Exhibit 10.13
SUBORDINATION AND INTERCREDITOR AGREEMENT
This Subordination and Intercreditor Agreement (this "Agreement") is
dated as of February 18, 2003 among PNC BANK, NATIONAL ASSOCIATION (the "Bank"),
SUBORDINATED LENDER (as defined below), and ENVIRONMENTAL TECTONICS CORPORATION,
a Pennsylvania corporation ("Company").
BACKGROUND
As an inducement for Bank to provide a secured credit facility in favor
of Company, Subordinated Lender has agreed to enter into this Agreement to
provide for the subordination of (i) the Subordinated Indebtedness (as defined
below) to the Senior Indebtedness (as defined below) and (ii) the Liens (as
defined below) in the assets of Company granted to Subordinated Lender to the
Liens in such assets of Company granted to Bank.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
1.1 General Terms. For purposes of this Agreement, the following
terms shall have the following meanings:
"Bank" shall have the meaning set forth in the introductory paragraph
of this Agreement and any successor, assign or other provider of the Senior
Indebtedness.
"Collateral" shall mean all of the property and interests in property,
tangible or intangible, real or personal, now owned or hereafter acquired by
Company or the Guarantor in or upon which Bank at any time has a Lien, and
including, without limitation, all proceeds and products of such property and
interests in property and any guaranty by the Guarantor.
"Company" shall mean Company and its successors and assigns.
"Creditor Agreements" shall mean, collectively, the Senior Lending
Agreements and the Subordinated Lending Agreements.
"Creditors" shall mean, collectively, Bank and Subordinated Lender and
their respective successors and assigns.
"Default" shall have the meaning given to the term "Default" set forth
in the Loan Agreement.
"Distribution" shall mean any payment in cash or any other property
(other than securities of the Company into which the Subordinated Indebtedness
is convertible pursuant to the terms of the Subordinated Note), or security for
any such Distribution.
"Event of Default" shall have the meaning given to the term "Event of
Default" set forth in the Loan Agreement.
"Holder of Subordinated Indebtedness" or "Subordinated Lender" shall
mean X.X. Xxxxxxx and any other Person(s) at any time or in any manner acquiring
any right or interest in any of the Subordinated Indebtedness.
"Insolvency Event" shall have the meaning set forth in Section 2.2(c)
hereof.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance (including, but
not limited to, easements, rights of way and the like), lien (statutory or
other), security agreement or transfer intended as security including, without
limitation, any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease or any financing lease having
substantially the same economic effect as any of the foregoing.
"Loan Agreement" shall mean the Credit Agreement, dated as of the date
hereof, between Company and Bank, as the same may be amended, supplemented,
modified or restated from time to time.
"Note Purchase Agreement" shall mean the Convertible Note and Warrant
Purchase Agreement dated as of the date hereof between Company and Subordinated
Lender, as the same may be amended, supplemented, modified or restated from time
to time.
"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, a limited liability company, a limited liability
partnership or other entity, or a government or any agency, instrumentality or
political subdivision thereof.
"Secured Lender Remedies" shall mean any action which results in the
sale, foreclosure, realization upon, or a liquidation of any of the Collateral
including, without limitation, the exercise or any of the rights or remedies of
a "secured party" under Article 9 of the Uniform Commercial Code, such as,
without limitation, the notification of account debtors.
"Senior Indebtedness" shall mean all Obligations of any kind owed by
Company or the Guarantor to Bank from time to time under or pursuant to any of
the Senior Lending Agreements including, without limitation, all principal,
interest accruing thereon, charges, expenses, fees and other sums (including all
interest, charges, expenses, fees and other sums accruing after commencement of
any case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of Company) chargeable to Company or Guarantor by Bank, and
reimbursement, indemnity or other obligations due and payable to Bank. Senior
Indebtedness shall continue to constitute Senior Indebtedness, notwithstanding
the fact that such Senior Indebtedness or any claim for such Senior Indebtedness
is subordinated, avoided or disallowed under the federal Bankruptcy Code or
other applicable law. Senior Indebtedness shall also include any indebtedness of
Company incurred in connection with a refinancing of the Senior Indebtedness
under the Senior Lending Agreements if the terms and conditions of the
agreements, documents and instruments related to such refinancing, taken as a
whole, are not materially more onerous to Holder of Subordinated Indebtedness
than those set forth in the Senior Lending Agreements, as in effect on the date
hereof. The principal portion of the Senior Indebtedness and the principal
amount subject to this Agreement shall in no event exceed $22,000,000.
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"Senior Lending Agreements" shall mean collectively the Loan Agreement,
the Revolving Credit Notes and the Loan Documents together with any other
agreements, documents and instruments at any time evidencing, securing or
related to the Senior Indebtedness, each as from time to time in effect.
"Subordinated Indebtedness" shall mean all principal, interest and
other amounts payable or chargeable in connection with the Subordinated Note.
