and all liens. No material amounts payable under or in connection with any of its Accounts Receivable or Contracts are evidenced by Instruments or Chattel Paper which have not been delivered to the Lenders. (b) No effective security agreement, financing statement, equivalent security or lien instrument covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed by Grantors in favor of those entities set forth on Schedule 4.15 of the Loan Agreement or the Lenders pursuant to this Security Agreement or financing statements and security documents to be terminated with the proceeds of the Term Loans at or immediately after the closing. (c) This Security Agreement is effective to create a valid and continuing lien on, and perfected security interest in, the Collateral with respect to which a security interest may be perfected by filing financing statements pursuant to the UCC in favor of the Lenders, and to the extent provided for in the UCC, is enforceable as such as against creditors of, and Lenders from, Grantors (other than Lenders of Inventory in the ordinary course of business) and as against any purchaser of real property where any of the Equipment is located and any present or future creditor obtaining a lien on such real property. 6 (d) The principal place of business of each Grantor and the place where their records concerning the Collateral are kept is set forth in Exhibit A --------- attached hereto, and Grantors will not change the principal place of their businesses or remove such records unless they have taken such action as is necessary to cause the security interest of the Lenders in the Collateral to continue to be perfected. Grantors will not change the principal place of their businesses or the place where their records concerning the Collateral are kept without giving ten (10) Business Days prior written notice thereof to the Agent. Each of Grantor's trade names are listed in Exhibit B attached hereto. --------- (e) With respect to the Accounts Receivable, the Lenders may rely on all statements or representations made by Grantors on or with respect to any schedule of accounts furnished to the Lenders by Grantors and, that: (i) they are genuine (subject to reasonable reserves for uncollectible accounts, discounts, credits, returns, and allowances taken or allowed in the ordinary course of business and reflected on Grantors' books from time to time), are in all respects what they purport to be, are not evidenced by a judgment and are evidenced by only one, if any, executed original Instrument, which has been delivered to the Lenders; (ii) they represent undisputed, bona fide transactions completed in accordance with the terms and provisions contained in any documents related thereto; (iii) the net face amounts shown on any such schedule of accounts provided to the Lenders and all statements delivered to the Lenders with respect to the Accounts Receivable are actually and absolutely owing to Grantors (except as reflected in reasonable reserves for uncollectible accounts) and are not contingent for any reason; (iv) to the Grantors' best knowledge, there are no setoffs, counterclaims or disputes existing or asserted with respect thereto and Grantors have not made any agreement with any Account Debtor thereunder for any deduction therefrom, except discounts, credits, returns or allowances allowed by Grantors in the ordinary course of its business for prompt payment, all of which discounts, credits, returns or allowances are reflected in the calculation of the net face amount of the Accounts Receivable to which such discounts, credits, returns or allowances relate; (v) there are no facts, events or occurrences which in any way impair the validity or enforcement thereof or tend to reduce the amount payable thereunder from the net face amount shown on any schedule of accounts furnished to the Lenders and on all statements delivered to the Lenders with respect thereto; (vi) the goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any lien, claim, encumbrance or security interest described in Section 4(a) hereof, or those removed or terminated prior to the date hereof. 7 (f) With respect to Grantors' Inventory and/or Equipment, the Lenders may rely on all statements or representations made by Grantors on or with respect to any schedule of inventory or equipment furnished to the Lenders by Grantors and, unless otherwise indicated in writing by Grantors, that: (i) all Inventory and Equipment is located at locations listed on Exhibit A attached hereto or is Inventory or Equipment which is in transit --------- and is so identified on the relevant schedule thereof; (ii) except as set forth on Exhibit C attached hereto, no --------- inventory or Equipment is under consignment to or from any Person; and (iii) all Inventory (subject to reserves) is currently usable or currently salable in the normal course of Grantors' businesses and all Equipment other than obsolete Equipment and Equipment not being used in the Grantors businesses is in good condition, repair and working order. Section 5. Covenants. Grantors covenant and agree with the Lenders that from and after the date of this Security Agreement and until the Loan Agreement is terminated and all of the Obligations are irrevocably and unconditionally satisfied in full: (a) Financing Statements and Further Documentation. Grantors will ---------------------------------------------- join with the Agent in the execution and filing of such financing statement or statements in the form and content reasonably required by the Lenders. Grantors will pay all costs of filing any financing, continuation or termination statements with respect to the security interest created by this Security Agreement, together with costs and expenses of any lien search required by the Agent, during the term hereof. At any time and from time to time, upon the written request of the Agent, on behalf of the Lenders, and at the sole expense of Grantors, Grantors will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Agent may reasonably deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, using its reasonable best efforts to secure all consents and approvals necessary or appropriate for the assignment to the Lenders of any License or Contract held by Grantors or in which Grantors have any rights not heretofore assigned, the filing of any financing or continuation statements under the UCC with respect to the liens and security interests granted hereby, transferring Collateral to the Agent's possession (if a security interest in such Collateral can be perfected by possession), placing the interest of the Lenders as lienholder on the certificate of title or Certificate of Origin of any vehicle, placing the interest of the Lenders as lienholder on all contracts or agreements constituting Chattel Paper and using its best efforts to obtain waivers of liens from landlords and, if and to the extent required by the Agent, from mortgagees. Grantors also hereby authorize the Agent, on behalf of the Lenders, to file any such financing or continuation statement without the signature of Grantors to the extent permitted by applicable law. 8 (b) Special Collateral. Immediately upon Grantors' receipt of that ------------------ portion of Collateral which is or becomes evidenced by an agreement, Chattel Paper, Instrument and/or Document, including, without limitation, promissory notes, trade acceptances, documents of title and warehouse receipts (the "Special Collateral"), Grantors shall deliver the original thereof to the Agent, on behalf of the Lenders, together with appropriate endorsements or other specific evidence (in form and substance acceptable to the Agent) of assignment thereof to the Lenders. (c) Indemnification. In any suit, proceeding or action brought by --------------- the Agent, on behalf of the Lenders, relating to any Account Receivable, Chattel Paper, Contract, Intangible Asset or Instrument for any sum owning thereunder, or to enforce any provision of any Account Receivable, Chattel Paper, Contract, Intangible Asset or Instrument, Grantors will save, indemnify and keep the Agent, in its capacity as agent, and each of the Lenders harmless from and against all reasonable expenses, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by Grantors of any obligation thereunder, and all such obligations of Grantors shall be and remain enforceable against and only against Grantors and shall not be enforceable against the Agent or Lenders. (d) Compliance with Laws, Etc. Grantors will comply with all material ------------------------- acts, rules, regulations, orders, decrees and directions of any governmental authority, applicable to the Collateral or any part thereof or to the operation of Grantors' business; provided, however, that Grantors may contest any act, -------- ------- regulation, order, decree or direction in any reasonable manner which shall not in the opinion of the Agent or the Majority Lenders, adversely affect the Lenders' rights hereunder or adversely affect the priority of its security interest in the Collateral. (e) Payment of Obligations. Grantors will pay promptly when due all ---------------------- charges imposed upon the Collateral or in respect of its income or profits therefrom and all claims of any kind (including, without limitation, claims for labor, material and supplies) which are not subject to bona fide dispute, except as otherwise provided in the Loan Agreement. (f) Compliance with Terms of Accounts, Etc. Except as expressly -------------------------------------- contemplated by the Loan Agreement, Grantors will perform and comply with all material obligations in respect of Accounts Receivable, Chattel Paper, Contracts and Licenses and all other agreements to which they are a party or by which they are bound. (g) Limitation on Liens on Collateral. Except as to Permitted Liens, --------------------------------- Grantors will not create, permit or suffer to exist, and will defend the Collateral against and take such other action as is necessary to remove, any lien on the Collateral, and will defend the right, title and interest of the Lenders in and to any of Grantors' rights under the Chattel Paper, Contracts, Documents, Intangible Assets and Instruments and to the Equipment and Inventory and in and to the Proceeds thereof against the claims and demands of all persons whomsoever. (h) Limitations on Disposition. Grantors will not sell, lease, -------------------------- transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so except as permitted by the Loan Agreement. 9 (i) Further Identification of Collateral. Grantors will furnish to ------------------------------------ the Agent, as often as the Agent reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail. (j) Notices. After the date hereof, Grantors will advise the Agent ------- promptly after Grantors become aware, in reasonable detail, (i) of any lien, security interest, encumbrance or claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event which would have an adverse effect on the aggregate value of the Collateral or on the security interests created hereunder. (k) Maintenance of Collateral. Grantors covenant to preserve the ------------------------- Collateral for the benefit of the Lenders. Without limiting the generality of the foregoing, and except as otherwise permitted by the Loan Agreement, Grantors shall: (i) cause the Equipment to be maintained and preserved in good condition, repair and working order, ordinary wear and tear excepted, and make all repairs, replacements, additions and other improvements as are reasonably necessary to maintain such Equipment in such good condition; (ii) maintain Inventory sufficient to meet the needs of their businesses; (iii) preserve all beneficial Contracts; (iv) use their reasonable best efforts to assure that (i) the Accounts Receivable are not or shall not be subject to any defense, offset, counterclaim, discount or allowance except as may be stated in a copy of the schedule of accounts invoice delivered by Grantors to the Agent and that the net Accounts Receivable shall be paid in full when due; (ii) no agreement under which any deduction, discount, credit or allowance of any kind may be granted or allowed other than in the ordinary course of Grantors' business shall have been or shall thereafter be made by Grantors with any account party except as indicated in writing to the Agent at or before the time such agreement is made; (iii) all statements made and all net unpaid balances appearing in the schedule of accounts relating to each Account Receivable shall be true and correct in all respects; and (iv) all signatures and endorsements that appear therein shall be genuine and all signatories shall have full capacity to contract; (v) take all commercially reasonable steps necessary to collect all Accounts Receivable; and (vi) pay promptly when due all taxes, assessments, or other charges or liens on the Collateral or any claims (including claims for labor, materials and supplies against the Equipment and Inventory), except for claims being contested in good faith. (l) Continuous Perfection. Grantors will not change their name, --------------------- identity or structure in any manner which might make any financing or continuation statement filed in 10 connection herewith seriously misleading within the meaning of section 9-402(7) of the UCC (or any other then applicable provision of the UCC) unless Grantors shall have given the Agent at least ten (10) Business Days prior written notice thereof and shall have taken all action (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or reasonably requested by the Agent to amend such financing statement or continuation statement so that it is not seriously misleading. (m) Insurance. Grantors will at their own expense maintain insurance --------- covering the Collateral in accordance with the Loan Agreement. At the request of the Agent, all insurance policies shall be furnished to and held by the Agent, on behalf of the Lenders. Grantors hereby assign to the Lenders return premiums, dividends and other amounts which may be or become due upon cancellation of any such policies for any reason whatsoever and directs the insurers to pay the Lenders any sums so due. The Agent is hereby irrevocably appointed as attorney-in-fact to collect return premiums, dividends and other amounts due on any insurance policy and the proceeds of such insurance, to settle any claims with the insurers in the event of loss or damage, to endorse settlement drafts and in the event of a default under this Security Agreement to cancel, assign or surrender any insurance policies. If, while any Obligations are outstanding, any return premiums, dividends, other amounts or proceeds are paid to the Lenders under such policies, the Agent, at the direction of the Majority Lenders, may at its option take either or both of the following actions: (i) apply such return premiums, dividends, other amounts and proceeds in whole or in part to the payment or satisfaction of any of the Obligations in whatever order the Agent determines or (ii) direct the insurance compan(ies) to pay over such return premiums, dividends, other amounts and proceeds in whole or in part to Grantors for the purpose of repairing or replacing the Collateral destroyed or damaged, any return premiums, dividends, other amounts and proceeds so paid over by the Grantors to be secured by this Security Agreement. (n) Collection of Receivables. The Agent may communicate with Account ------------------------- Debtors in order to verify the existence, amount and terms of any Accounts Receivable. The Agent may at any time notify Account Debtors of the Lenders' security interest created hereunder and after an Event of Default require that payments on Accounts Receivable and returns of goods be made directly to the Agent, on behalf of the Lenders. After an Event of Default has occurred and is continuing when requested by the Agent, Grantors shall notify Account Debtors and indicate on all billings that payments and returns are to be made directly to the Agent, on behalf of the Lenders. After an Event of Default has occurred and is continuing the Agent shall have full power to collect, compromise, endorse, sell or otherwise deal with the Accounts Receivable or proceeds thereof and to perform the terms of any contract in order to create Accounts Receivable in the Agent's name or in the name of Grantors. (o) Federal Government Receivables. If any of Grantors' Accounts ------------------------------ Receivable or contract rights arise out of contracts with a governmental body and are subject to the Federal Assignment of Claims Act, as amended, or a similar statute, Grantors shall promptly notify the Agent thereof in writing and execute any instruments and take any action required by the Agent to assure that all monies due and to become due under such contract shall be assigned to the Lenders. 11 (p) Separate Assignment. This Security Agreement may but need not be ------------------- supplemented by separate assignments of Accounts Receivable and contract rights and if such assignments are given, the rights and security interests given thereby shall be in addition to and not in limitation of the rights and security interests given by this Security Agreement. Section 6. The Agent's Appointment as Attorney-in-Fact. (a) Grantors hereby irrevocably constitute and appoint the Agent, on behalf of the Lenders, and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantors and in the name of Grantors or in their own name, following the occurrence of an Event of Default or at any time that the Agent, at the direction of the Majority Lenders, reasonably determines it is necessary to protect the validity or perfection of the liens granted hereunder or the Lenders' interest in the Collateral, from time to time at the reasonable discretion of the Majority Lenders, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to protect the Lenders' interest in the Collateral under this Security Agreement and, without limiting the generality of the foregoing, hereby gives the Agent, on behalf of the Lenders, the power and right, on behalf of Grantors, without notice to or assent by Grantors to do the following: (i) after an Event of Default has occurred and is continuing to ask, demand, collect, receive and give acquittances and receipts for any and all moneys due and to become due under any Collateral and, in the name of Grantors or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other Instruments for the payment of moneys due under any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys due under any Collateral whenever payable and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys due under any Collateral whenever payable; (ii) to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the costs thereof; and (iii) (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due, and to become due thereunder, directly to the Agent, on behalf of the Lenders, or as the Agent shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due, and to become due at any time, in respect of or arising out of any Collateral; (C) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other Documents constituting or relating to the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law 12 or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against Grantors with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clauses (D) and (E) above and, in connection therewith, to give such discharges or releases as the Agent may deem appropriate; (G) to license or, to the extent permitted by an applicable license, sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Patent or Trademark, throughout the world for such term or terms, on such conditions, and in such manner, as the Agent shall determine; and (H) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Lenders were the absolute owner thereof for all purposes, and to do, at the Agent's option and Grantors' expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve or realize upon the Collateral and the Lenders' lien therein, in order to effect the intent of this Security Agreement, all as fully and effectively as Grantors might do. (b) Grantors hereby ratify, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant to this Section 6 is a power coupled with an --------- interest and shall be irrevocable until the Loan Agreement has been terminated. (c) The powers conferred on the Agent and the Lenders hereunder are solely to protect the Lenders' interests in the Collateral and shall not impose any duty upon any Lender or the Agent to exercise any such powers. The Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers and neither the Lenders nor any of their officers, directors, employees or agents shall be responsible to Grantors for any act or failure to act, except for its own gross negligence or willful misconduct. (d) Grantors also authorize the Agent, following the occurrence of an Event of Default, (i) to communicate with any party to any Contract with regard to the assignment of the right, title and interest of Grantors in and under the Contracts hereunder and other matters relating thereto and (ii) to execute, in connection with the sale provided for in Section 8 hereof, any endorsements, --------- assignments or other instruments of conveyance or transfer with respect to the Collateral. Section 7. Performance by the Lenders of Grantors' Obligations. If Grantors fail to perform or comply with any of its agreements contained herein and the Agent or the Lenders, as the case may be, as provided for by the terms of this Security Agreement, shall perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable expenses of the Agent or the Lenders, as the case may be, incurred in connection with such performance or compliance, together with interest thereon at the highest rate then in effect in respect of the Loan Agreement, shall be payable by Grantors to the Agent or the Lenders, as the case may be, on demand and shall constitute Obligations secured hereby. 13 Section 8. Acts Constituting Default. For the purposes of this Security Agreement, the term "Default" or "Event of Default" shall mean the occurrence of any of the following events: (i) failure by the Grantors to perform or comply with any of the terms of this Security Agreement; (ii) failure by the Grantors to make timely payment of any obligation or indebtedness secured by this Security Agreement; or (iii) failure by Grantors to make any payment under the Term Loans when due (by acceleration or otherwise); or (iv) failure by the Grantors or any Subsidiary to perform any term, condition or covenant under the Loan Agreement. Section 9. Remedies, Rights Upon Default. (a) Upon the occurrence and continuance of any Event of Default, the Agent, on behalf of the Lenders, may exercise in addition to all other rights and remedies granted to it in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, Grantors expressly agree that in any such event the Agent, at the direction of the Majority Lenders, without demand of performance or other demand, advertisement or notice of any kind (except notice of a public or private sale as provided in this Section 8(a)) to or upon Grantors or any ------------ other person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker's board or at any of the Lenders' offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Agent and any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantors hereby release. Grantors further agree, at Agent's request, to assemble the Collateral and make it available to Agent, on behalf of the Lenders, at places which the Agent shall reasonably select, whether at Grantors' premises or elsewhere. The Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, as provided in Section ------- 8(d) hereof, Grantors remaining liable for any deficiency remaining unpaid after - ---- such application, and only after so paying over such net proceeds and after the payment by the Agent of any other amount required by any provision of law, including section 9-504(1)(c) of the UCC, need the Agent account for the surplus, if any, to Grantors. To the maximum extent permitted by applicable law, Grantors waive all claims, damages, and demands against the Lenders arising out of the repossession, retention or sale of the Collateral except such as arise out of the gross negligence or willful misconduct of the Agent or the Lenders. Grantors agree that the Agent need not give more than ten (10) days notice (which notification shall be deemed given when mailed or delivered on an overnight basis, postage prepaid, addressed to Grantors at the addresses referred to in Section 11 hereof) of the time and place of any public sale or of ---------- the time after which a private sale may take place and that such notice is reasonable notification of such matters. Grantors shall remain liable for any deficiency if the proceeds of any sale or disposition 14 of the Collateral are insufficient to pay all amounts to which the Lenders, for their benefit, are entitled, Grantors also being liable for the reasonable fees of any attorneys employed by the Lenders to collect such deficiency. (b) Grantors also agree to pay all reasonable costs of the Agent and Lenders, including, without limitation, reasonable attorneys' fees, incurred in connection with the enforcement of any of the Lenders' rights and remedies hereunder. (c) Grantors hereby waive presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. (d) The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by the Lenders in the following order of priorities: (i) first, to the Lenders in an amount sufficient to pay in ----- full the reasonable expenses of the Lenders in connection with such sale, disposition or other realization, including all expenses, liabilities and advances incurred or made by the Agent or the Lenders in connection therewith, including, without limitation, attorneys' fees; and (ii) second, to the Lenders in an amount sufficient to pay in ------ full all outstanding Obligations, including, without limitation all principal and interest accrued under the Tern Loan; and (iii) third, upon payment in full of all of the Obligations, to ----- pay to Grantors, or its representatives or as a court of competent jurisdiction may direct, any surplus then remaining from such proceeds. Section 10. Limitation on the Agent's Duty in Respect of Collateral. The Agent shall use reasonable care with respect to the Collateral in its possession or under its control. The Agent shall not have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. Upon request of Grantors, the Agent shall account for any moneys received by it in respect of any foreclosure on or disposition of the Collateral. Section 11. Reinstatement. This Security Agreement shall remain in full force and effect and continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent conveyance" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 15 Section 12. Notices. Except as otherwise specifically provided in this Security Agreement, all notices and other communications hereunder shall be in writing and shall be delivered in person, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, telecopied or telefaxed to the parties hereto addressed as set forth below, or as to each party set forth below, at such other address as shall be designated by written notice to the other parties hereto from time to time, as follows: To the Agent: DDJ Capital Management, LLC 141 Linden Street Wellesley, MA 02482 Attention: Robert Hockett and Wendy Schnipper-Clayton, Esq. Telefax Number: (781) 283-8555 With copies to: Goodwin Procter LLP Exchange Place Boston, MA 02109 Attention: Laura C. Hodges Taylor Telefax Number: (617) 523-l23l To the Grantors: Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 Attention: President Telefax Number: (509) 667-9696 With copies to: Pacific Aerospace & Electronics, Inc. 110 Main Street, Suite 100 Edmonds, WA 98020 Attention: Sheryl Symonds, Esq. Telefax Number: (425) 774-0103 Milbank, Tweed, Hadley & McCloy, LLP 601 South Figueroa Street, 30/th/ Floor Los Angeles, CA 90017 Attention: Kenneth J. Baronsky, Esq. Telefax Number: (213) 629-5063 Any such notice or demand shall be deemed to have been duly given or made and to have become effective (a) if delivered by hand or overnight courier, or sent by telefax or telex, at the time of the receipt thereof or the sending of such telecopy or facsimile, if during normal business hours on a Business Day, and (b) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. A "Business Day" for purposes of this section shall mean any day other than a Saturday, Sunday or any other day on which commercial banks are required by law or authorized to close in Boston, Massachusetts. 16 Section 13. Severability. