RESTATED SUBORDINATION AND INTERCREDITOR
AGREEMENT
This Restated Subordination and Intercreditor Agreement (this
“ Agreement ”) is dated as of November ________,
2006 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 continue 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) and (ii) the Liens
(as defined below) in the assets of Company granted to Subordinated
Lender to the prior payment of Senior Indebtedness (as defined
below) and to any Liens granted to Bank. This Agreement restates
and replaces (but does not constitute a novation of) the existing
Subordination and Intercreditor Agreement among Bank, Subordinated
Lender and Company dated as of February 18, 2003.
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.
“C ollateral ” 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 and/or Subordinated Lender 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” in any of the
Senior Lending Agreements.
“ 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 Letter
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
February 18, 2003 between Company and Subordinated Lender, as the
same has and 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 Subordinated Lender 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 $10,000,000.
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“ Subordinated Lender ” shall mean H.F. Lenfest
and any other Person(s) at any time or in any manner acquiring any
right or interest in any of the Subordinated Indebtedness.
“ Senior Lending Agreements ” shall mean
collectively the Loan Agreement 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
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 Subordinated Lender 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:
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2.1 Transfers . Subordinated Lender 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.
2.2 Subordination Provisions . To induce Bank to enter into
the Loan Agreement, 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 Subordinated Lender 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 Subordinated Lender 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 Subordinated
Lender shall not be entitled to receive any such Distribution in
respect of the Subordinated Indebtedness; provided ,
however , that notwithstanding the foregoing restriction,
Company may pay, and Subordinated Lender 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, Subordinated Lender shall
not 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.
(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 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.
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(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
Lender 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, 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 . Subordinated
Lender shall not 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 Subordinated Lender shall have received
the Default Notice; provided , however , any
“default” or “event of default” under the
Subordinated Note and/or Subordinated Lending Agreements shall
automatically constitute an Event of Default under the Senior
Lending Agreements so that payments received by Subordinated Lender
following any such occurrence shall not be retained irrespective of
the lack of receipt by Subordinated Lender 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 Subordinated Lender if such
Default Notice is delivered in accordance with Section 4.10
hereof.
(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 pr