"Subordinated Lending Agreements" shall mean, collectively, the Note
Purchase Agreement, the Subordinated Note and all promissory notes, guaranties,
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Company, Guarantor or any other person to, with or in favor
of the Subordinated Lender in connection therewith or related thereto (other
than the warrants issued simultaneously with the Subordinated Note and the
documents and agreements executed in connection therewith or related thereto),
as all of the foregoing now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
"Subordinated Note" shall mean collectively the convertible promissory
note issued by Company to Subordinated Lender in the original aggregate
principal amount of $10,000,000 dated February 18, 2003 issued pursuant to the
Note Purchase Agreement, together with any extensions thereof, or modifications
or amendments thereto or replacements and substitutions therefor.
1.2 Other Terms. Capitalized terms not otherwise defined herein
shall have the meanings given to them in the Loan Agreement.
1.3 Certain Matters of Construction. The terms "herein", "hereof
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. Wherever appropriate in the context,
terms used herein in the singular also include the plural and vice versa. All
references to statutes and related regulations shall include any amendments of
the same and any successor statutes and regulations. Except as expressly set
forth herein, all references to any instruments or agreements, including,
without limitation, references to any of the Creditor Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
2. Covenants. Company and each Holder of Subordinated
Indebtedness hereby covenant that until the Senior Indebtedness shall have been
paid in full and satisfied in cash and the Loan Agreement shall have been
terminated, all in accordance with the terms of the Loan Agreement, each will
comply with such of the following provisions as are applicable to it:
2.1 Transfers. Each Holder of Subordinated Indebtedness covenants
to cause any transferee from it of any Subordinated Indebtedness, prior to
acquiring such interest, to execute and deliver a counterpart of this Agreement
to Bank.
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2.2 Subordination Provisions. To induce Bank to enter into the
Loan Agreement and to make loans and advances thereunder, notwithstanding any
other provision of the Subordinated Indebtedness to the contrary but subject to
subsection 2.2(a), any Distribution with respect to the Subordinated
Indebtedness is and shall be expressly junior and subordinated in right of
payment to all amounts due and owing upon all Senior Indebtedness outstanding
from time to time until such time as the Senior Indebtedness has been paid in
full in cash and the Loan Agreement has been terminated.
(a) Payments. Company shall not make a Distribution on the
Subordinated Indebtedness until such time as the Senior Indebtedness shall have
been paid in full in cash and the Loan Agreement shall have been terminated;
provided, however, so long as no Default or Event of Default shall have occurred
and be continuing under the Senior Lending Agreements, Company may pay, and
Holders of Subordinated Indebtedness may receive, regularly scheduled payments
of interest on, and principal at the stated (but not any accelerated) maturity
of, the Subordinated Indebtedness as set forth on the date hereof in the Note
Purchase Agreement and the Subordinated Note.
Following the occurrence of an Event of Default under the Senior
Lending Agreements and receipt by Holders of Subordinated Indebtedness of
written notice of such Event of Default from Bank (such notice, the "Default
Notice"), Company shall not make a Distribution on the Subordinated Indebtedness
and no such Holder of Subordinated Indebtedness shall be entitled to receive any
such Distribution in respect of the Subordinated Indebtedness; provided,
however, that notwithstanding the foregoing restriction, Company may pay, and
Holders of Subordinated Indebtedness shall be entitled to receive, any then due
and payable (on a non-accelerated basis) interest payment with respect to the
Subordinated Indebtedness on the earlier to occur of (x) the date on which all
such Events of Default specified in the Default Notice shall have been cured or
waived, or (y) in the case of an Event of Default other than with respect to the
payment when due of any Senior Indebtedness, the expiration of a period of 180
days from delivery of the Default Notice. Nothing herein shall limit the accrual
of deferred interest or default interest in accordance with the terms of the
Subordinated Lending Agreements.
(b) Limitation on Acceleration. During any period described in
Section 2.2 (a) hereof in which a Distribution is not permitted to be made on
Subordinated Indebtedness, no Holder of Subordinated Indebtedness shall be
entitled to accelerate the maturity of the Subordinated Indebtedness, exercise
any Secured Lender Remedies or commence any other action or proceeding to
recover any amounts due or to become due with respect to Subordinated
Indebtedness, provided, however, the foregoing limitation on acceleration or
exercise of any remedies shall not be applicable following (x) the occurrence of
an Insolvency Event or (y) following the maturity or acceleration of the Senior
Indebtedness.