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 14. No Waiver; Cumulative Remedies. The Lenders shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder and no waiver shall be valid unless in writing, signed by the Lenders and then only to the extent therein set forth. A waiver by the Lenders of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lenders would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of the Lenders, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the Agent, at the direction of the Majority Lenders, and, where applicable by Grantors. Section 15. Successor and Assigns. This Security Agreement and all obligations of Grantors hereunder shall be binding upon the successors and assigns of Grantors, and shall, together with the rights and remedies of the Lenders hereunder, inure to the benefit of the Lenders, and all future holders of instruments or agreements evidencing the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the security interest granted to the Lenders hereunder. Section 16. Construction. This Security Agreement shall be deemed to be a contract made under the laws of The State of New York and shall be construed in accordance with the laws of The State of New York. The descriptive headings of the several Sections hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 17. Conflict of Terms. Except as otherwise explicitly provided in this Security Agreement, a conflict or inconsistency, if any, between the terms and provisions of this Security Agreement and the terms and provisions of the Loan Agreement, shall be controlled by the terms and provisions of this Security Agreement to the extent of such conflict or inconsistency. Section 18. Further Indemnification. Grantors agrees to pay, and to save and hold the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in Grantors paying, any and all excise, sales or other similar taxes which may be payable or 17 determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Security Agreement. Section 19. Waiver of Jury Trial. The Grantors, the Agent and each of the Lenders hereby waive their respective rights to a jury trial of any claim or cause of action based upon or arising out of this Security Agreement, the Loan Agreement or any other agreement evidencing, securing or otherwise executed in connection with any Obligations. 18 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its duly authorized officer on the date first set forth above. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer AEROMET AMERICA, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President 19 ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President NORTHWEST TECHNICAL INDUSTRIES, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: Executive Vice President 20 PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright --------------------------------------------- Name: Donald A. Wright Title: President Accepted and Acknowledged by: DDJ Capital Management, LLC, as Agent By: /s/ Wendy Landon By: /s/ Wendy Schnipper Clayton -------------------- ------------------------------- Name: Wendy Landon Name: Wendy Schnipper Clayton Title: Authorized Signatory Title: Authorized Signatory 21 EXHIBIT A TO THE SECURITY AGREEMENT Principal Place of Business and Location of Collateral Records -------------------------------------------------------------- The following is a list of the principal place of business of each Grantor and the place where their records concerning the Collateral are kept. Grantor Principal Place of Business - ------- --------------------------- 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 Location of Collateral Records - ------------------------------ All Collateral records are located at either of the following addresses: 1. 430 Olds Station Road Wenatchee, WA 98801 2. 110 Main Street, Suite 100 Edmonds, WA 98020 22 EXHIBIT B TO THE SECURITY AGREEMENT Trade Names ----------- The following is a list of trade names that are registered with the State of Washington, and are the names currently used by the subsidiaries of the Company in their operations. Pacific Aerospace & Electronics, Inc. - U.S. Aerospace Group - Casting Division (Aeromet America) Pacific Aerospace & Electronics, Inc. - Electronics Group - Interconnect Division (Balo Precision Parts) Pacific Aerospace & Electronics, Inc. - U.S. Aerospace Group - Machining Division (Cashmere Manufacturing Co., Inc.) Pacific Aerospace & Electronics, Inc. - U.S. Electronics Group - Filter Division (Ceramic Devices, Inc.) Pacific Aerospace & Electronics, Inc. - U.S. Electronics Group - Display Division (Electronic Specialty Corporation) Pacific Aerospace & Electronics, Inc. - U.S. Electronics Group - Bonded Metals Division (Northwest Technical Industries, Inc.) Pacific Aerospace & Electronics, Inc. - U.S. Electronics Group - Interconnect Division (Pacific Coast Technologies, Inc.) Pacific Aerospace & Electronics, Inc. - U.S. Aerospace Group - Machining Division (Seismic Safety Products, Inc.) Pacific Aerospace & Electronics, Inc. - U.S. Aerospace Group - Engineering & Fabrication Division (Skagit Engineering & Manufacturing, Inc.) Previous names used in operations: - ---------------------------------- Morel Industries, Inc. (former name of Aeromet America, Inc.) Lyden Castparts, Inc. (name of company whose assets were acquired by Aeromet America, Inc.) Displays & Technologies, Inc. (name of company merged into Electronic Specialty Corporation) Nova-Tech Engineering, Inc. (name of company whose assets were acquired by Skagit Engineering & Manufacturing, Inc.) PCT Holdings, Inc. (former name of PA&E) 23 EXHIBIT C TO THE SECURITY AGREEMENT Inventory under Consignment --------------------------- There is no Inventory or Equipment of the Grantors under consignment to or from any Person. 24 EX-99.7 8 0008.txt INTELLECTUAL PROPERTY SECURITY AGREEMENT 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 March 1, 2001 SCHEDULES - --------- 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 ----------------- 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 ---------- hereto and made a part hereof and each patent application identified in such Schedule I, and including, without limitation, (i) all inventions and - ---------- improvements described and claimed therein and the right to make, use, or sell the same, (ii) the right to sue or otherwise recover for any misappropriations thereof, (iii) all 1 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 mark registrations, and applications for trademark or service mark 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, ----------- without limitation, (i) the right to sue 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 mark, 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 - ------------ 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. 2 SECTION 2. Future Intellectual Property Grants. ----------------------------------- Should any Grantor obtain an ownership interest in, adopt, use, acquire or apply for registration of any patent, patent application, patentable invention, trademark, service mark, trade name, trade dress, other indicia of trade origin, trademark or service mark registration, trademark or service mark 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 mark, trade name, trade dress, indicia of trade origin, trademark or service mark registration, or trademark or service mark 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 ------ execution of this Agreement, and thereafter upon any amendment of Schedule I or ---------- II, the Grantors shall execute notices in the form appended hereto as Exhibit A - -- 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 ---------------------------------- 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 ---------------------- 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. 3 SECTION 6. Representations and Warranties. Grantors represent and ------------------------------ 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 ---------- 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 ----------- 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 ------------ 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 sue, ------------ or non-assertion assurance to any Person with respect to any part of the Intellectual Property Collateral. 4 (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 5 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. -------------------------------------- (a) Enforcement of Rights. Grantors agree that from time to time and --------------------- 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 ----------------------- 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 -------------------- to time statements and schedules further identifying and describing the Intellectual Property 6 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 --------------------------- 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 --------------------------------- 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 -------------------- 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 7 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 ------------------------- 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 --------------------------------- 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, sue 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 ------------------ 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 --------------- 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 8 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 -------- 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 -------------------------------- 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. 9 (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 --------- 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 -------- 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 10 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 -------------------------- 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. ------------------------------------- (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. 11 (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 --------------------- 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/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer AEROMET AMERICA, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright ---------------------------------- 14 Name: Donald A. Wright Title: Executive Vice President ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President NORTHWEST TECHNICAL INDUSTRIES, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING, INC. 15 By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright Title: Executive Vice President PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright ---------------------------------- Name: Donald A. Wright 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/ Wendy Schnipper Clayton By: /s/ Wendy Landon ----------------------------- ----------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon 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/ Wendy Schnipper Clayton By: /s/ Wendy Landon ------------------------------ ----------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon Title: Authorized Signatory Title: Authorized Signatory DDJ CANADIAN HIGH YIELD FUND By: DDJ Capital Management, LLC, its attorney-in-fact By: /s/ Wendy Schnipper Clayton By: /s/ Wendy Landon ------------------------------ ---------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon 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/ Andrew Blood ----------------------------- Name: Andrew Blood Title: Assistant Secretary DDJ CAPITAL MANAGEMENT, LLC, as Agent By: /s/ Wendy Schnipper Clayton By: /s/ Wendy Landon ------------------------------ ----------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon 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 Mark Registration No. Registration Date (State) (Serial No.) (Filing Date) - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
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 -----------------------------------------
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28 EX-99.8 9 0009.txt PLEDGE AGREEMENT EXHIBIT 99.8 ------------ PLEDGE AGREEMENT This PLEDGE AGREEMENT is entered into as of March 1, 2001, among (i) Pacific Aerospace & Electronics, Inc., a Washington corporation (the "Company") and 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., Pacific A&E Limited, Pacific Aerospace & Electronics (UK) Limited and Aeromet International PLC (each a "Subsidiary" and together with the Company, the "Pledgors"), and (ii) DDJ Capital Management, LLC, as Agent for the Lenders (as defined below) (in such capacity, the "Agent"). RECITALS Pursuant to the Loan Agreement, dated as of March 1, 2001 (together with the schedules and exhibits thereto, the "Loan Agreement"), among the Company and certain of its subsidiaries, the financial institutions which are now, or hereafter become, parties thereto as lenders (the "Lenders"), and DDJ Capital Management, LLC, as agent for the Lenders (in such capacity, the "Agent"), the Lenders have extended commitments to make Term Loans to the Company and certain of its subsidiaries. It is a condition precedent to the making of the Term Loans under the Loan Agreement that the Pledgors execute and deliver to the Agent a pledge agreement substantially in the form hereof. Accordingly, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS ----------- Section 1.1. Certain Terms. The following terms, when used in this ------------- Agreement, including the introductory paragraph and Recitals hereto, shall, unless the context otherwise requires, have the following meanings: "Agent" is defined in the first paragraph of the Recitals hereto. ----- -------- "Agreement" means this Pledge Agreement. --------- "Capital Stock" means any shares, interests, participation or other ------------- equivalents (howsoever designated) of corporate capital stock or any options, warrants or other rights to subscribe for, or to purchase, or to convert any Property into, or exchange any property for, any such corporate capital stock, options, warrants or other rights. "Distributions" means all stock dividends, liquidating dividends, shares of ------------- stock resulting from stock splits, combinations, reclassifications, mergers, consolidations, warrants, 1 options, non-cash dividends and other dividends or distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other shares of Capital Stock constituting Pledged Collateral, but shall not mean Dividends. "Dividends" means cash dividends and cash distributions with respect to any --------- Pledged Shares made out of capital surplus. "Initial Pledged Shares" means all issued and outstanding shares of Capital ---------------------- Stock of each Pledged Share Issuer identified on Attachment 1. ------------ "Instrument" means any contract, agreement, indenture, mortgage or other ---------- document or writing (whether a formal agreement, letter or otherwise) under which any obligation is evidenced, assumed or undertaken, or any right to any security interest or other lien is granted or perfected. "Lenders" is defined in the first paragraph of the Recitals hereto. ------- -------- "Loan Agreement" is defined in the first paragraph of the Recitals hereto. -------------- -------- "Person" means any individual, sole proprietorship, partnership, joint ------ venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (including any division, agency or department thereof), and, as applicable, the successors, heirs and assigns of each. "Pledged Collateral" is defined in (S)2.1. ------------------ "Pledged Share Issuer" means, with respect to the Pledged Shares identified -------------------- on Attachment 1, the Person identified as the issuer of such Pledged Shares on ------------ Attachment 1, and any other corporation becoming a Pledged Share Issuer - ------------ hereunder after the date hereof. "Pledged Shares" means the Initial Pledged Shares and all other shares of -------------- Capital Stock which are delivered or required to be delivered by any Pledgor to the Agent for the purpose of pledge hereunder. "Pledgors" is defined in the introductory paragraph hereto. -------- "Property" means any interest in any kind of property or asset, whether -------- real, personal or mixed, and whether tangible or intangible. "Secured Parties" means, collectively, the Agent and the Lenders. --------------- "U.C.C." means the Uniform Commercial Code as in effect in The State of New ------ York. Section 1.2. Loan Agreement Definitions. Unless otherwise defined herein -------------------------- or the context otherwise requires, terms used in this Agreement, including the introductory paragraph and Recitals hereto, that are defined in the Loan -------- Agreement shall have the meanings given to such terms in the Loan Agreement. 2 Section 1.3. U.C.C. Definitions. Unless otherwise defined herein or the ------------------ context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Agreement, including the introductory paragraph and Recitals -------- hereto, with such meanings. Section 1.4. General Provisions Relating to Definitions. Terms for which ------------------------------------------ meanings are defined in this Agreement shall apply equally to the singular and plural forms of the term defined. Whenever the context may require, any pronoun ,shall include the corresponding masculine, feminine and neuter forms. The term "including" means including, without limiting the generality of any description preceding such term. Each reference herein to any Person shall include a reference to such Person's successors and assigns. References to any Instrument defined in this Agreement refer to such Instrument as originally executed or, if subsequently amended or supplemented from time to time, as so amended or supplemented and in effect at the relevant time of reference thereto. SECTION 2. PLEDGE ------ Section 2.1. Grant of Security Interest and Pledge. Each of the Pledgors ------------------------------------- hereby pledges, assigns, charges, mortgages, delivers and transfers to the Agent, for the benefit of the Secured Parties, and hereby grants to the Agent, for the benefit of the Secured Parties, a continuing pledge and security interest in and to, all of the following Property of such Pledgor, whether now owned or hereafter acquired or existing (all of such Property being the "Pledged ------- Collateral"): - ---------- (a) all the Initial Pledged Shares owned by such Pledgor; (b) all other Pledged Shares owned by such Pledgor; (c) all Distributions from time to time received by such Pledgor; (d) all other Property (including Dividends) that may, from time to time be delivered or be required to be delivered by such Pledgor to the Agent for the purpose of pledge hereunder; and (e) all products and proceeds of any of the foregoing. Section 2.2. Security for Obligations. This Agreement (and the Pledged ------------------------ Collateral) secures the prompt payment in full and performance when due of all and each of the Lender Obligations of the Pledgors under the Loan Agreement and the other Transaction Documents. In addition, all advances, charges, costs and expenses, including reasonable attorneys' fees, incurred or paid by the Agent in exercising any right, power or remedy conferred by this Agreement, or in the enforcement hereof, shall, to the extent lawful, become a part of the Obligations secured hereby. 3 Section 2.3. Pledge and Delivery of Pledged Collateral. All certificates ----------------------------------------- or instruments representing or evidencing any Pledged Collateral to be delivered on the date hereof or hereafter shall be: (a) delivered to and held by or on behalf of the Agent pursuant hereto; (b) in suitable form for transfer by delivery; and (c) accompanied by all necessary instruments of transfer or assignment (including, with respect to the Pledged Shares, undated stock powers), duly executed in blank, all in form and substance satisfactory to the Agent. Each of the Pledgors shall deliver all of the Initial Pledged Shares owned by such Pledgor to the Agent on or prior to the date hereof. From and after the date hereof, each Pledgor shall, immediately upon its receipt thereof, deliver or cause to be delivered to the Agent in pledge hereunder any and all additional shares of Capital Stock of any Pledged Share Issuer, and all other Pledged Collateral, issued, distributed or sold to, or purchased or otherwise acquired by, such Pledgor. Each Pledgor shall take all other actions from time to time requested by the Agent to grant to the Agent a first priority, perfected security interest in all of the Pledged Collateral. The Agent shall have the right at any time to exchange certificates or instruments representing or evidencing any Pledged Shares for certificates or instruments of smaller or larger denominations. Section 2.4. Continuing Security Interest; Transfer of Note. This ---------------------------------------------- Agreement has created and shall create a continuing security interest in all of the Pledged Collateral and shall: (a) remain in full force and effect until the later of the termination of the Loan Agreement or payment in full in cash of the Term Loan Notes and all other Lender Obligations; (b) be binding upon each Pledgor, and the successors, transferees and assigns of each Pledgor (provided that no Pledgor may -------- assign any of its obligations hereunder without the prior written consent of the Agent); and (c) inure to the benefit of the Secured Parties and their successors, transferees and assigns. Without limiting the foregoing clause (c), any Secured Party may assign or ---------- otherwise transfer (in whole or in part) any Term Loan Note, or other Lender Obligations held by it to any other Person or entity in accordance with the terms of the Loan Agreement, and such other Person shall thereupon become vested with all the benefits in respect thereof granted in this Agreement or otherwise. Upon the later to occur of the termination of the Loan Agreement or the payment in full in cash of each of the Term Loan Notes and all other Lender Obligations, the security interest granted herein by any Pledgor shall terminate and all rights to the Pledged Collateral of such Pledgor shall revert to such Pledgor. Upon any such termination of security interests, the Agent will, at the sole expense of each Pledgor, deliver to such Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing the Pledged Shares, together with all other Pledged Collateral held by 4 the Agent hereunder, and will execute and deliver to each Pledgor such documents as such Pledgor shall reasonably request to evidence such termination. Section 2.5. Security Interest Absolute. All rights of the Agent and the -------------------------- security interests granted hereunder, and all obligations of each of the Pledgors hereunder, shall be absolute and unconditional, irrespective of, and shall not be impaired or affected by: (a) any lack of validity or enforceability of the Loan Agreement, any other Transaction Document, or any Instrument relating to any thereof or to any of the Lender Obligations; (b) any change in the corporate existence, structure or ownership of any of the Pledgors or their Subsidiaries, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any such Person or any Property of any such Person or any resulting release or discharge of any Obligation contained in the Loan Agreement or any other Transaction Document; (c) the failure of any Secured Party (i) to assert any claim or demand or to enforce any right or remedy against such Pledgor, any other Pledgor or any other Person under the provisions of the Loan Agreement or any other Transaction Document or any other Instrument relating to any thereof or under any applicable law, or (ii) to exercise any right or remedy against any Pledged Collateral; (d) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other compromise, renewal, extension, acceleration or release with respect thereto or with respect to the Pledged Collateral, or any other amendment to, rescission, waiver or other modification of, or any consent to any departure from, the Loan Agreement or any other Transaction Document or any other Instrument relating to any thereof; (e) any increase, reduction, limitation, impairment or termination of the Lender Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, or unenforceability of, or, any other event or occurrence affecting, any of the Lender Obligations (and each of the Pledgors hereby waives any right to or claim of any such defense or set-off, counterclaim, recoupment or termination); (f) any sale, exchange, release or non-perfection of any Pledged Collateral, or any release of or amendment to or waiver of or consent to departure from any guaranty or collateral held by the Agent or any other Secured Party securing or guaranteeing all or any of the Lender Obligations; 5 (g) any defense, set-off or counterclaim which may at any time be available to or be asserted by any Pledgor against any other Pledgor or against any Secured Party; or (h) any other circumstances which might otherwise constitute a suretyship or other defense available to, or a legal or equitable discharge of, any of the Pledgors. SECTION 3. REPRESENTATIONS AND WARRANTIES ------------------------------ Section 3.1. Warranties, etc. Each Pledgor represents and warrants to the --------------- Agent, for the benefit of each of the Secured Parties, as set forth herein. The following representations and warranties will be deemed to be made as of the date of each pledge by any Pledgor of any Pledged Collateral to the Agent hereunder. Section 3.1.1. Ownership; No Liens, etc. Such Pledgor is the legal and ------------------------ beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign) all Pledged Collateral purported to be pledged by such Pledgor to the Agent hereunder, free and clear of all security interests and other liens, except for liens created by this Agreement in favor of the Agent or as permitted in the Loan Agreement. Section 3.1.2. Valid Security Interest. The execution and delivery of ----------------------- this Agreement by such Pledgor, and the delivery by such Pledgor to the Agent of the Pledged Collateral purported to be pledged by such Pledgor hereunder, is effective to create, in favor of the Agent for the benefit of the Secured Parties, a valid, perfected, first-priority security interest in such Pledged Collateral, and no filing, action or other approval is or will be necessary to perfect, protect or enforce such security interest. Section 3.1.3. Pledged Shares. All of the Pledged Shares purported to -------------- be pledged by such Pledgor hereunder have been duly authorized and validly issued, are fully paid and non-assessable and constitute all of the issued and outstanding shares of Capital Stock of the applicable Pledged Share Issuer. Section 3.1.4. Authorization; Approval, etc. No authorization, ---------------------------- approval or other action by any governmental authority or any shareholder or creditor has been or will be required either (a) for the pledge by such Pledgor of any Pledged Collateral required to be pledged by such Pledgor under the terms of this Agreement, for the execution, delivery or performance of this Agreement by such Pledgor, or for the validity or enforceability of any such pledge or this Agreement; (b) for the exercise by the Agent of the voting or other rights provided for in this Agreement; or 6 (c) except as may be required in connection with any disposition of Pledged Shares by applicable laws affecting the offering and sale of securities generally for the exercise by the Agent of any of the remedies in respect of the Pledged Collateral purported to be pledged by such Pledgor pursuant to this Agreement. SECTION 4. COVENANTS --------- Section 4.1. Affirmative Covenants of the Pledgor. Each of the Pledgors ------------------------------------ covenants and agrees with the Agent, for the benefit of each of the Secured Parties, and warrants that, until the later of the termination of the Loan Agreement or the payment in full in cash of each of the Term Loan Notes and all other Lender Obligations are irrevocably and unconditionally satisfied in full, the Pledgors will: Section 4.1.1. Protect Collateral; Further Assurances, etc. Defend ------------------------------------------- the right and title herein granted unto the Agent in and to the Pledged Collateral purported to be pledged by such Pledgor hereunder (and all right, title and interest represented or evidenced by such Pledged Collateral) against the claims and demands of any other Person; promptly execute and deliver all further Instruments and other assurances, and take, or cause to be taken, all further action, at the expense of such Pledgor, that may be necessary or desirable, or that the Agent may request, in order to perfect or protect any security interest purported to