EXHIBIT 10.16


 


INDEMNIFICATION AGREEMENT


 


THIS
INDEMNIFICATION AGREEMENT (the “Agreement”), made as of the 23rd day of April, 2010 by P&F Industries, Inc.,
a Delaware corporation, with an office located at 445 Broadhollow Road, Suite 100, Melville, New York (the “Indemnitor”)
in favor of Marc Schorr, with an address at One Hughs Center Drive, Penthouse 1904, Las Vegas,
Nevada  89109 (“Schorr”) and Richard A.
Horowitz, with an address at 90 Wheatley Road, Old Westbury, NY 11568 (“Horowitz”
and together with “Schorr”, each a “Lender” and collectively the “Lenders”).


 


W I T N E S S E T H :


 


WHEREAS,
the Indemnitor and each of its subsidiaries (the “Obligors”), entered into a Credit
Agreement with Citibank, N.A. (“Citibank”) and HSBC Bank USA, National
Association (“HSBC” and together with Citibank, each a “Bank” and collectively,
the “Banks”), dated as of June 30, 2004 (the “Loan Agreement”) pursuant to
which the Banks extended certain financial accommodation to the Obligors,
including a line of credit to the Obligors (the “Line of Credit”);


 


WHEREAS,
the Banks have alleged a default under the Loan Agreement based upon, among
other things, the Obligors failure to pay all amounts outstanding under the
Line of Credit on the original maturity date of March 30, 2010;


 


WHEREAS,
the Obligors have sought financing from other sources, but to date, have been
unable to obtain commitments for any additional equity or debt financing;


 


WHEREAS,
the Obligors have requested that the Banks extend the maturity date of the Line
of Credit from March 30, 2010 until January 1, 2011;


 


WHEREAS,
as a condition to the Banks’ agreement to extend the maturity date on the Line
of Credit, the Banks require, among other things, that the Lenders advance an
aggregate of $750,000.00 in the form of equity and/or subordinated debt;


 


WHEREAS,
the Lenders and the Obligors have engaged in good faith, arm’s-length
negotiations regarding the form of such $750,000.00 advance and the Lenders
have agreed to fund such advance in the form of subordinated loans in the total
sum of $750,000.00 to the Obligors (together the “Loan”);


 


WHEREAS,
the Lenders have conditioned making the Loan on (a) obtaining a lien on
all or substantially all of the assets of the Obligors, which lien shall be
junior in all respects to the lien in favor of the Banks, and (b) the
Indemnitor’s provision of this limited indemnity with respect to the Loan, as
described more fully below;


 


WHEREAS,
without the Loan and the resulting extension of the maturity date on the Line
of Credit and other accommodations extended by the Banks, some or all of the
Obligors would likely be forced to immediately discontinue operating or
otherwise liquidate and would likely suffer material and irreparable harm.


 

















 


NOW,
THEREFORE, in consideration for the premises herein set forth, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:


 


1.                                       Subordination
in Favor of Banks. 
Notwithstanding anything to the contrary in this Agreement, the payment
and priority of all claims of either Lender under this Agreement are
subordinate in right, time, and priority to the claims of the Banks, and all
such amounts payable to either Lender, shall not be paid or payable, except as
set forth in the Subordination and Intercreditor Agreement dated April 23,
2010 between the Banks and the Lenders (as amended, restated, supplemented or
modified from time to time, the “Subordination Agreement”).  The Subordination Agreement is incorporated
by reference as if set forth in full.  To
the extent the Subordination Agreement requires, Indemnitor shall pay the Banks
any sums this document otherwise requires Indemnitor to pay either Lender.


 


2.                                       Indemnification
of Claims.  If any
claim, litigation, demand, suit, action or proceeding is made or commenced by any
person or entity against the Lenders arising from or relating to the Loan (a “Proceeding”),
and the Lenders provide the Indemnitor with notice of such Proceeding and
cooperate with the Indemnitor as required by Section 8 of this Agreement, the
Indemnitor shall elect one of the following options, with such election to be
made in the Indemnitor’s sole discretion promptly following receipt of the
notice and cooperation of the Lenders as contemplated in Section 8 of this
Agreement:


 


