ENVIRONMENTAL TECTONICS
CORPORATION
This SECURITY
AGREEMENT (this “ Agreement ”) is made
and entered into as of February 18, 2009, by ENVIRONMENTAL
TECTONICS CORPORATION (“ Debtor ”), in
favor of H.F. LENFEST (“ Secured Party
”).
WHEREAS, Debtor
has executed a Secured Promissory Note, dated the date hereof,
pursuant to which Debtor has borrowed $2,000,000 from Secured Party
(the “ Note ”). The parties intend that
Debtor’s obligation to repay the Note be secured by all of
the assets of Debtor. Any capitalized terms not otherwise defined
herein shall have the meanings set forth in the Note.
In consideration
of the purchase of the Note by Secured Party and for other good and
valuable consideration the receipt and sufficiency of which are
hereby acknowledged, Debtor hereby agrees with Secured Party as
follows:
1. Grant
of Security Interest . To secure Debtor’s full and timely
performance of all of Debtor’s obligations and liabilities to
Secured Party pursuant to the Note (including, without limitation,
Debtor’s obligation to timely pay the principal amount of,
and accrued interest on, the Note), and any amendments,
modifications or reissuance of the Note and all other debt owed by
Debtor to Secured Party, and all other amounts payable hereunder,
including all costs and expenses incurred by Secured Party to
enforce Secured Party’s rights hereunder (the “
Obligations ”), Debtor hereby grants to Secured
Party a continuing security interest (the “ Security
Interest ”) in and to all of the property described
on Exhibit A to this Agreement (the “
Collateral ”) and all proceeds and products
thereof. Debtor will not grant any other security interests in the
Collateral without the written consent of Secured Party.
2. Events
of Default . For purposes of this Agreement, “
Event of Default ” means any of the
following:
(a) Debtor’s
failure to pay or discharge the Obligations in full in accordance
with the terms of the Note;
(b) default
by Debtor in punctual performance of any of the non-monetary
obligations, covenants, terms or provisions contained or referred
to in this Agreement, or the Note secured hereby, each as amended,
replaced or modified, if such default shall continue unremedied for
a period of ten (10) days following written notice of default
by Secured Party to Debtor;
(c) any
use of the proceeds of the Note for any purpose other than working
capital necessary for the performance of the Government
Contract;
(d) any
warranty, representation or statement contained in this Agreement
or the Note proves to have been false;
(e) loss,
theft, substantial damage, destruction, sale (except as authorized
in this Agreement) or encumbrance to or of any portion of the
Collateral (except such encumbrances and liens which arise in the
ordinary course of business and both (A) do not materially
impair Debtor’s ownership or use of the Collateral and
(B) are junior to and do not adversely affect the security
interest granted hereunder to Secured Party), or the making of any
levy, seizure or attachment thereof or thereon;
(f) a
default by Debtor in the performance of any covenant, condition or
provision of any loan documents between Debtor and Secured Party,
or any document related thereto, that are currently in effect or
will be entered into, and such default shall not be remedied for a
period of thirty (30) days after the earlier of (i) written
notice from Secured Party of such default or (ii) actual
knowledge by Debtor of such default;
(g) a
default by Debtor under any agreement with PNC Bank or any
successor commercial lender;
(h)
(i) Debtor’s dissolution or termination or (ii) the
commencement of any proceeding under any bankruptcy or insolvency
laws by Debtor or (iii) the commencement of any proceeding
under any bankruptcy or insolvency laws against Debtor or by or
against any guarantor, surety or endorser for Debtor that results
in the entry of an order for relief or which remains undismissed,
undischarged or unbonded for a period of sixty (60) days or
more or (iv) Debtor shall make a general assignment for the
benefit of its creditors; or (v) Debtor shall fail generally
to pay its debts as they become due, or shall take any action in
furtherance of any of the foregoing;
(i) any
statement of the financial condition of Debtor or of any guarantor,
surety or endorser of any liability of Debtor to Secured Party
submitted to Secured Party by Debtor or any such guarantor, surety
or endorser proves to be false in any material respect.
Debtor shall
provide Secured Party with immediate written notice upon the
occurrence of any Event of Default and of the circumstances
relating to such Event of Default.
3.
Payment Obligations of Debtor .
(a) Debtor
shall pay to Secured Party any sum or sums due or which may become
due pursuant to the Note in accordance with the terms of the Note
and the terms of this Agreement and any and all renewals,
rearrangements or extensions of the Note.
(b) Debtor
shall account fully and faithfully to Secured Party for proceeds
from disposition of the Collateral in any manner and, following an
Event of Default, shall pay or turn over promptly in cash,
negotiable instruments, drafts, assigned accounts or chattel paper
all the proceeds from each sale to be applied to Debtor’s
Obligations to Secured Party, subject, if other than cash, to final
payment or collection.
(c) Following
an Event of Default hereunder or under the Note, Debtor shall pay
to Secured Party on demand all reasonable expenses and expenditures
(including, but not limited to, reasonable fees and expenses of
legal counsel) incurred or paid by Secured Party in exercising or
protecting its interests, rights and remedies under this Agreement,
plus interest thereon at the Default Rate.
(d) Debtor
shall pay immediately, in accordance with the terms of the Note,
the entire unpaid balance of the Obligations of Debtor to Secured
Party whether created or incurred pursuant to this Agreement or
otherwise, upon an Event of Default.