be granted by such Pledgor under this Agreement or to enable the Agent to exercise or enforce its rights and remedies hereunder with respect to any Pledged Collateral purported to be pledged by such Pledgor hereunder; and furnish to the Agent all such financing statements, certificates, legal opinions and other documents, and obtain all such authorizations and approvals as the Agent may request in order to give full effect to this Agreement and to maintain, preserve, safeguard and continue at all times all or any of the rights, remedies, powers and privileges of the Agent under this Agreement. Section 4.1.2. Stock Powers; Instruments, etc. From time to time upon ------------------------------ the request of the Agent, (a) promptly deliver to the Agent such stock powers, Instruments and similar documents, satisfactory in form and substance to the Agent, with respect to the Pledged Collateral purported to be pledged by such Pledgor hereunder as the Agent may request, and (b) during the continuance of any Event of Default, promptly transfer any Pledged Shares or other shares of Capital Stock constituting any such Pledged Collateral into the name of any nominee designated by the Agent. Section 4.1.3. Continuous Pledge. Keep pledged to the Agent pursuant ----------------- hereto all Pledged Shares and all other shares of Capital Stock constituting Pledged Collateral, and all other Pledged Collateral required to be pledged by such Pledgor hereunder. Section 4.1.4. Voting Rights; Dividends, etc. Deliver (properly ----------------------------- endorsed where required hereby or requested by the Agent) to the Agent: 7 (a) promptly upon receipt thereof by such Pledgor, all Dividends, Distributions and other cash payments and other proceeds received by such Pledgor in respect of the Pledged Collateral purported to be pledged by such Pledgor hereunder, all of which shall be held by the Agent as additional Pledged Collateral for use in accordance with section ------- 6.2; and --- (b) if any Event of Default has occurred and is continuing, promptly upon request of the Agent, such proxies and other documents as may be necessary to allow the Agent to exercise the voting power with respect to any share of Capital Stock (including Pledged Shares) constituting Pledged Collateral purported to be pledged by such Pledgor hereunder. All (i) Dividends, Distributions, cash payments and proceeds which may at any time and from time to time be held by any Pledgor, but which is then required to be delivered to the Agent and (ii) additional Pledged Shares received by any of the Pledgors, shall, in each case, until delivery to the Agent, be held by the Pledgor holding or receiving such Pledged Collateral separate and apart from its other Property in trust for the Agent. Section 4.2. No Other Liens. Each Pledgor agrees with the Agent, for the -------------- benefit of each of the Secured Parties, and warrant that, until later of the termination of the Loan Agreement or the payment in full in cash of each of the Term Loan Notes and all other Lender Obligations, suchg Pledgor will not sell, assign, transfer, pledge, hypothecate or otherwise encumber any of the Pledged Collateral (except ion favor of the Agent pursuant to the terms hereof). Section 4.3. Dividends and Voting Rights Other Than Following an Event of ------------------------------------------------------------ Default. The Agent agrees with each Pledgor that unless an Event of Default is - ------- continuing and the Agent has delivered to the Borrower a notice referring to this section 4.3 and the exercise of rights hereunder (a "4.3 Notice"), such ----------- Pledgor shall be entitled to exercise, in its reasonable judgment, but in a manner that would not impair the Pledged Collateral and that would not be inconsistent with the terms of this Agreement, the Loan Agreement or any other Transaction Document, the voting power and all other incidental rights of ownership with respect to the Pledged Shares or other shares of Capital Stock constituting Pledged Collateral pledged by such Pledgor hereunder. The Agent agrees that, unless an Event of Default is continuing and the Agent shall have delivered a 4.3 Notice, the Agent shall, upon the written request of any Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by such Pledgor to allow such Pledgor to exercise the rights described in herein. SECTION 5. THE AGENT --------- Section 5.1. Agent Appointed Attorney-in-Fact. Each Pledgor hereby -------------------------------- irrevocably appoints the Agent, and any officer or agent thereof, such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time in the Agent's discretion, to take any and all action and to execute any Instrument or other assurance which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including: 8 (a) if an Event of Default has occurred and is continuing, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral pledged by such Pledgor hereunder; (b) to receive, endorse and collect any drafts or other Instruments in connection with clause (a); ---------- (c) to execute and do all such assurances, acts and things which such Pledgor ought to do under the covenants and provisions of this Agreement; (d) to take any and all actions as the Agent may, in its sole and reasonable discretion, determine to be necessary or advisable for the purpose of maintaining, preserving or protecting the security constituted by this Agreement or any of the rights, remedies, powers or privileges of the Agent under this Agreement; and (e) generally, in the name of such Pledgor or in the name of the Agent to exercise all or any of the powers, authorities and discretions conferred on or reserved to the Agent pursuant to this Agreement. Each Pledgor hereby ratifies and confirms, and hereby agrees to ratify and confirm, whatever the Agent shall do or purport to do in the exercise of the power of attorney granted to the Agent pursuant to this section 5.1, which power ----------- of attorney, being given for security, is irrevocable. Section 5.2. Agent Has No Duty. The powers conferred on the Agent ----------------- hereunder are solely to protect its interest (on behalf of the Secured Parties) in the Pledged Collateral and shall not impose any duty on it to exercise any such powers. Except as provided in Section 5.1 and except for accounting for ----------- moneys actually received by it hereunder, the Agent shall have no duty as to any Pledged Collateral or responsibility for taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Collateral except as otherwise required by the U.C.C. Section 5.3. Reasonable Care. The Agent will exercise reasonable care in --------------- the custody and preservation of the Pledged Collateral in its possession; provided, however, that the Agent shall be deemed to have exercised reasonable - -------- ------- care in the custody and preservation of such Pledged Collateral if it takes such action for that purpose as any Pledgor reasonably requests in writing at times other than during the continuance of an Event of Default, but failure of the Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. SECTION 6. REMEDIES -------- Section 6.1. Actions upon Event of Default. ----------------------------- (a) In addition to its rights and remedies provided hereunder, whenever any Event of Default has occurred and is continuing, the Agent shall have all 9 rights and remedies of a secured party upon default under the U.C.C. (whether or not the U.C.C. applies to the affected Pledged Collateral) or other applicable law, and also may, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sales, at any one of the Agent's offices or elsewhere, for cash or credit or for future delivery, without assumption of any credit risk, and upon such other terms as the Agent may deem commercially reasonable. Each Pledgor agrees that, to the extent notice of sale shall be required by applicable law, at least ten (10) business days' notice to each Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been 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, be made at the time and place to which it was so adjourned. Without limitation of the above, the Agent may, whenever any Event of Default is continuing, without prior notice to any Pledgor, take all or any of the following actions: (i) vote any or all of the Pledged Shares (whether or not the same shall have been transferred into its name or the name of its nominee or nominees) for any lawful purpose, give all consents, waivers and ratifications in respect of the Pledged Shares, and otherwise act with respect thereto as though it were the outright owner thereof; (ii) transfer all or any part of the Pledged Collateral into the name of the Agent or its nominee, with or without disclosing that such Pledged Collateral is subject to the lien hereunder; (iii) enforce collection of any of the Pledged Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto; (iv) endorse any checks, drafts or other writings in the name of any Pledgor to allow collection of the Pledged Collateral pledged by such pledgor hereunder; (v) take control of any products or proceeds of the Pledged Collateral; (vi) execute (in the name, place and stead of any Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral; and (vii) generally, do all such other acts and things as may be considered incidental or conducive to any of the matters or powers mentioned in the foregoing provisions of this paragraph (a) and which the Agent may or can do lawfully and to use the name of any Pledgor for such purposes and in any proceedings arising therefrom. 10 (b) If the Agent shall determine to exercise its right to sell any or all of the Pledged Shares pursuant to this section 6.1, and if ----------- in the opinion of counsel for the Agent it is necessary, or if in the reasonable opinion of the Agent it is advisable, to have the Pledged Shares, or that portion thereof to be sold, registered under the provisions of the Securities Act of 1933, as amended (the "Securities Act"), the -------------- Pledgors agree to cause the Pledged Share Issuer to execute and deliver, and cause the directors and officers of the Pledged Share Issuer to execute and deliver, without any cost or expense to any of the Secured Parties, all such Instruments, and to do or cause to be done all such other acts and things as may be necessary or, in the reasonable opinion of the Agent, advisable to register such Pledged Shares under the provisions of the Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for a period of nine (9) months (if the Company or the Pledgor, as applicable to use Form S-3 under the Securities Act) or 120 days if not eligible to use such form from the date such registration statement became effective (or until all of the securities registered thereby have been sold), and to make all amendments thereto or to the related prospectus or both that, in the reasonable opinion of the Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the SEC applicable thereto and substantially in the form of the Registration Rights Agreement executed in connection with the Loan Agreement. The Pledgors agree to cause such Pledged Share Issuer to comply with the provisions of the securities or "Blue Sky" laws of any jurisdiction which the Agent shall designate and to cause such to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of section 11(a) of the Securities Act. (c) Each Pledgor recognizes that the Agent may be unable to effect a public sale of the Pledged Shares by reason of certain prohibitions contained in the Securities Act, and other applicable laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers. Each Pledgor agrees that any such private sales may be at prices and other terms less favorable to the seller than if sold at public sales and that such private sales shall not by reason thereof be deemed not to have been made in a commercially reasonable manner. The Agent shall be under no obligation to delay a sale of any of the Pledged Shares for the period of time necessary to permit the applicable Pledged Share Issuer to register such Pledged Shares for public sale under the Securities Act, or other Applicable Laws, even if such Pledged Share Issuer would agree to do so. (d) So long as an Event of Default has occurred and is continuing, each Pledgor shall, upon the request of the Agent, take or cause to be taken (or, if such Pledgor does not have the legal right to take such action or cause such action to be taken, such Pledgor will use its best efforts to cause such action to be taken), in good faith and promptly, and without any cost or expense to any of the Secured Parties, all such action as may be necessary or desirable, as soon as reasonably practicable, to sell or to effect the sale of the Pledged Shares of any Pledged Share Issuer pledged by such pledgor hereunder. Such action shall include but shall not be limited to the following: (i) such Pledgor shall prepare and deliver to the Agent as soon as practicable, but in any event not later than thirty (30) days after request by the 11 Agent, a written plan for the sale or other disposition of such Pledged Shares, which plan shall be reasonably satisfactory in form and substance to the Majority Lenders; (ii) such Pledgor shall and shall cause any Pledged Share Issuer to retain such investment banking firms, accountants, appraisers and other consultants who are reasonably acceptable to the Majority Lenders to make recommendations with respect to and to assist in such sale, and such Pledgor shall cause such investment banking firms, accountants, appraisers and other consultants to furnish the Agent with all such financial reports, appraisals, opinions and other documents which the Agent shall reasonably request; and (iii) if (and on each occasion that) such Pledgor or any Pledged Share Issuer shall receive from any Person an offer to purchase any such Pledged Shares, such Pledgor shall and shall cause the applicable Pledged Share Issuer to furnish or cause to be furnished to the Agent a written notice setting forth the full particulars thereof, including (A) the name and address of such Person, and (B) the terms of such offer to purchase. Each purchaser of any of the Pledged Shares, and the agreement entered into by such purchaser in connection with such purchase and sale, shall be subject to the prior written agreement, consent or approval of the Majority Lenders. Each Pledgor shall and shall cause each of its Subsidiaries to deliver forthwith to the Agent in the form received, except for the addition of any endorsement or assignment necessary to effect transfer of all rights therein to the Agent, any payment received by such Pledgor or any of its Subsidiaries on account of any such purchase and sale of any such Pledged Shares. Until so delivered, each such payment shall be held in trust for the Agent and shall not be commingled with any other funds of such Pledgor or any of its Subsidiaries. (e) The Agent or any Lender may buy any part or all of the Pledged Collateral at any public sale and if any part or all of the Pledged Collateral is of a type customarily sold in a recognized market, or is of the type which is the subject of widely distributed price standard price quotations, the Agent or any Lender may buy at private sale, and may make payments thereof by any means. Section 6.2. Application of Proceeds. All cash proceeds received by the ----------------------- Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral shall be applied by the Agent in the following order: (a) first, to the Secured Parties, on account of the ----- payment of, or the reimbursement of any Secured Party for, all costs and expenses incurred or sustained by any Secured Party that are required by the terms of this Agreement, the Loan Agreement or any other Transaction Document to be paid or reimbursed by any Pledgor; and (b) second, to the Secured Parties, pro rata, on account ------ of all other Lender Obligations due and payable to such Secured Parties. 12 Any surplus of such cash proceeds held by the Agent and remaining after payment in full of all the Lender Obligations shall be paid over to the Pledgor or Pledgors entitled thereto or to whomsoever else may be lawfully entitled to receive such surplus. Each Pledgor shall remain liable for any deficiency. Section 6.3. Indemnity and Expenses. Each Pledgor hereby jointly and ---------------------- severally agrees to indemnify and hold harmless each Secured Party, and the shareholders, officers, directors, partners, members, employees, agents, advisors, Subsidiaries and Affiliates of each Secured Party, from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including the enforcement thereof), except for any portion of such claims, losses or liabilities which a court of competent jurisdiction has found, in a final, nonappealable order, resulted solely by reason of such Secured Party's gross negligence or willful misconduct. Upon demand, each of the Pledgors will pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts, which the Agent may incur in connection with: (a) the administration of this Agreement or any Instrument relating hereto; (b) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral pledged by such Pledgor hereunder; (c) the exercise or enforcement against any Person of any of the rights of the Agent hereunder; (d) the failure by such Pledgor to perform or observe any of the provisions hereof; or (e) the advancing of any funds in connection with actions taken pursuant to Section 7.3. ----------- Section 6.4. No Waiver; Remedies Cumulative. No delay, act or omission on ------------------------------ the part of the Agent of any of its rights hereunder shall be deemed a waiver of any rights hereunder unless also contained in a writing signed by the Agent, nor shall any single or partial exercise of, or any failure to exercise, any right, power or privilege preclude any other or further or initial exercise thereof or of any other right, power or privilege. The rights and remedies provided herein are cumulative, and not exclusive of rights and remedies which may be granted or provided by applicable law. Section 6.5. Marshalling. Neither the Agent nor any Secured Party shall ----------- be required to marshal any present or future collateral security (including but not limited to this Agreement and the Pledged Collateral) for, or other assurances of payment of, the Lender Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the rights of the Agent hereunder and the Agent or any Secured Party in respect of such collateral security and other assurances of payment shall be cumulative and in addition to 13 all other rights, however existing or arising. To the extent that it lawfully may, each Pledgor hereby agrees that it will not invoke any applicable law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Agent's rights under this Agreement or under any other Instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Pledgor hereby irrevocably waives the benefits of all such laws. SECTION 7. MISCELLANEOUS PROVISIONS ------------------------ Section 7.1. Security Document, etc. For all purposes of the Loan ---------------------- Agreement, this Agreement is a "Transaction Document" executed and delivered pursuant to the Loan Agreement. Section 7.2. Amendments, etc. No amendment to or waiver of any provision --------------- of this Agreement nor consent to any departure by any Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. Section 7.3. Protection of Collateral. The Agent may from time to time, ------------------------ at its option, perform any act which any Pledgor agrees hereunder to perform and which any Pledgor shall fail to perform after being requested in writing to so perform (it being understood that no such request need be given during the continuance of any Default or Event of Default), and the Agent may from time to time take any other action which the Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Pledged Collateral or of the security interests therein. Section 7.4. Addresses for Notices. All notices and other communications --------------------- provided for hereunder shall be in writing or by facsimile transmission and, if to any of the Pledgors, addressed or delivered to it at the address set forth below the signature of the Borrowers hereto, and if to the Agent, addressed or delivered to it at the address set forth in Section 15 of the Loan Agreement, or as to any party at such other address as shall be designated by such party in a written notice to the other parties complying as to delivery with the terms of this Section. Any such notices and other communications, if mailed and properly addressed with postage prepaid or transmitted by facsimile transmission, shall be deemed given when received. Section 7.5. Subordination of Subrogation Rights. The rights which any of ----------------------------------- the Pledgors shall acquire against any of Borrowers or any other Pledgor in the nature of subrogation, indemnity or contribution rights, as a consequence of making any payments to the Agent under this Agreement, or as a consequence of the sale of any of the Pledged Collateral by the Agent pursuant to this Agreement, are, in this section 7.5, collectively called the "Subrogation ----------- Rights." In the event of any bankruptcy or insolvency proceeding involving any Pledgor or any Property of any Pledgor, if all of the Lender Obligations have not been paid in 14 full in cash at the time, the Agent is hereby irrevocably authorized by each Pledgor at any such proceeding: (a) to enforce all of the Subrogation Rights of such Pledgor, either in the name of the Agent or in the name of such Pledgor, by proof of debt, proof of claim, suit or otherwise; (b) to collect any Property of any of the Pledgors distributed or applied by way of dividend or payment on account of such Subrogation Rights, and to apply the same, or the proceeds of any realization thereof, towards the payment of the Lender Obligations until all of the Lender Obligations have been paid in full in cash; and (c) to vote claims arising under or in respect of all such Subrogation Rights. Except as and to the extent otherwise expressly contemplated and permitted by the foregoing provisions of this Section 7.5, so long as any Lender Obligations ----------- remain unpaid, no Pledgor shall take any action of any kind to enforce any of its Subrogation Rights, and no Pledgor shall receive or accept from any Person or Persons any payments or other distributions in respect of any of its Subrogation Rights. Should any payment or distribution on account of any of the Subrogation Rights be received by any Pledgor, such payment or distribution shall be delivered by such Pledgor forthwith to the Agent for the benefit of the Secured Parties in the form received by such Pledgor, except for the addition of any endorsement or assignment necessary to effect transfer of all rights therein to the Agent. Until so delivered, each such payment shall be held by such Pledgor in trust for the benefit of the Secured Parties and shall not be commingled with any other funds of such Pledgor. Section 7.6. Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 7.7. Governing Law. THIS AGREEMENT HAS BEEN EXECUTED AND ------------- DELIVERED IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. Section 7.8. Consent to Jurisdiction. EACH PLEDGOR BY ITS EXECUTION ----------------------- HEREOF (A) HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE 15 SUBJECT MATTER HEREOF OR THEREOF, AND (B) HEREBY WAIVES TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT ANY SUCH PROCEEDING BROUGHT IN ONE OF THE ABOVE-NAMED COURTS IS IMPROPER, OR THAT THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, OR THE SUBJECT MATTER HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT. EACH PLEDGOR HEREBY CONSENTS TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING IN ANY MANNER PERMITTED BY CHAPTER 223A OF THE GENERAL LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, AND AGREES THAT SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED IN OR PURSUANT TO SECTION 7.4 IS REASONABLY CALCULATED TO GIVE ACTUAL NOTICE. ----------- Section 7.9. Counterparts. This Agreement may be executed by the parties ------------ hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Section 7.10. Waiver Of Jury Trial. TO THE EXTENT NOT PROHIBITED BY -------------------- APPLICABLE LAW WHICH CANNOT BE WAIVED, THE AGENT AND EACH PLEDGOR HEREBY WAIVE AND COVENANT THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OBLIGATION OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE AGENT OR ANY PLEDGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PLEDGOR ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ------- 7.10 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE AGENT AND THE OTHER SECURED - ---- PARTIES ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. THE AGENT, THE OTHER SECURED PARTIES OR ANY OF THE PLEDGORS MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 7.10 WITH ANY COURT AS WRITTEN EVIDENCE OF ------------ THE CONSENT OF THE AGENT AND THE PLEDGORS TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ----------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer Address: 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 AEROMET AMERICA, INC. By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright ----------------------------- Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 17 CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright ----------------------------- Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 CERAMIC DEVICES, INC. By: /s/ Donald A. Wright ----------------------------- Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright ----------------------------- Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 18 NORTHWEST TECHNICAL INDUSTRIES, INC. By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 19 SKAGIT ENGINEERING & MANUFACTURING, INC. By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: Executive Vice President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: President Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 PACIFIC A&E LIMITED By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: Director Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 20 PACIFIC AEROSPACE & ELECTRONICS (UK) LIMITED By: /s/ Donald A. Wright --------------------- Name: Donald A. Wright Title: Director Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 AEROMET INTERNATIONAL PLC By: /s/ Donald A. Wright ------------------------------ Name: Donald A. Wright Title: Director Address: c/o Pacific Aerospace & Electronics, Inc. 430 Olds Stations Road, 3/rd/ Floor Wenatchee, WA 98801 21 DDJ CAPITAL MANAGEMENT, LLC, as Agent By: /s/ Wendy Landon By: /s/ Wendy Schnipper Clayton ---------------------- --------------------------- Name: Wendy Landon Name: Wendy Schnipper Clayton Title: Authorized Signatory Title: Authorized Signatory Address: 141 Linden Street Wellesley, MA 02482 22 ATTACHMENT 1 TO THE PLEDGE AGREEMENT Initial Pledged Shares ----------------------
Pledgor Pledge Share Issuer Outstanding Shares Outstanding Certificate Number - ----------------------------------------------------------------------------------------------------------------- PA&E Aeromet America, Inc. 100,000/1/ 3 - ----------------------------------------------------------------------------------------------------------------- Balo Precision Parts, Inc. 100,000/1/ 3 - ----------------------------------------------------------------------------------------------------------------- Cashmere Manufacturing Co., Inc. 1,000/1/ 38 - ----------------------------------------------------------------------------------------------------------------- Ceramic Devices, Inc. 1,000/1/ 2 - ----------------------------------------------------------------------------------------------------------------- Electronic Specialty Corporation 100,000/1/ 2 - ----------------------------------------------------------------------------------------------------------------- Northwest Technical Industries, Inc. 100,000/1/ 2 - ----------------------------------------------------------------------------------------------------------------- Pacific Coast Technologies, Inc. 10,714,726/1/ 67 - ---------------------------------------------------------------------------------------------------------------------- Seismic Safety Products, Inc. 100,000/1/ 3 - ----------------------------------------------------------------------------------------------------------------- Skagit Engineering & Manufacturing, Inc. 100/1/ 2 - ---------------------------------------------------------------------------------------------------------------------- PA&E International, Inc. 100,000/1/ 1 - ----------------------------------------------------------------------------------------------------------------- PA&E Engineering, Inc. 100,000/1/ 1 - ----------------------------------------------------------------------------------------------------------------- PA&E International, Inc. Pacific A&E Limited 12 1 - ----------------------------------------------------------------------------------------------------------------- Pacific A&E Limited Pacific Aerospace & Electronics 1/2/ 2 (UK) Limited - ----------------------------------------------------------------------------------------------------------------- Pacific Aerospace & Aeromet International PLC 1,000,000/2/ - Electronics (UK) Limited - ----------------------------------------------------------------------------------------------------------------- Aeromet International PLC TKR International Limited 9,272,000/2/ 3 /(deferred ordinary shares)/ - ----------------------------------------------------------------------------------------------------------------- TKR International Limited 6,600,000/2/ - (ordinary shares) - ----------------------------------------------------------------------------------------------------------------- TKR Aerospace Limited 13,520/2/ 6 - ----------------------------------------------------------------------------------------------------------------- T.K.R. Group Limited 30,000/2/ 3 - ----------------------------------------------------------------------------------------------------------------- Kent Aerospace Limited 100/2/ 3 - ----------------------------------------------------------------------------------------------------------------- Frank Ford (Aircraft Components) 1,000/2/ 4 Limited - ----------------------------------------------------------------------------------------------------------------- Truflo Turbines Limited 250,000/2/ 4 - -----------------------------------------------------------------------------------------------------------------
