Exhibit 10.38

 

SENIOR SUBORDINATED PATENT AND LICENSE SECURITY AGREEMENT

 

SENIOR SUBORDINATED PATENT AND LICENSE SECURITY AGREEMENT (“Agreement”) dated as
of October 25, 2004, made by PW EAGLE, INC., a Minnesota corporation, having its
chief executive office at 1550 Valley River Drive, Eugene, Oregon 97440
(“Borrower”) and CHURCHILL CAPITAL PARTNERS IV, L.P., a Delaware limited
partnership (“Lender”).

 

W I T N E S S E T H:

 

WHEREAS, Borrower and Lender have entered into that certain Senior Subordinated
Note Purchase Agreement of even date herewith (as the same may hereafter be
amended or otherwise modified from time to time, the “Note Purchase Agreement”),
pursuant to which Lender has, subject to certain conditions precedent, agreed to
purchase the Senior Subordinated Notes of the Company (the “Notes”); and

 

WHEREAS, Lender has required as a condition, among others, to purchasing the
Notes, in order to secure the prompt and complete payment, observance and
performance of all of Borrower’s obligations and liabilities hereunder, under
the Note Purchase Agreement, and under all of the other instruments, documents
and agreements executed and delivered by Borrower to Lender in connection with
the Note Purchase Agreement (all such obligations and liabilities being
hereinafter referred to collectively as the “Obligations”), that Borrower
execute and deliver this Agreement to Lender for its benefit;

 

NOW, THEREFORE, in consideration of the premises set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower agrees as follows:

 

1. Defined Terms.

 

(a) Unless otherwise defined herein, the capitalized terms used herein which are
defined in the Note Purchase Agreement shall have the meanings specified in the
Note Purchase Agreement.

 

(b) The words “hereof”, “herein”, and “hereunder” and words of like import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section and schedule references are
to this Agreement unless otherwise specified.

 

(c) All terms defined in this Agreement in the singular shall have comparable
meanings when used in the plural, and vice versa unless otherwise specified.

 

2. Security Interest in Patents. To secure the complete and timely payment,
performance and satisfaction of all of the Obligations, Borrower hereby grants
to Lender, a

 

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second priority security interest, having priority over all other security
interests (except for Permitted Liens, including the Liens securing the Senior
Debt), with power of sale to the extent permitted by applicable law, in all of
Borrower’s now owned or existing and filed and hereafter acquired or arising and
filed:

 

  (i) patents and patent applications, and the inventions and improvements
described and claimed therein, including, without limitation, those patents and
patent applications listed on Schedule A and (a) the reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof (b) all
income, royalties, damages and payments now and hereafter due and/or payable
under and with respect thereto, including, without limitation, payments under
all licenses entered into in connection therewith and damages and payments for
past or future infringements thereof, (c) the right to sue for past, present and
future infringements thereof, and (d) all rights corresponding thereto
throughout the world (all of the foregoing patents and applications, together
with the items described in the foregoing clauses (a)-(d), being sometimes
hereinafter individually and/or collectively referred to as the “Patents’); and

 

  (ii) license agreements with any other party in connection with any Patents or
such other party’s patents or patent applications, whether Borrower is a
licensor or licensee under any such license agreement, including, but not
limited to, the license agreements listed on Schedule B, and the right upon the
occurrence and during the continuance of an Event of Default to use the
foregoing in connection with the enforcement of Lender’s rights under the Note
Purchase Agreement (all of the foregoing being hereinafter referred to
collectively as the “Licenses”). Notwithstanding the foregoing provisions of
this Section 2, the Licenses shall not include any license agreement which by
its terms prohibits the grant of the security interest contemplated by this
Agreement.

 

3. Restrictions on Future Agreements. Borrower will not, without Lender’s prior
written consent, enter into any agreement, including, without limitation, any
license agreement, which is inconsistent with this Agreement, and Borrower
further agrees that it will not take any action, and will use its best efforts
not to permit any action to be taken by others subject to its control, including
licensees, or fail to take any action, which would in any material respect
affect the validity or enforcement of the rights transferred to Lender under
this Agreement or the rights associated with those Patents which are material to
the operation of Borrower’s business.