(a)  The Indemnitor
shall indemnify the Lenders by paying $750,000.00; provided, however, that, if
the Indemnitor so elects to make such payment under this Section 2(a),
then (i) the
Lenders shall effect an assignment of the Loan to the Indemnitor or to another
party designated by the Indemnitor (the “Assignment”), (ii) the Indemnitor
shall be entitled to assume and control the defense of any such Proceeding,
including in connection with any discussions, negotiations, proceedings or
decisions relating to settlement of such Proceeding, and (iii) the Lenders
shall have no further right to indemnity or otherwise charge the Indemnitor for
any costs or losses and the Indemnitor shall not be liable for any costs or losses subsequently incurred by the Lenders in
connection with such Proceeding; provided further, that if the Lenders fail to
effect the Assignment for any reason, the Indemnitor shall be relieved of all
liabilities and obligations under this Agreement; or


 


(b) The Indemnitor shall
indemnify, protect and hold the Lenders harmless from and against any and all
damages, losses, liabilities, obligations, penalties, judgments, costs or
expenses, including, without limitation, reasonable attorneys’ and experts’
fees and disbursements of any kind or of any nature whatsoever (the “Expenses”)
in connection with such Proceeding in a total, aggregate amount not to exceed
$800,000.00, provided, however, that, if the Indemnitor so elects to provide
indemnification under this Section 2(b) up to such amount, then (i) the
Indemnitor shall not take assignment of the Loan or assume and control the
defense of any such Proceeding, (ii) the Indemnitor shall not in any event be responsible
for any Expenses incurred by the Lenders beyond such amount and (iii) the Lenders
shall not enter into any 


 


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settlement of such
Proceeding without the prior written consent of the Indemnitor, which consent
shall not be unreasonably withheld.


 


3.                                       Exclusions.  The Indemnitor shall not be required to make
any payment or indemnity:


 


(a) under Section 2(b) of
this Agreement for any loss, direct or indirect, of principal and/or interest
that may be suffered by the Lenders (which loss, for the avoidance of doubt,
includes the failure of the Lenders to obtain repayment of the Loan);


 


(b) under Section 2(a) or Section 2(b) of this
Agreement in connection with any allegation in a Proceeding of a breach by any
Lender seeking indemnification hereunder of any agreement or instrument entered
into in connection with the Loan or the subordination agreement between Lenders
and the Banks or of any obligation of the Lenders to the Indemnitor, or the
Banks in connection with the Loan or the subordination agreement; or


 


(c) under
Section 2(a) or Section 2(b) of this Agreement if, with respect to a Proceeding,  a court of competent jurisdiction
ultimately determines in a final judgment, not subject to appeal, that any
Lender seeking indemnification hereunder has committed fraud or a knowing violation
of law, acted with gross negligence, engaged in willful misconduct, breached a
fiduciary duty or engaged in conduct that would otherwise not be subject to
indemnification under Section 145 of the Delaware General Corporation Law.


 


4.                                       No Effect Upon
Certain Changes.  The
liability of the Indemnitor under this Agreement shall in no way be limited or
impaired nor shall it be expanded by: (a) any amendment or modification of
the provisions of the Loan Agreement, the Line of Credit and/or the Loan; (b) any
extensions of time for performance; (c) any sale, assignment or
foreclosure with respect to the collateral under the Loan Agreement and/or the
Loan; or (d) the release or substitution in whole or in part of any
security under the Loan Agreement and/or the Loan.


 


5.                                       Payment by the
Indemnitor.  With respect
to a Proceeding for which the Indemnitor has elected to indemnify the Lenders
under Section 2(b) of this Agreement, defense costs incurred by any
Lender shall be payable by the Indemnitor in advance of the final disposition
of such Proceeding upon the Indemnitor’s receipt of an undertaking by or on
behalf of the Lender providing that the Lender undertakes to the fullest extent
permitted by law to repay such amount if it shall ultimately be determined that
the Lender is not entitled to be indemnified by the Indemnitor under this
Agreement and upon reasonably satisfactory evidence of such Lender’s ability to
make such repayment.  In the event a
Lender is entitled to indemnity under this Agreement (following a final
judgment by a court of competent jurisdiction, not subject to appeal), the
Indemnitor agrees that any such payments shall become due within ten (10) days
of written demand together with reasonably requested supporting documentation.


 


6.                                       Control of
Proceeding.  If the
Indemnitor elects option 1.(b), above, then the Lenders shall have the right to
defend such Proceeding with their own counsel and take all actions in the
defense and compromise of such Proceeding.


 


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7.                                       No Waiver by
the Lenders.  No delay by
the Lenders in exercising any right, power or privilege hereunder or under any
of the loan documents executed in connection with the Loan shall operate as a
waiver of any such right, power or privilege, nor shall the release of the
Indemnitor or any other party liable upon or in respect of this Agreement
affect the liability of any party not so released.