_______________________ /1/ Pledge of 100% of the Outstanding Shares /2/ Pledge of 65% of the Outstanding Shares 23 EX-99.9 10 0010.txt WARRANT AGREEMENT EXHIBIT 99.9 ================================================================================ WARRANT AGREEMENT BY AND AMONG PACIFIC AEROSPACE & ELECTRONICS, INC. AND THE HOLDERS NAMED HEREIN March 1, 2001 ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS.................................................................................. 1 --------------------- Section 1.1. Definitions.......................................................................... 1 ------------ ----------- ARTICLE II ISSUANCE, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES................................... 2 ------------------------------------------------------------------- Section 2.1. Warrants to be Issued................................................................ 2 ------------ ---------------------- Section 2.2. Form of Warrant Certificates......................................................... 3 ------------ ---------------------------- Section 2.3. Execution of Warrant Certificates.................................................... 3 ------------ ---------------------------------- Section 2.4. Intentionally Omitted................................................................ 3 ------------ ---------------------- Section 2.5. Transfer and Exchange of Warrant Certificates........................................ 3 ------------ ---------------------------------------------- Section 2.6. Lost, Stolen, Mutilated or Destroyed Warrant Certificates............................ 4 ------------ --------------------------------------------------------- ARTICLE III EXERCISE PRICE AND EXERCISE OF WARRANTS.................................................... 4 --------------------------------------------------- Section 3.1. Exercise Price....................................................................... 4 ------------ -------------- Section 3.2. Registration of Warrant Shares....................................................... 5 ------------ ------------------------------ Section 3.3. Exercise of Warrants................................................................. 5 ------------ --------------------- Section 3.4. Issuance of Warrant Shares........................................................... 6 ------------ -------------------------- Section 3.5. Certificates for Unexercised Warrants................................................ 6 ------------ ------------------------------------- Section 3.6. Reservation of Warrant Shares........................................................ 6 ------------ ----------------------------- Section 3.7. No Impairment........................................................................ 6 ------------ ------------- ARTICLE IV ADJUSTMENTS, NOTICE PROVISIONS AND ISSUANCE OF ADDITIONAL SECURITIES........................ 7 -------------------------------------------------------------------------------- Section 4.1. Adjustment of Exercise Price......................................................... 7 ------------ ---------------------------- Section 4.2. Sales of Certain Securities.......................................................... 8 ------------ ---------------------------- Section 4.3. No Adjustments to Exercise Price..................................................... 9 ------------ -------------------------------- Section 4.4. Adjustment of Number of Shares....................................................... 9 ------------ ------------------------------ Section 4.5. Reorganizations...................................................................... 10 ------------ --------------- Section 4.6. Verification of Computations......................................................... 10 ------------ ---------------------------- Section 4.7. Exercise Price Less Than Par Value................................................... 11 ------------ ---------------------------------- Section 4.8. Notice of Certain Actions............................................................ 11 ------------ -------------------------- Section 4.9. Certificate of Adjustments........................................................... 11 ------------ -------------------------- Section 4.10. Warrant Certificate Amendments....................................................... 11 ------------- ------------------------------ Section 4.11. Fractional Shares.................................................................... 12 ------------- ----------------- ARTICLE V SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION OF WARRANT CERTIFICATES.......... 12 --------------------------------------------------------------------------------------------- Section 5.1. Split Up, Combination, Exchange and Transfer of Warrant Certificates................. 12 ------------ -------------------------------------------------------------------- Section 5.2. Cancellation of Warrant Certificates................................................. 12 ------------ ------------------------------------ ARTICLE VI HOLDER REPRESENTATION AND WARRANTIES........................................................ 13 ----------------------------------------------- Section 6.1. Purchase for Investment.............................................................. 13 ------------ ------------------------
i ARTICLE VII MISCELLANEOUS.............................................................................. 13 ------------------------- Section 7.1. Changes to Agreement................................................................. 13 ------------ --------------------- Section 7.2. Assignment........................................................................... 13 ------------ ---------- Section 7.3. Successor to Company................................................................. 13 ------------ -------------------- Section 7.4. Notices.............................................................................. 13 ------------ ------- Section 7.5. Governing Law........................................................................ 14 ------------ ------------- Section 7.6. Standing............................................................................. 14 ------------ -------- Section 7.7. Headings............................................................................. 15 ------------ -------- Section 7.8. Counterparts......................................................................... 15 ------------ ------------ Section 7.9. Availability of the Agreement........................................................ 15 ------------ ----------------------------- Section 7.10. Entire Agreement..................................................................... 15 ------------- ---------------- Section 7.11. Rights of Warrant Holders............................................................ 15 ------------- ------------------------- EXHIBIT A Form of Warrant Certificate.................................................................. 1 ------------------------------------- Form of Election To Purchase........................................................................... 3 ---------------------------- Assignment............................................................................................. 4 ----------
ii WARRANT AGREEMENT THIS WARRANT AGREEMENT, dated as of March 1, 2001, is entered into by and among Pacific Aerospace & Electronics, Inc., a Washington corporation (the "Company"), and the undersigned holders (the "Holders"). This Agreement is made in connection with the Term Loans made pursuant to that Loan Agreement, dated as of the date hereof, by and among the Company, each of the Company's Subsidiaries, the Holders and DDJ Capital Management, LLC, as agent. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Loan Agreement. WITNESSETH THAT: WHEREAS, the Company proposes to issue and deliver Warrant Certificates evidencing Warrants (each, as defined herein) to acquire up to an aggregate of 4,036,978 shares of the Company's Common Stock, subject to adjustment from time to time as set forth herein (the Common Stock issuable upon exercise of the Warrants being referred to herein as the "Warrant Shares"); WHEREAS, the Company desires to enter into this Agreement to set forth the terms and conditions of the Warrants and the rights of the holders thereof. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- Section 1.1. Definitions. As used in this Agreement, the following terms ----------- shall have the following respective meanings (all terms defined herein in the singular are to have the correlative meanings when used in the plural and vice versa): "Closing Price" means, for any date, the last sale price reported in the ------------- Wall Street Journal or other trade publication regular way or, in case no such reported sale takes place on such date, the average of the last reported bid and asked prices regular way, in either case on the principal national securities exchange on which the Common Stock is listed if that is the principal market for the Common Stock or, if not listed on any national securities exchange or if such national securities exchange is not the principal market for the Common Stock, the average of the closing high bid and low asked prices as reported by The Nasdaq Stock Market, Inc. or its successor, if any, or if the Common Stock is not so reported, as furnished by the National Quotation Bureau, Inc., or if such firm is not then engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business and selected by the Company or, if there is no such firm, as furnished by any NASD member selected by the Company. "Common Stock" means the Common Stock of the Company, par value $.001 ------------ per share. "Date of Exercise" means, with respect to any Warrant, the date on ---------------- which a Warrant to be exercised has been received by the Company (in accordance with Section 7.4 hereof). "Expiration Date" means March 1, 2006. --------------- "Officers' Certificate" means a certificate signed by any two of the --------------------- Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Secretary or an Assistant Secretary of the Company. "Person" means any natural person, corporation, partnership, trust, ------ joint venture, limited liability company, or any other entity or organization. "Restricted Securities" means the Warrants issued on the date hereof --------------------- and any Warrant Shares which have been issued or are issuable upon the exercise of such Warrants until such time as any such Restricted Securities (i) have been sold pursuant to an effective registration statement under the Securities Act, (ii) are distributed to the public pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or (iii) have been otherwise transferred without registration under the Act pursuant to an exemption from the registration requirements of the Securities Act. "Securities Act" means the Securities Act of 1933, as amended from time -------------- to time, or any successor statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. "Trading Days" means, with respect to the Common Stock (i) if the ------------ Common Stock is quoted on the National Market System of the Nasdaq Stock Market, Inc. or any similar system of automated dissemination of quotations of securities prices, days on which trades may be made on such system or (ii) if the Common Stock is listed or admitted for trading on any national securities exchange, days on which such national securities exchange is open for business. "Warrant Certificates" means the certificates representing the -------------------- Warrants. "Warrant Shares" means the shares of Common Stock issuable upon the -------------- exercise of any Warrant. "Warrants" means the Warrants exercisable for shares of Common Stock -------- issued pursuant to this Agreement. ARTICLE II ISSUANCE, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES -------------------------------------------------------- Section 2.1 Warrants to be Issued. The Company will issue Warrants to --------------------- purchase up to an aggregate of 4,036,978 fully paid and nonassessable shares of the Company's Common 2 Stock, subject to the terms hereof, at the Exercise Price (as defined in Section 3.1), subject to adjustment pursuant to the provisions of Article IV hereof. Section 2.2. Form of Warrant Certificates. The Warrant Certificates shall ---------------------------- be issued substantially in the form of Exhibit A attached hereto. In addition, --------- the Warrant Certificates may have such letters, numbers or other marks of identification or designation and such legends, summaries, or endorsements stamped, printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as, in any particular case, may be required to comply with any law or with any rule or regulation of any regulatory authority or agency, or to conform to customary usage. Each Warrant shall evidence the right, subject to the provisions of this Agreement and of the Warrant Certificate, to purchase such number of shares of Common Stock of the Company as set forth in the Warrant Certificate at the Exercise Price (as defined in Section 3.1), subject to adjustment pursuant to the provisions of Article IV hereof. Section 2.3. Execution of Warrant Certificates. The Warrant Certificates --------------------------------- shall be executed on behalf of the Company by its Chairman or President or any Vice President and attested to by its Secretary or Assistant Secretary, either manually or by facsimile signature printed thereon. In case any authorized officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer of the Company either before or after delivery thereof by the Company to the holder thereof, the signature of such person on such Warrant Certificates shall be valid nevertheless, and such Warrant Certificates shall have the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of the Company. Section 2.4. Intentionally Omitted. --------------------- Section 2.5. Transfer and Exchange of Warrant Certificates. --------------------------------------------- (a) Warrant Certificates evidencing Restricted Securities and only such Warrant Certificates will bear a legend in substantially the following form: NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 3 (b) Prior to or concurrently with the transfer or exchange of a Restricted Security or Securities (other than pursuant to an effective registration statement under the Securities Act), the transferor of such Restricted Security or Securities shall, upon request of the Company, deliver to the Company an opinion of counsel, in substance reasonably satisfactory to the Company, to the effect that such Restricted Security or Securities to be issued upon such transfer or exchange will be issued in compliance with applicable Securities laws and/or may be so issued without the foregoing legend. Notwithstanding the foregoing, it shall be understood that no opinion of counsel shall be required for transfers to affiliates of a transferring Holder. (c) No Restricted Security or Securities shall be transferred, unless such transfer is in compliance with all applicable securities laws (including, without limitation, the Securities Act and any applicable state securities laws). (d) Subject to paragraph (a) above, the Company shall register the transfer of all or any whole number of Warrants covered by any outstanding Warrant Certificate upon surrender to the Company of Warrant Certificates accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the Warrant holder or his attorney duly authorized in writing. Upon any such registration of transfer, a new Warrant Certificate shall be issued to the transferee and the Company shall promptly cancel the surrendered Warrant Certificate. Warrant Certificates may be exchanged at the option of the holder thereof, upon surrender, properly endorsed by the holders, to the Company, with written instructions, for other Warrant Certificates representing in the aggregate a like number of Warrants. Section 2.6. Lost, Stolen, Mutilated or Destroyed Warrant Certificates. --------------------------------------------------------- If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Warrant Certificate, or in lieu of or in substitution for a lost, stolen or destroyed Warrant Certificate, a substitute Warrant Certificate, but only upon receipt of evidence of such loss, theft or destruction of such Warrant Certificate, and of the ownership thereof. Any such new Warrant Certificate shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone. ARTICLE III EXERCISE PRICE AND EXERCISE OF WARRANTS --------------------------------------- Section 3.1. Exercise Price. Each Warrant Certificate shall, when signed -------------- by the Chairman or President or any Vice President and attested to by the Secretary or Assistant Secretary of the Company, entitle the holder thereof subject to the provisions thereof and of this Agreement, to purchase from the Company at any time after the date hereof and before 5:00 p.m., Boston time, on the Expiration Date, such number of shares of Common Stock of the Company as set forth in the Warrant Certificate for each of the Warrants specified therein, at a purchase price of $.001 per share (the "Exercise Price") or such adjusted number of shares at such adjusted exercise price as may be established from time to time pursuant to the provisions of Article IV hereof, payable in full in accordance with Section 3.3 hereof, at the time of exercise 4 of the Warrant. Except as the context otherwise requires, the term "Exercise Price" as used in this Agreement shall mean the purchase price of one Warrant Share pursuant to the Warrant Certificates reflecting all appropriate adjustments made in accordance with the provisions of Article IV hereof. Section 3.2. Registration of Warrant Shares. The Company shall secure the ------------------------------ effective registration of the Warrant Shares under the Securities Act and applicable state laws and maintain such registration or qualification in effect, all in accordance with the Registration Rights Agreement dated as of the date hereof. Promptly after a registration statement under the Securities Act covering the Warrant Shares has become effective, the Company shall cause notice thereof together with copies of the prospectus covering the Warrant Shares to be mailed to each holder of a Warrant Certificate. Section 3.3. Exercise of Warrants. -------------------- (a) Warrants may be exercised by surrendering the Warrant Certificate evidencing such Warrants to the Company with the Election to Purchase form attached to the Warrant Certificate duly completed and executed by the holder thereof or his attorney duly authorized in writing (the "Exercise Notice"), accompanied by payment in full, as set forth below, of the Exercise Price for each share of Common Stock as to which Warrants are exercised. Such Exercise Price shall be paid in full by (i) cash or a certified check or a wire transfer in same day funds in an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased, (ii) delivery to the Company of that number of shares of Common Stock, duly endorsed, having an aggregate Fair Market Value (as defined in Section 4.1(d)) equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased or (iii) by any combination of (i) and (ii). In the alternative, the holder of a Warrant Certificate may exercise its right to purchase some or all of the Warrant Shares subject to such Warrant Certificate, on a net basis, such that, without the exchange of any funds, such holder receives that number of Warrant Shares subscribed to pursuant to such Warrant Certificate less that number of shares of Common Stock having an aggregate Fair Market Value at the Date of Exercise equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares subscribed to pursuant to such Warrant Certificate. A Warrant holder may exercise all or any number of whole Warrants represented by a Warrant Certificate. (b) A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of the due surrender for exercise of the Warrant Certificate and payment to the Company of the Exercise Price. Each Person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares at the close of business on the date on which the Warrant Certificate was duly surrendered to the Company and payment of the Exercise Price was made to the Company, irrespective of the date of delivery of such share certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open (whether before or after the Expiration Date in such case). 5 Section 3.4. Issuance of Warrant Shares. As soon as practicable and no -------------------------- later than five (5) business days after the Date of Exercise of any Warrants, the Company shall issue, or cause its transfer agent to issue, a certificate or certificates for the number of full Warrant Shares to which the holder is entitled, registered in accordance with the instructions set forth in the Election to Purchase, together with cash, as provided in Section 4.11 hereof, in respect of any fractional share. All Warrant Shares issued upon the exercise of any Warrants shall be validly authorized and issued, fully paid and non- assessable, free of preemptive rights and free from all taxes, liens, security interests and charges created by the Company in respect of the issuance thereof. Each person in whose name any such certificate for Warrant Shares is issued shall for all purposes be deemed to have become the holder of record of the Common Stock represented thereby on the Date of Exercise of the Warrants resulting in the issuance of such shares, irrespective of the date of issuance or delivery of such certificate for Warrant Shares. Section 3.5. Certificates for Unexercised Warrants. In the event that fewer ------------------------------------- than all of the Warrants represented by a Warrant Certificate are exercised, the Company shall execute and mail, by first-class mail, within ten (10) days of the Date of Exercise, to the holder of such Warrant Certificate, or such other Person as shall be designated in the Election to Purchase, a new Warrant Certificate representing the number of Warrants not exercised. Section 3.6. Reservation of Warrant Shares. The Company shall at all times ----------------------------- reserve and keep available for issuance upon the exercise of Warrants a number of its authorized but unissued shares or treasury shares, or both, of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants. Section 3.7. No Impairment. The Company shall not by any action, including, ------------- without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, stock split, stock dividend or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Warrant holders against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares receivable upon the exercise of the Warrants above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate to assure that the par value of the Common Stock is at all times equal to or less than the Exercise Price (including without limitation approving and submitting to the stockholders of the Company for approval an amendment to the Company's By-Laws to reduce such par value), (c) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Warrant Shares upon the exercise of any Warrant, and (d) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under the Warrants. 