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(c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In
the event of any insolvency or bankruptcy proceedings relative to Company or
Company's property, or any receivership, liquidation, reorganization or other
similar proceedings in connection therewith, or, in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of Company or
distribution or marshalling of Company's assets or any composition with
creditors of Company, whether or not involving insolvency or bankruptcy, or if
Company shall cease its operations, call a meeting of its creditors or no longer
do business as a going concern (each individually or collectively, an
"Insolvency Event"), then all Senior Indebtedness shall be paid in full and
satisfied in cash and the Loan Agreement terminated before any Distribution
shall be made on account of any Subordinated Indebtedness. Any such Distribution
resulting from an Insolvency Event which would, but for the provisions hereof,
be payable or deliverable in respect of the Subordinated Indebtedness, shall be
paid or delivered directly to Bank until amounts owing upon Senior Indebtedness
shall have been paid in full in cash and the Loan Agreement terminated provided
that any such Distribution to Bank to which the Subordinated Lender would be
entitled except for the provisions of this Agreement shall, as between Company
and Subordinated Lender, not be deemed to be a Distribution by Company to or on
account of the Subordinated Indebtedness.
(d) Acceleration. In the event of all Senior Indebtedness becoming
due and payable, whether by acceleration, maturity or otherwise, no Distribution
shall thereafter be made on account of the Subordinated Indebtedness until all
Senior Indebtedness shall be paid in full in cash and the Loan Agreement shall
have been terminated.
(e) Power of Attorney. Subordinated Lender shall have the right to
participate in any bankruptcy or insolvency proceedings, subject to the terms
and conditions of this Section 2.2(e). To enable Bank to assert and enforce its
rights hereunder upon the happening of any Insolvency Event and until all
amounts owing upon Senior Indebtedness shall have been paid in full in cash and
the Loan Agreement terminated, Bank or any person whom it may designate is
hereby irrevocably appointed attorney in fact for Subordinated Lenders with full
power to act in the place and stead of Subordinated Lender solely for such
purpose, including the right to make, present, file and vote such proofs of
claim against Company on account of all or any part of the Subordinated
Indebtedness as Bank may deem advisable and to receive and collect any and all
distributions or other payments in respect of the Subordinated Indebtedness made
thereon and to apply the same on account of the Senior Indebtedness. In the
event that Bank or its designee fails to file a proof of claim with respect to
the Subordinated Indebtedness in any bankruptcy proceeding relative to Company
prior to the date which is ten (10) days prior to any claims bar date in such
proceeding, the Subordinated Lender may file such proofs of claim with respect
to the Subordinated Indebtedness. Subordinated Lender will execute and deliver
to Bank such instruments as may be required by Bank to enforce any and all
Subordinated Indebtedness, to effectuate the aforesaid power of attorney and to
effect collection of any and all distributions or other payments in respect of
the Subordinated Indebtedness which may be made at any time after the occurrence
of an Insolvency Event, on account thereof, and Subordinated Lender hereby
irrevocably appoints Bank as the lawful attorney and agent of Subordinated
Lender to execute financing statements on behalf of Subordinated Lender and
hereby further authorizes Bank to file such financing statements in any
appropriate public office.
(f) Knowledge; Delivery of Default Notice. No Holder of any
Subordinated Indebtedness shall at any time be charged with knowledge of any
Event of Default under the Senior Lending Agreements or on such account be
prohibited from receiving or retaining any payment of monies or from taking any
action regarding acceleration or the exercise of remedies, unless and until such
holder shall have received the Default Notice; provided, however, any "default"
or "event of default" under the Subordinated Notes and/or Subordinated Lending
Agreements shall automatically constitute an Event of Default under the Senior
Lending Agreements so that payments received by any Holder of Subordinated
Indebtedness following any such occurrence shall not be retained irrespective of
the lack of receipt by such holder of a Default Notice, unless the Event of
Default is waived by such Holder of Subordinated Indebtedness or satisfied or
cured by Company.
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Each Default Notice shall be deemed to be properly given by Bank or
other holder of Senior Indebtedness to Holders of Subordinated Indebtedness if
such Default Notice is delivered in accordance with Section 4.10 hereof;
provided, however, that each and every additional or subsequent Holder of
Subordinated Indebtedness shall be entitled to deliver written notice to Bank of
its name and address and of its status as such a Holder of Subordinated
Indebtedness, and upon delivery of such notice said holder shall also be
entitled to receive Default Notices and to have the benefit of the provisions of
this paragraph.
(g) Payments Held in Trust. Should any Distribution or the
proceeds thereof, in respect of the Subordinated Indebtedness, be collected or
received by Subordinated Lender or any Affiliate (as such term is defined in
Rule 405 of Regulation C adopted by the Securities and Exchange Commission
pursuant to the Securities Act of 1933) of Subordinated Lender at a time when
Subordinated Lender is not permitted to receive any such Distribution or
proceeds thereof pursuant to the terms hereof, then Subordinated Lender will
forthwith deliver, or cause to be delivered, the same to Bank in precisely the
form held by Subordinated Lender (except for any necessary endorsement) and
until so delivered, the same shall be held in trust by Subordinated Lender, or
any such Affiliate, as the property of Bank and shall not be commingled with
other property of Subordinated Lender or any such Affiliate.
