Exhibit 10.1
SECURED PROMISSORY NOTE

      $2,000,000    February 20, 2009

     FOR VALUE RECEIVED, ENVIRONMENTAL TECTONICS CORPORATION, a Pennsylvania
corporation (“Maker”), does hereby promise to pay to the order of H.F. LENFEST,
an individual residing in the Commonwealth of Pennsylvania (“Payee”), at Payee’s
offices located at 300 Barr Harbor Drive, Suite 450, Conshohocken, Pennsylvania
19428, or at such other place as the holder hereof may from time to time direct
Maker in writing, the aggregate principal sum of TWO MILLION DOLLARS
($2,000,000) in lawful money of the United States of America, together with
interest accruing on the unpaid outstanding principal balance under this Secured
Promissory Note (this “Note”) as provided below. This Note is being issued to
Payee in connection with Payee’s providing working capital funding to support
Maker’s bid on a contract (the “Government Contract”) with the United States
government or a division thereof (the “Government”) by providing evidence of
Maker’s financial abilities to perform the Government Contract.
Interest Rate. Interest shall accrue on the outstanding principal amount hereof
at a rate of fifteen percent (15%) per annum, compounded annually (the “Interest
Rate”), until paid in full; provided, however, that the Interest Rate shall be
reduced automatically to ten percent (10%) per annum, compounded annually,
retroactively from the date hereof in the event the Company receives the
Shareholder Approval (as hereinafter defined). Interest may be payable, in the
sole discretion of Payee, (a) in cash, (b) in shares of a new series of
preferred stock that will be created in the event the Shareholder Approval is
obtained or (c) in shares of Common Stock (as hereinafter defined), which number
of shares of Common Stock to be determined by dividing the amount of interest
due on an interest payment date by the Market Price (as hereinafter defined) of
the Common Stock on such date. For purposes of this Note, the “Market Price” of
a share of Common Stock shall mean, as of any date, (i) the closing sale price
for the shares of Common Stock as reported on NYSE Alternext US LLC, the
successor to the American Stock Exchange (“AMEX”) by Bloomberg Financial Markets
(“Bloomberg”) for the trading day immediately preceding such date, or (ii) if
AMEX is not the principal trading market for the shares of Common Stock, the
average of the reported closing sale prices reported by Bloomberg on the
principal trading market for the Common Stock during the one hundred twenty
(120) day period immediately preceding such date, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be determined in good faith by the Board of Directors of the
Company. Interest shall be payable, at the option of Payee, on each anniversary
date of this Note, with any accrued and unpaid interest payable on the Maturity
Date. Payee shall deliver Maker at least five (5) days prior written notice if
it wishes to elect to be paid interest on an anniversary date.
Origination Fee. The Company shall pay to Payee an origination fee payable in
shares of common stock, par value $0.05 per share, of Maker (the “Common
Stock”), equal to 20,000 shares (the “Origination Fee Shares”). As soon as
practicable following the date hereof, the Company shall issue the Origination
Fee Shares and deliver to Payee a certificate evidencing such shares. In
addition and in further consideration of this Note, Maker is also issuing to
Payee a Common Stock Purchase Warrant exercisable for 143,885 shares of Common
Stock in

 