6 ARTICLE IV ADJUSTMENTS, NOTICE PROVISIONS AND ISSUANCE ------------------------------------------- OF ADDITIONAL SECURITIES ------------------------ Section 4.1. Adjustment of Exercise Price. Subject to the provisions of ---------------------------- this Article IV, the Exercise Price in effect from time to time shall be subject to adjustment, as follows: (a) In case the Company shall (i) declare a dividend or make a distribution on the outstanding shares of Common Stock in shares of Common Stock or any class thereof, (ii) subdivide or reclassify the outstanding shares of Common Stock or any class thereof into a greater number of shares, or (iii) combine or reclassify the outstanding shares of its Common Stock into a smaller number of shares, the Exercise Price in effect immediately after the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately before such dividend, distribution, subdivision, combination or reclassification, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such dividend, distribution, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event specified above shall occur. (b) In case the Company shall fix a record date for the issuance of rights, options, warrants or convertible or exchangeable securities to all holders of its Common Stock entitling them (for a period expiring within forty- five (45) days after such record date) to subscribe for or purchase shares of its Common Stock at a price per share less than the Fair Market Value on such record date the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the Fair Market Value per share, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that any such rights, options, warrants or convertible or exchangeable securities are not so issued or expire unexercised, the Exercise Price then in effect shall be readjusted to the Exercise Price which would then be in effect if such unissued or unexercised rights, options, warrants or convertible or exchangeable securities had not been issuable. (c) In case the Company shall fix a record date for the making of a distribution to all holders of shares of Common Stock of (i) shares of any class other than Common Stock or (ii) evidences of its indebtedness or (iii) assets (excluding cash dividends or distributions (other than extraordinary cash dividends or distributions), and dividends or distributions referred to in Section 4.1(a) hereof) or (iv) rights, options, warrants or convertible or exchangeable securities (excluding those rights, options, warrants or convertible or exchangeable securities referred to in Section 4.1(b) hereof), then in each such case the Exercise 7 Price in effect immediately thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of shares of Common Stock outstanding on such record date multiplied by the Fair Market Value per share on such record date, less the aggregate fair market value as determined in good faith by the Board of Directors of the Company of said shares or evidences of indebtedness or assets or rights, options, warrants or convertible or exchangeable securities so distributed, and of which the denominator shall be the total number of shares of Common Stock outstanding on such record date multiplied by such Fair Market Value per share. Such adjustment shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Exercise Price then in effect shall be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed. (d) For the purpose of any computation under Section 4.1(b) or 4.1(c) hereof, the "Fair Market Value" per share at any date (the "Computation Date") shall be as follows: (i) if the Common Stock is listed on a national securities exchange or quoted on a national quotation system, the Current Market Price, which shall be deemed to be the average of the Closing Prices of the Common Stock for the five (5) Trading Days immediately preceding the Computation Date; provided, however, that if there shall have occurred prior to the -------- ------- Computation Date any event described in Section 4.1(a), 4.1(b) or 4.1(c) which shall have become effective with respect to market transactions at any time (the "Market-Effect Date") on or after the beginning of such 5-day period, the Closing Price for each Trading Day preceding the Market-Effect Date shall be adjusted, for purposes of calculating such average, by multiplying such Closing Price by a fraction the numerator of which is the Exercise Price as in effect immediately prior to the Computation Date and the denominator of which is the Exercise Price as in effect immediately prior to the Market-Effect Date, it being understood that the purpose of this proviso is to ensure that the effect of such event on the market price of the Common Stock shall, as nearly as possible, be eliminated in order that the distortion in the calculation of the Fair Market Value may be minimized and it being understood that if the Exercise Price may not be adjusted due to the provisions of Section 4.7, for purposes of the calculation above, the Exercise Price shall be deemed the Exercise Price as if it had been adjusted or (ii) there is no public market for Common Stock, the fair market value per share of Common Stock as determined in good faith by the Company's Board of Directors. Section 4.2. Sales of Certain Securities. --------------------------- (a) In case the Company shall on or after the date hereof issue Common Stock or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding Excluded Securities, as defined in Section 4.2(b) below) at a price per (determined as provided in Section 4.2(c) below) share less than the Closing Price of a share of Common Stock on the date of such issuance, then the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of additional shares of Common Stock the Aggregate Consideration Receivable (as defined in Section 4.2(d) below) would purchase at the Closing Price per share on such date, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of additional 8 shares of Common Stock sold or offered for subscription or purchase. Such adjustment shall be made successively whenever such issuance shall occur. To the extent that any such rights, options, warrants or convertible or exchangeable securities are not so issued or expire unexercised, the Exercise Price then in effect shall be readjusted to the Exercise Price which would then be in effect if such unissued or unexercised rights, options, warrants or convertible or exchangeable securities had not been issuable. (b) "Excluded Securities" means (i) rights, options, warrants, or convertible or exchangeable securities issued in any of the transactions described in Section 4.1(b), 4.1(c) and 4.5 hereof; (ii) shares of Common Stock issuable upon exercise of the Warrants; (iii) shares of Common Stock issuable upon exercise of rights, options or warrants or conversion or exchange of convertible or exchangeable securities issued or sold under circumstances causing an adjustment pursuant to this Section 4.2; and (iv) rights, options, warrants, or convertible or exchangeable securities existing as of the date hereof and listed on Schedule 4.27 of the Loan Agreement, provided that the exercise or conversion price of such securities is not changed or amended after the date hereof. (c) The price per share of Common Stock referred to in Section 4.2(a) above shall be determined by dividing (i) the Aggregate Consideration Receivable in respect of the Common Stock, rights, options, warrants or convertible or exchangeable securities issued, by (ii) the total number of shares of Common Stock issued or covered by such rights, options, warrants or convertible or exchangeable securities. (d) "Aggregate Consideration Receivable" means the aggregate amount paid to the Company for the Common Stock, rights, options, warrants or convertible or exchangeable securities, plus the aggregate consideration or premiums stated in such rights, options, warrants or convertible or exchangeable securities to be payable for the shares of Common Stock covered thereby. (e) In case the Company shall sell and issue Common Stock or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, for a consideration consisting, in whole or in part, of property (other than cash) or services or its equivalent, then in determining the "price per share of Common Stock" referred to in Sections 4.2(a) and 4.2(c) above and the "Aggregate Consideration Receivable" referred to in Sections 4.2(a), 4.2(c) and 4.2(d) above, the Board of Directors of the Company shall determine, in good faith and on a reasonable basis, the fair value of said property. Section 4.3. No Adjustments to Exercise Price. No adjustment in the -------------------------------- Exercise Price in accordance with the provisions of Section 4.1(a), 4.1(b) or 4.1(c) or Section 4.2(a) hereof need be made unless such adjustment would amount to a change of at least .5% in such Exercise Price of the Warrant Certificates; provided, however, that the amount by which any adjustment is not made by reason - -------- ------- of the provisions of this Section 4.3 shall be carried forward and taken into account at the time of any subsequent adjustment in the Exercise Price. Section 4.4. Adjustment of Number of Shares. Upon each adjustment of the ------------------------------ Exercise Price pursuant to Section 4.1(a), (b) or (c) or Section 4.2(a) hereof, each Warrant shall thereupon 9 evidence the right to purchase that number of Warrant Shares (calculated to the nearest hundredth of a share) obtained by multiplying the number of Warrant Shares purchasable immediately prior to such adjustment upon exercise of the Warrant by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price in effect immediately after such adjustment. In the event that the Exercise Price may not be adjusted due to the provisions of Section 4.7 hereof, the number of Warrant Shares purchasable upon the exercise of each Warrant shall be adjusted hereunder as if the Exercise Price had been so adjusted. Section 4.5. Reorganizations. In case of any capital reorganization, --------------- other than in the cases referred to in Section 4.1 hereof, or the consolidation or merger of the Company with or into another corporation (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding shares of Common Stock or the conversion of such outstanding shares of Common Stock into shares of other stock or other securities or property), or the sale or conveyance of the property of the Company as an entirety or substantially as an entirety (collectively such actions being hereinafter referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of Warrant Shares theretofore deliverable) the number of shares of stock or other securities or property to which a holder of the number of Warrant Shares which would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant was fully exercisable and had been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of Directors of the Company, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Warrant holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. Any such adjustment shall be made by and set forth in a supplemental agreement prepared by the Company or any successor thereto, between the Company, or any successor thereto, and shall for all purposes hereof conclusively be deemed to be an appropriate adjustment. The Company shall not effect any such Reorganization unless upon or prior to the consummation thereof the successor corporation, (or if the Company shall be the surviving corporation in any such Reorganization and is not the issuer of the shares of stock or other securities or property to be delivered to holders of shares of the Common Stock outstanding at the effective time thereof, then such issuer), shall assume by written instrument the obligation to deliver to the holder of any Warrant Certificate such shares of stock, securities, cash or other property as such holder shall be entitled to purchase in accordance with the foregoing provisions. Section 4.6. Verification of Computations. The Company shall, if ---------------------------- requested by a Holder or Holders of a majority of the outstanding Warrants, select a firm of independent public accountants, which selection may be changed from time to time, to verify each computation and/or adjustment made in accordance with this Article IV. The certificate, report or other written statement of any such firm shall be conclusive evidence of the correctness of any computation made under this Article IV. Promptly upon its receipt of such certificate, report or statement from such firm of independent public accountants, the Company shall deliver a copy thereof to each holder of Warrants 10 Section 4.7. Exercise Price Less Than Par Value. The Exercise Price shall ---------------------------------- not be adjusted below the par value per share of the Common Stock for the purpose of making any adjustment as may be required pursuant to this Article IV. Section 4.8. Notice of Certain Actions. In the event the Company shall: ------------------------- (a) declare any dividend payable in stock to the holders of the Common Stock or make any other distribution in property other than cash to the holders of the Common Stock; (b) offer to the holders of the Common Stock rights to subscribe for or purchase any shares of any class of stock or any other rights or options; or (c) effect any reclassification of the Common Stock (other than a reclassification involving merely the subdivision or combination of outstanding shares of Common Stock) or any capital reorganization or any consolidation or merger (other than a merger in which no distribution of securities or other property is made to holders of Common Stock), or any sale, transfer or other disposition of its property, assets and business substantially as an entirety, or the liquidation, dissolution or winding up of the Company; then, in each such case, the Company shall mail notice of such proposed action to each holder of Warrants at least ten (10) days prior to such action. Such notice shall specify the date on which the books of the Company shall close, or a record be taken, for determining holders of Common Stock entitled to receive such stock dividend or other distribution or such rights or options, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, dissolution, winding up or exchange shall take place or commence, as the case may be, and the date as of which it is expected that holders of record of Common Stock shall be entitled to receive securities or other property deliverable upon such action, if any such date has been fixed. Such notice shall be mailed in the case of any action covered by paragraph (a) or (b) of this Section 4.8, at least ten (10) days prior to the record date for determining holders of the Common Stock for purposes of receiving such payment or offer, and in the case of any action covered by paragraph (c) of this Section 4.8, at least ten (10) days prior to the earlier of the date upon which such action is to take place or any record date to determine holders of Common Stock entitled to receive such securities or other property. Section 4.9. Certificate of Adjustments. Whenever any adjustment is to be -------------------------- made pursuant to this Article IV, the Company shall prepare an Officers' Certificate setting forth such adjustment to be mailed to each transfer agent for the Common Stock and to each holder of a Warrant Certificate at least five (5) days prior thereto, such notice to include in reasonable detail (i) the events precipitating the adjustment, (ii) the computation of any adjustments, and (iii) the Exercise Price and the number of Warrant Shares or the securities or other property purchasable upon exercise of each Warrant after giving effect to such adjustment. Notwithstanding the foregoing, with respect to adjustments made pursuant to Section 4.2(a) hereof, such notice shall be made as soon as practicable thereafter. Section 4.10. Warrant Certificate Amendments. Irrespective of any ------------------------------ adjustments pursuant to this Article IV, Warrant Certificates theretofore or thereafter issued need not be amended or replaced, but certificates thereafter issued shall bear an appropriate legend or other 11 notice of any adjustments; provided the Company may, at its option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of Directors to reflect any adjustment in the Exercise Price and number of Warrant Shares purchasable under the Warrant Certificates and deliver the same to the holders thereof in substitution for existing Warrant Certificates. Section 4.11. Fractional Shares. The Company shall not be required upon ----------------- the exercise of any Warrant to issue fractional Warrant Shares which may result from adjustments in accordance with this Article IV to the Exercise Price or number of Warrant Shares purchasable under each Warrant or otherwise. If more than one Warrant is exercised at one time by the same holder, the number of full Warrant Shares which shall be deliverable shall be computed based on the number of shares deliverable in exchange for the aggregate number of Warrants exercised. With respect to any final fraction of a Warrant Share called for upon the exercise of any Warrant or Warrants, the Company shall pay a cash adjustment to the holders of the Warrants in respect of such final fraction in an amount equal to the same fraction of the Closing Price of a Warrant Share, as determined by the Company on the basis of the Closing Price per share of Common Stock on the business day next preceding the date of such exercise. The holder of each Warrant Certificate, by his acceptance of the Warrant Certificate, shall expressly waive any right to receive any fractional Warrant Share upon exercise of the Warrants. All calculations under this Section 4.11 shall be made to the nearest hundredth of a share. ARTICLE V SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND --------------------------------------------- CANCELLATION OF WARRANT CERTIFICATES ------------------------------------ Section 5.1. Split Up, Combination, Exchange and Transfer of Warrant ------------------------------------------------------- Certificates. Subject to Article II hereof, Warrant Certificates, subject to the - ------------ provisions of Section 5.2, may be split up, combined or exchanged for other Warrant Certificates of the same type representing a like aggregate number of Warrants or may be transferred in whole or in part. Any holder desiring to split up, combine or exchange a Warrant Certificate or Warrant Certificates shall make such request in writing delivered to the Company and shall surrender the Warrant Certificate or Warrant Certificates so to be split up, combined or exchanged. Upon any such surrender for split up, combination, exchange or transfer, the Company shall execute and deliver to the person entitled thereto a Warrant Certificate or Certificates, as the case may be, as so requested. Section 5.2. Cancellation of Warrant Certificates. Any Warrant ------------------------------------ Certificate surrendered upon the exercise of Warrants or for split up, combination, exchange or transfer, or purchased or otherwise acquired by the Company, shall be canceled and shall not be reissued by the Company; and, except as provided in Section 3.5 hereof in case of the exercise of less than all of the Warrants evidenced by a Warrant Certificate or in Section 5.1 in case of a split up, combination, exchange or transfer, no Warrant Certificate shall be issued hereunder in lieu of such cancelled Warrant Certificate. 12 ARTICLE VI HOLDER REPRESENTATION AND WARRANTIES ------------------------------------ Section 6.1. Purchase for Investment. The Holder is (a) acquiring the ----------------------- Warrants and the Warrant Shares for Holder's own account or for one or more separate accounts maintained by Holder or for the account of one or more pension or trust funds and not with a view to the distribution thereof in violation of the securities laws of the United States or any state thereof, provided that the disposition of Holder's property shall at all times be within Holder's control, and (b) is an "accredited investor" as defined in Rule 501 (a) of Regulation D under the Securities Act and able to evaluate the merits and risks of the investment. Holder understands that the Warrants and the Warrant Shares have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or in an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law. ARTICLE VII MISCELLANEOUS ------------- Section 7.1. Changes to Agreement. The Company, when authorized by its -------------------- Board of Directors, may amend or supplement this Agreement with the written consent of the Holder or Holders of a majority of the outstanding Warrants. Section 7.2. Assignment. All the covenants and provisions of this ---------- Agreement by or for the benefit of the Company shall bind and inure to the benefit of their respective successors and assigns. Section 7.3. Successor to Company. The Company will not merge or -------------------- consolidate with or into any other corporation or sell or otherwise transfer its property, assets and business substantially as an entirety to a successor corporation, unless the corporation resulting from such merger, consolidation, sale or transfer (if not the Company) shall expressly assume, by supplemental agreement satisfactory in form and substance to the holders and delivered to the holders, the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Company. Section 7.4. Notices. All notices and other communications provided for or ------- permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by facsimile or overnight courier, addressed as follows: If to the Company, to: Pacific Aerospace & Electronics, Inc. 13 430 Olds Station Road Wenatchee, WA 98801 Attn: President Fax: (509) 667-9696 With copies to: Pacific Aerospace & Electronics, Inc. 110 Main Street, Suite 100 Edmonds, WA 98020 Fax: (425) 774-0103 Milbank, Tweed, Hadley & McCloy LLP 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attn: Kenneth J. Baronsky, Esq. Fax: (213) 629-5063 If to the Holder, if addressed to such holder at the address set forth on the signature page hereto: With a copy to: Goodwin Procter LLP Exchange Place Boston, MA 02109 Attn: Laura Hodges Taylor, P.C. Facsimile:(617) 523-1231 Defects in Notice. Failure to file any certificate or notice or to mail any ----------------- notice, or any defect in any certificate or notice pursuant to this Agreement shall not affect in any way the rights of any holder of a Warrant Certificate or the legality or validity of any adjustment made pursuant to Section 4.1 or Section 4.2 hereof, or any transaction giving rise to any such adjustment, or the legality or validity of any action taken or to be taken by the Company. Section 7.5. Governing Law. This Agreement and each Warrant Certificate ------------- issued hereunder shall be governed by the laws of the State of New York without regard to principles of conflicts of laws thereof. Section 7.6. Standing. Nothing in this Agreement expressed and nothing -------- that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Company and the holders of the Warrant Certificates any right, remedy or claim under or by reason of this Agreement or of any covenant, 14 condition, stipulation, promise or agreement contained herein; and all covenants, conditions, stipulations, promises and agreements contained in this Agreement shall be for the sole and exclusive benefit of the Company and their successors, and the holders of the Warrant Certificates. Section 7.7. Headings. The descriptive headings of the articles and -------- sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 7.8. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. Section 7.9. Availability of the Agreement. The Company shall keep copies ----------------------------- of this Agreement available for inspection by holders of Warrants during normal business hours. Copies of this Agreement may be obtained upon written request addressed to the Company at the address set forth in Section 7.4 hereof. Section 7.10. Entire Agreement. This Agreement, including the Exhibits ---------------- referred to herein and the other writings specifically identified herein or contemplated hereby, is complete, reflects the entire agreement of the parties with respect to its subject matter, and supersedes all previous written or oral negotiations, commitments and writings. Section 7.11. Rights of Warrant Holders. No Warrant Certificate shall ------------------------- entitle the holder thereof to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company. [Remainder of page intentionally left blank] 15 WARRANT AGREEMENT COUNTERPART SIGNATURE PAGE IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the parties as of the day and year first above written. PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation By: /s/ Donald A. Wright ------------------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer 16 HOLDERS: B III Capital Partners, L.P. By: DDJ Capital III, LLC, its General Partner By: DDJ Capital Management, LLC, Manager By: _________________________________________ OR By: /s/ Wendy Landon -- ---------------------------------------- Name: Name: Wendy Landon Title: Member Title: Authorized Signatory By: /s/ Wendy Schnipper Clayton ----------------------------------------- Name: Wendy Schnipper Clayton Title: Authorized Signatory
Notice Address: - -------------- B III Capital Partners, L.P. c/o DDJ Capital Management, LLC Attn: Wendy Schnipper Clayton, Esq. 141 Linden Street, Suite 4 Wellesley, MA 02482-7910 Phone: (781) 283-8500 Fax: (781) 283-8541 Wire Instructions: - ----------------- [Wiring Instructions hereto have been omitted] Domestic Physical Delivery Instructions: - --------------------------------------- Goldman Sachs & Co. 180 Maiden Lane 9/th/ Floor New York, NY 10038 Attn: Jeanette Fazioli Telephone: 212-357-6192 A/C# 002-041291 Please register all securities (private and public) in the following manner: Goldman Sachs & Company FFC B III Capital Partners, L.P. Federal ID Number 04-3341099 17 B III-A Capital Partners, L.P. By: GP III-A, LLC, its General Partner By: DDJ Capital Management, LLC, Manager By: _______________________________ OR By: /s/ Wendy Landon -- ------------------------------- Name: Name: Wendy Landon Title: Member Title: Authorized Signatory By: /s/ Wendy Schnipper Clayton -------------------------------- Name: Wendy Schnipper Clayton Title: Authorized Signatory Notice Address: - -------------- B III-A Capital Partners, L.P. c/o DDJ Capital Management, LLC Attn: Wendy Schnipper Clayton, Esq. 141 Linden Street, Suite 4 Wellesley, MA 02482-7910 Phone: (781) 283-8500 Fax: (781) 283-8541 Wire Instructions: - ----------------- [Wiring Instructions hereto have been omitted] Domestic Physical Delivery Instructions: - --------------------------------------- Goldman Sachs & Co. 180 Maiden Lane 9/th/ Floor New York, NY 10038 Attn: Jeanette Fazioli Telephone: 212-357-6192 A/C# 002-060861 Please register all securities (private and public) in the following manner: Goldman Sachs & Company FFC B III-A Capital Partners, L.P. Federal ID Number 04-3495504 18 DDJ Canadian High Yield Fund By: DDJ Capital Management, LLC, Its attorney-in-fact By: _______________________________ OR By: /s/ Wendy Landon -- -------------------------------- Name: Name: Wendy Landon Title: Member Title: Authorized Signatory By: /s/ Wendy Schnipper Clayton --------------------------------- Name: Wendy Schnipper Clayton Title: Authorized Signatory
Notice Address: - -------------- DDJ Canadian High Yield Fund c/o DDJ Capital Management, LLC Attn: Wendy Schnipper Clayton, Esq. 141 Linden Street, Suite 4 Wellesley, MA 02482-7910 Phone: (781) 283-8500 Fax: (781) 283-8541 Wire Instructions: - ----------------- [Wiring Instructions hereto have been omitted] Physical Delivery Instructions: - ------------------------------ U.S. Settlements The Bank of New York One Wall Street 3/rd/ Floor New York, NY 10286 Attn: Window A Account Number 298310 (Taxable) Royal Trust, Toronto Canadian Settlements Royal Trust Corporation of Canada Royal Bank Plaza Banking Hall Level Securities Cage 200 Bay Street Toronto, ON M5J 2J5 Contact: Nazin Shermohammed (416-955-3221) Please register all public and private securities in the following manner: 19 for Canada securities: Royal Trust Corporation In Trust for Account Number 110455023 for US Securities: Hare & Co. Canadian Tax ID Number: T18-2858-48 20 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/ Andrew Blood --------------------------------------------- Name: Andrew Blood Title: Assistant Secretary Wire Instructions (FED Wire): - ---------------------------- [Wiring Instructions hereto have been omitted] Domestic Physical Delivery Instructions For DVP/RVP: DTC/New York Window Acct: State Street 55 Water Street Plaza Level - 3/rd/ Floor New York, NY 10041 Account Name: General Motors Employees Global Group Pension Trust For Free Receipts/Free Deliveries: Ana Barnes/Mary Winer Securities Processing Division State Street Bank 225 Franklin Street Boston, MA 02110 Account Name: General Motors Employees Global Group Pension Trust Account Number: 7M2E Please register all securities (private and public) in the following nominee name: Southlake & Co. LEGAL NAME: State Street Bank & Trust, as Custodian for General Motors Employees Global Group Pension Trust Federal ID Number: 13-3160892 21 EXHIBIT A --------- Form of ------- Warrant Certificate ------------------- NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. No. DDJ- _______ Certificate for _________Shares NOT EXERCISABLE AFTER 5:00 P.M., BOSTON TIME, ON MARCH ___, 2006 PACIFIC AEROSPACE & ELECTRONICS, INC. COMMON STOCK PURCHASE WARRANT CERTIFICATE THIS CERTIFIES that _____________________ or its assigns is the holder of this Warrant which represents the right to purchase [____________] fully paid and non-assessable shares of Common Stock, par value $.001 per share (the "Common Stock"), of Pacific Aerospace & Electronics, Inc., a Washington corporation (the "Company"), at an initial exercise price (the "Exercise Price") equal to $.001 per share, at the times provided in the Warrant Agreement (as hereinafter defined), by surrendering this Warrant Certificate, with the Election to Purchase attached hereto duly executed and by paying in full the Exercise Price. Payment of the Exercise Price may be made at the option of the holder hereof by (i) cash, certified check or a wire transfer in same day funds in an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased, (ii) delivery to the Company of that number of shares of Common Stock, duly endorsed, having an aggregate Fair Market Value equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased or (iii) by any combination of (i) and (ii). In the alternative, the holder of a Warrant Certificate may exercise its right to purchase some or all of the Warrant Shares subject to such Warrant Certificate, on a net basis, such that, without the exchange of any funds, such holder receives that number of Warrant Shares subscribed to pursuant to such Warrant Certificate less that number of shares of Common Stock having an aggregate Fair Market Value at the Date of Exercise equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares subscribed to pursuant to such Warrant Certificate. No Warrant may be exercised after 5:00 P.M., Boston time, on March ___, 2006, (the "Expiration Date"). All Warrants evidenced hereby shall thereafter become void, subject to the terms of the Warrant Agreement. Prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may appear on this Warrant Certificate and in accordance with the terms of the Warrant Agreement, the holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate to the Company with the Assignment on the reverse hereof. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrants will be issued in accordance with instructions in the form of assignment. Upon the exercise of less than all of the Warrants evidenced by this Warrant Certificate, there shall be issued to the holder a new Warrant Certificate in respect of the Warrants not exercised. Prior to the Expiration Date, the holder shall be entitled to exchange this Warrant Certificate, with or without other Warrant Certificates, for another Warrant Certificate or Warrant Certificates for the same aggregate number of Warrants, upon surrender of this Warrant Certificate to the Company as set forth in the Warrant Agreement. Upon certain events provided for in the Warrant Agreement, the Exercise Price and the number of shares of Common Stock issuable upon the exercise of each Warrant are required to be adjusted. No fractional shares will be issued upon the exercise of Warrants. As to any final fraction of a share which the holder of one or more Warrant Certificates, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay the cash value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with the Warrant Agreement dated as of March ___, 2001 between the Company and the holders and is subject to the terms and provisions contained in said Warrant Agreement, to all of which terms and provisions the holder consents by acceptance hereof. All capitalized terms not defined herein shall have the meaning set forth in the Warrant Agreement. This Warrant Certificate shall not entitle the holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of stockholders or any other proceedings of the Company. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its facsimile Corporate Seal. PACIFIC AEROSPACE & ELECTRONICS, INC. By: _________________________________ Name: Donald A. Wright Title: President and Chief Financial Officer [Seal] Attest: By: _________________________________ Name: Nick Gerde Title: Assistant Secretary Form of Election To Purchase The undersigned hereby irrevocably elects to exercise this Warrant with respect to [________________] shares of Common Stock represented by this Warrant Certificate and to purchase such shares of Common Stock issuable upon the exercise of said Warrant, and requests that Certificates for such shares be issued and delivered as follows: ISSUE TO: ---------------------------------------------------------------------- (NAME) - -------------------------------------------------------------------------------- (ADDRESS, INCLUDING ZIP CODE) - -------------------------------------------------------------------------------- (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO: - -------------------------------------------------------------------------------- (NAME) at ------------------------------------------------------------------------------ (ADDRESS, INCLUDING ZIP CODE) If the number of shares hereby purchased is less than all the shares represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the number of full shares not exercised be issued and delivered as set forth above. In full payment of the exercise price with respect to the shares purchased and transfer taxes, if any, the undersigned hereby tenders payment of $______ by (i) $_______ in cash, certified check or wire transfer in same day funds, (ii) surrender to the Company of certificate no(s) ____________ representing ______ shares of Common Stock, (iii) a combination of (i) an (ii) or (iv) purchasing the shares on a net basis such that the number of shares of Common Stock otherwise receivable by the holder pursuant to the Warrants exercised shall be reduced by the number of shares of Common Stock having an aggregate Fair Market Value equal to the exercise price with respect to the number of shares purchased. Date:_________________, _____ ______________________________________ Signature (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) PLEASE INSERT SOCIAL SECURITY OR TAX I.D. NUMBER OF HOLDER -------------------------------------- Assignment ---------- FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of shares set forth below: Name of Assignee Address No. of Shares ---------------- ------- ------------- and does hereby irrevocably constitute and appoint ____________________________, Attorney, to make such transfer on the books of Pacific Aerospace & Electronics, Inc. maintained for that purpose, with full power of substitution in the premises. Date:_________________, _____ ________________________________ Signature EX-99.10 11 0011.txt WARRANT CERTIFICATE B III CAPITAL PARTNERS, L.P. EXHIBIT 99.10 WARRANT CERTIFICATE NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. No. DDJ- 1 March 1, 2001 Certificate for 1,883,923 Shares NOT EXERCISABLE AFTER 5:00 P.M., Boston TIME, ON March 1, 2006 PACIFIC AEROSPACE & ELECTRONICS, INC. COMMON STOCK PURCHASE WARRANT CERTIFICATE THIS CERTIFIES that B III Capital Partners, L.P. or its assigns is the holder of this Warrant which represents the right to purchase 1,883,923 fully paid and non-assessable shares of Common Stock, par value $.001 per share (the "Common Stock"), of Pacific Aerospace & Electronics, Inc., a Washington corporation (the "Company"), at an initial exercise price (the "Exercise Price") equal to $.001 per share, at the times provided in the Warrant Agreement (as hereinafter defined), by surrendering this Warrant Certificate, with the Election to Purchase attached hereto duly executed and by paying in full the Exercise Price. Payment of the Exercise Price may be made at the option of the holder hereof by (i) cash, certified check or a wire transfer in same day funds in an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased, (ii) delivery to the Company of that number of shares of Common Stock, duly endorsed, having an aggregate Fair Market Value equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased or (iii) by any combination of (i) and (ii). In the alternative, the holder of a Warrant Certificate may exercise its right to purchase some or all of the Warrant Shares subject to such Warrant Certificate, on a net basis, such that, without the exchange of any funds, such holder receives that number of Warrant Shares subscribed to pursuant to such Warrant Certificate less that number of shares of Common Stock having an aggregate Fair Market Value at the Date of Exercise equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares subscribed to pursuant to such Warrant Certificate. No Warrant may be exercised after 5:00 P.M., Boston time, on March 1, 2006, (the "Expiration Date"). All Warrants evidenced hereby shall thereafter become void, subject to the terms of the Warrant Agreement. Prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may appear on this Warrant Certificate and in accordance with the terms of the Warrant Agreement, the holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate to the Company with the Assignment on the reverse hereof. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrants will be issued in accordance with instructions in the form of assignment. Upon the exercise of less than all of the Warrants evidenced by this Warrant Certificate, there shall be issued to the holder a new Warrant Certificate in respect of the Warrants not exercised. Prior to the Expiration Date, the holder shall be entitled to exchange this Warrant Certificate, with or without other Warrant Certificates, for another Warrant Certificate or Warrant Certificates for the same aggregate number of Warrants, upon surrender of this Warrant Certificate to the Company as set forth in the Warrant Agreement. Upon certain events provided for in the Warrant Agreement, the Exercise Price and the number of shares of Common Stock issuable upon the exercise of each Warrant are required to be adjusted. No fractional shares will be issued upon the exercise of Warrants. As to any final fraction of a share which the holder of one or more Warrant Certificates, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay the cash value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with the Warrant Agreement dated as of March 1, 2001 between the Company and the holders and is subject to the terms and provisions contained in said Warrant Agreement, to all of which terms and provisions the holder consents by acceptance hereof. All capitalized terms not defined herein shall have the meaning set forth in the Warrant Agreement. This Warrant Certificate shall not entitle the holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of stockholders or any other proceedings of the Company. 2 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed on the date first set forth above. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright -------------------- Name: Donald A. Wright Title: President and Chief Financial Officer Attest: By: /s/ Nick Gerde -------------- Name: Nick Gerde Title: Assistant Secretary 3 FORM OF ELECTION TO PURCHASE The undersigned hereby irrevocably elects to exercise this Warrant with respect to [________________] shares of Common Stock represented by this Warrant Certificate and to purchase such shares of Common Stock issuable upon the exercise of said Warrant, and requests that Certificates for such shares be issued and delivered as follows: ISSUE TO: ___________________________________________________________________________ (NAME) ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) _______________________________________________________________________________ (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO: ___________________________________________________________________________ (NAME) at _____________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) If the number of shares hereby purchased is less than all the shares represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the number of full shares not exercised be issued and delivered as set forth above. In full payment of the exercise price with respect to the shares purchased and transfer taxes, if any, the undersigned hereby tenders payment of $______ by (i) $_______ in cash, certified check or wire transfer in same day funds, (ii) surrender to the Company of certificate no(s) ____________ representing ______ shares of Common Stock, (iii) a combination of (i) an (ii) or (iv) purchasing the shares on a net basis such that the number of shares of Common Stock otherwise receivable by the holder pursuant to the Warrants exercised shall be reduced by the number of shares of Common Stock having an aggregate Fair Market Value equal to the exercise price with respect to the number of shares purchased. Date:_________________, _____ ____________________________________ Signature (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) PLEASE INSERT SOCIAL SECURITY OR TAX I.D. NUMBER OF HOLDER 4 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of shares set forth below: Name of Assignee Address No. of Shares ---------------- ------- ------------- and does hereby irrevocably constitute and appoint ______________________________, Attorney, to make such transfer on the books of Pacific Aerospace & Electronics, Inc. maintained for that purpose, with full power of substitution in the premises. Date:_________________, _____ ___________________________________ Signature 5 EX-99.11 12 0012.txt WARRANT CERTIFICATE B III-A CAPITAL PARTNERS, L.P. EXHIBIT 99.11 Warrant Certificate ------------------- NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. No. DDJ- 2 March 1, 2001 Certificate for 807,396 Warrants NOT EXERCISABLE AFTER 5:00 P.M., Boston TIME, ON March 1, 2006 PACIFIC AEROSPACE & ELECTRONICS, INC. COMMON STOCK PURCHASE WARRANT CERTIFICATE THIS CERTIFIES that B III-A Capital Partners, L.P. or its assigns is the holder of 807,396 Warrants, each of which represents the right to purchase 807,396 fully paid and non-assessable shares of Common Stock, par value $.001 per share (the "Common Stock"), of Pacific Aerospace & Electronics, Inc., a Washington corporation (the "Company"), at an initial exercise price (the "Exercise Price") equal to $.001 per share, at the times provided in the Warrant Agreement (as hereinafter defined), by surrendering this Warrant Certificate, with the Election to Purchase attached hereto duly executed and by paying in full the Exercise Price. Payment of the Exercise Price may be made at the option of the holder hereof by (i) cash, certified check or a wire transfer in same day funds in an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased, (ii) delivery to the Company of that number of shares of Common Stock, duly endorsed, having an aggregate Fair Market Value equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased or (iii) by any combination of (i) and (ii). In the alternative, the holder of a Warrant Certificate may exercise its right to purchase some or all of the Warrant Shares subject to such Warrant Certificate, on a net basis, such that, without the exchange of any funds, such holder receives that number of Warrant Shares subscribed to pursuant to such Warrant Certificate less that number of shares of Common Stock having an aggregate Fair Market Value at the Date of Exercise equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares subscribed to pursuant to such Warrant Certificate. No Warrant may be exercised after 5:00 P.M., Boston time, on March 1, 2006, (the "Expiration Date"). All Warrants evidenced hereby shall thereafter become void, subject to the terms of the Warrant Agreement. Prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may appear on this Warrant Certificate and in accordance with the terms of the Warrant Agreement, the holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate to the Company with the Assignment on the reverse hereof. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrants will be issued in accordance with instructions in the form of assignment. Upon the exercise of less than all of the Warrants evidenced by this Warrant Certificate, there shall be issued to the holder a new Warrant Certificate in respect of the Warrants not exercised. Prior to the Expiration Date, the holder shall be entitled to exchange this Warrant Certificate, with or without other Warrant Certificates, for another Warrant Certificate or Warrant Certificates for the same aggregate number of Warrants, upon surrender of this Warrant Certificate to the Company as set forth in the Warrant Agreement. Upon certain events provided for in the Warrant Agreement, the Exercise Price and the number of shares of Common Stock issuable upon the exercise of each Warrant are required to be adjusted. No fractional shares will be issued upon the exercise of Warrants. As to any final fraction of a share which the holder of one or more Warrant Certificates, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay the cash value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with the Warrant Agreement dated as of March 1, 2001 between the Company and the holders and is subject to the terms and provisions contained in said Warrant Agreement, to all of which terms and provisions the holder consents by acceptance hereof. All capitalized terms not defined herein shall have the meaning set forth in the Warrant Agreement. This Warrant Certificate shall not entitle the holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of stockholders or any other proceedings of the Company. 2 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed on the date first set forth above. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ------------------------------- Name: Donald A. Wright Title: President and Chief Financial Officer Attest: By: /s/ Nick Gerde ------------------------------- Name: Nick Gerde Title: Assistant Secretary 3 Form of Election To Purchase ---------------------------- The undersigned hereby irrevocably elects to exercise ___________ of the Warrants represented by this Warrant Certificate and to purchase the shares of Common Stock issuable upon the exercise of said Warrants, and requests that Certificates for such shares be issued and delivered as follows: ISSUE TO: ______________________________________________________________________ (NAME) ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) ________________________________________________________________________________ (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO: ______________________________________________________________________ (NAME) at _____________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) If the number of Warrants hereby exercised is less than all the Warrants represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the number of full Warrants not exercised be issued and delivered as set forth above. In full payment of the exercise price with respect to the Warrants exercised and transfer taxes, if any, the undersigned hereby tenders payment of $______ by (i) $_______ in cash, certified check or wire transfer in same day funds, (ii) surrender to the Company of certificate no(s) ____________ representing ______ shares of Common Stock, (iii) a combination of (i) an (ii) or (iv) exercising the Warrants exercised on a net basis such that the number of shares of Common Stock otherwise receivable by the holder pursuant to the Warrants exercised shall be reduced by the number of shares of Common Stock having an aggregate Fair Market Value equal to the exercise price with respect to the Warrants exercised. Date:_________________, _____ ___________________________________ Signature (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) PLEASE INSERT SOCIAL SECURITY OR TAX I.D. NUMBER OF HOLDER 4 Assignment ---------- FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of Warrants set forth below: Name of Assignee Address No. of Warrants ---------------- ------- --------------- and does hereby irrevocably constitute and appoint ______________________________, Attorney, to make such transfer on the books of Pacific Aerospace & Electronics, Inc. maintained for that purpose, with full power of substitution in the premises. Date:_________________, _____ ___________________________________ Signature 5 EX-99.12 13 0013.txt WARRANT CERTIFICATE DDJ CANADIAN HIGH YIELD FUND EXHIBIT 99.12 Warrant Certificate ------------------- NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. No. DDJ- 3 March 1, 2001 Certificate for 538,263 Warrants NOT EXERCISABLE AFTER 5:00 P.M., Boston TIME, ON March 1, 2006 PACIFIC AEROSPACE & ELECTRONICS, INC. COMMON STOCK PURCHASE WARRANT CERTIFICATE THIS CERTIFIES that DDJ Canadian High Yield Fund or its assigns is the holder of 538,263 Warrants, each of which represents the right to purchase 538,263 fully paid and non-assessable shares of Common Stock, par value $.001 per share (the "Common Stock"), of Pacific Aerospace & Electronics, Inc., a Washington corporation (the "Company"), at an initial exercise price (the "Exercise Price") equal to $.001 per share, at the times provided in the Warrant Agreement (as hereinafter defined), by surrendering this Warrant Certificate, with the Election to Purchase attached hereto duly executed and by paying in full the Exercise Price. Payment of the Exercise Price may be made at the option of the holder hereof by (i) cash, certified check or a wire transfer in same day funds in an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased, (ii) delivery to the Company of that number of shares of Common Stock, duly endorsed, having an aggregate Fair Market Value equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased or (iii) by any combination of (i) and (ii). In the alternative, the holder of a Warrant Certificate may exercise its right to purchase some or all of the Warrant Shares subject to such Warrant Certificate, on a net basis, such that, without the exchange of any funds, such holder receives that number of Warrant Shares subscribed to pursuant to such Warrant Certificate less that number of shares of Common Stock having an aggregate Fair Market Value at the Date of Exercise equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares subscribed to pursuant to such Warrant Certificate. No Warrant may be exercised after 5:00 P.M., Boston time, on March 1, 2006, (the "Expiration Date"). All Warrants evidenced hereby shall thereafter become void, subject to the terms of the Warrant Agreement. Prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may appear on this Warrant Certificate and in accordance with the terms of the Warrant Agreement, the holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate to the Company with the Assignment on the reverse hereof. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrants will be issued in accordance with instructions in the form of assignment. Upon the exercise of less than all of the Warrants evidenced by this Warrant Certificate, there shall be issued to the holder a new Warrant Certificate in respect of the Warrants not exercised. Prior to the Expiration Date, the holder shall be entitled to exchange this Warrant Certificate, with or without other Warrant Certificates, for another Warrant Certificate or Warrant Certificates for the same aggregate number of Warrants, upon surrender of this Warrant Certificate to the Company as set forth in the Warrant Agreement. Upon certain events provided for in the Warrant Agreement, the Exercise Price and the number of shares of Common Stock issuable upon the exercise of each Warrant are required to be adjusted. No fractional shares will be issued upon the exercise of Warrants. As to any final fraction of a share which the holder of one or more Warrant Certificates, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay the cash value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with the Warrant Agreement dated as of March 1, 2001 between the Company and the holders and is subject to the terms and provisions contained in said Warrant Agreement, to all of which terms and provisions the holder consents by acceptance hereof. All capitalized terms not defined herein shall have the meaning set forth in the Warrant Agreement. This Warrant Certificate shall not entitle the holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of stockholders or any other proceedings of the Company. 2 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed on the date first set forth above. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ------------------------------------ Name: Donald A. Wright Title: President and Chief Financial Officer Attest: By: /s/ Nick Gerde ------------------------------------ Name: Nick Gerde Title: Assistant Secretary 3 Form of Election To Purchase ---------------------------- The undersigned hereby irrevocably elects to exercise ___________ of the Warrants represented by this Warrant Certificate and to purchase the shares of Common Stock issuable upon the exercise of said Warrants, and requests that Certificates for such shares be issued and delivered as follows: ISSUE TO: ________________________________________________________________________ (NAME) ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) ________________________________________________________________________________ (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO: ________________________________________________________________________ (NAME) at _____________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) If the number of Warrants hereby exercised is less than all the Warrants represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the number of full Warrants not exercised be issued and delivered as set forth above. In full payment of the exercise price with respect to the Warrants exercised and transfer taxes, if any, the undersigned hereby tenders payment of $______ by (i) $_______ in cash, certified check or wire transfer in same day funds, (ii) surrender to the Company of certificate no(s) ____________ representing ______ shares of Common Stock, (iii) a combination of (i) an (ii) or (iv) exercising the Warrants exercised on a net basis such that the number of shares of Common Stock otherwise receivable by the holder pursuant to the Warrants exercised shall be reduced by the number of shares of Common Stock having an aggregate Fair Market Value equal to the exercise price with respect to the Warrants exercised. Date:_______________, ____ ________________________________________ Signature (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) PLEASE INSERT SOCIAL SECURITY OR TAX I.D. NUMBER OF HOLDER 4 Assignment ---------- FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of Warrants set forth below: Name of Assignee Address No. of Warrants ---------------- ------- --------------- and does hereby irrevocably constitute and appoint ____________________________, Attorney, to make such transfer on the books of Pacific Aerospace & Electronics, Inc. maintained for that purpose, with full power of substitution in the premises. Date:_______________, ____ ________________________________ Signature 5 EX-99.13 14 0014.txt WARRANT CERTIFICATE STATE STREET BANK & TRUST EXHIBIT 99.13 Warrant Certificate ------------------- NEITHER THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE ISSUANCE OF ANY SECURITIES ISSUABLE UPON EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER OR (ii) AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. No. DDJ- 4 March 1, 2001 Certificate for 807,396 Warrants NOT EXERCISABLE AFTER 5:00 P.M., Boston TIME, ON March 1, 2006 PACIFIC AEROSPACE & ELECTRONICS, INC. COMMON STOCK PURCHASE WARRANT CERTIFICATE THIS CERTIFIES that State Street Bank & Trust, as Custodian for General Motors Employees Global Group Pension Trust or its assigns is the holder of 807,396 Warrants, each of which represents the right to purchase 807,396 fully paid and non-assessable shares of Common Stock, par value $.001 per share (the "Common Stock"), of Pacific Aerospace & Electronics, Inc., a Washington corporation (the "Company"), at an initial exercise price (the "Exercise Price") equal to $.001 per share, at the times provided in the Warrant Agreement (as hereinafter defined), by surrendering this Warrant Certificate, with the Election to Purchase attached hereto duly executed and by paying in full the Exercise Price. Payment of the Exercise Price may be made at the option of the holder hereof by (i) cash, certified check or a wire transfer in same day funds in an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased, (ii) delivery to the Company of that number of shares of Common Stock, duly endorsed, having an aggregate Fair Market Value equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased or (iii) by any combination of (i) and (ii). In the alternative, the holder of a Warrant Certificate may exercise its right to purchase some or all of the Warrant Shares subject to such Warrant Certificate, on a net basis, such that, without the exchange of any funds, such holder receives that number of Warrant Shares subscribed to pursuant to such Warrant Certificate less that number of shares of Common Stock having an aggregate Fair Market Value at the Date of Exercise equal to the aggregate Exercise Price that would otherwise have been paid by such holder for the number of Warrant Shares subscribed to pursuant to such Warrant Certificate. No Warrant may be exercised after 5:00 P.M., Boston time, on March 1, 2006, (the "Expiration Date"). All Warrants evidenced hereby shall thereafter become void, subject to the terms of the Warrant Agreement. Prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may appear on this Warrant Certificate and in accordance with the terms of the Warrant Agreement, the holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate to the Company with the Assignment on the reverse hereof. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrants will be issued in accordance with instructions in the form of assignment. Upon the exercise of less than all of the Warrants evidenced by this Warrant Certificate, there shall be issued to the holder a new Warrant Certificate in respect of the Warrants not exercised. Prior to the Expiration Date, the holder shall be entitled to exchange this Warrant Certificate, with or without other Warrant Certificates, for another Warrant Certificate or Warrant Certificates for the same aggregate number of Warrants, upon surrender of this Warrant Certificate to the Company as set forth in the Warrant Agreement. Upon certain events provided for in the Warrant Agreement, the Exercise Price and the number of shares of Common Stock issuable upon the exercise of each Warrant are required to be adjusted. No fractional shares will be issued upon the exercise of Warrants. As to any final fraction of a share which the holder of one or more Warrant Certificates, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay the cash value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with the Warrant Agreement dated as of March 1, 2001 between the Company and the holders and is subject to the terms and provisions contained in said Warrant Agreement, to all of which terms and provisions the holder consents by acceptance hereof. All capitalized terms not defined herein shall have the meaning set forth in the Warrant Agreement. This Warrant Certificate shall not entitle the holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of stockholders or any other proceedings of the Company. 2 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed on the date first set forth above. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ----------------------------------- Name: Donald A. Wright Title: President and Chief Financial Officer Attest: By: /s/ Nick Gerde ----------------------------------- Name: Nick Gerde Title: Assistant Secretary 3 Form of Election To Purchase ---------------------------- The undersigned hereby irrevocably elects to exercise ___________ of the Warrants represented by this Warrant Certificate and to purchase the shares of Common Stock issuable upon the exercise of said Warrants, and requests that Certificates for such shares be issued and delivered as follows: ISSUE TO: _______________________________________________________________________ (NAME) ________________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) ________________________________________________________________________________ (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO: _______________________________________________________________________ (NAME) at _____________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) If the number of Warrants hereby exercised is less than all the Warrants represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the number of full Warrants not exercised be issued and delivered as set forth above. In full payment of the exercise price with respect to the Warrants exercised and transfer taxes, if any, the undersigned hereby tenders payment of $______ by (i) $_______ in cash, certified check or wire transfer in same day funds, (ii) surrender to the Company of certificate no(s) ____________ representing ______ shares of Common Stock, (iii) a combination of (i) an (ii) or (iv) exercising the Warrants exercised on a net basis such that the number of shares of Common Stock otherwise receivable by the holder pursuant to the Warrants exercised shall be reduced by the number of shares of Common Stock having an aggregate Fair Market Value equal to the exercise price with respect to the Warrants exercised. Date: ______________, ____ ______________________________________ Signature (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) PLEASE INSERT SOCIAL SECURITY OR TAX I.D. NUMBER OF HOLDER 4 Assignment ---------- FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of Warrants set forth below: Name of Assignee Address No. of Warrants ---------------- ------- --------------- and does hereby irrevocably constitute and appoint ________________________, Attorney, to make such transfer on the books of Pacific Aerospace & Electronics, Inc. maintained for that purpose, with full power of substitution in the premises. Date:_________________, _____ _________________________ Signature 5 EX-99.14 15 0015.txt EQUITY REGISTRATION RIGHTS AGREEMENT EXHIBIT 99.14 ------------- EQUITY REGISTRATION RIGHTS AGREEMENT ------------------------------------ THIS EQUITY REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of --------- March 1, 2001, by and among Pacific Aerospace & Electronics, Inc., a Washington corporation (the ("Company") and the entities listed on the signature pages and ------- Schedule A hereto as Holders (the "Holders"). - ---------- This Agreement is made in connection with the Term Loans made pursuant to Loan Agreement, dated as of the date hereof, by and among the Company, each of the Company's Subsidiaries, the Holders and DDJ Capital Management, LLC, as agent (the "Loan Agreement"). In order to induce the Holders to enter into the Loan Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Loan Agreement. In consideration of the foregoing, the parties hereby agree as follows: Section 1. Definitions. ----------- As used in this Agreement, the following terms shall have the following meanings: "Advice" has the meaning set forth in Section 5. ------ "Affiliate" means, with respect to any specified Person, any other Person --------- who, directly or indirectly, controls, is controlled by, or is under common control with such specified Person. "Business Day" means any day other than a day on which banks are authorized ------------ or required to be closed in the Commonwealth of Massachusetts or Washington State. "Commission" means the United States Securities and Exchange Commission. ---------- "Common Stock" means the common stock, par value $.001 per share, of the ------------ Company. "Company" has the meaning set forth in the preamble and shall include the ------- Company's successors by merger, acquisition, reorganization or otherwise. "Controlling Persons" has the meaning set forth in Section 7(a). ------------------- "Damages" has the meaning set forth in Section 5(a). ------- "Exchange Act" means the Securities Exchange Act of 1934, as amended from ------------ time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Holder" means each holder of Registrable Securities. ------ "Holders' Counsel" means Goodwin Procter LLP, special counsel to the ---------------- Holders, or any successor counsel selected by Holders of a majority in interest of the Registrable Securities. "Inspectors" has the meaning set forth in Section 5(m). ---------- "NASD" has the meaning set forth in Section 5(q). ---- "Nasdaq" has the meaning set forth in Section 5(o). ------ "Objection Notice" has the meaning set forth in Section 5(a). ---------------- "Objecting Party" has the meaning set forth in Section 5(a). --------------- "Person" means any individual, corporation, partnership, joint venture, ------ association, joint-stock company, trust, limited liability company, unincorporated organization or government or other agency or political subdivision thereof. "Piggy-Back Registration" has the meaning set forth in Section 4(a). ----------------------- "Prospectus" means the prospectus included in any Registration Statement ---------- (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Public Offering" means a public offering of Securities registered on Form --------------- S-1 or Form S-3 (or any successor or equivalent forms) under the Securities Act for the Company's own or others' account. "Loan Agreement" has the meaning set forth in the preamble to this -------------- Agreement. "Records" has the meaning set forth in Section 5(m). ------- "Registrable Securities" means the Securities; provided, however, that any ---------------------- -------- ------- Securities shall cease to be Registrable Securities when (i) a Registration Statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of by the holder thereof pursuant to such effective Registration Statement, (ii) such Registrable Securities are transferred by the holder thereof to any Person, other than a Holder, pursuant to Rule 144 (or any successor rule or similar provision then in effect, but not Rule 144A) under the Securities Act, including a sale pursuant to the provisions of Rule 144(k), or (iii) such Securities shall have ceased to be outstanding. 2 "Registration Expenses" has the meaning set forth in Section 6. --------------------- "Registration Statement" means any registration statement of the Company ---------------------- that covers any of the Registrable Securities pursuant to the provisions of this Agreement (including any Demand Registration Statement and any Shelf Registration Statement), and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Required Filing Date" has the meaning set forth in Section 2(a). -------------------- "Securities" means (i) all shares of Common Stock issued or issuable to any ---------- Holder upon exercise of the Warrants and (ii) all shares of Common Stock directly or indirectly issued or issuable in respect of the securities referred to in clause (i) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. "Securities Act" means the Securities Act of 1933, as amended from time to -------------- time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Share or Shares" means a share or shares of Common Stock which are --------------- Registrable Securities. "Shelf Registration Statement" has the meaning set forth in Section 2(a). ---------------------------- "Suspension Notice" has the meaning set forth in Section 5. ----------------- "Suspension Period" has the meaning set forth in Section 5. ----------------- "Target Effective Date" means the date 120 days after the earlier of (i) --------------------- the Required Filing Date or (ii) the date on which the Shelf Registration Statement is filed with the Commission. "Target Effective Period" means the period of time between the date on ----------------------- which a Shelf Registration Statement is actually declared effective and the later of (i) the date which is 24 months following the date hereof, and (ii) the date which is three months after the date on which a Holder ceases to be an Affiliate of the Company. "Warrant Agreement" means the Warrant Agreement, dated as of the date ------------------- hereof, between the Company and the Holders from time to time. "Warrants" means the warrants to acquire Common Stock issued pursuant to -------- the Warrant Agreement. Section 2. Shelf Registration. ------------------ 3 (a) Filing; Effectiveness. Subject to Section 2(c) below, as soon as --------------------- practicable but not later than 30 days after the date hereof (the "Required Filing Date"), the Company shall prepare and file with the Commission a "shelf" registration statement (the "Shelf Registration Statement") on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any successor rule or similar provision then in effect) covering all of the Registrable Securities. The Company shall use its best efforts to have the Shelf Registration Statement declared effective on or before the Target Effective Date and to keep such Shelf Registration Statement continuously effective for the Target Effective Period. Any Holder of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities from a Shelf Registration Statement at any time prior to the effective date of such Shelf Registration Statement. (b) Supplements; Amendments. The Company agrees to supplement or ----------------------- amend the Shelf Registration Statement, as required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or as reasonably requested (which request shall result in the filing of a supplement or amendment) by any Holder of Registrable Securities to which such Shelf Registration Statement relates, and the Company agrees to furnish to the Holders, Holders' Counsel and any managing underwriter copies of any such supplement or amendment prior to its being used and/or filed with the Commission. (c) Liquidated Damages. If the Shelf Registration Statement is not ------------------ filed on or before the Required Filing Date, the Company shall pay liquidated damages to each Holder in an amount equal to $.01 per Share per month beginning on the Required Filing Date. If the Shelf Registration Statement is filed, but has not become effective on or before the Target Effective Date, the Company shall pay liquidated damages to each Holder in an amount equal to $.01 per Share per month beginning on the Target Effective Date. The monthly liquidated damages payable by the Company to the Holders as a result of a late filing or a late declaration of effectiveness shall increase by an amount equal to $.01 per Share per month 90 days after the Required Filing Date or the Target Effective Date, as the case may be, and shall thereafter increase by an amount equal to $.01 per Share per month at the end of each subsequent 90 day period for so long as the Shelf Registration Statement is not filed or is not declared effective, as the case may be. If a stop order is imposed or if for any other reason the effectiveness of the Shelf Registration Statement is suspended during the Target Effective Period, then the Company shall pay liquidated damages to each Holder of the Registrable Securities in an amount equal to $.01 per Share per month beginning on the date of such stop order or other suspension of effectiveness. The monthly liquidated damages payable by the Company to the Holders as a result of the imposition of a stop order or such other suspension of the effectiveness of the Shelf Registration Statement during the Target Effective Period shall increase by an amount equal to $.01 per Share per month 90 days after the stop order was imposed or the effectiveness of the Shelf Registration Statement was otherwise suspended, and shall thereafter increase by an amount equal to $.01 per Share per month at the end of each subsequent 90 day period for so long as the effectiveness of the Shelf Registration Statement remains suspended, up to a maximum amount of liquidated damages equal to $.05 per Share per month. For purposes of the two preceding sentences, the Holders will not be entitled to receive liquidated damages under this Agreement during a Suspension Period (as hereinafter defined) except to the extent 4 permitted by Section 5 of this Agreement. The Registrable Securities with respect to which liquidated damages shall accrue and be payable in accordance with this Section 2(c) shall be only those Registrable Securities held by the Holders which are included or proposed to be included in the Shelf Registration Statement. In the event payment of such Liquidated Damages is prohibited by the Indenture governing the Company's 11 1/4% Senior Subordinated Notes due 2005, such Liquidated Damages together with interest thereon at the rate of 15% per quarter, shall accrue until such payment is no longer prohibited. The liquidated damages payable by the Company to the Holders pursuant to this Section 2(c) shall be deemed to commence accruing on the day on which the event triggering such liquidated damages occurs. Such liquidated damages shall cease to accrue (i) with respect to the liquidated damages payable as a result of the Company's failure to file the Shelf Registration Statement on or prior to the Required Filing Date, on the day after the Shelf Registration Statement is filed, (ii) with respect to the liquidated damages payable as a result of the Company's failure to have the Shelf Registration Statement declared effective on or prior to the Target Effective Date, on the day after the Shelf Registration Statement is declared effective, or (iii) with respect to the liquidated damages payable as a result of the imposition of a stop order or the suspension for any other reason of the effectiveness of the Shelf Registration Statement, on the day after the stop order is withdrawn or the effectiveness of the Shelf Registration Statement is otherwise reinstated. Notwithstanding the foregoing, if the sole reason why (i) the Company has not filed the Shelf Registration Statement on or before the Required Filing Date and/or (ii) the Shelf Registration Statement has not become effective on or before the Target Effective Date, is because the Holders did not provide the Company with information which is required to be disclosed in the Shelf Registration Statement and which the Company requested the Holders to so provide in writing at least 7 Business Days prior to the Required Filing Date and/or the Target Effective Date, as the case may be, the Company's obligation to pay liquidated damages with respect to such late filing or such late declaration of effectiveness will not begin to accrue until 5 Business Days after the Holders have provided such information to the Company. The Company shall pay the liquidated damages due with respect to any Registrable Securities at the end of each month during which such liquidated damages accrue. Liquidated damages shall be paid to the Holders of Registrable Securities entitled to receive such liquidated damages by wire transfer of immediately available funds to the accounts designated by such Holders. The parties hereto agree that the liquidated damages provided for in this Section 2 constitute a reasonable estimate as of the date hereof of the damages that will be suffered by Holders of Registrable Securities by reason of the failure of the Shelf Registration Statement to be filed, to be declared effective and/or to remain effective, as the case may be, in accordance with this Agreement. However, the right of the Holders to be paid the liquidated damages provided for in this Section 2(c) is not intended to be and shall not be construed or deemed to be an exclusive remedy, it being understood that the Holders shall have the full right to pursue all available remedies at law or in equity for any breach by the Company of any of its obligations under this Agreement. 5 (d) Effective Registration. A registration will not be deemed to ---------------------- have been effected as a Shelf Registration Statement unless the Shelf Registration Statement with respect thereto has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that -------- ------- if after the Shelf Registration Statement has been declared effective, the offering of Registrable Securities pursuant to such Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Shelf Registration Statement will be deemed not to have become effective during the period of such interference (and liquidated damages shall accrue and be payable under Section 2(c)) until the offering of Registrable Securities pursuant to such Shelf Registration Statement may legally resume. If a registration requested pursuant to this Section 2 is deemed not to have been effected, then the Company shall continue to be obligated to effect a registration pursuant to this Section 2. (e) Selection of Underwriter. If the Holders so elect, the ------------------------ offering of Registrable Securities pursuant to a Shelf Registration Statement shall be in the form of an underwritten offering. If they so elect, such Holders shall select one or more nationally recognized firms of investment bankers to act as the book-running managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering; provided, however, that such selections shall be subject to the consent of the Company, which consent shall not be unreasonably withheld. Section 3. Intentionally Omitted. --------------------- Section 4. Piggy-Back Registration. ----------------------- (a) Request for Registration. After 30 days following the date ------------------------ hereof, each time the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its securityholders of any class of equity security (other than (i) a registration statement on Form S-4 or S-8 (or any substitute form that is adopted by the Commission) or (ii) a registration statement filed in connection with an exchange offer or the offering of securities solely to the Company's existing securityholders), then the Company shall give written notice of such proposed filing to each Holder of Registrable Securities as soon as practicable (but in no event less than 10 days before the anticipated filing date), and such notice shall offer such Holder the opportunity to register such number of shares of Registrable Securities as each such Holder may request (which request must be made in writing and shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof) (a "Piggy-Back Registration"). The Company shall permit, or, if the offering relating to a Piggy-Back Registration is an underwritten offering, shall use its best efforts to cause the managing underwriter or underwriters of such proposed underwritten offering to permit, the Registrable Securities requested to be included in such Piggy-Back Registration to be included on the same terms and conditions as any 6 similar securities of the Company or any other securityholder included therein and shall permit, or use its best efforts to cause such managing underwriter or underwriters to permit, the sale or other disposition of such Registrable Securities in accordance with such Holder's intended method of distribution thereof. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 4 by giving written notice to the Company of such withdrawal. The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective, provided that the Company shall give immediate notice of such withdrawal to the Holders who requested Registrable Securities to be included in such Piggy-Back Registration and shall reimburse such Holders for all reasonable out-of-pocket expenses (including counsel fees and expenses) incurred prior to such withdrawal. (b) Reduction of Offering. In connection with an underwritten --------------------- offering where Holders have requested a Piggy-Back Registration pursuant to Section 4(a), the Company shall use its best efforts to cause all Registrable Securities requested to be included in such Piggy-Back Registration to be included as provided in Section 4(a). If the managing underwriter or underwriters of any such Piggy-Back Registration which is an underwritten offering have informed, in writing, the Holders requesting inclusion of Registrable Securities in such offering that it is their opinion that the total number of shares which the Company, Holders of Registrable Securities and any other Persons participating in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then the number of shares to be offered for the account of all such other Persons (other than the Company and the Holders) participating in such Piggy-Back Registration shall be reduced or limited (to zero if necessary) pro --- rata in proportion to the respective number of shares requested to be included - ---- in such offering by such Persons to the extent necessary to reduce the total number of shares requested to be included in such offering to the number of shares, if any, recommended by such managing underwriter or underwriters. Although the specific shares of Common Stock disposed of pursuant to a Piggy-Back Registration will cease to be Registrable Securities, the mere registration of Registrable Securities under this Section 4 shall not relieve the Company of its obligation to effect or maintain a Shelf Registration Statement pursuant to Section 2. No failure by the Holders to elect a Piggy- Back Registration under this Section 4 or to complete the sale of Registrable Securities pursuant to the registration statement effected in connection therewith, and no withdrawal of Registrable Securities from a Piggy-Back Registration, shall relieve the Company of any other obligation under this Agreement. Section 5. Registration Procedures. ----------------------- (I) In connection with the obligations of the Company to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, the Company shall effect the registration of such Registrable Securities in accordance with the intended method of distribution thereof as quickly as practicable, and in connection therewith: (a) The Company shall prepare and file with the Commission a Registration Statement on the appropriate form under the Securities Act, which Registration Statement 7 shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; provided, however, that, -------- ------- at least 10 Business Days prior to filing a Registration Statement or Prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Registration Statement, the Company shall furnish to the Holders of the Registrable Securities covered by such Registration Statement, Holders' Counsel and the underwriters, if any, draft copies of all such documents proposed to be filed, which documents will be subject to the review of Holders' Counsel and the underwriters, if any, and the Company will not, unless required by law or this Agreement, file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto to which Holders holding a majority in interest of the Registrable Securities covered by such Registration Statement or the underwriters with respect to such Securities, if any, shall object; provided, however, that any such objection to the -------- ------- filing of any Registration Statement or amendment thereto or any Prospectus or supplement thereto shall be made by written notice (the "Objection --------- Notice") delivered to the Company no later than 5 Business Days after the ------ party or parties asserting such objection (the "Objecting Party") receives --------------- draft copies of the documents that the Company proposes to file. The Objection Notice shall set forth the objections and the specific areas in the draft documents where such objections arise. The Company shall have five Business Days after receipt of the Objection Notice to correct such deficiencies to the reasonable satisfaction of the Objecting Party, and will notify each Holder of any stop order issued or threatened by the Commission in connection therewith and shall use its best efforts to prevent the entry of such stop order or, if entered, to have such stop order withdrawn at the earliest possible moment, provided, however, that -------- ------- nothing contained herein shall prevent the Company from filing documents within the time periods specified under the Securities Act or the terms of this Agreement. (b) The Company shall promptly prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement effective for as long as the Company is required to keep such Registration Statement effective pursuant to the terms hereof; shall cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and shall comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders set forth in such Registration Statement or amendment thereto or such Prospectus or supplement thereto; (c) The Company shall promptly furnish to any Holder and the underwriters, if any, without charge, such number of conformed copies of such Registration Statement and any post-effective amendment thereto and such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, any documents incorporated by reference therein and such other documents as any such 8 Holder or underwriter may request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by such Holder. (d) The Company shall, on or prior to the date on which a Registration Statement is declared effective, (i) use its best efforts to register or qualify the Registrable Securities covered by such Registration Statement under the securities or "blue sky" laws of such jurisdictions as the Holders, Holders' counsel or underwriter may reasonably request) or obtain appropriate exemptions therefrom; (ii) do any and all other acts and things which may be necessary or advisable to enable the Holders of Registrable Securities included in such Registration Statement to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof; (iii) use its best efforts to keep each such state securities or "blue sky" registration or qualification (or exemption therefrom) effective during the period in which the Company is required to keep the Registration Statement effective; and (iv) do any and all other acts or things which may be necessary or advisable to enable the Holders of Registrable Securities included in such Registration Statement to complete the disposition in such jurisdictions of such Registrable Securities in accordance with their intended method of distribution thereof; provided, however, that the Company shall not be -------- ------- required (A) to qualify to do business in any jurisdiction where it would not otherwise be required to so qualify but for this Section 5(d) or (B) to file any general consent to service of process. (e) The Company shall use its best efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Holders to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof. (f) The Company shall promptly notify each Holder, Holders' Counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, (i) when a Registration Statement or a Prospectus or any post-effective amendment or any Prospectus supplement has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the registration or qualification or exemption from registration or qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (v) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering of such Registrable Securities cease to be true and correct in all material respects, and (vi) at any time when a prospectus is required to be delivered under the Securities Act, of the happening of any event which 9 makes any statement of a material fact made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that such Registration Statement or Prospectus will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, as promptly as practicable thereafter, prepare and file an amendment to such Registration Statement with the Commission and furnish to the Holders and any underwriter a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Company shall make generally available to the Holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act. (h) The Company shall immediately use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement, and, if any such order suspending the effectiveness of a Registration Statement is issued, shall promptly use its best efforts to obtain the withdrawal of such order. (i) The Company shall, if requested by the managing underwriter or underwriters, if any, Holders' Counsel, or any Holder incorporate in a Prospectus supplement or post-effective amendment such information as such managing underwriter or underwriters or Holder or Holders' Counsel reasonably requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Holder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and any other terms of an underwritten offering of the Registrable Securities to be sold in such offering, and the Company shall promptly make all required filings of such Prospectus supplement or