(h) Subrogation. Subject to the prior payment in full in cash of
the Senior Indebtedness and the termination of the Loan Agreement, to the extent
that Bank has received any Distribution on the Senior Indebtedness which, but
for this Agreement, would have been applied to the Subordinated Indebtedness,
the rights of Subordinated Lender shall be subrogated to the then or thereafter
rights of Bank including, without limitation, the right to receive any
Distribution made on the Senior Indebtedness (as if the Senior Indebtedness had
not been paid in full or the Loan Agreement terminated) until the principal of,
interest on and other charges due under the Subordinated Indebtedness shall be
paid in full; and, for the purposes of such subrogation, no Distribution to Bank
to which the Subordinated Lender would be entitled except for the provisions of
this Agreement shall, as between Company, its creditors (other than Bank) and
Subordinated Lender, be deemed to be a Distribution by Company to or on account
of Senior Indebtedness, it being understood that the provisions hereof are and
are intended solely for the purpose of defining the relative rights of the
Subordinated Lender on the one hand, and Bank on the other hand.
(i) Scope of Subordination. The provisions of this Agreement are
solely to define the relative rights of any Holder of Subordinated Indebtedness
and Bank. Nothing in this Agreement shall impair, as between Company and
Subordinated Lender the unconditional and absolute obligation of Company to
punctually pay the principal, interest and any other amounts and obligations
owing under the Subordinated Note and Subordinated Lending Agreements in
accordance with the terms thereof, subject to the rights of Bank under this
Agreement.
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(j) Relationship. The parties acknowledge that certain rights and
remedies are provided to the Subordinated Lender in the Subordinated Lending
Agreements (the "Subordinated Rights") and certain rights and remedies are
provided to Bank in the Senior Lending Agreements (the "Bank Rights"). Those
rights may include, among other things: (i) the right, after an Event of
Default, to direct account debtors to make payments directly to such Creditor;
(ii) the requirement to deliver original instruments and other possessory
collateral into the possession of a Creditor; (iii) the requirement to assemble
and make available collateral to a Creditor; and (iv) the requirement to execute
and deliver such further documents and instruments as a Creditor may deem
necessary to obtain, preserve and enforce the benefits of its Creditor
Agreements. In addition, the Company has certain obligations to Subordinated
Lender in the Subordinated Lending Agreements (the "Company Subordinated Lender
Obligations") and the Company has certain obligations to the Bank in the Senior
Lending Agreements (the "Company Bank Obligations"). The parties agree that, (a)
in the event of a conflict between the Subordinated Lender Rights and the Bank
Rights, the Bank Rights shall be superior to the Subordinated Lender Rights, and
(b) that in the event of a conflict between the Company Subordinated Lender
Obligations and the Company Bank Obligations, the Company Bank Obligations will
be superior to the Company Subordinated Lender Obligations. The Company shall in
good faith determine the correct Creditor to make deliveries to, comply with
instructions from and otherwise satisfy the obligations owing to, based on the
provisions of this Section 2.2(j); provided, however, if it is determined that
the obligations were satisfied with respect to the wrong Creditor, the Creditors
shall make such adjustments as between themselves as to satisfy the purposes of
this Agreement. To the extent that it is impossible or impracticable for the
Company to satisfy conflicting obligations with respect to the Subordinated
Rights and the Bank Rights, or with respect to the Company Subordinated Lender
Obligations and the Company Bank Obligations, it shall not be in default under
the Creditor Agreements if it satisfies the relevant obligations with respect to
only one Creditor otherwise in accordance with this Section 2.2(j).
3. Security.
3.1 Acknowledgment of Lien. Each Creditor hereby agrees and
acknowledges that the other Creditor has been granted a Lien or otherwise has
rights in upon the Collateral.
3.2 Priority. Notwithstanding the order or time of attachment, or
the order, time or manner of perfection, or the order or time of filing or
recordation of any document or instrument, or other method of perfecting a Lien
in favor of each Creditor in any Collateral and notwithstanding any conflicting
terms or conditions which may be contained in any of the Creditor Agreements,
the Liens upon and rights in the Collateral of Bank have and shall have priority
over the Liens upon and rights in the Collateral of Subordinated Lender and such
Liens and rights of Subordinated Lender are and shall be, in all respects,
subject and subordinate to the Liens and rights of Bank therein to the full
extent of the Senior Indebtedness outstanding from time to time. Subordinated
Lender shall not take any action to foreclose or realize upon the Collateral
until such time as the Senior Indebtedness shall have been paid in full in cash
and the Loan Agreement irrevocably terminated; provided however, Subordinated
Lender may join in any foreclosure proceeding of the Collateral commenced by the
Bank to the extent the joinder in such legal proceeding is necessary to prevent
the waiver or lapse of Subordinated Lender's rights with respect to such
Collateral, but subject at all times to the Bank's rights hereunder to determine
the disposition of such Collateral in accordance with the terms hereof.