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accordance with the terms set forth therein (the “Warrant”). By acceptance of
this Note, the Origination Fee Shares and the Warrant, Payee hereby waives any
anti-dilution rights under (i) that certain Senior Subordinated Convertible
Note, dated as of February 20, 2003, (ii) the Series B convertible preferred
stock of Maker held by Payee, and (iii) the Series C convertible preferred stock
of Maker held by Payee, in connection with Maker’s issuance of the Origination
Fee Shares, the Warrant and the shares of Common Stock issuable upon exercise of
the Warrant.
Maturity; Use of Proceeds.
This Note shall mature and all unpaid principal and interest hereunder, if not
sooner paid in accordance with the provisions hereof, shall be due and payable
in full on the earlier of (i) three (3) days following the date Maker is
informed by the Government or otherwise learns that it has been denied or will
not be awarded the Government Contract; (ii) six (6) months following the date
hereof if Maker has not obtained the affirmative vote of the shareholders of
Maker for a new financing transaction with Payee and the restoration in full of
Payee’s voting rights on his preferred stock and common stock in Maker on or
before the Shareholder Approval Date (as defined in the Warrant) (the
“Shareholder Approval”); or (iii) three (3) years following the date hereof (the
earlier of (i), (ii) or (iii), the “Maturity Date”).
The proceeds of this Note shall be deposited into a newly created restricted
account and shall be used solely for working capital necessary for the
performance of the Government Contract. None of such proceeds shall be used for
any other purpose.
Prepayment. The principal amount of this Note may be prepaid, either in whole or
in part, at any time following the date hereof without premium or penalty. Any
such prepayment shall be accompanied by all accrued and unpaid interest on the
principal amount being prepaid.
Security. Maker has delivered as security for the performance of its obligations
under this instrument (i) a Security Agreement of even date herewith (the
“Security Agreement”) covering all of Maker’s property as described in the
Security Agreement; and (ii) a UCC-1 Financing Statement granting Payee a first
lien position on such property which shall be filed with the Department of State
of the Commonwealth of Pennsylvania. By acceptance of this Note, Payee covenants
and agrees that it will work in good faith with Maker and PNC Bank, NA to obtain
a waiver from PNC Bank, NA to allow the security interest granted pursuant to
the Security Agreement.
Default Interest. The entire outstanding principal balance hereunder,
irrespective of any declaration of maturity, as well as any other amounts owing
pursuant to this Note, shall bear interest at a default rate equal to the
Interest Rate plus six percent (6%) per annum (the “Default Rate”) until such
sum is paid in full from and after:
the Maturity Date;
earlier maturity of this Note either according to its terms or as the result of
a declaration of maturity made by the Payee, whether by acceleration or
otherwise; or
from and after an Event of Default (as defined below).

 

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Events of Default. Each of the following shall constitute an event of default
hereunder (an “Event of Default”):
the failure of Maker to make any payment to Payee within five (5) days of the
date when due hereunder;
the default by Maker in punctual performance of any of the non-monetary
obligations, covenants, terms or provisions contained or referred to in this
Note or the Security Agreement, 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 Payee to Maker;
any warranty, representation or statement contained in this Note or the Security
Agreement proves to have been false;
any use of the proceeds of this Note for any purpose other than working capital
necessary for the performance of the Government Contract as provided in
Section 3(b);
a default by Maker in the performance of any covenant, condition or provision of
any loan documents between Maker and Payee, 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 Payee of such default or (ii) actual knowledge by Maker of such
default;
a default by Maker under any agreement with PNC Bank or any successor commercial
lender;
the filing by or against Maker of any proceeding in bankruptcy, insolvency,
receivership, reorganization, liquidation, conservatorship or similar proceeding
and, if filed against Maker, such proceeding is not dismissed within sixty
(60) days following the commencement thereof; and
any assignment by Maker for the benefit of any of its creditors, or any levy,
garnishment, attachment or similar proceeding is instituted against any property
of Maker and such proceeding shall remain undismissed or unstayed for a period
of sixty (60) days.
Remedies; Acceleration. Upon the occurrence of an Event of Default and at any
time thereafter during the continuance of such Event of Default hereunder, Payee
shall have the following rights or remedies:
to declare the entire unpaid amount of this Note immediately due and payable in
full; and/or
to exercise from time to time any and all rights and remedies available to it
under any then applicable law.
Rights Cumulative. The rights and remedies of Payee as provided herein shall be
cumulative and concurrent, and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release of the same. Payee shall
not by any act or omission or commission be deemed to waive any of his rights or
remedies under this Note unless such waiver be in writing and signed by Payee,
and then only to the extent specifically set forth therein; and a

 