post-effective amendment. (j) Upon request, the Company shall, after the filing with the Commission of any document which is incorporated by reference into a Registration Statement (in the form in which it was incorporated), deliver a copy of each such document to each of the Holders and to Holders' Counsel. (k) The Company shall cooperate with the Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing Registrable Securities sold under a Registration Statement to the 10 purchasers thereof, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Holders may request and keep available and make available to the Company's transfer agent prior to the effectiveness of such Registration Statement a supply of such certificates. (l) The Company shall enter into such customary agreements (including, if applicable, an underwriting agreement in customary form) and take such other actions as the Holders or the underwriters retained by the Holders participating in an underwritten public offering, if any, may request in order to expedite or facilitate the disposition of Registrable Securities (the Holders may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of any underwriters also be made to and for the benefit of the Holders). (m) The Company shall promptly make available during normal business hours to each Holder, any underwriter participating in any disposition of Registrable Securities pursuant to a Registration Statement, and any attorney, accountant or other agent or representative retained by any such Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such Registration Statement. (n) The Company shall furnish to each Holder of Registrable Securities included in such offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering matters of the type customarily covered by opinions or comfort letters, as the case may be. (o) The Company shall use its best efforts to cause the Registrable Securities included in a Registration Statement (if the Company and the Registrable Securities so qualify) (i) to be listed on each national securities exchange, if any, on which similar securities issued by the Company are then listed, or (ii) if similar securities of the Company are not then listed, to be authorized for quotation or listing, as applicable, on the New York Stock Exchange or The Nasdaq National Market or the Nasdaq Small-Cap Market. (p) The Company shall provide a CUSIP number for all Registrable Securities covered by a Registration Statement not later than the effective date of such Registration Statement. (q) The Company shall cooperate with each Holder and each underwriter participating in the disposition of Registrable Securities, if any, and their respective 11 counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD"). (r) The Company shall, during the period when the Prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. (s) The Company shall appoint or maintain a transfer agent and registrar for all Registrable Securities covered by a Registration Statement not later than the effective date of such Registration Statement. (t) In connection with an underwritten offering, the Company shall participate, to the extent reasonably requested by the managing underwriter for the offering or the Holders, in customary efforts to sell the securities being offered, including without limitation, participating in "road shows." (u) If a Holder proposes to sell a block of Registrable Securities with a value in excess of $5.0 million, the Company shall make members of the management of the Company reasonably available for reasonable selling efforts, including senior management attendance at road shows; provided, however, that the selling Holder or Holders shall reimburse the Company for its reasonable out-of-pocket expenses actually incurred at the request of such selling Holder or Holders in connection with such selling efforts. (v) If the Registrable Securities are of a class of securities that is listed on a national securities exchange, the Company shall file copies of any Prospectus with such exchange in compliance with Rule 153 under the Securities Act so that the Holders shall benefit from the prospectus delivery procedures described therein. (II) (a) In the case of a Shelf Registration Statement, each Holder, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in Section 5(f)(vi), shall forthwith discontinue disposition of the Registrable Securities pursuant to the Shelf Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(f)(vi) or until such Holder is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and such Holder has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such Holder will, or will request the managing underwriter or underwriters, if any, to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; provided, however, that the Company shall not give a Suspension Notice -------- ------- until after the Shelf Registration Statement has been declared effective and shall not give more than two Suspension Notices during any period of 12 consecutive months and in no event shall the period from the date on which any Holder receives a Suspension Notice to the date on which any Holder receives either the Advice or copies of the supplemented or amended Prospectus contemplated by Section 5(f)(vi) (the "Suspension Period") exceed 60 days 12 and in no event shall the aggregate number of days included in all Suspension Periods combined exceed 90 days in any consecutive 12 month period. In the event that the Company shall give any Suspension Notice, the Company shall use its best efforts and take such actions as are reasonably necessary to render the Advice and end the Suspension Period as promptly as practicable. If any Suspension Period exceeds 60 days or more than two Suspension Notices are given during any period of 12 consecutive months, the Company shall pay liquidated damages to each Holder of Registrable Securities in an amount equal to $.01 per share of the Registrable Securities included in the Shelf Registration Statement per month beginning on the 31st day of such Suspension Period or the date of such additional Suspension Notice, as the case may be. The monthly liquidated damages payable by the Company to the Holders as a result of the continuance of a Suspension Period beyond 60 days or as a result of the giving of more than two Suspension Notices during any 12 months period shall increase by an amount equal to $.01 per share of the Registrable Securities per month 60 days after the event triggering such liquidated damages and shall thereafter increase by an amount equal to $.01 per share of the Registrable Securities per month at the end of each subsequent 60 days period for so long as the event triggering such liquidated damages has not been eliminated, up to a maximum amount of liquidated damages equal to $.05 per share per month. The Company shall pay the liquidated damages due with respect to any Registrable Securities at the end of each month during which such damages accrue. Liquidated damages shall be paid to the Holders of Registrable Securities entitled to receive such liquidated damages by wire transfer in immediately available funds to the accounts designated by such Holders. (b) If any Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar Federal or state securities or "blue sky" statute and the rules and regulations thereunder then in force, the deletion of the reference to such Holder. Section 6. Registration Expenses. Any and all reasonable expenses --------------------- incident to the Company's performance of or compliance with this Agreement, including without limitation, all Commission and securities exchange, Nasdaq or NASD registration, listing and filing fees, all fees and expenses incurred in connection with compliance with state securities or "blue sky" laws (including reasonable fees and disbursements of counsel for any underwriters or Holder in connection with the state securities or "blue sky" qualifications of the Registrable Securities), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), all expenses for word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, the fees and expenses incurred in connection with the listing of the Registrable Securities, the fees and disbursements of counsel 13 for the Company and of the independent certified public accountants of the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letter requested pursuant to Section 4(n), Securities Act liability insurance (if the Company elects to obtain such insurance), the reasonable fees and expenses of any special experts or other Persons retained by the Company in connection with any registration, the reasonable fees and disbursements of Holders' Counsel and any reasonable out-of-pocket expenses of the Holders and their agents, including any reasonable travel costs (but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities) (all such expenses being herein called "Registration Expenses"), will be borne by the Company whether or not the Shelf Registration Statement or Piggy-Back Registration to which such expenses relate becomes effective. All underwriting discounts, selling commissions and expenses of underwriters will be borne by the Holders pro rata based on the number of shares so sold. Section 7. Indemnification and Contribution. -------------------------------- (a) Indemnification by the Company. The Company agrees to indemnify ------------------------------ and hold harmless, to the full extent permitted by law, each Holder, its partners, officers, directors, members, trustees, stockholders, employees, agents and investment advisers, and each Person who controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under common control with, or is controlled by, such Holder, together with the partners, officers, directors, trustees, stockholders, employees, agents and investment advisors of such controlling Person (collectively, the "Controlling Persons"), from and against all losses, claims, ------------------- damages, liabilities and expenses (including, without limitation, any legal or other fees and expenses incurred by any Holder or any such Controlling Person in connection with defending or investigating any action or claim in respect thereof) (collectively, the "Damages") to which such Holder, its partners, ------- officers, directors, trustees, stockholders, employees, agents and investment advisers, and any such Controlling Person, may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, including all documents incorporated therein by reference, or are caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or are caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall not be liable for Damages -------- ------- to any Holder under this Section 6(a) to the extent that any such Damages (i) arise out of or are based upon any such untrue statement or omission which is based upon information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any such Registration Statement (or any amendment thereto) or Prospectus (or amendment or supplement thereto); or (ii) were caused by the fact that such Holder sold Securities to a Person as to whom it shall be 14 established that there was not sent or given, or deemed sent or given pursuant to Rule 153 under the Securities Act, at the time of or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented if, and only if, (a) the Company has previously furnished copies of such amended or supplemented Prospectus to such Holder and (b) such Damages were caused by any untrue statement or omission or alleged untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. In connection with an underwritten offering, the Company will indemnify the underwriters thereof, their officers and directors and each Person who controls such underwriters (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities except with respect to information provided by the underwriter specifically for inclusion therein; provided, however, if -------- ------- pursuant to an underwritten public offering of Registrable Securities, the Company and any underwriters enter into an underwriting agreement or purchase agreement relating to such offering that contains provisions relating to indemnification between the Company and such underwriters such provision shall be deemed to govern indemnification as between the Company and the underwriters. (b) Indemnification by the Holders. Each Holder agrees, severally and ------------------------------ not jointly, to indemnify and hold harmless the Company, its directors and officers, agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against all Damages to the same extent as the foregoing indemnity from the Company to such Holder, but only to the extent such Damages arise out of or are based upon any untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (or any amendment or supplement thereto) or are caused by any omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, which untrue statement or omission is based upon information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any such Registration Statement (or any amendment thereto) or any such Prospectus (or any amendment or supplement thereto); provided, however, that such Holder shall not be obligated -------- ------- to provide such indemnity to the extent that such Damages result from the failure of the Company to promptly amend or take action to correct or supplement any such Registration Statement or Prospectus on the basis of corrected or supplemental information furnished in writing to the Company by such Holder expressly for such purpose. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Indemnification Procedures. In case any proceeding (including any -------------------------- governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) above, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceedings and shall pay the fees and disbursements of such counsel relating to such 15 proceeding. The failure of an indemnified party to notify the indemnifying party with respect to a particular proceeding shall not relieve the indemnifying party from any obligation or liability (i) which it may have pursuant to this Agreement if the indemnifying party is not materially prejudiced by such failure to so notify it or (ii) which it may otherwise have pursuant to this Agreement. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, or (ii) the indemnifying party fails promptly to assume the defense of such proceeding or fails to employ counsel reasonably satisfactory to such indemnified party, or (iii) (A) the named parties to any such proceeding (including any impleaded parties) include both such indemnified party or an Affiliate of such indemnified party and any indemnifying party or an Affiliate of such indemnifying party, (B) there may be one or more defenses available to such indemnified party or any Affiliate of such indemnified party that are different from or additional to those available to any indemnifying party or any Affiliate of any indemnifying party and (C) such indemnified party shall have been advised by such counsel that there may exist a conflict of interest between or among such indemnified party or any Affiliate of such indemnified party and such indemnifying party or any Affiliate of such indemnifying party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel of its choice at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the indemnifying party, it being understood, however, that unless there exists a conflict among indemnified parties, the indemnifying parties shall not, in connection with any one such proceeding or separate but substantially similar or related proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but, if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify each indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of each indemnified party, effect any settlement of any pending or threatened proceeding in respect of which such indemnified party is a party, and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on all claims that are the subject matter of such proceeding with no payment by such indemnified party of consideration in connection with such settlement. (d) Contribution. If the indemnification from the indemnifying party ------------ provided for in this Section 7 is found, pursuant to a final judicial determination not subject to appeal, to be unavailable to an indemnified party hereunder or insufficient in respect of any Damages incurred by such indemnified party, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the Damages paid or payable by such indemnified party in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified parties in connection with the actions or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action or omission in question, including any untrue or alleged 16 untrue statement of a material fact or the omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Damages referred to above shall be deemed to include, subject to the limitations set forth in Section 7(c), any legal or other expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 7(d), no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public (less any underwriting discounts or commissions) exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no selling Holder shall be required to contribute any amount in excess of the amount by which the total net proceeds received by such selling Holder with respect to Registrable Securities sold by such selling Holder exceeds the amount of any damages which such selling Holder has otherwise been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. Each Holder's obligation to contribute pursuant to this Section 7(d) is several and not joint and shall be determined by reference to the proportion that the proceeds of the offering received by such Holder bears to the total proceeds of the offering received by all the Holders. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any indemnified party at law or in equity. Notwithstanding the foregoing, if indemnification is available under paragraph (a) or (b) of this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 7(d). Section 8. Rule 144. The Company covenants that it will file any reports --------- required to be filed by it under the Securities Act and the Exchange Act, and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales of the Registrable Securities under Rule 144 under the Securities Act), and it will take such further action as any Holder may request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any successor rule or similar provision or regulation hereafter adopted by the Commission. Upon the request of any 17 Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. Section 9. Intentionally Omitted. --------------------- Section 10. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company has not entered into -------------------------- nor will the Company on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements, other than the rights relating to the registration granted in Section 6(b) and 6(c) of that certain Registration Rights Agreement dated July 27, 2000 between the Company, Strong River Investment, Inc. and Bay Harbor Investments, Inc. (collectively, the "Prior Investors") and in Section 3.9 of that certain Securities Purchase Agreement dated July 27, 2000 between the Company and the Prior Investors. (b) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in interest of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided, however, that, no amendment, modification, supplement, waiver or - -------- ------- consent to any departure from the provisions of Section 5 hereof (other than any immaterial amendment, modification, supplement, waiver or consent) shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. (c) Notices. All notices and other communications provided for ------- or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by facsimile, registered or certified mail (return receipt requested), postage prepaid or courier to the parties at their respective addresses set forth on Schedule A hereto (or at such other address ---------- for any party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt thereof). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; by confirmed receipt of transmission, if sent via facsimile; and on the next Business Day if timely delivered to a courier guaranteeing overnight delivery. (d) Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, 18 and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (e) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the 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. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York without regard to principles or rules of conflicts of law. (h) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holders shall be enforceable to the fullest extent permitted by law. (i) Entire Agreement. This Agreement is intended by the parties as a ---------------- final expression of their agreement and is intended to be the complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (j) Attorneys' Fees. In any action or proceeding brought to enforce --------------- any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall, to the extent permitted by applicable law, be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (k) Further Assurances. Each party shall cooperate and take such ------------------ action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. (l) Remedies. In the event of a breach or a threatened breach by any -------- party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that remedies at law for violations hereof, including monetary damages, are inadequate and that the right to object in any action for specific 19 performance or injunctive relief hereunder on the basis that a remedy at law would be adequate is waived. [Remainder of Page Intentionally Left Blank] 20 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. THE COMPANY: PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ------------------------------------- Name: Donald A. Wright Title: President and Chief Executive Officer 21 HOLDERS: B III CAPITAL PARTNERS, L.P. By: DDJ Capital III, LLC, its General Partner By: DDJ Capital Management, LLC, Manager By: /s/ Wendy Landon ------------------------------------- Name: Wendy Landon Title: Authorized Signatory By: /s/ Wendy Schnipper Clayton ------------------------------------- Name: Wendy Schnipper Clayton Title: Authorized Signatory B IIIA CAPITAL PARTNERS, L.P. By: GP III-A, LLC its General Partner By: DDJ Capital Management, LLC, Manager By: /s/ Wendy Schnipper Clayton By: /s/ Wendy Landon -------------------------------- ------------------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon Title: Authorized Signatory Title: Authorized Signatory DDJ CANADIAN HIGH YIELD FUND By: DDJ Capital Management, LLC, its attorney-in-fact By: /s/ Wendy Schnipper Clayton By: /s/ Wendy Landon -------------------------------- ------------------------------------- Name: Wendy Schnipper Clayton Name: Wendy Landon Title: Authorized Signatory Title: Authorized Signatory 22 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/ Andrew Blood ----------------------------------------- Name: Andrew Blood Title: Assistant Secretary 23 Schedule A ---------- Names and Addresses of Holders ------------------------------ B III CAPITAL PARTNERS, L.P. c/o DDJ Capital Management, LLC Attn: Wendy Schnipper Clayton, Esq. 141 Linden Street, Suite 4 Wellesley, MA 02482-7910 Phone: (781) 283-8500 Fax: (781) 283-8541 B IIIA CAPITAL PARTNERS, L.P. c/o DDJ Capital Management, LLC Attn: Wendy Schnipper Clayton, Esq. 141 Linden Street, Suite 4 Wellesley, MA 02482-7910 Phone: (781) 283-8500 Fax: (781) 283-8541 DDJ CANADIAN HIGH YIELD FUND c/o DDJ Capital Management, LLC Attn: Wendy Schnipper Clayton, Esq. 141 Linden Street, Suite 4 Wellesley, MA 02482-7910 Phone: (781) 283-8500 Fax: (781) 283-8541 State Street Bank & Trust, solely in its capacity as Custodian for General Motors Employees Global Group Pension Trust C/O DDJ Capital Management, LLC Domestic Physical Delivery Instructions For DVP/RVP: DTC/New York Window Acct: State Street 55 Water Street Plaza Level - 3rd Floor New York, NY 10041 Account Name: General Motors Employees Global Group Pension Trust 24 For Free Receipts/Free Deliveries: Ana Barnes/Mary Winer Securities Processing Division State Street Bank 225 Franklin Street Boston, MA 02110 Account Name: General Motors Employees Global Group Pension Trust Account Number: 7M2E 25 EX-99.15 16 0016.txt PRESS RELEASE EXHIBIT 99.15 FOR IMMEDIATE RELEASE FOR IMMEDIATE RELEASE CONTACTS: Tom Barrows Michael Irving Investor Relations Investor Relations Pacific Aerospace & Electronics Madison & Wall Worldwide (509) 667-9600 (407) 682-2001 PACIFIC AEROSPACE & ELECTRONICS, INC. CLOSES $13.8 MILLION FINANCING WENATCHEE, WA - MARCH 5, 2001 - Pacific Aerospace & Electronics, Inc. (Nasdaq: PCTH), a diversified manufacturing company specializing in metal and ceramic components and assemblies, announced today that it has closed a loan of $13.8 million from an institutional lender. The Company used approximately $9.5 million of the proceeds to repay its existing revolving line of credit in the U.S. and to pay an interest payment on its outstanding senior subordinated notes that was due on February 1, 2001. The remainder of the proceeds will be used to replace the Company's line of credit in the U.K. with proceeds from the loan, to pay transaction costs, and to provide working capital. "We are pleased to close this financing transaction. It has allowed us to replace our lines of credit and to bring the interest payments on our senior subordinated notes current before an event of default occurred," said Don Wright, President and CEO of the Company. "We continue to anticipate that this loan will help us bridge the gap while we proceed with our efforts to sell Aeromet International." Under the terms of the loan, the Company borrowed approximately $13.8 million from the lender, with a term of two years. The loan bears interest at 18% per annum, payable quarterly. The Company has the option to defer and accrue a portion of the interest, up to 5% per annum, for up to a year at the time of any interest payment. The loan is secured by the assets of the Company and its U.S. subsidiaries. The Company may repay the notes at any time without a penalty, and the Company will be required to repay $7.5 million of the notes upon the sale of Aeromet International. The Company also issued to the lender warrants to purchase 4,036,978 shares of the Company's common stock at $.001 per share. The Company is required to file a registration statement to register the resale of the shares issuable upon exercise of the warrants. Upon effectiveness of the registration statement and exercise of the warrants, the lender will be able to make public resales of those shares. Pacific Aerospace & Electronics, Inc. is an international engineering and manufacturing company specializing in technically demanding component designs and assemblies for global leaders in the aerospace, defense, electronics, medical, telecommunications, energy and transportation industries. The Company utilizes specialized manufacturing techniques, advanced materials science, process engineering and proprietary technologies and processes to its competitive advantage. Pacific Aerospace & Electronics, Inc. has approximately 1,000 employees worldwide and is organized into three operational groups -- U.S. Aerospace, U.S. Electronics and European Aerospace. More information may be obtained by contacting the company directly or by visiting its Web site at www.pcth.com. - ------------ Forward-looking statements in this release concerning trends or anticipated results are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied in the forward-looking statements. The forward- looking statements in this release are not guarantees of future performance and are subject to risks and uncertainties related to the Company's operations and its ability to obtain sufficient cash if and when needed. These risks and uncertainties include, but are not limited to, competitive factors (including the possibility of increased competition or technological development, competitors, and price pressures); legal factors (such as limited protection of the Company's proprietary technology and changes in government regulation); financial factors (such as the Company's significant debt load); and the Company's dependence on key personnel and significant customers. More information about potential factors that could affect the Company's financial results is included in the Company's filings with the Securities and Exchange Commission. All forward-looking statements included in this release are based on information available to the Company as of the date of this release, and the Company assumes no obligation to update any such forward-looking statements. 2 -----END PRIVACY-ENHANCED MESSAGE-----