 

4. New Patents. Borrower represents and warrants that the Patents and Licenses
listed on Schedules A and B, respectively, include all of the patents, patent
applications and license agreements in connection with patents or patent
applications now owned or held by Borrower. If prior to the termination of this
Agreement, Borrower shall (i) obtain rights to any new patentable inventions or
license agreements in connection with patents or patent applications or (ii)
become entitled to the benefit of any patent, patent application or patent for
any reissue, division, continuation, renewal, extension or continuation-in-part
of any Patent or any

 

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improvement on any Patent, the provisions of Section 2 shall automatically apply
thereto and Borrower shall give to Lender prompt written notice thereof.
Borrower hereby authorizes Lender to modify this Agreement by (a) amending
Schedules A or B, as the case may be, to include any future patents, patent
applications and license agreements in connection with patents and patent
applications that are Patents or Licenses under Section 2 or under this Section
4 and (b) filing, in addition to and not in substitution for, this Agreement, a
duplicate original of this Agreement containing on Schedules A or B thereto, as
the case may be, such future patents, patent applications and license agreements
which are Patents or Licenses, as the case may be, under Section 2 or this
Section 4.

 

5. Royalties. Borrower hereby agrees that the use by Lender of the Patents and
Licenses as authorized hereunder shall be coextensive with Borrower’s rights
thereunder and with respect thereto and without any liability for royalties or
other related charges from Lender to Borrower.

 

6. Nature and Continuation of Lender’s Security Interest. This Agreement is made
for collateral security purposes only. This Agreement shall create a continuing
security interest in the Patents and the Licenses and shall remain in full force
and effect until the Obligations have been paid in full and the Note Purchase
Agreement terminated.

 

7. Right to Inspect: Further Assignments and Security Interests. Lender shall
have the right, at any reasonable time and from time to time, to inspect
Borrower’s premises and to examine Borrower’s books, records and operations
relating to the Patents; provided, that in conducting such inspections and
examinations, Lender shall use its best efforts not to disturb unnecessarily the
conduct of Borrower’s ordinary business operations, and provided, further, that
if no Event of Default has occurred and is continuing, Lender shall give
Borrower at least 24 hours prior written notice of any such inspection. Borrower
agrees not to sell or assign its respective interests in, or grant any license
under, the Patents without the prior written consent of Lender, which consent
shall not be unreasonably withheld or delayed.

 

8. Duties of Borrower. Borrower shall have the duty to the extent desirable in
the normal conduct of Borrower’s business and consistent with Borrower’s current
business practices: (i) to prosecute diligently any patent application that is
part of the Patents pending as of the date hereof or thereafter until the
termination of this Agreement, (ii) to make application on such unpatented but
patentable inventions as Borrower deems appropriate, and (iii) to take
reasonable steps to preserve and maintain all of Borrower’s rights in the patent
applications and patents that are part of the Patents. Any expenses incurred in
connection with the foregoing shall be borne by Borrower. Borrower shall not
abandon any right to file a patent application or any pending patent application
or patent which is or, to Borrower’s knowledge, shall be necessary or
economically desirable in the operation of Borrower’s business. Borrower agrees
to retain an experienced patent attorney reasonably acceptable to Lender
(Fredrikson & Byron, P.A. being acceptable to Lender) for the filing and
prosecution of all such applications and other proceedings. Lender shall not
have any duty with respect to the Patents and Licenses. Without limiting the
generality of the foregoing, Lender shall not be under obligation to take any
steps necessary to preserve rights in the Patents or Licenses against any other
parties, but may do so at its option during the continuance of an Event of
Default, and all expenses incurred in connection therewith shall be for the sole
account of Borrower and added to the Obligations secured hereby.

 

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9. Lender’s Right to Sue. From and after the occurrence and during the
continuance of an Event of Default, and subject to the terms of the Note
Purchase Agreement and the Senior Subordination Agreement, Lender shall have the
right, but shall not be obligated, to bring suit to enforce the Patents and the
Licenses, and, if Lender shall commence any such suit, Borrower shall, at the
request of Lender, do any and all lawful acts and execute any and all proper
documents required by Lender in aid of such enforcement Borrower shall, upon
demand, promptly reimburse and indemnify Lender for all costs and reasonable
expenses incurred by Lender in the exercise of its rights under this Section
(including, without limitation, all attorneys’ and paralegals’ fees). If for any
reason whatsoever, Lender is not reimbursed with respect to the costs and
expenses referred to in the preceding sentence, such costs and expenses shall be
added to the Obligations secured hereby.

 

10. Waivers. No course of dealing between Borrower and Lender, and no failure to
exercise or delay in exercising on the part of Lender any right, power or
privilege hereunder or under the Note Purchase Agreement shall operate as a
waiver of any of Lender’s rights, powers or privileges. No single or partial
exercise of any right, power or privilege hereunder or under the Note Purchase
Agreement shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.