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3.3 No Alteration of Priority. The lien priorities provided in
Section 3.2 hereof shall not be altered or otherwise affected by any amendment,
modification, supplement, extension, renewal, restatement or refinancing of any
Senior Indebtedness or the Subordinated Indebtedness, nor by any action or
inaction which Creditor may take or fail to take in respect of the Collateral.
3.4 Perfection. Each Creditor shall be solely responsible for
perfecting and maintaining the perfection of its Lien in and to each item
constituting the Collateral in which such Creditor has been granted a Lien or
any rights. The foregoing provisions of this Agreement are intended solely to
govern the respective lien priorities as between Creditors and shall not impose
on Bank any obligations in respect of the disposition of proceeds of foreclosure
on any Collateral which would conflict with prior perfected claims therein in
favor of any other Person. Subordinated Lender agrees that it will not contest
the validity, perfection, priority or enforceability of the Liens of Bank in the
Collateral and that as between Bank and such Subordinated Lender, the terms of
this Agreement shall govern even if part or all of the Senior Indebtedness or
the Liens of Bank securing payment and performance thereof are avoided,
disallowed, set aside or otherwise invalidated in any judicial proceeding or
otherwise.
3.5 Management of Collateral. Until all amounts owing upon Senior
Indebtedness shall have been paid in full in cash and the Loan Agreement
terminated, Bank shall have the exclusive right to manage, perform and enforce
the terms of the Senior Lending Agreements with respect to the Collateral and to
exercise and enforce all privileges and rights thereunder according to its
discretion and exercise of its business judgment, including, without limitation,
the exclusive right to enforce or settle insurance claims, take or retake
control or possession of the Collateral and to hold, prepare for sale, process,
sell, lease, dispose of, or liquidate the Collateral, subject to the requirement
that the net proceeds of such sale or other disposition are applied to the
Senior Indebtedness and/or the Subordinated Indebtedness as required under
Section 3.6. In connection therewith, each Subordinated Lender waives any and
all rights to affect the method or challenge the appropriateness of any action
by Bank.
3.6 Sale of Collateral. Notwithstanding anything to the contrary
contained in any of the Creditor Agreements until all amounts owing upon Senior
Indebtedness shall have been paid in full in cash and the Loan Agreement
terminated, only Bank shall have the right to restrict or permit, or approve or
disapprove, the sale, transfer or other disposition of Collateral. Subordinated
Lender will, promptly upon the request of Bank, release or otherwise terminate
its Liens on the Collateral upon which it has a Lien, to the extent such
Collateral is sold or otherwise disposed of either by Bank, its agents, or
Company with the consent of Bank, and the net proceeds of such sale or other
disposition are applied to the Senior Indebtedness and/or the Subordinated
Indebtedness, and Subordinated Lender will promptly deliver such release
documents as Bank may require in connection therewith. Bank shall have the sole
discretion as to whether to apply the net proceeds of such sales or other
dispositions to the Senior Indebtedness and/or the Subordinated Indebtedness.
In the event that Bank conducts a foreclosure proceeding with respect
to any Collateral, Subordinated Lender may bid to purchase such Collateral, but
such ability to bid shall not impose any additional obligations on Bank or limit
the discretion of Bank with respect to the disposition of the Collateral.
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3.7 Secured Lender Remedies. Subject to Section 2.2(b) hereof, in
no event shall Subordinated Lender exercise any Secured Lender Remedies until
such time as the Senior Indebtedness shall have been paid in full in cash and
the Senior Lending Agreements terminated; nor shall Subordinated Lender join in
the filing of any petition in bankruptcy, solicit any other person to, or act to
cause the commencement of, any case involving Company under any state or federal
bankruptcy or insolvency laws or seek the appointment of a receiver for the
affairs or property of Company until such time as the Senior Indebtedness shall
have been paid in full in cash and the Senior Lending Agreements shall have been
irrevocably terminated; provided however, Subordinated Lender may join in any
foreclosure proceeding of the Collateral commenced by Bank to the extent the
joinder in such legal proceeding is necessary to prevent the waiver or lapse of
Subordinated Lender's rights with respect to such Collateral, but subject at all
times to Bank's rights hereunder to determine the disposition of such Collateral
in accordance with the terms hereof. In the event Subordinated Lender shall
receive any payment or distribution of any kind representing proceeds of any
Collateral as to which its Lien upon the Collateral is or is required to be
subordinated to the Lien of Bank before the Senior Indebtedness shall have been
paid in full in cash and the Senior Lending Agreements terminated, such sums
shall be held in trust by Subordinated Lender for the benefit and on account of
Bank and such amounts shall be paid to Bank for application to the then unpaid
Obligations under the Senior Lending Agreements.
3.8 Section 0-000 Xxxxxx and Waiver of Marshaling. Subordinated
Lender and Bank acknowledge that this Agreement shall constitute notice of their
respective interests in the Collateral as provided by Section 9-611 of the
Pennsylvania Uniform Commercial Code and each hereby waive any right to compel
any marshaling of any of the Collateral.