4.
Representations, Warranties and Covenants of Debtor
.
(a)
Other Liens . Except for the Security Interest, Debtor is
the owner of the Collateral and its proceeds and will be the owner
of the Collateral and its proceeds hereafter acquired free from
unpaid charges, including taxes and free from any adverse lien,
security interest or encumbrance (other than purchase money
security interests that will be discharged upon Debtor’s
payment of the purchase price for the applicable property), and
Debtor will defend the Collateral against the claims and demands of
all persons at any time claiming the same or any interest therein.
No financing statements covering any Collateral or any proceeds
thereof are on file in any public office and no third party is
holding any Collateral to perfect its interest therein.
(b)
Further Documentation . At any time and from time to time,
upon the written request of Secured Party, and at the sole expense
of Debtor, Debtor will promptly and duly execute and deliver such
further instruments and documents and take such further action as
Secured Party may reasonably request for the purpose of obtaining
or preserving the full benefits of this Agreement and of the
rights, remedies and powers herein granted, including, without
limitation, filing any financing or continuation statements under
the Uniform Commercial Code (the “ UCC ”)
in effect in any jurisdiction with respect to the liens created
hereby or taking any other action necessary to perfect the Security
Interest. Debtor also hereby authorizes Secured Party to file any
such financing or continuation statement without the signature of
Debtor to the extent permitted by applicable law. A reproduction of
this Agreement shall be sufficient as a financing statement (or as
an exhibit to a financing statement on form UCC-1) for filing in
any jurisdiction.
(c)
Indemnification . Debtor agrees to defend, indemnify and
hold harmless Secured Party against any and all liabilities, costs
and expenses (including, without limitation, legal fees and
expenses): (i) with respect to, or resulting from, any delay
in paying, any and all excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the
Collateral, (ii) with respect to, or resulting from, any delay
in complying with any law, rule, regulation or order of any
governmental authority applicable to any of the Collateral, or
(iii) in connection with any of the transactions contemplated
by this Agreement.
(d)
Maintenance of Records . Debtor will keep and maintain at
its own cost and expense accurate and complete records of the
Collateral and its proceeds.
(e)
Inspection Rights . Secured Party may enter Debtor’s
premises at any reasonable time without interruption of
Debtor’s business and without any breach of the peace to
inspect the Collateral and all the books, correspondence and other
records of Debtor relating to the Collateral, and Secured Party or
its representatives may examine such records and make photocopies
or otherwise take extracts from such records. Debtor agrees to
render to Secured Party, at Debtor’s expense, such clerical
and other assistance as may be reasonably requested with regard to
the exercise of its rights pursuant to this paragraph.
(f)
Compliance with Laws, etc . Debtor will comply in all
material respects with all laws, rules, regulations and orders of
any governmental authority applicable to any part of the Collateral
or to the operation of Debtor’s business; provided ,
however , that Debtor may in good faith contest any
non-compliance with such law, rule, regulation or order in any
reasonable manner which does not and could not be reasonably deemed
to, adversely affect Secured Party’s rights or the priority
of its liens on the Collateral.
(g)
Payment of Obligations . Debtor will pay promptly when due
all taxes, assessments, charges, liens or levies imposed upon the
Collateral or with respect to any of its income or profits derived
from the Collateral, as well as all claims of any kind (including,
without limitation, claims for labor, materials and supplies)
against or with respect to the Collateral, except that no such
charge need be paid if (i) the validity of such charge is
being contested in good faith by appropriate proceedings,
(ii) such proceedings do not involve any material danger of
the sale, forfeiture or loss of any of the Collateral or any
interest in the Collateral and (iii) such charge is adequately
reserved against on Debtor’s books in accordance with
generally accepted accounting principles.
(h)
Limitation on Liens on Collateral . Debtor will not create,
incur or permit to exist, will defend the Collateral against, and
will take such other action as is necessary to remove, any lien or
claim on or to the Collateral, other than the Security Interest,
and will defend the right, title and interest of Secured Party in
and to any of the Collateral against the claims and demands of all
other persons.
(i)
Limitations on Dispositions of Collateral . Debtor will not
sell, transfer, lend, license, lease or otherwise dispose of any of
the Collateral or any interest therein, or attempt, offer or
contract to do so; provided , however , that Debtor
will be allowed to grant licenses to its products and related
documentation in the ordinary course of business and to establish
or provide for escrows of related intellectual property in
connection therewith. The Collateral shall remain in Debtor’s
possession or control at all times at Debtor’s risk of loss
until (i) sold, licensed or otherwise disposed of in the
ordinary course of business, provided that Secured Party shall be
granted a security interest in the proceeds and other consideration
received for such Collateral, or (ii) as authorized in writing
by Secured Party.
(j)
Further Identification of Collateral . Debtor will furnish
to Secured Party from time to time statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
(k)
Chief Executive Office . The location where Debtor maintains
its chief executive office is County Line Industrial Park, 125
James Way, Southampton, PA 18966-3877. Debtor will promptly notify
Secured Party in writing of any change in the location of its chief
executive office. Substantially all of the tangible assets of
Debtor will be held at its chief executive office.
(l)
Insurance . Debtor will have and maintain adequate insurance
at all times with respect to all Collateral against risks of fire,
theft and such other risks as Secured Party may
reasonabl
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