 


8.                                 Notice and Cooperation by Indemnitee. 
In case there shall be threatened or made any claim, litigation, demand,
suit, action or proceeding for which the Lenders may seek indemnification
hereunder (a “Potential Action”), the Lenders shall promptly give notice of the
Potential Action to Indemnitor and shall cooperate fully in any effort by the
Indemnitor to evaluate and determine the nature of the Potential Action for
purposes of Sections 2 and 3 of this Agreement, including providing to the
Indemnitor, upon reasonable advance request, any documentation or information
which is not privileged or otherwise protected from disclosure and which is
reasonably available to the Lenders and reasonably necessary to such evaluation
or determination.


 


9.                                 Subrogation.  Notwithstanding
any other provision of this Agreement to the contrary, in the event of any
payment under this Agreement, the Indemnitor shall be subrogated to the extent
of such payment to all of the rights of recovery of the Lenders, which shall
execute all papers required and take all action necessary to secure such
rights, including execution of such documents as are necessary to enable the
Indemnitor to bring suit to enforce such rights.


 


10.                                 Other
Advancement and Indemnity Rights.  As a condition to any advancement or
indemnity under this Agreement, the Lenders must take such actions as are
reasonably necessary to perfect and pursue any other rights of indemnity and/or
advancement, including to the extent applicable any available insurance (the “Other
Rights”).  The Indemnitor’s obligation to
provide advancement or indemnity under this Agreement shall be for the net loss
suffered by the Lenders with respect to a cost or expense for which advancement
or indemnification is provided under this Agreement after giving effect to all
other recoveries or economic benefits received by the Lenders in connection
with such Other Rights.


 


11.                                 Binding Effect.  This Agreement has been duly authorized by
the Indemnitor and represents a valid and binding obligation of the Indemnitor,
enforceable in accordance with its terms. 
Except as herein provided, this Agreement shall be binding upon and
inure to the benefit of the Indemnitor and the Lenders and their respective
heirs, personal representatives, successors and assigns.  No other person shall be entitled to claim
any right or benefit hereunder, including, without limitation, to claim status
as a third-party beneficiary of this Agreement.


 


12.                                 Notices. All notices,
exercises of right, requests, demands and other communications provided for in
this Agreement shall be in writing and unless otherwise specifically provided
for herein, shall be deemed to have been given at the time when personally
delivered, one day after deposit with a reputable overnight courier service for
next day delivery or three (3) days after being sent by regular mail, at
the address of the Indemnitor and each 


 


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Lender
as set forth at the head of this Agreement or such other changed address of the
Indemnitor as may have been fixed by notice. 
A copy of any communication delivered pursuant to this Agreement shall
be simultaneously sent to Citibank, N.A., as Administrative Agent for the
Banks, at 750 Washington Boulevard, Stamford, Connecticut  06901, Attention:  John C. King.


 


13.                                 No
Modification.  No provision
of this Agreement may be modified, waived, discharged or terminated, except by
an instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.


 


14.                                 Applicable Law;
Jurisdiction.  This
Agreement and the rights and obligations of the parties hereunder shall in all
respects be governed by, and construed and enforced in accordance with, the
laws of the State of New York. The Indemnitor hereby irrevocably submits to the
exclusive jurisdiction of any state or federal court sitting in Nassau or
Suffolk County, State of New York and consents to any methods of service of
process provided for under applicable law.


 


15.                                 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.


 


16.                                 Severability. 
If any provision or provisions of this Agreement shall be held to be
invalid, illegal, unenforceable or would conflict with or
result in a breach of any agreement or instrument to which the Indemnitor is a
party or by which it or its properties are bound for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and shall remain enforceable to the fullest extent
permitted by law; (b) such provision or provisions shall be deemed
reformed to the extent necessary to conform to applicable law and to give the
maximum effect to the intent of the parties hereto; and (c) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.


 


17.                                 Entire Agreement.  This
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral, written and implied, between the parties hereto with
respect to the subject matter hereof.


 


18.                                 Duration of Agreement.  This Agreement shall continue until the
expiration of the statute of limitations for any potential claim that is
subject to indemnity under this Agreement.


 


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IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on
the date first written above.


 


 


	
   

  	
  P&F
  INDUSTRIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph A. Molino,
  Jr.

  
	
   

  	
  Name:

  	
  Joseph A. Molino, Jr.

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  AGREED
  AND ACCEPTED:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Marc Schorr

  	
   

  	
   

  
	
  Marc
  Schorr

  	
   

  
	
   

  	
   

  
	
  /s/ Richard A.
  Horowitz

  	
   

  	
   

  
	
  Richard
  A. Horowitz

  	
   

  
					



 


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