3.9 Perfection of Certificates. The Bank shall hold that portion
of the Collateral, if any, as to which perfection of the security interest in
the Collateral requires possession (the "Possessed Collateral") on behalf of
Subordinated Lender (and subject to the senior lien of Bank) solely for the
purpose of perfecting and keeping perfected the security interest granted to the
Holders of the Subordinated Indebtedness. In connection therewith, Bank shall
take such actions as are reasonably requested by Subordinated Lender to perfect
and maintain the priority of the Liens of Subordinated Lender in the Possessed
Collateral, provided such requests do not impair the prior Liens of Bank in the
Possessed Collateral or violate the requirements of the Senior Lending
Agreements. The duties and responsibilities of Bank to the Holders of the
Subordinated Indebtedness with respect to the Possessed Collateral shall be
limited solely to those set forth in this Section 3.9. In no event shall Bank be
liable for its actions with respect to the Possessed Collateral except for gross
negligence or willful misconduct. Upon payment in full in cash of the Senior
Indebtedness and termination of the Loan Agreement, Bank shall deliver
possession of the Possessed Collateral to Subordinated Lender or as otherwise
ordered by a court and shall take all actions reasonably necessary and at the
expense of Subordinated Lender to transfer the Possessed Collateral to
Subordinated Lender.
4. Miscellaneous.
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4.1 Provisions of Subordinated Note. From and after the date
hereof, Company and the Subordinated Lender shall cause each Subordinated Note
to contain a provision to the following effect:
"This Note is subject to the Subordination and Intercreditor
Agreement, dated as of February 18, 2003, among the Maker, the
Payee and PNC Bank, National Association, under which this
Note and the Maker's obligations hereunder are subordinated in
the manner set forth therein to the prior payment of certain
obligations to the holders of Senior Indebtedness as defined
therein."
Proof of compliance with the foregoing shall be promptly given to Bank.
4.2 Additional Agreements. In the event that the Senior
Indebtedness is refinanced in full, Subordinated Lender agrees, subject to the
last two sentences of the definition of Senior Indebtedness, at the request of
such refinancing party to enter into a subordination and intercreditor agreement
on terms substantially similar to this Agreement.
4.3 Survival of Rights. The right of Bank to enforce the
provisions of this Agreement shall not be prejudiced or impaired by any act or
omitted act of Company or Bank including forbearance, waiver, consent,
compromise, amendment, extension, renewal, or taking or release of security in
respect of any Senior Indebtedness or noncompliance by Company with such
provisions, regardless of the actual or imputed knowledge of Bank.
4.4 Bankruptcy Financing Issues. This Agreement shall continue in
full force and effect after the filing of any petition ("Petition") by or
against Company under the United States Bankruptcy Code (the "Code") and all
converted or succeeding cases in respect thereof. All references herein to
Company shall be deemed to apply to Company as debtor-in-possession and to a
trustee for Company. If Company shall become subject to a proceeding under the
Code, and if Bank shall desire to permit the use of cash collateral or to
provide post-Petition financing from Bank to Company under the Code,
Subordinated Lender agrees as follows: (1) adequate notice to Subordinated
Lender shall be deemed to have been provided for such consent or post-Petition
financing if Subordinated Lender receives notice thereof three (3) Business Days
(or such shorter notice as is given to Bank) prior to the earlier of (a) any
hearing on a request to approve such post-Petition financing or (b) the date of
entry of an order approving same and (2) no objection will be raised by
Subordinated Lender to any such use of cash collateral or such post-Petition
financing from Bank.
4.5 Insurance Proceeds. Proceeds of the Collateral include
insurance proceeds, and therefore, notwithstanding the terms set forth in the
Senior Lending Agreements or Subordinated Lender Agreements, the priorities set
forth in Section 3.2 govern the ultimate disposition of casualty insurance
proceeds. Bank, as the holder of a senior security interest on the Collateral
insured shall have the sole and exclusive right, as against Subordinated Lender,
to adjust settlement of insurance claims in the event of any covered loss, theft
or destruction of such Collateral. All proceeds of such insurance shall inure to
Bank, to the extent of Bank's claims for Senior Indebtedness, and Subordinated
Lender shall cooperate (if necessary) in a reasonable manner in effecting the
payment of insurance proceeds to Bank. In the event Bank, in its sole discretion
or pursuant to agreement with Company, permits Company to utilize the proceeds
of insurance to replace Collateral, the consent of Bank thereto shall be deemed
to include the consent of Subordinated Lender.
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4.6 Receipt of Agreements. Company hereby acknowledges that it has
delivered to Bank a correct and complete copy of the Subordinated Lending
Agreements as in effect on the date hereof. Subordinated Lender, solely for the
purposes of this Agreement, hereby acknowledges receipt of a correct and
complete copy of each of the Senior Lending Agreements as in effect on the date
hereof.
