SECOND AMENDED AND RESTATED
SUBORDINATION AND
INTERCREDITOR AGREEMENT
This Amended and
Restated Subordination and Intercreditor Agreement (this “
Agreement ”) is dated as of April 23, 2009 among
PNC BANK, NATIONAL ASSOCIATION (the “ Bank
”), SUBORDINATED LENDER (as defined below), and
ENVIRONMENTAL TECTONICS CORPORATION , a Pennsylvania
corporation (“ Company ”).
As an inducement
for Bank to continue and agree to increase a 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 Amended and Restated Subordination and Intercreditor
Agreement among Bank, Subordinated Lender and Company dated as of
July 31, 2007.
NOW, THEREFORE,
for good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
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 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 mean any event which with the passage
of time, provision of notice or both would constitute an Event of
Default.
“
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.
“
Guarantor ” shall mean H.F. Lenfest, an
individual.
“
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 amended and restated Letter
Agreement, dated July 31, 2007, between Company and Bank, as
the same may be amended, supplemented, modified or restated from
time to time.
“ Loan
Documents ” shall have the meaning given to the term
“Loan Documents” in the Loan Agreement.
“ 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 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,
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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 $20,000,000.
“ 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 Credit Facility Agreement ” shall mean
the Secured Credit Facility and Warrant Purchase Agreement dated as
of April ___, 2009 between Company and Subordinated Lender, as the
same has and may be amended, supplemented, modified or restated
from time to time.
“
Subordinated Indebtedness ” shall mean all principal,
interest and other amounts payable or chargeable in connection with
the Subordinated Note.
“
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.
“
Subordinated Lending Agreements ” shall mean,
collectively, the Note Purchase Agreement, the Subordinated Credit
Facility 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 any 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 individually and
collectively (i) the convertible promissory note issued by
Company to Subordinated Lender in the original principal amount of
$10,000,000 dated February 18, 2003 pursuant to the Note
Purchase Agreement, (ii) the secured promissory note issued by
Company to Subordinated Lender in the original principal amount of
$2,000,000 dated February 20, 2009, (iii) the senior
secured subordinated note issued by Company to Subordinated Lender
in the original principal amount of $1,000,000 dated April ___,
2009, and (iv) the additional senior secured subordinated
promissory notes issued from time to time by Company to
Subordinated Lender pursuant to the Subordinated Credit Facility
Agreement in an original aggregate principal amount not to exceed
$4,500,000, together, in each case, with any extensions thereof, or
modifications or amendments thereto or replacements and
substitutions therefor.
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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:
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, the Subordinated Credit Facility Agreement and the
Subordinated Note as the case may be.
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
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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.
(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
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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 (except to the extent
Subordinated Lender is the Guarantor and such Event of Default
arises from a default by the Guarantor under any of the Loan
Documents, in which event Subordinated Lender shall be charged with
knowledge thereof) 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.
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
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