 

11. Lender’s Exercise of Rights and Remedies Upon Default. Notwithstanding
anything set forth herein to the contrary, it is hereby expressly agreed that
upon the occurrence and during the continuance of an Event of Default, Lender
may exercise any of the rights and remedies provided in this Agreement, the Note
Purchase Agreement, or any other agreement executed in connection therewith,
subject to the Senior Subordination Agreement. Without limiting the generality
of the foregoing, Borrower acknowledges and agrees that (i) the Patents and
Licenses comprise a portion of the Collateral and Lender shall have the right to
exercise its rights under the Note Purchase Agreement with respect to the
Patents and Licenses to the same extent as with respect to all other items of
Collateral described therein, and (ii) from and after the occurrence of an Event
of Default, Lender or its nominee may use the Patents and Licenses in connection
with the conduct of Borrower’s business.

 

12. Severability. The provisions of this Agreement are severable, and if any
clause or provision shall be held invalid and unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.

 

13. Modification. This Agreement cannot be altered, amended or modified in any
way, except as specifically provided in Sections 2 and 4 hereof or by a writing
signed by the parties hereto.

 

14. Cumulative Remedies; Power of Attorney. All of Lender’s rights and remedies
with respect to the Patents and the Licenses, whether established hereby, by any
other agreement or by law, shall be cumulative and may be exercised singularly
or concurrently. Borrower hereby irrevocably appoints Lender as Borrower’s
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower or otherwise to carry out the acts described below. Subject
to the terms of the Note Purchase Agreement and the Senior

 

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Subordination Agreement, upon the occurrence and during the continuance of an
Event of Default, Borrower hereby authorizes Lender to, in its sole discretion,
(i) endorse Borrower’s name on all applications, documents, papers and
instruments necessary or desirable for Lender in the use of the Patents and the
Licenses, (ii) take any other actions with respect to the Patents and the
Licenses as Lender deems is in its best interest, (iii) grant or issue any
exclusive or non-exclusive license with respect to the Patents to anyone on
commercially reasonable terms, and (iv) assign, pledge, convey or otherwise
transfer title in or dispose of the Patents and the Licenses to anyone on
commercially reasonable terms. Borrower hereby ratifies all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This
power of attorney is coupled with an interest and shall be irrevocable until
this Agreement shall have been terminated pursuant to Section 6. Borrower
acknowledges and agrees that this Agreement is not intended to limit or restrict
in any way the rights and remedies of Lender under the Note Purchase Agreement,
but rather is intended to facilitate the exercise of such rights and remedies.
Lender shall have, in addition to all other rights and remedies given it by the
terms of this Agreement, all rights and remedies allowed by law and the rights
and remedies of a secured party under the Uniform Commercial Code as, enacted in
any jurisdiction in which the Patents may be located or deemed located.

 

15. Binding Effect; Benefits. This Agreement shall be binding upon Borrower and
its successors and assigns and shall inure to the benefit of Lender and its
nominees, successors and assigns. Borrower’s successors and assigns shall
include, without limitation, a receiver, trustee or debtor-in-possession of or
for Borrower; provided, however, that Borrower shall not voluntarily assign its
obligations hereunder without the prior written consent of Lender.

 

16. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (as distinguished from the conflicts of law
provisions) and decisions of the State of Minnesota.

 

17. Notices. All notices or other communications hereunder shall be given in the
manner and to the addresses set forth in the Note Purchase Agreement.

 

18. Section Headings. The section headings herein are for convenience of
reference only, and shall not affect in any way the interpretation of any of the
provisions hereof.

 

19. Execution in Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Senior
Subordinated Patent and License Security Agreement on the day and year first
above written.

 

PW EAGLE, INC., a Minnesota corporation

By:

 

/s/ Dobson West

   

Name:

 

Dobson West

   

Title:

 

Secretary

Accepted and agreed to as of this 25th day of October, 2004. CHURCHILL CAPITAL
PARTNERS IV, L.P.

By:

 

Churchill Capital IV, L.L.C, its General Partner

By:

 

Churchill Capital, Inc., as Managing Agent

By:

 

/s/ Mark McDonald

   

Name:

 

Mark McDonald

   

Title:

 

Partner

 

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STATE OF MINNESOTA    )      ) SS COUNTY OF HENNEPIN    )

 

The foregoing Senior Subordinated Patent and License Security Agreement was
executed and acknowledged before me this 25th day of October, 2004, by
                     personally known to me to be the
                                 of PW EAGLE, INC., a Minnesota corporation, on
behalf of such corporation.

 

(SEAL)

 

/s/

Notary Public

My commission expires:                                              

 

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SCHEDULE A

to Patent and License Security Agreement

 

PATENTS

 

[Schedule to be attached.]

 

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SCHEDULE B

to Patent and License Security Agreement

 

LICENSES

 

[Schedule to be attached.]

 

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