4.7 No Amendment of Subordinated Lending Agreements. So long as
the Loan Agreement remains in effect, neither Company nor any Holder of
Subordinated Indebtedness shall, without the prior written consent of Bank, (i)
enter into any amendment to or modification of any Subordinated Lending
Agreements which relates to or affects the principal amount, interest rate, or
payment terms of Company thereunder (other than any extension of maturity or
postponement of payment or accrual and payment of deferred interest on the
Subordinated Note), or (ii) enter into any amendment to or modification of any
Subordinated Lending Agreements which causes any other material covenant or
agreement of Company thereunder to be more restrictive than the terms of the
Senior Lending Agreements.
4.8 Amendments to Senior Lending Agreements. Nothing contained in
this Agreement, or in any other agreement or instrument binding upon any of the
parties hereto, shall in any manner limit or restrict the ability of Bank from
increasing or changing the terms of the loans under the Senior Lending
Agreements, or to otherwise waive, amend or modify the terms and conditions of
the Senior Lending Agreements, in such manner as Bank and Company shall mutually
determine. Each Holder of Subordinated Indebtedness hereby consents to any and
all such waivers, amendments, modifications and compromises, and any other
renewals, extensions, indulgences, releases of collateral or other
accommodations granted by Bank to Company from time to time, and agrees that
none of such actions shall in any manner affect or impair the subordination
established by this Agreement in respect of the Subordinated Indebtedness.
4.9 Notice of Default and Certain Events. Bank and the Holders of
Subordinated Indebtedness shall undertake in good faith to notify the other of
the occurrence of any of the following as applicable:
(a) the obtaining of actual knowledge of the occurrence of any
default under the Subordinated Note;
(b) the acceleration of any Senior Indebtedness by Bank or of any
Subordinated Indebtedness by any Holder of Subordinated Indebtedness;
(c) the granting by Bank of any waiver of any Event of Default
under the Loan Agreement or the granting by any Holder of Subordinated
Indebtedness of any waiver of any "default" or "event of default" under the
Subordinated Lending Agreements;
(d) the payment in full by Company (whether as a result of
refinancing or otherwise) of all Senior Indebtedness; or
(e) the sale or liquidation of, or realization upon, the
Collateral other than collection of Receivables in the ordinary course of
business.
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The failure of any party to give such notice shall not affect the
subordination of the Subordinated Indebtedness or the relative Lien priorities
as provided in this Agreement.
4.10 Notices. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when personally
delivered to any officer of the party to whom it is addressed, (b) on the
earlier of actual receipt thereof or three (3) days following posting thereof by
certified or registered mail, postage prepaid, (c) upon actual receipt thereof
when sent by a recognized overnight delivery service or (d) upon actual receipt
thereof when sent by telecopier to the number set forth below with electronic
confirmation of receipt, in each case addressed to each party at its address or
telecopier number set forth below or at such other address or telecopier number
as has been furnished in writing by a party to the other by like notice:
If to Agent: PNC Bank, National Association
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Xxxxxxx Xxxxx Xxxxxxx & Ingersoll, LLP
0000 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to Subordinated Lender: X.X. Xxxxxxx
0000 Xxxxxxxxxx Xxxxx
Xxxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to; The Xxxxxxx Group
0000 Xxxxxxxxxx Xxxxx
X.X. Xxx 0000 Xxxx Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx, Esquire
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to Company: Environmental Tectonics Corporation
000 Xxxxx Xxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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with a copy to: Klehr, Harrison, Xxxxxx, Xxxxxxxxx &
Xxxxxx LLP
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
4.11 Books and Records. Subordinated Lender shall furnish Bank,
upon request from time to time, a statement of the account between Subordinated
Lender and Company.
4.12 Binding Effect; Other. This Agreement shall be a continuing
agreement, shall be binding upon and shall inure to the benefit of the parties
hereto from time to time and their respective successors and assigns, shall be
irrevocable and shall remain in full force and effect until the Senior
Indebtedness shall have been paid in full in cash and the Loan Agreement shall
have been terminated, but shall continue to be effective, or be reinstated, as
the case may be, if at any time payment, or any part thereof, of any amount paid
by or on behalf of Company with regard to the Senior Indebtedness is rescinded
or must otherwise be restored or returned upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of Company, or upon or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee,
custodian, or similar officer, for Company or any substantial part of its
property, or otherwise, all as though such payments had not been made. No action
which Bank or Company may take or refrain from taking with respect to the Senior
Indebtedness, including any amendments thereto, shall affect the provisions of
this Agreement or the obligations of Subordinated Lender hereunder. Any waiver
or amendment hereunder must be evidenced by a signed writing of the party to be
bound thereby, and shall only be effective in the specific instance. This
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania. The headings in this Agreement are for convenience
of reference only, and shall not alter or otherwise affect the meaning hereof.