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waiver of one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event.
Payment of Costs. Maker shall pay to Payee upon demand all of his costs and
expenses in enforcing or collecting the amounts due under this Note, including
reasonable attorneys’ fees.
Representations and Warranties of Maker.
Maker is a corporation duly formed and validly subsisting under the laws of the
Commonwealth of Pennsylvania and has the requisite corporate power and authority
to conduct its business as it is now being conducted.
Maker has all requisite legal and corporate power and authority to execute and
deliver this Note and the Security Agreement, to issue this Note and to carry
out and perform its other obligations under the terms of this Note and the
Security Agreement. The execution, delivery and performance by Maker of this
Note and the Security Agreement and the issuance of this Note have been duly
authorized by all necessary corporate action on the part of Maker.
This Note constitutes a valid and legally binding obligation of Maker,
enforceable against Maker in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency, reorganization,
moratorium, and other such laws affecting enforcement of creditors’ rights and
the relief of debtors generally, and (ii) rules of law governing specific
performance, injunctive relief or other equitable remedies.
As soon as practicable following the date hereof, Maker shall issue the
Origination Fee Shares and deliver to Payee a certificate representing such
shares.
The Origination Fee Shares are duly authorized and, upon issuance in accordance
with the terms of this Note, will be validly issued, fully paid and
non-assessable.
Waivers.
Maker expressly waives presentment for payment, notice of dishonor, protest,
notice of protest, diligence of collection, and any other notice of any kind,
and hereby consents to any number of renewals or extensions of time for payment
hereof, which renewals and extensions shall not affect the liability of any
party to this Note; and further agrees that Payee may accept, by way of
compromise or settlement, from any party, a sum or sums less than the amount due
Payee under this Note, and may give releases to such parties without affecting
the liability of any other party for the unpaid balance. Any such renewals or
extensions may be made and any such partial payments accepted or releases given
without notice to any such party.
Maker hereby waives and releases all procedural errors, defects and
imperfections in any proceeding instituted by Payee under the terms of this Note
as well as all benefits that might accrue to Maker by virtue of any present or
future laws (i) exempting any property, real, personal or mixed, or any part of
the proceeds arising from any sale of such property, from attachment, levy or
sale under execution; or (ii) providing for any stay of execution, exemption
from civil process, or extension of time for payment. Maker agrees that any real
estate that may be levied upon pursuant to a judgment obtained by virtue hereof,
on any writ of execution issued thereon, may be sold upon any such writ in whole
or in part or in any other manner desired by Payee.

 

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Notices. All notices required to be given to any of the parties hereunder shall
be in writing and shall be deemed to have been sufficiently given for all
purposes when sent by hand delivery or by commercial overnight delivery service
that requires signatures upon receipt (such as Federal Express), or mailed by
certified or registered mail, return receipt requested, postage prepaid,
addressed to such party at its address as set forth below or such other address
that such party hereafter designates by written notice to the other parties
below:
If to Payee:
c/o The Lenfest Group
300 Barr Harbor Drive, Suite 460
West Conshohocken, PA 19428
Attn: H.F. Lenfest
Telecopier: (610) 940-0602
with a copy to:
Royer & Associates LLC
681 Moore Road, Suite 321
King of Prussia, PA 19406
Attn: John E. Royer, Jr., Esquire
Telecopier: (610) 354-8896
If to Maker:
Environmental Tectonics Corporation
County Line Industrial Park
125 James Way
Southampton, PA 18966-3877
Attn: Chief Financial Officer
Telecopier: (215) 357-4000
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 S. Broad Street
Philadelphia, PA 19102
Attn: William W. Matthews, Esquire
Telecopier: (215) 568-6603
     All such notices shall be deemed to have been given (a) when delivered, if
hand delivered or sent by overnight delivery service; or (b) three (3) business
days after deposit in the United States mail, if sent by certified or registered
mail.
Construction of Terms. The word “Maker” as used throughout this Note is intended
to and shall be construed to mean, individually and collectively, each and every
entity and/or person that has executed this Note and its successors and assigns.
All covenants, promises, agreements, authorizations, waivers, releases, options,
undertakings, rights and benefits made or given herein

 