5. Representations and Warranties.
(a) Subordinated Lender represents and warrants to Bank that
Subordinated Lender is the holder of a portion of the Subordinated Indebtedness
and Liens which secure or will secure the Subordinated Indebtedness.
Subordinated Lender agrees that it shall not assign or transfer any of the
Subordinated Indebtedness or Liens without (i) prior notice being given to Bank
and (ii) such assignment or transfer being made expressly subject to the terms
of this Agreement. Subordinated Lender agrees upon Bank's request to execute and
file an amendment to any financing statement or mortgage, trust deed or other
encumbrance now on file which covers Collateral to the effect that the same is
subject to the terms of this Agreement, and agrees to so xxxx any extension of
such financing statements, or any financing statement or mortgage, trust deed or
other encumbrance filed by Subordinated Lender on Collateral in the future.
Subordinated Lender further warrants to Bank that it has full right, power and
authority to enter into this Agreement and, to the extent Subordinated Lender is
an agent or trustee for other parties, that this Agreement shall fully bind all
such other parties.
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(b) Bank represents and warrants to Subordinated Lender that Bank
is the holder of the Senior Indebtedness and Liens which secure or will secure
the Senior Indebtedness. Bank agrees that it shall not assign or transfer any of
the Senior Indebtedness or Liens without (i) prior notice being given to
Subordinated Lender and (ii) such assignment or transfer being made expressly
subject to the terms and provisions of this Agreement. Bank further warrants to
Subordinated Lender that it has full right, power and authority to enter into
this Agreement and, to the extent Bank is an agent or trustee for other parties,
that this Agreement shall fully bind all such other parties.
6. Proceedings. ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST
SUBORDINATED LENDER, COMPANY OR BANK WITH RESPECT TO THIS AGREEMENT OR ANY
RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF PENNSYLVANIA, UNITED STATES OF AMERICA, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT EACH PARTY THERETO ACCEPTS FOR THEMSELVES AND IN
CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW OR SHALL LIMIT THE RIGHT OF ANY PARTY HERETO TO BRING PROCEEDINGS AGAINST
ANY OTHER PARTY IN ANY COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING
BY ANY PARTY HERETO AGAINST ANY OTHER PARTY INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS
AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN A COURT LOCATED IN
THE COUNTY OF PHILADELPHIA, COMMONWEALTH OF PENNSYLVANIA; PROVIDED THAT
NOTWITHSTANDING THE FOREGOING, IF IN ANY JUDICIAL PROCEEDING BY OR AGAINST ANY
PARTY HERETO THAT IS BROUGHT IN ANY OTHER COURT SUCH COURT DETERMINES THAT ANY
PARTY HERETO IS AN INDISPENSABLE PARTY, ANY SUCH PARTY SHALL BE ENTITLED TO JOIN
OR INCLUDE ANY OTHER PARTY HERETO IN SUCH PROCEEDINGS IN SUCH OTHER COURT. EACH
PARTY HERETO WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS.
7. Waiver Of Jury Trial. EACH PARTY HERETO HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY CREDITOR OR
COMPANY WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENTS OR
AGREEMENT EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND
EACH PARTY HERETO HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT ANY OF
THEM MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
14
8. Company Acknowledgement. Company agrees that (i) nothing
contained in this Agreement shall be deemed to amend, modify, supercede or
otherwise alter the terms of the respective agreements between Company and each
Creditor and (ii) this Agreement is solely for the benefit of the Creditors and
shall not give Company, its successors or assigns or any other person any rights
vis-a-vis any Creditor.
9. Counterparts; Facsimile. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed an
original and all of which when taken together shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
[SIGNATURE PAGES FOLLOW]
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(SIGNATURE PAGE TO SUBORDINATION AND INTERCREDITOR
AGREEMENT)
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
of this 18th of February, 2003.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Xxxx X. Xxxxxxxx
------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Vice President
X.X. XXXXXXX
By: /s/ X.X. Xxxxxxx
------------------------------------
Name: X.X. Xxxxxxx
ENVIRONMENTAL TECTONICS CORPORATION
By: /s/ Xxxxx Xxxxxx
------------------------------------
Name: Xxxxx Xxxxxx
Title: C.F.O.
16
ACKNOWLEDGMENT AND AGREEMENT
Each of the undersigned hereby acknowledges the provisions of the
foregoing Subordination Agreement (the "Agreement") and confirms and agrees that
its obligations under the Subordinated Lending Agreements, including any
guaranty in favor of Subordinated Lender (as defined in the Agreement), are
subject to the terms and conditions set forth in the Agreement, as amended from
time to time.
ENTERTAINMENT TECHNOLOGY CORPORATION
By: /s/ Xxxxx Xxxxxx
------------------------------------
Name: Xxxxx Xxxxxx
Title: Secretary
ETC DELAWARE, INC.
By: /s/ Xxxxx Xxxxxx
------------------------------------
Name: Xxxxx Xxxxxx
Title: Treasurer
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