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by Maker shall bind and affect all persons who are hereinabove defined as
“Maker” with the same effect as though all such persons were specifically named
herein whenever the word “Maker” is used.
Modifications. This Note may not be changed orally, but only by an agreement in
writing signed by Maker and Payee.
Governing Law. The provisions hereof shall be governed by and construed
according to the laws of the Commonwealth of Pennsylvania.
Consent to Jurisdiction. This Note shall be governed by the laws of the
Commonwealth of Pennsylvania without regard to the conflict of law provisions
thereof. Maker irrevocably and unconditionally agrees that any suit, action or
other legal proceeding arising out of this Note may be brought in the courts of
record in Montgomery County, Commonwealth of Pennsylvania, or the United States
District Court for the Eastern District of Pennsylvania; consents to personal
jurisdiction in each such court in any such suit, action or proceeding; and
waives any objection concerning venue with respect to any suit, action or
proceeding in any of such courts.
WAIVER OF JURY TRIAL. MAKER IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO
THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS NOTE OR ANY
TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. MAKER ACKNOWLEDGES THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
CONFESSION OF JUDGMENT. MAKER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY
ATTORNEY OF RECORD, OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE
COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, TO APPEAR FOR MAKER AT ANY TIME OR
TIMES, AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS NOTE, OR THE
SECURITY AGREEMENT, IN ANY SUCH COURT IN ANY ACTION BROUGHT AGAINST MAKER BY
PAYEE WITH RESPECT TO THE AGGREGATE AMOUNTS PAYABLE HEREUNDER, WITH OR WITHOUT
DECLARATION FILED, AS OF ANY TERM, AND THEREIN TO CONFESS OR ENTER JUDGMENT
AGAINST MAKER FOR ALL SUMS PAYABLE BY MAKER TO PAYEE HEREUNDER, AS EVIDENCED BY
AN AFFIDAVIT SIGNED BY A DULY AUTHORIZED DESIGNEE OF PAYEE SETTING FORTH SUCH
AMOUNT THEN DUE FROM MAKER TO PAYEE, PLUS AN ATTORNEY’S COMMISSION EQUAL TO TEN
PERCENT (10%) OF THE SUMS THEN OUTSTANDING UNDER THIS NOTE, BUT IN NO EVENT LESS
THAN $10,000, WITH COSTS OF SUIT, RELEASE OF PROCEDURAL ERRORS, OTHER THAN
NOTICES THAT MAY BE REQUIRED HEREUNDER, AND WITHOUT RIGHT OF APPEAL. IF A COPY
OF THIS NOTE, VERIFIED BY AN AFFIDAVIT, SHALL HAVE BEEN FILED IN SUCH ACTION, IT
SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY. MAKER
WAIVES THE RIGHT TO ANY STAY OF EXECUTION, THE BENEFIT OF ALL EXEMPTION LAWS NOW
OR HEREAFTER IN EFFECT AND ANY AND ALL RIGHTS TO PRIOR NOTICE AND HEARING WITH
RESPECT TO THE GARNISHMENT OR ATTACHMENT OF ANY PROPERTY PURSUANT TO A JUDGMENT
ENTERED HEREUNDER. NO SINGLE EXERCISE OF THE FOREGOING WARRANT AND POWER

 

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TO BRING ANY ACTION OR CONFESS JUDGMENT THEREIN SHALL BE DEEMED TO EXHAUST THE
POWER, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND MAY BE EXERCISED FROM TIME
TO TIME AS OFTEN AS PAYEE SHALL ELECT UNTIL ALL AMOUNTS PAYABLE TO PAYEE
HEREUNDER, SHALL HAVE BEEN PAID IN FULL. THE EXERCISE BY PAYEE OF HIS RIGHTS AND
REMEDIES AND THE ENTRY OF ANY JUDGMENT BY PAYEE UNDER THIS SECTION SHALL NOT
AFFECT IN ANY WAY THE INTEREST RATE PAYABLE HEREUNDER OR ANY OTHER AMOUNTS DUE
TO PAYEE, BUT INTEREST SHALL CONTINUE TO ACCRUE ON SUCH AMOUNTS AT THE DEFAULT
RATE.
Headings. The headings preceding the text of the Sections hereof are inserted
solely for convenience of reference and shall not constitute a part of this
Note, nor shall they affect its meaning, construction or effect.
Severability. If any provision of this Note or the application thereof is held
by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall not be affected thereby, and each provision of
this Note shall be valid and enforceable to the fullest extent permitted by law.
Assignment; Successors and Assigns. This Note may not be assigned at any time by
Maker without the prior written consent of Payee, which consent may be withheld
for any reason. All of the terms and conditions herein shall be binding upon any
successors and assigns of Maker and inure to the benefit of Payee, his
successors and assigns.
Application of Payments. Payments received hereunder by Payee shall be applied
first to those payments described in Section 10 of this Note; second, to any
accrued and unpaid interest due hereunder; and third, to principal.
[Signature Page Follows]

 

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     IN WITNESS WHEREOF, Maker has caused this Note to be executed effective as
of the day and year first above written.

            ENVIRONMENTAL TECTONICS CORPORATION
      By:         Name:         Title: